skip to main content

H.R. 1 (113th): Tax Reform Act of 2014

The text of the bill below is as of Dec 10, 2014 (Introduced).


I

113th CONGRESS

2d Session

H. R. 1

IN THE HOUSE OF REPRESENTATIVES

December 10, 2014

introduced the following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide for comprehensive tax reform.

1.

Short title; etc

(a)

Short title

This Act may be cited as the Tax Reform Act of 2014 .

(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 of this Act is as follows:

Sec. 1. Short title; etc.

Title I—Tax Reform for Individuals

Subtitle A—Individual income tax rate reform

Sec. 1001. Simplification of individual income tax rates.

Sec. 1002. Deduction for adjusted net capital gain.

Sec. 1003. Conforming amendments related to simplification of individual income tax rates.

Subtitle B—Simplification of tax benefits for families

Sec. 1101. Standard deduction.

Sec. 1102. Increase and expansion of child tax credit.

Sec. 1103. Modification of earned income tax credit.

Sec. 1104. Repeal of deduction for personal exemptions.

Subtitle C—Simplification of education incentives

Sec. 1201. American opportunity tax credit.

Sec. 1202. Expansion of Pell Grant exclusion from gross income.

Sec. 1203. Repeal of exclusion of income from United States savings bonds used to pay higher education tuition and fees.

Sec. 1204. Repeal of deduction for interest on education loans.

Sec. 1205. Repeal of deduction for qualified tuition and related expenses.

Sec. 1206. No new contributions to Coverdell education savings accounts.

Sec. 1207. Repeal of exclusion for discharge of student loan indebtedness.

Sec. 1208. Repeal of exclusion for qualified tuition reductions.

Sec. 1209. Repeal of exclusion for education assistance programs.

Sec. 1210. Repeal of exception to 10-percent penalty for higher education expenses.

Subtitle D—Repeal of certain credits for individuals

Sec. 1301. Repeal of dependent care credit.

Sec. 1302. Repeal of credit for adoption expenses.

Sec. 1303. Repeal of credit for nonbusiness energy property.

Sec. 1304. Repeal of credit for residential energy efficient property.

Sec. 1305. Repeal of credit for qualified electric vehicles.

Sec. 1306. Repeal of alternative motor vehicle credit.

Sec. 1307. Repeal of alternative fuel vehicle refueling property credit.

Sec. 1308. Repeal of credit for new qualified plug-in electric drive motor vehicles.

Sec. 1309. Repeal of credit for health insurance costs of eligible individuals.

Sec. 1310. Repeal of first-time homebuyer credit.

Subtitle E—Deductions, exclusions, and certain other provisions

Sec. 1401. Exclusion of gain from sale of a principal residence.

Sec. 1402. Mortgage interest.

Sec. 1403. Charitable contributions.

Sec. 1404. Denial of deduction for expenses attributable to the trade or business of being an employee.

Sec. 1405. Repeal of deduction for taxes not paid or accrued in a trade or business.

Sec. 1406. Repeal of deduction for personal casualty losses.

Sec. 1407. Limitation on wagering losses.

Sec. 1408. Repeal of deduction for tax preparation expenses.

Sec. 1409. Repeal of deduction for medical expenses.

Sec. 1410. Repeal of disqualification of expenses for over-the-counter drugs under certain accounts and arrangements.

Sec. 1411. Repeal of deduction for alimony payments and corresponding inclusion in gross income.

Sec. 1412. Repeal of deduction for moving expenses.

Sec. 1413. Termination of deduction and exclusions for contributions to medical savings accounts.

Sec. 1414. Repeal of 2-percent floor on miscellaneous itemized deductions.

Sec. 1415. Repeal of overall limitation on itemized deductions.

Sec. 1416. Deduction for amortizable bond premium allowed in determining adjusted gross income.

Sec. 1417. Repeal of exclusion, etc., for employee achievement awards.

Sec. 1418. Clarification of special rule for certain governmental plans.

Sec. 1419. Limitation on exclusion for employer-provided housing.

Sec. 1420. Fringe benefits.

Sec. 1421. Repeal of exclusion of net unrealized appreciation in employer securities.

Sec. 1422. Consistent basis reporting between estate and person acquiring property from decedent.

Subtitle F—Employment tax modifications

Sec. 1501. Modifications of deduction for Social Security taxes in computing net earnings from self-employment.

Sec. 1502. Determination of net earnings from self-employment.

Sec. 1503. Repeal of exemption from FICA taxes for certain foreign workers.

Sec. 1504. Repeal of exemption from FICA taxes for certain students.

Sec. 1505. Override of Treasury guidance providing that certain employer-provided supplemental unemployment benefits are not subject to employment taxes.

Sec. 1506. Certified professional employer organizations.

Subtitle G—Pensions and Retirement

Part 1—Individual Retirement Plans

Sec. 1601. Elimination of income limits on contributions to Roth IRAs.

Sec. 1602. No new contributions to traditional IRAs.

Sec. 1603. Inflation adjustment for Roth IRA contributions.

Sec. 1604. Repeal of special rule permitting recharacterization of Roth IRA contributions as traditional IRA contributions.

Sec. 1605. Repeal of exception to 10-percent penalty for first home purchases.

Part 2—Employer-Provided Plans

Sec. 1611. Termination for new SEPs.

Sec. 1612. Termination for new SIMPLE 401(k)s.

Sec. 1613. Rules related to designated Roth contributions.

Sec. 1614. Modifications of required distribution rules for pension plans.

Sec. 1615. Reduction in minimum age for allowable in-service distributions.

Sec. 1616. Modification of rules governing hardship distributions.

Sec. 1617. Extended rollover period for the rollover of plan loan offset amounts in certain cases.

Sec. 1618. Coordination of contribution limitations for 403(b) plans and governmental 457(b) plans.

Sec. 1619. Application of 10-percent early distribution tax to governmental 457 plans.

Sec. 1620. Inflation adjustments for qualified plan benefit and contribution limitations.

Sec. 1621. Inflation adjustments for qualified plan elective deferral limitations.

Sec. 1622. Inflation adjustments for SIMPLE retirement accounts.

Sec. 1623. Inflation adjustments for catch-up contributions for certain employer plans.

Sec. 1624. Inflation adjustments for governmental and tax-exempt organization plans.

Subtitle H—Certain provisions related to members of Indian tribes

Sec. 1701. Indian general welfare benefits.

Sec. 1702. Tribal Advisory Committee.

Sec. 1703. Other relief for Indian tribes.

Title II—Alternative Minimum Tax Repeal

Sec. 2001. Repeal of alternative minimum tax.

Title III—Business Tax Reform

Subtitle A—Tax Rates

Sec. 3001. 25-percent corporate tax rate.

Subtitle B—Reform of business-Related exclusions and deductions

Sec. 3101. Revision of treatment of contributions to capital.

Sec. 3102. Repeal of deduction for local lobbying expenses.

Sec. 3103. Expenditures for repairs in connection with casualty losses.

Sec. 3104. Reform of accelerated cost recovery system.

Sec. 3105. Repeal of amortization of pollution control facilities.

Sec. 3106. Net operating loss deduction.

Sec. 3107. Circulation expenditures.

Sec. 3108. Amortization of research and experimental expenditures.

Sec. 3109. Repeal of deductions for soil and water conservation expenditures and endangered species recovery expenditures.

Sec. 3110. Amortization of certain advertising expenses.

Sec. 3111. Expensing certain depreciable business assets for small business.

Sec. 3112. Repeal of election to expense certain refineries.

Sec. 3113. Repeal of deduction for energy efficient commercial buildings.

Sec. 3114. Repeal of election to expense advanced mine safety equipment.

Sec. 3115. Repeal of deduction for expenditures by farmers for fertilizer, etc.

Sec. 3116. Repeal of special treatment of certain qualified film and television productions.

Sec. 3117. Repeal of special rules for recoveries of damages of antitrust violations, etc.

Sec. 3118. Treatment of reforestation expenditures.

Sec. 3119. 20-year amortization of goodwill and certain other intangibles.

Sec. 3120. Treatment of environmental remediation costs.

Sec. 3121. Repeal of expensing of qualified disaster expenses.

Sec. 3122. Phaseout and repeal of deduction for income attributable to domestic production activities.

Sec. 3123. Unification of deduction for organizational expenditures.

Sec. 3124. Prevention of arbitrage of deductible interest expense and tax-exempt interest income.

Sec. 3125. Prevention of transfer of certain losses from tax indifferent parties.

Sec. 3126. Entertainment, etc. expenses.

Sec. 3127. Repeal of limitation on corporate acquisition indebtedness.

Sec. 3128. Denial of deductions and credits for expenditures in illegal businesses.

Sec. 3129. Limitation on deduction for FDIC premiums.

Sec. 3130. Repeal of percentage depletion.

Sec. 3131. Repeal of passive activity exception for working interests in oil and gas property.

Sec. 3132. Repeal of special rules for gain or loss on timber, coal, or domestic iron ore.

Sec. 3133. Repeal of like-kind exchanges.

Sec. 3134. Restriction on trade or business property treated as similar or related in service to involuntarily converted property in disaster areas.

Sec. 3135. Repeal of rollover of publicly traded securities gain into specialized small business investment companies.

Sec. 3136. Termination of special rules for gain from certain small business stock.

Sec. 3137. Certain self-created property not treated as a capital asset.

Sec. 3138. Repeal of special rule for sale or exchange of patents.

Sec. 3139. Depreciation recapture on gain from disposition of certain depreciable realty.

Sec. 3140. Common deduction conforming amendments.

Subtitle C—Reform of business credits

Sec. 3201. Repeal of credit for alcohol, etc., used as fuel.

Sec. 3202. Repeal of credit for biodiesel and renewable diesel used as fuel.

Sec. 3203. Research credit modified and made permanent.

Sec. 3204. Low-income housing tax credit.

Sec. 3205. Repeal of enhanced oil recovery credit.

Sec. 3206. Phaseout and repeal of credit for electricity produced from certain renewable resources.

Sec. 3207. Repeal of Indian employment credit.

Sec. 3208. Repeal of credit for portion of employer Social Security taxes paid with respect to employee cash tips.

Sec. 3209. Repeal of credit for clinical testing expenses for certain drugs for rare diseases or conditions.

Sec. 3210. Repeal of credit for small employer pension plan startup costs.

Sec. 3211. Repeal of employer-provided child care credit.

Sec. 3212. Repeal of railroad track maintenance credit.

Sec. 3213. Repeal of credit for production of low sulfur diesel fuel.

Sec. 3214. Repeal of credit for producing oil and gas from marginal wells.

Sec. 3215. Repeal of credit for production from advanced nuclear power facilities.

Sec. 3216. Repeal of credit for producing fuel from a nonconventional source.

Sec. 3217. Repeal of new energy efficient home credit.

Sec. 3218. Repeal of energy efficient appliance credit.

Sec. 3219. Repeal of mine rescue team training credit.

Sec. 3220. Repeal of agricultural chemicals security credit.

Sec. 3221. Repeal of credit for carbon dioxide sequestration.

Sec. 3222. Repeal of credit for employee health insurance expenses of small employers.

Sec. 3223. Repeal of rehabilitation credit.

Sec. 3224. Repeal of energy credit.

Sec. 3225. Repeal of qualifying advanced coal project credit.

Sec. 3226. Repeal of qualifying gasification project credit.

Sec. 3227. Repeal of qualifying advanced energy project credit.

Sec. 3228. Repeal of qualifying therapeutic discovery project credit.

Sec. 3229. Repeal of work opportunity tax credit.

Sec. 3230. Repeal of deduction for certain unused business credits.

Subtitle D—Accounting methods

Sec. 3301. Limitation on use of cash method of accounting.

Sec. 3302. Rules for determining whether taxpayer has adopted a method of accounting.

Sec. 3303. Certain special rules for taxable year of inclusion.

Sec. 3304. Installment sales.

Sec. 3305. Repeal of special rule for prepaid subscription income.

Sec. 3306. Repeal of special rule for prepaid dues income of certain membership organizations.

Sec. 3307. Repeal of special rule for magazines, paperbacks, and records returned after close of the taxable year.

Sec. 3308. Modification of rules for long-term contracts.

Sec. 3309. Nuclear decommissioning reserve funds.

Sec. 3310. Repeal of last-in, first-out method of inventory.

Sec. 3311. Repeal of lower of cost or market method of inventory.

Sec. 3312. Modification of rules for capitalization and inclusion in inventory costs of certain expenses.

Sec. 3313. Modification of income forecast method.

Sec. 3314. Repeal of averaging of farm income.

Sec. 3315. Treatment of patent or trademark infringement awards.

Sec. 3316. Repeal of redundant rules with respect to carrying charges.

Sec. 3317. Repeal of recurring item exception for spudding of oil or gas wells.

Subtitle E—Financial Instruments

Part 1—Derivatives and hedges

Sec. 3401. Treatment of certain derivatives.

Sec. 3402. Modification of certain rules related to hedges.

Part 2—Treatment of debt instruments

Sec. 3411. Current inclusion in income of market discount.

Sec. 3412. Treatment of certain exchanges of debt instruments.

Sec. 3413. Coordination with rules for inclusion not later than for financial accounting purposes.

Sec. 3414. Rules regarding certain government debt.

Part 3—Certain rules for determining gain and loss

Sec. 3421. Cost basis of specified securities determined without regard to identification.

Sec. 3422. Wash sales by related parties.

Sec. 3423. Nonrecognition for derivative transactions by a corporation with respect to its stock.

Part 4—Tax favored bonds

Sec. 3431. Termination of private activity bonds.

Sec. 3432. Termination of credit for interest on certain home mortgages.

Sec. 3433. Repeal of advance refunding bonds.

Sec. 3434. Repeal of tax credit bond rules.

Subtitle F—Insurance reforms

Sec. 3501. Exception to pro rata interest expense disallowance for corporate-owned life insurance restricted to 20-percent owners.

Sec. 3502. Net operating losses of life insurance companies.

Sec. 3503. Repeal of small life insurance company deduction.

Sec. 3504. Computation of life insurance tax reserves.

Sec. 3505. Adjustment for change in computing reserves.

Sec. 3506. Modification of rules for life insurance proration for purposes of determining the dividends received deduction.

Sec. 3507. Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account.

Sec. 3508. Modification of proration rules for property and casualty insurance companies.

Sec. 3509. Repeal of special treatment of Blue Cross and Blue Shield organizations, etc.

Sec. 3510. Modification of discounting rules for property and casualty insurance companies.

Sec. 3511. Repeal of special estimated tax payments.

Sec. 3512. Capitalization of certain policy acquisition expenses.

Sec. 3513. Tax reporting for life settlement transactions.

Sec. 3514. Clarification of tax basis of life insurance contracts.

Sec. 3515. Exception to transfer for valuable consideration rules.

Subtitle G—Pass-Thru and certain other entities

Part 1—S Corporations

Sec. 3601. Reduced recognition period for built-in gains made permanent.

Sec. 3602. Modifications to S corporation passive investment income rules.

Sec. 3603. Expansion of qualifying beneficiaries of an electing small business trust.

Sec. 3604. Charitable contribution deduction for electing small business trusts.

Sec. 3605. Permanent rule regarding basis adjustment to stock of S corporations making charitable contributions of property.

Sec. 3606. Extension of time for making S corporation elections.

Sec. 3607. Relocation of C corporation definition.

Part 2—Partnerships

Sec. 3611. Repeal of rules relating to guaranteed payments and liquidating distributions.

Sec. 3612. Mandatory adjustments to basis of partnership property in case of transfer of partnership interests.

Sec. 3613. Mandatory adjustments to basis of undistributed partnership property.

Sec. 3614. Corresponding adjustments to basis of properties held by partnership where partnership basis adjusted.

Sec. 3615. Charitable contributions and foreign taxes taken into account in determining limitation on allowance of partner’s share of loss.

Sec. 3616. Revisions related to unrealized receivables and inventory items.

Sec. 3617. Repeal of time limitation on taxing precontribution gain.

Sec. 3618. Partnership interests created by gift.

Sec. 3619. Repeal of technical termination.

Sec. 3620. Publicly traded partnership exception restricted to mining and natural resources partnerships.

Sec. 3621. Ordinary income treatment in the case of partnership interests held in connection with performance of services.

Sec. 3622. Partnership audits and adjustments.

Part 3—REITs and RICs

Sec. 3631. Prevention of tax-free spinoffs involving REITs.

Sec. 3632. Extension of period for prevention of REIT election following revocation or termination.

Sec. 3633. Certain short-life property not treated as real property for purposes of REIT provisions.

Sec. 3634. Repeal of special rules for timber held by REITs.

Sec. 3635. Limitation on fixed percentage rent and interest exceptions for REIT income tests.

Sec. 3636. Repeal of preferential dividend rule for publicly offered REITs.

Sec. 3637. Authority for alternative remedies to address certain REIT distribution failures.

Sec. 3638. Limitations on designation of dividends by REITs.

Sec. 3639. Non-REIT earnings and profits required to be distributed by REIT in cash.

Sec. 3640. Debt instruments of publicly offered REITs and mortgages treated as real estate assets.

Sec. 3641. Asset and income test clarification regarding ancillary personal property.

Sec. 3642. Hedging provisions.

Sec. 3643. Modification of REIT earnings and profits calculation to avoid duplicate taxation.

Sec. 3644. Reduction in percentage limitation on assets of REIT which may be taxable REIT subsidiaries.

Sec. 3645. Treatment of certain services provided by taxable REIT subsidiaries.

Sec. 3646. Study relating to taxable REIT subsidiaries.

Sec. 3647. C corporation election to become, or transfer assets to, a RIC or REIT.

Sec. 3648. Interests in RICs and REITs not excluded from definition of United States real property interests.

Sec. 3649. Dividends derived from RICs and REITs ineligible for deduction for United States source portion of dividends from certain foreign corporations.

Part 4—Personal holding companies

Sec. 3661. Exclusion of dividends from controlled foreign corporations from the definition of personal holding company income for purposes of the personal holding company rules.

Subtitle H—Taxation of foreign persons

Sec. 3701. Prevention of avoidance of tax through reinsurance with non-taxed affiliates.

Sec. 3702. Taxation of passenger cruise gross income of foreign corporations and nonresident alien individuals.

Sec. 3703. Restriction on insurance business exception to passive foreign investment company rules.

Sec. 3704. Modification of limitation on earnings stripping.

Sec. 3705. Limitation on treaty benefits for certain deductible payments.

Subtitle I—Provisions related to compensation

Part 1—Executive compensation

Sec. 3801. Nonqualified deferred compensation.

Sec. 3802. Modification of limitation on excessive employee remuneration.

Sec. 3803. Excise tax on excess tax-exempt organization executive compensation.

Sec. 3804. Denial of deduction as research expenditure for stock transferred pursuant to an incentive stock option.

Part 2—Worker classification

Sec. 3811. Determination of worker classification.

Subtitle J—Zones and Short-Term Regional Benefits

Sec. 3821. Repeal of provisions relating to Empowerment Zones and Enterprise Communities.

Sec. 3822. Repeal of DC Zone provisions.

Sec. 3823. Repeal of provisions relating to renewal communities.

Sec. 3824. Repeal of various short-term regional benefits.

Title IV—Participation exemption system for the taxation of foreign income

Subtitle A—Establishment of exemption system

Sec. 4001. Deduction for dividends received by domestic corporations from certain foreign corporations.

Sec. 4002. Limitation on losses with respect to specified 10-percent owned foreign corporations.

Sec. 4003. Treatment of deferred foreign income upon transition to participation exemption system of taxation.

Sec. 4004. Look-thru rule for related controlled foreign corporations made permanent.

Subtitle B—Modifications related to foreign tax credit system

Sec. 4101. Repeal of section 902 indirect foreign tax credits; determination of section 960 credit on current year basis.

Sec. 4102. Foreign tax credit limitation applied by allocating only directly allocable deductions to foreign source income.

Sec. 4103. Passive category income expanded to include other mobile income.

Sec. 4104. Source of income from sales of inventory determined solely on basis of production activities.

Subtitle C—Rules related to passive and mobile income

Part 1—Modification of subpart F provisions

Sec. 4201. Subpart F income to only include low-taxed foreign income.

Sec. 4202. Foreign base company sales income.

Sec. 4203. Inflation adjustment of de minimis exception for foreign base company income.

Sec. 4204. Active financing exception extended with limitation for low-taxed foreign income.

Sec. 4205. Repeal of inclusion based on withdrawal of previously excluded subpart F income from qualified investment.

Part 2—Prevention of base erosion

Sec. 4211. Foreign intangible income subject to taxation at reduced rate; intangible income treated as subpart F income.

Sec. 4212. Denial of deduction for interest expense of United States shareholders which are members of worldwide affiliated groups with excess domestic indebtedness.

Title V—Tax Exempt Entities

Subtitle A—Unrelated Business Income Tax

Sec. 5001. Clarification of unrelated business income tax treatment of entities treated as exempt from taxation under section 501(a).

Sec. 5002. Name and logo royalties treated as unrelated business taxable income.

Sec. 5003. Unrelated business taxable income separately computed for each trade or business activity.

Sec. 5004. Exclusion of research income limited to publicly available research.

Sec. 5005. Parity of charitable contribution limitation between trusts and corporations.

Sec. 5006. Increased specific deduction.

Sec. 5007. Repeal of exclusion of gain or loss from disposition of distressed property.

Sec. 5008. Qualified sponsorship payments.

Subtitle B—Penalties

Sec. 5101. Increase in information return penalties.

Sec. 5102. Manager-level accuracy-related penalty on underpayment of unrelated business income tax.

Subtitle C—Excise Taxes

Sec. 5201. Modification of intermediate sanctions.

Sec. 5202. Modification of taxes on self-dealing.

Sec. 5203. Excise tax on failure to distribute within 5 years contribution to donor advised fund.

Sec. 5204. Simplification of excise tax on private foundation investment income.

Sec. 5205. Repeal of exception for private operating foundation failure to distribute income.

Sec. 5206. Excise tax based on investment income of private colleges and universities.

Subtitle D—Requirements for Organizations Exempt From Tax

Sec. 5301. Repeal of tax-exempt status for professional sports leagues.

Sec. 5302. Repeal of exemption from tax for certain insurance companies and co-op health insurance issuers.

Sec. 5303. In-State requirement for workmen’s compensation insurance organization.

Sec. 5304. Repeal of Type II and Type III supporting organizations.

Title VI—Tax administration and compliance

Subtitle A—IRS Investigation-Related Reforms

Sec. 6001. Organizations required to notify Secretary of intent to operate as 501(c)(4).

Sec. 6002. Declaratory judgments for 501(c)(4) organizations.

Sec. 6003. Restriction on donation reporting for certain 501(c)(4) organizations.

Sec. 6004. Mandatory electronic filing for annual returns of exempt organizations.

Sec. 6005. Duty to ensure that IRS employees are familiar with and act in accord with certain taxpayer rights.

Sec. 6006. Termination of employment of IRS employees for taking official actions for political purposes.

Sec. 6007. Release of information regarding the status of certain investigations.

Sec. 6008. Review of IRS examination selection procedures.

Sec. 6009. IRS employees prohibited from using personal email accounts for official business.

Sec. 6010. Moratorium on IRS conferences.

Sec. 6011. Applicable standard for determinations of whether an organization is operated exclusively for the promotion of social welfare.

Subtitle B—Taxpayer Protection and Service Reforms

Sec. 6101. Extension of IRS authority to require truncated Social Security numbers on Form W–2.

Sec. 6102. Free electronic filing.

Sec. 6103. Pre-populated returns prohibited.

Sec. 6104. Form 1040SR for seniors.

Sec. 6105. Increased refund and credit threshold for Joint Committee on Taxation review of C corporation return.

Subtitle C—Tax return due date simplification

Sec. 6201. Due dates for returns of partnerships, S corporations, and C corporations.

Sec. 6202. Modification of due dates by regulation.

Sec. 6203. Corporations permitted statutory automatic 6-month extension of income tax returns.

Subtitle D—Compliance Reforms

Sec. 6301. Penalty for failure to file.

Sec. 6302. Penalty for failure to file correct information returns and provide payee statements.

Sec. 6303. Clarification of 6-year statute of limitations in case of overstatement of basis.

Sec. 6304. Reform of rules related to qualified tax collection contracts.

Sec. 6305. 100 percent continuous levy on payments to Medicare providers and suppliers.

Sec. 6306. Treatment of refundable credits for purposes of certain penalties.

Title VII—Excise taxes

Sec. 7001. Repeal of medical device excise tax.

Sec. 7002. Modifications relating to oil spill liability trust fund.

Sec. 7003. Modification relating to inland waterways trust fund financing rate.

Sec. 7004. Excise tax on systemically important financial institutions.

Sec. 7005. Clarification of orphan drug exception to annual fee on branded prescription pharmaceutical manufacturers and importers.

Title VIII—Deadwood and technical provisions

Subtitle A—Repeal of Deadwood

Sec. 8001. Repeal of Puerto Rico economic activity credit.

Sec. 8002. Repeal of making work pay credit.

Sec. 8003. General business credit.

Sec. 8004. Environmental tax.

Sec. 8005. Annuities; certain proceeds of endowment and life insurance contracts.

Sec. 8006. Unemployment compensation.

Sec. 8007. Flexible spending arrangements.

Sec. 8008. Certain combat zone compensation of members of the armed forces.

Sec. 8009. Qualified group legal services plans.

Sec. 8010. Certain reduced uniformed services retirement pay.

Sec. 8011. Great plains conservation program.

Sec. 8012. State legislators’ travel expenses away from home.

Sec. 8013. Treble damage payments under the antitrust law.

Sec. 8014. Phase-in of limitation on investment interest.

Sec. 8015. Charitable, etc., contributions and gifts.

Sec. 8016. Amortizable bond premium.

Sec. 8017. Repeal of deduction for clean-fuel vehicles and certain refueling property.

Sec. 8018. Repeal of deduction for capital costs incurred in complying with environmental protection agency sulfur regulations.

Sec. 8019. Activities not engaged in for profit.

Sec. 8020. Dividends received on certain preferred stock; and dividends paid on certain preferred stock of public utilities.

Sec. 8021. Acquisitions made to evade or avoid income tax.

Sec. 8022. Distributions of property.

Sec. 8023. Effect on earnings and profits.

Sec. 8024. Basis to corporations.

Sec. 8025. Tax credit employee stock ownership plans.

Sec. 8026. Employee stock purchase plans.

Sec. 8027. Transition rules.

Sec. 8028. Limitation on deductions for certain farming.

Sec. 8029. Deductions limited to amount at risk.

Sec. 8030. Passive activity losses and credits limited.

Sec. 8031. Adjustments required by changes in method of accounting.

Sec. 8032. Exemption from tax on corporations, certain trusts, etc.

Sec. 8033. Requirements for exemption.

Sec. 8034. Repeal of special treatment for religious broadcasting company.

Sec. 8035. Repeal of exclusion of gain or loss from disposition of brownfield property.

Sec. 8036. Accumulated taxable income.

Sec. 8037. Certain provisions related to depletion.

Sec. 8038. Amounts received by surviving annuitant under joint and survivor annuity contract.

Sec. 8039. Income taxes of members of armed forces on death.

Sec. 8040. Special rules for computing reserves.

Sec. 8041. Insurance company taxable income.

Sec. 8042. Capitalization of certain policy acquisition expenses.

Sec. 8043. Repeal of provision on expatriation to avoid tax.

Sec. 8044. Repeal of certain transition rules on income from sources without United States.

Sec. 8045. Repeal of Puerto Rico and possession tax credit.

Sec. 8046. Basis of property acquired from decedent.

Sec. 8047. Property on which lessee has made improvements.

Sec. 8048. Involuntary conversion.

Sec. 8049. Property acquired during affiliation.

Sec. 8050. Repeal of special holding period rules for certain commodity futures transactions.

Sec. 8051. Holding period of property.

Sec. 8052. Property used in the trade or business and involuntary conversions.

Sec. 8053. Sale of patents.

Sec. 8054. Gain from disposition of farmland.

Sec. 8055. Transition rules related to the treatment of amounts received on retirement or sale or exchange of debt instruments.

Sec. 8056. Certain rules with respect to debt instruments issued before July 2, 1982.

Sec. 8057. Certain rules with respect to stripped bonds purchased before July 2, 1982.

Sec. 8058. Amount and method of adjustment.

Sec. 8059. Old-age, survivors, and disability insurance.

Sec. 8060. Hospital insurance.

Sec. 8061. Ministers, members of religious orders, and christian science practitioners.

Sec. 8062. Affiliated group defined.

Sec. 8063. Credit for state death taxes.

Sec. 8064. Family-owned business interest.

Sec. 8065. Property within the united states.

Sec. 8066. Repeal of deadwood provisions relating to employment taxes.

Sec. 8067. Luxury passenger automobiles.

Sec. 8068. Transportation by air.

Sec. 8069. Taxes on failure to distribute income.

Sec. 8070. Taxes on taxable expenditures.

Sec. 8071. Definitions and special rules.

Sec. 8072. Returns.

Sec. 8073. Information returns.

Sec. 8074. Abatements.

Sec. 8075. Failure by corporation to pay estimated income tax.

Sec. 8076. Repeal of 2008 recovery rebates.

Sec. 8077. Repeal of advance payment of portion of increased child credit for 2003.

Sec. 8078. Repeal of provisions related to COBRA premium assistance.

Sec. 8079. Retirement.

Sec. 8080. Annuities to surviving spouses and dependent children of judges.

Sec. 8081. Merchant marine capital construction funds.

Sec. 8082. Valuation tables.

Sec. 8083. Definition of employee.

Sec. 8084. Effective date.

Subtitle B—Conforming Amendments Related to Multiple Sections

Sec. 8101. Conforming amendments related to multiple sections.

I

Tax Reform for Individuals

A

Individual income tax rate reform

1001.

Simplification of individual income tax rates

(a)

In general

Section 1 is amended to read as follows:

1.

Tax imposed

(a)

In general

There is hereby imposed on the income of every individual a tax equal to the sum of—

(1)

10 percent bracket

10 percent of so much of the taxable income as does not exceed the 25-percent bracket threshold amount,

(2)

25 percent bracket

25 percent of so much of the taxable income as exceeds the 25-percent bracket threshold amount, plus

(3)

35 percent bracket

10 percent of so much of the modified adjusted gross income (as defined in section 2) as exceeds the 35-percent bracket threshold amount.

(b)

Bracket threshold amounts

For purposes of this section—

(1)

25-percent bracket threshold amount

The term 25-percent bracket threshold amount means—

(A)

in the case of a joint return or surviving spouse, $71,200,

(B)

in the case of any other individual (other than an estate or trust), one-half of the dollar amount in effect under subparagraph (A), and

(C)

in the case of an estate or trust, zero.

(2)

35-percent bracket threshold amount

The term 35-percent bracket threshold amount means—

(A)

in the case of a joint return or surviving spouse, $450,000,

(B)

in the case of any other individual (other than an estate or trust), $400,000, and

(C)

in the case of an estate or trust, $12,000.

(c)

Inflation adjustment

(1)

In general

In the case of any taxable year beginning after 2014, each dollar amount in subsections (b)(1)(A), (b)(2)(A), (b)(2)(B), (b)(2)(C), (e)(3)(A), and (e)(3)(B) shall be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under this subsection for the calendar year in which the taxable year begins.

If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.
(2)

Cost-of-living adjustment

For purposes of this subsection—

(A)

In general

The cost-of-living adjustment for any calendar year is the percentage (if any) by which—

(i)

the C-CPI-U for the preceding calendar year, exceeds

(ii)

the normalized CPI for calendar year 2012.

(B)

Special rule for adjustments with a base year after 2012

For purposes of any provision which provides for the substitution of a year after 2012 for 2012 in subparagraph (A)(ii), subparagraph (A) shall be applied by substituting C-CPI-U for normalized CPI in clause (ii).

(3)

Normalized CPI

For purposes of this subsection, the normalized CPI for any calendar year is the product of—

(A)

the CPI for such calendar year, multiplied by

(B)

the C-CPI-U transition multiple.

(4)

C-CPI-U transition multiple

For purposes of this subsection, the term C-CPI-U transition multiple means the amount obtained by dividing—

(A)

the C-CPI-U for calendar year 2013, by

(B)

the CPI for calendar year 2013.

(5)

C-CPI-U

For purposes of this subsection—

(A)

In general

The term C-CPI-U means the Chained Consumer Price Index for All Urban Consumers (as published by the Bureau of Labor Statistics of the Department of Labor). The values of the Chained Consumer Price Index for All Urban Consumers taken into account for purposes of determining the cost-of-living adjustment for any calendar year under this subsection shall be the latest values so published as of the date on which such Bureau publishes the initial value of the Chained Consumer Price Index for All Urban Consumers for the month of August for the preceding calendar year.

(B)

Determination for calendar year

The C-CPI-U for any calendar year is the average of the C-CPI-U as of the close of the 12-month period ending on August 31 of such calendar year.

(6)

CPI

For purposes of this subsection—

(A)

In general

The term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the Department of Labor. For purposes of the preceding sentence, the revision of the Consumer Price Index which is most consistent with the Consumer Price Index for calendar year 1986 shall be used.

(B)

Determination for calendar year

The CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on August 31 of such calendar year.

(d)

Special rules for certain children with unearned income

(1)

In general

In the case of any child to whom this subsection applies for any taxable year—

(A)

the 25-percent bracket threshold amount shall not be more than the taxable income of such child for the taxable year reduced by the net unearned income of such child, and

(B)

the 35-percent bracket threshold amount shall not be more than the sum of—

(i)

the taxable income of such child for the taxable year reduced by the net unearned income of such child, plus

(ii)

the dollar amount in effect under subsection (b)(2)(C) for the taxable year.

(2)

Child to whom subsection applies

This subsection shall apply to any child for any taxable year if—

(A)

such child—

(i)

has not attained age 18 before the close of the taxable year, or

(ii)

has attained age 18 before the close of the taxable year and is described in paragraph (3),

(B)

either parent of such child is alive at the close of the taxable year, and

(C)

such child does not file a joint return for the taxable year.

(3)

Certain children whose earned income does not exceed one-half of individual’s support

A child is described in this paragraph if—

(A)

such child—

(i)

has not attained age 19 before the close of the taxable year, or

(ii)

is a student (within the meaning of section 7705(f)(2)) who has not attained age 24 before the close of the taxable year, and

(B)

such child’s earned income (as defined in section 911(d)(2)) for such taxable year does not exceed one-half of the amount of the individual’s support (within the meaning of section 7705(c)(1)(D) after the application of section 7705(f)(5) (without regard to subparagraph (A) thereof)) for such taxable year.

(4)

Net unearned income

For purposes of this subsection—

(A)

In general

The term net unearned income means the excess of—

(i)

the portion of the adjusted gross income for the taxable year which is not attributable to earned income (as defined in section 911(d)(2)), over

(ii)

the sum of—

(I)

the amount in effect for the taxable year under section 63(c)(4)(A) (relating to limitation on standard deduction in the case of certain dependents), plus

(II)

the greater of the amount described in subclause (I) or, if the child itemizes his deductions for the taxable year, the amount of the itemized deductions allowed by this chapter for the taxable year which are directly connected with the production of the portion of adjusted gross income referred to in clause (i).

(B)

Limitation based on taxable income

The amount of the net unearned income for any taxable year shall not exceed the individual’s taxable income for such taxable year.

(e)

Phaseout of 10-Percent rate

(1)

In general

The amount of tax imposed by this section (determined without regard to this subsection) shall be increased by 5 percent of the excess (if any) of—

(A)

modified adjusted gross income, over

(B)

the applicable dollar amount.

(2)

Limitation

The increase determined under paragraph (1) with respect to any taxpayer for any taxable year shall not exceed 15 percent of the lesser of—

(A)

the taxpayer’s taxable income for such taxable year, or

(B)

the 25-percent bracket threshold amount in effect with respect to the taxpayer for such taxable year.

(3)

Applicable dollar amount

For purposes of this subsection, the term applicable dollar amount means—

(A)

in the case of a joint return or a surviving spouse, $300,000,

(B)

in the case of any other individual, $250,000.

(4)

Estates and trusts

Paragraph (1) shall not apply in the case of an estate or trust.

(f)

Determination of highest rate

For purposes of any provision of law which refers to the highest rate of tax specified in this section (or any subsection of this section), such highest rate shall be treated as being 35 percent.

.

(b)

Modified adjusted gross income

Section 2 is amended by striking subsection (b), by redesignating subsections (c), (d), and (e), as subsections (d), (e), and (f), respectively, and by inserting after subsection (a) the following new subsections:

(b)

Modified adjusted gross income

For purposes of section 1

(1)

In general

The term modified adjusted gross income means adjusted gross income—

(A)

increased by—

(i)

any amount excluded from gross income under sections 911, 931, and 933,

(ii)

the excess (if any) of—

(I)

amounts of interest received or accrued by the taxpayer during the taxable year which are exempt from tax, over

(II)

amounts disallowed as a deduction by reason of section 163(d)(1)(A) or 171(a)(2),

(iii)

any exclusion from gross income with respect to the cost described in section 6051(a)(14) (without regard to subparagraphs (A) and (B) thereof),

(iv)

any deduction allowable under section 162(l) (relating to special rules for health insurance costs of self-employed individuals),

(v)

any annual addition (as defined in section 415(c)(2)) to a defined contribution plan which is not includible in, or which is deductible from, the gross income of the individual for the taxable year,

(vi)

any deduction allowable under section 223, and

(vii)

the excess (if any) of—

(I)

the social security benefits of the individual for the taxable year (as defined in section 86(d)), over

(II)

the amount included in the gross income of such individual for such taxable year under section 86, and

(B)

decreased by—

(i)

any deduction allowed under section 170 (and in the case of an estate or trust, any deduction allowed under section 642(c)), and

(ii)

qualified domestic manufacturing income.

(2)

Determination of adjusted gross income in case of estates and trusts

For purposes of this subsection, the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that—

(A)

the deductions for costs which are paid or incurred in connection with the administration of the estate or trust and which would not have been incurred if the property were not held in such trust or estate, and

(B)

the deductions allowable under sections 642(b), 651, and 661,

shall be treated as allowable in arriving at adjusted gross income. Under regulations, appropriate adjustments shall be made in the application of part I of subchapter J of this chapter to take into account the application of this paragraph.
(c)

Qualified domestic manufacturing income

(1)

In general

For purposes of subsection (b), the term qualified domestic manufacturing income for any taxable year means an amount equal to the excess (if any) of—

(A)

the taxpayer’s domestic manufacturing gross receipts for such taxable year, over

(B)

the sum of—

(i)

the cost of goods sold that are allocable to such receipts, and

(ii)

other expenses, losses, or deductions, which are properly allocable to such receipts.

(2)

Allocation method

The Secretary shall prescribe rules for the proper allocation of items described in paragraph (1) for purposes of determining qualified domestic manufacturing income. Such rules shall provide for the proper allocation of items whether or not such items are directly allocable to domestic manufacturing gross receipts.

(3)

Special rules for determining costs

(A)

In general

For purposes of determining costs under clause (i) of paragraph (1)(B), any item or service brought into the United States shall be treated as acquired by purchase, and its cost shall be treated as not less than its value immediately after it entered the United States. A similar rule shall apply in determining the adjusted basis of leased or rented property where the lease or rental gives rise to domestic manufacturing gross receipts.

(B)

Exports for further manufacture

In the case of any property described in subparagraph (A) that had been exported by the taxpayer for further manufacture, the increase in cost or adjusted basis under subparagraph (A) shall not exceed the difference between the value of the property when exported and the value of the property when brought back into the United States after the further manufacture.

(4)

Domestic manufacturing gross receipts

For purposes of this subsection—

(A)

In general

The term domestic manufacturing gross receipts means the gross receipts of the taxpayer which are derived from—

(i)

any lease, rental, license, sale, exchange, or other disposition of tangible personal property which was manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States, or

(ii)

in the case of a taxpayer engaged in the active conduct of a construction trade or business, construction of real property performed in the United States by the taxpayer in the ordinary course of such trade or business if such real property is placed in service after December 31, 2014.

(B)

Exceptions

Such term shall not include gross receipts of the taxpayer which are derived from—

(i)

the sale of food and beverages prepared by the taxpayer at a retail establishment,

(ii)

the transmission or distribution of electricity, natural gas, or potable water, and

(iii)

the lease, rental, license, sale, exchange, or other disposition of land.

(C)

Special rule for certain government contracts

Gross receipts derived from the manufacture or production of any property described in subparagraph (A)(i) shall be treated as meeting the requirements of subparagraph (A)(i) if—

(i)

such property is manufactured or produced by the taxpayer pursuant to a contract with the Federal Government, and

(ii)

the Federal Acquisition Regulation requires that title or risk of loss with respect to such property be transferred to the Federal Government before the manufacture or production of such property is complete.

(D)

Treatment of activities in Puerto Rico

In the case of any taxpayer with gross receipts for any taxable year from sources within the Commonwealth of Puerto Rico, if all of such receipts are taxable under section 1 for such taxable year, then this paragraph shall be applied by treating each reference in subparagraph (A) to the United States as including the Commonwealth of Puerto Rico.

(E)

Tangible personal property

The term tangible personal property shall not include computer software or any property described in paragraph (3) or (4) of section 168(f).

(F)

Related persons

(i)

In general

The term domestic manufacturing gross receipts shall not include any gross receipts of the taxpayer derived from property leased, licensed, or rented by the taxpayer for use by any related person.

(ii)

Related person

For purposes of clause (i), a person shall be treated as related to another person if such persons are treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414, except that determinations under subsections (a) and (b) of section 52 shall be made without regard to section 1563(b).

(5)

Certain income not qualified

(A)

Net earnings from self employment

Domestic manufacturing gross receipts shall not include any amount which is properly allocable to the taxpayer’s net earnings from self employment (determined after any reduction provided under section 1402(m)).

(B)

Certain accounting method adjustments

Domestic manufacturing gross receipts shall not include any amount attributable to—

(i)

a qualified change in method of accounting (as defined in section 3301(d)(2) of the Tax Reform Act of 2014 ), or

(ii)

any other change in method of accounting which is required by the amendments made by such Act.

(6)

Application of section to pass-through entities

(A)

Partnerships and s corporations

Except as provided in subparagraph (B), in the case of a partnership or S corporation, each partner or shareholder shall take into account such person’s allocable share of each item described in subparagraph (A) or (B) of paragraph (1) (determined without regard to whether the items described in such subparagraph (A) exceed the items described in such subparagraph (B)).

(B)

Publicly traded partnerships

In the case of a publicly traded partnership described in section 7704(c), each partner shall not take into account any allocable share of any item referred to in subparagraph (A).

(C)

Trusts and estates

In the case of a trust or estate, the items referred to in subparagraph (A) (as determined therein) shall be apportioned between the beneficiaries and the fiduciary (and among the beneficiaries) under regulations prescribed by the Secretary.

(7)

Regulations

The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance—

(A)

which prevent more than 1 taxpayer from taking into account the same qualified domestic manufacturing income, and

(B)

which require or restrict the allocation of items under paragraph (6) and require such reporting for purposes of carrying out such paragraph as the Secretary determines appropriate.

(8)

Phase-in of exclusion

In the case of any taxable year beginning before January 1, 2017, the term qualified domestic manufacturing income shall be an amount equal to the product of the qualified domestic manufacturing income determined without regard to this paragraph, multiplied by—

(A)

in the case of any taxable year beginning in 2015, 33 percent, and

(B)

in the case of any taxable year beginning in 2016, 67 percent.

.

(c)

Application of section 15

(1)

In general

Subsection (a) of section 15 is amended by striking this chapter and inserting section 11.

(2)

Conforming amendments

(A)

Section 15 is amended by striking subsections (d) and (f) and by redesignating subsection (e) as subsection (d).

(B)

Section 15(d), as redesignated by subparagraph (A), is amended by striking section 1 or 11(b) and inserting section 11(b).

(C)

Subchapter A of chapter 1 is amended—

(i)

by redesignating section 12 as section 13,

(ii)

by redesignating section 15 (as amended by this subsection) as section 12 and moving such section from part III of such subchapter to after section 11 in part II of such subchapter,

(iii)

by striking part III, and

(iv)

by amending the table of sections for part II of such subchapter by redesignating the item relating to section 12 as an item relating to section 13 and by inserting after the item relating to section 11 the following new item:

Sec. 12. Effect of changes.

.

(D)

Section 6013(c) is amended by striking sections 15, 443, and 7851(a)(1)(A) and inserting sections 443 and 7851(a)(1)(A) .

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1002.

Deduction for adjusted net capital gain

(a)

In general

Part VI of subchapter B of chapter 1, as amended by section 3105, is amended by inserting after section 168 the following new section:

169.

Adjusted net capital gain

(a)

In general

If for any taxable year a taxpayer other than a corporation has an adjusted net capital gain, 40 percent of the amount of the adjusted net capital gain shall be allowed as a deduction from gross income.

(b)

Adjusted net capital gain

For purposes of this section, the term adjusted net capital gain means the sum of—

(1)

net capital gain reduced (but not below zero) by the net collectibles gain, plus

(2)

qualified dividend income.

(c)

Net capital gain reduced by amounts taken into account as investment income

For purposes of this section, the net capital gain for any taxable year shall be reduced (but not below zero) by the amount which the taxpayer takes into account as investment income under section 163(d)(4)(B)(iii).

(d)

Net collectibles gain

For purposes of this section—

(1)

In general

The term net collectibles gain means the excess (if any) of—

(A)

collectibles gain, over

(B)

collectibles loss.

(2)

Collectibles gain and loss

The terms collectibles gain and collectibles loss mean gain or loss (respectively) from the sale or exchange of a collectible (as defined in section 408(m) without regard to paragraph (3) thereof) which is a capital asset held for more than 1 year but only to the extent such gain is taken into account in computing gross income and such loss is taken into account in computing taxable income.

(3)

Partnerships, etc

For purposes of paragraph (2), any gain from the sale of an interest in a partnership, S corporation, or trust which is attributable to unrealized appreciation in the value of collectibles shall be treated as gain from the sale or exchange of a collectible. Rules similar to the rules of section 751 shall apply for purposes of the preceding sentence.

(e)

Qualified dividend income

For purposes of this section—

(1)

In general

The term qualified dividend income means dividends received during the taxable year from—

(A)

domestic corporations, and

(B)

qualified foreign corporations.

(2)

Certain dividends excluded

Such term shall not include—

(A)

any dividend from a corporation which for the taxable year of the corporation in which the distribution is made, or the preceding taxable year, is a corporation exempt from tax under section 501 or 521,

(B)

any amount allowed as a deduction under section 591 (relating to deduction for dividends paid by mutual savings banks, etc.), and

(C)

any dividend described in section 404(k).

(3)

Coordination with section 246(c)

Such term shall not include any dividend on any share of stock—

(A)

with respect to which the holding period requirements of section 246(c) are not met (determined without regard to paragraph (5) of section 246(c) and by substituting in section 246(c) 60 days for 45 days each place it appears and by substituting 121-day period for 91-day period), or

(B)

to the extent that the taxpayer is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property.

(4)

Qualified foreign corporations

(A)

In general

Except as otherwise provided in this subparagraph, the term qualified foreign corporation means any foreign corporation if—

(i)

such corporation is incorporated in a possession of the United States, or

(ii)

such corporation is eligible as a qualified resident for all of the benefits provided under a comprehensive income tax treaty with the United States which the Secretary determines is satisfactory for purposes of this paragraph and which includes an exchange of information program.

(B)

Dividends on stock readily tradable on United States securities market

A foreign corporation not otherwise treated as a qualified foreign corporation under subparagraph (A) shall be so treated with respect to any dividend paid by such corporation if the stock with respect to which such dividend is paid is readily tradable on an established securities market in the United States.

(C)

Exclusion of dividends of certain foreign corporations

The term qualified foreign corporation shall not include any foreign corporation which for the taxable year of the corporation in which the dividend was paid, or the preceding taxable year, is a passive foreign investment company (as defined in section 1297).

(5)

Treatment of dividends from regulated investment companies and real estate investment trusts

A dividend received from a regulated investment company or a real estate investment trust shall be subject to the limitations prescribed in sections 854 and 857.

.

(b)

Deduction allowed whether or not individual itemizes deductions

Section 62(a) is amended by inserting after paragraph (7) the following new paragraph:

(8)

Adjusted net capital gain

The deduction allowed by section 169.

.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1003.

Conforming amendments related to simplification of individual income tax rates

(a)

Amendments related to modification of inflation adjustment

(1)

Section 25B(b)(3)(B) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2005 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2005 for calendar year 2012 in clause (ii) thereof.

(2)

Subclause (II) of section 36B(b)(3)(A)(ii) is amended by striking consumer price index and inserting C-CPI-U (as defined in section 1(c)).

(3)

Section 41(e)(5)(C) is amended to read as follows:

(C)

Cost-of-living adjustment defined

(i)

In general

The cost-of-living adjustment for any calendar year is the cost-of-living adjustment for such calendar year determined under section 1(c)(2)(A), by substituting calendar year 1987 for calendar year 2012 in clause (ii) thereof.

(ii)

Special rule where base period ends in a calendar year other than 1983 or 1984

If the base period of any taxpayer does not end in 1983 or 1984, clause (i) shall be applied by substituting the calendar year in which such base period ends for 1987.

.

(4)

Section 125(i)(2) is amended—

(A)

by striking section 1(f)(3) for the calendar year in which the taxable year begins by substituting calendar year 2012 for calendar year 1992 in subparagraph (B) thereof in subparagraph (B) and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, and

(B)

by striking $50 both places it appears in the last sentence and inserting $100.

(5)

Section 137(f) is amended—

(A)

by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2001 for calendar year 1992 in subparagraph (B) thereof in paragraph (2) and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2001 for calendar year 2012 in clause (ii) thereof, and

(B)

in the last sentence thereof—

(i)

by striking $10 the first place it appears and inserting $100, and

(ii)

by striking nearest multiple of $10 and inserting next lowest multiple of $100.

(6)

Section 162(o)(3) is amended by inserting as in effect before enactment of the Tax Reform Act of 2014 after section 1(f)(5).

(7)

Section 220(g)(2) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins by substituting calendar year 1997 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 1997 for calendar year 2012 in clause (ii) thereof.

(8)

Section 223(g)(1) is amended by striking all that follows subparagraph (A) and inserting the following:

(B)

the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined—

(i)

by substituting for calendar year 2012 in clause (ii) thereof—

(I)

except as provided in clause (ii), calendar year 1997, and

(II)

in the case of each dollar amount in subsection (c)(2)(A), calendar year 2003, and

(ii)

by substituting March 31 for August 31 in paragraphs (5)(B) and (6)(B) of section 1(c).

The Secretary shall publish the dollar amounts as adjusted under this subsection for taxable years beginning in any calendar year no later than June 1 of the preceding calendar year.

.

(9)

Section 430(c)(7)(D)(vii)(II) is amended by striking section 1(f)(3) for the calendar year, determined by substituting calendar year 2009 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year, determined by substituting calendar year 2009 for calendar year 2012 in clause (ii) thereof.

(10)

Section 512(d)(2)(B) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1994 for calendar year 1992 in subparagraph (B) thereofand inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 1994 for calendar year 2012 in clause (ii) thereof.

(11)

Section 513(h)(2)(C)(ii) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins by substituting calendar year 1987 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 1987 for calendar year 2012 in clause (ii) thereof.

(12)

Section 877A(a)(3)(B)(i)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 2007 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2007 for calendar year 2012 in clause (ii) thereof.

(13)

Section 911(b)(2)(D)(ii)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2004 for 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2004 for calendar year 2012 in clause (ii) thereof.

(14)

Section 1274A(d)(2) is amended to read as follows:

(2)

Inflation adjustment

(A)

In general

In the case of any debt instrument arising out of a sale or exchange during any calendar year after 2014, each adjusted dollar amount shall be increased by an amount equal to—

(i)

such adjusted dollar amount, multiplied by

(ii)

the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2013 for calendar year 2012 in clause (ii) thereof.

(B)

Adjusted dollar amounts

For purposes of this paragraph, the term adjusted dollar amount means the dollar amounts in subsections (b) and (c), in each case as in effect for calendar year 2014.

(C)

Rounding

Any increase under subparagraph (A) shall be rounded to the nearest multiple of $100.

.

(15)

Section 2010(c)(3)(B)(ii) is amended by striking section 1(f)(3) for such calendar year by substituting calendar year 2010 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2010 for calendar year 2012 in clause (ii) thereof.

(16)

Section 2032A(a)(3)(B) is amended by striking section 1(f)(3) for such calendar year by substituting calendar year 1997 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 1997 for calendar year 2012 in clause (ii) thereof.

(17)

Section 2503(b)(2)(B) is amended by striking section 1(f)(3) for such calendar year by substituting calendar year 1997 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year, determined by substituting calendar year 1997 for calendar year 2012 in clause (ii) thereof.

(18)

Section 4161(b)(2)(C)(i)(II) is amended by striking section 1(f)(3) for such calendar year, determined by substituting 2004 for 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2004 for calendar year 2012 in clause (ii) thereof.

(19)

Section 4261(e)(4)(A)(ii) is amended by striking section 1(f)(3) for such calendar year by substituting the year before the last nonindexed year for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year, determined by substituting the year before the last nonindexed year for calendar year 2012 in clause (ii) thereof.

(20)

Section 4980I(b)(3)(C)(v)(II) is amended

(A)

by striking section 1(f)(3) and inserting section 1(c)(2)(A) ,

(B)

by striking subparagraph (B) and inserting clause (ii), and

(C)

by striking 1992 and inserting 2012.

(21)

Section 5000A(c)(3)(D)(ii) is amended—

(A)

by striking section 1(f)(3) and inserting section 1(c)(2)(A) ,

(B)

by striking subparagraph (B) and inserting clause (ii), and

(C)

by striking 1992 and inserting 2012.

(22)

Section 6039F(d) is amended by striking section 1(f)(3), except that subparagraph (B) thereof and inserting section 1(c)(2)(A), except that clause (ii) thereof .

(23)

Section 6323(i)(4)(B) is amended by striking section 1(f)(3) for the calendar year, determined by substituting calendar year 1996 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year, determined by substituting calendar year 1996 for calendar year 2012 in clause (ii) thereof.

(24)

Section 6334(g)(1)(B) is amended by striking section 1(f)(3) for such calendar year, by substituting calendar year 1998 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 1999 for calendar year 2012 in clause (ii) thereof.

(25)

Section 6721(f)(1) is amended—

(A)

by striking section 1(f)(3) and inserting section 1(c)(2)(A) ,

(B)

by striking subparagraph (B) and inserting clause (ii), and

(C)

by striking 1992 and inserting 2012.

(26)

Section 6722(f)(1) is amended—

(A)

by striking section 1(f)(3) and inserting section 1(c)(2)(A) ,

(B)

by striking subparagraph (B) and inserting clause (ii), and

(C)

by striking 1992 and inserting 2012.

(27)

Section 7430(c)(1) is amended by striking section 1(f)(3) for such calendar year, by substituting calendar year 1995 for calendar year 1992 in subparagraph (B) thereof in the flush text at the end and inserting section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 1995 for calendar year 2012 in clause (ii) thereof.

(28)

Section 7872(g)(5) is amended to read as follows:

(5)

Inflation adjustment

(A)

In general

In the case of any loan made during any calendar year after 2014 to which paragraph (1) applies, the adjusted dollar amount shall be increased by an amount equal to—

(i)

such adjusted dollar amount, multiplied by

(ii)

the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2013 for calendar year 2012 in clause (ii) thereof.

(B)

Adjusted dollar amount

For purposes of this paragraph, the term adjusted dollar amount means the dollar amount in paragraph (2) as in effect for calendar year 2014.

(C)

Rounding

Any increase under subparagraph (A) shall be rounded to the nearest multiple of $100.

.

(b)

Amendments related to deduction for adjusted net capital gain

(1)

Section 163(d)(4)(B) is amended by striking section 1(h)(11)(B) and inserting section 169(e).

(2)

Section 172(d)(2)(B) is amended by inserting the deduction allowable under section 169 and before the exclusion.

(3)

Section 301(f)(4) is amended by striking section 1(h)(11) and inserting section 169(e).

(4)

Section 306(a)(1)(D) is amended by striking section 1(h)(11) and inserting section 169(e).

(5)

The last sentence of section 453A(c)(3) is amended by striking capital gain and all that follows and inserting capital gain, the deduction under section 169 shall be taken into account..

(6)

Sections 531 and 541 are each amended by striking 20 percent and inserting 21 percent.

(7)

Section 584(c) is amended by striking and to which section 1(h)(11) applies in the last sentence and inserting which is qualified dividend income (as defined in section 169(e)) in the hands of such common trust fund.

(8)

Section 641(c)(2)(C) (prior to redesignation by title II) is amended by adding at the end the following new clause:

(v)

The deduction allowed by section 169.

.

(9)

The first sentence of section 642(c)(4) is amended by striking consists of and all that follows and inserting consists of long-term capital gain or gain described in section 1202(a), proper adjustments shall be made for any deduction allowable to the trust or estate under section 169 and for any exclusion allowable under section 1202..

(10)

The last sentence of section 643(a)(3) is amended to read as follows: The deduction under section 169 and the exclusion under section 1202 shall not be taken into account..

(11)

Section 691(c)(4) is amended by striking 1(h) and inserting 169.

(12)

Section 702(a)(5) is amended by striking section 1(h)(11) and inserting section 169.

(13)

Section 854 is amended—

(A)

by striking section 1(h)(11) (relating to maximum rate of tax on dividends) in subsection (a) and inserting section 169 (relating to adjusted net capital gain),

(B)

by striking Maximum rate under section 1(h) in the heading of subsection (b)(1)(B) and inserting Determination of adjusted net capital gain , and

(C)

by striking section 1(h)(11)(B) in subsection (b)(4) and inserting section 169(e) .

(14)

Section 857(c)(2) is amended—

(A)

by striking section 1(h)(11)(B) in subparagraph (D) and inserting section 169(e) , and

(B)

by striking Section 1(h)(11) in the heading and inserting Section 169(e) .

(15)

Section 904(b) is amended—

(A)

by amending paragraph (2) to read as follows:

(2)

Capital gains

For purposes of this section, taxable income from sources outside the United States shall include gain from the sale or exchange of capital assets (including gain so treated under section 1231) only to the extent of the lesser of—

(A)

capital gain net income from sources without the United States, or

(B)

capital gain net income.

, and

(B)

by striking paragraph (3).

(16)

Section 1260(a) is amended by striking long-term capital gain the first place such term appears and all that follows and inserting long-term capital gain, such gain shall be treated as ordinary income to the extent such gain exceeds the net underlying long-term capital gain..

(17)

Section 1411(c)(1)(B) is amended by inserting (other than section 169) after this subtitle.

(18)

Section 4985(a)(1) is amended by striking the rate of tax specified in section 1(h)(1)(C) and inserting 21 percent.

(19)

Section 7518(g)(6)(A) is amended by striking all that follows clause (i) and inserting the following:

(ii)

by increasing the tax imposed by chapter 1 by the product of the amount of such withdrawal, multiplied by—

(I)

in the case of a taxpayer other than a corporation, 60 percent of the highest rate of tax specified in section 1, and

(II)

in the case of a corporation, the highest rate of tax specified in section 11.

.

(20)

Section 53511(f) of title 46, United States Code, is amended by—

(A)

by amending paragraph (1)(B) to read as follows:

(B)

increasing the tax imposed by chapter 1 of such Code by the product of the amount of such withdrawal, multiplied by—

(i)

in the case of a taxpayer other than a corporation, the highest rate of tax specified in section 1 (60 percent of such highest rate in the case of so much of such withdrawal as is made from the capital gain account), and

(ii)

in the case of a corporation, the highest rate of tax specified in section 11.

, and

(B)

by striking paragraph (2) and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.

(21)

The table of sections for part VI of subchapter B of chapter 1 is amended by inserting after the item relating to section 168 the following new item:

Sec. 169. Adjusted net capital gain.

.

(c)

Other conforming amendments

(1)

Section 25B(b)(2) is amended by striking In the case of— and all that follows through any taxpayer not described in paragraph (1) or subparagraph (A), and inserting In the case of any taxpayer not described in paragraph (1),.

(2)

Section 36B(b)(3)(B)(ii)(I)(aa) is amended to read as follows:

(aa)

who is described in section 1(b)(1)(B) and who does not have any dependents for the taxable year,

.

(3)

Section 486B(b)(1) is amended—

(A)

by striking maximum rate in effect and inserting highest rate specified, and

(B)

by striking section 1(e) and inserting section 1.

(4)

Section 511(b)(1) is amended to read as follows:

(1)

Imposition of tax

There is hereby imposed for each taxable year on the unrelated business taxable income of every trust described in paragraph (2) a tax computed as provided in section 1. In making such computation for purposes of this section, the terms taxable income and modified adjusted gross income as used in section 1 shall both be read as unrelated business taxable income as defined in section 512.

.

(5)

Section 641(a) is amended by striking section 1(e) shall apply to the taxable income and inserting section 1 shall apply to the income.

(6)

Section 641(c)(2)(A) is amended to read as follows:

(A)

The dollar amount in effect under section 1(b)(2)(C) shall be treated as being zero.

.

(7)

Section 646(b) is amended to read as follows:

(b)

Taxation of income of trust

Except as provided in subsection (f)(1)(B)(ii), there is hereby imposed on the taxable income of an electing Settlement Trust a tax at the rate specified in section 1(a)(1). Such tax shall be in lieu of the income tax otherwise imposed by this chapter on such income.

.

(8)

Section 685(c) is amended by striking Section 1(e) and inserting Section 1.

(9)

Section 1398(c) is amended by striking paragraphs (1) and (2), by redesignating paragraph (3) as paragraph (2), and by inserting before paragraph (2) as so redesignated the following new paragraph:

(1)

Computation and payment of tax

Except as otherwise provided in this section or part I of subchapter A, the taxable income and modified adjusted gross income of the estate shall be computed in the same manner as for an individual. The tax shall be computed under section 1 and shall be paid by the trustee.

.

(10)

Section 3402(p)(1)(B) is amended by striking any percentage applicable to any of the 3 lowest income brackets in the table under section 1(c), and inserting 10 percent, 25 percent, 35 percent,.

(11)

Section 3402(q)(1) is amended by striking the third lowest rate of tax applicable under section 1(c) and inserting the highest rate of tax specified in section 1 .

(12)

Section 3402(r)(3) is amended by striking the amount of tax which would be imposed by section 1(c) (determined without regard to any rate of tax in excess of the fourth lowest rate of tax applicable under section 1(c)) on an amount of taxable income equal to and inserting an amount equal to the product of the highest rate of tax specified in section 1 multiplied by.

(13)

Section 3406(a)(1) is amended by striking the fourth lowest rate of tax applicable under section 1(c) and inserting the highest rate of tax specified in section 1 .

(14)

Section 6103(e)(1)(A)(iii) is amended by striking section 1(g) and inserting section 1(d) .

(d)

Withholding from supplemental wage payments

(1)

In general

If an employer elects under Treasury Regulation section 31.3402(g)–1 to determine the amount to be deducted and withheld from any supplemental wage payment by using a flat percentage rate, the rate to be used in determining such amount shall not be less than 35 percent.

(2)

Repeal of superceded provision

The American Jobs Creation Act of 2004 is amended by striking section 904.

(e)

Effective date

(1)

In general

Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2014.

(2)

Withholding from supplemental wage payments

The provisions of, and amendments made by, subsection (d) shall apply to payments made after December 31, 2014.

B

Simplification of tax benefits for families

1101.

Standard deduction

(a)

Increase in standard deduction

Subsection (c) of section 63 is amended to read as follows:

(c)

Standard deduction

For purposes of this subtitle—

(1)

In general

Except as otherwise provided in this subsection, the term standard deduction means—

(A)

$22,000, in the case of a joint return, and

(B)

one-half of the amount in effect under subparagraph (A) for the taxable year, in any other case.

(2)

Phaseout of standard deduction

The amount of the standard deduction determined under this subsection (without regard to this paragraph and after the application of paragraph (4)) shall be reduced (but not below zero) by an amount equal to 20 percent of the excess (if any) of—

(A)

the taxpayer’s modified adjusted gross income (as defined in section 2(b)) for the taxable year, over

(B)
(i)

the joint return standard deduction phaseout threshold for the taxable year, in the case of a taxpayer described in paragraph (1)(A), and

(ii)

the non-joint return standard deduction phaseout threshold for the taxable year, in any other case.

(3)

Standard deduction phaseout thresholds

(A)

Joint return standard deduction phaseout threshold

The term joint return standard deduction phaseout threshold means, with respect to any taxable year—

(i)

the dollar amount in effect under section 1(e)(3)(A) for such taxable year, plus

(ii)

the product of—

(I)

the dollar amount in effect under section 1(b)(1)(A) for such taxable year, multiplied by

(II)

3.

(B)

Non-joint return standard deduction phaseout threshold

The term non-joint return standard deduction phaseout threshold means, with respect to any taxable year—

(i)

the dollar amount in effect under section 1(e)(3)(B) for such taxable year, plus

(ii)

the product of—

(I)

the dollar amount in effect under section 1(b)(1)(B) for such taxable year, multiplied by

(II)

3.

(4)

Limitation on standard deduction in the case of certain dependents

In the case of an individual who is a dependent of another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the standard deduction applicable to such individual for such individual’s taxable year shall not exceed the greater of—

(A)

$500, or

(B)

the sum of $250 and such individual’s earned income (as defined in section 24(d)(2)).

(5)

Certain individuals, etc., not eligible for standard deduction

In the case of—

(A)

a married individual filing a separate return where such individual’s spouse elects to itemize deductions,

(B)

a nonresident alien individual,

(C)

an individual making a return under section 443(a)(1) for a period of less than 12 months on account of a change in his annual accounting period, or

(D)

an estate or trust, common trust fund, or partnership,

the standard deduction shall be zero.
(6)

Inflation adjustments

In the case of any taxable year beginning after 2014, each of the dollar amounts in paragraphs (1)(A) and (4) shall be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined—

(i)

in the case of the dollar amount in paragraph (1)(A), under section 1(c)(2)(A) for the calendar year in which the taxable year begins,

(ii)

in the case of the dollar amount in paragraph (4)(A), under section 1(c)(2)(A) for the calendar year in which the taxable year begins determined by substituting calendar year 1987 for calendar year 2012 in clause (ii) thereof, and

(iii)

in the case of the dollar amount in paragraph (4)(B), under section 1(c)(2)(A) for the calendar year in which the taxable year begins determined by substituting calendar year 1997 for calendar year 2012 in clause (ii) thereof.

If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.

.

(b)

Additional deduction for unmarried individuals with at least one qualifying child

(1)

In general

Part VII of subchapter B of chapter 1 is amended by redesignating section 224 as section 225 and by inserting after section 223 the following new section:

224.

Deduction for unmarried individuals with at least one qualifying child

(a)

In general

In the case of an unmarried individual with at least one qualifying child (within the meaning of section 7705), there shall be allowed as a deduction an amount equal to $5,500.

(b)

Phaseout of deduction

The amount of the deduction determined under subsection (a) (without regard to this subsection) shall be reduced (but not below zero) by an amount equal to the excess (if any) of—

(1)

the taxpayer’s adjusted gross income (determined without regard to this section) for the taxable year, over

(2)

$30,000.

(c)

Unmarried individual

For purposes of this section, the term unmarried individual means any individual who—

(1)

is not married as of the close of the taxable year (as determined by applying section 7703),

(2)

is not a surviving spouse (as defined in section 2(a)) for the taxable year, and

(3)

is not a dependent of another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins.

(d)

Inflation adjustments

(1)

Deduction amount

In the case of any taxable year beginning after 2014, the dollar amount in subsection (a) shall be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins.

(2)

Phaseout threshold

In the case of any taxable year beginning after 2015, the dollar amount in subsection (b)(2) shall be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins determined by substituting calendar year 2014 for calendar year 2012 in clause (ii) thereof.

(3)

Rounding

If any increase determined under paragraph (1) or (2) is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.

.

(2)

Deduction allowed whether or not taxpayer itemizes deductions

Section 62(a) is amended by adding at the end the following new paragraph:

(22)

Deduction for unmarried individuals with at least one qualifying child

The deduction allowed by section 224.

.

(c)

Application of standard deduction phaseout to itemized deductions

Subsection (f) of section 63 is amended to read as follows:

(f)

Application of phaseout of standard deduction to itemized deductions

(1)

In general

In the case of an individual whose modified adjusted gross income (as defined in section 2(b)) exceeds the amount in effect under subsection (c)(2)(B) with respect to the taxpayer for the taxable year, the amount of the itemized deductions otherwise allowable for the taxable year shall be reduced by the lesser of—

(A)

20 percent of the excess described in subsection (c)(2) with respect to such taxpayer for such taxable year, or

(B)

the amount of the taxpayer’s standard deduction for such taxable year (determined without regard to subsection (c)(2) and without regard to any election to itemize deductions).

(2)

Coordination with other limitations

This subsection shall be applied after the application of any other limitation on the allowance of any itemized deduction.

(3)

Exception for estates and trusts

This subsection shall not apply to any estate or trust.

.

(d)

Conforming amendments

(1)

Sections 86(b)(2)(A) and 137(b)(3)(A) are each amended by inserting 224, before 911,.

(2)

Section 199(d)(2)(B) is amended by inserting section 224 and before this section.

(3)

Section 469(i)(3)(F)(iii) is amended by inserting and 224 after 219,.

(4)

Section 1398(c), as amended by section 1003(c), is amended—

(A)

by striking Basic in the heading thereof,

(B)

by striking Basic standard in the heading of paragraph (2) and inserting Standard , and

(C)

by striking basic in paragraph (2).

(5)

Section 3402(m)(3) is amended by striking (including the additional standard deduction under section 63(c)(3) for the aged and blind).

(6)

Section 6014(b)(4) is amended by striking section 63(c)(5) and inserting section 63(c)(4) .

(7)

The table of sections for part VII of subchapter B of chapter 1 is amended by redesignating the item relating to section 224 as an item relating to section 225 and by inserting after the item relating to section 223 the following new item:

Sec. 224. Deduction for unmarried individuals with at least one qualifying child.

.

(e)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2014.

1102.

Increase and expansion of child tax credit

(a)

In general

Section 24 is amended to read as follows:

24.

Child and dependent tax credit

(a)

Allowance of credit

There shall be allowed as a credit against the tax imposed by this chapter for the taxable year with respect to each dependent of the taxpayer an amount equal to $500 ($1,500 in the case of a qualifying child).

(b)

Phaseout of credit

(1)

In general

The credit allowed under subsection (a) (determined without regard to this subsection) shall be reduced (but not below zero) by 5 percent of the excess (if any) of—

(A)

the taxpayer’s modified adjusted gross income (as defined in section 2(b)), over

(B)
(i)

the joint return child credit phaseout threshold, in the case of a joint return or a surviving spouse (as defined in section 2(a)), or

(ii)

the non-joint return child credit phaseout threshold, in any other case.

(2)

Joint return child credit phaseout threshold

For purposes of this section, the term joint return child credit phaseout threshold means, with respect to any taxable year, the sum of—

(A)

the joint return standard deduction phaseout threshold (as defined in section 63(c)(3)(A)), plus

(B)

an amount equal to—

(i)

the dollar amount in effect under section 63(c)(1)(A) for such taxable year, divided by

(ii)

0.2.

(3)

Non-joint return child credit phaseout threshold

For purposes of this section, the term non-joint return child credit phaseout threshold means, with respect to any taxable year, the sum of—

(A)

the non-joint return standard deduction phaseout threshold (as defined in section 63(c)(3)(B)), plus

(B)

an amount equal to—

(i)

the dollar amount in effect under section 63(c)(1)(B) for such taxable year, divided by

(ii)

0.2.

(c)

Qualifying child

For purposes of this section—

(1)

In general

Except as provided in paragraph (2), the term qualifying child has the meaning given such term by section 7705.

(2)

Exception for certain noncitizens

The term qualifying child shall not include any individual who would not be a dependent if subparagraph (A) of section 7705(b)(3) were applied without regard to all that follows resident of the United States.

(d)

Portion of credit refundable

(1)

In general

The aggregate credits allowed under subpart C shall be increased by the lesser of—

(A)

the credit which would be allowed under this section without regard to this subsection and the limitation under section 26(a), or

(B)

the amount by which the aggregate amount of credits allowed under the subpart (determined without regard to this subsection) would increase if the limitation under section 26(a) were increased by 25 percent of the taxpayer’s earned income for the taxable year.

The amount of the credit allowed under this subsection shall not be treated as a credit allowed under this subpart and shall reduce the amount of credit otherwise allowable under subsection (a) without regard to section 26(a).
(2)

Earned income

For purposes of this subsection—

(A)

In general

The term earned income means—

(i)

the taxpayer’s wages, salaries, tips, and other employee compensation, but only if such amounts are includible in gross income for the taxable year, plus

(ii)

the taxpayer’s net earnings from self-employment for the taxable year (within the meaning of section 1402(a)) determined with regard to the deduction allowed to the taxpayer by section 164(f).

(B)

Special rules

For purposes of subparagraph (A)—

(i)

the earned income of an individual shall be computed without regard to any community property laws,

(ii)

no amount received as a pension or annuity shall be taken into account,

(iii)

no amount to which section 871(a) applies (relating to income of nonresident alien individuals not connected with United States business) shall be taken into account,

(iv)

no amount received for services provided by an individual while the individual is an inmate at a penal institution shall be taken into account,

(v)

no amount described in subparagraph (A) received for service performed in work activities as defined in paragraph (4) or (7) of section 407(d) of the Social Security Act to which the taxpayer is assigned under any State program under part A of title IV of such Act shall be taken into account, but only to the extent such amount is subsidized under such State program, and

(vi)

amounts excluded from gross income by reason of section 112 shall be taken into account as earned income.

(C)

Special rule for taxable years beginning before 2018

In the case of any taxable year beginning before January 1, 2018, the earned income of the taxpayer taken into account under paragraph (1) shall be reduced (but not below zero) by $3,000.

(3)

Exception for taxpayers excluding foreign earned income

Paragraph (1) shall not apply to any taxpayer for any taxable year if such taxpayer elects to exclude any amount from gross income under section 911 for such taxable year.

(e)

Inflation adjustment

In the case of any taxable year beginning after 2014, each 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(c)(2)(A) for the calendar year in which the taxable year begins.

If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.
(f)

Identification requirements

(1)

In general

No credit shall be allowed under this section to a taxpayer with respect to any dependent unless the taxpayer includes the name and taxpayer identification number of such dependent on the return of tax for the taxable year.

(2)

Additional identification requirement with respect to refundable credit

(A)

In general

Subsection (d) shall not apply to any taxpayer for any taxable year unless the taxpayer includes the taxpayer’s Social Security number on the return of tax for such taxable year.

(B)

Joint returns

In the case of a joint return, the requirement of subparagraph (A) shall be treated as met if the Social Security number of either spouse is included on such return.

(g)

Taxable year must be full taxable year

Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.

.

(b)

Omission of identification information treated as mathematical or clerical error

Subparagraph (I) of section 6213(g)(2) of such Code is amended to read as follows:

(I)

an omission of a correct TIN under section 24(f)(1) (relating to the child and dependent tax credit), or a correct Social Security number under section 24(f)(2) (relating to the refundable portion of child and dependent tax credit), to be included on a return,

.

(c)

Application of rule for short taxable years

Section 443(c) is amended to read as follows:

(c)

Adjustment in child and dependent tax credit

If a return is made for a short period by reason of subsection (a)(1) and if the tax is not computed under subsection (b)(2), then the credit allowed under section 24 shall be reduced to an amount which bears the same ratio to the full amount of such credit as the number of months in the short period bears to 12.

.

(d)

Clerical amendment

The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by striking the item relating to section 24 and inserting the following new item:

Sec. 24. Child and dependent tax credit.

.

(e)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1103.

Modification of earned income tax credit

(a)

In general

Section 32 is amended to read as follows:

32.

Earned income

(a)

In general

In the case of an individual who is an eligible individual for any taxable year, there shall be allowed as a credit against the tax imposed by this subtitle for such taxable year an amount equal to the taxpayer’s employment-related taxes for such taxable year.

(b)

Limitations

(1)

Dollar limitation

The credit allowed under subsection (a) shall not exceed—

(A)

in the case of a taxpayer with 2 or more qualifying children, $3,000 ($4,000 in the case of a joint return), and

(B)

in the case of a taxpayer with 1 qualifying child, $2,400.

(2)

Phase-out of credit

The credit allowed under subsection (a) (determined after application of paragraph (1)) shall be reduced (but not below zero) by the sum of—

(A)

19 percent of so much of the taxpayer’s adjusted gross income (reduced by the amount of any excess described in subparagraph (B)) as exceeds $20,000 ($27,000 in the case of a joint return), plus

(B)

so much of the taxpayer’s investment income for the taxable year as exceeds $3,300.

(c)

Definitions

For purposes of this section—

(1)

Eligible individual

(A)

In general

The term eligible individual means any individual who has a qualifying child for the taxable year.

(B)

Qualifying child ineligible

If an individual is the qualifying child of a taxpayer for any taxable year of such taxpayer beginning in a calendar year, such individual shall not be treated as an eligible individual for any taxable year of such individual beginning in such calendar year.

(C)

Exception for individual claiming benefits under section 911

The term eligible individual does not include any individual who claims the benefits of section 911 (relating to citizens or residents living abroad) for the taxable year.

(D)

Limitation on eligibility of nonresident aliens

The term eligible individual shall not include any individual who is a nonresident alien individual for any portion of the taxable year unless such individual is treated for such taxable year as a resident of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.

(2)

Employment-related taxes

The term employment-related taxes means, with respect to any taxpayer for any taxable year, the sum of—

(A)

any tax imposed under sections 3101 or 3111 on the wages (as defined in section 3121(a)) received by the taxpayer during the calendar year in which the taxable year begins,

(B)

any tax imposed under sections 3201(a), 3211(a), or 3221(a) on the compensation (as defined in section 3231(e)) received by the taxpayer during the calendar year in which the taxable year begins, and

(C)

any tax imposed under section 1401 on the self-employment income of the taxpayer for the taxable year.

(3)

Qualifying child

(A)

In general

The term qualifying child means a qualifying child of the taxpayer (within the meaning of section 7705, determined without regard to subsections (c)(1)(D) and (e) thereof).

(B)

Place of abode

For purposes of subparagraph (A), the requirements of section 7705(c)(1)(B) shall be met only if the principal place of abode is in the United States.

(C)

Treatment of military personnel stationed outside the United States

For purposes of subparagraph (B), the principal place of abode of a member of the Armed Forces of the United States shall be treated as in the United States during any period during which such member is stationed outside the United States while serving on extended active duty with the Armed Forces of the United States. For purposes of the preceding sentence, the term extended active duty means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.

(4)

Investment income

For purposes of paragraph (1), the term investment income means—

(A)

interest or dividends to the extent includible in gross income for the taxable year,

(B)

interest received or accrued during the taxable year which is exempt from tax imposed by this chapter,

(C)

the excess (if any) of—

(i)

gross income from rents or royalties not derived in the ordinary course of a trade or business, over

(ii)

the sum of—

(I)

the deductions (other than interest) which are clearly and directly allocable to such gross income, plus

(II)

interest deductions properly allocable to such gross income,

(D)

the capital gain net income (as defined in section 1222) of the taxpayer for such taxable year, and

(E)

the excess (if any) of—

(i)

the aggregate income from all passive activities for the taxable year (determined without regard to any amount with respect to which a tax described in subsection (c)(2) is imposed or an amount described in a preceding subparagraph), over

(ii)

the aggregate losses from all passive activities for the taxable year (as so determined).

For purposes of subparagraph (E), the term passive activity has the meaning given such term by section 469.
(d)

Identification requirements

(1)

In general

No credit shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year—

(A)

the taxpayer’s Social Security number, and

(B)

the name, age, and Social Security number of each qualifying child taken into account under subsection (b)(1).

(2)

Joint returns

In the case of a joint return, the requirement of paragraph (1)(A) shall be treated as met if the Social Security number of either spouse is included on such return.

(3)

Other methods of providing children’s information

The Secretary may prescribe other methods for providing the information described in paragraph (1)(B).

(e)

Restrictions on taxpayers who improperly claimed credit in prior year

(1)

Taxpayers making prior fraudulent or reckless claims

(A)

In general

No credit shall be allowed under this section for any taxable year in the disallowance period.

(B)

Disallowance period

For purposes of paragraph (1), the disallowance period is—

(i)

the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to fraud, and

(ii)

the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud).

(2)

Taxpayers making improper prior claims

In the case of a taxpayer who is denied credit under this section for any taxable year as a result of the deficiency procedures under subchapter B of chapter 63, no credit shall be allowed under this section for any subsequent taxable year unless the taxpayer provides such information as the Secretary may require to demonstrate eligibility for such credit.

(f)

Other special rules

For purposes of this section—

(1)

Married individuals

In the case of an individual who is married (within the meaning of section 7703), this section shall apply only if a joint return is filed for the taxable year under section 6013.

(2)

Taxable year must be full taxable year

Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.

(3)

Coordination with certain means-tested programs

For purposes of—

(A)

the United States Housing Act of 1937,

(B)

title V of the Housing Act of 1949,

(C)

section 101 of the Housing and Urban Development Act of 1965,

(D)

sections 221(d)(3), 235, and 236 of the National Housing Act, and

(E)

the Food and Nutrition Act of 2008,

any refund made to an individual (or the spouse of an individual) by reason of this section, and any payment made to such individual (or such spouse) by an employer under section 3507, shall not be treated as income (and shall not be taken into account in determining resources for the month of its receipt and the following month).
(4)

Coordination with payroll tax credits

The credit allowed under subsection (a) with respect to any taxpayer for any taxable year shall be reduced by the sum of the credits allowed under sections 3103 and 3203 with respect to such taxpayer for such taxable year.

(g)

Application to certain individuals without qualifying children

For purposes of this section and sections 3103 and 3203

(1)

In general

In the case of an individual described in paragraph (2)—

(A)

such individual shall be treated as an eligible individual,

(B)

notwithstanding subsection (i), the dollar limitation applicable to such individual under subsection (b)(1) shall be $100 (twice such amount in the case of a joint return),

(C)

subsection (b)(2)(A) shall be applied by substituting $8,000 ($13,000 for $20,000 ($27,000, and

(D)

subsection (i)(1) shall not apply and the employment-related taxes with respect to such individual for any taxable year shall not exceed the sum of—

(i)

any tax imposed under section 3101 on the wages (as defined in section 3121(a)) received by the taxpayer during the calendar year in which the taxable year begins,

(ii)

any tax imposed under sections 3201(a) (and so much of the tax imposed by section 3211(a) as is attributable to the rates of tax under subsections (a) and (b) of section 3101) on the compensation (as defined in section 3231(e)) received by the taxpayer during the calendar year in which the taxable year begins, and

(iii)

50 percent of any tax imposed under section 1401 on the self-employment income of the taxpayer for the taxable year.

(2)

Individual to whom subsection applies

An individual is described in this paragraph for any taxable year if—

(A)

such individual does not have a qualifying child for the taxable year,

(B)

such individual’s principal place of abode is in the United States for more than one-half of such taxable year,

(C)

such individual (or, if the individual is married (within the meaning of section 7703), either the individual or the individual’s spouse) has attained age 25 but not attained age 65 before the close of the taxable year, and

(D)

such individual is not a dependent of another taxpayer for any taxable year beginning in the same calendar year as such taxable year.

(h)

Inflation adjustment

In the case of any taxable year beginning after 2014, both dollar amounts in subsection (b)(1)(A), the dollar amount in subsection (b)(1)(B), both dollar amounts in subsection (b)(2)(A), the dollar amount in subsection (b)(2)(B), the $100 amount in subsection (g)(1)(B), the $8,000 and $13,000 amounts in subsection (g)(1)(C), the $4,000 amount in subsection (i)(2), and the $3,000 amount in subsection (i)(3), shall each be increased by an amount equal to—

(1)

such dollar amount, multiplied by

(2)

the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins.

If any increase determined under the preceding sentence is not a multiple of $100 ($10 in the case of the $100 amount in subsection (g)(1)(B)), such increase shall be rounded to the next lowest multiple of $100 ($10 in the case of the $100 amount in subsection (g)(1)(B)).
(i)

Special rules for taxable years beginning before 2018

In the case of any taxable year beginning before January 1, 2018—

(1)

subsection (a) shall be applied by substituting 200 percent of the taxpayer’s employment-related taxes for the taxpayer’s employment-related taxes,

(2)

subsection (b)(1)(A) shall be applied by substituting $4,000 for $3,000 ($4,000 in the case of a joint return), and

(3)

subsection (b)(1)(B) shall be applied by substituting $3,000 for $2,400.

.

(b)

Credit allowed against payroll taxes

(1)

FICA tax

Subchapter A of chapter 21 is amended by adding at the end the following new section:

3103.

Credit against tax

(a)

In general

In the case of an individual who is allowed a credit under section 32 (determined without regard to subsection (f)(4) thereof) for a taxable year, there shall be allowed as a credit against the tax imposed by section 3101 with respect to wages received by such individual during the calendar year ending with or within such taxable year the lesser of—

(1)

the amount of tax so imposed, or

(2)

the amount of the credit allowed under section 32 (as so determined) for such taxable year.

(b)

Application of credit

The credit determined under subsection (a) shall be taken into account under this title in the same manner as a credit or refund to which the taxpayer is entitled under section 6413(c)(1). Such credit shall not be taken into account for purposes of determining any amount deducted and withheld under section 3102.

.

(2)

Railroad retirement tax

Subchapter A of chapter 22 is amended by adding at the end the following new section:

3203.

Credit against tax

(a)

In general

In the case of an individual who is allowed a credit under section 32 (determined without regard to subsection (f)(4) thereof) for a taxable year, there shall be allowed as a credit against the tax imposed by section 3201(a) (and so much of the tax imposed by section 3211(a) as is attributable to the rates of tax under subsections (a) and (b) of section 3101) with respect to compensation received by such individual during the calendar year ending with or within such taxable year the lesser of—

(1)

the amount of tax so imposed, or

(2)

the excess of—

(A)

the amount of the credit allowed under section 32 (as so determined) for such taxable year, over

(B)

the amount of the credit allowed under section 3103.

(b)

Application of credit

The credit determined under subsection (a) shall be taken into account under this title in the same manner as a credit or refund to which the taxpayer is entitled under section 6413(c)(1). Such credit shall not be taken into account for purposes of determining any amount deducted and withheld under section 3202.

.

(c)

Conforming amendments

(1)

Section 86(f)(2) is amended by striking section 32(c)(2) and inserting section 24(d)(2) .

(2)

Section 129(e)(2) is amended by striking section 32(c)(2) and inserting section 24(d)(2)

(3)

Section 6051(a)(10) is amended by striking for purposes of section 32 (relating to earned income credit) and inserting under section 24(d)(2) .

(4)

Section 6211(b)(4)(A) is amended by inserting (determined without regard to subsection (f)(4) thereof) after 32.

(5)

Section 6213(g)(2)(F) is amended by striking taxpayer identification number and inserting Social Security number.

(6)

Section 6213(g)(2)(G) is amended by striking with respect to and all that follows and inserting with respect to the tax imposed under section 1401 (relating to self-employment tax) to the extent such tax has not been paid,.

(7)

Section 6213(g)(2)(K) is amended by striking section 32(k)(2) and inserting section 32(e)(2) .

(8)

Section 7705(f)(6)(B), as redesignated by this Act, is amended by striking clause (iv), by striking , and at the end of clause (iii) and inserting a period, and by inserting and at the end of clause (ii).

(9)

The table of sections for subchapter A of chapter 21 is amended by adding at the end the following new item:

Sec. 3103. Credit against tax.

.

(10)

The table of sections for subchapter A of chapter 22 is amended by adding at the end the following new item:

Sec. 3203. Credit against tax.

.

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

(e)

Treatment of taxpayers who improperly claimed credit in prior years

A claim of credit under section 32 of the Internal Revenue Code of 1986 (as in effect before the amendments made by this section) shall not fail to be taken into account under subsection (e) of such section (as amended by this section) merely because such claim is for a taxable year beginning before January 1, 2015.

(f)

Treasury report on making credit advanceable

Not later than the date which is 180 days after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary’s designee) shall submit a report to Congress making recommendations regarding the best method for providing for advance payment of the credits established by the amendments made by this section. The recommendations in such report shall seek to—

(1)

provide for the payment of such credits to taxpayers as promptly as is feasible, including on a weekly, biweekly, or monthly basis, and

(2)

minimize any administrative burdens on employers and the Internal Revenue Service.

1104.

Repeal of deduction for personal exemptions

(a)

In general

Part V of subchapter B of chapter 1 is hereby repealed.

(b)

Definition of dependent retained

(1)

In general

Section 152, prior to repeal by subsection (a), is hereby redesignated as section 7705 and moved to the end of chapter 79.

(2)

Modification of age requirements

Section 7705(c)(3)(A), as redesignated by paragraph (1), is amended by striking as a qualifying child and— and all that follows and inserting is a qualifying child and has not attained the age of 18 as of the close of the calendar year in which the taxable year of the taxpayer begins..

(c)

Application to estates and trusts

Subsection (b) of section 642 is amended—

(1)

by striking paragraph (2)(C),

(2)

by striking paragraph (3), and

(3)

by striking Deduction for personal exemption in the heading thereof and inserting Basic deduction .

(d)

Application to nonresident aliens

Section 873(b) is amended by striking paragraph (3).

(e)

Modification of wage withholding rules

(1)

In general

Section 3402(a)(2) is amended by striking the amount of one personal exemption provided in section 151(b) and inserting $3,900.

(2)

Inflation adjustment

Section 3402(a) is amended by adding at the end the following new paragraph:

(3)

Inflation adjustment

In the case of any calendar year beginning after 2014, the $3,900 amount in paragraph (2) shall be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year.

If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.

.

(3)

Number of exemptions

Section 3402(f)(1) is amended—

(A)

in subparagraph (A), by striking an individual described in section 151(d)(2) and inserting a dependent of any other taxpayer, and

(B)

in subparagraph (C), by striking with respect to whom, on the basis of facts existing at the beginning of such day, there may reasonably be expected to be allowable an exemption under section 151(c) and inserting who, on the basis of facts existing at the beginning of such day, is reasonably expected to be a dependent of the employee.

(f)

Modification of return requirement

(1)

In general

Paragraph (1) of section 6012(a) is amended to read as follows:

(1)

Every individual who has gross income for the taxable year, except that a return shall not be required of—

(A)

an individual who is not married (determined by applying section 7703) and who has gross income for the taxable year which does not exceed the standard deduction applicable to such individual for such taxable year under section 63, or

(B)

an individual entitled to make a joint return if—

(i)

the gross income of such individual, when combined with the gross income of such individual’s spouse, for the taxable year does not exceed the standard deduction which would be applicable to the taxpayer for such taxable year under section 63 if such individual and such individual’s spouse made a joint return,

(ii)

such individual and such individual’s spouse have the same household as their home at the close of the taxable year,

(iii)

such individual’s spouse does not make a separate return, and

(iv)

neither such individual nor such individual’s spouse is an individual described in section 63(c)(4) who has income (other than earned income) in excess of the amount in effect under section 63(c)(4)(A).

.

(2)

Bankruptcy estates

Paragraph (8) of section 6012(a) is amended by striking the sum of the exemption amount plus the basic standard deduction under section 63(c)(2)(D) and inserting the standard deduction in effect under section 63(c)(1)(B) .

(g)

Conforming amendments

(1)

Section 2(a)(1)(B) is amended by striking a dependent and all that follows through section 151 and inserting a dependent who (within the meaning of section 7705, determined without regard to subsections (b)(1), (b)(2) and (d)(1)(B) thereof) is a son, stepson, daughter, or stepdaughter of the taxpayer.

(2)

Section 36B(b)(2)(A) is amended by striking section 152 and inserting section 7705 .

(3)

Section 36B(b)(3)(B) is amended by striking unless a deduction is allowed under section 151 for the taxable year with respect to a dependent in the flush matter at the end and inserting unless the taxpayer has a dependent for the taxable year.

(4)

Section 36B(c)(1)(D) is amended by striking with respect to whom a deduction under section 151 is allowable to another taxpayer and inserting who is a dependent of another taxpayer.

(5)

Section 36B(d)(1) is amended by striking equal to the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year and inserting the sum of 1 (2 in the case of a joint return) plus the number of the taxpayer’s dependents for the taxable year.

(6)

Section 36B(e)(1) is amended by striking 1 or more individuals for whom a taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year (including the taxpayer or his spouse) and inserting 1 or more of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer.

(7)

Section 42(i)(3)(D)(ii)(I) is amended—

(A)

by striking section 152 and inserting section 7705 , and

(B)

by striking the period at the end and inserting a comma.

(8)

Section 63(b) is amended by striking minus— and all that follows and inserting minus the standard deduction..

(9)

Section 63(d) is amended by striking other than— and all that follows and inserting other than the deductions allowable in arriving at adjusted gross income..

(10)

Section 72(t)(2)(D)(i)(III) is amended by striking section 152 and inserting section 7705 .

(11)

Section 72(t)(7)(A)(iii) is amended by striking section 152(f)(1) and inserting section 7705(f)(1) .

(12)

Section 105(b) is amended—

(A)

by striking as defined in section 152 and inserting as defined in section 7705 ,

(B)

by striking section 152(f)(1) and inserting section 7705(f)(1) and

(C)

by striking section 152(e) and inserting section 7705(e) .

(13)

Section 105(c)(1) is amended by striking section 152 and inserting section 7705 .

(14)

Section 125(e)(1)(D) is amended by striking section 152 and inserting section 7705 .

(15)

Section 129(c) is amended—

(A)

by striking with respect to whom, for such taxable year, a deduction is allowable under section 151(c) (relating to personal exemptions for dependents) to in paragraph (1) and inserting who is a dependent of, and

(B)

by striking section 152(f)(1) in paragraph (2) and inserting section 7705(f)(1) .

(16)

Section 132(h)(2)(B) is amended—

(A)

by striking section 152(f)(1) and inserting section 7705(f)(1) , and

(B)

by striking section 152(e) and inserting section 7705(e) .

(17)

Section 139D(c)(5) is amended by striking section 152 and inserting section 7705 .

(18)

Section 162(l)(1)(D) is amended by striking section 152(f)(1) and inserting section 7705(f)(1) .

(19)

Section 170(g)(1) is amended by striking section 152 and inserting section 7705 .

(20)

Section 170(g)(3) is amended by striking section 152(d)(2) and inserting section 7705(d)(2) .

(21)

Section 172(d) is amended by striking paragraph (3).

(22)

Section 220(b)(6) is amended by striking with respect to whom a deduction under section 151 is allowable to and inserting who is a dependent of.

(23)

Section 220(d)(2)(A) is amended by striking section 152 and inserting section 7705 .

(24)

Section 223(b)(6) is amended by striking with respect to whom a deduction under section 151 is allowable to and inserting who is a dependent of.

(25)

Section 223(d)(2)(A) is amended by striking section 152 and inserting section 7705 .

(26)

Section 401(h) is amended by striking section 152(f)(1) in the last sentence and inserting section 7705(f)(1) .

(27)

Section 402(l)(4)(D) is amended by striking section 152 and inserting section 7705 .

(28)

Section 409A(a)(2)(B)(ii)(I) is amended by striking section 152(a) and inserting section 7705(a) .

(29)

Section 501(c)(9) is amended by striking section 152(f)(1) and inserting section 7705(f)(1) .

(30)

Section 529(e)(2)(B) is amended by striking section 152(d)(2) and inserting section 7705(d)(2) .

(31)

Section 703(a)(2) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) through (F) as subparagraphs (A) through (E), respectively.

(32)

Section 874 is amended by striking subsection (b) and by redesignating subsection (c) as subsection (b).

(33)

Section 891 is amended by striking under section 151 and.

(34)

Section 904(b) is amended by striking paragraph (1).

(35)

Section 931(b)(1) is amended by striking (other than the deduction under section 151, relating to personal exemptions).

(36)

Section 933 is amended—

(A)

by striking (other than the deduction under section 151, relating to personal exemptions) in paragraph (1), and

(B)

by striking (other than the deduction for personal exemptions under section 151) in paragraph (2).

(37)

Section 1212(b)(2)(B)(ii) is amended to read as follows:

(ii)

in the case of an estate or trust, the deduction allowed for such year under section 642(b).

.

(38)

Section 1361(c)(1)(C) is amended by striking section 152(f)(1)(C) and inserting section 7705(f)(1)(C) .

(39)

Section 1402(a) is amended by striking paragraph (7).

(40)

Section 2032A(c)(7)(D) is amended by striking section 152(f)(2) and inserting section 7705(f)(2) .

(41)

Section 3402(m)(1) is amended by striking other than the deductions referred to in section 151 and.

(42)

Section 3402(r)(2) is amended by striking the sum of— and all that follows and inserting the standard deduction in effect under section 63(c)(1)(B)..

(43)

Section 5000A(b)(3)(A) is amended by striking section 152 and inserting section 7705 .

(44)

Section 5000A(c)(4)(A) is amended by striking the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year and inserting the sum of 1 (2 in the case of a joint return) plus the number of the taxpayer’s dependents for the taxable year.

(45)

Section 6013(b)(3)(A) is amended—

(A)

by striking had less than the exemption amount of gross income in clause (ii) and inserting had no gross income,

(B)

by striking had gross income of the exemption amount or more in clause (iii) and inserting had any gross income, and

(C)

by striking the flush language following clause (iii).

(46)

Section 6103(l)(21)(A)(iii) is amended to read as follows:

(iii)

the number of the taxpayer’s dependents,

.

(47)

Section 6213(g)(2) is amended by striking subparagraph (H).

(48)

Section 6334(d)(2) is amended to read as follows:

(2)

Exempt amount

(A)

In general

For purposes of paragraph (1), the term exempt amount means an amount equal to—

(i)

the sum of the standard deduction and the personal exemption amount, divided by

(ii)

52.

(B)

Personal exemption amount

For purposes of subparagraph (A), the personal exemption amount is $3,900 multiplied by the number of the taxpayer’s dependents for the taxable year in which the levy occurs.

(C)

Inflation adjustment

In the case of any taxable year beginning after 2014, the $3,900 amount in subparagraph (B) shall be increased by an amount equal to—

(i)

such dollar amount, multiplied by

(ii)

the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins.

If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.
(D)

Verified statement

Unless the taxpayer submits to the Secretary a written and properly verified statement specifying the facts necessary to determine the proper amount under subparagraph (A), subparagraph (A) shall be applied as if the taxpayer were a married individual filing a separate return with no dependents.

.

(49)

Section 7702B(f)(2)(C)(iii) is amended by striking section 152(d)(2) and inserting section 7705(d)(2) .

(50)

Section 7703(a) is amended by striking part V of subchapter B of chapter 1 and.

(51)

Section 7703(b)(1) is amended by striking section 152(f)(1) and all that follows and inserting section 7705(f)(1),.

(52)

Section 7705(a), as redesignated by this section, is amended by striking this subtitle and inserting subtitle A.

(53)
(A)

Section 7705(d)(1)(B), as redesignated by this section, is amended by striking the exemption amount (as defined in section 151(d)) and inserting $3,900.

(B)

Section 7705(d), as redesignated by this section, is amended by adding at the end the following new paragraph:

(6)

Inflation adjustment

In the case of any calendar year beginning after 2014, the $3,900 amount in paragraph (1)(B) shall be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year.

If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.

.

(54)

The table of sections for chapter 79 is amended by adding at the end the following new item:

Sec. 7705. Dependent defined.

.

(h)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

C

Simplification of education incentives

1201.

American opportunity tax credit

(a)

In general

Section 25A is amended to read as follows:

25A.

American opportunity tax credit

(a)

In general

In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—

(1)

100 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished to any eligible student for whom an election is in effect under this section for such taxable year during any academic period beginning in such taxable year) as does not exceed $2,000, plus

(2)

25 percent of so much of such expenses so paid as exceeds the dollar amount in effect under paragraph (1) but does not exceed twice such dollar amount.

(b)

Portion of credit refundable

So much of the credit allowable under subsection (a) (determined without regard to this subsection and section 26(a) and after application of all other provisions of this section) as does not exceed $1,500 shall be treated as a credit allowable under subpart C (and not under this part). The preceding sentence shall not apply to any taxpayer for any taxable year if such taxpayer is a child to whom section 1(d) applies for such taxable year.

(c)

Limitation based on modified adjusted gross income

(1)

In general

The amount allowable as a credit under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so allowable (determined without regard to this subsection and subsection (b) but after application of all other provisions of this section) as—

(A)

the excess of—

(i)

the taxpayer’s modified adjusted gross income for such taxable year, over

(ii)

$43,000 (twice such amount in the case of a joint return), bears to

(B)

$20,000 (twice such amount in the case of a joint return).

(2)

Modified adjusted gross income

For purposes of this subsection, the term modified adjusted gross income means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.

(d)

Other limitations

(1)

Credit allowed only for 4 taxable years

An election to have this section apply may not be made for any taxable year if such an election (by the taxpayer or any other individual) is in effect with respect to such student for any 4 prior taxable years.

(2)

Credit allowed only for first 4 years of postsecondary education

No credit shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses of an eligible student if the student has completed (before the beginning of such taxable year) the first 4 years of postsecondary education at an eligible educational institution.

(e)

Definitions

For purposes of this section—

(1)

Eligible student

The term eligible student means, with respect to any academic period, a student who—

(A)

meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on August 5, 1997, and

(B)

is carrying at least 1/2 the normal full-time work load for the course of study the student is pursuing.

(2)

Qualified tuition and related expenses

(A)

In general

The term qualified tuition and related expenses means tuition, fees, and course materials, required for enrollment or attendance of—

(i)

the taxpayer,

(ii)

the taxpayer’s spouse, or

(iii)

any dependent of the taxpayer,

at an eligible educational institution for courses of instruction of such individual at such institution.
(B)

Exception for education involving sports, etc

Such term does not include expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the individual’s degree program.

(C)

Exception for nonacademic fees

Such term does not include student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual's academic course of instruction.

(3)

Eligible educational institution

The term eligible educational institution means an institution—

(A)

which is described in section 481 of the Higher Education Act of 1965 ( 20 U.S.C. 1088 ), as in effect on August 5, 1997, and

(B)

which is eligible to participate in a program under title IV of such Act.

(f)

Special rules

(1)

Identification requirement

No credit shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual, and the employer identification number of any institution to which such expenses were paid, on the return of tax for the taxable year.

(2)

Adjustment for certain scholarships, etc

(A)

In general

The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsection (c)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as—

(i)

a qualified scholarship which is excludable from gross income under section 117,

(ii)

an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or under chapter 1606 of title 10, United States Code, and

(iii)

a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for such individual's educational expenses, or attributable to such individual's enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States.

(B)

Coordination with Pell Grants not used for qualified tuition and related expenses

For purposes of subparagraph (A), the amount of any Federal Pell Grant under section 401 of the Higher Education Act of 1965 ( 20 U.S.C. 1070a ) shall be reduced (but not below zero) by the amount of expenses (other than qualified tuition and related expenses) which are taken into account in determining the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, as in effect on the date of the enactment of this paragraph) of such individual at an eligible educational institution for the academic period for which the credit under this section is being determined.

(3)

Treatment of expenses paid by dependent

If an individual is a dependent of another taxpayer for a taxable year beginning in the calendar year in which such individuals taxable year begins—

(A)

no credit shall be allowed under subsection (a) to such individual for such individual’s taxable year, and

(B)

qualified tuition and related expenses paid by such individual during such individual’s taxable year shall be treated for purposes of this section as paid by such other taxpayer.

(4)

Treatment of certain prepayments

If qualified tuition and related expenses are paid by the taxpayer during a taxable year for an academic period which begins during the first 3 months following such taxable year, such academic period shall be treated for purposes of this section as beginning during such taxable year.

(5)

Denial of double benefit

No credit shall be allowed under this section for any amount for which a deduction is allowed under any other provision of this chapter.

(6)

No credit for married individuals filing separate returns

If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.

(7)

Nonresident aliens

If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.

(g)

Inflation adjustment

(1)

In general

In the case of a taxable year beginning after 2018, the $2,000 amount in subsection (a)(1), the $1,500 amount in subsection (b), and the $43,000 amount in subsection (c)(1)(A)(ii) shall each be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 for calendar year 2012 in clause (ii) thereof.

(2)

Rounding

If any amount as adjusted under paragraph (1) is not a multiple of $100 ($1,000 in the case of the amount in subsection (c)(1)(A)(ii)), such amount shall be rounded to the next lowest multiple of $100 ($1,000 in the case of the amount in subsection (c)(1)(A)(ii)).

(h)

Regulations

The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out this section, including regulations providing for a recapture of the credit allowed under this section in cases where there is a refund in a subsequent taxable year of any amount which was taken into account in determining the amount of such credit.

.

(b)

Requirement To report tuition paid rather than tuition billed

Section 6050S(b)(2)(B)(i) is amended by striking or the aggregate amount billed.

(c)

Conforming amendments

(1)

Section 72(t)(7)(B) of such Code is amended by striking section 25A(g)(2) and inserting section 25A(f)(2) .

(2)

Section 529(c)(3)(B)(v)(I) of such Code is amended by striking section 25A(g)(2) and inserting section 25A(f)(2) .

(3)

Section 529(e)(3)(B)(i) of such Code is amended by striking section 25A(b)(3) and inserting section 25A(d) .

(4)

Section 530(d)(2)(C) of such Code is amended—

(A)

by striking section 25A(g)(2) in clause (i)(I) and inserting section 25A(f)(2) , and

(B)

by striking Hope and Lifetime Learning credits in the heading and inserting American opportunity tax credit .

(5)

Section 530(d)(4)(B)(iii) of such Code is amended by striking section 25A(g)(2) and inserting section 25A(d)(4)(B) .

(6)

Section 6050S(e) of such Code is amended by striking subsection (g)(2) and inserting subsection (f)(2).

(7)

Section 6211(b)(4)(A) of such Code is amended by striking subsection (i)(6) and inserting subsection (b).

(8)

Section 6213(g)(2)(J) of such Code is amended by striking TIN required under section 25A(g)(1) and inserting TIN, and employer identification number, required under section 25A(f)(1) .

(9)

Section 1004(c) of division B of the American Recovery and Reinvestment Tax Act of 2009 is amended—

(A)

in paragraph (1)—

(i)

by striking section 25A(i)(6) each place it appears and inserting section 25A(b) , and

(ii)

by striking with respect to taxable years beginning after 2008 and before 2018 each place it appears and inserting with respect to each taxable year,

(B)

in paragraph (2), by striking Section 25A(i)(6) and inserting Section 25A(b) , and

(C)

in paragraph (3)(C), by striking subsection (i)(6) and inserting subsection (b).

(10)

The table of sections for subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by striking the item relating to section 25A and inserting the following new item:

Sec. 25A. American opportunity tax credit.

.

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1202.

Expansion of Pell Grant exclusion from gross income

(a)

In general

Paragraph (1) of section 117(b) of the Internal Revenue Code of 1986 is amended—

(1)

by striking the period at the end and inserting , or,

(2)

by striking received by an individual as a scholarship and inserting the following:

received by an individual—

(A)

as a scholarship

, and

(3)

by adding at the end the following new subparagraph:

(B)

as a Federal Pell Grant under section 401 of the Higher Education Act of 1965 ( 20 U.S.C. 1070a ).

.

(b)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1203.

Repeal of exclusion of income from United States savings bonds used to pay higher education tuition and fees

(a)

In general

Part III of subchapter B of chapter 1 is amended by striking section 135 (and by striking the item relating to such section in the table of sections for such part).

(b)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1204.

Repeal of deduction for interest on education loans

(a)

In general

Part VII of subchapter B of chapter 1 is amended by striking section 221 (and by striking the item relating to such section in the table of sections for such part).

(b)

Conforming amendment

Section 62(a) is amended by striking paragraph (17).

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1205.

Repeal of deduction for qualified tuition and related expenses

(a)

In general

Part VII of subchapter B of chapter 1 is amended by striking section 222 (and by striking the item relating to such section in the table of sections for such part).

(b)

Conforming amendment

Section 62(a) is amended by striking paragraph (18).

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2013.

1206.

No new contributions to Coverdell education savings accounts

(a)

In general

Section 530(b)(1)(A) is amended to read as follows:

(A)

Except in the case of rollover contributions, no contribution will be accepted after December 31, 2014.

.

(b)

Rollovers to qualified tuition programs permitted

Section 530(d)(5) is amended by inserting , or into (by purchase or contribution) a qualified tuition program (as defined in section 529), after into another Coverdell education savings account.

(c)

Effective dates

(1)

In general

Except as otherwise provided in this subsection, the amendments made by this section shall apply to contributions made after December 31, 2014.

(2)

Rollovers to qualified tuition programs

The amendments made by subsection (b) shall apply to distributions after December 31, 2014.

1207.

Repeal of exclusion for discharge of student loan indebtedness

(a)

In general

Section 108 is amended by striking subsection (f).

(b)

Conforming amendments

(1)

Section 3121(a)(20) is amended by striking 108(f)(4),.

(2)

Section 209(a)(17) of the Social Security Act is amended by striking 108(f)(4),.

(3)

Section 3231(e)(5) is amended by striking 108(f)(4),.

(4)

Section 3306(b)(16) is amended by striking 108(f)(4),.

(5)

Section 3401(a)(19) is amended by striking 108(f)(4),.

(c)

Effective date

The amendments made by this section shall apply to amounts discharged after December 31, 2014.

1208.

Repeal of exclusion for qualified tuition reductions

(a)

In general

Section 117 is amended by striking subsection (d).

(b)

Conforming amendments

(1)

Section 117(c)(1) is amended—

(A)

by striking subsections (a) and (d) and inserting subsection (a), and

(B)

by striking or qualified tuition reduction.

(2)

Section 414(n)(3)(C) is amended by striking 117(d),.

(3)

Section 414(t)(2) is amended by striking 117(d),.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1209.

Repeal of exclusion for education assistance programs

(a)

In general

Part III of subchapter B of chapter 1 is amended by striking section 127 (and by striking the item relating to such section in the table of sections for such part).

(b)

Conforming amendments

(1)

Section 125(f)(1) is amended by striking 127,.

(2)

Section 132(j)(8) is amended by striking which are not excludable from gross income under section 127.

(3)

Section 137(c) is amended to read as follows:

(c)

Adoption assistance program

(1)

In general

For purposes of this section, an adoption assistance program is a separate written plan of an employer for the exclusive benefit of such employer’s employees under which the employer provides such employees with adoption assistance. Except as provided in paragraph (6), such program must meet the requirements of paragraphs (2), (3), and (4).

(2)

Eligibility

The program shall benefit employees who qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of employees who are highly compensated employees (within the meaning of section 414(q)) or their dependents. For purposes of this paragraph, there shall be excluded from consideration employees not included in the program who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that adoption assistance benefits were the subject of good faith bargaining between such employee representatives and such employer or employers.

(3)

Principal shareholders or owners

Not more than 5 percent of the amounts paid or incurred by the employer for adoption assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.

(4)

Notification of employees

Reasonable notification of the availability and terms of the program must be provided to eligible employees.

(5)

No funding required

A program referred to in paragraph (1) is not required to be funded.

(6)

Certain Federal programs

An adoption reimbursement program operated under section 1052 of title 10, United States Code (relating to armed forces) or section 514 of title 14, United States Code (relating to members of the Coast Guard) shall be treated as an adoption assistance program for purposes of this section.

.

(4)

Section 414(n)(3)(C) is amended by striking 127,.

(5)

Section 414(t)(2) is amended by striking 127,.

(6)

Section 3121(a)(18) is amended by striking 127,.

(7)

Section 209(a)(15) of the Social Security Act is amended by striking 127 or.

(8)

Section 3231(e) is amended by striking paragraph (6).

(9)

Section 3306(b)(13) is amended by striking 127,.

(10)

Section 3401(a)(18) is amended by striking 127,.

(11)

Section 6039D(d)(1) is amended by striking 127,.

(c)

Effective date

The amendments made by this section shall apply to amounts paid or incurred after December 31, 2014.

1210.

Repeal of exception to 10-percent penalty for higher education expenses

(a)

In general

Section 72(t)(2) is amended by striking subparagraph (E).

(b)

Conforming amendment

Section 72(t) is amended by striking paragraph (7).

(c)

Effective date

The amendments made by this section shall apply to distributions after December 31, 2014.

D

Repeal of certain credits for individuals

1301.

Repeal of dependent care credit

(a)

In general

Subpart A of part IV of subchapter A of chapter 1 is amended by striking section 21 (and by striking the item relating to such section in the table of sections for such subpart).

(b)

Conforming amendments

(1)
(A)

Section 129(a)(2) is amended by striking subparagraph (C).

(B)

Section 129(e) is amended by adding at the end the following new paragraph:

(10)

Marital status

Rules similar to the rules of subsections (a) and (b) of section 7703 shall apply for purposes of this section.

.

(2)

Section 129(e)(1) is amended to read as follows:

(1)

Dependent care assistance

(A)

In general

The term dependent care assistance means employment-related expenses and the provision of services which constitute employment-related expenses.

(B)

Employment-related expenses

The term employment-related expenses means amounts paid for the following expenses, but only if such expenses are incurred to enable the employee to be gainfully employed for any period for which there are 1 or more qualifying individuals with respect to the employee:

(i)

expenses for household services, and

(ii)

expenses for the care of a qualifying individual.

Such term shall not include any amount paid for services outside the employee’s household at a camp where the qualifying individual stays overnight.
(C)

Exception

Employment-related expenses described in subparagraph (A) which are incurred for services outside the employee’s household shall be taken into account only if incurred for the care of—

(i)

a qualifying individual described in subparagraph (D)(i), or

(ii)

a qualifying individual (not described in subparagraph (D)(i)) who regularly spends at least 8 hours each day in the employee’s household.

(D)

Qualifying individual

The term qualifying individual means—

(i)

a dependent of the taxpayer (as defined in section 7705(a)(1)) who has not attained age 13,

(ii)

a dependent of the taxpayer (as defined in section 7705, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B)) who is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year, or

(iii)

the spouse of the taxpayer, if the spouse is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year.

(E)

Dependent care centers

Employment-related expenses described in subparagraph (A) which are incurred for services provided outside the employee’s household by a dependent care center shall be taken into account only if—

(i)

such center complies with all applicable laws and regulations of a State or unit of local government, and

(ii)

the requirements of subparagraph (B) are met.

(F)

Dependent care center defined

For purposes of this paragraph, the term dependent care center means any facility which—

(i)

provides care for more than six individuals (other than individuals who reside at the facility), and

(ii)

receives a fee, payment, or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit).

(G)

Place of abode

For purposes of this paragraph, an individual shall not be treated as having the same principal place of abode as the taxpayer if at any time during the taxable year of the taxpayer the relationship between the individual and the taxpayer is in violation of local law.

(H)

Special dependency test in case of divorced parents, etc.

If—

(i)

section 7705(e) applies to any child with respect to any calendar year, and

(ii)

such child is under the age of 13 or is physically or mentally incapable of caring for himself, in the case of any taxable year beginning in such calendar year,

such child shall be treated as a qualifying individual described in clause (i) or (ii) of subparagraph (D) (whichever is appropriate) with respect to the custodial parent (as defined in section 7705(e)(4)(A)), and shall not be treated as a qualifying individual with respect to the noncustodial parent.

.

(3)

Section 6213(g)(2)(L) is amended by striking 21,.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1302.

Repeal of credit for adoption expenses

(a)

In general

Subpart A of part IV of subchapter A of chapter 1 is amended by striking section 23 (and by striking the item relating to such section in the table of sections for such subpart).

(b)

Conforming amendments

(1)

Section 137 is amended by striking subsections (d) and (e).

(2)

Subsections (d) and (e) of section 23 (prior to being stricken by subsection (a)) are each moved to section 137 (after amendment by paragraph (1)) and inserted after subsection (c) as new subsections (d) and (e), respectively.

(3)

Section 137(d)(1)(D), as amended by paragraphs (1) and (2), is amended by inserting (determined without regard to reimbursements under this section) before the period at the end.

(4)

Section 137(e), as amended by paragraphs (1) and (2), is amended by striking (as defined in section 217(h)(3)) and inserting (or any possession of the United States).

(5)

Section 137 is amended by redesignating subsection (f) as subsection (h), and by inserting before subsection (h) (as so redesignated) the following new subsections:

(f)

Filing requirements

(1)

Married couples must file joint return

(A)

In general

If the taxpayer is married at the close of the taxable year, subsection (a) shall apply to the taxpayer only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.

(B)

Marital status

Rules similar to the rules of subsections (a) and (b) of section 7703 shall apply for purposes of this section.

(2)

Taxpayer must include TIN

(A)

In general

Subsection (a) shall apply with respect to any child only if the taxpayer includes (if known) the name, age, and TIN of such child on the return of tax for the taxable year.

(B)

Other methods

The Secretary may, in lieu of the information referred to in subparagraph (A), require other information meeting the purposes of subparagraph (A), including identification of an agent assisting with the adoption.

(g)

Basis adjustments

For purposes of this subtitle, if the amount of any expenditure with respect to any property is excluded from gross income under this section, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of such expenditure which is so excluded.

.

(6)

Section 1016(a)(26) is amended by striking sections 23(g) and 137(e) and inserting section 137(g) .

(c)

Effective date

(1)

In general

The amendments made by this section shall apply to amounts paid or incurred after December 31, 2014.

(2)

Special needs adoptions

For purposes of paragraph (1), any amount treated as paid by the taxpayer under section 23(a)(3) of the Internal Revenue Code of 1986 (as in effect before its repeal by subsection (a)) shall be treated as paid on the date that the adoption referred to in such section becomes final.

1303.

Repeal of credit for nonbusiness energy property

(a)

In general

Subpart A of part IV of subchapter A of chapter 1 is amended by striking section 25C (and by striking the item relating to such section in the table of sections of such subpart).

(b)

Conforming amendment

Section 1016(a) is amended by striking paragraph (33).

(c)

Effective date

The amendments made by this section shall apply to property placed in service after December 31, 2013.

1304.

Repeal of credit for residential energy efficient property

(a)

In general

Subpart A of part IV of subchapter A of chapter 1 is amended by striking section 25D (and by striking the item relating to such section in the table of sections for such subpart).

(b)

Conforming amendment

Section 1016(a) is amended by striking paragraph (34).

(c)

Effective date

The amendment made by this section shall apply to property placed in service after December 31, 2014.

1305.

Repeal of credit for qualified electric vehicles

(a)

In general

Subpart B of part IV of subchapter A of chapter 1 is amended by striking section 30 (and by striking the item relating to such section in the table of sections of such subpart).

(b)

Conforming amendments

(1)

Section 1016(a) is amended by striking paragraph (25).

(2)

Section 6501(m) is amended by striking section 30(e)(6),.

(c)

Effective date

The amendments made by this section shall apply to vehicles acquired after December 31, 2011.

1306.

Repeal of alternative motor vehicle credit

(a)

In general

Subpart B of part IV of subchapter A of chapter 1 is amended by striking section 30B (and by striking the item relating to such section in the table of sections for such subpart).

(b)

Conforming amendments

(1)

Section 38(b) is amended by striking paragraph (25).

(2)

Section 1016(a) is amended by striking paragraph (35).

(3)

Section 6501(m) is amended by striking 30B(h)(9),.

(c)

Effective date

The amendment made by this section shall apply to property purchased after December 31, 2014.

1307.

Repeal of alternative fuel vehicle refueling property credit

(a)

In general

Subpart B of part IV of subchapter A of chapter 1 is amended by striking section 30C (and by striking the item relating to such section in the table of sections for such subpart).

(b)

Conforming amendments

(1)

Section 38(b) is amended by striking paragraph (26).

(2)

Section 1016(a) is amended by striking paragraph (36).

(3)

Section 6501(m) is amended by striking 30C(e)(5),.

(c)

Effective date

The amendment made by this section shall apply to property placed in service after December 31, 2014.

1308.

Repeal of credit for new qualified plug-in electric drive motor vehicles

(a)

In general

Subpart B of part IV of subchapter A of chapter 1 is amended by striking section 30D (and by striking the item relating to such section in the table of sections for such subpart).

(b)

Conforming amendments

(1)

Section 38(b) is amended by striking paragraph (35).

(2)

Section 1016(a) is amended by striking paragraph (37).

(3)

Section 6501(m) is amended by striking 30D(e)(4),.

(c)

Effective date

The amendments made by this section shall apply to vehicles acquired after December 31, 2014.

1309.

Repeal of credit for health insurance costs of eligible individuals

(a)

In general

Subpart C of part IV of subchapter A of chapter 1 is amended by striking section 35 (and by striking the item relating to such section in the table of sections of such subpart).

(b)

Conforming amendments

(1)

Chapter 77 is amended by striking section 7527 (and by striking the item relating to such section in the table of sections of such chapter).

(2)

Section 4980B(f)(5)(C)(iv)(II) is amended by inserting as in effect before its repeal after section 35(c) .

(3)

Section 6211(b)(4)(A) is amended by striking 35,.

(c)

Effective date

The amendments made by this section shall apply to months beginning after December 31, 2013.

1310.

Repeal of first-time homebuyer credit

(a)

In general

Subpart C of part IV of subchapter A of chapter 1 is amended by striking section 36 (and by striking the item relating to such section in the table of sections of such subpart).

(b)

Conforming amendments

(1)

Section 26(b)(2) is amended by striking subparagraph (W).

(2)

Section 1400C(e) is amended by striking paragraph (4).

(3)

Section 6211(b)(4)(A) is amended by striking 36,.

(4)

Section 6213(g)(2) is amended by striking subparagraphs (O) and (P).

(c)

Effective date

The amendments made by this section shall apply to residences purchased after June 30, 2011.

E

Deductions, exclusions, and certain other provisions

1401.

Exclusion of gain from sale of a principal residence

(a)

Requirement that residence be principal residence for 5 years during 8-Year period

Subsection (a) of section 121 is amended—

(1)

by striking 5-year period and inserting 8-year period, and

(2)

by striking 2 years and inserting 5 years.

(b)

Application to only 1 sale or exchange every 5 years

Paragraph (3) of section 121(b) is amended to read as follows:

(3)

Application to only 1 sale or exchange every 5 years

Subsection (a) shall not apply to any sale or exchange by the taxpayer if, during the 5-year period ending on the date of such sale or exchange, there was any other sale or exchange by the taxpayer to which subsection (a) applied.

.

(c)

Phaseout based on modified adjusted gross income

Section 121 is amended by adding at the end the following new subsection:

(h)

Phaseout based on modified adjusted gross income

(1)

In general

If the modified adjusted gross income of the taxpayer for the taxable year exceeds $250,000 (twice such amount in the case of a joint return), the amount which would (but for this subsection) be excluded from gross income under subsection (a) for such taxable year shall be reduced (but not below zero) by the amount of such excess.

(2)

Modified adjusted gross income

For purposes of this subsection, the term modified adjusted gross income has the meaning given such term by section 2 determined after the application of this section but without regard to this subsection.

.

(d)

Conforming amendments

(1)

The last paragraph of section 121(b) (relating to exclusion of gain allocated to nonqualified use) is redesignated as paragraph (5).

(2)

The following provisions of section 121 are each amended by striking 5-year period each place it appears therein and inserting 8-year period:

(A)

Subsection (b)(5)(C)(ii)(I) (as redesignated by paragraph (1)).

(B)

Subsection (c)(1)(B)(i)(I).

(C)

Subsection (d)(7)(B).

(D)

Subparagraphs (A) and (B) of subsection (d)(9).

(E)

Subsection (d)(10)

(F)

Subsection (d)(12)(A).

(3)

Section 121(c)(1)(B)(ii) is amended by striking 2 years and inserting 5 years:

(e)

Effective date

The amendments made by this section shall apply to sales and exchanges after December 31, 2014.

1402.

Mortgage interest

(a)

Modification of limitations

(1)

In general

Paragraph (3) of section 163(h) is amended to read as follows:

(3)

Qualified residence interest

For purposes of this subsection—

(A)

In general

The term qualified residence interest means any interest which is paid or accrued during the taxable year on indebtedness which—

(i)

is incurred in acquiring, constructing, or substantially improving any qualified residence (determined as of the time the interest is accrued) of the taxpayer, and

(ii)

is secured by such residence.

Such term also includes interest on any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.
(B)

Limitation

(i)

In general

The aggregate amount of indebtedness taken into account under subparagraph (A) for any period shall not exceed $500,000 (half of such amount in the case of a married individual filing a separate return).

(ii)

Phase-in of decreased limitation

For purposes of applying clause (i) with respect to any indebtedness incurred during a calendar year after 2014 and before 2018, the $500,000 amount in clause (i) shall be increased by the phase-in amount determined in accordance with the following table:

In the case of indebtedness incurred during: The phase-in amount is:
2015 $375,000
2016 $250,000
2017 $125,000
(iii)

Treatment of refinancings of indebtedness incurred during phase-in period

In the case of any indebtedness which is incurred to refinance indebtedness to which clause (ii) applies (or to which this clause applies), such refinanced indebtedness shall be treated for purposes of clause (ii) as incurred on the date that the original indebtedness was incurred to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.

(C)

Treatment of indebtedness incurred before January 1, 2015

(i)

In general

In the case of any pre-January 1, 2015, indebtedness, this paragraph shall apply as in effect immediately before the enactment of the Tax Reform Act of 2014.

(ii)

Reduction in dollar limitation

The limitation of subparagraph (B) (after application of clause (ii) thereof) shall be reduced (but not below zero) by the aggregate amount of outstanding pre-January 1, 2015, indebtedness of the taxpayer with respect to which interest is allowable as a deduction by reason of this subparagraph.

(iii)

Pre-January 1, 2015, indebtedness

For purposes of this subparagraph, the term pre-January 1, 2015, indebtedness means—

(I)

any indebtedness incurred before January 1, 2015, and

(II)

any indebtedness incurred on or after such date to refinance indebtedness described in subclause (I) (or refinanced indebtedness meeting the requirements of this subclause) to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.

(D)

Limitation on period of refinancing

Subparagraphs (B)(iii) and (C)(iii)(II) shall not apply to any indebtedness after—

(i)

the expiration of the term of the original indebtedness, or

(ii)

if the principal of such original indebtedness is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing).

(E)

Coordination with certain exclusions

The amount otherwise treated as qualified residence interest (determined without regard to this subparagraph) with respect to any residence of the taxpayer for any taxable year shall be reduced by the sum of the amounts excludable from the gross income of such taxpayer under sections 107 and 119 with respect to such residence.

.

(2)

Conforming amendments

(A)

Section 108(h)(2) is amended to read as follows:

(2)

Qualified principal residence indebtedness

For purposes of this section, the term qualified principal residence indebtedness means indebtedness described in section 163(h)(3) applied without regard to clauses (ii) and (iii) of subparagraph (B) thereof and by substituting $2,000,000 for $500,000 in subparagraph (B)(i) thereof.

.

(B)

Section 163(h) is amended—

(i)

by striking subparagraph (E) in paragraph (3),

(ii)

by striking subparagraphs (E) and (F) in paragraph (4), and

(iii)

by striking paragraph (5).

(C)

Section 265(a)(6) is amended—

(i)

by striking an amount as— and all that follows and inserting an amount as a military housing allowance., and

(ii)

by striking parsonage and in the heading thereof.

(b)

Modification of reporting requirements

(1)

Information return requirements

Paragraph (2) of section 6050H(b) is amended by striking and at the end of subparagraph (C), by redesignating subparagraph (D) as subparagraph (F) and by inserting after subparagraph (C) the following new subparagraphs:

(D)

the amount of outstanding principal on the mortgage as of the beginning of such calendar year,

(E)

the date of the origination of the mortgage, and

.

(2)

Statements to individuals

Paragraph (2) of section 6050H(d) is amended by striking subsection (b)(2)(C) and inserting subparagraphs (C), (D), and (E) of subsection (b)(2).

(c)

Effective dates

(1)

Modification of limitations

(A)

In general

The amendments made by subsection (a) shall apply to interest paid or accrued in taxable years beginning after December 31, 2014, with respect to indebtedness incurred before, on, or after such date.

(B)

Treatment of grandfathered indebtedness

For application of the amendments made by subsection (a) to grandfathered indebtedness, see section 163(h)(3)(C) of the Internal Revenue Code of 1986 as amended by this section.

(2)

Modification of reporting requirements

The amendments made by subsection (b) shall apply to returns and statements for calendar years after December 31, 2014.

1403.

Charitable contributions

(a)

2 percent floor on charitable deduction for individuals

Paragraph (3) of section 170(b) is amended to read as follows:

(3)

2 percent floor on charitable deduction for individuals

The amount of charitable contributions taken into account under this section as made by any individual during a taxable year (determined without regard to subsection (d)) shall be reduced by 2 percent of the taxpayer’s contribution base for such taxable year. Such reduction shall apply—

(A)

first, to charitable contributions to which paragraph (1)(B) applies to the extent thereof,

(B)

second, to charitable contributions to which paragraph (1)(C) applies to the extent thereof, and

(C)

third, to charitable contributions to which paragraph (1)(A) applies to the extent thereof.

.

(b)

Extension of time for making charitable contributions

Subsection (a) of section 170 is amended by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by inserting after paragraph (1) the following new paragraph:

(2)

Treatment of charitable contributions made by individuals before due date of return

If any charitable contribution is made by an individual after the close of a taxable year but not later than the due date (determined without regard to extensions) for the return of tax for such taxable year, then the taxpayer may elect to treat such charitable contribution as made in such taxable year. Such election may be made only at the time of the filing of such return of tax and shall be signified in such manner as the Secretary may provide.

.

(c)

Deduction for contributions of property generally limited to adjusted basis

(1)

In general

Subsection (e) of section 170 is amended—

(A)

by striking paragraphs (1) and (6),

(B)

by redesignating paragraphs (2), (3), (4), and (5) as paragraphs (3), (4), (5), and (6), respectively, and

(C)

by inserting before paragraph (3) (as so redesignated) the following new paragraphs:

(1)

In general

Except in the case of property to which paragraph (2) applies, the amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the amount of gain which would have been realized if the property contributed had been sold by the taxpayer for its fair market value (determined at the time of such contribution).

(2)

Special rule for certain property

(A)

In general

In the case of property to which this paragraph applies, the amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the amount of gain which would not have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution).

(B)

Property to which this paragraph applies

This paragraph shall apply to—

(i)

any contribution of tangible personal property if the use of such property by the donee is related to the purpose or function constituting the basis for its exemption under section 501 (or, in the case of a governmental unit, to any purpose or function described in subsection (c)),

(ii)

any qualified conservation contribution (as defined in subsection (h)(1)),

(iii)

any qualified contribution (as defined in paragraph (4)(A)),

(iv)

any qualified research contribution (as defined in paragraph (5)(B)), and

(v)

any qualified appreciated stock (as defined in subsection (e)(6)).

(C)

Special rules for determining long-term capital gain

(i)

In general

For purposes of applying this paragraph (other than in the case of gain to which section 1245(a), 1250(a), 1252(a), or 1254(a) applies), property which is property used in the trade or business (as defined in section 1231(b)) shall be treated as a capital asset.

(ii)

Contributions of stock in S corporations

For purposes of applying this paragraph in the case of a charitable contribution of stock in an S corporation, rules similar to the rules of section 751 shall apply in determining whether gain on such stock would have been long-term capital gain if such stock were sold by the taxpayer.

.

(2)

Repeal of special rules for food and book inventory

Paragraph (4) of section 170(e), as redesignated by paragraph (1), is amended by striking subparagraphs (C) and (D) and by redesignating subparagraph (E) as subparagraph (C).

(3)

Conforming amendments

(A)

Section 170(e)(3), as redesignated by paragraph (1), is amended by striking paragraph (1) and inserting paragraphs (1) and (2).

(B)

Paragraphs (4) and (5) of section 170(e), as redesignated by paragraph (1), are each amended by striking paragraph (1)(A) each place it appears and inserting paragraph (2)(A).

(C)

Section 170(e)(6), as redesignated by paragraph (1), is amended—

(i)

by striking all that precedes for purposes of this paragraph in subparagraph (B) and inserting the following:

(6)

Qualified appreciated stock

(A)

In general

Except as provided in subparagraph (B),

,

(ii)

by redesignating subparagraph (C) as subparagraph (B), and

(iii)

by striking in a contribution to which paragraph (1)(B)(ii) applies (determined without regard to this paragraph) in subparagraph (B) as so redesignated.

(d)

Modification of income based contribution limitations

(1)

In general

Section 170(b)(1) is amended—

(A)

by striking 30 percent in subparagraph (B)(i) and inserting 25 percent, and

(B)

by striking 50 percent and inserting 40 percent in—

(i)

the flush matter at the end of subparagraph (A),

(ii)

subparagraph (B)(ii), and

(iii)

clauses (i), (iv)(I), and (v) of subparagraph (C) (as redesignated by paragraph (2)).

(2)

Repeal of special limitations for certain capital gain property

(A)

In general

Paragraph (1) of section 170(b) is amended by striking subparagraphs (C) and (D) and by redesignating subparagraphs (E), (F), and (G) as subparagraphs (C), (D), and (E), respectively.

(B)

Conforming amendments

(i)

Section 170(b)(1)(A)(vii) is amended by striking subparagraph (F) and inserting subparagraph (D)

(ii)

Section 170(b)(1)(B)(ii) is amended by striking (determined without regard to subparagraph (C)).

(iii)

Section 170(b)(1)(C)(iii), as redesignated by paragraph (1), is amended by striking subparagraph (A), (B), (C) or (D) and inserting subparagraph (A) or (B).

(iv)

Section 170(b)(2)(B)(i)(I) is amended by striking paragraph (1)(E)(v) and inserting paragraph (1)(C)(v).

(v)

Section 545(b)(2) is amended by striking (D), and (E) and inserting and (C).

(e)

Qualified conservation contributions

(1)

Rules made permanent

(A)

In general

Subparagraph (C) of section 170(b)(1), as redesignated by subsection (d), is amended by striking clause (vi).

(B)

Corporate farmers and ranchers

Subparagraph (B) of section 170(b)(2) is amended by striking clause (iii).

(2)

Treatment of golf course easements

Subsection (h) of section 170 is amended by adding at the end the following new paragraph:

(7)

Special rule with respect to golf courses

An interest in real property shall not be treated as a qualified real property interest for purposes of this subsection if (at the time of the contribution of such interest) such property is, or is reasonably expected to be, used as a golf course.

.

(3)

Conforming amendments

(A)

Section 170(b)(1)(C)(iv)(II), as redesignated by subsection (d), is amended by striking made after the date of the enactment of this subparagraph.

(B)

Section 170(b)(2)(B)(i)(II) is amended by striking , in the case of contributions made after the date of the enactment of this subparagraph,.

(f)

Repeal of special rule for college athletic event seating rights

Section 170 is amended by striking subsection (l).

(g)

Repeal of special rule treating donee income from intellectual property as an additional charitable contribution

(1)

In general

Section 170 is amended by striking subsection (m).

(2)

Conforming amendments

Section 6050L is amended—

(A)

by striking subsection (b) and redesignating subsection (c) as subsection (b), and

(B)

by striking or (b) in subsection (b) (as redesignated by subparagraph (A)).

(h)

Effective date

(1)

In general

Except as otherwise provided in this subsection, the amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2014.

(2)

Qualified conservation contributions

The amendments made by subsection (e) shall apply to contributions made in taxable years beginning after December 31, 2013.

1404.

Denial of deduction for expenses attributable to the trade or business of being an employee

(a)

In general

Part IX of subchapter B of chapter 1 is amended by inserting after the item relating to section 262 the following new item:

262A.

Expenses attributable to being an employee

(a)

In general

Except as otherwise provided in this section, no deduction shall be allowed with respect to any trade or business of the taxpayer which consists of the performance of services by the taxpayer as an employee.

(b)

Exception for above-the-Line deductions

Subsection (a) shall not apply to any deduction allowable (determined without regard to subsection (a)) in determining adjusted gross income.

.

(b)

Repeal of certain above-the-Line trade and business deductions of employees

(1)

In general

Paragraph (2) of section 62(a) is amended—

(A)

by striking subparagraphs (B), (C), and (D), and

(B)

by redesignating subparagraph (E) as subparagraph (B).

(2)

Conforming amendments

(A)

Section 62 is amended by striking subsections (b) and (d) and by redesignating subsections (c) and (e) as subsections (b) and (c), respectively.

(B)

Section 62(a)(20) is amended by striking subsection (e) and inserting subsection (c).

(c)

Continued exclusion of working condition fringe benefits

Section 132(d) is amended by inserting (determined without regard to section 262A) after section 162 .

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1405.

Repeal of deduction for taxes not paid or accrued in a trade or business

(a)

In general

Subsection (b) of section 164 is amended by striking paragraphs (5) and (6) and inserting the following new paragraph:

(5)

Limitation in case of individuals

In the case of a taxpayer other than a corporation—

(A)

paragraphs (1) and (2) of subsection (a) shall only apply to taxes which are paid or accrued in carrying on a trade or business or an activity described in section 212, and

(B)

paragraph (3) of subsection (a) shall not apply to State and local taxes.

.

(b)

Conforming amendments

(1)

Section 164(a) is amended by striking paragraph (6).

(2)
(A)

Section 216(a) is amended by striking proportionate share of— and all that follows and inserting

proportionate share of the interest allowable as a deduction to the corporation under section 163 which is paid or incurred by the corporation on its indebtedness contracted—

(1)

in the acquisition, construction, alteration, rehabilitation, or maintenance of the houses or apartment building, or

(2)

in the acquisition of the land on which the houses (or apartment building) are situated.

.

(B)

Section 216(b)(3)(B)(i) is amended—

(i)

by striking a share of such corporation’s real estate taxes described in subsection (a)(1) or in subclause (I), and

(ii)

by striking of such taxes, or of such interest, in subclause (II) and inserting of such interest.

(C)

Section 216(d) is amended by striking subsections (a)(1) and (a)(2) and inserting subsection (a).

(3)

Section 274(f) is amended by striking taxes, in the heading thereof.

(4)

Section 280A(b) is amended by striking taxes, in the heading thereof.

(5)

Section 911(c)(3)(A)(ii) is amended—

(A)

by striking and taxes, and

(B)

by striking or 164.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1406.

Repeal of deduction for personal casualty losses

(a)

In general

Subsection (c) of section 165 is amended by inserting and at the end of paragraph (1), by striking ; and at the end of paragraph (2) and inserting a period, and by striking paragraph (3).

(b)

Conforming amendments

(1)

Section 165 is amended by striking subsections (h) and (k).

(2)

Subsection (i) of section 165 is amended—

(A)

in paragraph (1)—

(i)

by striking (as defined by clause (ii) of subsection (h)(3)(C)), and

(ii)

by striking (as defined by clause (i) of such subsection),

(B)

by striking (as defined by subsection (h)(3)(C)(i) in paragraph (4), and

(C)

by adding at the end the following new paragraph:

(5)

Federally declared disaster

For purposes of this subsection—

(A)

Federally declared disaster

The term federally declared disaster means any disaster subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.

(B)

Disaster area

The term disaster area means the area so determined to warrant such assistance.

.

(3)
(A)

Section 165(l)(1) is amended by striking a loss described in subsection (c)(3) and inserting an ordinary loss described in subsection (c)(2).

(B)

Section 165(l) is amended—

(i)

by striking paragraph (5),

(ii)

by redesignating paragraphs (2), (3), and (4) as paragraphs (3), (4), and (5), respectively, and

(iii)

by inserting after paragraph (1) the following new paragraph:

(2)

Limitations

(A)

Deposit may not be federally insured

No election may be made under paragraph (1) with respect to any loss on a deposit in a qualified financial institution if part or all of such deposit is insured under Federal law.

(B)

Dollar limitation

With respect to each financial institution, the aggregate amount of losses attributable to deposits in such financial institution to which an election under paragraph (1) may be made by the taxpayer for any taxable year shall not exceed $20,000 ($10,000 in the case of a separate return by a married individual). The limitation of the preceding sentence shall be reduced by the amount of any insurance proceeds under any State law which can reasonably be expected to be received with respect to losses on deposits in such institution.

.

(4)

Section 172(b)(1)(F)(ii), prior to redesignation under title III, is amended—

(A)

by striking subclause (I) and by redesignating subclauses (II) and (III) as subclauses (I) and (II), respectively, and

(B)

by striking subsection (h)(3)(C)(i) and inserting section 165(i)(5).

(5)

Section 172(d)(4)(C) is amended by striking paragraph (2) or (3) of section 165(c) and inserting section 165(c)(2).

(6)

Section 274(f) is amended by striking casualty losses, in the heading thereof.

(7)

Section 280A(b) is amended by striking casualty losses, in the heading thereof.

(8)

Section 873(b), as amended by the preceding provisions of this Act, is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1407.

Limitation on wagering losses

(a)

In general

Section 165(d) is amended by adding at the end the following: For purposes of the preceding sentence, the term losses from wagering transactions includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction..

(b)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1408.

Repeal of deduction for tax preparation expenses

(a)

In general

Section 212 is amended by adding or at the end of paragraph (1), by striking ; or at the end of paragraph (2) and inserting a period, and by striking paragraph (3).

(b)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1409.

Repeal of deduction for medical expenses

(a)

In general

Part VII of subchapter B of chapter 1 is amended by striking section 213 (and by striking the item relating to such section in the table of sections for such part).

(b)

Conforming amendments

(1)
(A)

Section 223 is amended by redesignating subsections (e), (f), (g), and (h) as subsections (f), (g), (h), and (i), respectively, and by inserting after subsection (d) the following new subsection:

(e)

Medical care

For purposes of this section—

(1)

In general

The term medical care means amounts paid—

(A)

for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,

(B)

for transportation primarily for and essential to medical care referred to in subparagraph (A),

(C)

for qualified long-term care services (as defined in section 7702B(c)), or

(D)

for insurance (including amounts paid as premiums under part B of title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract (as defined in section 7702B(b)).

In the case of a qualified long-term care insurance contract (as defined in section 7702B(b)), only eligible long-term care premiums (as defined in paragraph (7)) shall be taken into account under subparagraph (D).
(2)

Amounts paid for certain lodging away from home treated as paid for medical care

Amounts paid for lodging (not lavish or extravagant under the circumstances) while away from home primarily for and essential to medical care referred to in paragraph (1)(A) shall be treated as amounts paid for medical care if—

(A)

the medical care referred to in paragraph (1)(A) is provided by a physician in a licensed hospital (or in a medical care facility which is related to, or the equivalent of, a licensed hospital), and

(B)

there is no significant element of personal pleasure, recreation, or vacation in the travel away from home.

The amount taken into account under the preceding sentence shall not exceed $50 for each night for each individual.
(3)

Physician

The term physician has the meaning given to such term by section 1861(r) of the Social Security Act (42 U.S.C. 1395x(r)).

(4)

Contracts covering other than medical care

In the case of an insurance contract under which amounts are payable for other than medical care referred to in subparagraphs (A), (B) and (C) of paragraph (1)—

(A)

no amount shall be treated as paid for insurance to which paragraph (1)(D) applies unless the charge for such insurance is either separately stated in the contract, or furnished to the policyholder by the insurance company in a separate statement,

(B)

the amount taken into account as the amount paid for such insurance shall not exceed such charge, and

(C)

no amount shall be treated as paid for such insurance if the amount specified in the contract (or furnished to the policyholder by the insurance company in a separate statement) as the charge for such insurance is unreasonably large in relation to the total charges under the contract.

(5)

Certain pre-paid contracts

Subject to the limitations of paragraph (4), premiums paid during the taxable year by a taxpayer before he attains the age of 65 for insurance covering medical care (within the meaning of subparagraphs (A), (B), and (C) of paragraph (1)) for the taxpayer, his spouse, or a dependent after the taxpayer attains the age of 65 shall be treated as expenses paid during the taxable year for insurance which constitutes medical care if premiums for such insurance are payable (on a level payment basis) under the contract for a period of 10 years or more or until the year in which the taxpayer attains the age of 65 (but in no case for a period of less than 5 years).

(6)

Cosmetic surgery

(A)

In general

The term medical care does not include cosmetic surgery or other similar procedures, unless the surgery or procedure is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease.

(B)

Cosmetic surgery defined

For purposes of this paragraph, the term cosmetic surgery means any procedure which is directed at improving the patient's appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease.

(7)

Eligible long-term care premiums

(A)

In general

For purposes of this section, the term eligible long-term care premiums means the amount paid during a taxable year for any qualified long-term care insurance contract (as defined in section 7702B(b)) covering an individual, to the extent such amount does not exceed the limitation determined under the following table:

In the case of an individual with an attained age before the close of the taxable year of: The limitation is:
40 or less $200
More than 40 but not more than 50 $375
More than 50 but not more than 60 $750
More than 60 but not more than 70 $2,000
More than 70 $2,500
(B)

Indexing

(i)

In general

In the case of any taxable year beginning after 1997, each dollar amount in subparagraph (A) shall be increased by the medical care cost adjustment of such amount for such calendar year. Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $10.

(ii)

Medical care cost adjustment

For purposes of clause (i), the medical care cost adjustment for any calendar year is the adjustment prescribed by the Secretary, in consultation with the Secretary of Health and Human Services, for purposes of such clause. To the extent that CPI (as defined section 1(c)), or any component thereof, is taken into account in determining such adjustment, such adjustment shall be determined by taking into account C-CPI-U (as so defined), or the corresponding component thereof, in lieu of such CPI (or component thereof), but only with respect to the portion of such adjustment which relates to periods after December 31, 2014.

(8)

Certain payments to relatives treated as not paid for medical care

An amount paid for a qualified long-term care service (as defined in section 7702B(c)) provided to an individual shall be treated as not paid for medical care if such service is provided—

(A)

by the spouse of the individual or by a relative (directly or through a partnership, corporation, or other entity) unless the service is provided by a licensed professional with respect to such service, or

(B)

by a corporation or partnership which is related (within the meaning of section 267(b) or 707(b)) to the individual.

For purposes of this paragraph, the term relative means an individual bearing a relationship to the individual which is described in any of subparagraphs (A) through (G) of section 7705(d)(2). This paragraph shall not apply for purposes of section 105(b) with respect to reimbursements through insurance.

.

(B)

Section 72(t)(2)(D)(i)(III) is amended by striking section 213(d)(1)(D) and inserting section 223(e)(1)(D) .

(C)

Section 104(a) is amended by striking section 213(d)(1) in the last sentence and inserting section 223(e)(1) .

(D)

Section 105(b) is amended by striking section 213(d) and inserting section 223(e) .

(E)

Section 139D is amended by striking section 213 and inserting section 223 .

(F)

Section 162(l)(2) is amended by striking section 213(d)(10) and inserting section 223(e)(7) .

(G)

Section 220(d)(2)(A) is amended by striking section 213(d) and inserting section 223(e) .

(H)

Section 223(d)(2)(A) is amended by striking section 213(d) and inserting subsection (e)).

(I)

Section 419A(f)(2) is amended by striking section 213(d) and inserting section 223(e) .

(J)

Section 501(c)(26)(A) is amended by striking section 213(d) and inserting section 223(e) .

(K)

Section 2503(e) is amended by striking section 213(d) and inserting section 223(e) .

(L)

Section 4980B(c)(4)(B)(i)(I) is amended by striking section 213(d) and inserting section 223(e) .

(M)

Section 6041(f) is amended by striking section 213(d) and inserting section 223(e) .

(N)

Section 7702B(a)(2) is amended by striking section 213(d) and inserting section 223(e) .

(O)

Section 7702B(a)(4) is amended by striking section 213(d)(1)(D) and inserting section 223(e)(1)(D) .

(P)

Section 7702B(d)(5) is amended by striking section 213(d)(10) and inserting section 223(e)(7) .

(Q)

Section 9832(d)(3) is amended by striking section 213(d) and inserting section 223(e) .

(2)

Section 72(t)(2)(B) is amended to read as follows:

(B)

Medical expenses

Distributions made to an individual (other than distributions described in subparagraph (A), (C), or (D) to the extent such distributions do not exceed the excess of—

(i)

the expenses paid by the taxpayer during the taxable year, not compensated for by insurance or otherwise, for medical care (as defined in 223(e)) of the taxpayer, his spouse, or a dependent (as defined in section 7705, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), over

(ii)

10 percent of the taxpayer’s adjusted gross income.

.

(3)

Section 105 is amended by striking subsection (f).

(4)

Section 162(l) is amended by striking paragraph (3).

(5)

Section 402(l) is amended by striking paragraph (7) and redesignating paragraph (8) as paragraph (7).

(6)

Section 220(f) is amended by striking paragraph (6).

(7)

Section 223(f) is amended by striking paragraph (6).

(8)

Section 7702B(e) is amended by striking paragraph (2).

(9)

Section 7705(f)(7), as redesignated by this Act, is amended by striking sections 105(b), 132(h)(2)(B), and 213(d)(5) and inserting sections 105(b) and 132(h)(2)(B) .

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1410.

Repeal of disqualification of expenses for over-the-counter drugs under certain accounts and arrangements

(a)

HSAs

Subparagraph (A) of section 223(d)(2) is amended by striking the last sentence.

(b)

Archer MSAs

Subparagraph (A) of section 220(d)(2) is amended by striking the last sentence.

(c)

Health flexible spending arrangements and health reimbursement arrangements

Section 106 is amended by striking subsection (f).

(d)

Effective date

The amendments made by this section shall apply to expenses incurred after December 31, 2014.

1411.

Repeal of deduction for alimony payments and corresponding inclusion in gross income

(a)

In general

Part VII of subchapter B of chapter 1 is amended by striking section 215 (and by striking the item relating to such section in the table of sections for such part).

(b)

Corresponding repeal of provisions providing for inclusion of alimony in gross income

(1)

Subsection (a) of section 61 is amended by striking paragraph (8) and by redesignating paragraphs (9) through (15) as paragraphs (8) through (14), respectively.

(2)

Part II of subchapter B of chapter 1 is amended by striking section 71 (and by striking the item relating to such section in the table of sections for such part).

(3)

Subpart F of part I of subchapter J of chapter 1 is amended by striking section 682 (and by striking the item relating to such section in the table of sections for such subpart).

(c)

Conforming amendments

(1)

Related to repeal of section 215

(A)

Section 62(a) is amended by striking paragraph (10).

(B)

Section 3402(m)(1) is amended by striking (other than paragraph (10) thereof).

(2)

Related to repeal of section 71

(A)

Section 121(d)(3) is amended—

(i)

by striking (as defined in section 71(b)(2)) in subparagraph (B), and

(ii)

by adding at the end the following new subparagraph:

(C)

Divorce or separation instrument

For purposes of this paragraph, the term divorce or separation instrument means—

(i)

a decree of divorce or separate maintenance or a written instrument incident to such a decree,

(ii)

a written separation agreement, or

(iii)

a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse.

.

(B)

Section 220(f)(7) is amended by striking subparagraph (A) of section 71(b)(2) and inserting clause (i) of section 121(d)(3)(C).

(C)

Section 223(f)(7) is amended by striking subparagraph (A) of section 71(b)(2) and inserting clause (i) of section 121(d)(3)(C).

(D)

Section 382(l)(3)(B)(iii) is amended by striking section 71(b)(2) and inserting section 121(d)(3)(C).

(E)

Section 408(d)(6) is amended by striking subparagraph (A) of section 71(b)(2) and inserting clause (i) of section 121(d)(3)(C).

(d)

Effective date

The amendments made by this section shall apply to—

(1)

any divorce or separation instrument (as defined in section 71(b)(2) of the Internal Revenue Code of 1986 as in effect before the date of the enactment of this Act) executed after December 31, 2014, and

(2)

any divorce or separation instrument (as so defined) executed on or before such date and modified after such date if the modification expressly provides that the amendments made by this section apply to such modification.

1412.

Repeal of deduction for moving expenses

(a)

In general

Part VII of subchapter B of chapter 1 is amended by striking section 217 (and by striking the item relating to such section in the table of sections for such part).

(b)

Conforming amendments

(1)

Section 62(a) is amended by striking paragraph (15).

(2)
(A)

Section 132(a) is amended by striking paragraph (6).

(B)

Section 82 is amended by striking Except as provided in section 132(a)(6), there and inserting There.

(3)
(A)

Section 132 is amended by striking subsection (g).

(B)

Section 132(l) is amended by striking by striking subsections (e) and (g) and inserting subsection (e).

(4)

Section 274(m)(3) is amended by striking (other than section 217).

(5)

Section 3121(a) is amended by striking paragraph (11).

(6)

Section 209(a) of the Social Security Act is amended by striking paragraph (9).

(7)

Section 3306(b) is amended by striking paragraph (9).

(8)

Section 3401(a) is amended by striking paragraph (15).

(9)

Section 7872(f) is amended by striking paragraph (11).

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1413.

Termination of deduction and exclusions for contributions to medical savings accounts

(a)

Termination of income tax deduction

Section 220 is amended by adding at the end the following new subsection:

(k)

Termination

No deduction shall be allowed under subsection (a) with respect to any taxable year beginning after December 31, 2014.

.

(b)

Termination of exclusion for employer-Provided contributions

Section 106 is amended by striking subsection (b).

(c)

Conforming amendments

(1)

Section 62(a) is amended by striking paragraph (16).

(2)

Section 106(d) is amended by striking paragraph (2), by redesignating paragraph (3) as paragraph (6), and by inserting after paragraph (1) the following new paragraphs:

(2)

No constructive receipt

No amount shall be included in the gross income of any employee solely because the employee may choose between the contributions referred to in paragraph (1) and employer contributions to another health plan of the employer.

(3)

Special rule for deduction of employer contributions

Any employer contribution to a health savings account (as so defined), if otherwise allowable as a deduction under this chapter, shall be allowed only for the taxable year in which paid.

(4)

Employer health savings account contribution required to be shown on return

Every individual required to file a return under section 6012 for the taxable year shall include on such return the aggregate amount contributed by employers to the health savings accounts (as so defined) of such individual or such individual’s spouse for such taxable year.

(5)

Health savings account contributions not part of COBRA coverage

Paragraph (1) shall not apply for purposes of section 4980B.

.

(3)

Section 223(b)(4) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively.

(4)

Section 3231(e) is amended by striking paragraph (10) and by redesignating paragraphs (11) and (12) as paragraphs (10) and (11), respectively.

(5)

Section 3306(b) is amended by striking paragraph (17).

(6)

Section 3401(a) is amended by striking paragraph (21).

(7)

Chapter 43 is amended by striking section 4980E (and by striking the item relating to such section in the table of sections for such chapter).

(8)

Section 4980G is amended to read as follows:

4980G.

Failure of employer to make comparable health savings account contributions

(a)

In general

In the case of an employer who makes a contribution to the health savings account of any employee during a calendar year, there is hereby imposed a tax on the failure of such employer to meet the requirements of subsection (d) for such calendar year.

(b)

Amount of tax

The amount of the tax imposed by subsection (a) on any failure for any calendar year is the amount equal to 35 percent of the aggregate amount contributed by the employer to health savings accounts of employees for taxable years of such employees ending with or within such calendar year.

(c)

Waiver by Secretary

In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive relative to the failure involved.

(d)

Employer required To make comparable health savings account contributions for all participating employees

(1)

In general

An employer meets the requirements of this subsection for any calendar year if the employer makes available comparable contributions to the health savings accounts of all comparable participating employees for each coverage period during such calendar year.

(2)

Comparable contributions

(A)

In general

For purposes of paragraph (1), the term comparable contributions means contributions—

(i)

which are the same amount, or

(ii)

which are the same percentage of the annual deductible limit under the high deductible health plan covering the employees.

(B)

Part-year employees

In the case of an employee who is employed by the employer for only a portion of the calendar year, a contribution to the health savings account of such employee shall be treated as comparable if it is an amount which bears the same ratio to the comparable amount (determined without regard to this subparagraph) as such portion bears to the entire calendar year.

(3)

Comparable participating employees

(A)

In general

For purposes of paragraph (1), the term comparable participating employees means all employees—

(i)

who are eligible individuals covered under any high deductible health plan of the employer, and

(ii)

who have the same category of coverage.

(B)

Categories of coverage

For purposes of subparagraph (B), the categories of coverage are self-only and family coverage.

(4)

Part-time employees

(A)

In general

Paragraph (3) shall be applied separately with respect to part-time employees and other employees.

(B)

Part-time employee

For purposes of subparagraph (A), the term part-time employee means any employee who is customarily employed for fewer than 30 hours per week.

(5)

Special rule for non-highly compensated employees

For purposes of applying this section to a contribution to a health savings account of an employee who is not a highly compensated employee (as defined in section 414(q)), highly compensated employees shall not be treated as comparable participating employees.

(e)

Controlled groups

For purposes of this section, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer.

(f)

Definitions

Terms used in this section which are also used in section 223 have the respective meanings given such terms in section 223.

(g)

Regulations

The Secretary shall issue regulations to carry out the purposes of this section.

.

(9)

Section 6051(a) is amended by striking paragraph (11).

(10)

Section 6051(a)(14)(A) is amended by striking paragraphs (11) and (12) and inserting paragraph (12).

(d)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2014.

1414.

Repeal of 2-percent floor on miscellaneous itemized deductions

(a)

In general

Part 1 of subchapter B of chapter 1 is amended by striking section 67 (and the item relating to such section in the table of sections for such part).

(b)

Conforming amendments

(1)

Section 642(b)(2)(C)(i)(II) is amended to read as follows:

(II)

by determining the adjusted gross income of the trust under the rules of section 2(b)(2) (without the reference to section 642(b)).

.

(2)

Section 162(o) is amended by striking paragraph (2).

(3)

Section 302(b)(5) is amended by striking section 67(c)(2)(B) and inserting section 562(c)(2) .

(4)

Section 562(c) is amended—

(A)

by striking (as defined in section 67(c)(2)(B)),

(B)

by striking (as so defined),

(C)

by striking Except in the case of and inserting the following:

(1)

In general

Except in the case of

, and

(D)

by adding at the end the following new paragraph:

(2)

Publicly offered regulated investment company

For purposes of this subsection—

(A)

In general

The term publicly offered regulated investment company means a regulated investment company the shares of which are—

(i)

continuously offered pursuant to a public offering (within the meaning of section 4 of the Securities Act of 1933, as amended (15 U.S.C. 77a to 77aa)),

(ii)

regularly traded on an established securities market, or

(iii)

held by or for no fewer than 500 persons at all times during the taxable year.

(B)

Secretary may reduce 500 person requirement

The Secretary may by regulation decrease the minimum shareholder requirement of clause (i)(III) in the case of regulated investment companies which experience a loss of shareholders through net redemptions of their shares.

.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1415.

Repeal of overall limitation on itemized deductions

(a)

In general

Part 1 of subchapter B of chapter 1 is amended by striking section 68 (and the item relating to such section in the table of sections for such part).

(b)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1416.

Deduction for amortizable bond premium allowed in determining adjusted gross income

(a)

In general

Subsection (a) of section 62, as amended by section 1411, is amended by inserting after paragraph (9) the following new paragraph:

(10)

Amortizable bond premium

The deduction allowed under section 171(a)(1).

.

(b)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1417.

Repeal of exclusion, etc., for employee achievement awards

(a)

In general

Section 74 is amended by striking subsection (c).

(b)

Repeal of limitation on deduction

Section 274 is amended by striking subsection (j).

(c)

Conforming amendments

(1)

Section 102(c)(2) is amended by striking the first sentence.

(2)

Section 414(n)(3)(C) is amended by striking 274(j),.

(3)

Section 414(t)(2) is amended by striking 274(j),.

(4)

Section 3121(a)(20) is amended by striking 74(c),.

(5)

Section 209(a)(17) of the Social Security Act is amended by striking 74(c),.

(6)

Section 3231(e)(5) is amended by striking 74(c),.

(7)

Section 3306(b)(16) is amended by striking 74(c),.

(8)

Section 3401(a)(19) is amended by striking 74(c),.

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1418.

Clarification of special rule for certain governmental plans

(a)

Treatment of beneficiaries

Section 105(j)(1) is amended—

(1)

by striking the taxpayer and inserting an employee, spouse, dependent (as defined for purposes of subsection (b)), or child (as so defined), and

(2)

by striking deceased plan participant’s beneficiary and inserting deceased employee’s beneficiary who is not a surviving spouse, dependent (as so defined), or child (as so defined).

(b)

Application to political subdivisions of States

Section 105(j)(2) is amended—

(1)

by inserting or established by or on behalf of a State or political subdivision thereof after public retirement system, and

(2)

by inserting or 501(c)(9) after section 115 in subparagraph (B) thereof.

(c)

Effective date

The amendments made by this section shall apply to payments after the date of the enactment of this Act.

1419.

Limitation on exclusion for employer-provided housing

(a)

In general

Section 119 is amended by adding at the end the following new subsection:

(e)

Limitation on exclusion of lodging

(1)

In general

The aggregate amount excluded from gross income of the taxpayer under subsections (a) and (d) with respect to lodging for any taxable year shall not exceed $50,000 (half such amount in the case of a married individual filing a separate return).

(2)

Limitation to 1 home

Subsections (a) and (d) (separately and in combination) shall not apply with respect to more than 1 residence of the taxpayer at any given time. In the case of a joint return, the preceding sentence shall apply separately to each spouse for any period during which each spouse resides separate from the other spouse in a residence which is provided in connection with the employment of each spouse, respectively.

.

(b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2014.

1420.

Fringe benefits

(a)

Repeal of special rule for air transportation by parent of employee

Subsection (h) of section 132 is amended by striking paragraph (3).

(b)

Transportation and parking

(1)

Freeze at current levels

(A)

In general

Paragraph (2) of section 132(f) is amended—

(i)

in subparagraph (A) by striking $100 and inserting $130, and

(ii)

in subparagraph (B) by striking $175 and inserting $250.

(B)

Inflation adjustment

Subsection (f) of such section is amended by striking paragraph (6) and redesignating paragraph (7) as paragraph (6).

(2)

Repeal of bicycle benefit

(A)

In general

Paragraph (1) of section 132(f) is amended by striking subparagraph (D).

(B)

Conforming amendments

(i)

Section 132(f)(2) is amended by inserting and at the end of subparagraph (A), by striking and at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C).

(ii)

Section 132(f)(4) is amended by striking (other than a qualified bicycle commuting reimbursement).

(iii)

Section 132(f)(5) is amended by striking subparagraph (F).

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1421.

Repeal of exclusion of net unrealized appreciation in employer securities

(a)

In general

Section 402(e) is amended by striking paragraph (4).

(b)

Conforming amendments

(1)

Section 401(k)(10) is amended by striking subparagraph (B) and inserting the following new subparagraphs:

(B)

Distributions must be lump sum distributions

A termination shall not be treated as described in subparagraph (A) with respect to any employee unless the employee receives a lump sum distribution by reason of the termination.

(C)

Lump-sum distribution defined

For purposes of this paragraph—

(i)

In general

The term lump sum distribution means the distribution or payment within one taxable year of the recipient of the balance to the credit of an employee which becomes payable to the recipient from a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501 or from a plan described in section 403(a). Such term includes a distribution of an annuity contract from—

(I)

a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501(a), or

(II)

an annuity plan described in section 403(a).

For purposes of this clause, a distribution to two or more trusts shall be treated as a distribution to one recipient.
(ii)

Aggregation of certain trusts and plans

For purposes of determining the balance to the credit of an employee under clause (i)—

(I)

all trusts which are part of a plan shall be treated as a single trust, all pension plans maintained by the employer shall be treated as a single plan, all profit-sharing plans maintained by the employer shall be treated as a single plan, and all stock bonus plans maintained by the employer shall be treated as a single plan, and

(II)

trusts which are not qualified trusts under section 401(a) and annuity contracts which do not satisfy the requirements of section 404(a)(2) shall not be taken into account.

(iii)

Community property laws

The provisions of this subparagraph shall be applied without regard to community property laws.

(iv)

Balance to credit of employee not to include amounts payable under qualified domestic relations order

The balance to the credit of an employee shall not include any amount payable to an alternate payee under a qualified domestic relations order (within the meaning of section 414(p)).

(v)

Transfers to cost-of-living arrangement not treated as distribution

The balance to the credit of an employee under a defined contribution plan shall not include any amount transferred from such defined contribution plan to a qualified cost-of-living arrangement (within the meaning of section 415(k)(2)) under a defined benefit plan. (vii)

(vi)

Lump-sum distributions of alternate payees

If any distribution or payment of the balance to the credit of an employee would be treated as a lump-sum distribution, then, for purposes of this paragraph, the payment under a qualified domestic relations order (within the meaning of section 414(p)) of the balance to the credit of an alternate payee who is the spouse or former spouse of the employee shall be treated as a lump-sum distribution. For purposes of this clause, the balance to the credit of the alternate payee shall not include any amount payable to the employee.

(vii)

Exclusion of accumulate deductible employee contributions

For purposes of this subparagraph, the balance to the credit of the employee does not include the accumulated deductible employee contributions under the plan (within the meaning of section 72(o)(5)).

.

(2)

Section 3405(e) is amended by striking paragraph (8).

(c)

Effective date

The amendments made by this section shall apply to distributions after December 31, 2014.

1422.

Consistent basis reporting between estate and person acquiring property from decedent

(a)

Property acquired from a decedent

Section 1014 is amended by adding at the end the following new subsection:

(f)

Basis must be consistent with estate tax return

For purposes of this section—

(1)

In general

The basis of any property to which subsection (a) applies shall not exceed—

(A)

in the case of property the final value of which has been determined for purposes of the tax imposed by chapter 11 on the estate of such decedent, such value, and

(B)

in the case of property not described in subparagraph (A) and with respect to which a statement has been furnished under section 6035(a) identifying the value of such property, such value.

(2)

Exception

Paragraph (1) shall only apply to any property whose inclusion in the decedent’s estate increased the liability for the tax imposed by chapter 11 (reduced by credits allowable against such tax) on such estate.

(3)

Regulations

The Secretary may by regulations provide exceptions to the application of this subsection.

.

(b)

Information reporting

(1)

In general

Subpart A of part III of subchapter A of chapter 61 is amended by inserting after section 6034A the following new section:

6035.

Basis information to persons acquiring property from decedent

(a)

Information with respect to property acquired from decedents

(1)

In general

The executor of any estate required to file a return under section 6018(a) shall furnish to the Secretary and to each person acquiring any interest in property included in the decedent’s gross estate for Federal estate tax purposes a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the Secretary may prescribe.

(2)

Statements by beneficiaries

Each person required to file a return under section 6018(b) shall furnish to the Secretary and to each other person who holds a legal or beneficial interest in the property to which such return relates a statement identifying the information described in paragraph (1).

(3)

Time for furnishing statement

(A)

In general

Each statement required to be furnished under paragraph (1) or (2) shall be furnished at such time as the Secretary may prescribe, but in no case at a time later than the earlier of—

(i)

the date which is 30 days after the date on which the return under section 6018 was required to be filed (including extensions, if any), or

(ii)

the date which is 30 days after the date such return is filed.

(B)

Adjustments

In any case in which there is an adjustment to the information required to be included on a statement filed under paragraph (1) or (2) after such statement has been filed, a supplemental statement under such paragraph shall be filed not later than the date which is 30 days after such adjustment is made.

(b)

Regulations

The Secretary shall prescribe such regulations as necessary to carry out this section, including regulations relating to—

(1)

the application of this section to property with regard to which no estate tax return is required to be filed, and

(2)

situations in which the surviving joint tenant or other recipient may have better information than the executor regarding the basis or fair market value of the property.

.

(2)

Penalty for failure to file

(A)

Return

Section 6724(d)(1) is amended by striking and at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting , and, and by adding at the end the following new subparagraph:

(D)

any statement required to be filed with the Secretary under section 6035.

.

(B)

Statement

Section 6724(d)(2) is amended by striking or at the end of subparagraph (GG), by striking the period at the end of subparagraph (HH) and inserting , or, and by adding at the end the following new subparagraph:

(II)

section 6035 (other than a statement described in paragraph (1)(D)).

.

(3)

Clerical amendment

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 6034A the following new item:

Sec. 6035. Basis information to persons acquiring property from decedent.

.

(c)

Penalty for inconsistent reporting

(1)

In general

Subsection (b) of section 6662 is amended by inserting after paragraph (7) the following new paragraph:

(8)

Any inconsistent estate basis.

.

(2)

Inconsistent basis reporting

Section 6662 is amended by adding at the end the following new subsection:

(k)

Inconsistent estate basis reporting

For purposes of this section, the term inconsistent estate basis means the portion of the understatement which is attributable to in the case of property acquired from a decedent, a basis determination with respect to such property which is not consistent with the value of such property as determined under section 1014(f).

.

(d)

Effective date

The amendments made by this section shall apply to transfers for which an estate tax return is filed after the date of the enactment of this Act.

F

Employment tax modifications

1501.

Modifications of deduction for Social Security taxes in computing net earnings from self-employment

(a)

In general

Paragraph (12) of section 1402(a) is amended to read as follows:

(12)

in lieu of the deduction allowable under section 164(f) (relating to deduction for one-half of self-employment taxes), there shall be allowed as a deduction an amount equal to the sum of—

(A)

7.1064 percent of so much of the individual’s net earnings from self-employment for the taxable year (determined without regard to this paragraph) as does not exceed an amount equal to the product of 1.0765 and the excess (if any) of—

(i)

the contribution and benefit base (as determined under section 230 of the Social Security Act) in effect for the calendar year in which the taxable year begins, over

(ii)

the wages (within the meaning of subsection (b)(1)) paid to the individual during such taxable year, plus

(B)

1.4293 percent of the excess (if any) of the individual’s net earnings from self-employment for the taxable year (determined without regard to this paragraph) over the amount of such net earnings taken into account under subparagraph (A);

.

(b)

Coordination with benefits

Paragraph (11) of section 211(a) of the Social Security Act is amended to read as follows:

(11)

in lieu of the deduction allowable under section 164(f) of the Internal Revenue Code of 1986 (relating to deduction for one-half of self-employment taxes), there shall be allowed as a deduction an amount equal to the sum of—

(A)

7.1064 percent of so much of the individual's net-earnings from self-employment for the taxable year (determined without regard to this paragraph) as does not exceed an amount equal to the product of 1.0765 and the excess (if any) of—

(i)

the contribution and benefit base (as determined under section 230) in effect for the calendar year in which the taxable year begins,

(ii)

the wages (within the meaning of section 1402(b)(1) of the Internal Revenue Code of 1986) paid to the individual during such taxable year, plus

(B)

1.4293 percent of the excess (if any) of such net earnings over the amount of such net earnings taken into account under subparagraph (A);

.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1502.

Determination of net earnings from self-employment

(a)

Pro rata share of S corporation items included as net earnings from self-Employment

(1)

In general

Section 1402(a) is amended by inserting , plus (notwithstanding subsection (c)(2)) his pro rata share of nonseparately computed income or loss (as defined in section 1366(a)(2)) from any trade or business carried on by an S corporation in which he is a shareholder before ; except that in the matter preceding paragraph (1).

(2)

Application of adjustments

Section 1402(a) is amended by inserting and such pro rata share of S corporation nonseparately computed income or loss after such distributive share of partnership ordinary income or loss in the matter preceding paragraph (1).

(3)

Conforming amendments

Section 211(a) of the Social Security Act is amended in the matter preceding paragraph (1)—

(A)

by inserting , plus (notwithstanding subsection (c)(2)) his pro rata share of nonseparately computed income or loss (as defined in section 1366(a)(2) of the Internal Revenue Code of 1986)from any trade or business carried on by an S corporation in which he is a shareholder before ; except that, and

(B)

by inserting and such pro rata share of S corporation nonseparately computed income or loss after such distributive share of partnership ordinary income or loss.

(b)

Repeal of exception for limited partners

(1)

In general

Section 1402(a) is amended by striking paragraph (13).

(2)

Conforming amendment

Section 211(a) of the Social Security Act is amended by striking paragraph (12).

(c)

Deduction for return on invested capital

(1)

In general

Section 1402 is amended by adding at the end the following new subsection:

(m)

Deduction for return on invested capital

(1)

In general

An individual’s net earnings from self-employment shall be reduced (but not below zero) by the lesser of—

(A)

30 percent of the sum of—

(i)

such individual’s pass-through net earnings from self-employment, and

(ii)

such individual’s wages (as defined in section 3121) paid with respect to any trade or business carried on by an S corporation in which he is a shareholder, or

(B)

such individual’s pass-through net earnings from self-employment.

(2)

Pass-through net earnings from self-employment

For purposes of this subsection, the term pass-through net earnings from self-employment means net earnings from self-employment (as computed under subsection (a) without regard to this subsection) determined without regard to any trade or business carried on by the individual.

(3)

100 percent deduction where no material participation

(A)

In general

If an individual does not have material participation with respect to an entity (as determined under subparagraph (B)), in lieu of the reduction provided under paragraph (1) such individual’s net earnings from self-employment shall be reduced (but not below zero) by the sum of—

(i)

the reduction determined under paragraph (1) applied—

(I)

by substituting 100 percent for 30 percent in subparagraph (A) thereof, and

(II)

by determining pass-through net earnings from self-employment by only taking into account distributive and pro rata shares from non-participation entities, and

(III)

by only taking into account under subparagraph (A)(ii) thereof wages paid with respect to trades or businesses carried on by S corporations which are non-participation entities, plus

(ii)

the reduction determined under paragraph (1) applied—

(I)

by determining pass-through net earnings from self-employment by not taking into account any distributive or pro rata share from a non-participation entity, and

(II)

by not taking into account under subparagraph (A)(ii) thereof any wages paid with respect to trades or businesses carried on by an S corporation which is a non-participation entity.

(B)

Material participation

For purposes of this paragraph—

(i)

In general

An individual does not have material participation with respect to an entity (hereafter referred to as the top-tier entity) if such individual demonstrates to the satisfaction of the Secretary that such individual—

(I)

does not materially participate (as determined under section 469(h) without regard to paragraph (2) thereof) in any activity carried on by such top-tier entity, and

(II)

does not materially participate (as so determined) in any activity carried on by any entity in which such top-tier entity holds (directly or indirectly) any interest.

(ii)

Family attribution

For purposes of applying clause (i), the participation of any individual in any activity shall also be treated as performed by such individual’s spouse and the lineal descendants of such individual and such individual’s spouse.

(C)

Non-participation entity

For purposes of this paragraph, the term non-participation entity means, with respect to any individual, any entity with respect to which such individual does not have material participation (as determined under subparagraph (B)).

.

(2)

Conforming amendment

Section 211 of the Social Security Act is amended by adding at the end the following new subsection:

(l)

Deduction for return on invested capital

(1)

In general

An individual’s net earnings from self-employment shall be reduced (but not below zero) by the lesser of—

(A)

30 percent of the sum of—

(i)

such individual’s pass-through net earnings from self-employment, and

(ii)

such individual’s wages (as defined in section 209) paid with respect to any trade or business carried on by an S corporation in which he is a shareholder, or

(B)

such individual’s pass-through net earnings from self-employment.

(2)

Pass-through net earnings from self-employment

For purposes of this subsection, the term pass-through net earnings from self-employment means net earnings from self-employment (as computed under subsection (a) without regard to this subsection) determined without regard to any trade or business carried on by the individual.

(3)

100 percent deduction where no material participation

(A)

In general

If an individual does not have material participation with respect to an entity (as determined under subparagraph (B)), in lieu of the reduction provided under paragraph (1) such individual’s net earnings from self-employment shall be reduced (but not below zero) by the sum of—

(i)

the reduction determined under paragraph (1) applied—

(I)

by substituting 100 percent for 30 percent in subparagraph (A) thereof, and

(II)

by determining pass-through net earnings from self-employment by only taking into account distributive and pro rata shares from non-participation entities, and

(III)

by only taking into account under subparagraph (A)(ii) thereof wages paid with respect to trades or businesses carried on by S corporations which are non-participation entities, plus

(ii)

the reduction determined under paragraph (1) applied—

(I)

by determining pass-through net earnings from self-employment by not taking into account any distributive or pro rata share from a nonparticipation entity, and

(II)

by not taking into account under subparagraph (A)(ii) thereof any wages paid with respect to trades or businesses carried on by an S corporation which is a nonparticipation entity.

(B)

Material participation

For purposes of this paragraph—

(i)

In general

An individual does not have material participation with respect to an entity (hereafter referred to as the top-tier entity) if such individual demonstrates to the satisfaction of the Secretary of the Treasury under section 1402(m) of the Internal Revenue Code of 1986 that such individual—

(I)

does not materially participate (as determined under section 469(h) of the Internal Revenue Code of 1986 without regard to paragraph (2) thereof) in any activity carried on by such top-tier entity, and

(II)

does not materially participate (as so determined) in any activity carried on by any entity in which such top-tier entity holds (directly or indirectly) any interest.

(ii)

Family attribution

For purposes of applying clause (i), the participation of any individual in any activity shall also be treated as performed by such individual’s spouse and the lineal descendants of such individual and such individual’s spouse.

(C)

Nonparticipation entity

For purposes of this paragraph, the term nonparticipation entity means, with respect to any individual, any entity with respect to which such individual does not have material participation (as determined under subparagraph (B)).

.

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.

1503.

Repeal of exemption from FICA taxes for certain foreign workers

(a)

In general

Subsection (b) of section 3121 is amended by striking paragraphs (1) and (19).

(b)

Coordination with benefits

Subsection (a) of section 210 of the Social Security Act is amended by striking paragraphs (1) and (19).

(c)

Railroad retirement tax

Paragraph (1) of section 3231(e) is amended by striking the third sentence.

(d)

Effective date

The amendments made by this section shall apply to remuneration received for services performed after December 31, 2014.

1504.

Repeal of exemption from FICA taxes for certain students

(a)

In general

Paragraph (10) of section 3121(b) is amended—

(1)

by inserting during any calendar year after service performed in the matter preceding subparagraph (A), and

(2)

by inserting , and the remuneration paid by the employer with respect to such service during such calendar year is less than the dollar amount in effect under section 213(d) of the Social Security Act (relating to amount required for a quarter of coverage) with respect to such year before the semicolon at the end.

(b)

College clubs, fraternities, and sororities

Paragraph (2) of section 3121(b) is amended—

(1)

by inserting during any calendar year after domestic service performed, and

(2)

by inserting , if the remuneration paid by the employer with respect to such service during such calendar year is less than the dollar amount in effect under section 213(d) of the Social Security Act (relating to amount required for a quarter of coverage) with respect to such year before the semicolon at the end.

(c)

Deduction of tax from wages

Subsection (a) of section 3102 is amended by inserting ; and an employer who in any calendar year pays to an employee remuneration to which paragraph (2) or (10) of section 3121(b) is applicable may deduct an amount equivalent to such tax from any such payment of remuneration, even though at the time of payment the total amount of such remuneration paid to the employee by the employer in the calendar year is less than the dollar amount in effect under section 213(d) of the Social Security Act with respect to such year before the period at the end.

(d)

Coordination with benefits

(1)

Paragraph (10) of section 210(a) of the Social Security Act is amended—

(A)

by inserting during any calendar year after Service performed in the matter preceding subparagraph (A), and

(B)

by inserting , and the remuneration paid by the employer with respect to such service during such calendar year is less than the dollar amount in effect under section 213(d) (relating to amount required for a quarter of coverage) with respect to such year before the semicolon at the end.

(2)

Paragraph (2) of section 210(a) of the Social Security Act is amended—

(A)

by inserting during any calendar year after Domestic service performed, and

(B)

by inserting , if the remuneration paid by the employer with respect to such service during such calendar year is less than the dollar amount in effect under section 213(d) (relating to amount required for a quarter of coverage) with respect to such year before the semicolon at the end.

(e)

Effective date

The amendments made by this section shall apply to remuneration received for services performed after December 31, 2014.

1505.

Override of Treasury guidance providing that certain employer-provided supplemental unemployment benefits are not subject to employment taxes

(a)

In general

Effective with respect to amounts paid after December 31, 2014—

(1)

Revenue Ruling 56–249,

(2)

Revenue Ruling 58–128,

(3)

Revenue Ruling 60–330,

(4)

so much of the holding of Revenue Ruling 77–347 as relates to Plan (1) and Plan (2),

(5)

Revenue Ruling 90–72, and

(6)

any other ruling, regulation, or other guidance provided by the Secretary of the Treasury, or his designee, to the extent that such ruling, regulation, or guidance provides that any payment made by an employer by reason of involuntary termination of employment shall not be treated as wages or compensation for purposes of any provision of the Internal Revenue Code of 1986,

shall be null and void. The preceding sentence shall not apply to the extent a ruling, regulation, or other guidance implements a statutory exception to wages or compensation.
(b)

Repeal of withholding requirement

(1)

In general

Section 3402(o)(1) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively.

(2)

Conforming amendments

(A)

Section 3402(o)(2) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively.

(B)

Section 3402(o)(5)(A) is amended by striking paragraph (1)(C) and inserting paragraph (1)(B).

(3)

Effective date

(A)

In general

The amendments made by this subsection shall apply to amounts paid after December 31, 2013.

(B)

No inference

No amendment made by this subsection shall be construed to create any inference with respect to any amounts paid before January 1, 2014.

1506.

Certified professional employer organizations

(a)

Employment taxes

Chapter 25 is amended by adding at the end the following new section:

3511.

Certified professional employer organizations

(a)

General rules

For purposes of the taxes and other obligations imposed by this subtitle—

(1)

a certified professional employer organization shall be treated as the employer (and no other person shall be treated as the employer) of any work site employee performing services for any customer of such organization, but only with respect to remuneration remitted by such organization to such work site employee, and

(2)

the exemptions, exclusions, definitions, and other rules which are based on type of employer and which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.

(b)

Successor employer status

For purposes of sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)

(1)

a certified professional employer organization entering into a service contract with a customer with respect to a work site employee shall be treated as a successor employer and the customer shall be treated as a predecessor employer during the term of such service contract, and

(2)

a customer whose service contract with a certified professional employer organization is terminated with respect to a work site employee shall be treated as a successor employer and the certified professional employer organization shall be treated as a predecessor employer.

(c)

Liability of certified professional employer organization

Solely for purposes of its liability for the taxes and other obligations imposed by this subtitle—

(1)

a certified professional employer organization shall be treated as the employer of any work site employee (other than a person described in subsection (e)) who is performing services covered by a contract meeting the requirements of section 7706(e)(2), but only with respect to remuneration remitted by such organization to such individual, and

(2)

exemptions, exclusions, definitions, and other rules which are based on type of employer and which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.

(d)

Special rule for related party

This section shall not apply in the case of a customer which bears a relationship to a certified professional employer organization described in section 267(b) or 707(b). For purposes of the preceding sentence, such sections shall be applied by substituting 10 percent for 50 percent.

(e)

Special rule for certain individuals

For purposes of the taxes imposed under this subtitle, an individual with net earnings from self-employment derived from the customer’s trade or business (including a partner in a partnership that is a customer), is not a work site employee with respect to remuneration paid by a certified professional employer organization.

(f)

Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.

.

(b)

Certified professional employer organization defined

Chapter 79, as amended by the preceding provisions of this Act, is amended by adding at the end the following new section:

7706.

Certified professional employer organizations

(a)

In general

For purposes of this title, the term certified professional employer organization means a person who applies to be treated as a certified professional employer organization for purposes of section 3511 and who has been certified by the Secretary as meeting the requirements of subsection (b).

(b)

Certification requirements

A person meets the requirements of this subsection if such person—

(1)

demonstrates that such person (and any owner, officer, and such other persons as may be specified in regulations) meets such requirements as the Secretary shall establish with respect to tax status, background, experience, business location, and annual financial audits,

(2)

agrees that it will satisfy the bond and independent financial review requirements of subsections (c) on an ongoing basis,

(3)

agrees that it will satisfy such reporting obligations as may be imposed by the Secretary,

(4)

computes its taxable income using an accrual method of accounting unless the Secretary approves another method,

(5)

agrees to verify on such periodic basis as the Secretary may prescribe that it continues to meet the requirements of this subsection, and

(6)

agrees to notify the Secretary in writing, within such time as the of Secretary may prescribe, of any change that materially affects the continuing accuracy of any agreement or information which was previously made or provided.

(c)

Bond and independent financial review

(1)

In general

An organization meets the requirements of this paragraph if such organization—

(A)

meets the bond requirements of paragraph (2), and

(B)

meets the independent financial review requirements of paragraph (3).

(2)

Bond

(A)

In general

A certified professional employer organization meets the requirements of this paragraph if the organization has posted a bond for the payment of taxes under subtitle C (in a form acceptable to the Secretary) that is in an amount at least equal to the amount specified in subparagraph (B).

(B)

Amount of bond

(i)

In general

For the period April 1 of any calendar year through March 31 of the following calendar year, the amount of the bond required is equal to the greater of—

(I)

5 percent of the organization’s liability under section 3511 for taxes imposed by subtitle C during the preceding calendar year (but not to exceed $1,000,000), or

(II)

$50,000.

(ii)

Special rule for newly created professional employer organizations

During the first three full calendar years that an organization is in existence, subclause (I) of clause (i) shall not apply. For this purpose—

(I)

under rules provided by the Secretary, an organization is treated as in existence as of the date that such organization began providing services to any customer which were comparable to the services being provided with respect to work site employees, regardless of whether such date occurred before or after the organization is certified under subsection (b), and

(II)

an organization with liability under section 3511 for taxes imposed by subtitle C during the preceding calendar year in excess of $5,000,000 shall no longer be described in this clause (ii) as of April 1 of the year following such calendar year.

(3)

Independent financial review requirements

A certified professional employer organization meets the requirements of this paragraph if such organization—

(A)

has, as of the most recent audit date, caused to be prepared and provided to the Secretary (in such manner as the Secretary may prescribe) an opinion of an independent certified public accountant as to whether the certified professional employer organization’s financial statements are presented fairly in accordance with generally accepted accounting principles, and

(B)

provides to the Secretary an assertion regarding Federal employment tax payments and an examination level attestation on such assertion from an independent certified public accountant not later than the last day of the second month beginning after the end of each calendar quarter. Such assertion shall state that the organization has withheld and made deposits of all taxes imposed by chapters 21, 22, and 24 of the Internal Revenue Code in accordance with regulations imposed by the Secretary for such calendar quarter and such examination level attestation shall state that such assertion is fairly stated, in all material respects.

(4)

Controlled group rules

For purposes of the requirements of paragraphs (2) and (3), all professional employer organizations that are members of a controlled group within the meaning of sections 414(b) and (c) shall be treated as a single organization.