[House Report 118-128]
[From the U.S. Government Publishing Office]


118th Congress }                                                {  Report
                        HOUSE OF REPRESENTATIVES
 1st Session   }                                                {  118-128

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



 
                        SMALL BUSINESS JOBS ACT

                                _______
                                

 June 30, 2023.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Smith of Missouri, from the Committee on Ways and Means, submitted 
                             the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 3937]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3937) to amend the Internal Revenue Code of 1986 to 
promote the establishment and growth of small businesses, 
having considered the same, reports favorably thereon with an 
amendment and recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND..........................................12
          A. Purpose and Summary.................................    12
          B. Background and Need for Legislation.................    12
          C. Legislative History.................................    14
          D. Designated Hearings.................................    14
 II. EXPLANATION OF THE BILL.........................................14
          A. Increase in Threshold for Requiring Information 
              Reporting with Respect to Certain Payees (sec. 2 of 
              the bill and secs. 6041, 6041A, and 3406(b)(6) of 
              the Code)..........................................    14
          B. Restoration of Reporting Rule for Third Party 
              Network Transactions (sec. 3 of the bill and sec. 
              6050W(e) of the Code)..............................    18
          C. Modifications to Exclusion for Gain from Qualified 
              Small Business Stock (sec. 4 of the bill and sec. 
              1202 of the Code)..................................    22
          D. Increase in Limitations on Expensing of Depreciable 
              Business Assets (sec. 5 of the bill and sec. 179 of 
              the Code)..........................................    26
          E. Establishment of Special Rules for Capital Gains 
              Invested in Rural Opportunity Zones, and Reporting 
              on Qualified Opportunity Funds and Qualified Rural 
              Opportunity Funds (secs. 6 and 7 of the bill and 
              new secs. 1400Z 3, 6039K, 6039L, and 6726 of the 
              Code)..............................................    29
III. VOTES OF THE COMMITTEE..........................................41
 IV. BUDGET EFFECTS OF THE BILL......................................42
          A. Committee Estimate of Budgetary Effects.............    42
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    44
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    44
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......44
          A. Committee Oversight Findings and Recommendations....    44
          B. Statement of General Performance Goals and 
              Objectives.........................................    44
          C. Information Relating to Unfunded Mandates...........    44
          D. Applicability of House Rule XXI, Clause 5(b)........    44
          E. Tax Complexity Analysis.............................    44
              1. Increase in threshold for requiring information 
                  reporting with respect to certain payees (sec. 
                  2 of the bill).................................    45
              2. Restoration of reporting rule for third party 
                  network transactions (sec. 3 of the bill)......    52
              3. Increase in limitations on expensing of 
                  depreciable business assets (sec. 3 of the 
                  bill)..........................................    52
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    53
          G. Duplication of Federal Programs.....................    53
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........53
VII. DISSENTING VIEWS...............................................111

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS, ETC.

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

Sec. 1. Short title; table of contents, etc.
Sec. 2. Increase in threshold for requiring information reporting with 
respect to certain payees.
Sec. 3. Restoration of reporting rule for third party network 
transactions.
Sec. 4. Modifications to exclusion for gain from qualified small 
business stock.
Sec. 5. Increase in limitations on expensing of depreciable business 
assets.
Sec. 6. Establishment of special rules for capital gains invested in 
rural opportunity zones.
Sec. 7. Reporting on qualified opportunity funds and qualified rural 
opportunity funds.

SEC. 2. INCREASE IN THRESHOLD FOR REQUIRING INFORMATION REPORTING WITH 
                    RESPECT TO CERTAIN PAYEES.

  (a) In General.--Sections 6041(a) is amended by striking ``$600'' and 
inserting ``$5,000''.
  (b) Inflation Adjustment.--Section 6041 is amended by adding at the 
end the following new subsection:
  ``(h) Inflation Adjustment.--In the case of any calendar year after 
2024, the dollar amount in subsection (a) shall be increased by an 
amount equal to--
          ``(1) such dollar amount, multiplied by
          ``(2) the cost-of-living adjustment determined under section 
        1(f)(3) for such calendar year, determined by substituting 
        `calendar year 2023' for `calendar year 2016' in subparagraph 
        (A)(ii) thereof.
If any increase under the preceding sentence is not a multiple of $100, 
such increase shall be rounded to the nearest multiple of $100.''.
  (c) Application to Reporting on Remuneration for Services and Direct 
Sales.--Section 6041A is amended--
          (1) in subsection (a)(2), by striking ``is $600 or more'' and 
        inserting ``equals or exceeds the dollar amount in effect for 
        such calendar year under section 6041(a)'', and
          (2) in subsection (b)(1)(B), by striking ``is $5,000 or 
        more'' and inserting ``equals or exceeds the dollar amount in 
        effect for such calendar year under section 6041(a)''.
  (d) Application to Backup Withholding.--Section 3406(b)(6) is 
amended--
          (1) by striking ``$600'' in subparagraph (A) and inserting 
        ``the dollar amount in effect for such calendar year under 
        section 6041(a)'', and
          (2) by striking ``only where aggregate for calendar year is 
        $600 or more'' in the heading and inserting ``only if in excess 
        of threshold''.
  (e) Conforming Amendments.--
          (1) The heading of section 6041(a) is amended by striking 
        ``of $600 or More'' and inserting ``Exceeding Threshold''.
          (2) Section 6041(a) is amended by striking ``taxable year'' 
        and inserting ``calendar year''.
  (f) Effective Date.--The amendments made by this section shall apply 
with respect to payments made after December 31, 2023.

SEC. 3. RESTORATION OF REPORTING RULE FOR THIRD PARTY NETWORK 
                    TRANSACTIONS.

  (a) De Minimis Exception for Third Party Settlement Organizations.--
Section 6050W(e) is amended to read as follows:
  ``(e) Exception for De Minimis Payments by Third Party Settlement 
Organizations.--A third party settlement organization shall be required 
to report any information under subsection (a) with respect to third 
party network transactions of any participating payee only if--
          ``(1) the amount which would otherwise be reported under 
        subsection (a)(2) with respect to such transactions exceeds 
        $20,000, and
          ``(2) the aggregate number of such transactions exceeds 
        200.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to returns for calendar years beginning after December 31, 2021.

SEC. 4. MODIFICATIONS TO EXCLUSION FOR GAIN FROM QUALIFIED SMALL 
                    BUSINESS STOCK.

  (a) Phased Increase in Exclusion for Gain From Qualified Small 
Business Stock.--
          (1) In general.--Section 1202(a)(1) is amended--
                  (A) by striking ``50 percent'' and inserting ``the 
                applicable percentage'', and
                  (B) by striking ``held for more than 5 years'' and 
                inserting ``held for at least 3 years''.
          (2) Applicable percentage.--Section 1202(a) is amended by 
        adding at the end the following new paragraph:
          ``(5) Applicable percentage.--Except as provided in 
        paragraphs (3) and (4), the applicable percentage under 
        paragraph (1) shall be determined under the following table:


 
                                                            Applicable
                  ``Years stock held:                      percentage:
 
3 years................................................              50%
4 years................................................              75%
5 years or more........................................          100%''.
 


        ''.  (3) Continued treatment as not item of tax preference.--
                  (A) In general.--Section 57(a)(7) is amended by 
                striking ``An amount'' and inserting ``In the case of 
                stock acquired on or before the date of the enactment 
                of the Creating Small Business Jobs Act of 2010, an 
                amount''.
                  (B) Conforming amendment.--Section 1202(a)(4) is 
                amended--
                          (i) by striking ``, and'' at the end of 
                        subparagraph (B) and inserting a period, and
                          (ii) by striking subparagraph (C).
          (4) Other conforming amendments.--
                  (A) Section 1202(a)(4) is amended by inserting ``and 
                before the date of the enactment of the Small Business 
                Jobs Act'' after ``Act of 2010''.
                  (B) Paragraphs (3) and (4) of section 1202(a) are 
                each amended by inserting ``held for more than 5 years 
                and'' after ``In the case of qualified small business 
                stock''.
                  (C) Section 1202(a)(3)(A) of such Code is amended to 
                read as follows:
                  ``(A) the applicable percentage under paragraph (1) 
                shall be 75 percent, and'',
                  (D) Section 1202(a)(4)(A) is amended to read as 
                follows:
                  ``(A) the applicable percentage under paragraph (1) 
                shall be 100 percent, and''.
                  (E) Section 1202(b)(2) is amended by striking ``more 
                than 5 years'' and inserting ``at least 3 years''.
                  (F) Section 1202(g)(2)(A) is amended by striking 
                ``more than 5 years'' and inserting ``at least 3 
                years''.
                  (G) Section 1202(j)(1)(A) is amended by striking 
                ``more than 5 years'' and inserting ``at least 3 
                years''.
  (b) Tacking Holding Period of Convertible Debt Instruments.--
          (1) In general.--Section 1202(f) is amended--
                  (A) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B) and moving such subparagraphs 
                (as so redesignated) 2 ems to the right,
                  (B) by striking ``Conversion of Other Stock.--If any 
                stock'' and inserting the following: ``Conversion.--
          ``(1) Other stock.--If any stock'', and
                  (C) by adding at the end the following new paragraph:
          ``(2) Convertible debt instruments.--
                  ``(A) In general.--If any stock in a corporation is 
                acquired by the taxpayer, without recognition of gain, 
                solely through the conversion of a qualified 
                convertible debt instrument--
                          ``(i) the stock so acquired shall be treated 
                        as qualified small business stock in the hands 
                        of the taxpayer, and
                          ``(ii) the stock so acquired shall be treated 
                        as having been held during the period during 
                        which the qualified convertible debt instrument 
                        was held.
                  ``(B) Qualified convertible debt instrument.--For 
                purposes of this paragraph, the term `qualified 
                convertible debt instrument' means any bond or other 
                evidence of indebtedness--
                          ``(i) which is originally issued by the 
                        corporation to the taxpayer,
                          ``(ii) the issuer of which--
                                  ``(I) from issuance until conversion, 
                                is a qualified small business, and
                                  ``(II) during substantially all of 
                                the taxpayer's holding period of such 
                                bond or evidence of indebtedness, the 
                                corporation meets the active business 
                                requirements of subsection (e), and
                          ``(iii) which is convertible into stock in 
                        the corporation.''.
  (c) Gain Exclusion Allowed With Respect to Qualified Small Business 
Stock in Corporation.--
          (1) In general.--Section 1202(c) is amended--
                  (A) by striking ``C corporation'' in paragraph (1) 
                and inserting ``corporation'', and
                  (B) by striking ``and such corporation is a C 
                corporation'' in paragraph (2)(A).
          (2) Qualified small business definition.--Section 1202(d)(1) 
        is amended by striking ``which is a C corporation''.
          (3) Clarification of aggregation rules applicable to S 
        corporations.--Section 1202(d)(3) is amended by adding at the 
        end the following new subparagraph:
                  ``(C) Clarification with respect to S corporations.--
                Any determination of the members of a controlled group 
                of corporations under this paragraph shall include 
                taking into account any stock ownership in an S 
                corporation.''.
          (4) Treatment of passive losses.--Section 469(g)(1) is 
        amended by adding at the end the following new subparagraph:
                  ``(D) Certain dispositions of small business stock.--
                In the case a disposition any gain from which is 
                excluded from gross income under section 1202, 
                subparagraph (A) shall not apply.''.
          (5) Special rules relating to S corporations.--Section 
        1202(e) is amended by adding at the end the following new 
        paragraph:
          ``(9) Applied at S corporation level.--In the case of an S 
        corporation, the requirements of this subsection shall be 
        applied at the corporate level.''.
  (d) Effective Dates.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        stock acquired after the date of the enactment of this Act.
          (2) Continued treatment as not item of tax preference.--The 
        amendments made by subsection (a)(3) shall take effect as if 
        included in the enactment of section 2011 the Creating Small 
        Business Jobs Act of 2010.
          (3) Tacking holding period of convertible debt instruments.--
        The amendments made by subsection (b) shall apply to debt 
        instruments originally issued after the date of the enactment 
        of this Act.

SEC. 5. INCREASE IN LIMITATIONS ON EXPENSING OF DEPRECIABLE BUSINESS 
                    ASSETS.

  (a) In General.--Section 179(b) is amended--
          (1) by striking ``$1,000,000'' in paragraph (1) and inserting 
        ``$2,500,000'', and
          (2) by striking ``$2,500,000'' in paragraph (2) and inserting 
        ``$4,000,000''.
  (b) Inflation Adjustment.--Section 179(b)(6) is amended--
          (1) by striking ``2018'' and inserting ``2024 (2018 in the 
        case of the dollar amount in paragraph (5)(A))'', and
          (2) by striking ```calendar year 2017'' and inserting 
        ```calendar year 2024' (`calendar year 2017' in the case of the 
        dollar amount in paragraph (5)(A))''.
  (c) Effective Date.--The amendments made by this section shall apply 
to property placed in service in taxable years beginning after December 
31, 2023.

SEC. 6. ESTABLISHMENT OF SPECIAL RULES FOR CAPITAL GAINS INVESTED IN 
                    RURAL OPPORTUNITY ZONES.

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

``SEC. 1400Z-3. SPECIAL RULES FOR CAPITAL GAINS INVESTED IN RURAL 
                    OPPORTUNITY ZONES.

  ``(a) In General.--
          ``(1) Treatment of gains.--In the case of capital gain from 
        the sale to, or exchange with, an unrelated person of any 
        property held by the taxpayer, at the election of the 
        taxpayer--
                  ``(A) gross income for the taxable year shall not 
                include so much of such gain as does not exceed the 
                aggregate amount invested by the taxpayer in a 
                qualified rural opportunity fund during the 180-day 
                period beginning on the date of such sale or exchange,
                  ``(B) the amount of gain excluded by subparagraph (A) 
                shall be included in gross income as provided by 
                subsection (b), and
                  ``(C) subsection (c) shall apply.
          ``(2) Election.--No election may be made under paragraph 
        (1)--
                  ``(A) with respect to a sale or exchange if an 
                election previously made with respect to such sale or 
                exchange is in effect, or
                  ``(B) with respect to any sale or exchange after 
                December 31, 2032.
  ``(b) Deferral of Gain Invested in Qualified Rural Opportunity Zone 
Property.--
          ``(1) Year of inclusion.--Gain to which subsection (a)(1)(B) 
        applies shall be included in income in the taxable year which 
        includes the earlier of--
                  ``(A) the date on which such investment is sold or 
                exchanged, or
                  ``(B) December 31, 2032.
          ``(2) Amount includible.--
                  ``(A) In general.--The amount of gain included in 
                gross income under subsection (a)(1)(A) shall be the 
                excess of--
                          ``(i) the lesser of the amount of gain 
                        excluded under paragraph (1) or the fair market 
                        value of the investment as determined as of the 
                        date described in paragraph (1), over
                          ``(ii) the taxpayer's basis in the 
                        investment.
                  ``(B) Determination of basis qualified rural 
                opportunity zone property.--
                          ``(i) In general.--Except as otherwise 
                        provided in this clause or subsection (c), the 
                        taxpayer's basis in the investment shall be 
                        zero.
                          ``(ii) Increase for gain recognized under 
                        subsection (a)(1)(b).--The basis in the 
                        investment shall be increased by the amount of 
                        gain recognized by reason of subsection 
                        (a)(1)(B) with respect to such property.
                          ``(iii) Investments held for 5 years.--In the 
                        case of any investment held for at least 5 
                        years, the basis of such investment shall be 
                        increased by an amount equal to 10 percent of 
                        the amount of gain deferred by reason of 
                        subsection (a)(1)(A).
                          ``(iv) Investments held for 7 years.--In the 
                        case of any investment held by the taxpayer for 
                        at least 7 years, in addition to any adjustment 
                        made under clause (iii), the basis of such 
                        property shall be increased by an amount equal 
                        to 5 percent of the amount of gain deferred by 
                        reason of subsection (a)(1)(A).
  ``(c) Special Rule for Investments Held for at Least 10 Years.--In 
the case of any investment held by the taxpayer for at least 10 years 
and with respect to which the taxpayer makes an election under this 
subsection, the basis of such property shall be equal to the fair 
market value of such investment on the date that the investment is sold 
or exchanged.
  ``(d) Qualified Rural Opportunity Fund.--For purposes of this 
section--
          ``(1) In general.--The term `qualified rural opportunity 
        fund' means any investment vehicle which is organized as a 
        corporation or a partnership for the purpose of investing in 
        qualified rural opportunity zone property (other than another 
        qualified rural opportunity fund) that holds at least 90 
        percent of its assets in qualified rural opportunity zone 
        property, determined by the average of the percentage of 
        qualified rural opportunity zone property held in the fund as 
        measured--
                  ``(A) on the last day of the first 6-month period of 
                the taxable year of the fund, and
                  ``(B) on the last day of the taxable year of the 
                fund.
          ``(2) Qualified rural opportunity zone property.--
                  ``(A) In general.--The term `qualified rural 
                opportunity zone property' means property which is--
                          ``(i) qualified rural opportunity zone stock,
                          ``(ii) qualified rural opportunity zone 
                        partnership interest, or
                          ``(iii) qualified rural opportunity zone 
                        business property.
                  ``(B) Qualified rural opportunity zone stock.--
                          ``(i) In general.--Except as provided in 
                        clause (ii), the term `qualified rural 
                        opportunity zone stock' means any stock in a 
                        domestic corporation if--
                                  ``(I) such stock is acquired by the 
                                qualified rural opportunity fund after 
                                December 31, 2023, at its original 
                                issue (directly or through an 
                                underwriter) from the corporation 
                                solely in exchange for cash,
                                  ``(II) as of the time such stock was 
                                issued, such corporation was a 
                                qualified rural opportunity zone 
                                business (or, in the case of a new 
                                corporation, such corporation was being 
                                organized for purposes of being a 
                                qualified rural opportunity zone 
                                business), and
                                  ``(III) during substantially all of 
                                the qualified rural opportunity fund's 
                                holding period for such stock, such 
                                corporation qualified as a qualified 
                                rural opportunity zone business.
                          ``(ii) Redemptions.--A rule similar to the 
                        rule of section 1202(c)(3) shall apply for 
                        purposes of this paragraph.
                  ``(C) Qualified rural opportunity zone partnership 
                interest.--The term `qualified rural opportunity zone 
                partnership interest' means any capital or profits 
                interest in a domestic partnership if--
                          ``(i) such interest is acquired by the 
                        qualified rural opportunity fund after December 
                        31, 2023, from the partnership solely in 
                        exchange for cash,
                          ``(ii) as of the time such interest was 
                        acquired, such partnership was a qualified 
                        rural opportunity zone business (or, in the 
                        case of a new partnership, such partnership was 
                        being organized for purposes of being a 
                        qualified rural opportunity zone business), and
                          ``(iii) during substantially all of the 
                        qualified rural opportunity fund's holding 
                        period for such interest, such partnership 
                        qualified as a qualified rural opportunity zone 
                        business.
                  ``(D) Qualified rural opportunity zone business 
                property.--
                          ``(i) In general.--The term `qualified rural 
                        opportunity zone business property' means 
                        tangible property used in a trade or business 
                        of the qualified rural opportunity fund if--
                                  ``(I) such property was acquired by 
                                the qualified rural opportunity fund by 
                                purchase (as defined in section 
                                179(d)(2)) after December 31, 2023,
                                  ``(II) the original use of such 
                                property in the qualified rural 
                                opportunity zone commences with the 
                                qualified rural opportunity fund or the 
                                qualified rural opportunity fund 
                                substantially improves the property, 
                                and
                                  ``(III) during substantially all of 
                                the qualified rural opportunity fund's 
                                holding period for such property, 
                                substantially all of the use of such 
                                property was in a qualified rural 
                                opportunity zone.
                          ``(ii) Substantial improvement.--For purposes 
                        of subparagraph (A)(ii), property shall be 
                        treated as substantially improved by the 
                        qualified rural opportunity fund only if, 
                        during any 30-month period beginning after the 
                        date of acquisition of such property, additions 
                        to basis with respect to such property in the 
                        hands of the qualified rural opportunity fund 
                        exceed an amount equal to the adjusted basis of 
                        such property at the beginning of such 30-month 
                        period in the hands of the qualified rural 
                        opportunity fund.
                          ``(iii) Related party.--For purposes of 
                        subparagraph (A)(i), the related person rule of 
                        section 179(d)(2) shall be applied pursuant to 
                        subsection (e)(2) in lieu of the application of 
                        such rule in section 179(d)(2)(A).
          ``(3) Qualified rural opportunity zone business.--
                  ``(A) In general.--The term `qualified rural 
                opportunity zone business' means a trade or business--
                          ``(i) in which substantially all of the 
                        tangible property owned or leased by the 
                        taxpayer is qualified rural opportunity zone 
                        business property (determined by substituting 
                        `qualified rural opportunity zone business' for 
                        `qualified rural opportunity fund' each place 
                        it appears in paragraph (2)(D)),
                          ``(ii) which satisfies the requirements of 
                        paragraphs (2), (4), and (8) of section 
                        1397C(b), and
                          ``(iii) which is not described in section 
                        144(c)(6)(B).
                  ``(B) Special rule.--For purposes of subparagraph 
                (A), tangible property that ceases to be a qualified 
                rural opportunity zone business property shall continue 
                to be treated as a qualified rural opportunity zone 
                business property for the lesser of--
                          ``(i) 5 years after the date on which such 
                        tangible property ceases to be so qualified, or
                          ``(ii) the date on which such tangible 
                        property is no longer held by the qualified 
                        rural opportunity zone business.
          ``(4) Qualified rural opportunity zone.--
                  ``(A) In general.--The term `qualified rural 
                opportunity zone' means any population census tract 
                which--
                          ``(i) is located in a rural county, and
                          ``(ii) is in persistent poverty (as 
                        determined by the Bureau of the Census using 
                        the same methodology and data as used for 
                        purposes of the May 2023 report of such Bureau 
                        entitled `Persistent Poverty in Counties and 
                        Census Tracts').
                  ``(B) Rural county.--The term `rural county' means 
                any county if more than 50 percent of the census blocks 
                which comprise such county are rural blocks (as 
                determined by the Bureau of the Census as of the date 
                of the enactment of this Act). A rule similar to 
                section 143(k)(2)(D) shall apply for purposes of the 
                preceding sentence.
  ``(e) Applicable Rules.--
          ``(1) Treatment of investments with mixed funds.--In the case 
        of any investment in a qualified rural opportunity fund only a 
        portion of which consists of investments of gain to which an 
        election under subsection (a) is in effect--
                  ``(A) such investment shall be treated as 2 separate 
                investments, consisting of--
                          ``(i) one investment that only includes 
                        amounts to which the election under subsection 
                        (a) applies, and
                          ``(ii) a separate investment consisting of 
                        other amounts, and
                  ``(B) subsections (a), (b), and (c) shall only apply 
                to the investment described in subparagraph (A)(i).
          ``(2) Related persons.--For purposes of this section, persons 
        are related to each other if such persons are described in 
        section 267(b) or 707(b)(1), determined by substituting `20 
        percent' for `50 percent' each place it occurs in such 
        sections.
          ``(3) Decedents.--In the case of a decedent, amounts 
        recognized under this section shall, if not properly includible 
        in the gross income of the decedent, be includible in gross 
        income as provided by section 691.
          ``(4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this section, including--
                  ``(A) rules for the certification of qualified rural 
                opportunity funds for the purposes of this section,
                  ``(B) rules to ensure a qualified rural opportunity 
                fund has a reasonable period of time to reinvest the 
                return of capital from investments in qualified rural 
                opportunity zone stock and qualified rural opportunity 
                zone partnership interests, and to reinvest proceeds 
                received from the sale or disposition of qualified 
                rural opportunity zone property, and
                  ``(C) rules to prevent abuse.
  ``(f) Failure of Qualified Rural Opportunity Fund to Maintain 
Investment Standard.--
          ``(1) In general.--If a qualified rural opportunity fund 
        fails to meet the 90-percent requirement of subsection (d)(1), 
        the qualified rural opportunity fund shall pay a penalty for 
        each month it fails to meet the requirement in an amount equal 
        to the product of--
                  ``(A) the excess of--
                          ``(i) the amount equal to 90 percent of its 
                        aggregate assets, over
                          ``(ii) the aggregate amount of qualified 
                        rural opportunity zone property held by the 
                        fund, multiplied by
                  ``(B) the underpayment rate established under section 
                6621(a)(2) for such month.
          ``(2) Special rule for partnerships.--In the case that the 
        qualified rural opportunity fund is a partnership, the penalty 
        imposed by paragraph (1) shall be taken into account 
        proportionately as part of the distributive share of each 
        partner of the partnership.
          ``(3) Reasonable cause exception.--No penalty shall be 
        imposed under this subsection with respect to any failure if it 
        is shown that such failure is due to reasonable cause.''.
  (b) Clerical Amendment.--The table of sections for subchapter Z of 
chapter 1 is amended by adding at the end the following new item:

``Sec. 1400Z-3. Special rules for capital gains invested in rural 
opportunity zones.''.

  (c) Effective Date.--The amendments made by this section shall apply 
to amounts invested after the date of the enactment of this section.

SEC. 7. REPORTING ON QUALIFIED OPPORTUNITY FUNDS AND QUALIFIED RURAL 
                    OPPORTUNITY FUNDS.

  (a) In General.--
          (1) Filing requirements for funds and investors.--Subpart A 
        of part III of subchapter A of chapter 61 is amended by 
        inserting after section 6039J the following new sections:

``SEC. 6039K. RETURNS WITH RESPECT TO QUALIFIED OPPORTUNITY FUNDS AND 
                    QUALIFIED RURAL OPPORTUNITY FUNDS.

  ``(a) In General.--Every qualified opportunity fund shall file an 
annual return (at such time and in such manner as the Secretary may 
prescribe) containing the information described in subsection (b).
  ``(b) Information From Qualified Opportunity Funds.--The information 
described in this subsection is--
          ``(1) the name, address, and taxpayer identification number 
        of the qualified opportunity fund,
          ``(2) whether the qualified opportunity fund is organized as 
        a corporation or a partnership,
          ``(3) the value of the total assets held by the qualified 
        opportunity fund as of each date described in section 1400Z-
        2(d)(1),
          ``(4) the value of all qualified opportunity zone property 
        held by the qualified opportunity fund on each such date,
          ``(5) with respect to each investment held by the qualified 
        opportunity fund in qualified opportunity zone stock or a 
        qualified opportunity zone partnership interest--
                  ``(A) the name, address, and taxpayer identification 
                number of the corporation in which such stock is held 
                or the partnership in which such interest is held, as 
                the case may be,
                  ``(B) each North American Industry Classification 
                System (NAICS) code that applies to the trades or 
                businesses conducted by such corporation or 
                partnership,
                  ``(C) the population census tracts in which the 
                qualified opportunity zone business property of such 
                corporation or partnership is located,
                  ``(D) the amount of the investment in such stock or 
                partnership interest as of each date described in 
                section 1400Z-2(d)(1),
                  ``(E) the value of tangible property held by such 
                corporation or partnership on each such date which is 
                owned by such corporation or partnership,
                  ``(F) the value of tangible property held by such 
                corporation or partnership on each such date which is 
                leased by such corporation or partnership,
                  ``(G) the approximate number of residential units (if 
                any) for any real property held by such corporation or 
                partnership, and
                  ``(H) the approximate average monthly number of full-
                time equivalent employees of such corporation or 
                partnership for the year (within numerical ranges 
                identified by the Secretary) or such other indication 
                of the employment impact of such corporation or 
                partnership as determined appropriate by the Secretary,
          ``(6) with respect to the items of qualified opportunity zone 
        business property held by the qualified opportunity fund--
                  ``(A) the North American Industry Classification 
                System (NAICS) code that applies to the trades or 
                businesses in which such property is held,
                  ``(B) the population census tract in which the 
                property is located,
                  ``(C) whether the property is owned or leased,
                  ``(D) the aggregate value of the items of qualified 
                opportunity zone property held by the qualified 
                opportunity fund as of each date described in section 
                1400Z-2(d)(1), and
                  ``(E) in the case of real property, number of 
                residential units (if any),
          ``(7) the approximate average monthly number of full-time 
        equivalent employees for the year of the trades or businesses 
        of the qualified opportunity fund in which qualified 
        opportunity zone business property is held (within numerical 
        ranges identified by the Secretary) or such other indication of 
        the employment impact of such trades or businesses as 
        determined appropriate by the Secretary,
          ``(8) with respect to each person who disposed of an 
        investment in the qualified opportunity fund during the year--
                  ``(A) the name and taxpayer identification number of 
                such person,
                  ``(B) the date or dates on which the investment 
                disposed was acquired, and
                  ``(C) the date or dates on which any such investment 
                was disposed and the amount of the investment disposed, 
                and
          ``(9) such other information as the Secretary may require.
  ``(c) Statement Required to Be Furnished to Investors.--Every person 
required to make a return under subsection (a) shall furnish to each 
person whose name is required to be set forth in such return by reason 
of subsection (b)(8) a written statement showing--
          ``(1) the name, address and phone number of the information 
        contact of the person required to make such return, and
          ``(2) the information required to be shown on such return by 
        reason of subsection (b)(8) with respect to the person whose 
        name is required to be so set forth.
  ``(d) Definitions.--For purposes of this section--
          ``(1) In general.--Any term used in this section which is 
        also used in subchapter Z of chapter 1 shall have the meaning 
        given such term under such subchapter.
          ``(2) Full-time equivalent employees.--The term `full-time 
        equivalent employees' means, with respect to any month, the sum 
        of--
                  ``(A) the number of full-time employees (as defined 
                in section 4980H(c)(4)) for the month, plus
                  ``(B) the number of employees determined (under rules 
                similar to the rules of section 4980H(c)(2)(E)) by 
                dividing the aggregate number of hours of service of 
                employees who are not full-time employees for the month 
                by 120.
  ``(e) Application to Qualified Rural Opportunity Funds.--Every 
qualified rural opportunity fund shall file the annual return required 
under subsection (a), and the statements required under subsection (c), 
applied--
          ``(1) by substituting `qualified rural opportunity' for 
        `qualified opportunity' each place it appears, and
          ``(2) by substituting `section 1400Z-3(d)(1)' for `section 
        1400Z-2(d)(1)' each place it appears.

``SEC. 6039L. INFORMATION REQUIRED FROM QUALIFIED OPPORTUNITY ZONE 
                    BUSINESSES AND QUALIFIED RURAL OPPORTUNITY ZONE 
                    BUSINESSES.

  ``(a) In General.--Every applicable qualified opportunity zone 
business shall furnish to the qualified opportunity fund described in 
subsection (b) a written statement in such manner and setting forth 
such information as the Secretary may by regulations prescribe for 
purposes of enabling such qualified opportunity fund to meet the 
requirements of section 6039K(b)(5).
  ``(b) Applicable Qualified Opportunity Zone Business.--For purposes 
of subsection (a), the term `applicable qualified opportunity zone 
business' means any qualified opportunity zone business--
          ``(1) which is a trade or business of a qualified opportunity 
        fund,
          ``(2) in which a qualified opportunity fund holds qualified 
        opportunity zone stock, or
          ``(3) in which a qualified opportunity fund holds a qualified 
        opportunity zone partnership interest.
  ``(c) Other Terms.--Any term used in this section which is also used 
in subchapter Z of chapter 1 shall have the meaning given such term 
under such subchapter.
  ``(d) Application to Qualified Rural Opportunity Funds.--Every 
qualified rural opportunity zone business (as defined in subsection (b) 
determined after application of the substitutions described in this 
sentence) shall furnish the written statement required under subsection 
(a), applied by substituting `qualified rural opportunity' for 
`qualified opportunity' each place it appears.''.
          (2) Penalties.--
                  (A) In general.--Part II of subchapter B of chapter 
                68 is amended by inserting after section 6725 the 
                following new section:

``SEC. 6726. FAILURE TO COMPLY WITH INFORMATION REPORTING REQUIREMENTS 
                    RELATING TO QUALIFIED OPPORTUNITY FUNDS AND 
                    QUALIFIED RURAL OPPORTUNITY FUNDS.

  ``(a) In General.--In the case of any person required to file a 
return under section 6039K fails to file a complete and correct return 
under such section in the time and in the manner prescribed therefor, 
such person shall pay a penalty of $500 for each day during which such 
failure continues.
  ``(b) Limitation.--
          ``(1) In general.--The maximum penalty under this section on 
        failures with respect to any 1 return shall not exceed $10,000.
          ``(2) Large qualified opportunity funds.--In the case of any 
        failure described in subsection (a) with respect to a fund the 
        gross assets of which (determined on the last day of the 
        taxable year) are in excess of $10,000,000, paragraph (1) shall 
        be applied by substituting `$50,000' for `$10,000'.
  ``(c) Penalty in Cases of Intentional Disregard.--If a failure 
described in subsection (a) is due to intentional disregard, then--
          ``(1) subsection (a) shall be applied by substituting 
        `$2,500' for `$500',
          ``(2) subsection (b)(1) shall be applied by substituting 
        `$50,000' for `$10,000', and
          ``(3) subsection (b)(2) shall be applied by substituting 
        `$250,000' for `$50,000'.
  ``(d) Inflation Adjustment.--
          ``(1) In general.--In the case of any failure relating to a 
        return required to be filed in a calendar year beginning after 
        2023, each of the dollar amounts in subsections (a), (b), and 
        (c) shall be increased by an amount equal to such dollar amount 
        multiplied by the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year determined by 
        substituting `calendar year 2022' for `calendar year 2016' in 
        subparagraph (A)(ii) thereof.
          ``(2) Rounding.--
                  ``(A) In general.--If the $500 dollar amount in 
                subsection (a) and (c)(1) or the $2,500 amount in 
                subsection (c)(1), after being increased under 
                paragraph (1), is not a multiple of $10, such dollar 
                amount shall be rounded to the next lowest multiple of 
                $10.
                  ``(B) Asset threshold.--If the $10,000,000 dollar 
                amount in subsection (b)(2), after being increased 
                under paragraph (1), is not a multiple of $10,000, such 
                dollar amount shall be rounded to the next lowest 
                multiple of $10,000.
                  ``(C) Other dollar amounts.--If any dollar amount in 
                subsection (b) or (c) (other than any amount to which 
                subparagraph (A) or (B) applies), after being increased 
                under paragraph (1), is not a multiple of $1,000, such 
                dollar amount shall be rounded to the next lowest 
                multiple of $1,000.''.
                  (B) Information required to be sent to other 
                taxpayers.--Section 6724(d)(2) is amended--
                          (i) by striking ``or'' at the end of 
                        subparagraph (II),
                          (ii) by striking the period at the end of the 
                        first subparagraph (JJ) (relating to section 
                        6226) and inserting a comma,
                          (iii) by redesignating the second 
                        subparagraph (JJ) (relating to section 6050Y) 
                        as subparagraph (KK),
                          (iv) by striking the period at the end of 
                        subparagraph (KK) (as redesignated by clause 
                        (iii)) and inserting a comma, and
                          (v) by inserting after subparagraph (KK) (as 
                        so redesignated) the following new 
                        subparagraphs:
                  ``(LL) section 6039K(c) (relating to disposition of 
                qualified opportunity fund investments), or
                  ``(MM) section 6039L (relating to information 
                required from certain qualified opportunity zone 
                businesses and qualified rural opportunity zone 
                businesses).''.
          (3) Electronic filing.--Section 6011(e) is amended by adding 
        at the end the following new paragraph:
          ``(8) Qualified opportunity funds and qualified rural 
        opportunity funds.--Notwithstanding paragraphs (1) and (2), any 
        return filed by a qualified opportunity fund or qualified rural 
        opportunity fund shall be filed on magnetic media or other 
        machine-readable form.''.
          (4) Clerical amendments.--
                  (A) The table of sections for subpart A of part III 
                of subchapter A of chapter 61 is amended by inserting 
                after the item relating to section 6039J the following 
                new items:

``Sec. 6039K. Returns with respect to qualified opportunity funds and 
qualified rural opportunity funds.
``Sec. 6039L. Information required from certain qualified opportunity 
zone businesses and qualified rural opportunity zone businesses.''.

                  (B) The table of sections for part II of subchapter B 
                of chapter 68 is amended by inserting after the item 
                relating to section 6725 the following new item:

``Sec. 6726. Failure to comply with information reporting requirements 
relating to qualified opportunity funds and qualified rural opportunity 
funds.''.

          (5) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after the date of the 
        enactment of this Act.
  (b) Reporting of Data on Opportunity Zone and Rural Opportunity Zone 
Tax Incentives.--
          (1) In general.--As soon as practical after the date of the 
        enactment of this Act, and annually thereafter, the Secretary 
        of the Treasury, or the Secretary's delegate (referred to in 
        this section as the ``Secretary''), in consultation with the 
        Director of the Bureau of the Census and such other agencies as 
        the Secretary determines appropriate, shall make publicly 
        available a report on qualified opportunity funds.
          (2) Information included.--The report required under 
        paragraph (1) shall include, to the extent available, the 
        following information:
                  (A) The number of qualified opportunity funds.
                  (B) The aggregate dollar amount of assets held in 
                qualified opportunity funds.
                  (C) The aggregate dollar amount of investments made 
                by qualified opportunity funds in qualified opportunity 
                fund property, stated separately for each North 
                American Industry Classification System (NAICS) code.
                  (D) The percentage of population census tracts 
                designated as qualified opportunity zones that have 
                received qualified opportunity fund investments.
                  (E) For each population census tract designated as a 
                qualified opportunity zone, the approximate average 
                monthly number of full-time equivalent employees of the 
                qualified opportunity zone businesses in such qualified 
                opportunity zone for the preceding 12-month period 
                (within numerical ranges identified by the Secretary) 
                or such other indication of the employment impact of 
                such qualified opportunity fund businesses as 
                determined appropriate by the Secretary.
                  (F) The percentage of the total amount of investments 
                made by qualified opportunity funds in--
                          (i) qualified opportunity zone property which 
                        is real property; and
                          (ii) other qualified opportunity zone 
                        property.
                  (G) For each population census tract, the aggregate 
                approximate number of residential units resulting from 
                investments made by qualified opportunity funds in real 
                property.
                  (H) The aggregate dollar amount of investments made 
                by qualified opportunity funds in each population 
                census tract.
          (3) Additional information.--
                  (A) In general.--Beginning with the report submitted 
                under paragraph (1) for the 6th year after the date of 
                the enactment of this Act, the Secretary shall include 
                in such report the impacts and outcomes of a 
                designation of a population census tract as a qualified 
                opportunity zone as measured by economic indicators, 
                such as job creation, poverty reduction, new business 
                starts, and other metrics as determined by the 
                Secretary.
                  (B) Semi-decennial information.--
                          (i) In general.--In the case of any report 
                        submitted under paragraph (1) in the 6th year 
                        or the 11th year after the date of the 
                        enactment of this Act, the Secretary shall 
                        include the following information:
                                  (I) For population census tracts 
                                designated as a qualified opportunity 
                                zone, a comparison (based on aggregate 
                                information) of the factors listed in 
                                clause (iii) between the 5-year period 
                                ending on the date of the enactment of 
                                Public Law 115-97 and the most recent 
                                5-year period for which data is 
                                available.
                                  (II) For population census tracts 
                                designated as a qualified opportunity 
                                zone, a comparison (based on aggregate 
                                information) of the factors listed in 
                                clause (iii) for the most recent 5-year 
                                period for which data is available 
                                between such population census tracts 
                                and a similar population census tracts 
                                that were not designated as a qualified 
                                opportunity zone.
                          (ii) Control groups.--For purposes of clause 
                        (i), the Secretary may combine population 
                        census tracts into such groups as the Secretary 
                        determines appropriate for purposes of making 
                        comparisons.
                          (iii) Factors listed.--The factors listed in 
                        this paragraph are the following:
                                  (I) The unemployment rate.
                                  (II) The number of persons working in 
                                the population census tract, including 
                                the percentage of such persons who were 
                                not residents in the population census 
                                tract in the preceding year.
                                  (III) Individual, family, and 
                                household poverty rates.
                                  (IV) Median family income of 
                                residents of the population census 
                                tract.
                                  (V) Demographic information on 
                                residents of the population census 
                                tract, including age, income, 
                                education, race, and employment.
                                  (VI) The average percentage of income 
                                of residents of the population census 
                                tract spent on rent annually.
                                  (VII) The number of residences in the 
                                population census tract.
                                  (VIII) The rate of home ownership in 
                                the population census tract.
                                  (IX) The average value of residential 
                                property in the population census 
                                tract.
                                  (X) The number of affordable housing 
                                units in the population census tract.
                                  (XI) The number and percentage of 
                                residents in the population census 
                                tract that were not employed for the 
                                preceding year.
                                  (XII) The number of new business 
                                starts in the population census tract.
                                  (XIII) The distribution of employees 
                                in the population census tract by North 
                                American Industry Classification System 
                                (NAICS) code.
          (4) Protection of identifiable return information.--In making 
        reports required under this subsection, the Secretary--
                  (A) shall establish appropriate procedures to ensure 
                that any amounts reported do not disclose taxpayer 
                return information that can be associated with any 
                particular taxpayer or competitive or proprietary 
                information, and
                  (B) if necessary to protect taxpayer return 
                information, may combine information required with 
                respect to individual population census tracts into 
                larger geographic areas.
          (5) Definitions.--Any term used in this subsection which is 
        also used in subchapter Z of chapter 1 of the Internal Revenue 
        Code of 1986 shall have the meaning given such term under such 
        subchapter.
          (6) Reports on qualified rural opportunity funds.--The 
        Secretary shall make publicly available, with respect to 
        qualified rural opportunity funds, separate reports as required 
        under this subsection, applied--
                  (A) by substituting ``qualified rural opportunity'' 
                for ``qualified opportunity'' each place it appears, 
                and
                  (B) by substituting ``the Small Business Jobs Act'' 
                for ``Public Law 115-97''.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 3937, the ``Small Business Jobs Act,'' as 
ordered reported by the Committee on Ways and Means on June 13, 
2023, provides tax and administration relief for American 
workers and small businesses.

                 B. Background and Need for Legislation

    This bill provides new measures designed to help small 
businesses navigate price spikes, worker shortages, and supply 
chain failures in the current economy. The legislation, called 
the ``Small Business Jobs Act,'' cuts IRS red tape for small 
businesses and gig workers, helps small businesses raise 
capital, drives more investment and growth with new expensing 
provisions, and helps rural communities thrive.

  ELIMINATES HEADACHES AND UNNECESSARY COSTS FOR SMALL BUSINESSES BY 
 FIXING AN IRS REPORTING RULE THAT HAS NOT BEEN INFLATION-ADJUSTED IN 
                            ALMOST 70 YEARS

    Currently, business owners are required to send tax forms 
to contractors that provide more than $600 of work to their 
business.
    In the Ways and Means Committee field hearing in Peachtree 
City, Georgia, a small business owner reminded Congress that 
those rules have remained unchanged since 1954.
    This provision offers relief to American workers and small 
businesses by increasing the reporting threshold for 
subcontract labor from $600 to $5,000.

STOPS THE ATTACK ON THE GIG ECONOMY AND ORDINARY AMERICANS BY REPEALING 
  DEMOCRATS' NEW RULE THAT HAS THE IRS TARGETING THOSE WHO USE THIRD 
 PARTY PLATFORMS AND CASH APPS FOR GIG WORK OR TO SELL ITEMS LIKE USED 
                      FURNISHING AND EVENT TICKETS

    In 2021, Democrats reduced the IRS reporting threshold for 
these transactions from $20,000 to $600.
    The Biden Administration knows this rule is unfair and 
unworkable, which is why they have already delayed 
implementation for 2023.
    Repealing this rule will ensure Americans aren't saddled 
with a mountain of paperwork, confusion, or taxes that they 
don't owe.

INCREASES U.S. INNOVATION AND JOBS BY EXPANDING A CURRENT TAX INCENTIVE 
 TO INCLUDE INVESTORS IN SMALL BUSINESSES AND STARTUPS ORGANIZED AS S 
                              CORPORATIONS

    Currently, these tax benefits are available only to 
investors in companies organized as C Corporations--leaving out 
S Corporations, which represent nearly half of all U.S. 
business entities.
    According to U.S. Census data, startup companies less than 
five years old create the majority of net new jobs in our 
economy, creating 1.7 million jobs per year.

   ENCOURAGES INVESTMENT IN NEW EQUIPMENT AND PRODUCTION CAPACITY BY 
  INCREASING IMMEDIATE EXPENSING FOR SMALL BUSINESSES TO $2.5 MILLION

    Builds on a successful policy from the 2017 tax reform law, 
which doubled the small business expensing limit from $500,000 
to $1 million.
    With this provision, small businesses like farms and 
machine shops can afford new equipment and expand their 
businesses. Their investment raises productivity, boosts wages, 
and creates more jobs.

DELIVERS GREATER ECONOMIC DEVELOPMENT AND OPPORTUNITY WITH A NEW RURAL 
  OPPORTUNITY ZONE PROGRAM THAT WILL REVITALIZE STRUGGLING COMMUNITIES

    Opportunity Zones (OZs) were a major success from the 2017 
tax reform law. They attracted investment and jobs to low-
income communities across the country that were struggling to 
attract investment and capital.
    While being the largest economic development program, 
investments have tended toward urban areas, which received 95 
percent of OZ investment.
    This provision will allow rural communities to benefit from 
the same recovery and development that OZs have delivered to 
urban areas.

                         C. Legislative History


Background

    H.R. 3937 was introduced on June 9, 2023, and was referred 
to the Committee on Ways and Means.

Committee Hearings

    On February 6, 2023, the Committee held a Field Hearing on 
the State of the American Economy: Appalachia in Petersburg, 
West Virginia.
    On March 7, 2023, the Committee held a Field Hearing on the 
State of the American Economy: The Heartland in Yukon, 
Oklahoma.
    On April 21, 2023, the Committee held a Field Hearing on 
the State of the American Economy: The South in Peachtree, 
Georgia.

Committee Action

    The Committee on Ways and Means marked up H.R. 3937, the 
``Small Business Jobs Act,'' on June 13, 2023, and ordered the 
bill, as amended, favorably reported (with a quorum being 
present).

                         D. Designated Hearings

    Pursuant to clause 3(c)(6) of rule XIII, the following 
hearings were used to consider H.R. 3937:
    Committee on Ways and Means hearing which took place on 
February 6, 2023, entitled, ``the State of the American 
Economy: Appalachia''.
    Committee on Ways and Means hearing which took place on 
March 7, 2023, entitled, ``the State of the American Economy: 
The Heartland''.
    Committee on Ways and Means hearing which took place on 
April 21, 2023, entitled, ``the State of the American Economy: 
The South''.

                      II. EXPLANATION OF THE BILL


   A. Increase in Threshold for Requiring Information Reporting With 
 Respect to Certain Payees (sec. 2 of the bill and secs. 6041, 6041A, 
                      and 3406(b)(6) of the Code)


                              PRESENT LAW

Information reporting requirements

    Present law requires persons to file an information return 
concerning certain transactions with other persons.\1\ The 
person filing an information return (the ``payor'') is also 
required to provide the person for whom the information return 
is being filed (the ``payee'') with a written statement showing 
the information that was reported to the Internal Revenue 
Service (``IRS''), which generally includes aggregate payments 
made, and the contact information for the payor.\2\ These 
returns are intended to assist taxpayers in preparing their 
income tax returns and to help the IRS determine whether such 
income tax returns are correct and complete.
---------------------------------------------------------------------------
    \1\Secs. 6041 through 6050Y.
    \2\See, e.g., sec. 6041(d).
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    For example, every person engaged in a trade or business 
who makes certain payments aggregating $600 or more in any 
taxable year to a single payee in the course of such trade or 
business must report those payments to the IRS.\3\ This 
requirement applies to fixed or determinable payments of income 
as well as nonemployee compensation, generally reported on 
either Form 1099-MISC, Miscellaneous Information, or Form 1099-
NEC, Nonemployee Compensation. In addition, any service 
recipient engaged in a trade or business and paying for 
services is required to make a return according to regulations 
when the aggregate of payments is $600 or more.\4\ Government 
entities are specifically required to make an information 
return, reporting payments to corporations as well as 
individuals.\5\
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    \3\Sec. 6041.
    \4\Sec. 6041A.
    \5\Sec. 6041A(d)(3)(A).
---------------------------------------------------------------------------
    However, these provisions discussed above do not cover 
payments for goods or certain enumerated types of payments that 
are subject to other specific reporting requirements, such as 
provisions covering dividends, interest, and royalties.\6\ 
Treasury regulations generally provide further exceptions from 
the reporting of payments to corporations, exempt 
organizations, governmental entities, international 
organizations, and retirement plans.\7\
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    \6\Section 6041(a) generally excepts from its scope most interest, 
royalties, and dividends, which are instead covered by sections 6049, 
6050N, and 6042, respectively.
    \7\Treas. Reg. sec. 1.6041-3. Certain for-profit health care 
provider corporations are not covered by this general exception, 
including those organizations providing billing services for such 
companies.
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    A person who is required to file information returns but 
who fails to do so by the due date for the returns, or includes 
on the returns incorrect information, or files incomplete 
returns generally is subject to a penalty of $250 for each 
return with respect to which such failure occurs, up to a 
maximum of $3,000,000 in any calendar year, adjusted for 
inflation.\8\ Similar penalties apply to failures to furnish 
correct written statements to recipients of payments for which 
information reporting is required.\9\ The failure to file and 
failure to furnish penalties are reduced for small 
businesses\10\ and increased for failures due to intentional 
disregard.\11\
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    \8\Sec. 6721. These amounts are adjusted annually for inflation. 
For information returns required to be filed in calendar year 2023, the 
penalty amount is $290, up to a maximum of $3,532,500 per calendar 
year. For information returns required to be filed in calendar year 
2024, the penalty amount is $310, up to a maximum of $3,783,000 per 
calendar year. The penalties are reduced if the failure is corrected 
within a specified amount of time. Sec. 6721(b). The penalties are 
waived if a person establishes that any failure was due to reasonable 
cause and not willful neglect. Sec. 6724(a).
    \9\Sec. 6722. These amounts are also adjusted annually for 
inflation. For information statements required to be filed in calendar 
year 2023, the penalty amount is $290, up to a maximum of $3,532,500 
per calendar year. For information statements required to be filed in 
calendar year 2024, the penalty amount is $310, up to a maximum of 
$3,783,000 per calendar year. The penalties are reduced if the failure 
is corrected within a specified amount of time. Sec. 6722(b). The 
penalties are waived if a person establishes that any failure was due 
to reasonable cause and not willful neglect. Sec. 6724(a).
    \10\Secs. 6721(d) and 6722(d).
    \11\Secs. 6721(e) and 6722(e).
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Backup withholding

    Generally, a payor is not required to withhold taxes from 
payments to the payee. However, a payor may be required to 
deduct and withhold income tax on certain ``reportable 
payments'' at a rate equal to 24 percent\12\ if: (1) the payee 
fails to furnish his or her taxpayer identification number 
(``TIN'') to the payor; (2) the IRS notifies the payor that the 
payee's TIN is incorrect; (3) a notified payee underreporting 
of reportable payments has occurred; or (4) a payee 
certification failure with respect to reportable payments has 
occurred.\13\ The requirement to deduct and withhold in the 
case of a notified payee underreporting, or a payee 
certification failure, applies solely to reportable interest or 
dividend payments. These deduction and withholding 
requirements\14\ are referred to as backup withholding.
---------------------------------------------------------------------------
    \12\Sec. 3406(a)(1)(D). The backup withholding rate is the fourth 
lowest rate of tax applicable under section 1(c). In 2023, this rate is 
24 percent.
    \13\Sec. 3406(a)(1).
    \14\Sec. 3406.
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    Reportable payments are defined as any reportable interest 
or dividend payment and any other reportable payment.\15\ A 
reportable interest or dividend payment means any payment of a 
kind, and to a payee, required to be shown on an information 
return required under any of the following sections: (i) 
6049(a), relating to payments of interest, (ii) 6042(a), 
relating to payments of dividends, or (iii) 6044, relating to 
payments of patronage dividends, but only to the extent such 
payment is in money and only if 50 percent or more of such 
payment is in money. Any other reportable payment means any 
payment of a kind, and to a payee, required to be shown on a 
return required under any of the following sections: (i) 6041, 
relating to certain information at source, (ii) 6041A(a), 
relating to payments of remuneration for services, (iii) 6045, 
relating to returns of brokers, (iv) 6050A, relating to 
reporting requirements of certain fishing boat operators, but 
only to the extent such payment is in money and represents a 
share of the proceeds of the catch, (v) 6050N, relating to 
payments of royalties, or (vi) 6050W, relating to payments made 
in settlement of payment card and third party settlement 
transactions. Examples of payments that may be subject to 
backup withholding include interest, dividends, rents, 
royalties, commissions, non-employee compensation, and broker 
payments.
---------------------------------------------------------------------------
    \15\Sec. 3406(b).
---------------------------------------------------------------------------
    In general, a payment is determined to be a reportable 
payment, and therefore subject to backup withholding, without 
regard to any minimum amount that must be paid before an 
information return is required under the applicable information 
reporting statute.\16\
---------------------------------------------------------------------------
    \16\Sec. 3406(b)(4).
---------------------------------------------------------------------------
    For payments required to be shown on a return under section 
6041(a) or 6041A(a), relating to certain information at the 
source and payments of remuneration for services, a minimum 
amount generally must be paid before the payment is subject to 
backup withholding.\17\ Such payments are treated as reportable 
payments, and therefore subject to backup withholding, only if 
(i) the aggregate amount of such payment and all previous 
payments described in section 6041(a) or 6041A(a) by the payor 
to the payee during such calendar year equals or exceeds $600, 
(ii) the payor was required under section 6041(a) or 6041A(a) 
to file an information return for the preceding calendar year 
with respect to payments to the payee, or (iii) during the 
preceding calendar year, the payor made reportable payments to 
the payee with respect to which amounts were required to be 
deducted and withheld under the backup withholding 
requirements. Backup withholding generally applies only to 
payments made to U.S. persons who have failed to provide the 
payor with a valid IRS Form W-9, Request for Taxpayer 
Identification Number and Certification; however, it may also 
apply to certain payments made to persons in the absence of 
valid documentation of foreign status. Backup withholding does 
not apply to payments made to exempt recipients, including tax-
exempt organizations, government entities, and certain other 
entities.\18\ Thus, a payor of reportable payments generally 
must request that a U.S. payee (other than certain exempt 
recipients) furnish a Form W-9 providing that person's name and 
TIN.\19\
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    \17\Sec. 3406(b)(6).
    \18\Sec. 3406(g); Treas. Reg. sec. 31.3406(g)-1.
    \19\Treas. Reg. sec. 31.3406(h)-3.
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                           REASONS FOR CHANGE

    The Committee notes that the thresholds for third party 
information reporting have not been fundamentally reviewed or 
adjusted for inflation since 1954. The Committee also notes 
that the penalties for failure to properly report are adjusted 
for inflation. The Committee believes that the compliance 
objectives of third party information reporting must be 
balanced with the resulting additional administrative burden, 
specifically that placed on small businesses. Thus, the 
Committee believes it is necessary to modernize the information 
reporting regime by updating the reporting thresholds to keep 
up with inflation and provide some relief for small businesses 
and individuals subject to these rules.

                        EXPLANATION OF PROVISION

    The provision increases the information reporting threshold 
under sections 6041 and 6041A to $5,000 in a calendar year, 
with the threshold amount (including the threshold for 
reporting of direct sales) to be indexed annually for inflation 
in calendar years after 2024.
    The provision also makes a conforming change to the dollar 
threshold in section 3406 with respect to information reporting 
required under sections 6041 and 6041A to align with the new 
$5,000 reporting threshold. Under the provision, both the 
information reporting thresholds and the backup withholding 
thresholds are for transactions that equal or exceed $5,000 
(indexed for inflation for calendar years after 2024).

                             EFFECTIVE DATE

    The provision applies with respect to payments made after 
December 31, 2023.

 B. Restoration of Reporting Rule for Third Party Network Transactions 
           (sec. 3 of the bill and sec. 6050W(e) of the Code)


                              PRESENT LAW

    Present law requires persons to file an information return 
concerning certain transactions with other persons.\20\ The 
person filing an information return is also required to provide 
the person for whom the information return is being filed with 
a written statement showing the information that was reported 
to the IRS, which generally includes aggregate payments made, 
and the contact information for the payor.\21\ These returns 
are intended to assist taxpayers in preparing their income tax 
returns and to help the IRS determine whether such income tax 
returns are correct and complete.
---------------------------------------------------------------------------
    \20\Secs. 6041 through 6050Y.
    \21\See, e.g., sec. 6041(d).
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Returns relating to payments made in settlement of payment card and 
        third party network transactions

    Since 2012 (for payments received in 2011), payment 
settlement entities are required to report to the IRS and to 
businesses that receive these payments the gross amount of 
payments made in settlement of payment card transactions and 
third party network transactions.\22\
---------------------------------------------------------------------------
    \22\Sec. 6050W; Pub. L. No. 110-289 (2008), sec. 3091(a) enacted 
sec. 6050W, effective generally for returns for calendar years 
beginning after December 31, 2010.
---------------------------------------------------------------------------
    Specifically, any payment settlement entity making a 
payment to a participating payee in settlement of reportable 
payment transactions must report annually to the IRS and to the 
participating payee the gross amount of such reportable payment 
transactions, as well as the name, address, and TIN of the 
participating payee.\23\ A ``reportable payment transaction'' 
means any payment card transaction and any third party network 
transaction.\24\
---------------------------------------------------------------------------
    \23\Sec. 6050W(a).
    \24\Sec. 6050W(c)(1).
---------------------------------------------------------------------------
    A ``payment settlement entity'' means, in the case of a 
payment card transaction, a merchant acquiring entity (defined 
below) and, in the case of a third party network transaction, 
the third party settlement organization.\25\ A ``participating 
payee'' means, in the case of a payment card transaction, any 
person who accepts a payment card as payment and, in the case 
of a third party network transaction, any person who accepts 
payment from a third party organization in settlement of such 
transaction.\26\ A ``person'' includes a governmental unit. A 
``person'' generally does not include someone with a foreign 
address.\27\
---------------------------------------------------------------------------
    \25\Sec. 6050W(b).
    \26\Sec. 6050W(d)(1).
    \27\Sec. 6050W(d)(1)(B) and (C).
---------------------------------------------------------------------------
            Returns relating to payments made in settlement of payment 
                    card transactions
    For purposes of the reporting requirement, the term 
``merchant acquiring entity'' means a bank or other 
organization with the contractual obligation to make payment to 
participating payees in settlement of payment card 
transactions.\28\ A ``payment card transaction'' means any 
transaction in which a payment card is accepted as payment.\29\ 
A ``payment card'' is defined as any card (e.g., a credit card 
or debit card) which is issued pursuant to an agreement or 
arrangement which provides for: (1) one or more issuers of such 
cards; (2) a network of persons unrelated to each other, and to 
the issuer, who agree to accept such cards as payment; and (3) 
standards and mechanisms for settling the transactions between 
the merchant acquiring entities and the persons who agree to 
accept such cards as payment.\30\ Thus, a bank that enrolls a 
business to accept credit cards and contracts with the business 
to make payment on credit card transactions must report to the 
IRS the business's gross credit card transactions for each 
calendar year on a Form 1099-K, Payment Card and Third Party 
Network Transactions. The bank also must provide a copy of the 
information return to the business.
---------------------------------------------------------------------------
    \28\Sec. 6050W(b)(2).
    \29\For this purpose, the acceptance as payment of any account 
number or other indicia associated with a payment card also qualifies 
as a payment card transaction.
    \30\Sec. 6050W(d)(2).
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            Returns relating to payments made in settlement of third 
                    party network transactions
    The statute also requires reporting on a third party 
network transaction. The term ``third party network 
transaction'' means any transaction which is settled through a 
third party payment network.\31\ A ``third party payment 
network'' is defined as any agreement or arrangement: (1) that 
involves the establishment of accounts with a central 
organization by a substantial number of persons (generally 
considered to be more than 50) who are unrelated to such 
organization, provide goods or services, and agree to settle 
transactions for the provision of such goods or services 
pursuant to such agreement or arrangement; (2) that provides 
for standards and mechanisms for settling such transactions; 
and (3) that guarantees persons providing goods or services 
pursuant to such agreement or arrangement will be paid for 
providing such goods or services.\32\
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    \31\Sec. 6050W(c)(3).
    \32\Sec. 6050W(d)(3).
---------------------------------------------------------------------------
    In the case of a third party network transaction, the 
payment settlement entity is the third party settlement 
organization, which is defined as the central organization 
which has the contractual obligation to make payment to 
participating payees of third party network transactions.\33\ 
Thus, an organization generally is required to report if it 
provides a network enabling buyers to transfer funds to sellers 
who have established accounts with the organization and have a 
contractual obligation to accept payment through the network. 
However, an organization operating a network which merely 
processes electronic payments (such as wire transfers, 
electronic checks, and direct deposit payments) between buyers 
and sellers, but does not have contractual agreements with 
sellers to use such network, is not required to report. 
Similarly, an agreement to transfer funds between two demand 
deposit accounts will not, by itself, constitute a third party 
network transaction.
---------------------------------------------------------------------------
    \33\Sec. 6050W(b)(3).
---------------------------------------------------------------------------
            De minimis payment exception
    A third party payment network does not include any 
agreement or arrangement that provides for the issuance of 
payment cards as defined by the provision.\34\ In addition, 
there is an exception for de minimis payments that applies to 
payments made by third party settlement organizations but not 
to payments made by merchant acquiring entities. For calendar 
years beginning after December 31, 2021, a third party 
settlement organization is required to report third party 
network transactions with any participating payee that exceed a 
minimum threshold of $600 in aggregate payments.\35\ There is 
not a threshold requirement for the number of transactions. In 
addition, third party network transactions only include 
transactions for the provision of goods or services. Reporting 
is not required for other transactions, including personal 
gifts, charitable contributions, and reimbursements.
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    \34\Sec. 6050W(d)(3).
    \35\Sec. 6050W(e); Pub. L. No. 117-2, Title IX, sec. 9674, March 
11, 2021, amending sec. 6050W(e), effective generally for returns for 
calendar years beginning after December 31, 2021. The Internal Revenue 
Service allowed third-party settlement organizations to delay 
implementation of the $600 aggregate payment threshold for calendar 
years beginning before January 1, 2023 under Notice 2023-10, 2023-3 
I.R.B. 403, January 17, 2023.
---------------------------------------------------------------------------
    The previous exception for de minimis payments for calendar 
years beginning prior to January 1, 2022, provided that a third 
party settlement organization was not required to report unless 
the aggregate value of third party network transactions with 
respect to a participating payee for the year exceeds $20,000 
and the aggregate number of such transactions with respect to a 
participating payee exceeds 200.
            Rules regarding reporting requirements
    There are also reporting requirements on intermediaries who 
receive payments from a payment settlement entity and 
distribute such payments to one or more participating 
payees.\36\ Such intermediaries are treated as participating 
payees with respect to the payment settlement entity and as 
payment settlement entities with respect to the participating 
payees to whom the intermediary distributes payments. Thus, for 
example, in the case of a corporation that receives payment 
from a bank for credit card sales conducted at the 
corporation's independently-owned franchise stores, the bank is 
required to report to the corporation and to the IRS the gross 
amount of reportable payment transactions settled with respect 
to the corporation (notwithstanding the fact that the 
corporation does not accept payment cards and would not 
otherwise be treated as a participating payee). In turn, the 
corporation, as an intermediary, is required to report the 
gross amount of reportable payment transactions allocable to 
each franchise store. The bank has no reporting obligation with 
respect to payments made by the corporation to its franchise 
stores.
---------------------------------------------------------------------------
    \36\Sec. 6050W(b)(4).
---------------------------------------------------------------------------
    In addition, if a payment settlement entity contracts with 
a third-party facilitator to settle reportable payment 
transactions on behalf of the payment settlement entity, the 
third party facilitator is required to file the annual 
information return in lieu of the payment settlement 
entity.\37\
---------------------------------------------------------------------------
    \37\Sec. 6050W(b)(4)(B); Treas. Reg. sec. 1.6050W-1(d)(2).
---------------------------------------------------------------------------
    The payment settlement entity is required to file 
information returns to the IRS on or before February 28 (March 
31 if filing electronically) of the year following the calendar 
year for which the returns must be filed.\38\ Statements are 
required to be furnished to the participating payees on or 
before January 31 of the year following the calendar year for 
which the return was required to be made.\39\
---------------------------------------------------------------------------
    \38\Treas. Reg. sec. 1.6050W-1(g). Taxpayers that file these 
information returns that report reportable payment transactions are 
entitled to a 30-day automatic extension of time to file. Treas. Reg. 
sec. 1.6081-8(a) (effective for requests for extension of time to file 
certain information returns due after December 31, 2016).
    \39\Sec. 6050W(f); Treas. Reg. sec. 1.6050W-1(h).
---------------------------------------------------------------------------
    The Secretary has exercised authority under these rules to 
issue guidance to implement the reporting requirement, 
including rules to prevent the reporting of the same 
transaction more than once.\40\
---------------------------------------------------------------------------
    \40\Treas. Reg. sec. 1.6050W-1(a)(4)(ii).
---------------------------------------------------------------------------
    The reportable payment transactions subject to information 
reporting generally are subject to backup withholding 
requirements. In addition, the information reporting penalties 
apply for any failure to file a correct information return or 
furnish a correct payee statement with respect to the 
reportable payment transactions. Any person who is required to 
file an information return or furnish a payee statement but who 
fails to do so on or before the prescribed due date is subject 
to a penalty that varies based on when, if at all, the correct 
information return is filed or furnished. Penalties are imposed 
for failure to file the information return,\41\ or furnish 
payee statements.\42\ No penalty is imposed if the failure is 
due to reasonable cause.\43\ Both the failure to file and 
failure to furnish penalties are adjusted annually to account 
for inflation.
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    \41\Sec. 6721.
    \42\Sec. 6722. Section 6723 also imposes a penalty for failure to 
comply timely with a specified information reporting requirement. 
However, this penalty applies in narrow circumstances and is unlikely 
to apply to payment settlement entities under section 6050W. See Treas. 
Reg. sec. 301.6723-1(a)(4).
    \43\Sec. 6742(a).
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                           REASONS FOR CHANGE

    The Committee believes that the previous de minimis 
reporting threshold should be reinstated because the lower 
threshold means that millions of individuals will receive Form 
1099-Ks for the first time next year--often in instances where 
there is no tax liability, creating significant confusion and 
administrative challenges. For example, selling a used piece of 
furniture for less than the original purchase price will not 
create any taxable income. However, the Committee notes that 
these transactions may trigger reporting requirements if the 
previous threshold is not reinstated, yielding confusion for 
online platforms and taxpayers, which could result in 
overreporting of income and therefore overpayment of taxes as 
well as ineligibility for certain tax benefits. The Committee 
believes reverting back to the previous reporting threshold is 
necessary to prevent numerous individuals from having to hire 
tax professionals and keep onerous records and receipts or from 
being misled into thinking the arrival of a Form 1099-K 
represents taxable income they must report.

                        EXPLANATION OF PROVISION

    The provision reverts to the previous de minimis reporting 
exception for third party settlement organizations. A third 
party settlement organization is not required to report unless 
the aggregate value of third party network transactions with 
respect to a participating payee for the year exceeds $20,000 
and the aggregate number of such transactions with respect to a 
participating payee exceeds 200.
    The obligations of a merchant acquiring entity are 
unchanged. For example, if a business that provides a web-based 
rental platform for short-term travelers is considered a third 
party settlement organization, it does not have to provide a 
Form 1099-K to property owners participating on its web-based 
platform who have received payments of $20,000 or less. 
Alternatively, if a company is considered a merchant acquiring 
entity, it must issue a Form 1099-K to all participating payees 
who have received payments of any amount starting with the 
first dollar.

                             EFFECTIVE DATE

    The provision applies to returns for calendar years 
beginning after December 31, 2021.

 C. Modifications to Exclusion for Gain from Qualified Small Business 
          Stock (sec. 4 of the bill and sec. 1202 of the Code)


                              PRESENT LAW

Exclusion for gain on sale of qualified small business stock

            In general
    A taxpayer other than a corporation may exclude a 
percentage of the gain from the sale of qualified small 
business stock acquired at original issue and held for at least 
five years.\44\ In general, the percentage is 50 percent (60 
percent for certain empowerment zone businesses) except as 
described below. The amount of gain eligible for the exclusion 
by an individual with respect to the stock of any C corporation 
is the greater of (1) ten times the taxpayer's basis in the 
stock, or (2) $10 million (reduced by the amount of eligible 
gain excluded by the taxpayer in prior years).\45\ Accordingly, 
the amount of the exclusion as a percentage of cost basis is 
phased out for individuals who acquire more than $1 million of 
the qualified small business stock of any issuer. To qualify as 
a small business, before and immediately after the issuance, 
the aggregate gross assets (i.e., cash plus aggregate adjusted 
basis of other property) held by the corporation may not exceed 
$50 million.\46\ The corporation also must meet certain active 
trade or business requirements.\47\ Only C corporation stock 
may qualify as qualified small business stock.\48\ These rules 
are discussed further below.
---------------------------------------------------------------------------
    \44\Sec. 1202(a)(1) and (2) and 1202(b)(2).
    \45\Sec. 1202(b)(1).
    \46\Sec. 1202(d)(1)(A), (B).
    \47\Sec. 1202(c)(2).
    \48\Sec. 1202(c)(1).
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    The portion of the gain includible in taxable income is 
taxed at a maximum rate of 28 percent under the regular tax 
rates applicable to the net capital gain of individuals.\49\ 
Seven percent of the excluded gain is an alternative minimum 
tax (``AMT'') preference.\50\
---------------------------------------------------------------------------
    \49\Sec. 1(h)(4), (7).
    \50\Sec. 57(a)(7).
---------------------------------------------------------------------------
            Special rules for certain stock acquired after February 17, 
                    2009
    For qualified small business stock acquired after February 
17, 2009, and before September 28, 2010, the percent of gain 
which may be excluded is increased to 75 percent (``75-percent 
exclusion rule'').\51\
---------------------------------------------------------------------------
    \51\Sec. 1202(a)(3).
---------------------------------------------------------------------------
            100-percent exclusion for certain stock acquired after 
                    September 27, 2010
    For qualified small business stock acquired after September 
27, 2010, the percent of gain which may be excluded is 
increased to 100 percent and the AMT preference does not apply 
(``100-percent exclusion rule'').\52\
---------------------------------------------------------------------------
    \52\Sec. 1202(a)(4). Qualified stock in empowerment zone businesses 
acquired after September 27, 2010, is subject to the 100-percent 
exclusion rule instead of the 60-percent exclusion rule. See sec. 
1202(a)(4)(B).
---------------------------------------------------------------------------

Rollover of gain from sale of small business stock

    An individual may elect to roll over tax-free any gain 
realized on the sale of qualified small business stock held 
more than six months to the extent of the taxpayer's cost of 
purchasing other qualified small business stock within 60 days 
of the sale.\53\
---------------------------------------------------------------------------
    \53\Sec. 1045(a).
---------------------------------------------------------------------------

Qualified small business and active business requirements

    A qualified small business for purposes of the section 1202 
exclusion means a domestic C corporation whose aggregate gross 
assets at all times after August 10, 1993, and before the 
issuance of the stock, do not exceed $50 million, and whose 
aggregate gross assets immediately after the stock issuance 
(taking into account amounts received in the issuance) does not 
exceed $50 million.\54\
---------------------------------------------------------------------------
    \54\Sec. 1202(d). Aggregate gross assets means cash and the 
aggregated adjusted bases of other property of the corporation. 
Aggregation rules provide that all corporations that are members of the 
same parent-subsidiary controlled group are treated as one corporation 
for purposes of section 1202(d). A parent-subsidiary controlled group 
is defined by reference to section 1563(a), except that ``more than 50 
percent'' is substituted for ``at least 80 percent'' in section 
1563(a)(1) and section 1563(a)(4) does not apply. Sec. 1202(d)(3)(B).
---------------------------------------------------------------------------
    Stock in a corporation is not treated as qualified small 
business stock unless (during substantially all of the 
taxpayer's holding period for the stock) the corporation meets 
active business requirements and is a C corporation.\55\ The 
active business requirements\56\ are met by a corporation\57\ 
for any period if during the period the corporation uses at 
least 80 percent by value of its assets in the active conduct 
of one more qualified trades or businesses, which are defined 
by exclusion.\58\
---------------------------------------------------------------------------
    \55\Sec. 1202(c)(2).
    \56\Sec. 1202(e).
    \57\It must be an eligible corporation, meaning it is not a 
domestic international sales corporation (``DISC'') or former DISC, 
regulated investment company (``RIC''), real estate investment trust 
(``REIT''), real estate mortgage investment conduit (``REMIC''), or 
cooperative. Sec. 1202(e)(4).
    \58\Excluded trades or businesses are: (A) any trade or business 
involving the performance of services in the fields of health, law, 
engineering, architecture, accounting, actuarial science, performing 
arts, consulting, athletics, financial services, brokerage services, or 
any trade or business where the principal asset of such trade or 
business is the reputation or skill of one or more of its employees; 
(B) any banking, insurance, financing, leasing, investing, or similar 
business; (C) any farming business; (D) any business involving the 
production or extraction of products of a character with respect to 
which a deduction is allowable under section 613 or 613A; and (E) any 
business of operating a hotel, motel, restaurant, or similar business. 
Sec. 1202(e)(3).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes that the qualified small business 
stock gain exclusion under section 1202 promotes the formation 
of new startup companies. According to the Business Dynamics 
Statistics (BDS) dataset maintained by the U.S. Census Bureau 
which tracks all U.S. companies over time, startup companies 
less than five years old have consistently created more than 
1.7 million net new jobs per year, in contrast to older firms 
which (although these older firms employ more people) have 
tended to reduce employment on a net basis. In addition to 
creating a substantial number of net new jobs, startup 
companies founded within the last 30 to 50 years have become a 
substantial contributor to U.S. gross domestic product, 
employing millions of individuals. Through widespread ownership 
of these older startup companies' stock in retirement savings 
vehicles, the growth of these companies has benefited millions 
of Americans in retirement. The Committee believes that the 
rules under current law have not kept pace with the business 
startup ecosystem and recognizes the need to expand eligibility 
for the qualified small business stock gain exclusion.
    The Committee believes that expanding eligibility for the 
qualified small business stock gain exclusion to more 
businesses will promote the formation of startup companies, 
lower the cost of financing for startup companies, create net 
new American jobs, and encourage innovation.

                        EXPLANATION OF PROVISION

    The provision makes three modifications to the section 1202 
gain exclusion.

Phased increase in exclusion for gain from qualified small business 
        stock

    The first modification shortens the holding period required 
to exclude any gain from the sale of qualified small business 
stock acquired after the date of enactment of the provision and 
allows 50 percent, 75 percent, or 100 percent of the gain to be 
excluded, depending on the holding period of the stock. 
Specifically, the exclusion percentage is 50 percent for such 
qualified small business stock held for at least three years, 
75 percent for such qualified small business stock held for at 
least four years, and 100 percent for such qualified small 
business stock held for five years or more. Further, in the 
case of such qualified small business stock, the AMT 
preference\59\ does not apply. The applicable percentages of 
gain which may be excluded are as follows.
---------------------------------------------------------------------------
    \59\Alternative minimum taxable income (``AMTI'') is equal to a 
taxpayer's regular taxable income modified by AMT tax preference items 
and various AMT adjustments. AMT tax preference items are deductions or 
exclusions that are allowed in computing regular taxable income but 
that are not allowed in computing AMTI (for example, the exclusion of 
gain from qualified small business stock). Secs. 55, 56, 57, and 58.

----------------------------------------------------------------------------------------------------------------
                                                                                             AMT  preference
        Stock acquisition date              Holding period        Exclusion percentage           applies?
----------------------------------------------------------------------------------------------------------------
After the date of enactment of the     At least three years...  50 percent.............  No
 provision.                            At least four years....  75 percent.............  No
                                       Five years or more.....   100 percent...........  No
After September 27, 2010, and on or    More than five years...  100 percent............  No
 before the date of enactment of the
 provision.
After February 17, 2009, and before    More than five years...  75 percent.............  Yes
 September 28, 2010.
Before February 18, 2009.............  More than five years...  50 percent\1\..........  Yes
----------------------------------------------------------------------------------------------------------------
\1\60 percent for certain empowerment zone businesses.

Tacking holding period of convertible debt instruments

    The second modification provides a holding period tacking 
rule with respect to a qualified convertible debt instrument. 
In the case of stock in a corporation acquired by the taxpayer 
without gain recognition solely through the conversion of a 
qualified convertible debt instrument, the stock is treated as 
having been held during the period that the qualified 
convertible debt instrument was held. If the bond or other 
evidence of indebtedness that is so converted is a qualified 
convertible debt instrument, then the stock so acquired is 
treated as qualified small business stock in the hands of the 
taxpayer. To be a qualified convertible debt instrument, a bond 
or other evidence of indebtedness must meet the requirements 
that it is originally issued by the corporation to the taxpayer 
and that it is convertible into stock of the corporation. It 
must also meet the requirements that the issuer of the bond or 
other evidence of indebtedness is a qualified small business 
from issuance until conversion, and that during substantially 
all of the period that the taxpayer holds the bond or evidence 
of indebtedness, the corporation meets the section 1202 active 
business requirements.

Gain exclusion allowed with respect to qualified small business stock 
        in S corporations

    The third modification under the provision extends the 
exclusion for section 1202 gains to stock in S corporations. 
Thus, stock of an S corporation can be qualified small business 
stock under section 1202 if the requirements of such section 
are met. Ownership of S corporation stock is taken into account 
in determining the aggregate gross assets of a controlled group 
of corporations.\60\ If gain is excluded under section 1202 
upon disposition of S corporation stock, the disposition is not 
a fully taxable transaction for purposes of the passive loss 
rule for dispositions of an entire interest in any passive 
activity.\61\ Thus, suspended losses from the S corporation 
will not be allowed in full when the taxpayer disposes of the S 
corporation stock and excludes any gain under section 1202. The 
requirements of section 1202 are applied at the S corporation 
level.
---------------------------------------------------------------------------
    \60\Sec. 1202(d)(1)-(3).
    \61\Sec. 469(g)(1)(A). The passive loss rules of section 469 limit 
deductions and credits from passive trade or business activities. They 
apply to individuals, estates and trusts, and closely-held 
corporations. Deductions attributable to passive activities, to the 
extent they exceed income from passive activities, generally may not be 
deducted against other income. Sec. 469(a) and (d). Deductions and 
credits that are suspended under these rules are carried forward and 
treated as deductions and credits from passive activities in the next 
year. Sec. 469(b). The suspended losses from a passive activity are 
allowed in full when a taxpayer disposes of his entire interest in the 
passive activity to an unrelated person. Sec. 469(g).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision relating to the phased increase in the gain 
exclusion percentage is generally effective for stock acquired 
after the date of enactment. However, the continued exclusion 
of gain from the sale of qualified small business stock from 
treatment as an AMT preference is effective as if included in 
the enactment of section 2011 of the Creating Small Business 
Jobs Act of 2010\62\ (i.e., for stock issued after September 
27, 2010).
---------------------------------------------------------------------------
    \62\Title II of Pub. L. No. 111-240, September 27, 2010.
---------------------------------------------------------------------------
    The provision relating to tacking the holding period of 
certain convertible debt instruments is effective for debt 
instruments originally issued after the date of enactment.
    The provision relating to allowing the section 1202 
exclusion for gain on certain stock of an S corporation is 
effective for stock acquired after the date of enactment.

D. Increase in Limitations on Expensing of Depreciable Business Assets 
             (sec. 5 of the bill and sec. 179 of the Code)


                              PRESENT LAW

    A taxpayer generally must capitalize the cost of property 
used in a trade or business or held for the production of 
income and recover such cost over time through annual 
deductions for depreciation or amortization.\63\ The period for 
depreciation or amortization generally begins when the asset is 
placed in service by the taxpayer.\64\ Tangible property 
generally is depreciated under the modified accelerated cost 
recovery system (``MACRS''), which determines depreciation for 
different types of property based on an assigned applicable 
depreciation method, recovery period, and convention.\65\
---------------------------------------------------------------------------
    \63\See secs. 263(a) and 167. In general, only the tax owner of 
property (i.e., the taxpayer with the benefits and burdens of 
ownership) is entitled to claim tax benefits such as cost recovery 
deductions with respect to the property. In addition, where property is 
not used exclusively in a taxpayer's business, the amount eligible for 
a deduction must be reduced by the amount related to personal use. See, 
e.g., sec. 280A.
    \64\See Treas. Reg. secs. 1.167(a)-10(b), -3, -14, and 1.197-2(f). 
See also Treas. Reg. sec. 1.167(a)-11(e)(1)(i).
    \65\Sec. 168.
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Election to expense certain depreciable business assets

    Subject to certain limitations, a taxpayer may elect under 
section 179 to deduct (or ``expense'') the cost of qualifying 
property, rather than to recover such costs through 
depreciation deductions.\66\ The maximum amount a taxpayer may 
expense is $1,000,000 of the cost of qualifying property placed 
in service for the taxable year.\67\ The $1,000,000 amount is 
reduced (but not below zero) by the amount by which the cost of 
qualifying property placed in service during the taxable year 
exceeds $2,500,000.\68\
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    \66\In the case of property purchased and placed in service by a 
partnership (or S corporation), the determination of whether the 
property is section 179 property is made at the partnership (or 
corporate) level, and the election to expense is made by the 
partnership (or S corporation). Treas. Reg. sec. 1.179-1(h).
    \67\Sec. 179(b)(1).
    \68\Sec. 179(b)(2).
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    The $1,000,000 and $2,500,000 amounts are indexed for 
inflation for taxable years beginning after 2018.\69\ For 
taxable years beginning in 2023, the total amount that may be 
expensed is $1,160,000, and the phase-out threshold amount is 
$2,890,000.\70\ For example, assume that during 2023 a calendar 
year taxpayer purchases and places in service $4,000,000 of 
section 179 property. The $1,160,000 section 179(b)(1) dollar 
amount for 2023 is reduced by the excess section 179 property 
cost amount of $1,110,000 ($4,000,000-$2,890,000). The 
taxpayer's 2023 section 179 expensing limitation is $50,000 
($1,160,000-$1,110,000).\71\
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    \69\Sec. 179(b)(6).
    \70\Section 3.25 of Rev. Proc. 2022-38, 2022-45 I.R.B. 445.
    \71\The taxpayer's remaining basis in the property may be eligible 
for bonus depreciation under section 168(k). See Treas. Reg. sec. 
1.168(k)-1(a)(2)(iii).
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    In general, qualifying property is defined as depreciable 
tangible personal property, off-the-shelf computer software, 
and qualified real property\72\ that is purchased for use in 
the active conduct of a trade or business.\73\ Qualifying 
property excludes any property described in section 50(b) 
(other than paragraph (2) thereof\74\).\75\
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    \72\At the election of the taxpayer. Sec. 179(d)(1)(B)(ii). See 
sec. 3.02 of Rev. Proc. 2019-08, 2019-03 I.R.B. 347, for guidance 
regarding the election to treat qualified real property as section 179 
property.
    \73\Sec. 179(d)(1). If section 179 property is not used 
predominantly in a trade or business of the taxpayer at any time before 
the end of its recovery period, recapture rules apply. See sec. 
179(d)(10) and Treas. Reg. sec. 1.179-1(e).
    \74\Thus, section 179 property includes certain depreciable 
tangible personal property used predominantly to furnish lodging or in 
connection with furnishing lodging (e.g., beds and other furniture, 
refrigerators, ranges, and other equipment used in the living quarters 
of a lodging facility such as an apartment house, dormitory, or any 
other facility (or part of a facility) where sleeping accommodations 
are provided and let). See Treas. Reg. sec. 1.48-1(h).
    \75\Sec. 179(d)(1) flush language. Property described in section 
50(b) (other than paragraph (2) thereof) is generally property used 
outside the United States, property used by certain tax-exempt 
organizations, and property used by governmental units and foreign 
persons or entities (i.e., certain property not eligible for the 
investment tax credit).
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    Qualified real property includes (1) qualified improvement 
property\76\ and (2) any of the following improvements to 
nonresidential real property that are placed in service by the 
taxpayer after the date such nonresidential real property was 
first placed in service: roofs; heating, ventilation, and air-
conditioning (``HVAC'') property;\77\ fire protection and alarm 
systems; and security systems.\78\
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    \76\As defined in sec. 168(e)(6).
    \77\HVAC property includes all components (whether in, on, or 
adjacent to the building) of a central air conditioning or heating 
system, including motors, compressors, pipes and ducts. Treas. Reg. 
sec. 1.48-1(e)(2). See also sec. 3.01(1)(b)(iii)(B) of Rev. Proc. 2019-
08, 2019-03 I.R.B. 347.
    \78\Sec. 179(e).
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    Passenger automobiles subject to the section 280F 
limitation are eligible for section 179 expensing only to the 
extent of the dollar limitations in section 280F.\79\ For sport 
utility vehicles above the 6,000 pound weight rating and not 
more than the 14,000 pound weight rating, which are not subject 
to the limitation under section 280F, the maximum cost that may 
be expensed for any taxable year under section 179 is $25,000 
(the ``sport utility vehicle limitation'').\80\ The $25,000 
amount is indexed for inflation for taxable years beginning 
after 2018. For taxable years beginning in 2023, the sport 
utility vehicle limitation is $28,900.\81\
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    \79\For a description of section 280F, see Joint Committee on 
Taxation, General Explanation of Public Law 115-97 (JCS-1-18), December 
2018, pp. 128-130. This document can be found on the Joint Committee on 
Taxation website at www.jct.gov.
    \80\Sec. 179(b)(5). For this purpose, a sport utility vehicle is 
defined to exclude any vehicle that: (1) is designed for more than nine 
individuals in seating rearward of the driver's seat; (2) is equipped 
with an open cargo area, or a covered box not readily accessible from 
the passenger compartment, of at least six feet in interior length; or 
(3) has an integral enclosure, fully enclosing the driver compartment 
and load carrying device, does not have seating rearward of the 
driver's seat, and has no body section protruding more than 30 inches 
ahead of the leading edge of the windshield.
    \81\Section 3.25 of Rev. Proc. 2022-38, 2022-45 I.R.B. 445.
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    The amount eligible to be expensed for a taxable year may 
not exceed the taxable income for such taxable year that is 
derived from the active conduct of a trade or business 
(determined without regard to section 179).\82\ Any amount that 
is not allowed as a deduction because of the taxable income 
limitation may be carried forward to succeeding taxable years 
(subject to limitations). In the case of a partnership (or S 
corporation), the section 179 limitations are applied at the 
partnership (or corporate) and partner (or shareholder) 
levels.\83\
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    \82\Sec. 179(b)(3). See also Treas. Reg. sec. 1.179-2(c)(6)(iv) 
(wages, salaries, tips, and other compensation received by a taxpayer 
as an employee are included in the taxpayer's aggregate amount of 
taxable income derived from the active conduct of a trade or business).
    \83\Sec. 179(d)(8).
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    Amounts expensed under section 179 are allowed for both 
regular tax and the alternative minimum tax.\84\ However, no 
general business credit under section 38 is allowed with 
respect to any amount for which a deduction is allowed under 
section 179.\85\ In addition, if a corporation makes an 
election under section 179 to deduct expenditures, the full 
amount of the deduction does not reduce earnings and profits. 
Rather, the expenditures that are deducted under section 179 
reduce corporate earnings and profits ratably over a five-year 
period.\86\
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    \84\See the Senate Finance Committee Report to Accompany H.R. 3838, 
Tax Reform Act of 1986, S. Rep. No. 99 313, May 29, 1985, p. 522. See 
also the Instructions for Form 6251, Alternative Minimum Tax--
Individuals (2022), p. 5.
    \85\Sec. 179(d)(9).
    \86\Sec. 312(k)(3)(B).
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    An expensing election is made under rules prescribed by the 
Secretary.\87\ In general, any election made under section 179, 
and any specification contained therein, may be revoked by the 
taxpayer with respect to any property without the consent of 
the Commissioner.\88\ Such revocation, once made, is 
irrevocable.
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    \87\Sec. 179(c)(1). Such election may be made on an amended return. 
See sec. 3.02 of Rev. Proc. 2017-33, 2017-19 I.R.B. 1236; and sec. 3.02 
of Rev. Proc. 2019-08, 2019-03 I.R.B. 347.
    \88\Sec. 179(c)(2).
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                           REASONS FOR CHANGE

    The Committee believes that section 179 expensing provides 
two important benefits for small businesses. First, it lowers 
the cost of capital for certain property used in a trade or 
business. With a lower cost of capital, the Committee believes 
that small businesses will invest in more equipment, expand 
their businesses, and employ more workers. Second, it 
eliminates depreciation recordkeeping requirements with respect 
to expensed property. In order to increase the value of these 
benefits and the number of eligible taxpayers that may receive 
these benefits, the provision increases both the amount allowed 
to be expensed under section 179 and the amount of the phase-
out threshold. In addition, in order to counteract the negative 
effect of inflation on the limit and phase-out threshold of 
this provision for small businesses, the provision indexes such 
amounts for inflation.

                        EXPLANATION OF PROVISION

    The provision increases the maximum amount a taxpayer may 
expense under section 179 to $2,500,000, and increases the 
phase-out threshold amount to $4,000,000. Thus, the provision 
provides that the maximum amount a taxpayer may expense for 
taxable years beginning after 2023 is $2,500,000 of the cost of 
section 179 property placed in service for the taxable year. 
The $2,500,000 amount is reduced (but not below zero) by the 
amount by which the cost of section 179 property placed in 
service during the taxable year exceeds $4,000,000. The 
$2,500,000 and $4,000,000 amounts are indexed for inflation for 
taxable years beginning after 2024.
    For example, assume that during 2024 a calendar year 
taxpayer purchases and places in service $4,500,000 of section 
179 property. The $2,500,000 section 179(b)(1) dollar amount 
for 2024 will be reduced by the excess section 179 property 
cost amount of $500,000 ($4,500,000-$4,000,000 limitation). 
Thus, the taxpayer's 2024 section 179 expensing limitation will 
be $2,000,000 ($2,500,000 dollar limitation-$500,000 excess). 
The remaining $2,500,000 ($4,500,000-$2,000,000 section 179 
expense) may be eligible for bonus depreciation under section 
168(k), depending on the types of assets placed in service.

                             EFFECTIVE DATE

    The provision applies to property placed in service in 
taxable years beginning after December 31, 2023.

 E. Establishment of Special Rules for Capital Gains Invested in Rural 
  Opportunity Zones, and Reporting on Qualified Opportunity Funds and 
 Qualified Rural Opportunity Funds (secs. 6 and 7 of the bill and new 
           secs. 1400Z-3, 6039K, 6039L, and 6726 of the Code)


                              PRESENT LAW

Overview

    Investments in qualified opportunity zones funds are 
entitled to three tax benefits, at the taxpayer's election: (1) 
a temporary deferral of the capital gain reinvested in the 
qualified opportunity zone (the ``rollover gain''), (2) a 
permanent 10 or 15 percent reduction in the amount of such gain 
that must be recognized if the investment is held for five or 
seven years, respectively, and (3) a permanent exclusion of 
future gains resulting from the investment in the opportunity 
zone if the investment is held for at least 10 years.\89\ To 
qualify, the rollover gain is generally required to be invested 
in the qualified opportunity fund during a 180-day period that 
begins on the date of the sale or exchange that generated the 
gain.
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    \89\Sec. 1400Z-2.
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    A qualified opportunity fund is an investment vehicle 
organized as a corporation or a partnership for the purpose of 
investing in qualified opportunity zone property. The number of 
communities designated as opportunity zones may be up to 25 
percent of the total number of a State's low-income 
communities, as designated by the governor of a State.\90\
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    \90\Sec. 1400Z-1.
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    A taxpayer may elect to temporarily defer and partially 
exclude capital gains from gross income to the extent that the 
taxpayer invests the amount of those gains in a qualified 
opportunity fund. The maximum amount of the deferred gain is 
equal to the amount invested in a qualified opportunity fund by 
the taxpayer during the 180-day period beginning on the date of 
the asset sale that produced the gain to be deferred. Capital 
gains in excess of the deferred amount must be recognized and 
included in gross income as under present law.
    In the case of any investment in a qualified opportunity 
fund, only a portion of which consists of the investment of 
gain with respect to which an election is made, such investment 
is treated as two separate investments, consisting of one 
investment that includes only amounts to which the election 
applies (herein ``deferred-gain investment''), and a separate 
investment consisting of other amounts. The temporary deferral 
and permanent exclusion provisions do not apply to the separate 
investment. For example, if a taxpayer sells stock at a gain 
and invests the entire sales proceeds (capital and return of 
basis) in a qualified opportunity zone fund, an election may be 
made only with respect to the capital gain amount. No election 
may be made with respect to amounts attributable to a return of 
basis, and no special tax benefits apply to such amounts.
    The basis of a deferred-gain investment in a qualified 
opportunity zone fund immediately after its acquisition is 
zero. If the deferred-gain investment in the qualified 
opportunity zone fund is held by the taxpayer for at least five 
years, the basis in the deferred-gain investment is increased 
by 10 percent of the original deferred gain. If the opportunity 
zone asset or investment is held by the taxpayer for at least 
seven years, the basis in the deferred gain investment is 
increased by an additional five percent of the original 
deferred gain. Some or all of the deferred gain is recognized 
on the earlier of (i) the date on which the qualified 
opportunity zone investment is disposed of, or (ii) December 
31, 2026. The amount of gain recognized is the excess of (i) 
the lesser of the amount deferred or the current fair market 
value of the investment (taking into account any increases at 
the end of five or seven years), over (ii) the taxpayer's basis 
in the investment. The taxpayer's basis in the investment is 
increased by the amount of gain recognized. No election under 
the provision may be made after December 31, 2026, or with 
respect to a disposition if an election previously made is in 
effect.
    The post-acquisition capital gains on deferred-gain 
investments in opportunity zone funds that are held for at 
least 10 years are excluded from gross income. Specifically, in 
the case of the sale or exchange of an investment in a 
qualified opportunity zone fund held for more than 10 years, a 
further election is allowed by the taxpayer to modify the basis 
of such deferred-gain investment in the hands of the taxpayer 
to be the fair market value of the deferred-gain investment at 
the date of such sale or exchange.
    In the case of a fund organized as a pass-through entity, 
investors recognize gains and losses associated with both 
deferred-gain and nondeferred-gain investments in the fund, 
under the rules generally applicable to pass-through entities. 
Thus, for example, investor-partners in a fund organized as a 
partnership would recognize income and increase their basis 
with respect to their distributive share of the fund's taxable 
income.

Qualifying geography

    In order to obtain the deferral and exclusion benefits of 
the qualified opportunity zones provisions, the taxpayer must 
invest in qualified opportunity zones. The Code allows for the 
designation of certain low-income community population census 
tracts as qualified opportunity zones.
    The term ``low-income communities'' has the same meaning as 
that used in the new markets tax credit provisions under 
section 45D. For both the new markets tax credit provisions and 
the opportunity zone provisions, a low-income community is 
either a population census tract that meets certain criteria, 
or specific areas designated by the Secretary. Specifically, a 
low-income community is a population census tract with either 
(1) a poverty rate of at least 20 percent, or (2) median family 
income which does not exceed 80 percent of the greater of 
metropolitan area median family income or statewide median 
family income (for a nonmetropolitan census tract, this does 
not exceed 80 percent of statewide median family income). In 
the case of a population census tract located within a high 
migration rural county, low-income is defined by reference to 
85 percent (as opposed to 80 percent) of statewide median 
family income. For this purpose, a high migration rural county 
is any county that, during the 20-year period ending with the 
year in which the most recent census was conducted, has a net 
out-migration of inhabitants from the county of at least 10 
percent of the population of the county at the beginning of 
such period.
    The Secretary is also authorized to designate ``targeted 
populations'' as low-income communities. For this purpose, a 
``targeted population'' is defined by reference to section 
103(20) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (the ``Act'') to mean individuals, or 
an identifiable group of individuals, including an Indian 
tribe, who are low-income persons or otherwise lack adequate 
access to loans or equity investments. Section 103(17) of the 
Act provides that ``low-income'' means (1) for a targeted 
population within a metropolitan area, less than 80 percent of 
the area median family income; and (2) for a targeted 
population within a nonmetropolitan area, less than the greater 
of 80 percent of the area median family income or 80 percent of 
the statewide nonmetropolitan area median family income. A 
targeted population is not required to be within any census 
tract. In addition, a population census tract with a population 
of less than 2,000 is treated as a low-income community for 
purposes of the qualified opportunity zone rules if such tract 
is within an empowerment zone, the designation of which is in 
effect under section 1391, and is contiguous to one or more 
low-income communities.
    In addition to low-income communities, a limited number of 
other census tracts that are not low-income communities can be 
so designated if they are contiguous to a designated low-income 
community and the median family income of such tracts does not 
exceed 125 percent of the median family income of the 
contiguous low-income community. The designation of a 
population census tract as a qualified opportunity zone remains 
in effect for the period beginning on the date of the 
designation and ending at the close of the tenth calendar year 
beginning on or after the date of designation.
    The chief executive officer of the State, possession, or 
the District of Columbia (i.e., Governor, or mayor in the case 
of the District of Columbia) may submit nominations for a 
limited number of qualified opportunity zones to the Secretary 
for certification and designation. If the number of low-income 
communities in a State is less than 100, the Governor may 
designate up to 25 tracts, otherwise the Governor may designate 
tracts not exceeding 25 percent of the number of low-income 
communities in the State. There is a special rule for Puerto 
Rico such that each population census tract in Puerto Rico that 
is a low-income community is deemed certified and designated as 
a qualified opportunity zone, effective on the date of 
enactment of Public Law 115-97 (i.e., December 22, 2017).

Project structure and steps required to obtain benefits

    As discussed, the opportunity zones provisions allow a 
taxpayer to make an election when investing in a qualified 
opportunity fund that results in three tax benefits. To take 
advantage of the election, a taxpayer generally sells capital 
assets then contributes the realized gain to a qualified 
opportunity fund within 180 days of the sale. The taxpayer can 
contribute funds in excess of the realized gain, but those 
funds will not be eligible for the tax benefits. The qualified 
opportunity fund contributes the amount received to a directly 
owned qualified opportunity zone business, a corporation in 
exchange for qualified opportunity zone stock, or a partnership 
in exchange for a qualified opportunity zone partnership 
interest.
    A qualified opportunity fund is an investment vehicle 
organized as a corporation or a partnership for the purpose of 
investing in qualified opportunity zone property (other than 
another qualified opportunity fund) that holds at least 90 
percent of its assets in qualified opportunity zone property. 
Qualified opportunity zone property means: (1) qualified 
opportunity zone stock, (2) qualified opportunity zone 
partnership interest, and (3) qualified opportunity zone 
business property.
    If a qualified opportunity fund fails to meet the 90 
percent requirement, unless the fund establishes reasonable 
cause, the fund is required to pay a monthly penalty equal to 
the excess of the amount equal to 90 percent of its aggregate 
assets, over the aggregate amount of qualified opportunity zone 
property held by the fund multiplied by the underpayment rate 
in the Code. If the fund is a partnership, the penalty is taken 
into account proportionately as part of each partner's 
distributive share.
    Qualified opportunity zone stock consists of stock in a 
domestic corporation that is a qualified opportunity zone 
business. There are three requirements that must be met for 
property to be considered qualified opportunity zone stock. 
First, the stock must be acquired at original issuance 
(directly or indirectly through an underwriter) solely for cash 
after December 31, 2017. Second, the corporation must have been 
a qualified opportunity zone business when the stock was issued 
(or, for a new corporation, was being organized to be a 
qualified opportunity zone business). Third, the corporation 
must qualify as a qualified opportunity zone business during 
substantially all of the qualified opportunity fund's holding 
period for the stock.
    Qualified opportunity zone partnership interest consists of 
capital or profits interests in a domestic partnership that is 
a qualified opportunity zone business. There are three 
requirements that must be met for property to be considered a 
qualified opportunity zone partnership interest. First, the 
interest must be acquired from the partnership solely for cash 
after December 31, 2017. Second, the partnership must have been 
a qualified opportunity zone business when the interest was 
acquired (or, for a new partnership, was being organized to be 
a qualified opportunity zone business). Third, the partnership 
must qualify as a qualified opportunity zone business during 
substantially all of the qualified opportunity fund's holding 
period for the interest.
    Qualified opportunity zone business property consists of 
tangible property used in the trade or business of a qualified 
opportunity fund or qualified opportunity zone business. There 
are three main requirements that must be met for property to be 
considered qualified opportunity zone business property. First, 
the property must be acquired by purchase after December 31, 
2017. Second, the original use of the property in the qualified 
opportunity zone must begin with the qualified opportunity fund 
or qualified opportunity zone business, or the qualified 
opportunity fund or qualified opportunity zone business must 
substantially improve the property. Only new or substantially 
improved property qualifies as opportunity zone business 
property. Third, substantially all of the property must be in a 
qualified opportunity zone during substantially all of the 
qualified opportunity fund's or qualified opportunity zone 
business's holding period for the property. Property is treated 
as substantially improved only if capital expenditures on the 
property in the 30 months after acquisition exceed the 
property's adjusted basis on the date of acquisition.
    A qualified opportunity zone business is any trade or 
business in which substantially all of the underlying value of 
the tangible property owned or leased by the business is 
qualified opportunity zone business property.
    In addition, (1) at least 50 percent of the total gross 
income of the trade or business must be derived from the active 
conduct of business in the qualified opportunity zone, (2) a 
substantial portion of the business's intangible property must 
be used in the active conduct of business in the qualified 
opportunity zone, and (3) less than five percent of the average 
of the aggregate adjusted bases of the property of the business 
is attributable to nonqualified financial property. 
Nonqualified financial property means debt, stock, partnership 
interests, annuities, and derivative financial instruments 
(including options, futures, forward contracts, and notional 
principal contracts), other than (1) reasonable amounts of 
working capital held in cash, cash equivalents, or debt 
instruments with a term of no more than 18 months, and (2) 
accounts or notes receivable acquired in the ordinary course of 
a trade or business for services rendered or from the sale of 
inventory property.\91\ The business cannot be a golf course, 
country club, massage parlor, hot tub or suntan facility, 
racetrack or other facility used for gambling, or store whose 
principal business is the sale of alcoholic beverages for 
consumption off premises.\92\
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    \91\Sec. 1397C(e).
    \92\Treas. Reg. sec. 1.400Z2(d)-1.
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    Tangible property that ceases to be qualified opportunity 
zone business property continues to be treated as qualified 
opportunity zone business property for the lesser of five years 
after the date on which such tangible property ceases to be so 
qualified, or the date on which such tangible property is no 
longer held by the qualified opportunity zone business.

Information reporting and data reporting

    The Code does not specifically provide rules for 
information reporting or data reporting from qualified 
opportunity funds or qualified opportunity zone businesses. The 
Code provides the Secretary with the authority to prescribe 
regulations as necessary to carry out the purposes of the 
section, including (i) rules for the certification of qualified 
opportunity funds, (ii) rules to ensure a qualified opportunity 
fund has a reasonable period of time to reinvest the return of 
capital from investments in qualified opportunity zone stock 
and qualified opportunity zone partnership interests, and to 
reinvest proceeds received from the sale or disposition of 
qualified opportunity zone property, and (iii) rules to prevent 
abuse.\93\
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    \93\Sec. 1400Z-2(e)(4). Three forms require reporting relating to 
opportunity zones: Form 8996, Qualified Opportunity Fund, Form 8949, 
Sales and Other Dispositions of Capital Assets, and Form 8997, Initial 
and Annual Statement of Qualified Opportunity Fund Investments. A 
corporation or partnership organized as a qualified opportunity fund 
uses Form 8996 to certify that it is organized to invest in qualified 
opportunity zone property and to report that the qualified opportunity 
fund meets the investment standard of the Code or to calculate the 
penalty if it fails to meet the investment standard. Taxpayers use Form 
8949 to report the election to defer capital gain invested in a 
qualified opportunity fund. Taxpayers use Form 8997 to report qualified 
opportunity fund investments held at the beginning and end of the year, 
capital gains for the year that were deferred, and investments disposed 
of during the year.
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                           REASONS FOR CHANGE

    The Committee believes that the existing opportunity zone 
program too often neglects areas with persistent poverty in 
favor of those that are rapidly gentrifying. The opportunity 
zone tax incentives have the potential to unleash economic 
growth in high poverty communities across the country--
communities that investors too often overlook. The Committee 
believes that tying these benefits to investments in rural 
communities will help restore the original promise of 
opportunity zones by steering private capital to reinvest in 
underserved communities that have been historically left 
behind. The Committee further believes that strong transparency 
and accountability measures are required such as taxpayer 
information reporting and data reporting by the Secretary to 
ensure the original program and its expansion to rural areas 
functions as intended.

                        EXPLANATION OF PROVISION

In general

    The provision establishes a new type of opportunity zone, 
called a qualified rural opportunity zone. The provision also 
requires information reporting from qualified opportunity 
funds, qualified rural opportunity funds, qualified opportunity 
zone businesses, and qualified rural opportunity zone 
businesses, and imposes penalties for failing to comply with 
these requirements. Finally, the provision requires the 
Secretary to publicly report various data on qualified 
opportunity funds and qualified rural opportunity funds.

Qualified rural opportunity zones

    The provision creates a new category of qualified 
opportunity zones called qualified rural opportunity zones. 
Qualified rural opportunity zones are defined as any population 
census tract if: (i) such census tract is located in a rural 
county, and (ii) is in persistent poverty (as determined by the 
Bureau of the Census using the same methodology and data as 
used in the May 2023 report of such Bureau entitled 
``Persistent Poverty in Counties and Census Tracts''). Where 
any portion of a State is not within a county, the Secretary 
shall designate an area which is the equivalent of a county 
under a rule similar to section 143(k)(2)(D). The term ``rural 
county'' means any county if more than 50 percent of the census 
blocks which comprise such county are rural blocks (as 
determined by the Bureau of the Census as of the date of 
enactment of this provision).
    As with qualified opportunity zones, investments in 
qualified rural opportunity zones funds are entitled to three 
tax benefits, at the taxpayer's election: (1) a temporary 
deferral of the capital gain reinvested in the qualified 
opportunity zone (the ``rollover gain''), (2) a permanent 10 or 
15 percent reduction in the amount of such gain that must be 
recognized if the investment is held for five or seven years, 
respectively, and (3) a permanent exclusion of future gains 
resulting from the investment in the opportunity zone if the 
investment is held for at least 10 years. To qualify, the 
rollover gain is generally required to be invested in the 
qualified rural opportunity fund during a 180-day period that 
begins on the date of the sale or exchange that generated the 
gain.
    Under the provision, there are three main differences 
between the rules for qualified opportunity zones and those for 
qualified rural opportunity zones. First, the qualified 
opportunity zone rules provide that some or all of the deferred 
gain is recognized on the earlier of the date on which the 
qualified opportunity zone investment is disposed of or 
December 31, 2026. The qualified opportunity zone rules also 
provide that no election may be made after December 31, 2026. 
The qualified rural opportunity zone rules, on the other hand, 
provide that some or all of the deferred gain is recognized on 
the earlier of the date on which the qualified opportunity zone 
investment is disposed of or December 31, 2032. In addition, 
the qualified rural opportunity zones rules provide that no 
election may be made after December 31, 2032.
    Second is the difference in the date by which stock, a 
partnership interest, and property must be acquired to qualify 
as qualified rural opportunity zone stock, qualified rural 
opportunity zone partnership interest and qualified rural 
opportunity zone business property, respectively. For purposes 
of the qualified opportunity zone rules, stock is to be 
acquired at original issuance (directly or indirectly through 
an underwriter) solely for cash after December 31, 2017, a 
partnership interest is to be acquired from the partnership 
solely for cash after December 31, 2017, and property is to be 
acquired by purchase after December 31, 2017. In contrast, for 
purposes of the qualified rural opportunity zone rules, stock, 
a partnership interest, and property is required to be acquired 
after December 31, 2023.
    Third, in order to obtain the deferral and exclusion 
benefits of the qualified rural opportunity zones provisions, 
the taxpayer must invest in qualified rural opportunity zones. 
Unlike the rules with respect to qualified opportunity zones, 
however, the provision does not provide for the chief executive 
officer of the State to submit nominations for qualified rural 
opportunity zones to the Secretary for certification and 
designation.

Information reporting requirements for qualified opportunity funds, 
        qualified rural opportunity funds, qualified opportunity zone 
        businesses, and qualified rural opportunity zone businesses

    The provision requires information reporting from (i) 
qualified opportunity funds and qualified rural opportunity 
funds, and (ii) qualified opportunity zone businesses and 
qualified rural opportunity zone businesses. The provision 
requires that the qualified opportunity funds and qualified 
rural opportunity funds electronically file their returns. The 
provision states that any term used in these information 
reporting sections has the same meaning as used in current law 
governing qualified opportunity zones.
            Qualified opportunity funds
    The provision requires every qualified opportunity fund to 
file an annual return (at such time and in such manner as the 
Secretary may prescribe) containing the following information:
           the name, address, and TIN of the qualified 
        opportunity fund;
           whether the qualified opportunity fund is 
        organized as a corporation or a partnership;
           the value of the total assets held by the 
        qualified opportunity fund as of each date described in 
        section 1400Z-2(d)(1);
           the value of all qualified opportunity zone 
        property held by the qualified opportunity fund on each 
        such date;
           with respect to each investment held by the 
        qualified opportunity fund in qualified opportunity 
        zone stock or a qualified opportunity zone partnership 
        interest:
                 the name, address, and TIN of the 
                corporation in which such stock is held or the 
                partnership in which such interest is held,
                 each North American Industry 
                Classification System (``NAICS'') Code that 
                applies to the trades or businesses conducted 
                by such corporation or partnership,
                 the population census tracts in 
                which the qualified opportunity zone business 
                property of such corporation or partnership is 
                located,
                 the amount of the investment in 
                such stock or partnership interest as of each 
                date described in section 1400Z-2(d)(1),
                 the value of tangible property 
                held by such corporation or partnership on each 
                date which is owned by such corporation or 
                partnership,
                 the approximate number of 
                residential units (if any) for any real 
                property held by such corporation or 
                partnership, and
                 the approximate average monthly 
                number of full-time equivalent employees of 
                such corporation or partnership for the year 
                (within numerical ranges identified by the 
                Secretary) or such other indication of the 
                employment impact of such corporation or 
                partnership as determined appropriate by the 
                Secretary;
           with respect to the items of qualified 
        opportunity zone business property held by the 
        qualified opportunity fund:
                 the NAICS Code that applies to the 
                trades or businesses in which such property is 
                held,
                 the population census tract in 
                which the property is located,
                 whether the property is owned or 
                leased,
                 the aggregate value of the items 
                of qualified opportunity zone property held by 
                the qualified opportunity fund as of such date 
                described in section 1400Z-2(d)(1), and
                 in the case of real property, 
                number of residential units (if any);
           the approximate average monthly number of 
        full-time equivalent employees for the year of the 
        trades or businesses of the qualified opportunity fund 
        in which qualified opportunity zone business property 
        is held (within numerical ranges identified by the 
        Secretary) or such other indication of the employment 
        impact of such trades or businesses as determined 
        appropriate by the Secretary;
           with respect to each person who disposed of 
        an investment in the qualified opportunity fund during 
        the year:
                 the name and TIN of such person,
                 the date(s) on which the 
                investment disposed was acquired, and
                 the date(s) on which any such 
                investment was disposed and the amount of the 
                investment disposed; and
           such other information as the Secretary may 
        require.
    For purposes of this information reporting requirement, the 
term ``full-time equivalent employees'' means with respect to 
any month, the sum of: (i) the number of full-time employees 
(as defined in section 4980H(c)(4)), for the month plus (ii) 
the number of employees determined (under rules similar to the 
rules of section 4980H(e)(2)(E)) by dividing the aggregate 
number of hours of service of employees who are not full-time 
employees for the month by 120.
    Every qualified opportunity fund required to file an 
information return with the IRS as discussed above is also 
required to provide a written statement to each person whose 
name is required to be provided on the return because the 
person disposed of an investment in the qualified opportunity 
fund during the year. The written statement is required to 
show:
           the name, address and phone number of the 
        information contact of the qualified opportunity fund 
        required to file the return, and
           the following information with respect to 
        the person who disposed of the investment:
                 the name and TIN of the person,
                 the date(s) on which the 
                investment disposed was acquired, and
                 the date(s) on which any such 
                investment was disposed of and the amount of 
                the investment disposed of.
    The provision treats this statement as a payee statement 
under the Code, subject to information reporting penalties as 
discussed below.
            Qualified rural opportunity funds
    The provision applies the above information reporting 
requirements for qualified opportunity funds to qualified rural 
opportunity funds. Thus, qualified rural opportunity funds are 
required to file an annual return with the IRS and provide 
statements to persons who dispose of their investment in the 
qualified rural opportunity fund during the year.
            Qualified opportunity zone businesses
    The provision requires every applicable qualified 
opportunity zone business to provide to the qualified 
opportunity fund a written statement in such manner and setting 
forth such information as the Secretary may prescribe for 
purposes of enabling the qualified opportunity fund to meet its 
information return reporting requirements. The term 
``applicable qualified opportunity zone business'' means any 
qualified opportunity zone business: (i) which is a trade or 
business of a qualified opportunity fund, (ii) in which a 
qualified opportunity fund holds qualified opportunity zone 
stock, or (iii) in which a qualified opportunity fund holds a 
qualified opportunity zone partnership interest. The provision 
treats this statement as a payee statement under the Code, 
subject to information reporting penalties as discussed below.
            Qualified rural opportunity zone businesses
    The provision applies the information reporting 
requirements for qualified opportunity zone businesses to 
qualified rural opportunity zone businesses. Thus, applicable 
qualified rural opportunity zone businesses are required to 
provide to the qualified rural opportunity fund a written 
statement in such manner and setting for such information as 
the Secretary may prescribe.

Penalties for failure to comply with information reporting requirements 
        for qualified opportunity funds and qualified rural opportunity 
        funds

    The provision provides penalties for qualified opportunity 
funds and qualified rural opportunity funds that do not comply 
with appropriate information reporting requirements. The 
provision also provides penalties for qualified opportunity 
zone businesses and qualified rural opportunity zone businesses 
that do not furnish the required statements to the qualified 
opportunity funds and the qualified rural opportunity funds.
            Qualified opportunity funds
    Any qualified opportunity fund that fails to file a 
complete and correct information return in the time and manner 
required must pay a penalty of $500 per day, subject to a 
maximum penalty with respect to one return of $10,000. The 
maximum penalty is increased to $50,000 for qualified 
opportunity funds with gross assets (determined on the last day 
of the taxable year) in excess of $10,000,000 (``large 
funds''). For intentional disregard of the reporting 
information requirements, the penalty is $2,500 per day, 
subject to a maximum penalty of $50,000, or $250,000 in the 
case of large funds. The penalty amounts are subject to 
inflation adjustments for returns required to be filed after 
calendar year 2023.
            Qualified opportunity funds and qualified opportunity fund 
                    businesses
    The provision also provides penalties for: (i) failure of 
the qualified opportunity fund to provide the written statement 
to each person whose name is required to be provided on the 
return because the person disposed of an investment in the 
qualified opportunity fund during the year, and (ii) failure of 
the qualified opportunity zone business to provide the written 
statement in such manner and setting forth such information as 
the Secretary may prescribe for purposes of enabling the 
qualified opportunity fund to meet its information return 
reporting requirements. The provision treats these statements 
as payee statements under the Code, and as such, subjects the 
qualified opportunity fund and the qualified opportunity fund 
business to the current information reporting penalties for 
failures relating to payee statements.\94\
---------------------------------------------------------------------------
    \94\A person who fails to furnish correct written statements to 
recipients of payments for which information reporting is required is 
subject to a penalty of $250 for each statement with respect to which 
such a failure occurs, up to a maximum of $3,000,000 in any calendar 
year, adjusted for inflation. Sec. 6722. These amounts are subject to 
inflation adjustments under section 6722(f). For information statements 
due in calendar year 2023, the penalty amount is $290, up to a maximum 
of $3,532,500 per year. For information statements due in calendar year 
2024, the penalty amount is $310, up to a maximum of $3,783,000 per 
year. The penalties are reduced if the failure is corrected within a 
specific amount of time. Sec. 6722(b). The penalties are waived if a 
person establishes that any failure was due to reasonable cause and not 
willful neglect. Sec. 6724(a). These failure to furnish penalties are 
reduced for small businesses (sec. 6722(d)) and increased for failures 
due to intentional disregard (sec. 6722(e)).
---------------------------------------------------------------------------
            Qualified rural opportunity funds and qualified rural 
                    opportunity zone businesses
    The provision also imposes the penalties discussed above on 
the qualified rural opportunity funds for (i) failure to file a 
complete and correct information return in the time and manner 
required, and (ii) failure to provide the written statement to 
each person whose name is required to be provided on the return 
because the person disposed of an investment in the qualified 
rural opportunity fund during the year. And the provision 
imposes the penalties discussed above on the qualified rural 
opportunity zone businesses for failure of the qualified rural 
opportunity zone business to provide the written statement in 
such manner and setting forth such information as the Secretary 
may prescribe for purposes of enabling the qualified rural 
opportunity fund to meet its information return reporting 
requirements.

Reporting of data on opportunity zone tax incentives

    As soon as practical after the date of enactment, and 
annually thereafter, the Secretary or the Secretary's delegate, 
in consultation with the Director of the Bureau of the Census 
and such other agencies as the Secretary determines, are 
required to publish a report on qualified opportunity funds. 
The report is required to include the following information:
          (i) the number of qualified opportunity funds;
          (ii) the aggregate dollar amount of assets held in 
        qualified opportunity funds;
          (iii) the aggregate dollar amount of investments made 
        by qualified opportunity funds in qualified opportunity 
        fund property, stated separately for each NAICS Code;
          (iv) the percentage of population census tracts 
        designated as qualified opportunity zones that have 
        received qualified opportunity fund investments;
          (v) for each population census tract designated as a 
        qualified opportunity zone, the approximate average 
        monthly number of full-time equivalent employees of the 
        qualified opportunity zone businesses in such qualified 
        opportunity zone for the preceding 12-month period 
        (within numerical wages identified by the Secretary) or 
        other indication of the employment impact of such 
        qualified opportunity fund businesses as determined by 
        the Secretary;
          (vi) the percentage of the total amount of 
        investments made by qualified opportunity funds in (1) 
        qualified opportunity zone property which is real 
        property, and (2) other qualified opportunity zone 
        property;
          (vii) for each population census tract, the aggregate 
        approximate number of residential units resulting from 
        investments made by qualified opportunity funds in real 
        property; and
          (viii) the aggregate dollar amount of investments 
        made by qualified opportunity funds in each population 
        census tract.
    In addition to the report described above, for the sixth 
year after the date of enactment, the Secretary is required to 
include in the report the impacts and outcomes of a designation 
of a population census tract as a qualified opportunity zone as 
measured by economic indicators, such as job creation, poverty 
reduction, new business starts, and other metrics as determined 
by the Secretary.
    Also, in the sixth year or the 11th year after the date of 
enactment, the Secretary is required to include in the report, 
for population census tracts designated as a qualified 
opportunity zone, a comparison (based on aggregate information) 
of the factors described below: (i) between the five-year 
period ending on the date of the enactment of Public Law 115-97 
(i.e., December 22, 2017) and the most recent five-year period 
for which data is available; and (ii) for the most recent five-
year period for which data is available between such population 
census tracts and similar population census tracts that were 
not designated as a qualified opportunity zone. The Secretary 
is permitted to combine population census tracts into such 
groups as the Secretary determines appropriate for purposes of 
making comparisons.
    The factors are:
          (i) the unemployment rate;
          (ii) the number of persons working in the population 
        census tract, including the percentage of such persons 
        who were not residents in the population census tract 
        in the preceding year;
          (iii) individual, family, and household poverty 
        rates;
          (iv) median family income of residents of the 
        population census tract;
          (v) demographic information on residents of the 
        population census tract, including age, income, 
        education, race, and employment;
          (vi) the average percentage of income of residents of 
        the population census tract spent on rent annually;
          (vii) the number of residences in the population 
        census tract;
          (viii) the rate of home ownership in the population 
        census tract;
          (ix) the average value of residential property in the 
        population census tract;
          (x) the number of affordable housing units in the 
        population census tract;
          (xi) the number and percentage of residents in the 
        population census tract that were not employed for the 
        preceding year;
          (xii) the number of new business starts in the 
        population census tract; and
          (xiii) the distribution of employees in the 
        population census tract by NAICS Code.
    The provision requires the Secretary to establish 
appropriate procedures to ensure that any amounts reported do 
not disclose taxpayer return information that can be associated 
with any particular taxpayer or competitive or proprietary 
information, and if necessary to protect taxpayer return 
information, allows the Secretary to combine information 
required with respect to individual population census tracts 
into larger geographic areas.

Reporting of data on rural opportunity zone tax incentives

    The provision requires the Secretary to separately publish 
the same reports for qualified rural opportunity funds as those 
required above for qualified opportunity funds. For this 
purpose, the date of enactment of the provision is substituted 
for the date of enactment of Public Law 115-97 (i.e., December 
22, 2017).

                            EFFECTIVE DATES

    The provision establishing qualified rural opportunity 
zones applies to amounts invested after the date of enactment.
    The provision relating to information reporting 
requirements applies to calendar years beginning after the date 
of enactment.
    The provision relating to data to be reported by the 
Secretary becomes effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with the Rules 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. 3937, the ``Small Business Jobs Act,'' on 
June 13, 2023.
    The vote on the amendment offered by Mr. Beyer to the 
amendment in the nature of a substitute to H.R. 3937, which 
limit access to capital for small businesses by adding 
additional restrictions to taxpayers eligible for Section 1202 
treatment was not agreed to by a roll call vote of 16 yeas to 
23 nays (with a quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay      Present    Representative      Yea        Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith (MO).................  ........         X   ........  Mr. Neal.........         X   ........  ........
Mr. Buchanan...................  ........         X   ........  Mr. Doggett......         X   ........  ........
Mr. Smith (NE).................  ........         X   ........  Mr. Thompson.....         X   ........  ........
Mr. Kelly......................  ........         X   ........  Mr. Larson.......         X   ........  ........
Mr. Schweikert.................  ........         X   ........  Mr. Blumenauer...         X   ........  ........
Mr. LaHood.....................  ........  .........  ........  Mr. Pascrell.....  .........  ........  ........
Dr. Wenstrup...................  ........  .........  ........  Mr. Davis........         X   ........  ........
Mr. Arrington..................  ........         X   ........  Ms. Sanchez......         X   ........  ........
Dr. Ferguson...................  ........         X   ........  Mr. Higgins......         X   ........  ........
Mr. Estes......................  ........         X   ........  Ms. Sewell.......  .........  ........  ........
Mr. Smucker....................  ........         X   ........  Ms. DelBene......         X   ........  ........
Mr. Hern.......................  ........         X   ........  Ms. Chu..........         X   ........  ........
Ms. Miller.....................  ........         X   ........  Ms. Moore........         X   ........  ........
Dr. Murphy.....................  ........         X   ........  Mr. Kildee.......         X   ........  ........
Mr. Kustoff....................  ........         X   ........  Mr. Beyer........         X   ........  ........
Mr. Fitzpatrick................  ........         X   ........  Mr. Evans........         X   ........  ........
Mr. Steube.....................  ........         X   ........  Mr. Schneider....         X   ........  ........
Ms. Tenney.....................  ........         X   ........  Mr. Panetta......         X   ........  ........
Mrs. Fischbach.................  ........         X   ........
Mr. Moore......................  ........         X   ........
Mrs. Steel.....................  ........         X   ........
Ms. Van Duyne..................  ........         X   ........
Mr. Feenstra...................  ........         X   ........
Ms. Malliotakis................  ........         X   ........
Mr. Carey......................  ........         X   ........
----------------------------------------------------------------------------------------------------------------

    In compliance with the Rules 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. 3937, the ``Small Business Jobs Act'' on 
June 13, 2023.
    H.R. 3937 was ordered favorably reported to the House of 
Representatives as amended by a roll call vote of 24 yeas to 18 
nays (with a quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay      Present    Representative      Yea        Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith (MO).................        X   .........  ........  Mr. Neal.........  .........        X   ........
Mr. Buchanan...................        X   .........  ........  Mr. Doggett......  .........        X   ........
Mr. Smith (NE).................        X   .........  ........  Mr. Thompson.....  .........        X   ........
Mr. Kelly......................        X   .........  ........  Mr. Larson.......  .........        X   ........
Mr. Schweikert.................        X   .........  ........  Mr. Blumenauer...  .........        X   ........
Mr. LaHood.....................  ........  .........  ........  Mr. Pascrell.....  .........        X   ........
Dr. Wenstrup...................        X   .........  ........  Mr. Davis........  .........        X   ........
Mr. Arrington..................        X   .........  ........  Ms. Sanchez......  .........        X   ........
Dr. Ferguson...................        X   .........  ........  Mr. Higgins......  .........        X   ........
Mr. Estes......................        X   .........  ........  Ms. Sewell.......  .........        X   ........
Mr. Smucker....................        X   .........  ........  Ms. DelBene......  .........        X   ........
Mr. Hern.......................        X   .........  ........  Ms. Chu..........  .........        X   ........
Ms. Miller.....................        X   .........  ........  Ms. Moore........  .........        X   ........
Dr. Murphy.....................        X   .........  ........  Mr. Kildee.......  .........        X   ........
Mr. Kustoff....................        X   .........  ........  Mr. Beyer........  .........        X   ........
Mr. Fitzpatrick................        X   .........  ........  Mr. Evans........  .........        X   ........
Mr. Steube.....................        X   .........  ........  Mr. Schneider....  .........        X   ........
Ms. Tenney.....................        X   .........  ........  Mr. Panetta......  .........        X   ........
Mrs. Fischbach.................        X   .........  ........
Mr. Moore......................        X   .........  ........
Mrs. Steel.....................        X   .........  ........
Ms. Van Duyne..................        X   .........  ........
Mr. Feenstra...................        X   .........  ........
Ms. Malliotakis................        X   .........  ........
Mr. Carey......................        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, H.R. 3937, as 
reported.
    The bill is estimated to have no effect on the Federal 
fiscal year budget receipts for the period 2023 through 2033.


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

    In compliance with 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 states further that the bill involves no new or 
increased tax expenditures.

            C. Cost Estimate Prepared by the Congressional 
                             Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the cost estimate prepared by 
the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974 was not 
available.

     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 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 does not authorize funding, so no statement of general 
performance goals and objectives 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)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill, and states that the bill does not 
provide such a Federal income tax rate increase.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') 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 
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, for each such provision identified by 
the staff of the Joint Committee on Taxation, a summary 
description of each provision is provided below along with an 
estimate of the number and type of affected taxpayers, and a 
discussion regarding the relevant complexity and administrative 
issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and Treasury regarding 
each provision included in the complexity analysis.

             List of Provisions in the Complexity Analysis


   1. Increase in Threshold for Requiring Information Reporting With 
             Respect to Certain Payees (sec. 2 of the bill)


Summary description of provision

    The provision increases the information reporting threshold 
under sections 6041 and 6041A to $5,000 in a calendar year, 
with the threshold amount (including the threshold for 
reporting of direct sales) to be indexed annually for inflation 
in calendar years after 2024. The provision also makes a 
conforming change to the dollar threshold in section 3406 with 
respect to information reporting required under sections 6041 
and 6041A to align with the new $5,000 reporting threshold.

Number of affected taxpayers

    It is estimated that the provision will affect more than 10 
percent of individual or small business tax returns.

Discussion

    If greater reporting from unrelated third parties were 
available, it is possible that the IRS could more readily 
identify areas of underreported income of the payees. In 
general, the more payments to which information reporting and/
or withholding applies, the greater the improvement in 
compliance. However, numerous critics have pointed to the fact 
that not raising the reporting thresholds for inflation since 
1954 poses a disproportionate administrative burden on those 
required to comply with the reporting obligations, including 
small businesses. For a small business without sufficient 
personnel or an automated payroll system, meeting these 
reporting requirements may be time consuming and complicated. 
The payor must collect tax identification and other personal 
information from the payee and must remit a Form 1099 to both 
the payee and the IRS. Even for businesses with sufficient 
systems in place, the administrative costs of gathering tax 
information from a single payee might not justify the 
compliance gain, especially for low dollar, non-recurring 
transactions.

Comments from IRS and Treasury


 2. Restoration of Reporting Rule for Third Party Network Transactions 
                          (sec. 3 of the bill)


Summary description of provision

    The provision reverts to the previous de minimis reporting 
exception for third party settlement organizations. A third 
party settlement organization is not required to report unless 
the aggregate value of third party network transactions with 
respect to a participating payee for the year exceeds $20,000 
and the aggregate number of such transactions with respect to a 
participating payee exceeds 200.

Number of affected taxpayers

    It is estimated that the provision will affect more than 10 
percent of individual or small business tax returns.

Discussion

    If greater reporting from unrelated third parties were 
available, it is possible that the IRS could more readily 
identify areas of underreported income of the payees. In 
general, the more payments to which information reporting and/
or withholding applies, the greater the improvement in 
compliance. However, proponents of the provision have noted 
that if the previous threshold is not reinstated, it could 
yield to confusion for online platforms and taxpayers with 
casual or low-level on-line activity, which could result in 
overreporting of income and therefore overpayment of taxes as 
well as ineligibility for certain tax benefits. They contend 
that aggregate reporting on a Form 1099-K of gross proceeds 
will create confusion for taxpayers who will have to report 
each sale or transaction independent of others to correctly 
calculate gain or loss. Proponents further content that the 
lower threshold may require taxpayers to hire tax professionals 
and keep onerous records and receipts or may mislead them into 
thinking the existence of a Form 1099-K represents taxable 
income they must report.

Comments from IRS and Treasury

3. Increase in Limitations on Expensing of Depreciable Business Assets 
                          (sec. 5 of the bill)


Summary description of provision

    The provision provides that the maximum amount a taxpayer 
may expense, for property placed in service in taxable years 
beginning after 2023, is $2,500,000 of the cost of qualifying 
property placed in service for the taxable year. The $2,500,000 
amount is reduced (but not below zero) by the amount by which 
the cost of qualifying property placed in service during the 
taxable year exceeds $4,000,000. The $2,500,000 and $4,000,000 
amounts are indexed for inflation for taxable years beginning 
after 2024.

Number of affected taxpayers

    It is estimated that the provision will affect more than 10 
percent of small business tax returns.

Discussion

    While taxpayers purchasing section 179 property will still 
be required to complete and file Form 4562, Depreciation and 
Amortization (Including Information on Listed Property), 
significantly less detail is required to be included on such 
form. Accordingly, the compliance burden of many taxpayers will 
be reduced.

Comments from IRS and Treasury

    See insert B.

  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 has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with 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 the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    With respect to the requirement of 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:

         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 italics, 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 VI--ALTERNATIVE MINIMUM TAX

           *       *       *       *       *       *       *


SEC. 57. ITEMS OF TAX PREFERENCE.

  (a) General rule.--For purposes of this part, the items of 
tax preference determined under this section are--
          (1) Depletion.--With respect to each property (as 
        defined in section 614), the excess of the deduction 
        for depletion allowable under section 611 for the 
        taxable year over the adjusted basis of the property at 
        the end of the taxable year (determined without regard 
        to the depletion deduction for the taxable year). This 
        paragraph shall not apply to any deduction for 
        depletion computed in accordance with section 613A(c).
          (2) Intangible drilling costs.--
                  (A) In general.--With respect to all oil, 
                gas, and geothermal properties of the taxpayer, 
                the amount (if any) by which the amount of the 
                excess intangible drilling costs arising in the 
                taxable year is greater than 65 percent of the 
                net income of the taxpayer from oil, gas, and 
                geothermal properties for the taxable year.
                  (B) Excess intangible drilling costs.--For 
                purposes of subparagraph (A), the amount of the 
                excess intangible drilling costs arising in the 
                taxable year is the excess of--
                          (i) the intangible drilling and 
                        development costs paid or incurred in 
                        connection with oil, gas, and 
                        geothermal wells (other than costs 
                        incurred in drilling a nonproductive 
                        well) allowable under section 263(c) or 
                        291(b) for the taxable year, over
                          (ii) the amount which would have been 
                        allowable for the taxable year if such 
                        costs had been capitalized and straight 
                        line recovery of intangibles (as 
                        defined in subsection (b)) had been 
                        used with respect to such costs.
                  (C) Net income from oil, gas, and geothermal 
                properties.--For purposes of subparagraph (A), 
                the amount of the net income of the taxpayer 
                from oil, gas, and geothermal properties for 
                the taxable year is the excess of--
                          (i) the aggregate amount of gross 
                        income (within the meaning of section 
                        613(a)) from all oil, gas, and 
                        geothermal properties of the taxpayer 
                        received or accrued by the taxpayer 
                        during the taxable year, over
                          (ii) the amount of any deductions 
                        allocable to such properties reduced by 
                        the excess described in subparagraph 
                        (B) for such taxable year.
                  (D) Paragraph applied separately with respect 
                to geothermal properties and oil and gas 
                properties.--This paragraph shall be applied 
                separately with respect to--
                          (i) all oil and gas properties which 
                        are not described in clause (ii), and
                          (ii) all properties which are 
                        geothermal deposits (as defined in 
                        section 613(e)(2)).
                  (E) Exception for independent producers.--In 
                the case of any oil or gas well--
                          (i) In general.--This paragraph shall 
                        not apply to any taxpayer which is not 
                        an integrated oil company (as defined 
                        in section 291(b)(4)).
                          (ii) Limitation on benefit.--The 
                        reduction in alternative minimum 
                        taxable income by reason of clause (i) 
                        for any taxable year shall not exceed 
                        40 percent of the alternative minimum 
                        taxable income for such year determined 
                        without regard to clause (i) and the 
                        alternative tax net operating loss 
                        deduction under section 56(a)(4).
          (5) Tax-exempt interest.--
                  (A) In general.--Interest on specified 
                private activity bonds reduced by any deduction 
                (not allowable in computing the regular tax) 
                which would have been allowable if such 
                interest were includible in gross income.
                  (B) Treatment of exempt-interest dividends.--
                Under regulations prescribed by the Secretary, 
                any exempt-interest dividend (as defined in 
                section 852(b)(5)(A)) shall be treated as 
                interest on a specified private activity bond 
                to the extent of its proportionate share of the 
                interest on such bonds received by the company 
                paying such dividend.
                  (C) Specified private activity bonds.--
                          (i) In general.--For purposes of this 
                        part, the term ``specified private 
                        activity bond'' means any private 
                        activity bond (as defined in section 
                        141) which is issued after August 7, 
                        1986, and the interest on which is not 
                        includible in gross income under 
                        section 103.
                          (ii) Exception for qualified 
                        501(c)(3) bonds.--For purposes of 
                        clause (i), the term ``private activity 
                        bond'' shall not include any qualified 
                        501(c)(3) bond (as defined in section 
                        145).
                          (iii) Exception for certain housing 
                        bonds.--For purposes of clause (i), the 
                        term ``private activity bond'' shall 
                        not include any bond issued after the 
                        date of the enactment of this clause if 
                        such bond is--
                                  (I) an exempt facility bond 
                                issued as part of an issue 95 
                                percent or more of the net 
                                proceeds of which are to be 
                                used to provide qualified 
                                residential rental projects (as 
                                defined in section 142(d)),
                                  (II) a qualified mortgage 
                                bond (as defined in section 
                                143(a)), or
                                  (III) a qualified veterans' 
                                mortgage bond (as defined in 
                                section 143(b)).
                 The preceding sentence shall not apply to any 
                refunding bond unless such preceding sentence 
                applied to the refunded bond (or in the case of 
                a series of refundings, the original bond).
                          (iv) Exception for refundings.--For 
                        purposes of clause (i), the term 
                        ``private activity bond'' shall not 
                        include any refunding bond (whether a 
                        current or advance refunding) if the 
                        refunded bond (or in the case of a 
                        series of refundings, the original 
                        bond) was issued before August 8, 1986.
                          (v) Certain bonds issued before 
                        September 1, 1986.--For purposes of 
                        this subparagraph, a bond issued before 
                        September 1, 1986, shall be treated as 
                        issued before August 8, 1986, unless 
                        such bond would be a private activity 
                        bond if--
                                  (I) paragraphs (1) and (2) of 
                                section 141(b) were applied by 
                                substituting ``25 percent'' for 
                                ``10 percent'' each place it 
                                appears,
                                  (II) paragraphs (3), (4), and 
                                (5) of section 141(b) did not 
                                apply, and
                                  (III) subparagraph (B) of 
                                section 141(c)(1) did not 
                                apply.
                          (vi) Exception for bonds issued in 
                        2009 and 2010.--
                                  (I) In general.--For purposes 
                                of clause (i), the term 
                                ``private activity bond'' shall 
                                not include any bond issued 
                                after December 31, 2008, and 
                                before January 1, 2011.
                                  (II) Treatment of refunding 
                                bonds.--For purposes of 
                                subclause (I), a refunding bond 
                                (whether a current or advance 
                                refunding) shall be treated as 
                                issued on the date of the 
                                issuance of the refunded bond 
                                (or in the case of a series of 
                                refundings, the original bond).
                                  (III) Exception for certain 
                                refunding bonds.--Subclause 
                                (II) shall not apply to any 
                                refunding bond which is issued 
                                to refund any bond which was 
                                issued after December 31, 2003, 
                                and before January 1, 2009.
          (6) Accelerated depreciation or amortization on 
        certain property placed in service before January 1, 
        1987.--The amounts which would be treated as items of 
        tax preference with respect to the taxpayer under 
        paragraphs (2), (3), (4), and (12) of this subsection 
        (as in effect on the day before the date of the 
        enactment of the Tax Reform Act of 1986). The preceding 
        sentence shall not apply to any property to which 
        section 56(a)(1) or (5) applies.
          (7) Exclusion for gains on sale of certain small 
        business stock.--[An amount] In the case of stock 
        acquired on or before the date of the enactment of the 
        Creating Small Business Jobs Act of 2010, an amount 
        equal to 7 percent of the amount excluded from gross 
        income for the taxable year under section 1202.
  (b) Straight line recovery of intangibles defined.--For 
purposes of paragraph (2) of subsection (a)--
          (1) In general.--The term ``straight line recovery of 
        intangibles'', when used with respect to intangible 
        drilling and development costs for any well, means 
        (except in the case of an election under paragraph (2)) 
        ratable amortization of such costs over the 120-month 
        period beginning with the month in which production 
        from such well begins.
          (2) Election.--If the taxpayer elects with respect to 
        the intangible drilling and development costs for any 
        well, the term ``straight line recovery of 
        intangibles'' means any method which would be permitted 
        for purposes of determining cost depletion with respect 
        to such well and which is selected by the taxpayer for 
        purposes of subsection (a)(2).

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Subchapter B--COMPUTATION OF TAXABLE INCOME

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PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *


SEC. 179. ELECTION TO EXPENSE CERTAIN DEPRECIABLE BUSINESS ASSETS.

  (a) Treatment as expenses.--A taxpayer may elect to treat the 
cost of any section 179 property as an expense which is not 
chargeable to capital account. Any cost so treated shall be 
allowed as a deduction for the taxable year in which the 
section 179 property is placed in service.
  (b) Limitations.--
          (1) Dollar limitation.--The aggregate cost which may 
        be taken into account under subsection (a) for any 
        taxable year shall not exceed [$1,000,000] $2,500,000.
          (2) Reduction in limitation.--The limitation under 
        paragraph (1) for any taxable year shall be reduced 
        (but not below zero) by the amount by which the cost of 
        section 179 property placed in service during such 
        taxable year exceeds [$2,500,000] $4,000,000.
          (3) Limitation based on income from trade or 
        business.--
                  (A) In general.--The amount allowed as a 
                deduction under subsection (a) for any taxable 
                year (determined after the application of 
                paragraphs (1) and (2)) shall not exceed the 
                aggregate amount of taxable income of the 
                taxpayer for such taxable year which is derived 
                from the active conduct by the taxpayer of any 
                trade or business during such taxable year.
                  (B) Carryover of disallowed deduction.--The 
                amount allowable as a deduction under 
                subsection (a) for any taxable year shall be 
                increased by the lesser of--
                          (i) the aggregate amount disallowed 
                        under subparagraph (A) for all prior 
                        taxable years (to the extent not 
                        previously allowed as a deduction by 
                        reason of this subparagraph), or
                          (ii) the excess (if any) of--
                                  (I) the limitation of 
                                paragraphs (1) and (2) (or if 
                                lesser, the aggregate amount of 
                                taxable income referred to in 
                                subparagraph (A)), over
                                  (II) the amount allowable as 
                                a deduction under subsection 
                                (a) for such taxable year 
                                without regard to this 
                                subparagraph.
                  (C) Computation of taxable income.--For 
                purposes of this paragraph, taxable income 
                derived from the conduct of a trade or business 
                shall be computed without regard to the 
                deduction allowable under this section.
          (4) Married individuals filing separately.--In the 
        case of a husband and wife filing separate returns for 
        the taxable year--
                  (A) such individuals shall be treated as 1 
                taxpayer for purposes of paragraphs (1) and 
                (2), and
                  (B) unless such individuals elect otherwise, 
                50 percent of the cost which may be taken into 
                account under subsection (a) for such taxable 
                year (before application of paragraph (3)) 
                shall be allocated to each such individual.
          (5) Limitation on cost taken into account for certain 
        passenger vehicles.--
                  (A) In general.--The cost of any sport 
                utility vehicle for any taxable year which may 
                be taken into account under this section shall 
                not exceed $25,000.
                  (B) Sport utility vehicle.--For purposes of 
                subparagraph (A)--
                          (i) In general.--The term ``sport 
                        utility vehicle'' means any 4-wheeled 
                        vehicle--
                                  (I) which is primarily 
                                designed or which can be used 
                                to carry passengers over public 
                                streets, roads, or highways 
                                (except any vehicle operated 
                                exclusively on a rail or 
                                rails),
                                  (II) which is not subject to 
                                section 280F, and
                                  (III) which is rated at not 
                                more than 14,000 pounds gross 
                                vehicle weight.
                          (ii) Certain vehicles excluded.--Such 
                        term does not include any vehicle 
                        which--
                                  (I) is designed to have a 
                                seating capacity of more than 9 
                                persons behind the driver's 
                                seat,
                                  (II) is equipped with a cargo 
                                area of at least 6 feet in 
                                interior length which is an 
                                open area or is designed for 
                                use as an open area but is 
                                enclosed by a cap and is not 
                                readily accessible directly 
                                from the passenger compartment, 
                                or
                                  (III) has an integral 
                                enclosure, fully enclosing the 
                                driver compartment and load 
                                carrying device, does not have 
                                seating rearward of the 
                                driver's seat, and has no body 
                                section protruding more than 30 
                                inches ahead of the leading 
                                edge of the windshield.
          (6) Inflation adjustment.--
                  (A) In general.--In the case of any taxable 
                year beginning after [2018] 2024 (2018 in the 
                case of the dollar amount in paragraph (5)(A)), 
                the dollar amounts in paragraphs (1), (2), and 
                (5)(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 
                        [``calendar year 2017] ``calendar year 
                        2024'' (``calendar year 2017'' in the 
                        case of the dollar amount in paragraph 
                        (5)(A))'' for ``calendar year 2016'' in 
                        subparagraph (A)(ii) thereof.
                  (B) Rounding.--The amount of any increase 
                under subparagraph (A) shall be rounded to the 
                nearest multiple of $10,000 ($100 in the case 
                of any increase in the amount under paragraph 
                (5)(A)).
  (c) Election.--
          (1) In general.--An election under this section for 
        any taxable year shall--
                  (A) specify the items of section 179 property 
                to which the election applies and the portion 
                of the cost of each of such items which is to 
                be taken into account under subsection (a), and
                  (B) be made on the taxpayer's return of the 
                tax imposed by this chapter for the taxable 
                year.
        Such election shall be made in such manner as the 
        Secretary may by regulations prescribe.
          (2) Election.--Any election made under this section, 
        and any specification contained in any such election, 
        may be revoked by the taxpayer with respect to any 
        property, and such revocation, once made, shall be 
        irrevocable.
  (d) Definitions and special rules.--
          (1) Section 179 property.--For purposes of this 
        section, the term ``section 179 property'' means 
        property--
                  (A) which is--
                          (i) tangible property (to which 
                        section 168 applies), or
                          (ii) computer software (as defined in 
                        section 197(e)(3)(B)) which is 
                        described in section 197(e)(3)(A)(i) 
                        and to which section 167 applies,
                  (B) which is--
                          (i) section 1245 property (as defined 
                        in section 1245(a)(3)), or
                          (ii) at the election of the taxpayer, 
                        qualified real property (as defined in 
                        subsection (e)), and
                  (C) which is acquired by purchase for use in 
                the active conduct of a trade or business.
        Such term shall not include any property described in 
        section 50(b) (other than paragraph (2) thereof).
          (2) Purchase defined.--For purposes of paragraph (1), 
        the term ``purchase'' means any acquisition of 
        property, but only if--
                  (A) the property is not acquired from a 
                person whose relationship to the person 
                acquiring it would result in the disallowance 
                of losses under section 267 or 707(b) (but, in 
                applying section 267(b) and (c) for purposes of 
                this section, paragraph (4) of section 267(c) 
                shall be treated as providing that the family 
                of an individual shall include only his spouse, 
                ancestors, and lineal descendants),
                  (B) the property is not acquired by one 
                component member of a controlled group from 
                another component member of the same controlled 
                group, and
                  (C) the basis of the property in the hands of 
                the person acquiring it is not determined--
                          (i) in whole or in part by reference 
                        to the adjusted basis of such property 
                        in the hands of the person from whom 
                        acquired, or
                          (ii) under section 1014(a) (relating 
                        to property acquired from a decedent).
          (3) Cost.--For purposes of this section, the cost of 
        property does not include so much of the basis of such 
        property as is determined by reference to the basis of 
        other property held at any time by the person acquiring 
        such property.
          (4) Section not to apply to estates and trusts.--This 
        section shall not apply to estates and trusts.
          (5) Section not to apply to certain noncorporate 
        lessors.--This section shall not apply to any section 
        179 property which is purchased by a person who is not 
        a corporation and with respect to which such person is 
        the lessor unless--
                  (A) the property subject to the lease has 
                been manufactured or produced by the lessor, or
                  (B) the term of the lease (taking into 
                account options to renew) is less than 50 
                percent of the class life of the property (as 
                defined in section 168(i)(1)), and for the 
                period consisting of the first 12 months after 
                the date on which the property is transferred 
                to the lessee the sum of the deductions with 
                respect to such property which are allowable to 
                the lessor solely by reason of section 162 
                (other than rents and reimbursed amounts with 
                respect to such property) exceeds 15 percent of 
                the rental income produced by such property.
          (6) Dollar limitation of controlled group.--For 
        purposes of subsection (b) of this section--
                  (A) all component members of a controlled 
                group shall be treated as one taxpayer, and
                  (B) the Secretary shall apportion the dollar 
                limitation contained in subsection (b)(1) among 
                the component members of such controlled group 
                in such manner as he shall by regulations 
                prescribe.
          (7) Controlled group defined.--For purposes of 
        paragraphs (2) and (6), the term ``controlled group'' 
        has the meaning assigned to it by section 1563(a), 
        except that, for such purposes, the phrase ``more than 
        50 percent'' shall be substituted for the phrase ``at 
        least 80 percent'' each place it appears in section 
        1563(a)(1).
          (8) Treatment of partnerships and S corporations.--In 
        the case of a partnership, the limitations of 
        subsection (b) shall apply with respect to the 
        partnership and with respect to each partner. A similar 
        rule shall apply in the case of an S corporation and 
        its shareholders.
          (9) Coordination with section 38.--No credit shall be 
        allowed under section 38 with respect to any amount for 
        which a deduction is allowed under subsection (a).
          (10) Recapture in certain cases.--The Secretary 
        shall, by regulations, provide for recapturing the 
        benefit under any deduction allowable under subsection 
        (a) with respect to any property which is not used 
        predominantly in a trade or business at any time.
  (e) Qualified real property.--For purposes of this section, 
the term ``qualified real property'' means--
          (1) any qualified improvement property described in 
        section 168(e)(6), and
          (2) any of the following improvements to 
        nonresidential real property placed in service after 
        the date such property was first placed in service:
                  (A) Roofs.
                  (B) Heating, ventilation, and air-
                conditioning property.
                  (C) Fire protection and alarm systems.
                  (D) Security systems.

           *       *       *       *       *       *       *


Subchapter E--ACCOUNTING PERIODS AND METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


Subpart C--TAXABLE YEAR FOR WHICH DEDUCTIONS TAKEN

           *       *       *       *       *       *       *


SEC. 469. PASSIVE ACTIVITY LOSSES AND CREDITS LIMITED.

  (a) Disallowance.--
          (1) In general.--If for any taxable year the taxpayer 
        is described in paragraph (2), neither--
                  (A) the passive activity loss, nor
                  (B) the passive activity credit,
        for the taxable year shall be allowed.
          (2) Persons described.--The following are described 
        in this paragraph:
                  (A) any individual, estate, or trust,
                  (B) any closely held C corporation, and
                  (C) any personal service corporation.
  (b) Disallowed loss or credit carried to next year.--Except 
as otherwise provided in this section, any loss or credit from 
an activity which is disallowed under subsection (a) shall be 
treated as a deduction or credit allocable to such activity in 
the next taxable year.
  (c) Passive activity defined.--For purposes of this section--
          (1) In general.--The term ``passive activity'' means 
        any activity--
                  (A) which involves the conduct of any trade 
                or business, and
                  (B) in which the taxpayer does not materially 
                participate.
          (2) Passive activity includes any rental activity.--
        Except as provided in paragraph (7), the term ``passive 
        activity'' includes any rental activity.
          (3) Working interests in oil and gas property.--
                  (A) In general.--The term ``passive 
                activity'' shall not include any working 
                interest in any oil or gas property which the 
                taxpayer holds directly or through an entity 
                which does not limit the liability of the 
                taxpayer with respect to such interest.
                  (B) Income in subsequent years.--If any 
                taxpayer has any loss for any taxable year from 
                a working interest in any oil or gas property 
                which is treated as a loss which is not from a 
                passive activity, then any net income from such 
                property (or any property the basis of which is 
                determined in whole or in part by reference to 
                the basis of such property) for any succeeding 
                taxable year shall be treated as income of the 
                taxpayer which is not from a passive activity. 
                If the preceding sentence applies to the net 
                income from any property for any taxable year, 
                any credits allowable under subpart B (other 
                than section 27) or D of part IV of subchapter 
                A for such taxable year which are attributable 
                to such property shall be treated as credits 
                not from a passive activity to the extent the 
                amount of such credits does not exceed the 
                regular tax liability of the taxpayer for the 
                taxable year which is allocable to such net 
                income.
          (4) Material participation not required for 
        paragraphs (2) and (3).--Paragraphs (2) and (3) shall 
        be applied without regard to whether or not the 
        taxpayer materially participates in the activity.
          (5) Trade or business includes research and 
        experimentation activity.--For purposes of paragraph 
        (1)(A), the term ``trade or business'' includes any 
        activity involving research or experimentation (within 
        the meaning of section 174).
          (6) Activity in connection with trade or business or 
        production of income.--To the extent provided in 
        regulations, for purposes of paragraph (1)(A), the term 
        ``trade or business'' includes--
                  (A) any activity in connection with a trade 
                or business, or
                  (B) any activity with respect to which 
                expenses are allowable as a deduction under 
                section 212.
          (7) Special rules for taxpayers in real property 
        business.--
                  (A) In general.--If this paragraph applies to 
                any taxpayer for a taxable year--
                          (i) paragraph (2) shall not apply to 
                        any rental real estate activity of such 
                        taxpayer for such taxable year, and
                          (ii) this section shall be applied as 
                        if each interest of the taxpayer in 
                        rental real estate were a separate 
                        activity.
                Notwithstanding clause (ii), a taxpayer may 
                elect to treat all interests in rental real 
                estate as one activity. Nothing in the 
                preceding provisions of this subparagraph shall 
                be construed as affecting the determination of 
                whether the taxpayer materially participates 
                with respect to any interest in a limited 
                partnership as a limited partner.
                  (B) Taxpayers to whom paragraph applies.--
                This paragraph shall apply to a taxpayer for a 
                taxable year if--
                          (i) more than one-half of the 
                        personal services performed in trades 
                        or businesses by the taxpayer during 
                        such taxable year are performed in real 
                        property trades or businesses in which 
                        the taxpayer materially participates, 
                        and
                          (ii) such taxpayer performs more than 
                        750 hours of services during the 
                        taxable year in real property trades or 
                        businesses in which the taxpayer 
                        materially participates.
                In the case of a joint return, the requirements 
                of the preceding sentence are satisfied if and 
                only if either spouse separately satisfies such 
                requirements. For purposes of the preceding 
                sentence, activities in which a spouse 
                materially participates shall be determined 
                under subsection (h).
                  (C) Real property trade or business.--For 
                purposes of this paragraph, the term ``real 
                property trade or business'' means any real 
                property development, redevelopment, 
                construction, reconstruction, acquisition, 
                conversion, rental, operation, management, 
                leasing, or brokerage trade or business.
                  (D) Special rules for subparagraph (B).--
                          (i) Closely held C corporations.--In 
                        the case of a closely held C 
                        corporation, the requirements of 
                        subparagraph (B) shall be treated as 
                        met for any taxable year if more than 
                        50 percent of the gross receipts of 
                        such corporation for such taxable year 
                        are derived from real property trades 
                        or businesses in which the corporation 
                        materially participates.
                          (ii) Personal services as an 
                        employee.--For purposes of subparagraph 
                        (B), personal services performed as an 
                        employee shall not be treated as 
                        performed in real property trades or 
                        businesses. The preceding sentence 
                        shall not apply if such employee is a 
                        5-percent owner (as defined in section 
                        416(i)(1)(B)) in the employer.
  (d) Passive activity loss and credit defined.--For purposes 
of this section--
          (1) Passive activity loss.--The term ``passive 
        activity loss'' means the amount (if any) by which--
                  (A) the aggregate losses from all passive 
                activities for the taxable year, exceed
                  (B) the aggregate income from all passive 
                activities for such year.
          (2) Passive activity credit.--The term ``passive 
        activity credit'' means the amount (if any) by which--
                  (A) the sum of the credits from all passive 
                activities allowable for the taxable year 
                under--
                          (i) subpart D of part IV of 
                        subchapter A, or
                          (ii) subpart B (other than section 
                        27) of such part IV, exceeds
                  (B) the regular tax liability of the taxpayer 
                for the taxable year allocable to all passive 
                activities.
  (e) Special rules for determining income or loss from a 
passive activity.--For purposes of this section--
          (1) Certain income not treated as income from passive 
        activity.--In determining the income or loss from any 
        activity--
                  (A) In general.--There shall not be taken 
                into account--
                          (i) any--
                                  (I) gross income from 
                                interest, dividends, annuities, 
                                or royalties not derived in the 
                                ordinary course of a trade or 
                                business,
                                  (II) expenses (other than 
                                interest) which are clearly and 
                                directly allocable to such 
                                gross income, and
                                  (III) interest expense 
                                properly allocable to such 
                                gross income, and
                          (ii) gain or loss not derived in the 
                        ordinary course of a trade or business 
                        which is attributable to the 
                        disposition of property--
                                  (I) producing income of a 
                                type described in clause (i), 
                                or
                                  (II) held for investment.
                For purposes of clause (ii), any interest in a 
                passive activity shall not be treated as 
                property held for investment.
                  (B) Return on working capital.--For purposes 
                of subparagraph (A), any income, gain, or loss 
                which is attributable to an investment of 
                working capital shall be treated as not derived 
                in the ordinary course of a trade or business.
          (2) Passive losses of certain closely held 
        corporations may offset active income.--
                  (A) In general.--If a closely held C 
                corporation (other than a personal service 
                corporation) has net active income for any 
                taxable year, the passive activity loss of such 
                taxpayer for such taxable year (determined 
                without regard to this paragraph)--
                          (i) shall be allowable as a deduction 
                        against net active income, and
                          (ii) shall not be taken into account 
                        under subsection (a) to the extent so 
                        allowable as a deduction.
                A similar rule shall apply in the case of any 
                passive activity credit of the taxpayer.
                  (B) Net active income.--For purposes of this 
                paragraph, the term ``net active income'' means 
                the taxable income of the taxpayer for the 
                taxable year determined without regard to--
                          (i) any income or loss from a passive 
                        activity, and
                          (ii) any item of gross income, 
                        expense, gain, or loss described in 
                        paragraph (1)(A).
          (3) Compensation for personal services.--Earned 
        income (within the meaning of section 911(d)(2)(A)) 
        shall not be taken into account in computing the income 
        or loss from a passive activity for any taxable year.
          (4) Dividends reduced by dividends received 
        deduction.--For purposes of paragraphs (1) and (2), 
        income from dividends shall be reduced by the amount of 
        any dividends received deduction under section 243 or 
        245.
  (f) Treatment of former passive activities.--For purposes of 
this section--
          (1) In general.--If an activity is a former passive 
        activity for any taxable year--
                  (A) any unused deduction allocable to such 
                activity under subsection (b) shall be offset 
                against the income from such activity for the 
                taxable year,
                  (B) any unused credit allocable to such 
                activity under subsection (b) shall be offset 
                against the regular tax liability (computed 
                after the application of paragraph (1)) 
                allocable to such activity for the taxable 
                year, and
                  (C) any such deduction or credit remaining 
                after the application of subparagraphs (A) and 
                (B) shall continue to be treated as arising 
                from a passive activity.
          (2) Change in status of closely held C corporation or 
        personal service corporation.--If a taxpayer ceases for 
        any taxable year to be a closely held C corporation or 
        personal service corporation, this section shall 
        continue to apply to losses and credits to which this 
        section applied for any preceding taxable year in the 
        same manner as if such taxpayer continued to be a 
        closely held C corporation or personal service 
        corporation, whichever is applicable.
          (3) Former passive activity.--The term ``former 
        passive activity'' means any activity which, with 
        respect to the taxpayer--
                  (A) is not a passive activity for the taxable 
                year, but
                  (B) was a passive activity for any prior 
                taxable year.
  (g) Dispositions of entire interest in passive activity.--If 
during the taxable year a taxpayer disposes of his entire 
interest in any passive activity (or former passive activity), 
the following rules shall apply:
          (1) Fully taxable transaction.--
                  (A) In general.--If all gain or loss realized 
                on such disposition is recognized, the excess 
                of--
                          (i) any loss from such activity for 
                        such taxable year (determined after the 
                        application of subsection (b)), over
                          (ii) any net income or gain for such 
                        taxable year from all other passive 
                        activities (determined after the 
                        application of subsection (b)),
                shall be treated as a loss which is not from a 
                passive activity.
                  (B) Subparagraph (A) not to apply to 
                disposition involving related party.--If the 
                taxpayer and the person acquiring the interest 
                bear a relationship to each other described in 
                section 267(b) or section 707(b)(1), then 
                subparagraph (A) shall not apply to any loss of 
                the taxpayer until the taxable year in which 
                such interest is acquired (in a transaction 
                described in subparagraph (A)) by another 
                person who does not bear such a relationship to 
                the taxpayer.
                  (C) Income from prior years.--To the extent 
                provided in regulations, income or gain from 
                the activity for preceding taxable years shall 
                be taken into account under subparagraph 
                (A)(ii) for the taxable year to the extent 
                necessary to prevent the avoidance of this 
                section.
                  (D) Certain dispositions of small business 
                stock.--In the case a disposition any gain from 
                which is excluded from gross income under 
                section 1202, subparagraph (A) shall not apply.
          (2) Disposition by death.--If an interest in the 
        activity is transferred by reason of the death of the 
        taxpayer--
                  (A) paragraph (1)(A) shall apply to losses 
                described in paragraph (1)(A) to the extent 
                such losses are greater than the excess (if 
                any) of--
                          (i) the basis of such property in the 
                        hands of the transferee, over
                          (ii) the adjusted basis of such 
                        property immediately before the death 
                        of the taxpayer, and
                  (B) any losses to the extent of the excess 
                described in subparagraph (A) shall not be 
                allowed as a deduction for any taxable year.
          (3) Installment sale of entire interest.--In the case 
        of an installment sale of an entire interest in an 
        activity to which section 453 applies, paragraph (1) 
        shall apply to the portion of such losses for each 
        taxable year which bears the same ratio to all such 
        losses as the gain recognized on such sale during such 
        taxable year bears to the gross profit from such sale 
        (realized or to be realized when payment is completed).
  (h) Material participation defined.--For purposes of this 
section--
          (1) In general.--A taxpayer shall be treated as 
        materially participating in an activity only if the 
        taxpayer is involved in the operations of the activity 
        on a basis which is--
                  (A) regular,
                  (B) continuous, and
                  (C) substantial.
          (2) Interests in limited partnerships.--Except as 
        provided in regulations, no interest in a limited 
        partnership as a limited partner shall be treated as an 
        interest with respect to which a taxpayer materially 
        participates.
          (3) Treatment of certain retired individuals and 
        surviving spouses.--A taxpayer shall be treated as 
        materially participating in any farming activity for a 
        taxable year if paragraph (4) or (5) of section 
        2032A(b) would cause the requirements of section 
        2032A(b)(1)(C)(ii) to be met with respect to real 
        property used in such activity if such taxpayer had 
        died during the taxable year.
          (4) Certain closely held C corporations and personal 
        service corporations.--A closely held C corporation or 
        personal service corporation shall be treated as 
        materially participating in an activity only if--
                  (A) 1 or more shareholders holding stock 
                representing more than 50 percent (by value) of 
                the outstanding stock of such corporation 
                materially participate in such activity, or
                  (B) in the case of a closely held C 
                corporation (other than a personal service 
                corporation), the requirements of section 
                465(c)(7)(C) (without regard to clause (iv)) 
                are met with respect to such activity.
          (5) Participation by spouse.--In determining whether 
        a taxpayer materially participates, the participation 
        of the spouse of the taxpayer shall be taken into 
        account.
  (i) $25,000 offset for rental real estate activities.--
          (1) In general.--In the case of any natural person, 
        subsection (a) shall not apply to that portion of the 
        passive activity loss or the deduction equivalent 
        (within the meaning of subsection (j)(5)) of the 
        passive activity credit for any taxable year which is 
        attributable to all rental real estate activities with 
        respect to which such individual actively participated 
        in such taxable year (and if any portion of such loss 
        or credit arose in another taxable year, in such other 
        taxable year).
          (2) Dollar limitation.--The aggregate amount to which 
        paragraph (1) applies for any taxable year shall not 
        exceed $25,000.
          (3) Phase-out of exemption.--
                  (A) In general.--In the case of any taxpayer, 
                the $25,000 amount under paragraph (2) shall be 
                reduced (but not below zero) by 50 percent of 
                the amount by which the adjusted gross income 
                of the taxpayer for the taxable year exceeds 
                $100,000.
                  (B) Special phase-out of rehabilitation 
                credit.--In the case of any portion of the 
                passive activity credit for any taxable year 
                which is attributable to the rehabilitation 
                credit determined under section 47, 
                subparagraph (A) shall be applied by 
                substituting ``$200,000'' for ``$100,000''.
                  (C) Exception for low-income housing 
                credit.--Subparagraph (A) shall not apply to 
                any portion of the passive activity credit for 
                any taxable year which is attributable to any 
                credit determined under section 42.
                  (D) Ordering rule.--Paragraph (1) shall be 
                applied for any taxable year--
                          (i) first, to the passive activity 
                        loss,
                          (ii) second, to the portion of the 
                        passive activity credit to which 
                        subparagraph (B) and (C) does not 
                        apply,
                          (iii) third, to the portion of such 
                        credit to which subparagraph (B) 
                        applies, and
                          (iv) then, to the portion of such 
                        credit to which subparagraph (C) 
                        applies.
                  (E) Adjusted gross income.--For purposes of 
                this paragraph, adjusted gross income shall be 
                determined without regard to--
                          (i) any amount includible in gross 
                        income under section 86,
                          (ii) the amounts excludable from 
                        gross income under sections 85(c), 135, 
                        and 137,
                          (iii) the amounts allowable as a 
                        deduction under sections 219, 221, and 
                        250, and
                          (iv) any passive activity loss or any 
                        loss allowable by reason of subsection 
                        (c)(7).
          (4) Special rule for estates.--
                  (A) In general.--In the case of taxable years 
                of an estate ending less than 2 years after the 
                date of the death of the decedent, this 
                subsection shall apply to all rental real 
                estate activities with respect to which such 
                decedent actively participated before his 
                death.
                  (B) Reduction for surviving spouse's 
                exemption.--For purposes of subparagraph (A), 
                the $25,000 amount under paragraph (2) shall be 
                reduced by the amount of the exemption under 
                paragraph (1) (without regard to paragraph (3)) 
                allowable to the surviving spouse of the 
                decedent for the taxable year ending with or 
                within the taxable year of the estate.
          (5) Married individuals filing separately.--
                  (A) In general.--Except as provided in 
                subparagraph (B), in the case of any married 
                individual filing a separate return, this 
                subsection shall be applied by substituting--
                          (i) ``$12,500'' for ``$25,000'' each 
                        place it appears,
                          (ii) ``$50,000'' for ``$100,000'' in 
                        paragraph (3)(A), and
                          (iii) ``$100,000'' for ``$200,000'' 
                        in paragraph (3)(B).
                  (B) Taxpayers not living apart.--This 
                subsection shall not apply to a taxpayer who--
                          (i) is a married individual filing a 
                        separate return for any taxable year, 
                        and
                          (ii) does not live apart from his 
                        spouse at all times during such taxable 
                        year.
          (6) Active participation.--
                  (A) In general.--An individual shall not be 
                treated as actively participating with respect 
                to any interest in any rental real estate 
                activity for any period if, at any time during 
                such period, such interest (including any 
                interest of the spouse of the individual) is 
                less than 10 percent (by value) of all 
                interests in such activity.
                  (B) No participation requirement for low-
                income housing or rehabilitation credit.--
                Paragraphs (1) and (4)(A) shall be applied 
                without regard to the active participation 
                requirement in the case of--
                          (i) any credit determined under 
                        section 42 for any taxable year, or
                          (ii) any rehabilitation credit 
                        determined under section 47,
                  (C) Interest as a limited partner.--Except as 
                provided in regulations, no interest as a 
                limited partner in a limited partnership shall 
                be treated as an interest with respect to which 
                the taxpayer actively participates.
                  (D) Participation by spouse.--In determining 
                whether a taxpayer actively participates, the 
                participation of the spouse of the taxpayer 
                shall be taken into account.
  (j) Other definitions and special rules.--For purposes of 
this section--
          (1) Closely held C corporation.--The term ``closely 
        held C corporation'' means any C corporation described 
        in section 465(a)(1)(B).
          (2) Personal service corporation.--The term 
        ``personal service corporation'' has the meaning given 
        such term by section 269A(b)(1), except that section 
        269A(b)(2) shall be applied--
                  (A) by substituting ``any'' for ``more than 
                10 percent'', and
                  (B) by substituting ``any'' for ``50 percent 
                or more in value'' in section 318(a)(2)(C).
        A corporation shall not be treated as a personal 
        service corporation unless more than 10 percent of the 
        stock (by value) in such corporation is held by 
        employee-owners (within the meaning of section 
        269A(b)(2), as modified by the preceding sentence).
          (3) Regular tax liability.--The term ``regular tax 
        liability'' has the meaning given such term by section 
        26(b).
          (4) Allocation of passive activity loss and credit.--
        The passive activity loss and the passive activity 
        credit (and the $25,000 amount under subsection (i)) 
        shall be allocated to activities, and within 
        activities, on a pro rata basis in such manner as the 
        Secretary may prescribe.
          (5) Deduction equivalent.--The deduction equivalent 
        of credits from a passive activity for any taxable year 
        is the amount which (if allowed as a deduction) would 
        reduce the regular tax liability for such taxable year 
        by an amount equal to such credits.
          (6) Special rule for gifts.--In the case of a 
        disposition of any interest in a passive activity by 
        gift--
                  (A) the basis of such interest immediately 
                before the transfer shall be increased by the 
                amount of any passive activity losses allocable 
                to such interest with respect to which a 
                deduction has not been allowed by reason of 
                subsection (a), and
                  (B) such losses shall not be allowable as a 
                deduction for any taxable year.
          (7) Qualified residence interest.--The passive 
        activity loss of a taxpayer shall be computed without 
        regard to qualified residence interest (within the 
        meaning of section 163(h)(3)).
          (8) Rental activity.--The term ``rental activity'' 
        means any activity where payments are principally for 
        the use of tangible property.
          (9) Election to increase basis of property by amount 
        of disallowed credit.--For purposes of determining gain 
        or loss from a disposition of any property to which 
        subsection (g)(1) applies, the transferor may elect to 
        increase the basis of such property immediately before 
        the transfer by an amount equal to the portion of any 
        unused credit allowable under this chapter which 
        reduced the basis of such property for the taxable year 
        in which such credit arose. If the taxpayer elects the 
        application of this paragraph, such portion of the 
        passive activity credit of such taxpayer shall not be 
        allowed for any taxable year.
          (10) Coordination with section 280A.--If a passive 
        activity involves the use of a dwelling unit to which 
        section 280A(c)(5) applies for any taxable year, any 
        income, deduction, gain, or loss allocable to such use 
        shall not be taken into account for purposes of this 
        section for such taxable year.
          (11) Aggregation of members of affiliated groups.--
        Except as provided in regulations, all members of an 
        affiliated group which files a consolidated return 
        shall be treated as 1 corporation.
          (12) Special rule for distributions by estates or 
        trusts.--If any interest in a passive activity is 
        distributed by an estate or trust--
                  (A) the basis of such interest immediately 
                before such distribution shall be increased by 
                the amount of any passive activity losses 
                allocable to such interest, and
                  (B) such losses shall not be allowable as a 
                deduction for any taxable year.
  (k) Separate application of section in case of publicly 
traded partnerships.--
          (1) In general.--This section shall be applied 
        separately with respect to items attributable to each 
        publicly traded partnership (and subsection (i) shall 
        not apply with respect to items attributable to any 
        such partnership). The preceding sentence shall not 
        apply to any credit determined under section 42, or any 
        rehabilitation credit determined under section 47, 
        attributable to a publicly traded partnership to the 
        extent the amount of any such credits exceeds the 
        regular tax liability attributable to income from such 
        partnership.
          (2) Publicly traded partnership.--For purposes of 
        this section, the term ``publicly traded partnership'' 
        means any partnership if--
                  (A) interests in such partnership are traded 
                on an established securities market, or
                  (B) interests in such partnership are readily 
                tradable on a secondary market (or the 
                substantial equivalent thereof).
          (3) Coordination with subsection (g).--For purposes 
        of subsection (g), a taxpayer shall not be treated as 
        having disposed of his entire interest in an activity 
        of a publicly traded partnership until he disposes of 
        his entire interest in such partnership.
          (4) Application to regulated investment companies.--
        For purposes of this section, a regulated investment 
        company (as defined in section 851) holding an interest 
        in a qualified publicly traded partnership (as defined 
        in section 851(h)) shall be treated as a taxpayer 
        described in subsection (a)(2) with respect to items 
        attributable to such interest.
  (l) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out 
provisions of this section, including regulations--
          (1) which specify what constitutes an activity, 
        material participation, or active participation for 
        purposes of this section,
          (2) which provide that certain items of gross income 
        will not be taken into account in determining income or 
        loss from any activity (and the treatment of expenses 
        allocable to such income),
          (3) requiring net income or gain from a limited 
        partnership or other passive activity to be treated as 
        not from a passive activity,
          (4) which provide for the determination of the 
        allocation of interest expense for purposes of this 
        section, and
          (5) which deal with changes in marital status and 
        changes between joint returns and separate returns.

           *       *       *       *       *       *       *


                 Subchapter P--CAPITAL GAINS AND LOSSES

PART I--TREATMENT OF CAPITAL GAINS

           *       *       *       *       *       *       *


SEC. 1202. PARTIAL EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS 
                    STOCK.

  (a) Exclusion.--
          (1) In general.--In the case of a taxpayer other than 
        a corporation, gross income shall not include [50 
        percent] the applicable percentage of any gain from the 
        sale or exchange of qualified small business stock 
        [held for more than 5 years] held for at least 3 years.
          (2) Empowerment zone businesses.--
                  (A) In general.--In the case of qualified 
                small business stock acquired after the date of 
                the enactment of this paragraph in a 
                corporation which is a qualified business 
                entity (as defined in section 1397C(b)) during 
                substantially all of the taxpayer's holding 
                period for such stock, paragraph (1) shall be 
                applied by substituting ``60 percent'' for ``50 
                percent''.
                  (B) Certain rules to apply.--Rules similar to 
                the rules of paragraphs (5) and (7) of section 
                1400B(b) (as in effect before its repeal) shall 
                apply for purposes of this paragraph.
                  (C) Gain after 2018 not qualified.--
                Subparagraph (A) shall not apply to gain 
                attributable to periods after December 31, 
                2018.
                  (D) Treatment of DC zone.--The District of 
                Columbia Enterprise Zone shall not be treated 
                as an empowerment zone for purposes of this 
                paragraph.
          (3) Special rules for 2009 and certain periods in 
        2010.--In the case of qualified small business stock 
        held for more than 5 years and acquired after the date 
        of the enactment of this paragraph and on or before the 
        date of the enactment of the Creating Small Business 
        Jobs Act of 2010--
                  [(A) paragraph (1) shall be applied by 
                substituting ``75 percent'' for ``50 percent'', 
                and]
                  (A) the applicable percentage under paragraph 
                (1) shall be 75 percent, and
                  (B) paragraph (2) shall not apply.
        In the case of any stock which would be described in 
        the preceding sentence (but for this sentence), the 
        acquisition date for purposes of this subsection shall 
        be the first day on which such stock was held by the 
        taxpayer determined after the application of section 
        1223.
          (4) 100 percent exclusion for stock acquired during 
        certain periods in 2010 and thereafter.--In the case of 
        qualified small business stock held for more than 5 
        years and acquired after the date of the enactment of 
        the Creating Small Business Jobs Act of 2010 and before 
        the date of the enactment of the Small Business Jobs 
        Act--
                  [(A) paragraph (1) shall be applied by 
                substituting ``100 percent'' for ``50 
                percent'',]
                  (A) the applicable percentage under paragraph 
                (1) shall be 100 percent, and
                  (B) paragraph (2) shall not apply[, and].
                  [(C) paragraph (7) of section 57(a) shall not 
                apply.]
        In the case of any stock which would be described in 
        the preceding sentence (but for this sentence), the 
        acquisition date for purposes of this subsection shall 
        be the first day on which such stock was held by the 
        taxpayer determined after the application of section 
        1223.
          (5) Applicable percentage.--Except as provided in 
        paragraphs (3) and (4), the applicable percentage under 
        paragraph (1) shall be determined under the following 
        table:


 
 
                                                            Applicable
                   Years stock held:                       percentage:
 
3 years................................................              50%
4 years................................................              75%
5 years or more........................................             100%

  (b) Per-issuer limitation on taxpayer's eligible gain.--
          (1) In general.--If the taxpayer has eligible gain 
        for the taxable year from 1 or more dispositions of 
        stock issued by any corporation, the aggregate amount 
        of such gain from dispositions of stock issued by such 
        corporation which may be taken into account under 
        subsection (a) for the taxable year shall not exceed 
        the greater of--
                  (A) $10,000,000 reduced by the aggregate 
                amount of eligible gain taken into account by 
                the taxpayer under subsection (a) for prior 
                taxable years and attributable to dispositions 
                of stock issued by such corporation, or
                  (B) 10 times the aggregate adjusted bases of 
                qualified small business stock issued by such 
                corporation and disposed of by the taxpayer 
                during the taxable year.
        For purposes of subparagraph (B), the adjusted basis of 
        any stock shall be determined without regard to any 
        addition to basis after the date on which such stock 
        was originally issued.
          (2) Eligible gain.--For purposes of this subsection, 
        the term ``eligible gain'' means any gain from the sale 
        or exchange of qualified small business stock held for 
        [more than 5 years] at least 3 years.
          (3) Treatment of married individuals.--
                  (A) Separate returns.--In the case of a 
                separate return by a married individual, 
                paragraph (1)(A) shall be applied by 
                substituting ``$5,000,000'' for 
                ``$10,000,000''.
                  (B) Allocation of exclusion.--In the case of 
                any joint return, the amount of gain taken into 
                account under subsection (a) shall be allocated 
                equally between the spouses for purposes of 
                applying this subsection to subsequent taxable 
                years.
                  (C) Marital status.--For purposes of this 
                subsection, marital status shall be determined 
                under section 7703.
  (c) Qualified small business stock.--For purposes of this 
section--
          (1) In general.--Except as otherwise provided in this 
        section, the term ``qualified small business stock'' 
        means any stock in a [C corporation] corporation which 
        is originally issued after the date of the enactment of 
        the Revenue Reconciliation Act of 1993, if--
                  (A) as of the date of issuance, such 
                corporation is a qualified small business, and
                  (B) except as provided in subsections (f) and 
                (h), such stock is acquired by the taxpayer at 
                its original issue (directly or through an 
                underwriter)--
                          (i) in exchange for money or other 
                        property (not including stock), or
                          (ii) as compensation for services 
                        provided to such corporation (other 
                        than services performed as an 
                        underwriter of such stock).
          (2) Active business requirement; etc..--
                  (A) In general.--Stock in a corporation shall 
                not be treated as qualified small business 
                stock unless, during substantially all of the 
                taxpayer's holding period for such stock, such 
                corporation meets the active business 
                requirements of subsection (e) [and such 
                corporation is a C corporation].
                  (B) Special rule for certain small business 
                investment companies.--
                          (i) Waiver of active business 
                        requirement.--Notwithstanding any 
                        provision of subsection (e), a 
                        corporation shall be treated as meeting 
                        the active business requirements of 
                        such subsection for any period during 
                        which such corporation qualifies as a 
                        specialized small business investment 
                        company.
                          (ii) Specialized small business 
                        investment company.--For purposes of 
                        clause (i), the term ``specialized 
                        small business investment company'' 
                        means any eligible corporation (as 
                        defined in subsection (e)(4)) which is 
                        licensed to operate under section 
                        301(d) of the Small Business Investment 
                        Act of 1958 (as in effect on May 13, 
                        1993).
          (3) Certain purchases by corporation of its own 
        stock.--
                  (A) Redemptions from taxpayer or related 
                person.--Stock acquired by the taxpayer shall 
                not be treated as qualified small business 
                stock if, at any time during the 4-year period 
                beginning on the date 2 years before the 
                issuance of such stock, the corporation issuing 
                such stock purchased (directly or indirectly) 
                any of its stock from the taxpayer or from a 
                person related (within the meaning of section 
                267(b) or 707(b)) to the taxpayer.
                  (B) Significant redemptions.--Stock issued by 
                a corporation shall not be treated as qualified 
                business stock if, during the 2-year period 
                beginning on the date 1 year before the 
                issuance of such stock, such corporation made 1 
                or more purchases of its stock with an 
                aggregate value (as of the time of the 
                respective purchases) exceeding 5 percent of 
                the aggregate value of all of its stock as of 
                the beginning of such 2-year period.
                  (C) Treatment of certain transactions.--If 
                any transaction is treated under section 304(a) 
                as a distribution in redemption of the stock of 
                any corporation, for purposes of subparagraphs 
                (A) and (B), such corporation shall be treated 
                as purchasing an amount of its stock equal to 
                the amount treated as such a distribution under 
                section 304(a).
  (d) Qualified small business.--For purposes of this section--
          (1) In general.--The term ``qualified small 
        business'' means any domestic corporation [which is a C 
        corporation] if--
                  (A) the aggregate gross assets of such 
                corporation (or any predecessor thereof) at all 
                times on or after the date of the enactment of 
                the Revenue Reconciliation Act of 1993 and 
                before the issuance did not exceed $50,000,000,
                  (B) the aggregate gross assets of such 
                corporation immediately after the issuance 
                (determined by taking into account amounts 
                received in the issuance) do not exceed 
                $50,000,000, and
                  (C) such corporation agrees to submit such 
                reports to the Secretary and to shareholders as 
                the Secretary may require to carry out the 
                purposes of this section.
          (2) Aggregate gross assets.--
                  (A) In general.--For purposes of paragraph 
                (1), the term ``aggregate gross assets'' means 
                the amount of cash and the aggregate adjusted 
                bases of other property held by the 
                corporation.
                  (B) Treatment of contributed property.--For 
                purposes of subparagraph (A), the adjusted 
                basis of any property contributed to the 
                corporation (or other property with a basis 
                determined in whole or in part by reference to 
                the adjusted basis of property so contributed) 
                shall be determined as if the basis of the 
                property contributed to the corporation 
                (immediately after such contribution) were 
                equal to its fair market value as of the time 
                of such contribution.
          (3) Aggregation rules.--
                  (A) In general.--All corporations which are 
                members of the same parent-subsidiary 
                controlled group shall be treated as 1 
                corporation for purposes of this subsection.
                  (B) Parent-subsidiary controlled group.--For 
                purposes of subparagraph (A), the term 
                ``parent-subsidiary controlled group'' means 
                any controlled group of corporations as defined 
                in section 1563(a)(1), except that--
                          (i) ``more than 50 percent'' shall be 
                        substituted for ``at least 80 percent'' 
                        each place it appears in section 
                        1563(a)(1), and
                          (ii) section 1563(a)(4) shall not 
                        apply.
                  (C) Clarification with respect to S 
                corporations.--Any determination of the members 
                of a controlled group of corporations under 
                this paragraph shall include taking into 
                account any stock ownership in an S 
                corporation.
  (e) Active business requirement.--
          (1) In general.--For purposes of subsection (c)(2), 
        the requirements of this subsection are met by a 
        corporation for any period if during such period--
                  (A) at least 80 percent (by value) of the 
                assets of such corporation are used by such 
                corporation in the active conduct of 1 or more 
                qualified trades or businesses, and
                  (B) such corporation is an eligible 
                corporation.
          (2) Special rule for certain activities.--For 
        purposes of paragraph (1), if, in connection with any 
        future qualified trade or business, a corporation is 
        engaged in--
                  (A) start-up activities described in section 
                195(c)(1)(A),
                  (B) activities resulting in the payment or 
                incurring of expenditures which may be treated 
                as research and experimental expenditures under 
                section 174, or
                  (C) activities with respect to in-house 
                research expenses described in section 
                41(b)(4),
        assets used in such activities shall be treated as used 
        in the active conduct of a qualified trade or business. 
        Any determination under this paragraph shall be made 
        without regard to whether a corporation has any gross 
        income from such activities at the time of the 
        determination.
          (3) Qualified trade or business.--For purposes of 
        this subsection, the term ``qualified trade or 
        business'' means any trade or business other than--
                  (A) any trade or business involving the 
                performance of services in the fields of 
                health, law, engineering, architecture, 
                accounting, actuarial science, performing arts, 
                consulting, athletics, financial services, 
                brokerage services, or any trade or business 
                where the principal asset of such trade or 
                business is the reputation or skill of 1 or 
                more of its employees,
                  (B) any banking, insurance, financing, 
                leasing, investing, or similar business,
                  (C) any farming business (including the 
                business of raising or harvesting trees),
                  (D) any business involving the production or 
                extraction of products of a character with 
                respect to which a deduction is allowable under 
                section 613 or 613A, and
                  (E) any business of operating a hotel, motel, 
                restaurant, or similar business.
          (4) Eligible corporation.--For purposes of this 
        subsection, the term ``eligible corporation'' means any 
        domestic corporation; except that such term shall not 
        include--
                  (A) a DISC or former DISC,
                  (B) a regulated investment company, real 
                estate investment trust, or REMIC, and
                  (C) a cooperative.
          (5) Stock in other corporations.--
                  (A) Look-thru in case of subsidiaries.--For 
                purposes of this subsection, stock and debt in 
                any subsidiary corporation shall be disregarded 
                and the parent corporation shall be deemed to 
                own its ratable share of the subsidiary's 
                assets, and to conduct its ratable share of the 
                subsidiary's activities.
                  (B) Portfolio stock or securities.--A 
                corporation shall be treated as failing to meet 
                the requirements of paragraph (1) for any 
                period during which more than 10 percent of the 
                value of its assets (in excess of liabilities) 
                consists of stock or securities in other 
                corporations which are not subsidiaries of such 
                corporation (other than assets described in 
                paragraph (6)).
                  (C) Subsidiary.--For purposes of this 
                paragraph, a corporation shall be considered a 
                subsidiary if the parent owns more than 50 
                percent of the combined voting power of all 
                classes of stock entitled to vote, or more than 
                50 percent in value of all outstanding stock, 
                of such corporation.
          (6) Working capital.--For purposes of paragraph 
        (1)(A), any assets which--
                  (A) are held as a part of the reasonably 
                required working capital needs of a qualified 
                trade or business of the corporation, or
                  (B) are held for investment and are 
                reasonably expected to be used within 2 years 
                to finance research and experimentation in a 
                qualified trade or business or increases in 
                working capital needs of a qualified trade or 
                business,
        shall be treated as used in the active conduct of a 
        qualified trade or business. For periods after the 
        corporation has been in existence for at least 2 years, 
        in no event may more than 50 percent of the assets of 
        the corporation qualify as used in the active conduct 
        of a qualified trade or business by reason of this 
        paragraph.
          (7) Maximum real estate holdings.--A corporation 
        shall not be treated as meeting the requirements of 
        paragraph (1) for any period during which more than 10 
        percent of the total value of its assets consists of 
        real property which is not used in the active conduct 
        of a qualified trade or business. For purposes of the 
        preceding sentence, the ownership of, dealing in, or 
        renting of real property shall not be treated as the 
        active conduct of a qualified trade or business.
          (8) Computer software royalties.--For purposes of 
        paragraph (1), rights to computer software which 
        produces active business computer software royalties 
        (within the meaning of section 543(d)(1)) shall be 
        treated as an asset used in the active conduct of a 
        trade or business.
          (9) Applied at S corporation level.--In the case of 
        an S corporation, the requirements of this subsection 
        shall be applied at the corporate level.
  (f) Stock acquired on [conversion of other stock.--] [If any 
stock] Conversion._
          (1) Other stock._If any stock  in a corporation is 
        acquired solely through the conversion of other stock 
        in such corporation which is qualified small business 
        stock in the hands of the taxpayer--
                  [(1)] (A) the stock so acquired shall be 
                treated as qualified small business stock in 
                the hands of the taxpayer, and
                  [(2)] (B) the stock so acquired shall be 
                treated as having been held during the period 
                during which the converted stock was held.
          (2) Convertible debt instruments.--
                  (A) In general.--If any stock in a 
                corporation is acquired by the taxpayer, 
                without recognition of gain, solely through the 
                conversion of a qualified convertible debt 
                instrument--
                          (i) the stock so acquired shall be 
                        treated as qualified small business 
                        stock in the hands of the taxpayer, and
                          (ii) the stock so acquired shall be 
                        treated as having been held during the 
                        period during which the qualified 
                        convertible debt instrument was held.
                  (B) Qualified convertible debt instrument.--
                For purposes of this paragraph, the term 
                ``qualified convertible debt instrument'' means 
                any bond or other evidence of indebtedness--
                          (i) which is originally issued by the 
                        corporation to the taxpayer,
                          (ii) the issuer of which--
                                  (I) from issuance until 
                                conversion, is a qualified 
                                small business, and
                                  (II) during substantially all 
                                of the taxpayer's holding 
                                period of such bond or evidence 
                                of indebtedness, the 
                                corporation meets the active 
                                business requirements of 
                                subsection (e), and
                          (iii) which is convertible into stock 
                        in the corporation.
  (g) Treatment of pass-thru entities.--
          (1) In general.--If any amount included in gross 
        income by reason of holding an interest in a pass-thru 
        entity meets the requirements of paragraph (2)--
                  (A) such amount shall be treated as gain 
                described in subsection (a), and
                  (B) for purposes of applying subsection (b), 
                such amount shall be treated as gain from a 
                disposition of stock in the corporation issuing 
                the stock disposed of by the pass-thru entity 
                and the taxpayer's proportionate share of the 
                adjusted basis of the pass-thru entity in such 
                stock shall be taken into account.
          (2) Requirements.--An amount meets the requirements 
        of this paragraph if--
                  (A) such amount is attributable to gain on 
                the sale or exchange by the pass-thru entity of 
                stock which is qualified small business stock 
                in the hands of such entity (determined by 
                treating such entity as an individual) and 
                which was held by such entity for [more than 5 
                years] at least 3 years, and
                  (B) such amount is includible in the gross 
                income of the taxpayer by reason of the holding 
                of an interest in such entity which was held by 
                the taxpayer on the date on which such pass-
                thru entity acquired such stock and at all 
                times thereafter before the disposition of such 
                stock by such pass-thru entity.
          (3) Limitation based on interest originally held by 
        taxpayer.--Paragraph (1) shall not apply to any amount 
        to the extent such amount exceeds the amount to which 
        paragraph (1) would have applied if such amount were 
        determined by reference to the interest the taxpayer 
        held in the pass-thru entity on the date the qualified 
        small business stock was acquired.
          (4) Pass-thru entity.--For purposes of this 
        subsection, the term ``pass-thru entity'' means--
                  (A) any partnership,
                  (B) any S corporation,
                  (C) any regulated investment company, and
                  (D) any common trust fund.
  (h) Certain tax-free and other transfers.--For purposes of 
this section--
          (1) In general.--In the case of a transfer described 
        in paragraph (2), the transferee shall be treated as--
                  (A) having acquired such stock in the same 
                manner as the transferor, and
                  (B) having held such stock during any 
                continuous period immediately preceding the 
                transfer during which it was held (or treated 
                as held under this subsection) by the 
                transferor.
          (2) Description of transfers.--A transfer is 
        described in this subsection if such transfer is--
                  (A) by gift,
                  (B) at death, or
                  (C) from a partnership to a partner of stock 
                with respect to which requirements similar to 
                the requirements of subsection (g) are met at 
                the time of the transfer (without regard to the 
                5-year holding period requirement).
          (3) Certain rules made applicable.--Rules similar to 
        the rules of section 1244(d)(2) shall apply for 
        purposes of this section.
          (4) Incorporations and reorganizations involving 
        nonqualified stock.--
                  (A) In general.--In the case of a transaction 
                described in section 351 or a reorganization 
                described in section 368, if qualified small 
                business stock is exchanged for other stock 
                which would not qualify as qualified small 
                business stock but for this subparagraph, such 
                other stock shall be treated as qualified small 
                business stock acquired on the date on which 
                the exchanged stock was acquired.
                  (B) Limitation.--This section shall apply to 
                gain from the sale or exchange of stock treated 
                as qualified small business stock by reason of 
                subparagraph (A) only to the extent of the gain 
                which would have been recognized at the time of 
                the transfer described in subparagraph (A) if 
                section 351 or 368 had not applied at such 
                time. The preceding sentence shall not apply if 
                the stock which is treated as qualified small 
                business stock by reason of subparagraph (A) is 
                issued by a corporation which (as of the time 
                of the transfer described in subparagraph (A)) 
                is a qualified small business.
                  (C) Successive application.--For purposes of 
                this paragraph, stock treated as qualified 
                small business stock under subparagraph (A) 
                shall be so treated for subsequent transactions 
                or reorganizations, except that the limitation 
                of subparagraph (B) shall be applied as of the 
                time of the first transfer to which such 
                limitation applied (determined after the 
                application of the second sentence of 
                subparagraph (B)).
                  (D) Control test.--In the case of a 
                transaction described in section 351, this 
                paragraph shall apply only if, immediately 
                after the transaction, the corporation issuing 
                the stock owns directly or indirectly stock 
                representing control (within the meaning of 
                section 368(c)) of the corporation whose stock 
                was exchanged.
  (i) Basis rules.--For purposes of this section--
          (1) Stock exchanged for property.--In the case where 
        the taxpayer transfers property (other than money or 
        stock) to a corporation in exchange for stock in such 
        corporation--
                  (A) such stock shall be treated as having 
                been acquired by the taxpayer on the date of 
                such exchange, and
                  (B) the basis of such stock in the hands of 
                the taxpayer shall in no event be less than the 
                fair market value of the property exchanged.
          (2) Treatment of contributions to capital.--If the 
        adjusted basis of any qualified small business stock is 
        adjusted by reason of any contribution to capital after 
        the date on which such stock was originally issued, in 
        determining the amount of the adjustment by reason of 
        such contribution, the basis of the contributed 
        property shall in no event be treated as less than its 
        fair market value on the date of the contribution.
  (j) Treatment of certain short positions.--
          (1) In general.--If the taxpayer has an offsetting 
        short position with respect to any qualified small 
        business stock, subsection (a) shall not apply to any 
        gain from the sale or exchange of such stock unless--
                  (A) such stock was held by the taxpayer for 
                [more than 5 years] at least 3 years as of the 
                first day on which there was such a short 
                position, and
                  (B) the taxpayer elects to recognize gain as 
                if such stock were sold on such first day for 
                its fair market value.
          (2) Offsetting short position.--For purposes of 
        paragraph (1), the taxpayer shall be treated as having 
        an offsetting short position with respect to any 
        qualified small business stock if--
                  (A) the taxpayer has made a short sale of 
                substantially identical property,
                  (B) the taxpayer has acquired an option to 
                sell substantially identical property at a 
                fixed price, or
                  (C) to the extent provided in regulations, 
                the taxpayer has entered into any other 
                transaction which substantially reduces the 
                risk of loss from holding such qualified small 
                business stock.
        For purposes of the preceding sentence, any reference 
        to the taxpayer shall be treated as including a 
        reference to any person who is related (within the 
        meaning of section 267(b) or 707(b)) to the taxpayer.
  (k) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out the purposes of 
this section, including regulations to prevent the avoidance of 
the purposes of this section through split-ups, shell 
corporations, partnerships, or otherwise.

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                    Subchapter Z--OPPORTUNITY ZONES

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Sec. 1400Z-3. Special rules for capital gains invested in rural 
          opportunity zones.

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SEC. 1400Z-3. SPECIAL RULES FOR CAPITAL GAINS INVESTED IN RURAL 
                    OPPORTUNITY ZONES.

  (a) In General.--
          (1) Treatment of gains.--In the case of capital gain 
        from the sale to, or exchange with, an unrelated person 
        of any property held by the taxpayer, at the election 
        of the taxpayer--
                  (A) gross income for the taxable year shall 
                not include so much of such gain as does not 
                exceed the aggregate amount invested by the 
                taxpayer in a qualified rural opportunity fund 
                during the 180-day period beginning on the date 
                of such sale or exchange,
                  (B) the amount of gain excluded by 
                subparagraph (A) shall be included in gross 
                income as provided by subsection (b), and
                  (C) subsection (c) shall apply.
          (2) Election.--No election may be made under 
        paragraph (1)--
                  (A) with respect to a sale or exchange if an 
                election previously made with respect to such 
                sale or exchange is in effect, or
                  (B) with respect to any sale or exchange 
                after December 31, 2032.
  (b) Deferral of Gain Invested in Qualified Rural Opportunity 
Zone Property.--
          (1) Year of inclusion.--Gain to which subsection 
        (a)(1)(B) applies shall be included in income in the 
        taxable year which includes the earlier of--
                  (A) the date on which such investment is sold 
                or exchanged, or
                  (B) December 31, 2032.
          (2) Amount includible.--
                  (A) In general.--The amount of gain included 
                in gross income under subsection (a)(1)(A) 
                shall be the excess of--
                          (i) the lesser of the amount of gain 
                        excluded under paragraph (1) or the 
                        fair market value of the investment as 
                        determined as of the date described in 
                        paragraph (1), over
                          (ii) the taxpayer's basis in the 
                        investment.
                  (B) Determination of basis qualified rural 
                opportunity zone property.--
                          (i) In general.--Except as otherwise 
                        provided in this clause or subsection 
                        (c), the taxpayer's basis in the 
                        investment shall be zero.
                          (ii) Increase for gain recognized 
                        under subsection (a)(1)(b).--The basis 
                        in the investment shall be increased by 
                        the amount of gain recognized by reason 
                        of subsection (a)(1)(B) with respect to 
                        such property.
                          (iii) Investments held for 5 years.--
                        In the case of any investment held for 
                        at least 5 years, the basis of such 
                        investment shall be increased by an 
                        amount equal to 10 percent of the 
                        amount of gain deferred by reason of 
                        subsection (a)(1)(A).
                          (iv) Investments held for 7 years.--
                        In the case of any investment held by 
                        the taxpayer for at least 7 years, in 
                        addition to any adjustment made under 
                        clause (iii), the basis of such 
                        property shall be increased by an 
                        amount equal to 5 percent of the amount 
                        of gain deferred by reason of 
                        subsection (a)(1)(A).
  (c) Special Rule for Investments Held for at Least 10 
Years.--In the case of any investment held by the taxpayer for 
at least 10 years and with respect to which the taxpayer makes 
an election under this subsection, the basis of such property 
shall be equal to the fair market value of such investment on 
the date that the investment is sold or exchanged.
  (d) Qualified Rural Opportunity Fund.--For purposes of this 
section--
          (1) In general.--The term ``qualified rural 
        opportunity fund'' means any investment vehicle which 
        is organized as a corporation or a partnership for the 
        purpose of investing in qualified rural opportunity 
        zone property (other than another qualified rural 
        opportunity fund) that holds at least 90 percent of its 
        assets in qualified rural opportunity zone property, 
        determined by the average of the percentage of 
        qualified rural opportunity zone property held in the 
        fund as measured--
                  (A) on the last day of the first 6-month 
                period of the taxable year of the fund, and
                  (B) on the last day of the taxable year of 
                the fund.
          (2) Qualified rural opportunity zone property.--
                  (A) In general.--The term ``qualified rural 
                opportunity zone property'' means property 
                which is--
                          (i) qualified rural opportunity zone 
                        stock,
                          (ii) qualified rural opportunity zone 
                        partnership interest, or
                          (iii) qualified rural opportunity 
                        zone business property.
                  (B) Qualified rural opportunity zone stock.--
                          (i) In general.--Except as provided 
                        in clause (ii), the term ``qualified 
                        rural opportunity zone stock'' means 
                        any stock in a domestic corporation 
                        if--
                                  (I) such stock is acquired by 
                                the qualified rural opportunity 
                                fund after December 31, 2023, 
                                at its original issue (directly 
                                or through an underwriter) from 
                                the corporation solely in 
                                exchange for cash,
                                  (II) as of the time such 
                                stock was issued, such 
                                corporation was a qualified 
                                rural opportunity zone business 
                                (or, in the case of a new 
                                corporation, such corporation 
                                was being organized for 
                                purposes of being a qualified 
                                rural opportunity zone 
                                business), and
                                  (III) during substantially 
                                all of the qualified rural 
                                opportunity fund's holding 
                                period for such stock, such 
                                corporation qualified as a 
                                qualified rural opportunity 
                                zone business.
                          (ii) Redemptions.--A rule similar to 
                        the rule of section 1202(c)(3) shall 
                        apply for purposes of this paragraph.
                  (C) Qualified rural opportunity zone 
                partnership interest.--The term ``qualified 
                rural opportunity zone partnership interest'' 
                means any capital or profits interest in a 
                domestic partnership if--
                          (i) such interest is acquired by the 
                        qualified rural opportunity fund after 
                        December 31, 2023, from the partnership 
                        solely in exchange for cash,
                          (ii) as of the time such interest was 
                        acquired, such partnership was a 
                        qualified rural opportunity zone 
                        business (or, in the case of a new 
                        partnership, such partnership was being 
                        organized for purposes of being a 
                        qualified rural opportunity zone 
                        business), and
                          (iii) during substantially all of the 
                        qualified rural opportunity fund's 
                        holding period for such interest, such 
                        partnership qualified as a qualified 
                        rural opportunity zone business.
                  (D) Qualified rural opportunity zone business 
                property.--
                          (i) In general.--The term ``qualified 
                        rural opportunity zone business 
                        property'' means tangible property used 
                        in a trade or business of the qualified 
                        rural opportunity fund if--
                                  (I) such property was 
                                acquired by the qualified rural 
                                opportunity fund by purchase 
                                (as defined in section 
                                179(d)(2)) after December 31, 
                                2023,
                                  (II) the original use of such 
                                property in the qualified rural 
                                opportunity zone commences with 
                                the qualified rural opportunity 
                                fund or the qualified rural 
                                opportunity fund substantially 
                                improves the property, and
                                  (III) during substantially 
                                all of the qualified rural 
                                opportunity fund's holding 
                                period for such property, 
                                substantially all of the use of 
                                such property was in a 
                                qualified rural opportunity 
                                zone.
                          (ii) Substantial improvement.--For 
                        purposes of subparagraph (A)(ii), 
                        property shall be treated as 
                        substantially improved by the qualified 
                        rural opportunity fund only if, during 
                        any 30-month period beginning after the 
                        date of acquisition of such property, 
                        additions to basis with respect to such 
                        property in the hands of the qualified 
                        rural opportunity fund exceed an amount 
                        equal to the adjusted basis of such 
                        property at the beginning of such 30-
                        month period in the hands of the 
                        qualified rural opportunity fund.
                          (iii) Related party.--For purposes of 
                        subparagraph (A)(i), the related person 
                        rule of section 179(d)(2) shall be 
                        applied pursuant to subsection (e)(2) 
                        in lieu of the application of such rule 
                        in section 179(d)(2)(A).
          (3) Qualified rural opportunity zone business.--
                  (A) In general.--The term ``qualified rural 
                opportunity zone business'' means a trade or 
                business--
                          (i) in which substantially all of the 
                        tangible property owned or leased by 
                        the taxpayer is qualified rural 
                        opportunity zone business property 
                        (determined by substituting ``qualified 
                        rural opportunity zone business'' for 
                        ``qualified rural opportunity fund'' 
                        each place it appears in paragraph 
                        (2)(D)),
                          (ii) which satisfies the requirements 
                        of paragraphs (2), (4), and (8) of 
                        section 1397C(b), and
                          (iii) which is not described in 
                        section 144(c)(6)(B).
                  (B) Special rule.--For purposes of 
                subparagraph (A), tangible property that ceases 
                to be a qualified rural opportunity zone 
                business property shall continue to be treated 
                as a qualified rural opportunity zone business 
                property for the lesser of--
                          (i) 5 years after the date on which 
                        such tangible property ceases to be so 
                        qualified, or
                          (ii) the date on which such tangible 
                        property is no longer held by the 
                        qualified rural opportunity zone 
                        business.
          (4) Qualified rural opportunity zone.--
                  (A) In general.--The term ``qualified rural 
                opportunity zone'' means any population census 
                tract which--
                          (i) is located in a rural county, and
                          (ii) is in persistent poverty (as 
                        determined by the Bureau of the Census 
                        using the same methodology and data as 
                        used for purposes of the May 2023 
                        report of such Bureau entitled 
                        ``Persistent Poverty in Counties and 
                        Census Tracts'').
                  (B) Rural county.--The term ``rural county'' 
                means any county if more than 50 percent of the 
                census blocks which comprise such county are 
                rural blocks (as determined by the Bureau of 
                the Census as of the date of the enactment of 
                this Act). A rule similar to section 
                143(k)(2)(D) shall apply for purposes of the 
                preceding sentence.
  (e) Applicable Rules.--
          (1) Treatment of investments with mixed funds.--In 
        the case of any investment in a qualified rural 
        opportunity fund only a portion of which consists of 
        investments of gain to which an election under 
        subsection (a) is in effect--
                  (A) such investment shall be treated as 2 
                separate investments, consisting of--
                          (i) one investment that only includes 
                        amounts to which the election under 
                        subsection (a) applies, and
                          (ii) a separate investment consisting 
                        of other amounts, and
                  (B) subsections (a), (b), and (c) shall only 
                apply to the investment described in 
                subparagraph (A)(i).
          (2) Related persons.--For purposes of this section, 
        persons are related to each other if such persons are 
        described in section 267(b) or 707(b)(1), determined by 
        substituting ``20 percent'' for ``50 percent'' each 
        place it occurs in such sections.
          (3) Decedents.--In the case of a decedent, amounts 
        recognized under this section shall, if not properly 
        includible in the gross income of the decedent, be 
        includible in gross income as provided by section 691.
          (4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry 
        out the purposes of this section, including--
                  (A) rules for the certification of qualified 
                rural opportunity funds for the purposes of 
                this section,
                  (B) rules to ensure a qualified rural 
                opportunity fund has a reasonable period of 
                time to reinvest the return of capital from 
                investments in qualified rural opportunity zone 
                stock and qualified rural opportunity zone 
                partnership interests, and to reinvest proceeds 
                received from the sale or disposition of 
                qualified rural opportunity zone property, and
                  (C) rules to prevent abuse.
  (f) Failure of Qualified Rural Opportunity Fund to Maintain 
Investment Standard.--
          (1) In general.--If a qualified rural opportunity 
        fund fails to meet the 90-percent requirement of 
        subsection (d)(1), the qualified rural opportunity fund 
        shall pay a penalty for each month it fails to meet the 
        requirement in an amount equal to the product of--
                  (A) the excess of--
                          (i) the amount equal to 90 percent of 
                        its aggregate assets, over
                          (ii) the aggregate amount of 
                        qualified rural opportunity zone 
                        property held by the fund, multiplied 
                        by
                  (B) the underpayment rate established under 
                section 6621(a)(2) for such month.
          (2) Special rule for partnerships.--In the case that 
        the qualified rural opportunity fund is a partnership, 
        the penalty imposed by paragraph (1) shall be taken 
        into account proportionately as part of the 
        distributive share of each partner of the partnership.
          (3) Reasonable cause exception.--No penalty shall be 
        imposed under this subsection with respect to any 
        failure if it is shown that such failure is due to 
        reasonable cause.

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Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES

           *       *       *       *       *       *       *


SEC. 3406. BACKUP WITHHOLDING.

  (a) Requirement to deduct and withhold.--
          (1) In general.--In the case of any reportable 
        payment, if--
                  (A) the payee fails to furnish his TIN to the 
                payor in the manner required,
                  (B) the Secretary notifies the payor that the 
                TIN furnished by the payee is incorrect,
                  (C) there has been a notified payee 
                underreporting described in subsection (c), or
                  (D) there has been a payee certification 
                failure described in subsection (d),
        then the payor shall deduct and withhold from such 
        payment a tax equal to the product of the fourth lowest 
        rate of tax applicable under section 1(c) and such 
        payment.
          (2) Subparagraphs (C) and (D) of paragraph (1) apply 
        only to interest and dividend payments.--Subparagraphs 
        (C) and (D) of paragraph (1) shall apply only to 
        reportable interest or dividend payments.
  (b) Reportable payment, etc..--For purposes of this section--
          (1) Reportable payment.--The term ``reportable 
        payment'' means--
                  (A) any reportable interest or dividend 
                payment, and
                  (B) any other reportable payment.
          (2) Reportable interest or dividend payment.--
                  (A) In general.--The term ``reportable 
                interest or dividend payment'' means any 
                payment of a kind, and to a payee, required to 
                be shown on a return required under--
                          (i) section 6049(a) (relating to 
                        payments of interest),
                          (ii) section 6042(a) (relating to 
                        payments of dividends), or
                          (iii) section 6044 (relating to 
                        payments of patronage dividends) but 
                        only to the extent such payment is in 
                        money.
                  (B) Special rule for patronage dividends.--
                For purposes of subparagraphs (C) and (D) of 
                subsection (a)(1), the term ``reportable 
                interest or dividend payment'' shall not 
                include any payment to which section 6044 
                (relating to patronage dividends) applies 
                unless 50 percent or more of such payment is in 
                money.
          (3) Other reportable payment.--The term ``other 
        reportable payment'' means any payment of a kind, and 
        to a payee, required to be shown on a return required 
        under--
                  (A) section 6041 (relating to certain 
                information at source),
                  (B) section 6041A(a) (relating to payments of 
                remuneration for services),
                  (C) section 6045 (relating to returns of 
                brokers),
                  (D) section 6050A (relating to reporting 
                requirements of certain fishing boat 
                operators), but only to the extent such payment 
                is in money and represents a share of the 
                proceeds of the catch,
                  (E) section 6050N (relating to payments of 
                royalties), or
                  (F) section 6050W (relating to returns 
                relating to payments made in settlement of 
                payment card transactions).
          (4) Whether payment is of reportable kind determined 
        without regard to minimum amount.--The determination of 
        whether any payment is of a kind required to be shown 
        on a return described in paragraph (2) or (3) shall be 
        made without regard to any minimum amount which must be 
        paid before a return is required.
          (5) Exception for certain small payments.--To the 
        extent provided in regulations, the term ``reportable 
        payment'' shall not include any payment which--
                  (A) does not exceed $10, and
                  (B) if determined for a 1-year period, would 
                not exceed $10.
          (6) Other reportable payments include payments 
        described in section 6041(a) or 6041A(a) [only where 
        aggregate for calendar year is $600 or more] only if in 
        excess of threshold.--Any payment of a kind required to 
        be shown on a return required under section 6041(a) or 
        6041A(a) which is made during any calendar year shall 
        be treated as a reportable payment only if--
                  (A) the aggregate amount of such payment and 
                all previous payments described in such 
                sections by the payor to the payee during such 
                calendar year equals or exceeds [$600] the 
                dollar amount in effect for such calendar year 
                under section 6041(a),
                  (B) the payor was required under section 
                6041(a) or 6041A(a) to file a return for the 
                preceding calendar year with respect to 
                payments to the payee, or
                  (C) during the preceding calendar year, the 
                payor made reportable payments to the payee 
                with respect to which amounts were required to 
                be deducted and withheld under subsection (a).
          (7) Exception for certain window payments of 
        interest, etc..--For purposes of subparagraphs (C) and 
        (D) of subsection (a)(1), the term ``reportable 
        interest or dividend payment'' shall not include any 
        payment--
                  (A) in redemption of a coupon on a bearer 
                instrument or in redemption of a United States 
                savings bond, or
                  (B) to the extent provided in regulations, of 
                interest on instruments similar to those 
                described in subparagraph (A).
        The preceding sentence shall not apply for purposes of 
        determining whether there is payee underreporting 
        described in subsection (c).
  (c) Notified payee underreporting with respect to interest 
and dividends.--
          (1) Notified payee underreporting.--If--
                  (A) the Secretary determines with respect to 
                any payee that there has been payee 
                underreporting,
                  (B) at least 4 notices have been mailed by 
                the Secretary to the payee (over a period of at 
                least 120 days) with respect to the 
                underreporting, and
                  (C) in the case of any payee who has filed a 
                return for the taxable year, any deficiency of 
                tax attributable to such failure has been 
                assessed,
        the Secretary may notify payors of reportable interest 
        or dividend payments with respect to such payee of the 
        requirement to deduct and withhold under subsection 
        (a)(1)(C) (but not the reasons for the withholding 
        under subsection (a)(1)(C)).
          (2) Payee underreporting defined.--For purposes of 
        this section, there has been payee underreporting if 
        for any taxable year the Secretary determines that--
                  (A) the payee failed to include in his return 
                of tax under chapter 1 for such year any 
                portion of a reportable interest or dividend 
                payment required to be shown on such return, or
                  (B) the payee may be required to file a 
                return for such year and to include a 
                reportable interest or dividend payment in such 
                return, but failed to file such return.
          (3) Determination by Secretary to stop (or not to 
        start) withholding.--
                  (A) In general.--If the Secretary determines 
                that--
                          (i) there was no payee 
                        underreporting,
                          (ii) any payee underreporting has 
                        been corrected (and any tax, penalty, 
                        or interest with respect to the payee 
                        underreporting has been paid),
                          (iii) withholding under subsection 
                        (a)(1)(C) has caused (or would cause) 
                        undue hardship to the payee and it is 
                        unlikely that any payee underreporting 
                        by such payee will occur again, or
                          (iv) there is a bona fide dispute as 
                        to whether there has been any payee 
                        underreporting,
                then the Secretary shall take the action 
                described in subparagraph (B).
                  (B) Secretary to take action to stop (or not 
                to start) withholding.--For purposes of 
                subparagraph (A), if at the time of the 
                Secretary's determination under subparagraph 
                (A)--
                          (i) no notice has been given under 
                        paragraph (1) to any payor with respect 
                        to the underreporting, the Secretary 
                        shall not give any such notice, or
                          (ii) if such notice has been given, 
                        the Secretary shall--
                                  (I) provide the payee with a 
                                written certification that 
                                withholding under subsection 
                                (a)(1)(C) is to stop, and
                                  (II) notify the applicable 
                                payors (and brokers) that such 
                                withholding is to stop.
                  (C) Time for taking action where notice to 
                payor has been given.--In any case where notice 
                has been given under paragraph (1) to any payor 
                with respect to any underreporting, if the 
                Secretary makes a determination under 
                subparagraph (A) during the 12-month period 
                ending on October 15 of any calendar year--
                          (i) except as provided in clause 
                        (ii), the Secretary shall take the 
                        action described in subparagraph 
                        (B)(ii) to bring about the stopping of 
                        withholding no later than December 1 of 
                        such calendar year, or
                          (ii) in the case of--
                                  (I) a no payee underreporting 
                                determination under clause (i) 
                                of subparagraph (A), or
                                  (II) a hardship determination 
                                under clause (iii) of 
                                subparagraph (A),
                 such action shall be taken no later than the 
                45th day after the day on which the Secretary 
                made the determination.
                  (D) Opportunity to request determination.--
                The Secretary shall prescribe procedures under 
                which--
                          (i) a payee may request a 
                        determination under subparagraph (A), 
                        and
                          (ii) the payee may provide 
                        information with respect to such 
                        request.
          (4) Payor notifies payee of withholding because of 
        payee underreporting.--Any payor required to withhold 
        any tax under subsection (a)(1)(C) shall, at the time 
        such withholding begins, notify the payee of such 
        withholding.
          (5) Payee may be required to notify Secretary who his 
        payors and brokers are.--For purposes of this section, 
        the Secretary may require any payee of reportable 
        interest or dividend payments who is subject to 
        withholding under subsection (a)(1)(C) to notify the 
        Secretary of--
                  (A) all payors from whom the payee receives 
                reportable interest or dividend payments, and
                  (B) all brokers with whom the payee has 
                accounts which may involve reportable interest 
                or dividend payments.
        The Secretary may notify any such broker that such 
        payee is subject to withholding under subsection 
        (a)(1)(C).
  (d) Interest and dividend backup withholding applies to new 
accounts and instruments unless payee certifies that he is not 
subject to such withholding.--
          (1) In general.--There is a payee certification 
        failure unless the payee has certified to the payor, 
        under penalty of perjury, that such payee is not 
        subject to withholding under subsection (a)(1)(C).
          (2) Special rules for readily tradable instruments.--
                  (A) In general.--Subsection (a)(1)(D) shall 
                apply to any reportable interest or dividend 
                payment to any payee on any readily tradable 
                instrument if (and only if) the payor was 
                notified by a broker under subparagraph (B) or 
                no certification was provided to the payor by 
                the payee under paragraph (1) and--
                          (i) such instrument was acquired 
                        directly by the payee from the payor, 
                        or
                          (ii) such instrument is held by the 
                        payor as nominee for the payee.
                  (B) Broker notifies payor.--If--
                          (i) a payee acquires any readily 
                        tradable instrument through a broker, 
                        and
                          (ii) with respect to such 
                        acquisition--
                                  (I) the payee fails to 
                                furnish his TIN to the broker 
                                in the manner required under 
                                subsection (a)(1)(A),
                                  (II) the Secretary notifies 
                                such broker before such 
                                acquisition that the TIN 
                                furnished by the payee is 
                                incorrect,
                                  (III) the Secretary notifies 
                                such broker before such 
                                acquisition that such payee is 
                                subject to withholding under 
                                subsection (a)(1)(C), or
                                  (IV) the payee does not 
                                provide a certification to such 
                                broker under subparagraph (C),
                 such broker shall, within such period as the 
                Secretary may prescribe by regulations (but not 
                later than 15 days after such acquisition), 
                notify the payor that such payee is subject to 
                withholding under subparagraph (A), (B), (C), 
                or (D) of subsection (a)(1), respectively.
                  (C) Time for payee to provide certification 
                to broker.--In the case of any readily tradable 
                instrument acquired by a payee through a 
                broker, the certification described in 
                paragraph (1) may be provided by the payee to 
                such broker--
                          (i) at any time after the payee's 
                        account with the broker was established 
                        and before the acquisition of such 
                        instrument, or
                          (ii) in connection with the 
                        acquisition of such instrument.
          (3) Exception for existing accounts, etc..--This 
        subsection and subsection (a)(1)(D) shall not apply to 
        any reportable interest or dividend payment which is 
        paid or credited--
                  (A) in the case of interest or any other 
                amount of a kind reportable under section 6049, 
                with respect to any account (whatever called) 
                established before January 1, 1984, or with 
                respect to any instrument acquired before 
                January 1, 1984,
                  (B) in the case of dividends or any other 
                amount reportable under section 6042, on any 
                stock or other instrument acquired before 
                January 1, 1984, or
                  (C) in the case of patronage dividends or 
                other amounts of a kind reportable under 
                section 6044, with respect to any membership 
                acquired, or contract entered into, before 
                January 1, 1984.
          (4) Exception for readily tradable instruments 
        acquired through existing brokerage accounts.--
        Subparagraph (B) of paragraph (2) shall not apply with 
        respect to a readily tradable instrument which was 
        acquired through an account with a broker if--
                  (A) such account was established before 
                January 1, 1984, and
                  (B) during 1983, such broker bought or sold 
                instruments for the payee (or acted as a 
                nominee for the payee) through such account.
        The preceding sentence shall not apply with respect to 
        any readily tradable instrument acquired through such 
        account after the broker was notified by the Secretary 
        that the payee is subject to withholding under 
        subsection (a)(1)(C).
  (e) Period for which withholding is in effect.--
          (1) Failure to furnish TIN.--In the case of any 
        failure by a payee to furnish his TIN to a payor in the 
        manner required, subsection (a) shall apply to any 
        reportable payment made by such payor during the period 
        during which the TIN has not been furnished in the 
        manner required. The Secretary may require that a TIN 
        required to be furnished under subsection (a)(1)(A) be 
        provided under penalties of perjury only with respect 
        to interest, dividends, patronage dividends, and 
        amounts subject to broker reporting.
          (2) Notification of incorrect number.--In any case in 
        which the Secretary notifies the payor that the TIN 
        furnished by the payee is incorrect, subsection (a) 
        shall apply to any reportable payment made by such 
        payor--
                  (A) after the close of the 30th day after the 
                day on which the payor received such 
                notification, and
                  (B) before the payee furnishes another TIN in 
                the manner required.
          (3) Notified payee underreporting described in 
        subsection (c).--
                  (A) In general.--In the case of any notified 
                payee underreporting described in subsection 
                (c), subsection (a) shall apply to any 
                reportable interest or dividend payment made--
                          (i) after the close of the 30th day 
                        after the day on which the payor 
                        received notification from the 
                        Secretary of such underreporting, and
                          (ii) before the stop date.
                  (B) Stop date.--For purposes of this 
                subsection, the term ``stop date'' means the 
                determination effective date or, if later, the 
                earlier of--
                          (i) the day on which the payor 
                        received notification from the 
                        Secretary under subsection (c)(3)(B) to 
                        stop withholding, or
                          (ii) the day on which the payor 
                        receives from the payee a certification 
                        provided by the Secretary under 
                        subsection (c)(3)(B).
                  (C) Determination effective date.--For 
                purposes of this subsection--
                          (i) In general.--Except as provided 
                        in clause (ii), the determination 
                        effective date of any determination 
                        under subsection (c)(3)(A) which is 
                        made during the 12-month period ending 
                        on October 15 of any calendar year 
                        shall be the first January 1 following 
                        such October 15.
                          (ii) Determination that there was no 
                        underreporting; hardship.--In the case 
                        of any determination under clause (i) 
                        or (iii) of subsection (c)(3)(A), the 
                        determination effective date shall be 
                        the date on which the Secretary's 
                        determination is made.
          (4) Failure to provide certification that payee is 
        not subject to withholding.--
                  (A) In general.--In the case of any payee 
                certification failure described in subsection 
                (d)(1), subsection (a) shall apply to any 
                reportable interest or dividend payment made 
                during the period during which the 
                certification described in subsection (d)(1) 
                has not been furnished to the payor.
                  (B) Special rule for readily tradable 
                instruments acquired through broker where 
                notification.--In the case of any readily 
                tradable instrument acquired by the payee 
                through a broker, the period described in 
                subparagraph (A) shall start with payments to 
                the payee made after the close of the 30th day 
                after the payor receives notification from a 
                broker under subsection (d)(2)(B).
          (5) 30-day grace periods.--
                  (A) Start-up.--If the payor elects the 
                application of this subparagraph with respect 
                to the payee, subsection (a) shall also apply 
                to any reportable payment made during the 30-
                day period described in paragraph (2)(A), 
                (3)(A), or (4)(B).
                  (B) Stopping.--Unless the payor elects not to 
                have this subparagraph apply with respect to 
                the payee, subsection (a) shall also apply to 
                any reportable payment made after the close of 
                the period described in paragraph (1), (2), or 
                (4) (as the case may be) and before the 30th 
                day after the close of such period. A similar 
                rule shall also apply with respect to the 
                period described in paragraph (3)(A) where the 
                stop date is determined under clause (i) or 
                (ii) of paragraph (3)(B).
                  (C) Election of shorter grace period.--The 
                payor may elect a period shorter than the grace 
                period set forth in subparagraph (A) or (B), as 
                the case may be.
  (f) Confidentiality of information.--
          (1) In general.--No person may use any information 
        obtained under this section (including any failure to 
        certify under subsection (d)) except for purposes of 
        meeting any requirement under this section or (subject 
        to the safeguards set forth in section 6103) for 
        purposes permitted under section 6103.
          (2) Cross reference.--For provision providing for 
        civil damages for violation of paragraph (1), see 
        section 7431.
  (g) Exceptions.--
          (1) Payments to certain payees.--Subsection (a) shall 
        not apply to any payment made to--
                  (A) any organization or governmental unit 
                described in subparagraph (B), (C), (D), (E), 
                or (F) of section 6049(b)(4), or
                  (B) any other person specified in 
                regulations.
          (2) Amounts for which withholding otherwise 
        required.--Subsection (a) shall not apply to any amount 
        for which withholding is otherwise required by this 
        title.
          (3) Exemption while waiting for TIN.--The Secretary 
        shall prescribe regulations for exemptions from the tax 
        imposed by subsection (a) during the period during 
        which a person is waiting for receipt of a TIN.
  (h) Other definitions and special rules.--For purposes of 
this section--
          (1) Obviously incorrect number.--A person shall be 
        treated as failing to furnish his TIN if the TIN 
        furnished does not contain the proper number of digits.
          (2) Payee furnishes 2 incorrect TINs.--If the payee 
        furnishes the payor 2 incorrect TINs in any 3-year 
        period, the payor shall, after receiving notice of the 
        second incorrect TIN, treat the payee as not having 
        furnished another TIN under subsection (e)(2)(B) until 
        the day on which the payor receives notification from 
        the Secretary that a correct TIN has been furnished.
          (3) Joint payees.--Except to the extent otherwise 
        provided in regulations, any payment to joint payees 
        shall be treated as if all the payment were made to the 
        first person listed in the payment.
          (4) Payor defined.--The term ``payor'' means, with 
        respect to any reportable payment, a person required to 
        file a return described in paragraph (2) or (3) of 
        subsection (b) with respect to such payment.
          (5) Broker.--
                  (A) In general.--The term ``broker'' has the 
                meaning given to such term by section 
                6045(c)(1).
                  (B) Only 1 broker per acquisition.--If, but 
                for this subparagraph, there would be more than 
                1 broker with respect to any acquisition, only 
                the broker having the closest contact with the 
                payee shall be treated as the broker.
                  (C) Payor not treated as broker.--In the case 
                of any instrument, such term shall not include 
                any person who is the payor with respect to 
                such instrument.
                  (D) Real estate broker not treated as a 
                broker.--Except as provided by regulations, 
                such term shall not include any real estate 
                broker (as defined in section 6045(e)(2)).
          (6) Readily tradable instrument.--The term ``readily 
        tradable instrument'' means--
                  (A) any instrument which is part of an issue 
                any portion of which is traded on an 
                established securities market (within the 
                meaning of section 453(f)(5)), and
                  (B) except as otherwise provided in 
                regulations prescribed by the Secretary, any 
                instrument which is regularly quoted by brokers 
                or dealers making a market.
          (7) Original issue discount.--To the extent provided 
        in regulations, rules similar to the rules of paragraph 
        (6) of section 6049(d) shall apply.
          (8) Requirement of notice to payee.--Whenever the 
        Secretary notifies a payor under paragraph (1)(B) of 
        subsection (a) that the TIN furnished by any payee is 
        incorrect, the Secretary shall at the same time furnish 
        a copy of such notice to the payor, and the payor shall 
        promptly furnish such copy to the payee.
          (9) Requirement of notice to Secretary.--If the 
        Secretary notifies a payor under paragraph (1)(B) of 
        subsection (a) that the TIN furnished by any payee is 
        incorrect and such payee subsequently furnishes another 
        TIN to the payor, the payor shall promptly notify the 
        Secretary of the other TIN so furnished.
          (10) Coordination with other sections.--For purposes 
        of section 31, this chapter (other than section 
        3402(n)), and so much of subtitle F (other than section 
        7205) as relates to this chapter, payments which are 
        subject to withholding under this section shall be 
        treated as if they were wages paid by an employer to an 
        employee (and amounts deducted and withheld under this 
        section shall be treated as if deducted and withheld 
        under section 3402).
  (i) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


Subchapter A--RETURNS AND RECORDS

           *       *       *       *       *       *       *


PART II--TAX RETURNS OR STATEMENTS

           *       *       *       *       *       *       *


Subpart A--GENERAL REQUIREMENT

           *       *       *       *       *       *       *


SEC. 6011. GENERAL REQUIREMENT OF RETURN, STATEMENT, OR LIST.

  (a) General rule.--When required by regulations prescribed by 
the Secretary any person made liable for any tax imposed by 
this title, or with respect to the collection thereof, shall 
make a return or statement according to the forms and 
regulations prescribed by the Secretary. Every person required 
to make a return or statement shall include therein the 
information required by such forms or regulations.
  (b) Identification of taxpayer.--The Secretary is authorized 
to require such information with respect to persons subject to 
the taxes imposed by chapter 21 or chapter 24 as is necessary 
or helpful in securing proper identification of such persons.
  (c) Returns, etc., of DISCS and former DISCS and former 
FSC's.--
          (1) Records and information.--A DISC, former DISC, or 
        former FSC (as defined in section 922 as in effect 
        before its repeal by the FSC Repeal and 
        Extraterritorial Income Exclusion Act of 2000) shall 
        for the taxable year--
                  (A) furnish such information to persons who 
                were shareholders at any time during such 
                taxable year, and to the Secretary, and
                  (B) keep such records, as may be required by 
                regulations prescribed by the Secretary.
          (2) Returns.--A DISC shall file for the taxable year 
        such returns as may be prescribed by the Secretary by 
        forms or regulations.
  (d) Authority to require information concerning section 912 
allowances.--The Secretary may by regulations require any 
individual who receives allowances which are excluded from 
gross income under section 912 for any taxable year to include 
on his return of the taxes imposed by subtitle A for such 
taxable year such information with respect to the amount and 
type of such allowances as the Secretary determines to be 
appropriate.
  (e) Regulations requiring returns on magnetic media, etc..--
          (1) In general.--The Secretary shall prescribe 
        regulations providing standards for determining which 
        returns must be filed on magnetic media or in other 
        machine-readable form. Except as provided in paragraph 
        (3), the Secretary may not require returns of any tax 
        imposed by subtitle A on individuals, estates, and 
        trusts to be other than on paper forms supplied by the 
        Secretary.
          (2) Requirements of regulations.--In prescribing 
        regulations under paragraph (1), the Secretary--
                  (A) shall not require any person to file 
                returns on magnetic media unless such person is 
                required to file at least the applicable number 
                of returns during the calendar year, and
                  (B) shall take into account (among other 
                relevant factors) the ability of the taxpayer 
                to comply at reasonable cost with the 
                requirements of such regulations.
          (3) Special rule for tax return preparers.--
                  (A) In general.--The Secretary shall require 
                that any individual income tax return prepared 
                by a tax return preparer be filed on magnetic 
                media if--
                          (i) such return is filed by such tax 
                        return preparer, and
                          (ii) such tax return preparer is a 
                        specified tax return preparer for the 
                        calendar year during which such return 
                        is filed.
                  (B) Specified tax return preparer.--For 
                purposes of this paragraph, the term 
                ``specified tax return preparer'' means, with 
                respect to any calendar year, any tax return 
                preparer unless such preparer reasonably 
                expects to file 10 or fewer individual income 
                tax returns during such calendar year.
                  (C) Individual income tax return.--For 
                purposes of this paragraph, the term 
                ``individual income tax return'' means any 
                return of the tax imposed by subtitle A on 
                individuals, estates, or trusts.
                  (D) Exception for certain preparers located 
                in areas without internet access.--The 
                Secretary may waive the requirement of 
                subparagraph (A) if the Secretary determines, 
                on the basis of an application by the tax 
                return preparer, that the preparer cannot meet 
                such requirement by reason of being located in 
                a geographic area which does not have access to 
                internet service (other than dial-up or 
                satellite service).
          (4) Special rule for returns filed by financial 
        institutions with respect to withholding on foreign 
        transfers.--The numerical limitation under paragraph 
        (2)(A) shall not apply to any return filed by a 
        financial institution (as defined in section 
        1471(d)(5)) with respect to tax for which such 
        institution is made liable under section 1461 or 
        1474(a).
          (5) Applicable number.--
                  (A) In general.--For purposes of paragraph 
                (2)(A), the applicable number shall be--
                          (i) except as provided in 
                        subparagraph (B), in the case of 
                        calendar years before 2021, 250,
                          (ii) in the case of calendar year 
                        2021, 100, and
                          (iii) in the case of calendar years 
                        after 2021, 10.
                  (B) Special rule for partnerships for 2018, 
                2019, 2020, and 2021.--In the case of a 
                partnership, for any calendar year before 2022, 
                the applicable number shall be--
                          (i) in the case of calendar year 
                        2018, 200,
                          (ii) in the case of calendar year 
                        2019, 150,
                          (iii) in the case of calendar year 
                        2020, 100, and
                          (iv) in the case of calendar year 
                        2021, 50.
          (6)  Partnerships required to file on magnetic 
        media.--Notwithstanding paragraph (2)(A), the Secretary 
        shall require partnerships having more than 100 
        partners to file returns on magnetic media.
          (6)    Application of numerical limitation to returns 
        relating to deferred compensation plans.--For purposes 
        of applying the numerical limitation under paragraph 
        (2)(A) to any return required under section 6058, 
        information regarding each plan for which information 
        is provided on such return shall be treated as a 
        separate return.
          (8) Qualified opportunity funds and qualified rural 
        opportunity funds.--Notwithstanding paragraphs (1) and 
        (2), any return filed by a qualified opportunity fund 
        or qualified rural opportunity fund shall be filed on 
        magnetic media or other machine-readable form.
  (f) Promotion of electronic filing.--
          (1) In general.--The Secretary is authorized to 
        promote the benefits of and encourage the use of 
        electronic tax administration programs, as they become 
        available, through the use of mass communications and 
        other means.
          (2) Incentives.--The Secretary may implement 
        procedures to provide for the payment of appropriate 
        incentives for electronically filed returns.
  (g) Disclosure of reportable transaction to tax-exempt 
entity.--Any taxable party to a prohibited tax shelter 
transaction (as defined in section 4965(e)(1)) shall by 
statement disclose to any tax-exempt entity (as defined in 
section 4965(c)) which is a party to such transaction that such 
transaction is such a prohibited tax shelter transaction.
  (h) Mandatory e-filing of unrelated business income tax 
return.--Any organization required to file an annual return 
under this section which relates to any tax imposed by section 
511 shall file such return in electronic form.
  (i) Income, estate, and gift taxes.--For requirement that 
returns of income, estate, and gift taxes be made whether or 
not there is tax liability, see subparts B and C.

           *       *       *       *       *       *       *


PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *


Subpart A--INFORMATION CONCERNING PERSONS SUBJECT TO SPECIAL PROVISIONS

           *       *       *       *       *       *       *


Sec. 6039K. Returns with respect to qualified opportunity funds and 
          qualified rural opportunity funds.
Sec. 6039L. Information required from certain qualified opportunity zone 
          businesses and qualified rural opportunity zone businesses.

           *       *       *       *       *       *       *


SEC. 6039K. RETURNS WITH RESPECT TO QUALIFIED OPPORTUNITY FUNDS AND 
                    QUALIFIED RURAL OPPORTUNITY FUNDS.

  (a) In General.--Every qualified opportunity fund shall file 
an annual return (at such time and in such manner as the 
Secretary may prescribe) containing the information described 
in subsection (b).
  (b) Information From Qualified Opportunity Funds.--The 
information described in this subsection is--
          (1) the name, address, and taxpayer identification 
        number of the qualified opportunity fund,
          (2) whether the qualified opportunity fund is 
        organized as a corporation or a partnership,
          (3) the value of the total assets held by the 
        qualified opportunity fund as of each date described in 
        section 1400Z-2(d)(1),
          (4) the value of all qualified opportunity zone 
        property held by the qualified opportunity fund on each 
        such date,
          (5) with respect to each investment held by the 
        qualified opportunity fund in qualified opportunity 
        zone stock or a qualified opportunity zone partnership 
        interest--
                  (A) the name, address, and taxpayer 
                identification number of the corporation in 
                which such stock is held or the partnership in 
                which such interest is held, as the case may 
                be,
                  (B) each North American Industry 
                Classification System (NAICS) code that applies 
                to the trades or businesses conducted by such 
                corporation or partnership,
                  (C) the population census tracts in which the 
                qualified opportunity zone business property of 
                such corporation or partnership is located,
                  (D) the amount of the investment in such 
                stock or partnership interest as of each date 
                described in section 1400Z-2(d)(1),
                  (E) the value of tangible property held by 
                such corporation or partnership on each such 
                date which is owned by such corporation or 
                partnership,
                  (F) the value of tangible property held by 
                such corporation or partnership on each such 
                date which is leased by such corporation or 
                partnership,
                  (G) the approximate number of residential 
                units (if any) for any real property held by 
                such corporation or partnership, and
                  (H) the approximate average monthly number of 
                full-time equivalent employees of such 
                corporation or partnership for the year (within 
                numerical ranges identified by the Secretary) 
                or such other indication of the employment 
                impact of such corporation or partnership as 
                determined appropriate by the Secretary,
          (6) with respect to the items of qualified 
        opportunity zone business property held by the 
        qualified opportunity fund--
                  (A) the North American Industry 
                Classification System (NAICS) code that applies 
                to the trades or businesses in which such 
                property is held,
                  (B) the population census tract in which the 
                property is located,
                  (C) whether the property is owned or leased,
                  (D) the aggregate value of the items of 
                qualified opportunity zone property held by the 
                qualified opportunity fund as of each date 
                described in section 1400Z-2(d)(1), and
                  (E) in the case of real property, number of 
                residential units (if any),
          (7) the approximate average monthly number of full-
        time equivalent employees for the year of the trades or 
        businesses of the qualified opportunity fund in which 
        qualified opportunity zone business property is held 
        (within numerical ranges identified by the Secretary) 
        or such other indication of the employment impact of 
        such trades or businesses as determined appropriate by 
        the Secretary,
          (8) with respect to each person who disposed of an 
        investment in the qualified opportunity fund during the 
        year--
                  (A) the name and taxpayer identification 
                number of such person,
                  (B) the date or dates on which the investment 
                disposed was acquired, and
                  (C) the date or dates on which any such 
                investment was disposed and the amount of the 
                investment disposed, and
          (9) such other information as the Secretary may 
        require.
  (c) Statement Required to Be Furnished to Investors.--Every 
person required to make a return under subsection (a) shall 
furnish to each person whose name is required to be set forth 
in such return by reason of subsection (b)(8) a written 
statement showing--
          (1) the name, address and phone number of the 
        information contact of the person required to make such 
        return, and
          (2) the information required to be shown on such 
        return by reason of subsection (b)(8) with respect to 
        the person whose name is required to be so set forth.
  (d) Definitions.--For purposes of this section--
          (1) In general.--Any term used in this section which 
        is also used in subchapter Z of chapter 1 shall have 
        the meaning given such term under such subchapter.
          (2) Full-time equivalent employees.--The term ``full-
        time equivalent employees'' means, with respect to any 
        month, the sum of--
                  (A) the number of full-time employees (as 
                defined in section 4980H(c)(4)) for the month, 
                plus
                  (B) the number of employees determined (under 
                rules similar to the rules of section 
                4980H(c)(2)(E)) by dividing the aggregate 
                number of hours of service of employees who are 
                not full-time employees for the month by 120.
  (e) Application to Qualified Rural Opportunity Funds.--Every 
qualified rural opportunity fund shall file the annual return 
required under subsection (a), and the statements required 
under subsection (c), applied--
          (1) by substituting ``qualified rural opportunity'' 
        for ``qualified opportunity'' each place it appears, 
        and
          (2) by substituting ``section 1400Z-3(d)(1)'' for 
        ``section 1400Z-2(d)(1)'' each place it appears.

SEC. 6039L. INFORMATION REQUIRED FROM QUALIFIED OPPORTUNITY ZONE 
                    BUSINESSES AND QUALIFIED RURAL OPPORTUNITY ZONE 
                    BUSINESSES.

  (a) In General.--Every applicable qualified opportunity zone 
business shall furnish to the qualified opportunity fund 
described in subsection (b) a written statement in such manner 
and setting forth such information as the Secretary may by 
regulations prescribe for purposes of enabling such qualified 
opportunity fund to meet the requirements of section 
6039K(b)(5).
  (b) Applicable Qualified Opportunity Zone Business.--For 
purposes of subsection (a), the term ``applicable qualified 
opportunity zone business'' means any qualified opportunity 
zone business--
          (1) which is a trade or business of a qualified 
        opportunity fund,
          (2) in which a qualified opportunity fund holds 
        qualified opportunity zone stock, or
          (3) in which a qualified opportunity fund holds a 
        qualified opportunity zone partnership interest.
  (c) Other Terms.--Any term used in this section which is also 
used in subchapter Z of chapter 1 shall have the meaning given 
such term under such subchapter.
  (d) Application to Qualified Rural Opportunity Funds.--Every 
qualified rural opportunity zone business (as defined in 
subsection (b) determined after application of the 
substitutions described in this sentence) shall furnish the 
written statement required under subsection (a), applied by 
substituting ``qualified rural opportunity'' for ``qualified 
opportunity'' each place it appears.

           *       *       *       *       *       *       *


Subpart B--INFORMATION CONCERNING TRANSACTIONS WITH OTHER PERSONS

           *       *       *       *       *       *       *


SEC. 6041. INFORMATION AT SOURCE.

  (a) Payments [of $600 or more] Exceeding Threshold.--All 
persons engaged in a trade or business and making payment in 
the course of such trade or business to another person, of 
rent, salaries, wages, premiums, annuities, compensations, 
remunerations, emoluments, or other fixed or determinable 
gains, profits, and income (other than payments to which 
section 6042(a)(1), 6044(a)(1), 6047(e), 6049(a), or 6050N(a) 
applies, and other than payments with respect to which a 
statement is required under the authority of section 
6042(a)(2), 6044(a)(2), or 6045), of [$600] $5,000 or more in 
any [taxable year] calendar year, or, in the case of such 
payments made by the United States, the officers or employees 
of the United States having information as to such payments and 
required to make returns in regard thereto by the regulations 
hereinafter provided for, shall render a true and accurate 
return to the Secretary, under such regulations and in such 
form and manner and to such extent as may be prescribed by the 
Secretary, setting forth the amount of such gains, profits, and 
income, and the name and address of the recipient of such 
payment.
  (b) Collection of foreign items.--In the case of collections 
of items (not payable in the United States) of interest upon 
the bonds of foreign countries and interest upon the bonds of 
and dividends from foreign corporations by any person 
undertaking as a matter of business or for profit the 
collection of foreign payments of such interest or dividends by 
means of coupons, checks, or bills of exchange, such person 
shall make a return according to the forms or regulations 
prescribed by the Secretary, setting forth the amount paid and 
the name and address of the recipient of each such payment.
  (c) Recipient to furnish name and address.--When necessary to 
make effective the provisions of this section, the name and 
address of the recipient of income shall be furnished upon 
demand of the person paying the income.
  (d) Statements to be furnished to persons with respect to 
whom information is required.--Every person required to make a 
return under subsection (a) shall furnish to each person with 
respect to whom such a return is required a written statement 
showing--
          (1) the name, address, and phone number of the 
        information contact of the person required to make such 
        return, and
          (2) the aggregate amount of payments to the person 
        required to be shown on the return.
The written statement required under the preceding sentence 
shall be furnished to the person on or before January 31 of the 
year following the calendar year for which the return under 
subsection (a) was required to be made. To the extent provided 
in regulations prescribed by the Secretary, this subsection 
shall also apply to persons required to make returns under 
subsection (b).
  (e) Section does not apply to certain tips.--This section 
shall not apply to tips with respect to which section 6053(a) 
(relating to reporting of tips) applies.
  (f) Section does not apply to certain health arrangements.--
This section shall not apply to any payment for medical care 
(as defined in section 213(d)) made under--
          (1) a flexible spending arrangement (as defined in 
        section 106(c)(2)), or
          (2) a health reimbursement arrangement which is 
        treated as employer-provided coverage under an accident 
        or health plan for purposes of section 106.
  (g) Nonqualified deferred compensation.--Subsection (a) shall 
apply to--
          (1) any deferrals for the year under a nonqualified 
        deferred compensation plan (within the meaning of 
        section 409A(d)), whether or not paid, except that this 
        paragraph shall not apply to deferrals which are 
        required to be reported under section 6051(a)(13) 
        (without regard to any de minimis exception), and
          (2) any amount includible under section 409A and 
        which is not treated as wages under section 3401(a).
  (h) Inflation Adjustment.--In the case of any calendar year 
after 2024, the dollar amount in subsection (a) shall be 
increased by an amount equal to--
          (1) such dollar amount, multiplied by
          (2) the cost-of-living adjustment determined under 
        section 1(f)(3) for such calendar year, determined by 
        substituting ``calendar year 2023'' for ``calendar year 
        2016'' in subparagraph (A)(ii) thereof.
If any increase under the preceding sentence is not a multiple 
of $100, such increase shall be rounded to the nearest multiple 
of $100.

SEC. 6041A. RETURNS REGARDING PAYMENTS OF REMUNERATION FOR SERVICES AND 
                    DIRECT SALES.

  (a) Returns regarding remuneration for services.--If--
          (1) any service-recipient engaged in a trade or 
        business pays in the course of such trade or business 
        during any calendar year remuneration to any person for 
        services performed by such person, and
          (2) the aggregate of such remuneration paid to such 
        person during such calendar year [is $600 or more] 
        equals or exceeds the dollar amount in effect for such 
        calendar year under section 6041(a),
then the service-recipient shall make a return, according to 
the forms or regulations prescribed by the Secretary, setting 
forth the aggregate amount of such payments and the name and 
address of the recipient of such payments. For purposes of the 
preceding sentence, the term ``service-recipient'' means the 
person for whom the service is performed.
  (b) Direct sales of $5,000 or more.--
          (1) In general.--If--
                  (A) any person engaged in a trade or business 
                in the course of such trade or business during 
                any calendar year sells consumer products to 
                any buyer on a buy-sell basis, a deposit-
                commission basis, or any similar basis which 
                the Secretary prescribes by regulations, for 
                resale (by the buyer or any other person) in 
                the home or otherwise than in a permanent 
                retail establishment, and
                  (B) the aggregate amount of the sales to such 
                buyer during such calendar year [is $5,000 or 
                more] equals or exceeds the dollar amount in 
                effect for such calendar year under section 
                6041(a),
        then such person shall make a return, according to the 
        forms or regulations prescribed by the Secretary, 
        setting forth the name and address of the buyer to whom 
        such sales are made.
          (2) Definitions.--For purposes of paragraph (1)--
                  (A) Buy-sell basis.--A transaction is on a 
                buy-sell basis if the buyer performing the 
                services is entitled to retain part or all of 
                the difference between the price at which the 
                buyer purchases the product and the price at 
                which the buyer sells the product as part or 
                all of the buyer's remuneration for the 
                services, and
                  (B) Deposit-commission basis.--A transaction 
                is on a deposit-commission basis if the buyer 
                performing the services is entitled to retain 
                part or all of a purchase deposit paid by the 
                consumer in connection with the transaction as 
                part or all of the buyer's remuneration for the 
                services.
  (c) Certain services not included.--No return shall be 
required under subsection (a) or (b) if a statement with 
respect to the services is required to be furnished under 
section 6051, 6052, or 6053.
  (d) Applications to governmental units.--
          (1) Treated as persons.--The term ``person'' includes 
        any governmental unit (and any agency or 
        instrumentality thereof).
          (2) Special rules.--In the case of any payment by a 
        governmental entity or any agency or instrumentality 
        thereof--
                  (A) subsection (a) shall be applied without 
                regard to the trade or business requirement 
                contained therein, and
                  (B) any return under this section shall be 
                made by the officer or employee having control 
                of the payment or appropriately designated for 
                the purpose of making such return.
          (3) Payments to corporations by Federal executive 
        agencies.--
                  (A) In general.--Notwithstanding any 
                regulation prescribed by the Secretary before 
                the date of the enactment of this paragraph, 
                subsection (a) shall apply to remuneration paid 
                to a corporation by any Federal executive 
                agency (as defined in section 6050M(b)).
                  (B) Exception.--Subparagraph (A) shall not 
                apply to--
                          (i) services under contracts 
                        described in section 6050M(e)(3) with 
                        respect to which the requirements of 
                        section 6050M(e)(2) are met, and
                          (ii) such other services as the 
                        Secretary may specify in regulations 
                        prescribed after the date of the 
                        enactment of this paragraph.
  (e) Statements to be furnished to persons with respect to 
whom information is required to be furnished.--Every person 
required to make a return under subsection (a) or (b) shall 
furnish to each person whose name is required to be set forth 
in such return a written statement showing--
          (1) the name, address, and phone number of the 
        information contact of the person required to make such 
        return, and
          (2) in the case of subsection (a), the aggregate 
        amount of payments to the person required to be shown 
        on such return.
The written statement required under the preceding sentence 
shall be furnished to the person on or before January 31 of the 
year following the calendar year for which the return under 
subsection (a) was made.
  (f) Recipient to furnish name, address, and identification 
number; inclusion on return.--
          (1) Furnishing of information.--Any person with 
        respect to whom a return or statement is required under 
        this section to be made by another person shall furnish 
        to such other person his name, address, and 
        identification number at such time and in such manner 
        as the Secretary may prescribe by regulations.
          (2) Inclusion on return.--The person to whom an 
        identification number is furnished under paragraph (1) 
        shall include such number on any return which such 
        person is required to file under this section and to 
        which such identification number relates.

           *       *       *       *       *       *       *


SEC. 6050W. RETURNS RELATING TO PAYMENTS MADE IN SETTLEMENT OF PAYMENT 
                    CARD AND THIRD PARTY NETWORK TRANSACTIONS.

  (a) In general.--Each payment settlement entity shall make a 
return for each calendar year setting forth--
          (1) the name, address, and TIN of each participating 
        payee to whom one or more payments in settlement of 
        reportable payment transactions are made, and
          (2) the gross amount of the reportable payment 
        transactions with respect to each such participating 
        payee.
Such return shall be made at such time and in such form and 
manner as the Secretary may require by regulations.
  (b) Payment settlement entity.--For purposes of this 
section--
          (1) In general.--The term ``payment settlement 
        entity'' means--
                  (A) in the case of a payment card 
                transaction, the merchant acquiring entity, and
                  (B) in the case of a third party network 
                transaction, the third party settlement 
                organization.
          (2) Merchant acquiring entity.--The term ``merchant 
        acquiring entity'' means the bank or other organization 
        which has the contractual obligation to make payment to 
        participating payees in settlement of payment card 
        transactions.
          (3) Third party settlement organization.--The term 
        ``third party settlement organization'' means the 
        central organization which has the contractual 
        obligation to make payment to participating payees of 
        third party network transactions.
          (4) Special rules related to intermediaries.--For 
        purposes of this section--
                  (A) Aggregated payees.--In any case where 
                reportable payment transactions of more than 
                one participating payee are settled through an 
                intermediary--
                          (i) such intermediary shall be 
                        treated as the participating payee for 
                        purposes of determining the reporting 
                        obligations of the payment settlement 
                        entity with respect to such 
                        transactions, and
                          (ii) such intermediary shall be 
                        treated as the payment settlement 
                        entity with respect to the settlement 
                        of such transactions with the 
                        participating payees.
                  (B) Electronic payment facilitators.--In any 
                case where an electronic payment facilitator or 
                other third party makes payments in settlement 
                of reportable payment transactions on behalf of 
                the payment settlement entity, the return under 
                subsection (a) shall be made by such electronic 
                payment facilitator or other third party in 
                lieu of the payment settlement entity.
  (c) Reportable payment transaction.--For purposes of this 
section--
          (1) In general.--The term ``reportable payment 
        transaction'' means any payment card transaction and 
        any third party network transaction.
          (2) Payment card transaction.--The term ``payment 
        card transaction'' means any transaction in which a 
        payment card is accepted as payment.
          (3) Third party network transaction.--The term 
        ``third party network transaction'' means any 
        transaction described in subsection (d)(3)(A)(iii) 
        which is settled through a third party payment network.
  (d) Other definitions.--For purposes of this section--
          (1) Participating payee.--
                  (A) In general.--The term ``participating 
                payee'' means--
                          (i) in the case of a payment card 
                        transaction, any person who accepts a 
                        payment card as payment, and
                          (ii) in the case of a third party 
                        network transaction, any person who 
                        accepts payment from a third party 
                        settlement organization in settlement 
                        of such transaction.
                  (B) Exclusion of foreign persons.--Except as 
                provided by the Secretary in regulations or 
                other guidance, such term shall not include any 
                person with a foreign address. Notwithstanding 
                the preceding sentence, a person with only a 
                foreign address shall not be treated as a 
                participating payee with respect to any payment 
                settlement entity solely because such person 
                receives payments from such payment settlement 
                entity in dollars.
                  (C) Inclusion of governmental units.--The 
                term ``person'' includes any governmental unit 
                (and any agency or instrumentality thereof).
          (2) Payment card.--The term ``payment card'' means 
        any card which is issued pursuant to an agreement or 
        arrangement which provides for--
                  (A) one or more issuers of such cards,
                  (B) a network of persons unrelated to each 
                other, and to the issuer, who agree to accept 
                such cards as payment, and
                  (C) standards and mechanisms for settling the 
                transactions between the merchant acquiring 
                entities and the persons who agree to accept 
                such cards as payment.
        The acceptance as payment of any account number or 
        other indicia associated with a payment card shall be 
        treated for purposes of this section in the same manner 
        as accepting such payment card as payment.
          (3) Third party payment network.--The term ``third 
        party payment network'' means any agreement or 
        arrangement--
                  (A) which involves the establishment of 
                accounts with a central organization by a 
                substantial number of persons who--
                          (i) are unrelated to such 
                        organization,
                          (ii) provide goods or services, and
                          (iii) have agreed to settle 
                        transactions for the provision of such 
                        goods or services pursuant to such 
                        agreement or arrangement,
                  (B) which provides for standards and 
                mechanisms for settling such transactions, and
                  (C) which guarantees persons providing goods 
                or services pursuant to such agreement or 
                arrangement that such persons will be paid for 
                providing such goods or services.
        Such term shall not include any agreement or 
        arrangement which provides for the issuance of payment 
        cards.
  [(e) De minimis exception for third party settlement 
organizations.--A third party settlement organization shall not 
be required to report any information under subsection (a) with 
respect to third party network transactions of any 
participating payee if the amount which would otherwise be 
reported under subsection (a)(2) with respect to such 
transactions does not exceed $600.]
  (e) Exception for De Minimis Payments by Third Party 
Settlement Organizations.--A third party settlement 
organization shall be required to report any information under 
subsection (a) with respect to third party network transactions 
of any participating payee only if--
          (1) the amount which would otherwise be reported 
        under subsection (a)(2) with respect to such 
        transactions exceeds $20,000, and
          (2) the aggregate number of such transactions exceeds 
        200.
  (f) Statements to be furnished to persons with respect to 
whom information is required.--Every person required to make a 
return under subsection (a) shall furnish to each person with 
respect to whom such a return is required a written statement 
showing--
          (1) the name, address, and phone number of the 
        information contact of the person required to make such 
        return, and
          (2) the gross amount of the reportable payment 
        transactions with respect to the person required to be 
        shown on the return.
The written statement required under the preceding sentence 
shall be furnished to the person on or before January 31 of the 
year following the calendar year for which the return under 
subsection (a) was required to be made. Such statement may be 
furnished electronically, and if so, the email address of the 
person required to make such return may be shown in lieu of the 
phone number.
  (g) Regulations.--The Secretary may prescribe such 
regulations or other guidance as may be necessary or 
appropriate to carry out this section, including rules to 
prevent the reporting of the same transaction more than once.

           *       *       *       *       *       *       *


 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
PENALTIES

           *       *       *       *       *       *       *


Subchapter B--ASSESSABLE PENALTIES

           *       *       *       *       *       *       *


     PART II--FAILURE TO COMPLY WITH CERTAIN INFORMATION REPORTING 
                              REQUIREMENTS

     * * * * * * *
Sec. 6726. Failure to comply with information reporting requirements 
          relating to qualified opportunity funds and qualified rural 
          opportunity funds.

           *       *       *       *       *       *       *


SEC. 6724. WAIVER; DEFINITIONS AND SPECIAL RULES.

  (a) Reasonable cause waiver.--No penalty shall be imposed 
under this part with respect to any failure if it is shown that 
such failure is due to reasonable cause and not to willful 
neglect.
  (b) Payment of penalty.--Any penalty imposed by this part 
shall be paid on notice and demand by the Secretary and in the 
same manner as tax.
  (c) Special rule for failure to meet magnetic media 
requirements.--No penalty shall be imposed under section 6721 
solely by reason of any failure to comply with the requirements 
of the regulations prescribed under section 6011(e)(2), except 
to the extent that such a failure occurs with respect to more 
than the applicable number (determined under section 6011(e)(5) 
with respect to the calendar year to which such returns relate) 
of information returns or with respect to a return described in 
section 6011(e)(4).
  (d) Definitions.--For purposes of this part--
          (1) Information return.--The term ``information 
        return'' means--
                  (A) any statement of the amount of payments 
                to another person required by--
                          (i) section 6041(a) or (b) (relating 
                        to certain information at source),
                          (ii) section 6042(a)(1) (relating to 
                        payments of dividends),
                          (iii) section 6044(a)(1) (relating to 
                        payments of patronage dividends),
                          (iv) section 6049(a) (relating to 
                        payments of interest),
                          (v) section 6050A(a) (relating to 
                        reporting requirements of certain 
                        fishing boat operators),
                          (vi) section 6050N(a) (relating to 
                        payments of royalties),
                          (vii) section 6051(d) (relating to 
                        information returns with respect to 
                        income tax withheld),
                          (viii) section 6050R (relating to 
                        returns relating to certain purchases 
                        of fish), or
                          (ix) section 110(d) (relating to 
                        qualified lessee construction 
                        allowances for short-term leases),
                  (B) any return required by--
                          (i) section 6041A(a) or (b) (relating 
                        to returns of direct sellers),
                          (ii) section 6043A(a) (relating to 
                        returns relating to taxable mergers and 
                        acquisitions),
                          (iii) section 6045(a) or (d) 
                        (relating to returns of brokers),
                          (iv) section 6045B(a) (relating to 
                        returns relating to actions affecting 
                        basis of specified securities),
                          (v) section 6050H(a) or (h)(1) 
                        (relating to mortgage interest received 
                        in trade or business from individuals),
                          (vi) section 6050I(a) or (g)(1) 
                        (relating to cash received in trade or 
                        business, etc.),
                          (vii) section 6050J(a) (relating to 
                        foreclosures and abandonments of 
                        security),
                          (viii) section 6050K(a) (relating to 
                        exchanges of certain partnership 
                        interests),
                          (ix) section 6050L(a) (relating to 
                        returns relating to certain 
                        dispositions of donated property),
                          (x) section 6050P (relating to 
                        returns relating to the cancellation of 
                        indebtedness by certain financial 
                        entities),
                          (xi) section 6050Q (relating to 
                        certain long-term care benefits),
                          (xii) section 6050S (relating to 
                        returns relating to payments for 
                        qualified tuition and related 
                        expenses),
                          (xiii) section 6050T (relating to 
                        returns relating to credit for health 
                        insurance costs of eligible 
                        individuals),
                          (xiv) section 6052(a) (relating to 
                        reporting payment of wages in the form 
                        of group-life insurance),
                          (xv) section 6050V (relating to 
                        returns relating to applicable 
                        insurance contracts in which certain 
                        exempt organizations hold interests),
                          (xvi) section 6053(c)(1) (relating to 
                        reporting with respect to certain 
                        tips),
                          (xvii) subsection (b) or (e) of 
                        section 1060 (relating to reporting 
                        requirements of transferors and 
                        transferees in certain asset 
                        acquisitions),
                          (xviii) section 4101(d) (relating to 
                        information reporting with respect to 
                        fuels taxes),
                          (xix) subparagraph (C) of section 
                        338(h)(10) (relating to information 
                        required to be furnished to the 
                        Secretary in case of elective 
                        recognition of gain or loss),
                          (xx) section 264(f)(5)(A)(iv) 
                        (relating to reporting with respect to 
                        certain life insurance and annuity 
                        contracts),
                          (xxi) section 6050U (relating to 
                        charges or payments for qualified long-
                        term care insurance contracts under 
                        combined arrangements),
                          (xxii) section 6039(a) (relating to 
                        returns required with respect to 
                        certain options),
                          (xxiii) section 6050W (relating to 
                        returns to payments made in settlement 
                        of payment card transactions),
                          (xxiv) section 6055 (relating to 
                        returns relating to information 
                        regarding health insurance coverage),
                          (xxv) section 6056 (relating to 
                        returns relating to certain employers 
                        required to report on health insurance 
                        coverage), or
                          (xxvi) section 6050Y (relating to 
                        returns relating to certain life 
                        insurance contract transactions), and
                  (C) any statement of the amount of payments 
                to another person required to be made to the 
                Secretary under--
                          (i) section 408(i) (relating to 
                        reports with respect to individual 
                        retirement accounts or annuities), or
                          (ii) section 6047(d) (relating to 
                        reports by employers, plan 
                        administrators, etc.), and
                  (D) any statement required to be filed with 
                the Secretary under section 6035.
        Such term also includes any form, statement, or 
        schedule required to be filed with the Secretary under 
        chapter 4 or with respect to any amount from which tax 
        was required to be deducted and withheld under chapter 
        3 (or from which tax would be required to be so 
        deducted and withheld but for an exemption under this 
        title or any treaty obligation of the United States).
                  (2) Payee statement.--The term ``payee 
                statement'' means any statement required to be 
                furnished under--
                  (A) section 6031(b) or (c), 6034A, or 6037(b) 
                (relating to statements furnished by certain 
                pass-thru entities),
                  (B) section 6039(b) (relating to information 
                required in connection with certain options),
                  (C) section 6041(d) (relating to information 
                at source),
                  (D) section 6041A(e) (relating to returns 
                regarding payments of remuneration for services 
                and direct sales),
                  (E) section 6042(c) (relating to returns 
                regarding payments of dividends and corporate 
                earnings and profits),
                  (F) subsections (b) and (d) of section 6043A 
                (relating to returns relating to taxable 
                mergers and acquisitions),
                  (G) section 6044(e) (relating to returns 
                regarding payments of patronage dividends),
                  (H) section 6045(b) or (d) (relating to 
                returns of brokers),
                  (I) section 6045A (relating to information 
                required in connection with transfers of 
                covered securities to brokers),
                  (J) subsections (c) and (e) of section 6045B 
                (relating to returns relating to actions 
                affecting basis of specified securities),
                  (K) section 6049(c) (relating to returns 
                regarding payments of interest),
                  (L) section 6050A(b) (relating to reporting 
                requirements of certain fishing boat 
                operators),
                  (M) section 6050H(d) or (h)(2) (relating to 
                returns relating to mortgage interest received 
                in trade or business from individuals),
                  (N) section 6050I(e) or paragraph (4) or (5) 
                of section 6050I(g) (relating to cash received 
                in trade or business, etc.),
                  (O) section 6050J(e) (relating to returns 
                relating to foreclosures and abandonments of 
                security),
                  (P) section 6050K(b) (relating to returns 
                relating to exchanges of certain partnership 
                interests),
                  (Q) section 6050L(c) (relating to returns 
                relating to certain dispositions of donated 
                property),
                  (R) section 6050N(b) (relating to returns 
                regarding payments of royalties),
                  (S) section 6050P(d) (relating to returns 
                relating to the cancellation of indebtedness by 
                certain financial entities),
                  (T) section 6050Q(b) (relating to certain 
                long-term care benefits),
                  (U) section 6050R(c) (relating to returns 
                relating to certain purchases of fish),
                  (V) section 6051 (relating to receipts for 
                employees),
                  (W) section 6052(b) (relating to returns 
                regarding payment of wages in the form of 
                group-term life insurance),
                  (X) section 6053(b) or (c) (relating to 
                reports of tips),
                  (Y) section 6048(b)(1)(B) (relating to 
                foreign trust reporting requirements),
                  (Z) section 408(i) (relating to reports with 
                respect to individual retirement plans) to any 
                person other than the Secretary with respect to 
                the amount of payments made to such person,
                  (AA) section 6047(d) (relating to reports by 
                plan administrators) to any person other than 
                the Secretary with respect to the amount of 
                payments made to such person,
                  (BB) section 6050S(d) (relating to returns 
                relating to qualified tuition and related 
                expenses),
                  (CC) section 264(f)(5)(A)(iv) (relating to 
                reporting with respect to certain life 
                insurance and annuity contracts),
                  (DD) section 6050T (relating to returns 
                relating to credit for health insurance costs 
                of eligible individuals),
                  (EE) section 6050U (relating to charges or 
                payments for qualified long-term care insurance 
                contracts under combined arrangements),
                  (FF) section 6050W(f) (relating to returns 
                relating to payments made in settlement of 
                payment card transactions),
                  (GG) section 6055(c) (relating to statements 
                relating to information regarding health 
                insurance coverage),
                  (HH) section 6056(c) (relating to statements 
                relating to certain employers required to 
                report on health insurance coverage),
                  (II) section 6035 (other than a statement 
                described in paragraph (1)(D)), [or]
                  (JJ) section 6226(a)(2) (relating to 
                statements relating to alternative to payment 
                of imputed underpayment by partnership) or 
                under any other provision of this title which 
                provides for the application of rules similar 
                to such section[.],
                  [(JJ)] (KK) subsection (a)(2), (b)(2), or 
                (c)(2) of section 6050Y (relating to returns 
                relating to certain life insurance contract 
                transactions).
        Such term also includes any form, statement, or 
        schedule required to be furnished to the recipient of 
        any amount from which tax was required to be deducted 
        and withheld under chapter 3 or 4 (or from which tax 
        would be required to be so deducted and withheld but 
        for an exemption under this title or any treaty 
        obligation of the United States)[.],
                  (LL) section 6039K(c) (relating to 
                disposition of qualified opportunity fund 
                investments), or
                  (MM) section 6039L (relating to information 
                required from certain qualified opportunity 
                zone businesses and qualified rural opportunity 
                zone businesses).
          (3) Specified information reporting requirement.--The 
        term ``specified information reporting requirement'' 
        means--
                  (A) the notice required by section 
                6050K(c)(1) (relating to requirement that 
                transferor notify partnership of exchange),
                  (B) any requirement contained in the 
                regulations prescribed under section 6109 that 
                a person--
                          (i) include his TIN on any return, 
                        statement, or other document (other 
                        than an information return or payee 
                        statement),
                          (ii) furnish his TIN to another 
                        person, or
                          (iii) include on any return, 
                        statement, or other document (other 
                        than an information return or payee 
                        statement) made with respect to another 
                        person the TIN of such person,
                  (C) any requirement under section 6109(h) 
                that--
                          (i) a person include on his return 
                        the name, address, and TIN of another 
                        person, or
                          (ii) a person furnish his TIN to 
                        another person.
          (4) Required filing date.--The term ``required filing 
        date'' means the date prescribed for filing an 
        information return with the Secretary (determined with 
        regard to any extension of time for filing).
  (e) Special rule for certain partnership returns.--If any 
partnership return under section 6031(a) is required under 
section 6011(e) to be filed on magnetic media or in other 
machine-readable form, for purposes of this part, each schedule 
required to be included with such return with respect to each 
partner shall be treated as a separate information return.
  (f) Special rule for returns of educational institutions 
related to higher education tuition and related expenses.--No 
penalty shall be imposed under section 6721 or 6722 solely by 
reason of failing to provide the TIN of an individual on a 
return or statement required by section 6050S(a)(1) if the 
eligible educational institution required to make such return 
contemporaneously makes a true and accurate certification under 
penalty of perjury (and in such form and manner as may be 
prescribed by the Secretary) that it has complied with 
standards promulgated by the Secretary for obtaining such 
individual's TIN.

           *       *       *       *       *       *       *


SEC. 6726. FAILURE TO COMPLY WITH INFORMATION REPORTING REQUIREMENTS 
                    RELATING TO QUALIFIED OPPORTUNITY FUNDS AND 
                    QUALIFIED RURAL OPPORTUNITY FUNDS.

  (a) In General.--In the case of any person required to file a 
return under section 6039K fails to file a complete and correct 
return under such section in the time and in the manner 
prescribed therefor, such person shall pay a penalty of $500 
for each day during which such failure continues.
  (b) Limitation.--
          (1) In general.--The maximum penalty under this 
        section on failures with respect to any 1 return shall 
        not exceed $10,000.
          (2) Large qualified opportunity funds.--In the case 
        of any failure described in subsection (a) with respect 
        to a fund the gross assets of which (determined on the 
        last day of the taxable year) are in excess of 
        $10,000,000, paragraph (1) shall be applied by 
        substituting ``$50,000'' for ``$10,000''.
  (c) Penalty in Cases of Intentional Disregard.--If a failure 
described in subsection (a) is due to intentional disregard, 
then--
          (1) subsection (a) shall be applied by substituting 
        ``$2,500'' for ``$500'',
          (2) subsection (b)(1) shall be applied by 
        substituting ``$50,000'' for ``$10,000'', and
          (3) subsection (b)(2) shall be applied by 
        substituting ``$250,000'' for ``$50,000''.
  (d) Inflation Adjustment.--
          (1) In general.--In the case of any failure relating 
        to a return required to be filed in a calendar year 
        beginning after 2023, each of the dollar amounts in 
        subsections (a), (b), and (c) shall be increased by an 
        amount equal to such dollar amount multiplied by the 
        cost-of-living adjustment determined under section 
        1(f)(3) for the calendar year determined by 
        substituting ``calendar year 2022'' for ``calendar year 
        2016'' in subparagraph (A)(ii) thereof.
          (2) Rounding.--
                  (A) In general.--If the $500 dollar amount in 
                subsection (a) and (c)(1) or the $2,500 amount 
                in subsection (c)(1), after being increased 
                under paragraph (1), is not a multiple of $10, 
                such dollar amount shall be rounded to the next 
                lowest multiple of $10.
                  (B) Asset threshold.--If the $10,000,000 
                dollar amount in subsection (b)(2), after being 
                increased under paragraph (1), is not a 
                multiple of $10,000, such dollar amount shall 
                be rounded to the next lowest multiple of 
                $10,000.
                  (C) Other dollar amounts.--If any dollar 
                amount in subsection (b) or (c) (other than any 
                amount to which subparagraph (A) or (B) 
                applies), after being increased under paragraph 
                (1), is not a multiple of $1,000, such dollar 
                amount shall be rounded to the next lowest 
                multiple of $1,000.

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

                          House of Representatives,
                               Committee on Ways and Means,
                                     Washington, DC, June 23, 2023.

         DISSENTING VIEWS ON SMALL BUSINESS JOBS ACT, H.R. 3937

    Small businesses are vital to the life of thriving 
communities across the United States, and Democrats support tax 
policies that are targeted to grow and protect them. We 
witnessed these policies in action during the most recent 
pandemic when President Biden and Congress provided essential 
help for small businesses so that they can continue to operate 
and make payroll. Unfortunately, many of the proposals in the 
``Small Business Jobs Act'' have little to do with protecting 
or strengthening small businesses. Instead, these provisions 
make it much more likely that a taxpayer with income from a 
trade or business will not pay taxes on that income, and 
certain that wealthy investors of startups will escape taxation 
in the future when they sell their profitable investments.
    The Small Business Jobs Act includes three proposals that 
are particularly out of step with helping small businesses. The 
first is a provision that would raise the dollar amount 
threshold as well as the number of transactions threshold for 
IRS Form 1099-K reporting. In an effort to close the tax gap, 
the American Rescue Plan lowered these thresholds at which 
third-party payment networks for commercial transactions would 
need to report amounts paid to service providers to $600, and 
removed the number of transactions threshold. The Republican 
bill would return the current thresholds to prior law, so that 
reporting would be required if the service provider received 
more than $20,000 and registered 200 or more transactions. It 
is worth noting that this provision reverts the law back to its 
state in 2008, and before online platforms such as Uber and 
Airbnb became household names. While many are on board with 
raising the $600 threshold, the 200-transaction threshold will 
eliminate reporting for many taxpayers who earn a significant 
amount of money using third-party apps. This provision has 
little to do with helping small businesses grow and weather 
unforeseen downturns, and much to do with the Republicans' lack 
of interest in closing the tax gap.
    Similarly, a more generous exclusion for gain from 
qualified small business stock (QSBS) is another proposal in 
the Small Business Jobs Act that purports to help small 
business but merely rewards wealthy investors. Currently, 
owners must hold QSBS at least 5 years in order to exclude 50 
percent of the capital gains. Republicans are now proposing to 
drastically expand this benefit so that owners who hold QSBS 
(which would now include S corporation stock) for even shorter 
periods can reap the benefit of excluding their income from 
tax. A recent analysis by Manoj Viswanathan written in 
conjunction with the Washington Center for Equitable Growth 
found that the benefits of the QSBS provision primarily went to 
founders of companies and their early employees, venture 
capital firms, and so-called angel investors, and that 
taxpayers claiming the benefit of this provision have, on 
average, over $500,000 in capital gains. Moreover, it is widely 
known that investors often ``gift'' shares of their QSBS to 
family members who are also able to take advantage of the 
income exclusion.
    Finally, an expansion of opportunity zones would present 
similar challenges in that it would largely benefit high income 
taxpayers. For example, the Joint Committee on Taxation 
estimated that the average household income of qualified 
opportunity fund investors is over $1 million. We should be 
focused on limiting these benefits rather than expanding them 
for wealthy taxpayers.

                                           Richard E. Neal,
                                                    Ranking Member.

        Ranking Member Richard E. Neal, Opening Statement, 
            Committee on Ways and Means Markup of H.R. 
            3937,
                                            Tuesday, June 13, 2023.
    Now we turn to the so-called ``Small Business Jobs Act,'' a 
bill that contains two provisions designed to make it easier 
for people to avoid their taxes: one provision to ensure that 
venture capitalists don't pay any capital gains taxes, and a 
$44 billion dollar giveaway to wealthy business owners.
    Republicans could have used this occasion to focus on 
bipartisan efforts like the New Markets Tax Credit--a proven 
program that uplifts small businesses and communities. Or they 
could've looked to workplace supports, like universal paid 
leave and affordable child care. We've heard directly from 
workers that these supports would help unlock their fullest 
potential. Republicans instead have chosen to devote their 
efforts to further tilting the tax code to the wealthy and 
well-connected.
    There is no proof that these tax cuts will go anywhere but 
the pockets of venture capitalists and business owners. This 
isn't how you create jobs--we would know.
    The investments of this Committee helped spur the record 
job growth under President Biden. Unemployment remains at 
historic lows, with more jobs created in the last 28 months 
than any other president has seen in a full term.
    Small businesses and their workers are the backbone of our 
economy, but enough with the lip service. This Committee should 
invest in proven tools that grow wages, and give workers more 
breathing room, instead of fattening already thick pockets.
    With that, I yield back the balance of my time.