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115th Congress     }                                 {        Report
                        HOUSE OF REPRESENTATIVES
 2d Session        }                                 {        115-957

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



 
                    AMERICAN INNOVATION ACT OF 2018

                                _______
                                

 September 24, 2018.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Brady of Texas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 6756]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 6756) to amend the Internal Revenue Code of 1986 to 
promote new business innovation, and for other purposes, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................5
          A. Purpose and Summary.................................     5
          B. Background and Need for Legislation.................     6
          C. Legislative History.................................     6
 II. EXPLANATION OF THE BILL..........................................6
          A. Simplification and Expansion of Deduction for Start-
              Up and Organizational Expenditures (sec. 2 of the 
              bill and secs. 195, 248, and 709 of the Code)......     6
          B. Preservation of Start-Up Net Operating Losses and 
              Tax Credits After Ownership Change (sec. 3 of the 
              bill and secs. 382 and 383 of the Code)............     8
III. VOTES OF THE COMMITTEE..........................................13
 IV. BUDGET EFFECTS OF THE BILL......................................14
          A. Committee Estimate of Budgetary Effects.............    14
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    16
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    16
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......20
          A. Committee Oversight Findings and Recommendations....    20
          B. Statement of General Performance Goals and 
              Objectives.........................................    20
          C. Information Relating to Unfunded Mandates...........    21
          D. Applicability of House Rule XXI 5(b)................    21
          E. Tax Complexity Analysis.............................    21
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    21
          G. Duplication of Federal Programs.....................    21
          H. Disclosure of Directed Rule Makings.................    22
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........22
          A. Changes in Existing Law Proposed by the Bill, as 
              Reported...........................................    22
VII. DISSENTING VIEWS...............................................126

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

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``American Innovation Act of 2018''.

SEC. 2. SIMPLIFICATION AND EXPANSION OF DEDUCTION FOR START-UP AND 
                    ORGANIZATIONAL EXPENDITURES.

  (a) In General.--Section 195 of the Internal Revenue Code of 1986 is 
amended by redesignating subsections (c) and (d) as subsections (d) and 
(e), respectively, and by striking all that precedes subsection (d) (as 
so redesignated) and inserting the following:

``SEC. 195. START-UP AND ORGANIZATIONAL EXPENDITURES.

  ``(a) Capitalization of Expenditures.--Except as otherwise provided 
in this section, no deduction shall be allowed for start-up or 
organizational expenditures.
  ``(b) Election to Deduct.--
          ``(1) In general.--If a taxpayer elects the application of 
        this subsection with respect to any active trade or business--
                  ``(A) the taxpayer shall be allowed a deduction for 
                the taxable year in which such active trade or business 
                begins in an amount equal to the lesser of--
                          ``(i) the aggregate amount of start-up and 
                        organizational expenditures paid or incurred in 
                        connection with such active trade or business, 
                        or
                          ``(ii) $20,000, reduced (but not below zero) 
                        by the amount by which such aggregate amount 
                        exceeds $120,000, and
                  ``(B) the remainder of such start-up and 
                organizational expenditures shall be charged to capital 
                account and allowed as an amortization deduction 
                determined by amortizing such expenditures ratably over 
                the 180-month period beginning with the month in which 
                the active trade or business begins.
          ``(2) Application to organizational expenditures.--In the 
        case of organizational expenditures with respect to any 
        corporation or partnership, the active trade or business 
        referred to in paragraph (1) means the first active trade or 
        business carried on by such corporation or partnership.
          ``(3) Inflation adjustment.--In the case of any taxable year 
        beginning after December 31, 2019, the $20,000 and $120,000 
        amounts in paragraph (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(f)(3) for the calendar year in which the 
                taxable year begins, determined by substituting 
                `calendar year 2018' for `calendar year 2016' in 
                subparagraph (A)(ii) thereof.
        If any amount as increased under the preceding sentence is not 
        a multiple of $1,000, such amount shall be rounded to the 
        nearest multiple of $1,000.
  ``(c) Allowance of Deduction Upon Liquidation or Disposition.--
          ``(1) Liquidation of partnership or corporation.--If any 
        partnership or corporation is completely liquidated by the 
        taxpayer, any start-up or organizational expenditures paid or 
        incurred in connection with such partnership or corporation 
        which were not allowed as a deduction by reason of this section 
        may be deducted to the extent allowable under section 165.
          ``(2) Disposition of trade or business.--If any trade or 
        business is completely disposed of or discontinued by the 
        taxpayer, any start-up expenditures paid or incurred in 
        connection with such trade or business which were not allowed 
        as a deduction by reason of this section (and not taken into 
        account in connection with a liquidation to which paragraph (1) 
        applies) may be deducted to the extent allowable under section 
        165. For purposes of this paragraph, in the case of any 
        deduction allowed under subsection (b)(1) with respect to both 
        start-up and organizational expenditures, the amount treated as 
        so allowed with respect to start-up expenditures shall bear the 
        same ratio to such deduction as the start-up expenditures taken 
        into account in determining such deduction bears to the 
        aggregate of the start-up and organizational expenditures so 
        taken into account.''.
  (b) Organizational Expenditures.--Section 195(d) of such Code, as 
redesignated by subsection (a), is amended by adding at the end the 
following new paragraphs:
          ``(3) Organizational expenditures.--The term `organizational 
        expenditures' means any expenditure which--
                  ``(A) is incident to the creation of a corporation or 
                a partnership,
                  ``(B) is chargeable to capital account, and
                  ``(C) is of a character which, if expended incident 
                to the creation of a corporation or a partnership 
                having an ascertainable life, would be amortizable over 
                such life.
          ``(4) Application to certain disregarded entities.--In the 
        case of any entity with a single owner that is disregarded as 
        an entity separate from its owner, this section shall be 
        applied in the same manner as if such entity were a 
        corporation.''.
  (c) Election.--Section 195(e)(2) of such Code, as redesignated by 
subsection (a), is amended to read as follows:
          ``(2) Partnerships and s corporations.--In the case of any 
        partnership or S corporation, the election under subsection (b) 
        shall be made (and this section shall be applied) at the entity 
        level.''.
  (d) Conforming Amendments.--
          (1)(A) Part VIII of subchapter B of chapter 1 is amended by 
        striking section 248 of such Code (and by striking the item 
        relating to such section in the table of sections of such 
        part).
          (B) Section 170(b)(2)(D)(ii) of such Code is amended by 
        striking ``(except section 248)''.
          (C) Section 312(n)(3) of such Code is amended by striking 
        ``Sections 173 and 248'' and inserting ``Sections 173 and 
        195''.
          (D) Section 535(b)(3) of such Code is amended by striking 
        ``(except section 248)''.
          (E) Section 545(b)(3) of such Code is amended by striking 
        ``(except section 248)''.
          (F) Section 545(b)(4) of such Code is amended by striking 
        ``(except section 248)''.
          (G) Section 834(c)(7) of such Code is amended by striking 
        ``(except section 248)''.
          (H) Section 852(b)(2)(C) of such Code is amended by striking 
        ``(except section 248)''.
          (I) Section 857(b)(2)(A) of such Code is amended by striking 
        ``(except section 248)''.
          (J) Section 1363(b) of such Code is amended by adding ``and'' 
        at the end of paragraph (2), by striking paragraph (3), and by 
        redesignating paragraph (4) as paragraph (3).
          (K) Section 1375(b)(1)(B)(i) of such Code is amended by 
        striking ``(other than the deduction allowed by section 248, 
        relating to organization expenditures)''.
          (2)(A) Section 709 of such Code is amended to read as 
        follows:

``SEC. 709. TREATMENT OF SYNDICATION FEES.

  ``No deduction shall be allowed under this chapter to a partnership 
or to any partner of the partnership for any amounts paid or incurred 
to promote the sale of (or to sell) an interest in the partnership.''.
          (B) The item relating to section 709 in the table of sections 
        for part I of subchapter K of chapter 1 of such Code is amended 
        to read as follows:

``Sec. 709. Treatment of syndication fees.''.

          (3) Section 1202(e)(2)(A) of such Code is amended by striking 
        ``section 195(c)(1)(A)'' and inserting ``section 
        195(d)(1)(A)''.
          (4) The item relating to section 195 in the table of contents 
        of part VI of subchapter B of chapter 1 of such Code is amended 
        to read as follows:

``Sec. 195. Start-up and organizational expenditures.''.

  (e) Effective Date.--The amendments made by this section shall apply 
to expenditures paid or incurred in connection with active trades or 
businesses which begin in taxable years beginning after December 31, 
2018.

SEC. 3. PRESERVATION OF START-UP NET OPERATING LOSSES AND TAX CREDITS 
                    AFTER OWNERSHIP CHANGE.

  (a) Application to Net Operating Losses.--Section 382(d) of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new paragraph:
          ``(4) Exception for start-up losses.--
                  ``(A) In general.--In the case of any net operating 
                loss carryforward described in paragraph (1)(A) which 
                arose in a start-up period taxable year, the amount of 
                such net operating loss carryforward otherwise taken 
                into account under such paragraph shall be reduced by 
                the net start-up loss determined with respect to the 
                trade or business referred to in subparagraph (B)(i) 
                for such start-up period taxable year.
                  ``(B) Start-up period taxable year.--The term `start-
                up period taxable year' means any taxable year of the 
                old loss corporation which--
                          ``(i) begins before the close of the 3-year 
                        period beginning on the date on which any trade 
                        or business of such corporation begins as an 
                        active trade or business (as determined under 
                        section 195(d)(2) without regard to 
                        subparagraph (B) thereof), and
                          ``(ii) ends after September 10, 2018.
                  ``(C) Net start-up loss.--
                          ``(i) In general.--The term `net start-up 
                        loss' means, with respect to any trade or 
                        business referred to in subparagraph (B)(i) for 
                        any start-up period taxable year, the amount 
                        which bears the same ratio (but not greater 
                        than 1) to the net operating loss carryforward 
                        which arose in such start-up period taxable 
                        year as--
                                  ``(I) the net operating loss (if any) 
                                which would have been determined for 
                                such start-up period taxable year if 
                                only items of income, gain, deduction, 
                                and loss properly allocable to such 
                                trade or business were taken into 
                                account, bears to
                                  ``(II) the amount of the net 
                                operating loss determined for such 
                                start-up period taxable year.
                          ``(ii) Special rule for last taxable year in 
                        start-up period.--In the case of any start-up 
                        period taxable year which ends after the close 
                        of the 3-year period described in subparagraph 
                        (B)(i) with respect to any trade or business, 
                        the net start-up loss with respect to such 
                        trade or business for such start-up period 
                        taxable year shall be the same proportion of 
                        such loss (determined without regard to this 
                        clause) as the proportion of such start-up 
                        period taxable year which is on or before the 
                        last day of such period.
                  ``(D) Application to net operating loss arising in 
                year of ownership change.--Subparagraph (A) shall apply 
                to any net operating loss described in paragraph (1)(B) 
                in the same manner as such subparagraph applies to net 
                operating loss carryforwards described in paragraph 
                (1)(A), but by only taking into account the amount of 
                such net operating loss (and the amount of the net 
                start-up loss) which is allocable under paragraph 
                (1)(B) to the period described in such paragraph. 
                Proper adjustment in the allocation of the net start-up 
                loss under the preceding sentence shall be made in the 
                case of a taxable year to which subparagraph (C)(ii) 
                applies.
                  ``(E) Application to taxable years which are start-up 
                period taxable years with respect to more than 1 trade 
                or business.--In the case of any net operating loss 
                carryforward which arose in a taxable year which is a 
                start-up period taxable year with respect to more than 
                1 trade or business--
                          ``(i) this paragraph shall be applied 
                        separately with respect to each such trade or 
                        business, and
                          ``(ii) the aggregate reductions under 
                        subparagraph (A) shall not exceed such net 
                        operating loss carryforward.
                  ``(F) Continuity of business requirement.--If the new 
                loss corporation does not continue the trade or 
                business referred to in subparagraph (B)(i) at all 
                times during the 2-year period beginning on the change 
                date, this paragraph shall not apply with respect to 
                such trade or business.
                  ``(G) Certain title 11 or similar cases.--
                          ``(i) Multiple ownership changes.--In the 
                        case of a 2nd ownership change to which 
                        subsection (l)(5)(D) applies, this paragraph 
                        shall not apply for purposes of determining the 
                        pre-change loss with respect to such 2nd 
                        ownership change.
                          ``(ii) Certain insolvency transactions.--If 
                        subsection (l)(6) applies for purposes of 
                        determining the value of the old loss 
                        corporation under subsection (e), this 
                        paragraph shall not apply.
                  ``(H) Not applicable to disallowed interest.--This 
                paragraph shall not apply for purposes of applying the 
                rules of paragraph (1) to the carryover of disallowed 
                interest under paragraph (3).
                  ``(I) Transition rule.--This paragraph shall not 
                apply with respect to any trade or business if the date 
                on which such trade or business begins as an active 
                trade or business (as determined under section 
                195(d)(2) without regard to subparagraph (B) thereof) 
                is on or before September 10, 2018.''.
  (b) Application to Excess Credits.--Section 383 of such Code is 
amended by redesignating subsection (e) as subsection (f) and by 
inserting after subsection (d) the following new subsection:
  ``(e) Exception for Start-up Excess Credits.--
          ``(1) In general.--In the case of any unused general business 
        credit of the corporation under section 39 which arose in a 
        start-up period taxable year, the amount of such unused general 
        business credit otherwise taken into account under subsection 
        (a)(2)(A) shall be reduced by the start-up excess credit 
        determined with respect to any trade or business referred to in 
        section 382(d)(4)(B)(i) for such start-up period taxable year.
          ``(2) Start-up period taxable year.--For purposes of this 
        subsection, the term `start-up period taxable year' has the 
        meaning given such term in section 382(d)(4)(B).
          ``(3) Start-up excess credit.--For purposes of this 
        subsection, the term `start-up excess credit' means, with 
        respect to any trade or business referred to in section 
        382(d)(4)(B)(i) for any start-up period taxable year, the 
        amount which bears the same ratio to the unused general 
        business credit which arose in such start-up period taxable 
        year as--
                  ``(A) the amount of the general business credit which 
                would have been determined for such start-up period 
                taxable year if only credits properly allocable to such 
                trade or business were taken into account, bears to
                  ``(B) the amount of the general business credit 
                determined for such start-up period taxable year.
          ``(4) Application of certain rules.--Rules similar to the 
        rules of subparagraphs (C)(ii), (D), (E), and (F) of section 
        382(d)(4) shall apply for purposes of this subsection.
          ``(5) Transition rule.--This subsection shall not apply with 
        respect to any trade or business if the date on which such 
        trade or business begins as an active trade or business (as 
        determined under section 195(d)(2) without regard to 
        subparagraph (B) thereof) is on or before September 10, 
        2018.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years ending after September 10, 2018.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 6756, as reported by the Committee on Ways 
and Means, provides that the current law provisions for start-
up expenditures and organizational expenditures in the Internal 
Revenue Code of 1986 are combined into a single provision 
applicable to all businesses. The bill allows a taxpayer to 
immediately deduct up to $20,000 (indexed for inflation) in 
combined start-up and organizational expenditures. This 
deduction is phased out to the extent that a taxpayer's start-
up and organizational expenditures, in the aggregate, exceed 
$120,000 (indexed for inflation). Expenditures above the new 
increased limit continue to be amortized over a 180-month 
period following the start of the new business.
    Additionally, the bill generally provides that a 
corporation's start-up losses and start-up credits are not 
limited in the event that the corporation undergoes an 
ownership change under sections 382 and 383. Start-up losses 
and start-up credits are losses and credits that are properly 
allocable to the corporation's new business that arise in any 
taxable year that begins before the third anniversary of the 
date on which the business is considered to begin.

                 B. Background and Need for Legislation

    The Committee believes it is important to continually 
improve the tax laws. This bill doubles the amount of start-up 
and organizational costs that can be expensed in the first year 
of operations. Additionally, the bill provides start-up 
businesses more flexibility in attracting capital to fund their 
operations during the start-up phase exempting net operating 
losses and general business credits generated in the early 
years of a start-up business from the limitations on use that 
otherwise could apply. This bill helps to foster a friendlier 
business climate for entrepreneurs and innovators by reducing 
tax barriers and allowing start-up businesses to focus on 
growing and innovating. The bill supports entrepreneurship and 
innovation, helping new businesses expand and create jobs.

                         C. Legislative History


Background

    H.R. 6756 was introduced on September 10, 2018, and was 
referred to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 6756, the 
``American Innovation Act of 2018,'' on September 13, 2018, and 
ordered the bill, as amended, favorably reported (with a quorum 
being present).

Committee hearings

    Reforms to the rules for expensing business costs were 
discussed at a Full Committee hearing on How Tax Reform Will 
Grow Our Economy and Create Jobs on May 18, 2017 and a 
Subcommittee on Tax Policy hearing on How Tax Reform Will Help 
America's Small Businesses Grow and Create New Jobs on July 13, 
2017.

                      II. EXPLANATION OF THE BILL


     A. Simplification and Expansion of Deduction for Start-Up and 
Organizational Expenditures (Sec. 2 of the Bill and Secs. 195, 248, and 
                            709 of the Code)


                              PRESENT LAW

    In the taxable year in which a taxpayer begins an active 
trade or business, the taxpayer may elect to deduct up to 
$5,000 of start-up expenditures.\1\ In addition, a taxpayer 
that is a corporation or a partnership may separately elect to 
deduct up to $5,000 of organizational expenditures.\2\ In each 
case, however, the $5,000 amount is reduced (but not below 
zero) by the amount by which the cumulative cost of start-up or 
organizational expenditures exceeds $50,000.\3\ Any remaining 
start-up expenditures or organizational expenditures may be 
amortized ratably over a period of 180 months, beginning with 
the month in which the active trade or business begins.\4\ A 
taxpayer is deemed to make an election to deduct and amortize 
start-up or organizational expenditures for the applicable 
taxable year, unless the taxpayer affirmatively elects to 
capitalize such amounts on a timely-filed (including 
extensions) Federal income tax return.\5\ Capitalized amounts 
are recovered when the business is sold, exchanged, or 
otherwise disposed of before the end of the 180-month 
amortization period.\6\
---------------------------------------------------------------------------
    \1\Sec. 195(b)(1)(A). Unless otherwise stated, all section 
references are to the Internal Revenue Code of 1986, as amended (the 
``Code'').
    \2\Secs. 248(a)(1) and 709(b)(1)(A).
    \3\Secs. 195(b)(1)(A)(ii), 248(a)(1)(B), and 709(b)(1)(A)(ii).
    \4\Secs. 195(b)(1)(B), 248(a)(2), and 709(b)(1)(B).
    \5\Treas. Reg. secs. 1.195-1(b), 1.248-1(c), and 1.709-1(b)(2).
    \6\Secs. 195(b)(2) and 709(b)(2). See also Treas. Reg. sec. 1.709-
1(b)(3) and Kingsford Co. v. Commissioner, 41 T.C. 646 (1964).
---------------------------------------------------------------------------
    Start-up expenditures are amounts that would have been 
deductible as trade or business expenses had they not been paid 
or incurred before business began.\7\ Organizational 
expenditures are expenditures that are incident to the creation 
of a corporation or the organization of a partnership, are 
chargeable to capital, and would be eligible for amortization 
had they been paid or incurred in connection with the 
organization of a corporation or partnership with a limited or 
ascertainable life.\8\
---------------------------------------------------------------------------
    \7\Sec. 195(c)(1).
    \8\Secs. 248(b) and 709(b)(3).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that increasing the amount of start-
up and organizational expenditures that a taxpayer may elect to 
deduct, rather than requiring their amortization, will help 
facilitate the formation of new businesses. The Committee also 
believes that consolidating the rules regarding the treatment 
of start-up and organizational expenditures into a single 
provision applicable to all business entities (e.g., 
corporations, partnerships, and sole proprietorships) will 
simplify tax administration and taxpayer compliance.

                        EXPLANATION OF PROVISION

    Under the provision, the rules for start-up expenditures 
(section 195) and organizational expenditures (sections 248 and 
709(b)) are consolidated into a single provision.\9\ A taxpayer 
may elect\10\ to deduct up to $20,000 of the aggregate amount 
of start-up and organizational expenditures in the taxable year 
in which the active trade or business begins.\11\ The $20,000 
amount is reduced (but not below zero) by the amount by which 
the aggregate amount of start-up and organizational 
expenditures exceeds $120,000.\12\ The $20,000 and $120,000 
amounts are adjusted for inflation in taxable years beginning 
after 2019. Any remaining start-up and organizational 
expenditures must be amortized ratably over the 180-month 
period beginning with the month in which the active trade or 
business begins.
---------------------------------------------------------------------------
    \9\The definitions of start-up and organizational expenditures are 
unchanged by the provision, as is the requirement to capitalize 
partnership syndication fees under section 709(a).
    \10\In the case of a partnership or S corporation, the election is 
made (and the provision is applied) at the entity level. In the case of 
a disregarded entity, the provision is applied in the same manner as if 
such disregarded entity were a corporation.
    \11\In the case of organizational expenditures with respect to any 
corporation or partnership, the term ``active trade or business'' means 
the first active trade or business carried on by such corporation or 
partnership.
    \12\For example, assume that Corporation X, a calendar year 
taxpayer, incurs $100,000 of start-up expenditures and $30,000 of 
organizational expenditures that relate to an active trade or business 
that begins on July 1, 2019. On its 2019 tax return, Corporation X may 
elect to deduct $10,000 ($20,000 - ($130,000 - $120,000)) plus the 
portion of the remaining $120,000 that is allocable to July through 
December of 2019 ($120,000/180 months x 6 months = $4,000). Thus, 
Corporation X's total deduction under section 195 for 2019, the year in 
which its active trade or business begins, is $14,000 ($10,000 
deduction + $4,000 amortization deduction). Corporation X may amortize 
the remaining $116,000 ratably over the remaining 174 months.
---------------------------------------------------------------------------
    In the case of any partnership, corporation, or disregarded 
entity that is completely liquidated by the taxpayer before the 
end of the 180-month period, any unamortized amounts may be 
deducted to the extent allowable under section 165. In the case 
of any active trade or business which is completely disposed of 
or discontinued by the taxpayer before the end of the 180-month 
period, any unamortized start-up expenditures may be deducted 
to the extent allowable under section 165.\13\
---------------------------------------------------------------------------
    \13\For purposes of the disposition rule, the amount treated as 
unamortized start-up expenditures equals the aggregate amount of 
unamortized start-up and organizational expenditures multiplied by the 
ratio that (1) the amount of start-up expenditures taken into account 
in determining the deduction under section 195(b)(1) bears to (2) the 
aggregate amount of start-up and organizational expenditures so taken 
into account. For example, continuing the example in footnote 13, 
assume that on June 30, 2024, Corporation X completely discontinues its 
initial trade or business for purposes of section 165, but remains in 
existence. Corporation X has $80,000 of unamortized start-up and 
organizational expenditures on such date. Corporation X may deduct 
$61,538 of unamortized start-up expenditures in 2024 ($80,000 x 
($100,000/$130,000)), but must continue to amortize the remaining 
$18,462 of unamortized organizational expenditures over the remaining 
120 months. Thus, Corporation X's total deduction under section 195 for 
2024, the year in which its trade or business is discontinued, is 
$66,461 (section 165 loss deduction of $61,538 + amortization deduction 
of $4,923 (i.e., the $4,000 amortization deduction for start-up and 
organizational expenditures from January 1, 2024, through June 30, 
2024, plus the $923 amortization deduction for organizational 
expenditures from July 1, 2024, through December 31, 2024)).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to start-up and organizational 
expenditures paid or incurred in connection with active trades 
or businesses which begin in taxable years beginning after 
December 31, 2018.

B. Preservation of Start-Up Net Operating Losses and Tax Credits After 
Ownership Change (Sec. 3 of the Bill and Secs. 382 and 383 of the Code)


                              PRESENT LAW

Net operating losses

    Section 382(a) limits the extent to which a corporation 
that experiences an ownership change may offset taxable income 
after the ownership change with losses attributable to the 
period before the ownership change. Specifically, following an 
ownership change, a new loss corporation's taxable income may 
be offset by pre-change losses from an old loss corporation 
only to the extent of the section 382 limitation (discussed 
below).\14\ A pre-change loss is (1) any net operating loss 
carryforward of an old loss corporation to a taxable year 
ending with an ownership change or in which an ownership change 
occurs, and (2) any net operating loss of an old loss 
corporation for the taxable year in which the ownership change 
occurs to the extent such loss is allocable to the period in 
such year on or before such change date.\15\ Any loss that is 
not a pre-change loss is not limited by section 382(a).\16\
---------------------------------------------------------------------------
    \14\Sec. 382(a). However, if the new loss corporation does not 
continue the business enterprise of the old loss corporation at all 
times during the two-year period beginning on the change date, the 
section 382 limitation for any post-change year is generally zero. See 
sec. 382(c).
    \15\Sec. 382(d)(1).
    \16\Special rules apply to built-in gains and losses and section 
338 gains. See sec. 382(h); Notice 2003-65, 2003-2 C.B. 747; Notice 
2018-30, 2018-21 I.R.B. 610. Special rules also apply to financially 
troubled corporations, discussed below.
---------------------------------------------------------------------------
    The section 382 limitation is determined by multiplying the 
value of the old loss corporation immediately before the 
ownership change by the long-term tax-exempt interest rate.\17\ 
If the section 382 limitation for a post-change year exceeds 
the taxable income of the new loss corporation for such year 
which was offset by pre-change losses, the section 382 
limitation for the next post-change year is increased by the 
amount of such excess.\18\
---------------------------------------------------------------------------
    \17\Sec. 382(b)(1). The long-term tax-exempt rate is the highest of 
the adjusted Federal long-term rates in effect for any month in the 
three-calendar-month period ending with the calendar month in which the 
change date occurs. Sec. 382(f)(1).
    \18\Sec. 382(b)(2).
---------------------------------------------------------------------------
    A loss corporation is a corporation entitled to use a net 
operating loss carryover or having a net operating loss for the 
taxable year in which an ownership change occurs.\19\ An old 
loss corporation is a corporation with respect to which there 
is an ownership change and which was a loss corporation before 
the ownership change.\20\ A new loss corporation is a 
corporation which is a loss corporation after an ownership 
change.\21\
---------------------------------------------------------------------------
    \19\Sec. 382(k)(1). A loss corporation also includes any 
corporation that entitled to use a carryforward of disallowed interest 
under section 381(c)(20), and generally includes any corporation with a 
net unrealized built-in loss. Treasury Regulation section 1.382-2(a)(1) 
contains additional description of when a corporation qualifies as a 
loss corporation.
    \20\Sec. 382(k)(2).
    \21\Sec. 382(k)(3).
---------------------------------------------------------------------------
    An ownership change generally is defined as an increase by 
more than 50 percentage points in the percentage of stock of a 
loss corporation that is owned by any one or more five-percent 
shareholders\22\ within a three-year period.\23\ Treasury 
regulations generally provide that this measurement is to be 
made as of any testing date, which is any date on which the 
ownership by one or more persons who were or who become five-
percent shareholders changes.\24\
---------------------------------------------------------------------------
    \22\The term ``5-percent shareholder'' means any person holding 
five percent or more of the stock of the corporation at any time during 
the testing period. Sec. 382(k)(7). Determinations of the percentage of 
stock of a corporation held by any person are made on the basis of 
value. Sec. 382(k)(6)(C).
    \23\Sec. 382(g) and (i).
    \24\See Treas. Reg. sec. 1.382-2(a)(4)(i) (providing that, 
generally, a loss corporation is required to determine whether an 
ownership change has occurred immediately after any owner shift, or 
issuance or transfer of certain options with respect to stock of the 
loss corporation that are treated as exercised, and defining a 
``testing date'' as ``each date on which a loss corporation is required 
to make a determination of whether an ownership change has occurred''). 
All computations of increases in percentage ownership are to be made as 
of the close of the testing date. Treas. Reg. sec. 1.382-2(a)(4)(i). A 
loss corporation must include a statement on or with its Federal income 
tax return for each taxable year that it is a loss corporation in which 
an event described in Temporary Treasury Regulation section 1.382-
2T(a)(2) occurs. Treas. Reg. sec. 1.382-11(a). The statement must 
include: (1) the date(s) of any owner shifts, equity structure shifts, 
or other transactions described in Temporary Treasury Regulation 
Section 1.382-2T(a)(2)(i), (2) the date(s) on which any ownership 
change(s) occurred, and (3) the amount of any attributes described in 
Treasury Regulation Section 1.382-2(a)(1)(i) that caused the 
corporation to be a loss corporation. Ibid.
---------------------------------------------------------------------------
    Section 382(l)(5) provides rules that limit section 382's 
application to ownership changes that occur in the context of a 
title 11 or similar case. These rules generally provide that 
the use of pre-change losses is not limited by section 382(a) 
where the old loss corporation is under the jurisdiction of a 
court in a title 11 or similar case immediately before the 
ownership change and the shareholders and creditors of the old 
loss corporation immediately before the ownership change own 
(after the ownership change) at least 50 percent of the total 
voting power of the stock of the new loss corporation and at 
least 50 percent of the total value of the stock of the new 
loss corporation.\25\ Among other things, these rules provide 
that if, during the two-year period immediately following an 
ownership change meeting the criteria described in the previous 
sentence, an ownership change of the new loss corporation 
occurs, the exception described in the previous sentence does 
not apply and the section 382 limitation with respect to the 
second ownership change for any post-change year after the 
second ownership change is zero.\26\
---------------------------------------------------------------------------
    \25\Sec. 382(l)(5)(A).
    \26\Sec. 382(l)(5)(D).
---------------------------------------------------------------------------
    Section 382(l)(6) provides that in an ownership change 
involving a transfer by a corporation of all or part of its 
assets to another corporation in a title 11 or similar case 
that fails to meet the criteria described in the previous 
paragraph, or in an ownership change involving an exchange of 
debt for stock in a title 11 or similar case, the value of the 
old loss corporation used for purposes of calculating the 
section 382 limitation must reflect any increase in value of 
the old loss corporation resulting from any surrender or 
cancellation of creditors' claims in the transaction.

Tax credits

    Section 383 imposes similar limitations to those imposed by 
section 382(a) on the use of carryforwards of unused general 
business credits, alternative minimum tax credits, foreign tax 
credits, and net capital loss carryforwards. With regard to 
unused general business credits, section 383 and the 
regulations thereunder limit the amount of regular tax 
liability that can be offset by excess credits (referred to in 
the Treasury regulations as ``pre-change credits'') of the new 
loss corporation.\27\ Use of pre-change credits absorbs the 
section 383 credit limitation.\28\ Once the section 383 credit 
limitation has been fully absorbed, no more pre-change credits 
may be used.\29\ Any unused general business credit that is not 
a pre-change credit is not limited by section 383 or the 
regulations thereunder.
---------------------------------------------------------------------------
    \27\Treas. Reg. sec. 1.383-1(b).
    \28\The section 383 credit limitation is defined as the excess of 
(1) the new loss corporation's regular tax liability for the post-
change year over (2) the new loss corporation's regular tax liability 
for the post-change year computed, for this purpose, by allowing as an 
additional deduction an amount equal to the section 382 limitation 
remaining after reduction for pre-change losses and pre-change capital 
losses under sections 382 and 383 (and the regulations thereunder). See 
Treas. Reg. sec. 1.383-1(c)(6); see generally sec. 383(a).
    \29\Treas. Reg. sec. 1.383-1(d)(1).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The tax law includes rules that limit the use of tax 
attributes of a corporation, such as net operating loss 
carryforwards and general business credits, following certain 
ownership change transactions in order to prevent abuse, such 
as trafficking in these attributes. The Committee believes that 
these limits can be unduly restrictive when applied to losses 
and credits attributable to the early years of a trade or 
business. At the start-up stage of a business, when income 
tends to be low or nonexistent, application of the limits can 
prevent the future use of all or almost all of the business's 
loss carryforwards and unused credits. The Committee believes 
that excepting such tax attributes from these limitations will 
better allow start-up businesses to raise capital and pursue 
opportunities to grow.

                        EXPLANATION OF PROVISION

    The provision amends sections 382 and 383 to permit the 
pre-change net operating loss carryforwards, net operating 
losses, general business credit carryforwards, and general 
business credits of a start-up business to be available for use 
in a post-change year without limitation by sections 382(a) and 
383.

Start-up losses under section 382

    With regard to section 382, the provision generally reduces 
a new loss corporation's pre-change losses by the portion of 
the old loss corporation's net operating loss carryforwards and 
net operating losses that are attributable to a start-up 
business of the old loss corporation.\30\ Specifically, in the 
case of any pre-change net operating loss carryforward which 
arose in any start-up period taxable year (defined below), the 
amount of such net operating loss carryforward otherwise taken 
into account for purposes of calculating the new loss 
corporation's pre-change loss is reduced by the net start-up 
loss (defined below) determined with respect to the start-up 
trade or business. In a similar manner, pre-change losses are 
also reduced by any net operating loss incurred in the year of 
the ownership change to the extent such loss is attributable to 
a start-up business in the period on or before the change date. 
By reducing pre-change losses, the provision reduces the total 
amount of losses that are limited by section 382(a).
---------------------------------------------------------------------------
    \30\However, the provision does not apply for purposes of including 
the carryover of disallowed business interest in the corporation's pre-
change loss under section 382(d)(1) and (3).
---------------------------------------------------------------------------
    A start-up period taxable year is any taxable year of the 
old loss corporation which (1) begins before the close of the 
three-year period beginning on the date on which any trade or 
business of such corporation begins as an active trade or 
business\31\ and (2) ends after September 10, 2018.\32\ Start-
up period taxable years may predate the beginning of active 
trade or business, meaning deductible expenditures paid or 
incurred in connection with a trade or business prior to the 
beginning of active trade or business may be treated as paid or 
incurred in a start-up period taxable year with respect to such 
trade or business.\33\
---------------------------------------------------------------------------
    \31\The beginning of an active trade or business is the same under 
the provision as under present-law section 195(c)(2) without regard to 
subparagraph (B) thereof. (While section 195 is modified elsewhere in 
the bill, those changes do not affect the meaning of the beginning of 
active trade or business under section 195.) Thus, the three-year 
period described in the provision begins on the same date that triggers 
allowance of a deduction under section 195(b)(1)(A). The Senate Finance 
Committee Report describing what ultimately became section 195 defined 
that concept as follows:
---------------------------------------------------------------------------
      Generally, it is anticipated that the definition of when a 
      business begins is to be made in reference to the existing 
      provisions for the amortization of organizational 
      expenditures (Code secs. 248 and 709). Generally, if the 
      activities of the corporation have advanced to the extent 
      necessary to establish the nature of its business 
      operations, it will be deemed to have begun business. For 
      example, the acquisition of operating assets which are 
      necessary to the type of business contemplated may 
      constitute the beginning of business.
See Senate Finance Committee Report to accompany H.R. 7956, 
Miscellaneous Revenue Act of 1980, S. Rep. No. 96-1036 (96th Cong., 2d 
Sess.), November 25, 1980, p. 14. As the Senate Finance Committee 
Report states, this is similar to the concept referred to in section 
248(a)(2) and defined in Treasury regulations as follows:
      The determination of the date the corporation begins 
      business presents a question of fact which must be 
      determined in each case in light of all the circumstances 
      of the particular case. The words ``begins business,'' 
      however, do not have the same meaning as ``in existence.'' 
      Ordinarily, a corporation begins business when it starts 
      the business operations for which it was organized; a 
      corporation comes into existence on the date of its 
      incorporation. Mere organizational activities, such as the 
      obtaining of the corporate charter, are not alone 
      sufficient to show the beginning of business. If the 
      activities of the corporation have advanced to the extent 
      necessary to establish the nature of its business 
      operations, however, it will be deemed to have begun 
      business. For example, the acquisition of operating assets 
      which are necessary to the type of business contemplated 
      may constitute the beginning of business.
See Treas. Reg. sec. 1.248-1(d); see also Treas. Reg. sec. 1.709-2(c) 
(echoing the distinctions above and explaining that ``[t]he term 
`operating assets', as used herein, means assets that are in a state of 
readiness to be placed in service within a reasonable period following 
their acquisition''); Richmond Television Corp. v. United States, 345 
F.2d 901 (4th Cir. 1965) (holding that trade or business has begun when 
the taxpayer has ``begun to function as a going concern and performed 
those activities for which it was organized''). The Internal Revenue 
Service has cited Richmond Television in interpreting the active trade 
or business requirement under section 195. See, e.g., Tech. Adv. Mem. 
9310001, November 4, 1992; Tech. Adv. Mem. 9414004, December 17, 1993.
---------------------------------------------------------------------------
    \32\By requiring that the start-up taxable year end after September 
10, 2018, the provision does not apply to expenses incurred in taxable 
years ending on or prior to September 10, 2018.
    \33\For example, a taxpayer could have expenses in connection with 
a trade or business under section 174 prior to beginning active trade 
or business.
---------------------------------------------------------------------------
    Generally, a net start-up loss is the portion of the old 
loss corporation's net operating loss carryforward from a 
particular year that is attributable to activities of a start-
up business in that year. Specifically, the net start-up loss 
with respect to a start-up business for any start-up period 
taxable year is the amount that bears the same ratio to the net 
operating loss carryforward which arose in such year as (1) the 
net operating loss (if any) which would have been determined 
for such taxable year if only items of income, gain, deduction, 
and loss properly allocable to the start-up trade or business 
were taken into account, bears to (2) the amount of the net 
operating loss determined for such taxable year. If the ratio 
described in the previous sentence is greater than one, the 
ratio shall be deemed to equal one.
    Any net operating loss incurred prior to the ownership 
change date in the year of change is treated similarly to net 
operating loss carryforwards to the taxable year ending with 
the ownership change or in which the change date occurs, after 
proper allocation of such net operating loss and any net start-
up loss to the period in such year on or before the change 
date.\34\ For example, consider Corporation X, which undergoes 
an ownership change. In the year of change (which is also a 
start-up period taxable year), Corporation X has a net start-up 
loss of $100, $50 of which is allocable to the period on or 
before the change date. In this example, Corporation X's pre-
change losses subject to limitation under section 382(a) would 
be reduced by $50.
---------------------------------------------------------------------------
    \34\Section 382(d)(1)(B) requires allocation of the net operating 
loss to the period on or before the change date.
---------------------------------------------------------------------------
    In the case of any start-up period taxable year which ends 
after the close of the three-year period beginning on the date 
an active trade or business begins, the net start-up loss with 
respect to such trade or business for such year is the same 
proportion of such loss as the proportion of such taxable year 
on or before the close of such period. For example, consider 
Corporation Y, a calendar year taxpayer that begins an active 
trade or business on June 30, 2019. If Corporation Y has a net 
start-up loss for tax year 2022 and later undergoes an 
ownership change, Corporation Y's pre-change losses would be 
reduced by half of the net start-up loss for 2022.
    In the event that the old loss corporation starts more than 
one trade or business in a timeframe that causes a single 
taxable year of the old loss corporation to be a start-up 
period taxable year with respect to more than one trade or 
business, the provision applies separately to each trade or 
business, and the provision's aggregate reduction of pre-change 
losses for any taxable year of the old loss corporation cannot 
exceed the old loss corporation's net operating loss 
carryforward with respect to that year.
    If the new loss corporation does not continue the start-up 
trade or business at all times during the two-year period 
beginning on the change date, the provision does not apply with 
respect to such trade or business.
    The provision also provides that it does not apply in the 
event of an ownership change described in section 382(l)(5)(D) 
(i.e., an ownership change that occurs during the two-year 
period following an ownership change in a title 11 or similar 
case that meets the criteria of section 382(l)(5)(A)), nor does 
it apply to an ownership change to which section 382(l)(6) 
applies (i.e., certain insolvency transactions).

Start-up excess credits under section 383

    The provision generally permits unused general business 
credits earned by a start-up business prior to an ownership 
change to be used in a post-change year without limitation by 
section 383. Using the same definition of a start-up period 
taxable year as above, the provision reduces the amount of 
excess credits subject to limitation under section 383 by the 
amount of any start-up excess credit earned in any start-up 
period taxable year.\35\ A start-up excess credit with respect 
to a start-up business for any start-up period taxable year is 
the amount which bears the same ratio to the unused general 
business credit which arose in such taxable year as (1) the 
amount of the general business credit which would have been 
determined for such taxable year if only credits properly 
allocable to the start-up trade or business were taken into 
account, bears to (2) the amount of the general business credit 
determined for such taxable year. By reducing excess credits, 
the provision reduces the total amount of credits that are 
limited by section 383.
---------------------------------------------------------------------------
    \35\As described above, the regulations under section 383 use the 
concept of ``pre-change credits'' rather than excess credits. The 
provision alters the Code, and so uses the Code's approach; the intent 
is that the rule for reducing excess credits should apply to the 
calculation of pre-change credits under Treasury regulation section 
1.383-1.
---------------------------------------------------------------------------
    Rules similar to those provided by the provision under 
section 382 apply to (1) the last taxable year in the start-up 
period, (2) credits arising in the year of ownership change, 
(3) taxable years which are start-up period taxable years with 
respect to more than one trade or business, and (4) the two-
year continuity of business requirement.

                             EFFECTIVE DATE

    The provision is effective for taxable years ending after 
September 10, 2018.
    Transition rules provide that the provision does not apply 
to any active trade or business that begins on or before 
September 10, 2018.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6756, the ``American Innovation Act of 
2018,'' on September 13, 2018.
    H.R. 6756 was ordered favorably reported to the House of 
Representatives as amended by an amendment in the nature of a 
substitute offered by Chairman Brady by a voice vote (with a 
quorum being present).

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 6756, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal fiscal year budget receipts for the period 
2019-2028:

                                                                                          FISCAL YEARS
                                                                                      [Millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                          Provision                              Effective      2019     2020     2021     2022     2023     2024     2025     2026      2027       2028     2019-23    2019-28
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1. Simplification and expansion of deduction for start-up                [1]      -44     -109     -153     -198     -246     -295     -346     -399       -456       -518       -750     -2,764
 and organizational expenditures............................
2. Preservation of start-up net operating losses and tax        tyea 9/10/18      -17      -32      -55      -90     -144     -225     -329     -459       -592       -709       -338     -2,652
 credits after ownership changes............................
                                                             -----------------------------------------------------------------------------------------------------------------------------------
    NET TOTAL...............................................                      -61     -141     -208     -288     -390     -520     -675     -858     -1,048     -1,227     -1,088     -5,416
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Joint Committee on Taxation
Note: Details may not add to totals due to rounding. The date of enactment is generally assumed to be October 1, 2018.
Legend for ``Effective'' column: tyea = taxable years ending after
[1] Proposal applies to expenditures paid or incurred in connection with active trades or businesses which begin in taxable years beginning after December 31, 2018.

    Pursuant to clause 8 of rule XIII of the Rules of the House 
of Representatives, the following statement is made by the 
Joint Committee on Taxation with respect to the provisions of 
the bill amending the Internal Revenue Code of 1986: The gross 
budgetary effect (before incorporating macroeconomic effects) 
in any fiscal year is less than 0.25 percent of the current 
projected gross domestic product of the United States for that 
fiscal year; therefore, the bill is not ``major legislation'' 
for purposes of requiring that the estimate include the 
budgetary effects of changes in economic output, employment, 
capital stock and other macroeconomic variables.

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

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue provisions involve no 
new tax expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

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

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 21, 2018.
Hon. Kevin Brady,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 6756, the American 
Innovation Act of 2018. It contains estimates of tax provisions 
prepared by the staff of the Joint Committee on Taxation.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Cecilia 
Pastrone.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 6756--American Innovation Act of 2018

    Summary: H.R. 6756, the American Innovation Act of 2018, 
would amend the Internal Revenue Code by modifying the 
deduction for start-up and organizational expenditures and the 
treatment of losses, carryforwards and unused pre-change tax 
credits for companies after an ownership change. The bill 
raises the amount which may be deducted for start-up and 
organizational expenditures. In addition, it removes some 
limitations on the use of losses, carryforwards, and unused 
pre-change tax credits for new loss corporations that have 
experienced an ownership change.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting the bill would reduce revenues by 
$5,416 million over the 2019-2028 period. Pay-as-you-go 
procedures apply because enacting the legislation would affect 
revenues.
    JCT estimates that enacting the legislation would increase 
on-budget deficits by more than $5 billion in at least one of 
the four consecutive 10-year periods beginning in 2029. CBO and 
JCT estimate that enacting the bill would not increase net 
direct spending in any of the four consecutive 10-year periods 
beginning in 2029.
    JCT has determined that the tax provisions of the bill 
contain no intergovernmental or private sector mandates as 
defined in the Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary effect of H.R. 6756 is shown in the following table.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         By fiscal year, in millions of dollars--
                                                        ----------------------------------------------------------------------------------------------------------------------------------------
                                                          2018    2019      2020       2021       2022       2023       2024       2025       2026       2027       2028    2019-2023  2019-2028
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       CHANGES IN REVENUES
 
Simplification and expansion of deduction for start-up        0     -44       -109       -153       -198       -246       -295       -346       -399       -456       -518       -750     -2,764
 and organizational expenditures.......................
Preservation of start-up net operating losses and tax         0     -17        -32        -55        -90       -144       -225       -329       -459       -592       -709       -338     -2,652
 credits after ownership changes.......................
    Total Estimated Changes in Revenues................       0     -61       -141       -208       -288       -390       -520       -675       -858     -1,048     -1,227     -1,088     -5,416
 
                                                                     NET INCREASE IN THE DEFICIT FROM DECREASES IN REVENUES
 
Effect on Deficit......................................       0      61        141        208        288        390        520        675        858      1,048      1,227      1,088      5,416
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Components may not add to totals due to rounding.

    Basis of estimate: The Congressional Budget Act of 1974, as 
amended, stipulates that revenue estimates provided by the 
staff of the Joint Committee on Taxation will be the official 
estimates for all tax legislation considered by the Congress. 
As such, CBO incorporates those estimates into its cost 
estimates of the effects of legislation. All of the estimates 
for the provisions of H.R. 6756 were provided by JCT.\1\ The 
date of enactment is generally assumed to be October 1, 2018.
---------------------------------------------------------------------------
    \1\For JCT's description of the bill and estimates of the 
provisions, which include detail beyond the summary presented below, 
see Joint Committee on Taxation, Description of H.R. 6756, the 
``American Innovation Act of 2018,'' JCX-76-18, https://www.jct.gov/
publications.html?func=startdown&id=5142, and Estimated Revenue Effects 
of H.R. 6756, the ``American Innovation Act of 2018,'' JCX-78-18, 
https://www.jct.gov/publications.html?func=startdown&id=5144.
---------------------------------------------------------------------------
    Simplification and Expansion of Deduction for Start-up and 
Organizational Expenditures. Under current law, business start-
up expenditures may be deducted in the amount of $5,000 in the 
taxable year in which a business or trade was started. Up to 
$5,000 of organizational expenditures may also be deducted. The 
amount deducted in both cases is reduced by the amount by which 
the cumulative cost of start-up and organizational expenditures 
exceeds $50,000.
    H.R. 6756 would raise the amount that could be deducted for 
start-up and organizational expenditures to $20,000 for the 
combined total of start-up and organizational expenses. This is 
reduced by the amount by which the sum of start-up and 
organizational expenditures exceeds $120,000. The dollar 
amounts are adjusted for inflation beginning in 2020. H.R. 6756 
also allows partnerships or corporations liquidated within a 
180-month period and disposed or discontinued businesses to 
deduct any unamortized start-up expenses. JCT estimates that 
the changes in this provision would reduce revenues by $2,764 
million from 2019 to 2028.
    Preservation of Start-Up Net Operating Losses and Tax 
Credits after Ownership Changes. Under current law, companies 
that experience an ownership change may offset taxable income 
by the pre-change net operating losses (NOLs), unused pre-
change tax credits, and net capital losses of the original 
corporation subject to certain limitations. Pre-change credits 
from the old loss corporation may include unused general 
business credits, alternative minimum tax credits, and foreign 
tax credits. The pre-change NOL amount that can be used to 
offset taxable income is limited to the value of the old loss 
corporation before the ownership change multiplied by the long-
term tax-exempt interest rate. Use of pre-change credits and 
net capital losses to offset the tax liability of the new loss 
corporation are likewise limited. Similarly limited 
carryforwards of both losses and pre-change credits may also be 
used provided the new loss corporation continues the business 
of the old corporation for a two-year period.
    H.R. 6756 generally provides for an exception to the 
limitations for pre-change net operating and capital losses, 
unused credits, and carryforwards in the case of a start-up. 
The bill would allow the new loss firm to fully utilize pre-
change losses, unused credits and carryforwards identified as 
accruing to the old loss firm as a result of start-up activity. 
Use of any remaining pre-change losses, unused credits or 
carryforwards of the old loss firm would then be subject to the 
limitations. Business continuity conditions still apply for the 
use of carryforwards. JCT estimates that this provision would 
reduce revenues by $2,652 million from 2019 to 2028.
    Pay-As-You-Go Considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown in the 
following table. Only on-budget changes to outlays or revenues 
are subject to pay-as-you-go procedures.

         CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 6756, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON SEPTEMBER 13, 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               By fiscal year, in millions of dollars--
                                             -----------------------------------------------------------------------------------------------------------
                                              2018   2019    2020    2021    2022    2023    2024    2025    2026    2027    2028   2019-2023  2019-2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          NET INCREASE IN THE ON-BUDGET DEFICIT
 
Statutory Pay-As-You-Go Effects.............     0      61     141     208     288     390     520     675     858   1,048   1,227     1,088      5,416
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Components may not add to totals due to rounding.

    Increase in long-term direct spending and deficits: JCT 
estimates that enacting H.R. 6756 would increase on-budget 
deficits by more than $5 billion in at least one of the four 
10-year periods beginning in 2029. CBO and JCT estimate that 
enacting the bill would not increase net direct spending in any 
of the four consecutive 10-year periods beginning in 2029.
    Mandates: JCT has determined that H.R. 6756 contains no 
private-sector or intergovernmental mandates as defined by 
UMRA.
    Estimate prepared by: Staff of the Joint Committee on 
Taxation and Cecilia Pastrone.
    Estimate reviewed by: Joshua Shakin, Chief, Revenue 
Estimating Unit; John McClelland, Assistant Director for Tax 
Analysis.

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


          A. Committee Oversight Findings and Recommendations

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee advises that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated into 
the description portions of this report.

        B. Statement of General Performance Goals and Objectives

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

              C. Information Relating to Unfunded Mandates

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

                D. Applicability of House Rule XXI 5(b)

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

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (``IRS Reform Act'') 
requires the staff of the Joint Committee on Taxation (in 
consultation with the Internal Revenue Service and the Treasury 
Department) to provide a tax complexity analysis. The 
complexity analysis is required for all legislation reported by 
the Senate Committee on Finance, the House Committee on Ways 
and Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code of 1986 and has widespread applicability 
to individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the IRS Reform Act because 
the bill contains no provisions that amend the Internal Revenue 
Code of 1986 and that have ``widespread applicability'' to 
individuals or small businesses, within the meaning of the 
rule.

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

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

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

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(i) of H. Res. 5 (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee advises that the bill requires no 
directed rule makings within the meaning of such section.

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


      A. Changes in Existing Law Proposed by the Bill, as Reported

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

         Changes in Existing Law Made by the Bill, as Reported

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

                     INTERNAL REVENUE CODE OF 1986




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

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


     PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS


     * * * * * * *
[Sec. 195. Start-up expenditures.]
Sec. 195. Start-up and organizational expenditures.

           *       *       *       *       *       *       *


SEC. 170. CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS.

  (a) Allowance of deduction.--
          (1) General rule.--There shall be allowed as a 
        deduction any charitable contribution (as defined in 
        subsection (c)) payment of which is made within the 
        taxable year. A charitable contribution shall be 
        allowable as a deduction only if verified under 
        regulations prescribed by the Secretary.
          (2) Corporations on accrual basis.--In the case of a 
        corporation reporting its taxable income on the accrual 
        basis, if--
                  (A) the board of directors authorizes a 
                charitable contribution during any taxable 
                year, and
                  (B) payment of such contribution is made 
                after the close of such taxable year and on or 
                before the 15th day of the fourth month 
                following the close of such taxable year,
        then the taxpayer may elect to treat such contribution 
        as paid during such taxable year. The election may be 
        made only at the time of the filing of the return for 
        such taxable year, and shall be signified in such 
        manner as the Secretary shall by regulations prescribe.
          (3) Future interests in tangible personal property.--
        For purposes of this section, payment of a charitable 
        contribution which consists of a future interest in 
        tangible personal property shall be treated as made 
        only when all intervening interests in, and rights to 
        the actual possession or enjoyment of, the property 
        have expired or are held by persons other than the 
        taxpayer or those standing in a relationship to the 
        taxpayer described in section 267(b) or 707(b). For 
        purposes of the preceding sentence, a fixture which is 
        intended to be severed from the real property shall be 
        treated as tangible personal property.
  (b) Percentage limitations.--
          (1) Individuals.--In the case of an individual, the 
        deduction provided in subsection (a) shall be limited 
        as provided in the succeeding subparagraphs.
                  (A) General rule.--Any charitable 
                contribution to--
                          (i) a church or a convention or 
                        association of churches,
                          (ii) an educational organization 
                        which normally maintains a regular 
                        faculty and curriculum and normally has 
                        a regularly enrolled body of pupils or 
                        students in attendance at the place 
                        where its educational activities are 
                        regularly carried on,
                          (iii) an organization the principal 
                        purpose or functions of which are the 
                        providing of medical or hospital care 
                        or medical education or medical 
                        research, if the organization is a 
                        hospital, or if the organization is a 
                        medical research organization directly 
                        engaged in the continuous active 
                        conduct of medical research in 
                        conjunction with a hospital, and during 
                        the calendar year in which the 
                        contribution is made such organization 
                        is committed to spend such 
                        contributions for such research before 
                        January 1 of the fifth calendar year 
                        which begins after the date such 
                        contribution is made,
                          (iv) an organization which normally 
                        receives a substantial part of its 
                        support (exclusive of income received 
                        in the exercise or performance by such 
                        organization of its charitable, 
                        educational, or other purpose or 
                        function constituting the basis for its 
                        exemption under section 501(a)) from 
                        the United States or any State or 
                        political subdivision thereof or from 
                        direct or indirect contributions from 
                        the general public, and which is 
                        organized and operated exclusively to 
                        receive, hold, invest, and administer 
                        property and to make expenditures to or 
                        for the benefit of a college or 
                        university which is an organization 
                        referred to in clause (ii) of this 
                        subparagraph and which is an agency or 
                        instrumentality of a State or political 
                        subdivision thereof, or which is owned 
                        or operated by a State or political 
                        subdivision thereof or by an agency or 
                        instrumentality of one or more States 
                        or political subdivisions,
                          (v) a governmental unit referred to 
                        in subsection (c)(1),
                          (vi) an organization referred to in 
                        subsection (c)(2) which normally 
                        receives a substantial part of its 
                        support (exclusive of income received 
                        in the exercise or performance by such 
                        organization of its charitable, 
                        educational, or other purpose or 
                        function constituting the basis for its 
                        exemption under section 501(a)) from a 
                        governmental unit referred to in 
                        subsection (c)(1) or from direct or 
                        indirect contributions from the general 
                        public,
                          (vii) a private foundation described 
                        in subparagraph (F),
                          (viii) an organization described in 
                        section 509(a)(2) or (3), or
                          (ix) an agricultural research 
                        organization directly engaged in the 
                        continuous active conduct of 
                        agricultural research (as defined in 
                        section 1404 of the National 
                        Agricultural Research, Extension, and 
                        Teaching Policy Act of 1977) in 
                        conjunction with a land-grant college 
                        or university (as defined in such 
                        section) or a non-land grant college of 
                        agriculture (as defined in such 
                        section), and during the calendar year 
                        in which the contribution is made such 
                        organization is committed to spend such 
                        contribution for such research before 
                        January 1 of the fifth calendar year 
                        which begins after the date such 
                        contribution is made,
                shall be allowed to the extent that the 
                aggregate of such contributions does not exceed 
                50 percent of the taxpayer's contribution base 
                for the taxable year.
                  (B) Other contributions.--Any charitable 
                contribution other than a charitable 
                contribution to which subparagraph (A) applies 
                shall be allowed to the extent that the 
                aggregate of such contributions does not exceed 
                the lesser of--
                          (i) 30 percent of the taxpayer's 
                        contribution base for the taxable year, 
                        or
                          (ii) the excess of 50 percent of the 
                        taxpayer's contribution base for the 
                        taxable year over the amount of 
                        charitable contributions allowable 
                        under subparagraph (A) (determined 
                        without regard to subparagraph (C)).
                If the aggregate of such contributions exceeds 
                the limitation of the preceding sentence, such 
                excess shall be treated (in a manner consistent 
                with the rules of subsection (d)(1)) as a 
                charitable contribution (to which subparagraph 
                (A) does not apply) in each of the 5 succeeding 
                taxable years in order of time.
                  (C) Special limitation with respect to 
                contributions described in subparagraph (A) of 
                certain capital gain property (i) In the case 
                of charitable contributions described in 
                subparagraph (A) of capital gain property to 
                which subsection (e)(1)(B) does not apply, the 
                total amount of contributions of such property 
                which may be taken into account under 
                subsection (a) for any taxable year shall not 
                exceed 30 percent of the taxpayer's 
                contribution base for such year. For purposes 
                of this subsection, contributions of capital 
                gain property to which this subparagraph 
                applies shall be taken into account after all 
                other charitable contributions (other than 
                charitable contributions to which subparagraph 
                (D) applies).
                          (ii) If charitable contributions 
                        described in subparagraph (A) of 
                        capital gain property to which clause 
                        (i) applies exceeds 30 percent of the 
                        taxpayer's contribution base for any 
                        taxable year, such excess shall be 
                        treated, in a manner consistent with 
                        the rules of subsection (d)(1), as a 
                        charitable contribution of capital gain 
                        property to which clause (i) applies in 
                        each of the 5 succeeding taxable years 
                        in order of time.
                          (iii) At the election of the taxpayer 
                        (made at such time and in such manner 
                        as the Secretary prescribes by 
                        regulations), subsection (e)(1) shall 
                        apply to all contributions of capital 
                        gain property (to which subsection 
                        (e)(1)(B) does not otherwise apply) 
                        made by the taxpayer during the taxable 
                        year. If such an election is made, 
                        clauses (i) and (ii) shall not apply to 
                        contributions of capital gain property 
                        made during the taxable year, and, in 
                        applying subsection (d)(1) for such 
                        taxable year with respect to 
                        contributions of capital gain property 
                        made in any prior contribution year for 
                        which an election was not made under 
                        this clause, such contributions shall 
                        be reduced as if subsection (e)(1) had 
                        applied to such contributions in the 
                        year in which made.
                          (iv) For purposes of this paragraph, 
                        the term ``capital gain property'' 
                        means, with respect to any 
                        contribution, any capital asset the 
                        sale of which at its fair market value 
                        at the time of the contribution would 
                        have resulted in gain which would have 
                        been long-term capital gain. For 
                        purposes of the preceding sentence, any 
                        property which is property used in the 
                        trade or business (as defined in 
                        section 1231(b)) shall be treated as a 
                        capital asset.
                  (D) Special limitation with respect to 
                contributions of capital gain property to 
                organizations not described in subparagraph (A)
                          (i) In general.--In the case of 
                        charitable contributions (other than 
                        charitable contributions to which 
                        subparagraph (A) applies) of capital 
                        gain property, the total amount of such 
                        contributions of such property taken 
                        into account under subsection (a) for 
                        any taxable year shall not exceed the 
                        lesser of--
                                  (I) 20 percent of the 
                                taxpayer's contribution base 
                                for the taxable year, or
                                  (II) the excess of 30 percent 
                                of the taxpayer's contribution 
                                base for the taxable year over 
                                the amount of the contributions 
                                of capital gain property to 
                                which subparagraph (C) applies.
                        For purposes of this subsection, 
                        contributions of capital gain property 
                        to which this subparagraph applies 
                        shall be taken into account after all 
                        other charitable contributions.
                          (ii) Carryover.--If the aggregate 
                        amount of contributions described in 
                        clause (i) exceeds the limitation of 
                        clause (i), such excess shall be 
                        treated (in a manner consistent with 
                        the rules of subsection (d)(1)) as a 
                        charitable contribution of capital gain 
                        property to which clause (i) applies in 
                        each of the 5 succeeding taxable years 
                        in order of time.
                  (E) Contributions of qualified conservation 
                contributions.--
                          (i) In general.--Any qualified 
                        conservation contribution (as defined 
                        in subsection (h)(1)) shall be allowed 
                        to the extent the aggregate of such 
                        contributions does not exceed the 
                        excess of 50 percent of the taxpayer's 
                        contribution base over the amount of 
                        all other charitable contributions 
                        allowable under this paragraph.
                          (ii) Carryover.--If the aggregate 
                        amount of contributions described in 
                        clause (i) exceeds the limitation of 
                        clause (i), such excess shall be 
                        treated (in a manner consistent with 
                        the rules of subsection (d)(1)) as a 
                        charitable contribution to which clause 
                        (i) applies in each of the 15 
                        succeeding years in order of time.
                          (iii) Coordination with other 
                        subparagraphs.--For purposes of 
                        applying this subsection and subsection 
                        (d)(1), contributions described in 
                        clause (i) shall not be treated as 
                        described in subparagraph (A), (B), 
                        (C), or (D) and such subparagraphs 
                        shall apply without regard to such 
                        contributions.
                          (iv) Special rule for contribution of 
                        property used in agriculture or 
                        livestock production.--
                                  (I) In general.--If the 
                                individual is a qualified 
                                farmer or rancher for the 
                                taxable year for which the 
                                contribution is made, clause 
                                (i) shall be applied by 
                                substituting ``100 percent'' 
                                for ``50 percent''.
                                  (II) Exception.--Subclause 
                                (I) shall not apply to any 
                                contribution of property made 
                                after the date of the enactment 
                                of this subparagraph which is 
                                used in agriculture or 
                                livestock production (or 
                                available for such production) 
                                unless such contribution is 
                                subject to a restriction that 
                                such property remain available 
                                for such production. This 
                                subparagraph shall be applied 
                                separately with respect to 
                                property to which subclause (I) 
                                does not apply by reason of the 
                                preceding sentence prior to its 
                                application to property to 
                                which subclause (I) does apply.
                          (v) Definition.--For purposes of 
                        clause (iv), the term ``qualified 
                        farmer or rancher'' means a taxpayer 
                        whose gross income from the trade or 
                        business of farming (within the meaning 
                        of section 2032A(e)(5)) is greater than 
                        50 percent of the taxpayer's gross 
                        income for the taxable year.
                  (F) Certain private foundations.--The private 
                foundations referred to in subparagraph 
                (A)(vii) and subsection (e)(1)(B) are--
                          (i) a private operating foundation 
                        (as defined in section 4942(j)(3)),
                          (ii) any other private foundation (as 
                        defined in section 509(a)) which, not 
                        later than the 15th day of the third 
                        month after the close of the 
                        foundation's taxable year in which 
                        contributions are received, makes 
                        qualifying distributions (as defined in 
                        section 4942(g), without regard to 
                        paragraph (3) thereof), which are 
                        treated, after the application of 
                        section 4942(g)(3), as distributions 
                        out of corpus (in accordance with 
                        section 4942(h)) in an amount equal to 
                        100 percent of such contributions, and 
                        with respect to which the taxpayer 
                        obtains adequate records or other 
                        sufficient evidence from the foundation 
                        showing that the foundation made such 
                        qualifying distributions, and
                          (iii) a private foundation all of the 
                        contributions to which are pooled in a 
                        common fund and which would be 
                        described in section 509(a)(3) but for 
                        the right of any substantial 
                        contributor (hereafter in this clause 
                        called ``donor'') or his spouse to 
                        designate annually the recipients, from 
                        among organizations described in 
                        paragraph (1) of section 509(a), of the 
                        income attributable to the donor's 
                        contribution to the fund and to direct 
                        (by deed or by will) the payment, to an 
                        organization described in such 
                        paragraph (1), of the corpus in the 
                        common fund attributable to the donor's 
                        contribution; but this clause shall 
                        apply only if all of the income of the 
                        common fund is required to be (and is) 
                        distributed to one or more 
                        organizations described in such 
                        paragraph (1) not later than the 15th 
                        day of the third month after the close 
                        of the taxable year in which the income 
                        is realized by the fund and only if all 
                        of the corpus attributable to any 
                        donor's contribution to the fund is 
                        required to be (and is) distributed to 
                        one or more of such organizations not 
                        later than one year after his death or 
                        after the death of his surviving spouse 
                        if she has the right to designate the 
                        recipients of such corpus.
                  (G) Increased limitation for cash 
                contributions.--
                          (i) In general.--In the case of any 
                        contribution of cash to an organization 
                        described in subparagraph (A), the 
                        total amount of such contributions 
                        which may be taken into account under 
                        subsection (a) for any taxable year 
                        beginning after December 31, 2017, and 
                        before January 1, 2026, shall not 
                        exceed 60 percent of the taxpayer's 
                        contribution base for such year.
                          (ii) Carryover.--If the aggregate 
                        amount of contributions described in 
                        clause (i) exceeds the applicable 
                        limitation under clause (i) for any 
                        taxable year described in such clause, 
                        such excess shall be treated (in a 
                        manner consistent with the rules of 
                        subsection (d)(1)) as a charitable 
                        contribution to which clause (i) 
                        applies in each of the 5 succeeding 
                        years in order of time.
                          (iii) Coordination with subparagraphs 
                        (A) and (B)
                                  (I) In general.--
                                Contributions taken into 
                                account under this subparagraph 
                                shall not be taken into account 
                                under subparagraph (A).
                                  (II) Limitation reduction.--
                                For each taxable year described 
                                in clause (i), and each taxable 
                                year to which any contribution 
                                under this subparagraph is 
                                carried over under clause (ii), 
                                subparagraph (A) shall be 
                                applied by reducing (but not 
                                below zero) the contribution 
                                limitation allowed for the 
                                taxable year under such 
                                subparagraph by the aggregate 
                                contributions allowed under 
                                this subparagraph for such 
                                taxable year, and subparagraph 
                                (B) shall be applied by 
                                treating any reference to 
                                subparagraph (A) as a reference 
                                to both subparagraph (A) and 
                                this subparagraph.
                  (H) Contribution base defined.--For purposes 
                of this section, the term ``contribution base'' 
                means adjusted gross income (computed without 
                regard to any net operating loss carryback to 
                the taxable year under section 172).
          (2) Corporations.--In the case of a corporation--
                  (A) In general.--The total deductions under 
                subsection (a) for any taxable year (other than 
                for contributions to which subparagraph (B) or 
                (C) applies) shall not exceed 10 percent of the 
                taxpayer's taxable income.
                  (B) Qualified conservation contributions by 
                certain corporate farmers and ranchers.--
                          (i) In general.--Any qualified 
                        conservation contribution (as defined 
                        in subsection (h)(1))--
                                  (I) which is made by a 
                                corporation which, for the 
                                taxable year during which the 
                                contribution is made, is a 
                                qualified farmer or rancher (as 
                                defined in paragraph (1)(E)(v)) 
                                and the stock of which is not 
                                readily tradable on an 
                                established securities market 
                                at any time during such year, 
                                and
                                  (II) which, in the case of 
                                contributions made after the 
                                date of the enactment of this 
                                subparagraph, is a contribution 
                                of property which is used in 
                                agriculture or livestock 
                                production (or available for 
                                such production) and which is 
                                subject to a restriction that 
                                such property remain available 
                                for such production,
                        shall be allowed to the extent the 
                        aggregate of such contributions does 
                        not exceed the excess of the taxpayer's 
                        taxable income over the amount of 
                        charitable contributions allowable 
                        under subparagraph (A).
                          (ii) Carryover.--If the aggregate 
                        amount of contributions described in 
                        clause (i) exceeds the limitation of 
                        clause (i), such excess shall be 
                        treated (in a manner consistent with 
                        the rules of subsection (d)(2)) as a 
                        charitable contribution to which clause 
                        (i) applies in each of the 15 
                        succeeding taxable years in order of 
                        time.
                  (C) Qualified conservation contributions by 
                certain Native Corporations.--
                          (i) In general.--Any qualified 
                        conservation contribution (as defined 
                        in subsection (h)(1)) which--
                                  (I) is made by a Native 
                                Corporation, and
                                  (II) is a contribution of 
                                property which was land 
                                conveyed under the Alaska 
                                Native Claims Settlement Act,
                        shall be allowed to the extent that the 
                        aggregate amount of such contributions 
                        does not exceed the excess of the 
                        taxpayer's taxable income over the 
                        amount of charitable contributions 
                        allowable under subparagraph (A).
                          (ii) Carryover.--If the aggregate 
                        amount of contributions described in 
                        clause (i) exceeds the limitation of 
                        clause (i), such excess shall be 
                        treated (in a manner consistent with 
                        the rules of subsection (d)(2)) as a 
                        charitable contribution to which clause 
                        (i) applies in each of the 15 
                        succeeding taxable years in order of 
                        time.
                          (iii) Native Corporation.--For 
                        purposes of this subparagraph, the term 
                        ``Native Corporation'' has the meaning 
                        given such term by section 3(m) of the 
                        Alaska Native Claims Settlement Act.
                  (D) Taxable income.--For purposes of this 
                paragraph, taxable income shall be computed 
                without regard to--
                          (i) this section,
                          (ii) part VIII [(except section 
                        248)],
                          (iii) any net operating loss 
                        carryback to the taxable year under 
                        section 172,
                          (iv) any capital loss carryback to 
                        the taxable year under section 
                        1212(a)(1)
                          (v) section 199A(g).
  (c) Charitable contribution defined.--For purposes of this 
section, the term ``charitable contribution'' means a 
contribution or gift to or for the use of--
          (1) A State, a possession of the United States, or 
        any political subdivision of any of the foregoing, or 
        the United States or the District of Columbia, but only 
        if the contribution or gift is made for exclusively 
        public purposes.
          (2) A corporation, trust, or community chest, fund, 
        or foundation--
                  (A) created or organized in the United States 
                or in any possession thereof, or under the law 
                of the United States, any State, the District 
                of Columbia, or any possession of the United 
                States;
                  (B) organized and operated exclusively for 
                religious, charitable, scientific, literary, or 
                educational purposes, or to foster national or 
                international amateur sports competition (but 
                only if no part of its activities involve the 
                provision of athletic facilities or equipment), 
                or for the prevention of cruelty to children or 
                animals;
                  (C) no part of the net earnings of which 
                inures to the benefit of any private 
                shareholder or individual; and
                  (D) which is not disqualified for tax 
                exemption under section 501(c)(3) by reason of 
                attempting to influence legislation, and which 
                does not participate in, or intervene in 
                (including the publishing or distributing of 
                statements), any political campaign on behalf 
                of (or in opposition to) any candidate for 
                public office.
        A contribution or gift by a corporation to a trust, 
        chest, fund, or foundation shall be deductible by 
        reason of this paragraph only if it is to be used 
        within the United States or any of its possessions 
        exclusively for purposes specified in subparagraph (B). 
        Rules similar to the rules of section 501(j) shall 
        apply for purposes of this paragraph.
          (3) A post or organization of war veterans, or an 
        auxiliary unit or society of, or trust or foundation 
        for, any such post or organization--
                  (A) organized in the United States or any of 
                its possessions, and
                  (B) no part of the net earnings of which 
                inures to the benefit of any private 
                shareholder or individual.
          (4) In the case of a contribution or gift by an 
        individual, a domestic fraternal society, order, or 
        association, operating under the lodge system, but only 
        if such contribution or gift is to be used exclusively 
        for religious, charitable, scientific, literary, or 
        educational purposes, or for the prevention of cruelty 
        to children or animals.
          (5) A cemetery company owned and operated exclusively 
        for the benefit of its members, or any corporation 
        chartered solely for burial purposes as a cemetery 
        corporation and not permitted by its charter to engage 
        in any business not necessarily incident to that 
        purpose, if such company or corporation is not operated 
        for profit and no part of the net earnings of such 
        company or corporation inures to the benefit of any 
        private shareholder or individual.
For purposes of this section, the term ``charitable 
contribution'' also means an amount treated under subsection 
(g) as paid for the use of an organization described in 
paragraph (2), (3), or (4).
  (d) Carryovers of excess contributions.--
          (1) Individuals.--
                  (A) In general.--In the case of an 
                individual, if the amount of charitable 
                contributions described in subsection (b)(1)(A) 
                payment of which is made within a taxable year 
                (hereinafter in this paragraph referred to as 
                the ``contribution year'') exceeds 50 percent 
                of the taxpayer's contribution base for such 
                year, such excess shall be treated as a 
                charitable contribution described in subsection 
                (b)(1)(A) paid in each of the 5 succeeding 
                taxable years in order of time, but, with 
                respect to any such succeeding taxable year, 
                only to the extent of the lesser of the two 
                following amounts:
                          (i) the amount by which 50 percent of 
                        the taxpayer's contribution base for 
                        such succeeding taxable year exceeds 
                        the sum of the charitable contributions 
                        described in subsection (b)(1)(A) 
                        payment of which is made by the 
                        taxpayer within such succeeding taxable 
                        year (determined without regard to this 
                        subparagraph) and the charitable 
                        contributions described in subsection 
                        (b)(1)(A) payment of which was made in 
                        taxable years before the contribution 
                        year which are treated under this 
                        subparagraph as having been paid in 
                        such succeeding taxable year; or
                          (ii) in the case of the first 
                        succeeding taxable year, the amount of 
                        such excess, and in the case of the 
                        second, third, fourth, or fifth 
                        succeeding taxable year, the portion of 
                        such excess not treated under this 
                        subparagraph as a charitable 
                        contribution described in subsection 
                        (b)(1)(A) paid in any taxable year 
                        intervening between the contribution 
                        year and such succeeding taxable year.
                  (B) Special rule for net operating loss 
                carryovers.--In applying subparagraph (A), the 
                excess determined under subparagraph (A) for 
                the contribution year shall be reduced to the 
                extent that such excess reduces taxable income 
                (as computed for purposes of the second 
                sentence of section 172(b)(2)) and increases 
                the net operating loss deduction for a taxable 
                year succeeding the contribution year.
          (2) Corporations.--
                  (A) In general.--Any contribution made by a 
                corporation in a taxable year (hereinafter in 
                this paragraph referred to as the 
                ``contribution year'') in excess of the amount 
                deductible for such year under subsection 
                (b)(2)(A) shall be deductible for each of the 5 
                succeeding taxable years in order of time, but 
                only to the extent of the lesser of the two 
                following amounts: (i) the excess of the 
                maximum amount deductible for such succeeding 
                taxable year under subsection (b)(2)(A) over 
                the sum of the contributions made in such year 
                plus the aggregate of the excess contributions 
                which were made in taxable years before the 
                contribution year and which are deductible 
                under this subparagraph for such succeeding 
                taxable year; or (ii) in the case of the first 
                succeeding taxable year, the amount of such 
                excess contribution, and in the case of the 
                second, third, fourth, or fifth succeeding 
                taxable year, the portion of such excess 
                contribution not deductible under this 
                subparagraph for any taxable year intervening 
                between the contribution year and such 
                succeeding taxable year.
                  (B) Special rule for net operating loss 
                carryovers.--For purposes of subparagraph (A), 
                the excess of--
                          (i) the contributions made by a 
                        corporation in a taxable year to which 
                        this section applies, over
                          (ii) the amount deductible in such 
                        year under the limitation in subsection 
                        (b)(2)(A),
                shall be reduced to the extent that such excess 
                reduces taxable income (as computed for 
                purposes of the second sentence of section 
                172(b)(2)) and increases a net operating loss 
                carryover under section 172 to a succeeding 
                taxable year.
  (e) Certain contributions of ordinary income and capital gain 
property.--
          (1) General rule.--The amount of any charitable 
        contribution of property otherwise taken into account 
        under this section shall be reduced by the sum of--
                  (A) the amount of gain which would not have 
                been long-term capital gain (determined without 
                regard to section 1221(b)(3)) if the property 
                contributed had been sold by the taxpayer at 
                its fair market value (determined at the time 
                of such contribution), and
                  (B) in the case of a charitable 
                contribution--
                          (i) of tangible personal property--
                                  (I) if the use by the donee 
                                is unrelated 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)), or
                                  (II) which is applicable 
                                property (as defined in 
                                paragraph (7)(C), but without 
                                regard to clause (ii) thereof) 
                                which is sold, exchanged, or 
                                otherwise disposed of by the 
                                donee before the last day of 
                                the taxable year in which the 
                                contribution was made and with 
                                respect to which the donee has 
                                not made a certification in 
                                accordance with paragraph 
                                (7)(D),
                          (ii) to or for the use of a private 
                        foundation (as defined in section 
                        509(a)), other than a private 
                        foundation described in subsection 
                        (b)(1)(F),
                          (iii) of any patent, copyright (other 
                        than a copyright described in section 
                        1221(a)(3) or 1231(b)(1)(C)), 
                        trademark, trade name, trade secret, 
                        know- how, software (other than 
                        software described in section 
                        197(e)(3)(A)(i)), or similar property, 
                        or applications or registrations of 
                        such property, or
                          (iv) of any taxidermy property which 
                        is contributed by the person who 
                        prepared, stuffed, or mounted the 
                        property or by any person who paid or 
                        incurred the cost of such preparation, 
                        stuffing, or mounting,
                the amount of gain which would 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).
        For purposes of applying this paragraph (other than in 
        the case of gain to which section 617(d)(1), 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. 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) Allocation of basis.--For purposes of paragraph 
        (1), in the case of a charitable contribution of less 
        than the taxpayer's entire interest in the property 
        contributed, the taxpayer's adjusted basis in such 
        property shall be allocated between the interest 
        contributed and any interest not contributed in 
        accordance with regulations prescribed by the 
        Secretary.
          (3) Special rule for certain contributions of 
        inventory and other property.--
                  (A) Qualified contributions.--For purposes of 
                this paragraph, a qualified contribution shall 
                mean a charitable contribution of property 
                described in paragraph (1) or (2) of section 
                1221(a), by a corporation (other than a 
                corporation which is an S corporation) to an 
                organization which is described in section 
                501(c)(3) and is exempt under section 501(a) 
                (other than a private foundation, as defined in 
                section 509(a), which is not an operating 
                foundation, as defined in section 4942(j)(3)), 
                but only if--
                          (i) the use of the property by the 
                        donee is related to the purpose or 
                        function constituting the basis for its 
                        exemption under section 501 and the 
                        property is to be used by the donee 
                        solely for the care of the ill, the 
                        needy, or infants;
                          (ii) the property is not transferred 
                        by the donee in exchange for money, 
                        other property, or services;
                          (iii) the taxpayer receives from the 
                        donee a written statement representing 
                        that its use and disposition of the 
                        property will be in accordance with the 
                        provisions of clauses (i) and (ii); and
                          (iv) in the case where the property 
                        is subject to regulation under the 
                        Federal Food, Drug, and Cosmetic Act, 
                        as amended, such property must fully 
                        satisfy the applicable requirements of 
                        such Act and regulations promulgated 
                        thereunder on the date of transfer and 
                        for one hundred and eighty days prior 
                        thereto.
                  (B) Amount of reduction.--The reduction under 
                paragraph (1)(A) for any qualified contribution 
                (as defined in subparagraph (A)) shall be no 
                greater than the sum of--
                          (i) one-half of the amount computed 
                        under paragraph (1)(A) (computed 
                        without regard to this paragraph), and
                          (ii) the amount (if any) by which the 
                        charitable contribution deduction under 
                        this section for any qualified 
                        contribution (computed by taking into 
                        account the amount determined in clause 
                        (i), but without regard to this clause) 
                        exceeds twice the basis of such 
                        property.
                  (C) Special rule for contributions of food 
                inventory.--
                          (i) General rule.--In the case of a 
                        charitable contribution of food from 
                        any trade or business of the taxpayer, 
                        this paragraph shall be applied--
                                  (I) without regard to whether 
                                the contribution is made by a C 
                                corporation, and
                                  (II) only to food that is 
                                apparently wholesome food.
                          (ii) Limitation.--The aggregate 
                        amount of such contributions for any 
                        taxable year which may be taken into 
                        account under this section shall not 
                        exceed--
                                  (I) in the case of any 
                                taxpayer other than a C 
                                corporation, 15 percent of the 
                                taxpayer's aggregate net income 
                                for such taxable year from all 
                                trades or businesses from which 
                                such contributions were made 
                                for such year, computed without 
                                regard to this section, and
                                  (II) in the case of a C 
                                corporation, 15 percent of 
                                taxable income (as defined in 
                                subsection (b)(2)(D)).
                          (iii) Rules related to limitation.--
                                  (I) Carryover.--If such 
                                aggregate amount exceeds the 
                                limitation imposed under clause 
                                (ii), such excess shall be 
                                treated (in a manner consistent 
                                with the rules of subsection 
                                (d)) as a charitable 
                                contribution described in 
                                clause (i) in each of the 5 
                                succeeding taxable years in 
                                order of time.
                                  (II) Coordination with 
                                overall corporate limitation.--
                                In the case of any charitable 
                                contribution which is allowable 
                                after the application of clause 
                                (ii)(II), subsection (b)(2)(A) 
                                shall not apply to such 
                                contribution, but the 
                                limitation imposed by such 
                                subsection shall be reduced 
                                (but not below zero) by the 
                                aggregate amount of such 
                                contributions. For purposes of 
                                subsection (b)(2)(B), such 
                                contributions shall be treated 
                                as allowable under subsection 
                                (b)(2)(A).
                          (iv) Determination of basis for 
                        certain taxpayers.--If a taxpayer--
                                  (I) does not account for 
                                inventories under section 471, 
                                and
                                  (II) is not required to 
                                capitalize indirect costs under 
                                section 263A,
                        the taxpayer may elect, solely for 
                        purposes of subparagraph (B), to treat 
                        the basis of any apparently wholesome 
                        food as being equal to 25 percent of 
                        the fair market value of such food.
                          (v) Determination of fair market 
                        value.--In the case of any such 
                        contribution of apparently wholesome 
                        food which cannot or will not be sold 
                        solely by reason of internal standards 
                        of the taxpayer, lack of market, or 
                        similar circumstances, or by reason of 
                        being produced by the taxpayer 
                        exclusively for the purposes of 
                        transferring the food to an 
                        organization described in subparagraph 
                        (A), the fair market value of such 
                        contribution shall be determined--
                                  (I) without regard to such 
                                internal standards, such lack 
                                of market, such circumstances, 
                                or such exclusive purpose, and
                                  (II) by taking into account 
                                the price at which the same or 
                                substantially the same food 
                                items (as to both type and 
                                quality) are sold by the 
                                taxpayer at the time of the 
                                contribution (or, if not so 
                                sold at such time, in the 
                                recent past).
                          (vi) Apparently wholesome food.--For 
                        purposes of this subparagraph, the term 
                        ``apparently wholesome food'' has the 
                        meaning given to such term by section 
                        22(b)(2) of the Bill Emerson Good 
                        Samaritan Food Donation Act (42 U.S.C. 
                        1791(b)(2)), as in effect on the date 
                        of the enactment of this subparagraph.
                  (D) This paragraph shall not apply to so much 
                of the amount of the gain described in 
                paragraph (1)(A) which would be long-term 
                capital gain but for the application of 
                sections 617, 1245, 1250, or 1252.
          (4) Special rule for contributions of scientific 
        property used for research.--
                  (A) Limit on reduction.--In the case of a 
                qualified research contribution, the reduction 
                under paragraph (1)(A) shall be no greater than 
                the amount determined under paragraph (3)(B).
                  (B) Qualified research contributions.--For 
                purposes of this paragraph, the term 
                ``qualified research contribution'' means a 
                charitable contribution by a corporation of 
                tangible personal property described in 
                paragraph (1) of section 1221(a), but only if--
                          (i) the contribution is to an 
                        organization described in subparagraph 
                        (A) or subparagraph (B) of section 
                        41(e)(6),
                          (ii) the property is constructed or 
                        assembled by the taxpayer,
                          (iii) the contribution is made not 
                        later than 2 years after the date the 
                        construction or assembly of the 
                        property is substantially completed,
                          (iv) the original use of the property 
                        is by the donee,
                          (v) the property is scientific 
                        equipment or apparatus substantially 
                        all of the use of which by the donee is 
                        for research or experimentation (within 
                        the meaning of section 174), or for 
                        research training, in the United States 
                        in physical or biological sciences,
                          (vi) the property is not transferred 
                        by the donee in exchange for money, 
                        other property, or services, and
                          (vii) the taxpayer receives from the 
                        donee a written statement representing 
                        that its use and disposition of the 
                        property will be in accordance with the 
                        provisions of clauses (v) and (vi).
                  (C) Construction of property by taxpayer.--
                For purposes of this paragraph, property shall 
                be treated as constructed by the taxpayer only 
                if the cost of the parts used in the 
                construction of such property (other than parts 
                manufactured by the taxpayer or a related 
                person) do not exceed 50 percent of the 
                taxpayer's basis in such property.
                  (D) Corporation.--For purposes of this 
                paragraph, the term ``corporation'' shall not 
                include--
                          (i) an S corporation,
                          (ii) a personal holding company (as 
                        defined in section 542), and
                          (iii) a service organization (as 
                        defined in section 414(m)(3)).
          (5) Special rule for contributions of stock for which 
        market quotations are readily available.--
                  (A) In general.--Subparagraph (B)(ii) of 
                paragraph (1) shall not apply to any 
                contribution of qualified appreciated stock.
                  (B) Qualified appreciated stock.--Except as 
                provided in subparagraph (C), for purposes of 
                this paragraph, the term ``qualified 
                appreciated stock'' means any stock of a 
                corporation--
                          (i) for which (as of the date of the 
                        contribution) market quotations are 
                        readily available on an established 
                        securities market, and
                          (ii) which is capital gain property 
                        (as defined in subsection 
                        (b)(1)(C)(iv)).
                  (C) Donor may not contribute more than 10 
                percent of stock of corporation.--
                          (i) In general.--In the case of any 
                        donor, the term ``qualified appreciated 
                        stock'' shall not include any stock of 
                        a corporation contributed by the donor 
                        in a contribution to which paragraph 
                        (1)(B)(ii) applies (determined without 
                        regard to this paragraph) to the extent 
                        that the amount of the stock so 
                        contributed (when increased by the 
                        aggregate amount of all prior such 
                        contributions by the donor of stock in 
                        such corporation) exceeds 10 percent 
                        (in value) of all of the outstanding 
                        stock of such corporation.
                          (ii) Special rule.--For purposes of 
                        clause (i), an individual shall be 
                        treated as making all contributions 
                        made by any member of his family (as 
                        defined in section 267(c)(4)).
          (7) Recapture of deduction on certain dispositions of 
        exempt use property.--
                  (A) In general.--In the case of an applicable 
                disposition of applicable property, there shall 
                be included in the income of the donor of such 
                property for the taxable year of such donor in 
                which the applicable disposition occurs an 
                amount equal to the excess (if any) of--
                          (i) the amount of the deduction 
                        allowed to the donor under this section 
                        with respect to such property, over
                          (ii) the donor's basis in such 
                        property at the time such property was 
                        contributed.
                  (B) Applicable disposition.--For purposes of 
                this paragraph, the term ``applicable 
                disposition'' means any sale, exchange, or 
                other disposition by the donee of applicable 
                property--
                          (i) after the last day of the taxable 
                        year of the donor in which such 
                        property was contributed, and
                          (ii) before the last day of the 3-
                        year period beginning on the date of 
                        the contribution of such property,
                unless the donee makes a certification in 
                accordance with subparagraph (D).
                  (C) Applicable property.--For purposes of 
                this paragraph, the term ``applicable 
                property'' means charitable deduction property 
                (as defined in section 6050L(a)(2)(A))--
                          (i) which is tangible personal 
                        property the use of which is identified 
                        by the donee as related to the purpose 
                        or function constituting the basis of 
                        the donee's exemption under section 
                        501, and
                          (ii) for which a deduction in excess 
                        of the donor's basis is allowed.
                  (D) Certification.--A certification meets the 
                requirements of this subparagraph if it is a 
                written statement which is signed under penalty 
                of perjury by an officer of the donee 
                organization and--
                          (i) which--
                                  (I) certifies that the use of 
                                the property by the donee was 
                                substantial and related to the 
                                purpose or function 
                                constituting the basis for the 
                                donee's exemption under section 
                                501, and
                                  (II) describes how the 
                                property was used and how such 
                                use furthered such purpose or 
                                function, or
                          (ii) which--
                                  (I) states the intended use 
                                of the property by the donee at 
                                the time of the contribution, 
                                and
                                  (II) certifies that such 
                                intended use has become 
                                impossible or infeasible to 
                                implement.
  (f) Disallowance of deduction in certain cases and special 
rules.--
          (1) In general.--No deduction shall be allowed under 
        this section for a contribution to or for the use of an 
        organization or trust described in section 508(d) or 
        4948(c)(4) subject to the conditions specified in such 
        sections.
          (2) Contributions of property placed in trust.--
                  (A) Remainder interest.--In the case of 
                property transferred in trust, no deduction 
                shall be allowed under this section for the 
                value of a contribution of a remainder interest 
                unless the trust is a charitable remainder 
                annuity trust or a charitable remainder 
                unitrust (described in section 664), or a 
                pooled income fund (described in section 
                642(c)(5)).
                  (B) Income interests, etc..--No deduction 
                shall be allowed under this section for the 
                value of any interest in property (other than a 
                remainder interest) transferred in trust unless 
                the interest is in the form of a guaranteed 
                annuity or the trust instrument specifies that 
                the interest is a fixed percentage distributed 
                yearly of the fair market value of the trust 
                property (to be determined yearly) and the 
                grantor is treated as the owner of such 
                interest for purposes of applying section 671. 
                If the donor ceases to be treated as the owner 
                of such an interest for purposes of applying 
                section 671, at the time the donor ceases to be 
                so treated, the donor shall for purposes of 
                this chapter be considered as having received 
                an amount of income equal to the amount of any 
                deduction he received under this section for 
                the contribution reduced by the discounted 
                value of all amounts of income earned by the 
                trust and taxable to him before the time at 
                which he ceases to be treated as the owner of 
                the interest. Such amounts of income shall be 
                discounted to the date of the contribution. The 
                Secretary shall prescribe such regulations as 
                may be necessary to carry out the purposes of 
                this subparagraph.
                  (C) Denial of deduction in case of payments 
                by certain trusts.--In any case in which a 
                deduction is allowed under this section for the 
                value of an interest in property described in 
                subparagraph (B), transferred in trust, no 
                deduction shall be allowed under this section 
                to the grantor or any other person for the 
                amount of any contribution made by the trust 
                with respect to such interest.
                  (D) Exception.--This paragraph shall not 
                apply in a case in which the value of all 
                interests in property transferred in trust are 
                deductible under subsection (a).
          (3) Denial of deduction in case of certain 
        contributions of partial interests in property.--
                  (A) In general.--In the case of a 
                contribution (not made by a transfer in trust) 
                of an interest in property which consists of 
                less than the taxpayer's entire interest in 
                such property, a deduction shall be allowed 
                under this section only to the extent that the 
                value of the interest contributed would be 
                allowable as a deduction under this section if 
                such interest had been transferred in trust. 
                For purposes of this subparagraph, a 
                contribution by a taxpayer of the right to use 
                property shall be treated as a contribution of 
                less than the taxpayer's entire interest in 
                such property.
                  (B) Exceptions.--Subparagraph (A) shall not 
                apply to--
                          (i) a contribution of a remainder 
                        interest in a personal residence or 
                        farm,
                          (ii) a contribution of an undivided 
                        portion of the taxpayer's entire 
                        interest in property, and
                          (iii) a qualified conservation 
                        contribution.
          (4) Valuation of remainder interest in real 
        property.--For purposes of this section, in determining 
        the value of a remainder interest in real property, 
        depreciation (computed on the straight line method) and 
        depletion of such property shall be taken into account, 
        and such value shall be discounted at a rate of 6 
        percent per annum, except that the Secretary may 
        prescribe a different rate.
          (5) Reduction for certain interest.--If, in 
        connection with any charitable contribution, a 
        liability is assumed by the recipient or by any other 
        person, or if a charitable contribution is of property 
        which is subject to a liability, then, to the extent 
        necessary to avoid the duplication of amounts, the 
        amount taken into account for purposes of this section 
        as the amount of the charitable contribution--
                  (A) shall be reduced for interest (i) which 
                has been paid (or is to be paid) by the 
                taxpayer, (ii) which is attributable to the 
                liability, and (iii) which is attributable to 
                any period after the making of the 
                contribution, and
                  (B) in the case of a bond, shall be further 
                reduced for interest (i) which has been paid 
                (or is to be paid) by the taxpayer on 
                indebtedness incurred or continued to purchase 
                or carry such bond, and (ii) which is 
                attributable to any period before the making of 
                the contribution.
        The reduction pursuant to subparagraph (B) shall not 
        exceed the interest (including interest equivalent) on 
        the bond which is attributable to any period before the 
        making of the contribution and which is not (under the 
        taxpayer's method of accounting) includible in the 
        gross income of the taxpayer for any taxable year. For 
        purposes of this paragraph, the term ``bond'' means any 
        bond, debenture, note, or certificate or other evidence 
        of indebtedness.
          (6) Deductions for out-of-pocket expenditures.--No 
        deduction shall be allowed under this section for an 
        out-of-pocket expenditure made by any person on behalf 
        of an organization described in subsection (c) (other 
        than an organization described in section 501(h)(5) 
        (relating to churches, etc.)) if the expenditure is 
        made for the purpose of influencing legislation (within 
        the meaning of section 501(c)(3)).
          (7) Reformations to comply with paragraph (2)
                  (A) In general.--A deduction shall be allowed 
                under subsection (a) in respect of any 
                qualified reformation (within the meaning of 
                section 2055(e)(3)(B)).
                  (B) Rules similar to section 2055(e)(3) to 
                apply.--For purposes of this paragraph, rules 
                similar to the rules of section 2055(e)(3) 
                shall apply.
          (8) Substantiation requirement for certain 
        contributions.--
                  (A) General rule.--No deduction shall be 
                allowed under subsection (a) for any 
                contribution of $250 or more unless the 
                taxpayer substantiates the contribution by a 
                contemporaneous written acknowledgment of the 
                contribution by the donee organization that 
                meets the requirements of subparagraph (B).
                  (B) Content of acknowledgement.--An 
                acknowledgement meets the requirements of this 
                subparagraph if it includes the following 
                information:
                          (i) The amount of cash and a 
                        description (but not value) of any 
                        property other than cash contributed.
                          (ii) Whether the donee organization 
                        provided any goods or services in 
                        consideration, in whole or in part, for 
                        any property described in clause (i).
                          (iii) A description and good faith 
                        estimate of the value of any goods or 
                        services referred to in clause (ii) or, 
                        if such goods or services consist 
                        solely of intangible religious 
                        benefits, a statement to that effect.
                For purposes of this subparagraph, the term 
                ``intangible religious benefit'' means any 
                intangible religious benefit which is provided 
                by an organization organized exclusively for 
                religious purposes and which generally is not 
                sold in a commercial transaction outside the 
                donative context.
                  (C) Contemporaneous.--For purposes of 
                subparagraph (A), an acknowledgment shall be 
                considered to be contemporaneous if the 
                taxpayer obtains the acknowledgment on or 
                before the earlier of--
                          (i) the date on which the taxpayer 
                        files a return for the taxable year in 
                        which the contribution was made, or
                          (ii) the due date (including 
                        extensions) for filing such return.
                  (D) Regulations.--The Secretary shall 
                prescribe such regulations as may be necessary 
                or appropriate to carry out the purposes of 
                this paragraph, including regulations that may 
                provide that some or all of the requirements of 
                this paragraph do not apply in appropriate 
                cases.
          (9) Denial of deduction where contribution for 
        lobbying activities.--No deduction shall be allowed 
        under this section for a contribution to an 
        organization which conducts activities to which section 
        162(e)(1) applies on matters of direct financial 
        interest to the donor's trade or business, if a 
        principal purpose of the contribution was to avoid 
        Federal income tax by securing a deduction for such 
        activities under this section which would be disallowed 
        by reason of section 162(e) if the donor had conducted 
        such activities directly. No deduction shall be allowed 
        under section 162(a) for any amount for which a 
        deduction is disallowed under the preceding sentence.
          (10) Split-dollar life insurance, annuity, and 
        endowment contracts.--
                  (A) In general.--Nothing in this section or 
                in section 545(b)(2), 642(c), 2055, 2106(a)(2), 
                or 2522 shall be construed to allow a 
                deduction, and no deduction shall be allowed, 
                for any transfer to or for the use of an 
                organization described in subsection (c) if in 
                connection with such transfer--
                          (i) the organization directly or 
                        indirectly pays, or has previously 
                        paid, any premium on any personal 
                        benefit contract with respect to the 
                        transferor, or
                          (ii) there is an understanding or 
                        expectation that any person will 
                        directly or indirectly pay any premium 
                        on any personal benefit contract with 
                        respect to the transferor.
                  (B) Personal benefit contract.--For purposes 
                of subparagraph (A), the term ``personal 
                benefit contract'' means, with respect to the 
                transferor, any life insurance, annuity, or 
                endowment contract if any direct or indirect 
                beneficiary under such contract is the 
                transferor, any member of the transferor's 
                family, or any other person (other than an 
                organization described in subsection (c)) 
                designated by the transferor.
                  (C) Application to charitable remainder 
                trusts.--In the case of a transfer to a trust 
                referred to in subparagraph (E), references in 
                subparagraphs (A) and (F) to an organization 
                described in subsection (c) shall be treated as 
                a reference to such trust.
                  (D) Exception for certain annuity 
                contracts.--If, in connection with a transfer 
                to or for the use of an organization described 
                in subsection (c), such organization incurs an 
                obligation to pay a charitable gift annuity (as 
                defined in section 501(m)) and such 
                organization purchases any annuity contract to 
                fund such obligation, persons receiving 
                payments under the charitable gift annuity 
                shall not be treated for purposes of 
                subparagraph (B) as indirect beneficiaries 
                under such contract if--
                          (i) such organization possesses all 
                        of the incidents of ownership under 
                        such contract,
                          (ii) such organization is entitled to 
                        all the payments under such contract, 
                        and
                          (iii) the timing and amount of 
                        payments under such contract are 
                        substantially the same as the timing 
                        and amount of payments to each such 
                        person under such obligation (as such 
                        obligation is in effect at the time of 
                        such transfer).
                  (E) Exception for certain contracts held by 
                charitable remainder trusts.--A person shall 
                not be treated for purposes of subparagraph (B) 
                as an indirect beneficiary under any life 
                insurance, annuity, or endowment contract held 
                by a charitable remainder annuity trust or a 
                charitable remainder unitrust (as defined in 
                section 664(d)) solely by reason of being 
                entitled to any payment referred to in 
                paragraph (1)(A) or (2)(A) of section 664(d) 
                if--
                          (i) such trust possesses all of the 
                        incidents of ownership under such 
                        contract, and
                          (ii) such trust is entitled to all 
                        the payments under such contract.
                  (F) Excise tax on premiums paid.--
                          (i) In general.--There is hereby 
                        imposed on any organization described 
                        in subsection (c) an excise tax equal 
                        to the premiums paid by such 
                        organization on any life insurance, 
                        annuity, or endowment contract if the 
                        payment of premiums on such contract is 
                        in connection with a transfer for which 
                        a deduction is not allowable under 
                        subparagraph (A), determined without 
                        regard to when such transfer is made.
                          (ii) Payments by other persons.--For 
                        purposes of clause (i), payments made 
                        by any other person pursuant to an 
                        understanding or expectation referred 
                        to in subparagraph (A) shall be treated 
                        as made by the organization.
                          (iii) Reporting.--Any organization on 
                        which tax is imposed by clause (i) with 
                        respect to any premium shall file an 
                        annual return which includes--
                                  (I) the amount of such 
                                premiums paid during the year 
                                and the name and TIN of each 
                                beneficiary under the contract 
                                to which the premium relates, 
                                and
                                  (II) such other information 
                                as the Secretary may require.
                        The penalties applicable to returns 
                        required under section 6033 shall apply 
                        to returns required under this clause. 
                        Returns required under this clause 
                        shall be furnished at such time and in 
                        such manner as the Secretary shall by 
                        forms or regulations require.
                          (iv) Certain rules to apply.--The tax 
                        imposed by this subparagraph shall be 
                        treated as imposed by chapter 42 for 
                        purposes of this title other than 
                        subchapter B of chapter 42.
                  (G) Special rule where state requires 
                specification of charitable gift annuitant in 
                contract.--In the case of an obligation to pay 
                a charitable gift annuity referred to in 
                subparagraph (D) which is entered into under 
                the laws of a State which requires, in order 
                for the charitable gift annuity to be exempt 
                from insurance regulation by such State, that 
                each beneficiary under the charitable gift 
                annuity be named as a beneficiary under an 
                annuity contract issued by an insurance company 
                authorized to transact business in such State, 
                the requirements of clauses (i) and (ii) of 
                subparagraph (D) shall be treated as met if--
                          (i) such State law requirement was in 
                        effect on February 8, 1999,
                          (ii) each such beneficiary under the 
                        charitable gift annuity is a bona fide 
                        resident of such State at the time the 
                        obligation to pay a charitable gift 
                        annuity is entered into, and
                          (iii) the only persons entitled to 
                        payments under such contract are 
                        persons entitled to payments as 
                        beneficiaries under such obligation on 
                        the date such obligation is entered 
                        into.
                  (H) Member of family.--For purposes of this 
                paragraph, an individual's family consists of 
                the individual's grandparents, the grandparents 
                of such individual's spouse, the lineal 
                descendants of such grandparents, and any 
                spouse of such a lineal descendant.
                  (I) Regulations.--The Secretary shall 
                prescribe such regulations as may be necessary 
                or appropriate to carry out the purposes of 
                this paragraph, including regulations to 
                prevent the avoidance of such purposes.
          (11) Qualified appraisal and other documentation for 
        certain contributions.--
                  (A) In general.--
                          (i) Denial of deduction.--In the case 
                        of an individual, partnership, or 
                        corporation, no deduction shall be 
                        allowed under subsection (a) for any 
                        contribution of property for which a 
                        deduction of more than $500 is claimed 
                        unless such person meets the 
                        requirements of subparagraphs (B), (C), 
                        and (D), as the case may be, with 
                        respect to such contribution.
                          (ii) Exceptions.--
                                  (I) Readily valued 
                                property.--Subparagraphs (C) 
                                and (D) shall not apply to 
                                cash, property described in 
                                subsection (e)(1)(B)(iii) or 
                                section 1221(a)(1), publicly 
                                traded securities (as defined 
                                in section 6050L(a)(2)(B)), and 
                                any qualified vehicle described 
                                in paragraph (12)(A)(ii) for 
                                which an acknowledgement under 
                                paragraph (12)(B)(iii) is 
                                provided.
                                  (II) Reasonable cause.--
                                Clause (i) shall not apply if 
                                it is shown that the failure to 
                                meet such requirements is due 
                                to reasonable cause and not to 
                                willful neglect.
                  (B) Property description for contributions of 
                more than $500.--In the case of contributions 
                of property for which a deduction of more than 
                $500 is claimed, the requirements of this 
                subparagraph are met if the individual, 
                partnership or corporation includes with the 
                return for the taxable year in which the 
                contribution is made a description of such 
                property and such other information as the 
                Secretary may require. The requirements of this 
                subparagraph shall not apply to a C corporation 
                which is not a personal service corporation or 
                a closely held C corporation.
                  (C) Qualified appraisal for contributions of 
                more than $5,000.--In the case of contributions 
                of property for which a deduction of more than 
                $5,000 is claimed, the requirements of this 
                subparagraph are met if the individual, 
                partnership, or corporation obtains a qualified 
                appraisal of such property and attaches to the 
                return for the taxable year in which such 
                contribution is made such information regarding 
                such property and such appraisal as the 
                Secretary may require.
                  (D) Substantiation for contributions of more 
                than $500,000.--In the case of contributions of 
                property for which a deduction of more than 
                $500,000 is claimed, the requirements of this 
                subparagraph are met if the individual, 
                partnership, or corporation attaches to the 
                return for the taxable year a qualified 
                appraisal of such property.
                  (E) Qualified appraisal and appraiser.--For 
                purposes of this paragraph--
                          (i) Qualified appraisal.--The term 
                        ``qualified appraisal'' means, with 
                        respect to any property, an appraisal 
                        of such property which--
                                  (I) is treated for purposes 
                                of this paragraph as a 
                                qualified appraisal under 
                                regulations or other guidance 
                                prescribed by the Secretary, 
                                and
                                  (II) is conducted by a 
                                qualified appraiser in 
                                accordance with generally 
                                accepted appraisal standards 
                                and any regulations or other 
                                guidance prescribed under 
                                subclause (I).
                          (ii) Qualified appraiser.--Except as 
                        provided in clause (iii), the term 
                        ``qualified appraiser'' means an 
                        individual who--
                                  (I) has earned an appraisal 
                                designation from a recognized 
                                professional appraiser 
                                organization or has otherwise 
                                met minimum education and 
                                experience requirements set 
                                forth in regulations prescribed 
                                by the Secretary,
                                  (II) regularly performs 
                                appraisals for which the 
                                individual receives 
                                compensation, and
                                  (III) meets such other 
                                requirements as may be 
                                prescribed by the Secretary in 
                                regulations or other guidance.
                          (iii) Specific appraisals.--An 
                        individual shall not be treated as a 
                        qualified appraiser with respect to any 
                        specific appraisal unless--
                                  (I) the individual 
                                demonstrates verifiable 
                                education and experience in 
                                valuing the type of property 
                                subject to the appraisal, and
                                  (II) the individual has not 
                                been prohibited from practicing 
                                before the Internal Revenue 
                                Service by the Secretary under 
                                section 330(c) of title 31, 
                                United States Code, at any time 
                                during the 3-year period ending 
                                on the date of the appraisal.
                  (F) Aggregation of similar items of 
                property.--For purposes of determining 
                thresholds under this paragraph, property and 
                all similar items of property donated to 1 or 
                more donees shall be treated as 1 property.
                  (G) Special rule for pass-thru entities.--In 
                the case of a partnership or S corporation, 
                this paragraph shall be applied at the entity 
                level, except that the deduction shall be 
                denied at the partner or shareholder level.
                  (H) Regulations.--The Secretary may prescribe 
                such regulations as may be necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations that may 
                provide that some or all of the requirements of 
                this paragraph do not apply in appropriate 
                cases.
          (12) Contributions of used motor vehicles, boats, and 
        airplanes.--
                  (A) In general.--In the case of a 
                contribution of a qualified vehicle the claimed 
                value of which exceeds $500--
                          (i) paragraph (8) shall not apply and 
                        no deduction shall be allowed under 
                        subsection (a) for such contribution 
                        unless the taxpayer substantiates the 
                        contribution by a contemporaneous 
                        written acknowledgement of the 
                        contribution by the donee organization 
                        that meets the requirements of 
                        subparagraph (B) and includes the 
                        acknowledgement with the taxpayer's 
                        return of tax which includes the 
                        deduction, and
                          (ii) if the organization sells the 
                        vehicle without any significant 
                        intervening use or material improvement 
                        of such vehicle by the organization, 
                        the amount of the deduction allowed 
                        under subsection (a) shall not exceed 
                        the gross proceeds received from such 
                        sale.
                  (B) Content of acknowledgement.--An 
                acknowledgement meets the requirements of this 
                subparagraph if it includes the following 
                information:
                          (i) The name and taxpayer 
                        identification number of the donor.
                          (ii) The vehicle identification 
                        number or similar number.
                          (iii) In the case of a qualified 
                        vehicle to which subparagraph (A)(ii) 
                        applies--
                                  (I) a certification that the 
                                vehicle was sold in an arm's 
                                length transaction between 
                                unrelated parties,
                                  (II) the gross proceeds from 
                                the sale, and
                                  (III) a statement that the 
                                deductible amount may not 
                                exceed the amount of such gross 
                                proceeds.
                          (iv) In the case of a qualified 
                        vehicle to which subparagraph (A)(ii) 
                        does not apply--
                                  (I) a certification of the 
                                intended use or material 
                                improvement of the vehicle and 
                                the intended duration of such 
                                use, and
                                  (II) a certification that the 
                                vehicle would not be 
                                transferred in exchange for 
                                money, other property, or 
                                services before completion of 
                                such use or improvement.
                          (v) Whether the donee organization 
                        provided any goods or services in 
                        consideration, in whole or in part, for 
                        the qualified vehicle.
                          (vi) A description and good faith 
                        estimate of the value of any goods or 
                        services referred to in clause (v) or, 
                        if such goods or services consist 
                        solely of intangible religious benefits 
                        (as defined in paragraph (8)(B)), a 
                        statement to that effect.
                  (C) Contemporaneous.--For purposes of 
                subparagraph (A), an acknowledgement shall be 
                considered to be contemporaneous if the donee 
                organization provides it within 30 days of--
                          (i) the sale of the qualified 
                        vehicle, or
                          (ii) in the case of an 
                        acknowledgement including a 
                        certification described in subparagraph 
                        (B)(iv), the contribution of the 
                        qualified vehicle.
                  (D) Information to Secretary.--A donee 
                organization required to provide an 
                acknowledgement under this paragraph shall 
                provide to the Secretary the information 
                contained in the acknowledgement. Such 
                information shall be provided at such time and 
                in such manner as the Secretary may prescribe.
                  (E) Qualified vehicle.--For purposes of this 
                paragraph, the term ``qualified vehicle'' means 
                any--
                          (i) motor vehicle manufactured 
                        primarily for use on public streets, 
                        roads, and highways,
                          (ii) boat, or
                          (iii) airplane.
                Such term shall not include any property which 
                is described in section 1221(a)(1).
                  (F) Regulations or other guidance.--The 
                Secretary shall prescribe such regulations or 
                other guidance as may be necessary to carry out 
                the purposes of this paragraph. The Secretary 
                may prescribe regulations or other guidance 
                which exempts sales by the donee organization 
                which are in direct furtherance of such 
                organization's charitable purpose from the 
                requirements of subparagraphs (A)(ii) and 
                (B)(iv)(II).
          (13) Contributions of certain interests in buildings 
        located in registered historic districts.--
                  (A) In general.--No deduction shall be 
                allowed with respect to any contribution 
                described in subparagraph (B) unless the 
                taxpayer includes with the return for the 
                taxable year of the contribution a $500 filing 
                fee.
                  (B) Contribution described.--A contribution 
                is described in this subparagraph if such 
                contribution is a qualified conservation 
                contribution (as defined in subsection (h)) 
                which is a restriction with respect to the 
                exterior of a building described in subsection 
                (h)(4)(C)(ii) and for which a deduction is 
                claimed in excess of $10,000.
                  (C) Dedication of fee.--Any fee collected 
                under this paragraph shall be used for the 
                enforcement of the provisions of subsection 
                (h).
          (14) Reduction for amounts attributable to 
        rehabilitation credit.--In the case of any qualified 
        conservation contribution (as defined in subsection 
        (h)), the amount of the deduction allowed under this 
        section shall be reduced by an amount which bears the 
        same ratio to the fair market value of the contribution 
        as--
                  (A) the sum of the credits allowed to the 
                taxpayer under section 47 for the 5 preceding 
                taxable years with respect to any building 
                which is a part of such contribution, bears to
                  (B) the fair market value of the building on 
                the date of the contribution.
          (15) Special rule for taxidermy property.--
                  (A) Basis.--For purposes of this section and 
                notwithstanding section 1012, in the case of a 
                charitable contribution of taxidermy property 
                which is made by the person who prepared, 
                stuffed, or mounted the property or by any 
                person who paid or incurred the cost of such 
                preparation, stuffing, or mounting, only the 
                cost of the preparing, stuffing, or mounting 
                shall be included in the basis of such 
                property.
                  (B) Taxidermy property.--For purposes of this 
                section, the term ``taxidermy property'' means 
                any work of art which--
                          (i) is the reproduction or 
                        preservation of an animal, in whole or 
                        in part,
                          (ii) is prepared, stuffed, or mounted 
                        for purposes of recreating one or more 
                        characteristics of such animal, and
                          (iii) contains a part of the body of 
                        the dead animal.
          (16) Contributions of clothing and household items.--
                  (A) In general.--In the case of an 
                individual, partnership, or corporation, no 
                deduction shall be allowed under subsection (a) 
                for any contribution of clothing or a household 
                item unless such clothing or household item is 
                in good used condition or better.
                  (B) Items of minimal value.--Notwithstanding 
                subparagraph (A), the Secretary may by 
                regulation deny a deduction under subsection 
                (a) for any contribution of clothing or a 
                household item which has minimal monetary 
                value.
                  (C) Exception for certain property.--
                Subparagraphs (A) and (B) shall not apply to 
                any contribution of a single item of clothing 
                or a household item for which a deduction of 
                more than $500 is claimed if the taxpayer 
                includes with the taxpayer's return a qualified 
                appraisal with respect to the property.
                  (D) Household items.--For purposes of this 
                paragraph--
                          (i) In general.--The term ``household 
                        items'' includes furniture, 
                        furnishings, electronics, appliances, 
                        linens, and other similar items.
                          (ii) Excluded items.--Such term does 
                        not include--
                                  (I) food,
                                  (II) paintings, antiques, and 
                                other objects of art,
                                  (III) jewelry and gems, and
                                  (IV) collections.
                  (E) Special rule for pass-thru entities.--In 
                the case of a partnership or S corporation, 
                this paragraph shall be applied at the entity 
                level, except that the deduction shall be 
                denied at the partner or shareholder level.
          (17) Recordkeeping.--No deduction shall be allowed 
        under subsection (a) for any contribution of a cash, 
        check, or other monetary gift unless the donor 
        maintains as a record of such contribution a bank 
        record or a written communication from the donee 
        showing the name of the donee organization, the date of 
        the contribution, and the amount of the contribution.
          (18) Contributions to donor advised funds.--A 
        deduction otherwise allowed under subsection (a) for 
        any contribution to a donor advised fund (as defined in 
        section 4966(d)(2)) shall only be allowed if--
                  (A) the sponsoring organization (as defined 
                in section 4966(d)(1)) with respect to such 
                donor advised fund is not--
                          (i) described in paragraph (3), (4), 
                        or (5) of subsection (c), or
                          (ii) a type III supporting 
                        organization (as defined in section 
                        4943(f)(5)(A)) which is not a 
                        functionally integrated type III 
                        supporting organization (as defined in 
                        section 4943(f)(5)(B)), and
                  (B) the taxpayer obtains a contemporaneous 
                written acknowledgment (determined under rules 
                similar to the rules of paragraph (8)(C)) from 
                the sponsoring organization (as so defined) of 
                such donor advised fund that such organization 
                has exclusive legal control over the assets 
                contributed.
  (g) Amounts paid to maintain certain students as members of 
taxpayer's household.--
          (1) In general.--Subject to the limitations provided 
        by paragraph (2), amounts paid by the taxpayer to 
        maintain an individual (other than a dependent, as 
        defined in section 152 (determined without regard to 
        subsections (b)(1), (b)(2), and (d)(1)(B) thereof), or 
        a relative of the taxpayer) as a member of his 
        household during the period that such individual is--
                  (A) a member of the taxpayer's household 
                under a written agreement between the taxpayer 
                and an organization described in paragraph (2), 
                (3), or (4) of subsection (c) to implement a 
                program of the organization to provide 
                educational opportunities for pupils or 
                students in private homes, and
                  (B) a full-time pupil or student in the 
                twelfth or any lower grade at an educational 
                organization described in section 
                170(b)(1)(A)(ii) located in the United States, 
                shall be treated as amounts paid for the use of 
                the organization.
          (2) Limitations.--
                  (A) Amount.--Paragraph (1) shall apply to 
                amounts paid within the taxable year only to 
                the extent that such amounts do not exceed $50 
                multiplied by the number of full calendar 
                months during the taxable year which fall 
                within the period described in paragraph (1). 
                For purposes of the preceding sentence, if 15 
                or more days of a calendar month fall within 
                such period such month shall be considered as a 
                full calendar month.
                  (B) Compensation or reimbursement.--Paragraph 
                (1) shall not apply to any amount paid by the 
                taxpayer within the taxable year if the 
                taxpayer receives any money or other property 
                as compensation or reimbursement for 
                maintaining the individual in his household 
                during the period described in paragraph (1).
          (3) Relative defined.--For purposes of paragraph (1), 
        the term ``relative of the taxpayer'' means an 
        individual who, with respect to the taxpayer, bears any 
        of the relationships described in subparagraphs (A) 
        through (G) of section 152(d)(2).
          (4) No other amount allowed as deduction.--No 
        deduction shall be allowed under subsection (a) for any 
        amount paid by a taxpayer to maintain an individual as 
        a member of his household under a program described in 
        paragraph (1)(A) except as provided in this subsection.
  (h) Qualified conservation contribution.--
          (1) In general.--For purposes of subsection 
        (f)(3)(B)(iii), the term ``qualified conservation 
        contribution'' means a contribution--
                  (A) of a qualified real property interest,
                  (B) to a qualified organization,
                  (C) exclusively for conservation purposes.
          (2) Qualified real property interest.--For purposes 
        of this subsection, the term ``qualified real property 
        interest'' means any of the following interests in real 
        property:
                  (A) the entire interest of the donor other 
                than a qualified mineral interest,
                  (B) a remainder interest, and
                  (C) a restriction (granted in perpetuity) on 
                the use which may be made of the real property.
          (3) Qualified organization.--For purposes of 
        paragraph (1), the term ``qualified organization'' 
        means an organization which--
                  (A) is described in clause (v) or (vi) of 
                subsection (b)(1)(A), or
                  (B) is described in section 501(c)(3) and--
                          (i) meets the requirements of section 
                        509(a)(2), or
                          (ii) meets the requirements of 
                        section 509(a)(3) and is controlled by 
                        an organization described in 
                        subparagraph (A) or in clause (i) of 
                        this subparagraph.
          (4) Conservation purpose defined.--
                  (A) In general.--For purposes of this 
                subsection, the term ``conservation purpose'' 
                means--
                          (i) the preservation of land areas 
                        for outdoor recreation by, or the 
                        education of, the general public,
                          (ii) the protection of a relatively 
                        natural habitat of fish, wildlife, or 
                        plants, or similar ecosystem,
                          (iii) the preservation of open space 
                        (including farmland and forest land) 
                        where such preservation is--
                                  (I) for the scenic enjoyment 
                                of the general public, or
                                  (II) pursuant to a clearly 
                                delineated Federal, State, or 
                                local governmental conservation 
                                policy,
                        and will yield a significant public 
                        benefit, or
                          (iv) the preservation of an 
                        historically important land area or a 
                        certified historic structure.
                  (B) Special rules with respect to buildings 
                in registered historic districts.--In the case 
                of any contribution of a qualified real 
                property interest which is a restriction with 
                respect to the exterior of a building described 
                in subparagraph (C)(ii), such contribution 
                shall not be considered to be exclusively for 
                conservation purposes unless--
                          (i) such interest--
                                  (I) includes a restriction 
                                which preserves the entire 
                                exterior of the building 
                                (including the front, sides, 
                                rear, and height of the 
                                building), and
                                  (II) prohibits any change in 
                                the exterior of the building 
                                which is inconsistent with the 
                                historical character of such 
                                exterior,
                          (ii) the donor and donee enter into a 
                        written agreement certifying, under 
                        penalty of perjury, that the donee--
                                  (I) is a qualified 
                                organization (as defined in 
                                paragraph (3)) with a purpose 
                                of environmental protection, 
                                land conservation, open space 
                                preservation, or historic 
                                preservation, and
                                  (II) has the resources to 
                                manage and enforce the 
                                restriction and a commitment to 
                                do so, and
                          (iii) in the case of any contribution 
                        made in a taxable year beginning after 
                        the date of the enactment of this 
                        subparagraph, the taxpayer includes 
                        with the taxpayer's return for the 
                        taxable year of the contribution--
                                  (I) a qualified appraisal 
                                (within the meaning of 
                                subsection (f)(11)(E)) of the 
                                qualified property interest,
                                  (II) photographs of the 
                                entire exterior of the 
                                building, and
                                  (III) a description of all 
                                restrictions on the development 
                                of the building.
                  (C) Certified historic structure.--For 
                purposes of subparagraph (A)(iv), the term 
                ``certified historic structure'' means--
                          (i) any building, structure, or land 
                        area which is listed in the National 
                        Register, or
                          (ii) any building which is located in 
                        a registered historic district (as 
                        defined in section 47(c)(3)(B)) and is 
                        certified by the Secretary of the 
                        Interior to the Secretary as being of 
                        historic significance to the district.
        A building, structure, or land area satisfies the 
        preceding sentence if it satisfies such sentence either 
        at the time of the transfer or on the due date 
        (including extensions) for filing the transferor's 
        return under this chapter for the taxable year in which 
        the transfer is made.
          (5) Exclusively for conservation purposes.--For 
        purposes of this subsection--
                  (A) Conservation purpose must be protected.--
                A contribution shall not be treated as 
                exclusively for conservation purposes unless 
                the conservation purpose is protected in 
                perpetuity.
                  (B) No surface mining permitted.--
                          (i) In general.--Except as provided 
                        in clause (ii), in the case of a 
                        contribution of any interest where 
                        there is a retention of a qualified 
                        mineral interest, subparagraph (A) 
                        shall not be treated as met if at any 
                        time there may be extraction or removal 
                        of minerals by any surface mining 
                        method.
                          (ii) Special rule.--With respect to 
                        any contribution of property in which 
                        the ownership of the surface estate and 
                        mineral interests has been and remains 
                        separated, subparagraph (A) shall be 
                        treated as met if the probability of 
                        surface mining occurring on such 
                        property is so remote as to be 
                        negligible.
          (6) Qualified mineral interest.--For purposes of this 
        subsection, the term ``qualified mineral interest'' 
        means--
                  (A) subsurface oil, gas, or other minerals, 
                and
                  (B) the right to access to such minerals.
  (i) Standard mileage rate for use of passenger automobile.--
For purposes of computing the deduction under this section for 
use of a passenger automobile, the standard mileage rate shall 
be 14 cents per mile.
  (j) Denial of deduction for certain travel expenses.--No 
deduction shall be allowed under this section for traveling 
expenses (including amounts expended for meals and lodging) 
while away from home, whether paid directly or by 
reimbursement, unless there is no significant element of 
personal pleasure, recreation, or vacation in such travel.
  (l) Treatment of certain amounts paid to or for the benefit 
of institutions of higher education.--
          (1) In general.--No deduction shall be allowed under 
        this section for any amount described in paragraph (2).
          (2) Amount described.--For purposes of paragraph (1), 
        an amount is described in this paragraph if--
                  (A) the amount is paid by the taxpayer to or 
                for the benefit of an educational 
                organization--
                          (i) which is described in subsection 
                        (b)(1)(A)(ii), and
                          (ii) which is an institution of 
                        higher education (as defined in section 
                        3304(f)), and
                  (B) the taxpayer receives (directly or 
                indirectly) as a result of paying such amount 
                the right to purchase tickets for seating at an 
                athletic event in an athletic stadium of such 
                institution.
        If any portion of a payment is for the purchase of such 
        tickets, such portion and the remaining portion (if 
        any) of such payment shall be treated as separate 
        amounts for purposes of this subsection.
  (m) Certain donee income from intellectual property treated 
as an additional charitable contribution.--
          (1) Treatment as additional contribution.--In the 
        case of a taxpayer who makes a qualified intellectual 
        property contribution, the deduction allowed under 
        subsection (a) for each taxable year of the taxpayer 
        ending on or after the date of such contribution shall 
        be increased (subject to the limitations under 
        subsection (b)) by the applicable percentage of 
        qualified donee income with respect to such 
        contribution which is properly allocable to such year 
        under this subsection.
          (2) Reduction in additional deductions to extent of 
        initial deduction.--With respect to any qualified 
        intellectual property contribution, the deduction 
        allowed under subsection (a) shall be increased under 
        paragraph (1) only to the extent that the aggregate 
        amount of such increases with respect to such 
        contribution exceed the amount allowed as a deduction 
        under subsection (a) with respect to such contribution 
        determined without regard to this subsection.
          (3) Qualified donee income.--For purposes of this 
        subsection, the term ``qualified donee income'' means 
        any net income received by or accrued to the donee 
        which is properly allocable to the qualified 
        intellectual property.
          (4) Allocation of qualified donee income to taxable 
        years of donor.--For purposes of this subsection, 
        qualified donee income shall be treated as properly 
        allocable to a taxable year of the donor if such income 
        is received by or accrued to the donee for the taxable 
        year of the donee which ends within or with such 
        taxable year of the donor.
          (5) 10-year limitation.--Income shall not be treated 
        as properly allocable to qualified intellectual 
        property for purposes of this subsection if such income 
        is received by or accrued to the donee after the 10-
        year period beginning on the date of the contribution 
        of such property.
          (6) Benefit limited to life of intellectual 
        property.--Income shall not be treated as properly 
        allocable to qualified intellectual property for 
        purposes of this subsection if such income is received 
        by or accrued to the donee after the expiration of the 
        legal life of such property.
          (7) Applicable percentage.--For purposes of this 
        subsection, the term ``applicable percentage'' means 
        the percentage determined under the following table 
        which corresponds to a taxable year of the donor ending 
        on or after the date of the qualified intellectual 
        property contribution:


 
------------------------------------------------------------------------
 Taxable Year of Donor Ending on or
     After Date of Contribution:            Applicable Percentage:
------------------------------------------------------------------------
1st.................................  100
 ..
2nd.................................  100
 ..
3rd.................................  90
 ..
4th.................................  80
 ..
5th.................................  70
 ..
6th.................................  60
 ..
7th.................................  50
 ..
8th.................................  40
 ..
9th.................................  30
 ..
10th................................  20
 ..
11th................................  10
 ..
12th................................  10
 ..
------------------------------------------------------------------------

          (8) Qualified intellectual property contribution.--
        For purposes of this subsection, the term ``qualified 
        intellectual property contribution'' means any 
        charitable contribution of qualified intellectual 
        property--
                  (A) the amount of which taken into account 
                under this section is reduced by reason of 
                subsection (e)(1), and
                  (B) with respect to which the donor informs 
                the donee at the time of such contribution that 
                the donor intends to treat such contribution as 
                a qualified intellectual property contribution 
                for purposes of this subsection and section 
                6050L.
          (9) Qualified intellectual property.--For purposes of 
        this subsection, the term ``qualified intellectual 
        property'' means property described in subsection 
        (e)(1)(B)(iii) (other than property contributed to or 
        for the use of an organization described in subsection 
        (e)(1)(B)(ii)).
          (10) Other special rules.--
                  (A) Application of limitations on charitable 
                contributions.--Any increase under this 
                subsection of the deduction provided under 
                subsection (a) shall be treated for purposes of 
                subsection (b) as a deduction which is 
                attributable to a charitable contribution to 
                the donee to which such increase relates.
                  (B) Net income determined by donee.--The net 
                income taken into account under paragraph (3) 
                shall not exceed the amount of such income 
                reported under section 6050L(b)(1).
                  (C) Deduction limited to 12 taxable years.--
                Except as may be provided under subparagraph 
                (D)(i), this subsection shall not apply with 
                respect to any qualified intellectual property 
                contribution for any taxable year of the donor 
                after the 12th taxable year of the donor which 
                ends on or after the date of such contribution.
                  (D) Regulations.--The Secretary may issue 
                regulations or other guidance to carry out the 
                purposes of this subsection, including 
                regulations or guidance--
                          (i) modifying the application of this 
                        subsection in the case of a donor or 
                        donee with a short taxable year, and
                          (ii) providing for the determination 
                        of an amount to be treated as net 
                        income of the donee which is properly 
                        allocable to qualified intellectual 
                        property in the case of a donee who 
                        uses such property to further a purpose 
                        or function constituting the basis of 
                        the donee's exemption under section 501 
                        (or, in the case of a governmental 
                        unit, any purpose described in section 
                        170(c)) and does not possess a right to 
                        receive any payment from a third party 
                        with respect to such property.
  (n) Expenses paid by certain whaling captains in support of 
Native Alaskan subsistence whaling.--
          (1) In general.--In the case of an individual who is 
        recognized by the Alaska Eskimo Whaling Commission as a 
        whaling captain charged with the responsibility of 
        maintaining and carrying out sanctioned whaling 
        activities and who engages in such activities during 
        the taxable year, the amount described in paragraph (2) 
        (to the extent such amount does not exceed $10,000 for 
        the taxable year) shall be treated for purposes of this 
        section as a charitable contribution.
          (2) Amount described.--
                  (A) In general.--The amount described in this 
                paragraph is the aggregate of the reasonable 
                and necessary whaling expenses paid by the 
                taxpayer during the taxable year in carrying 
                out sanctioned whaling activities.
                  (B) Whaling expenses.--For purposes of 
                subparagraph (A), the term ``whaling expenses'' 
                includes expenses for--
                          (i) the acquisition and maintenance 
                        of whaling boats, weapons, and gear 
                        used in sanctioned whaling activities,
                          (ii) the supplying of food for the 
                        crew and other provisions for carrying 
                        out such activities, and
                          (iii) storage and distribution of the 
                        catch from such activities.
          (3) Sanctioned whaling activities.--For purposes of 
        this subsection, the term ``sanctioned whaling 
        activities'' means subsistence bowhead whale hunting 
        activities conducted pursuant to the management plan of 
        the Alaska Eskimo Whaling Commission.
          (4) Substantiation of expenses.--The Secretary shall 
        issue guidance requiring that the taxpayer substantiate 
        the whaling expenses for which a deduction is claimed 
        under this subsection, including by maintaining 
        appropriate written records with respect to the time, 
        place, date, amount, and nature of the expense, as well 
        as the taxpayer's eligibility for such deduction, and 
        that (to the extent provided by the Secretary) such 
        substantiation be provided as part of the taxpayer's 
        return of tax.
  (o) Special rules for fractional gifts.--
          (1) Denial of deduction in certain cases.--
                  (A) In general.--No deduction shall be 
                allowed for a contribution of an undivided 
                portion of a taxpayer's entire interest in 
                tangible personal property unless all interests 
                in the property are held immediately before 
                such contribution by--
                          (i) the taxpayer, or
                          (ii) the taxpayer and the donee.
                  (B) Exceptions.--The Secretary may, by 
                regulation, provide for exceptions to 
                subparagraph (A) in cases where all persons who 
                hold an interest in the property make 
                proportional contributions of an undivided 
                portion of the entire interest held by such 
                persons.
          (2) Valuation of subsequent gifts.--In the case of 
        any additional contribution, the fair market value of 
        such contribution shall be determined by using the 
        lesser of--
                  (A) the fair market value of the property at 
                the time of the initial fractional 
                contribution, or
                  (B) the fair market value of the property at 
                the time of the additional contribution.
          (3) Recapture of deduction in certain cases; addition 
        to tax.--
                  (A) Recapture.--The Secretary shall provide 
                for the recapture of the amount of any 
                deduction allowed under this section (plus 
                interest) with respect to any contribution of 
                an undivided portion of a taxpayer's entire 
                interest in tangible personal property--
                          (i) in any case in which the donor 
                        does not contribute all of the 
                        remaining interests in such property to 
                        the donee (or, if such donee is no 
                        longer in existence, to any person 
                        described in section 170(c)) on or 
                        before the earlier of--
                                  (I) the date that is 10 years 
                                after the date of the initial 
                                fractional contribution, or
                                  (II) the date of the death of 
                                the donor, and (ii) in any case 
                                in which the donee has not, 
                                during the period beginning on 
                                the date of the initial 
                                fractional contribution and 
                                ending on the date described in 
                                clause (i)--
                                  (I) had substantial physical 
                                possession of the property, and
                                  (II) used the property in a 
                                use which is related to a 
                                purpose or function 
                                constituting the basis for the 
                                organizations' exemption under 
                                section 501.
                  (B) Addition to tax.--The tax imposed under 
                this chapter for any taxable year for which 
                there is a recapture under subparagraph (A) 
                shall be increased by 10 percent of the amount 
                so recaptured.
          (4) Definitions.--For purposes of this subsection--
                  (A) Additional contribution.--The term 
                ``additional contribution'' means any 
                charitable contribution by the taxpayer of any 
                interest in property with respect to which the 
                taxpayer has previously made an initial 
                fractional contribution.
                  (B) Initial fractional contribution.--The 
                term ``initial fractional contribution'' means, 
                with respect to any taxpayer, the first 
                charitable contribution of an undivided portion 
                of the taxpayer's entire interest in any 
                tangible personal property.
  (p) Other cross references.--
          (1) For treatment of certain organizations providing 
        child care, see section 501(k).
          (2) For charitable contributions of estates and 
        trusts, see section 642(c).
          (3) For nondeductibility of contributions by common 
        trust funds, see section 584.
          (4) For charitable contributions of partners, see 
        section 702.
          (5) For charitable contributions of nonresident 
        aliens, see section 873.
          (6) For treatment of gifts for benefit of or use in 
        connection with the Naval Academy as gifts to or for 
        use of the United States, see section 6973 of title 10, 
        United States Code.
          (7) For treatment of gifts accepted by the Secretary 
        of State, the Director of the International 
        Communication Agency, or the Director of the United 
        States International Development Cooperation Agency, as 
        gifts to or for the use of the United States, see 
        section 25 of the State Department Basic Authorities 
        Act of 1956.
          (8) For treatment of gifts of money accepted by the 
        Attorney General for credit to the ``Commissary Funds 
        Federal Prisons'' as gifts to or for the use of the 
        United States, see section 4043 of title 18, United 
        States Code.
          (9) For charitable contributions to or for the use of 
        Indian tribal governments (or their subdivisions), see 
        section 7871.

           *       *       *       *       *       *       *


SEC. 195. START-UP [EXPENDITURES] AND ORGANIZATIONAL EXPENDITURES.

  [(a) Capitalization of expenditures.--Except as otherwise 
provided in this section, no deduction shall be allowed for 
start-up expenditures.
  [(b) Election to deduct.--
          [(1) Allowance of deduction.--If a taxpayer elects 
        the application of this subsection with respect to any 
        start-up expenditures--
                  [(A) the taxpayer shall be allowed a 
                deduction for the taxable year in which the 
                active trade or business begins in an amount 
                equal to the lesser of--
                          [(i) the amount of start-up 
                        expenditures with respect to the active 
                        trade or business, or
                          [(ii) $5,000, reduced (but not below 
                        zero) by the amount by which such 
                        start-up expenditures exceed $50,000, 
                        and
                  [(B) the remainder of such start-up 
                expenditures shall be allowed as a deduction 
                ratably over the 180-month period beginning 
                with the month in which the active trade or 
                business begins.
          [(2) Dispositions before close of amortization 
        period.--In any case in which a trade or business is 
        completely disposed of by the taxpayer before the end 
        of the period to which paragraph (1) applies, any 
        deferred expenses attributable to such trade or 
        business which were not allowed as a deduction by 
        reason of this section may be deducted to the extent 
        allowable under section 165.
          [(3) Special rule for taxable years beginning in 
        2010.--In the case of a taxable year beginning in 2010, 
        paragraph (1)(A)(ii) shall be applied--
                  [(A) by substituting ``$10,000'' for 
                ``$5,000'', and
                  [(B) by substituting ``$60,000'' for 
                ``$50,000''.]
  (a) Capitalization of Expenditures.--Except as otherwise 
provided in this section, no deduction shall be allowed for 
start-up or organizational expenditures.
  (b) Election to Deduct.--
          (1) In general.--If a taxpayer elects the application 
        of this subsection with respect to any active trade or 
        business--
                  (A) the taxpayer shall be allowed a deduction 
                for the taxable year in which such active trade 
                or business begins in an amount equal to the 
                lesser of--
                          (i) the aggregate amount of start-up 
                        and organizational expenditures paid or 
                        incurred in connection with such active 
                        trade or business, or
                          (ii) $20,000, reduced (but not below 
                        zero) by the amount by which such 
                        aggregate amount exceeds $120,000, and
                  (B) the remainder of such start-up and 
                organizational expenditures shall be charged to 
                capital account and allowed as an amortization 
                deduction determined by amortizing such 
                expenditures ratably over the 180-month period 
                beginning with the month in which the active 
                trade or business begins.
          (2) Application to organizational expenditures.--In 
        the case of organizational expenditures with respect to 
        any corporation or partnership, the active trade or 
        business referred to in paragraph (1) means the first 
        active trade or business carried on by such corporation 
        or partnership.
          (3) Inflation adjustment.--In the case of any taxable 
        year beginning after December 31, 2019, the $20,000 and 
        $120,000 amounts in paragraph (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(f)(3) for the calendar year in 
                which the taxable year begins, determined by 
                substituting ``calendar year 2018'' for 
                ``calendar year 2016'' in subparagraph (A)(ii) 
                thereof.
        If any amount as increased under the preceding sentence 
        is not a multiple of $1,000, such amount shall be 
        rounded to the nearest multiple of $1,000.
  (c) Allowance of deduction upon liquidation or disposition.--
          (1) Liquidation of partnership or corporation.--If 
        any partnership or corporation is completely liquidated 
        by the taxpayer, any start-up or organizational 
        expenditures paid or incurred in connection with such 
        partnership or corporation which were not allowed as a 
        deduction by reason of this section may be deducted to 
        the extent allowable under section 165.
          (2) Disposition of trade or business.--If any trade 
        or business is completely disposed of or discontinued 
        by the taxpayer, any start-up expenditures paid or 
        incurred in connection with such trade or business 
        which were not allowed as a deduction by reason of this 
        section (and not taken into account in connection with 
        a liquidation to which paragraph (1) applies) may be 
        deducted to the extent allowable under section 165. For 
        purposes of this paragraph, in the case of any 
        deduction allowed under subsection (b)(1) with respect 
        to both start-up and organizational expenditures, the 
        amount treated as so allowed with respect to start-up 
        expenditures shall bear the same ratio to such 
        deduction as the start-up expenditures taken into 
        account in determining such deduction bears to the 
        aggregate of the start-up and organizational 
        expenditures so taken into account.
  [(c)] (d) Definitions.--For purposes of this section--
          (1) Start-up expenditures.--The term ``start-up 
        expenditure'' means any amount--
                  (A) paid or incurred in connection with--
                          (i) investigating the creation or 
                        acquisition of an active trade or 
                        business, or
                          (ii) creating an active trade or 
                        business, or
                          (iii) any activity engaged in for 
                        profit and for the production of income 
                        before the day on which the active 
                        trade or business begins, in 
                        anticipation of such activity becoming 
                        an active trade or business, and
                  (B) which, if paid or incurred in connection 
                with the operation of an existing active trade 
                or business (in the same field as the trade or 
                business referred to in subparagraph (A)), 
                would be allowable as a deduction for the 
                taxable year in which paid or incurred.
        The term ``start-up expenditure'' does not include any 
        amount with respect to which a deduction is allowable 
        under section 163(a), 164, or 174.
          (2) Beginning of trade or business.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the determination of when an 
                active trade or business begins shall be made 
                in accordance with such regulations as the 
                Secretary may prescribe.
                  (B) Acquired trade or business.--An acquired 
                active trade or business shall be treated as 
                beginning when the taxpayer acquires it.
          (3) Organizational expenditures.--The term 
        ``organizational expenditures'' means any expenditure 
        which--
                  (A) is incident to the creation of a 
                corporation or a partnership,
                  (B) is chargeable to capital account, and
                  (C) is of a character which, if expended 
                incident to the creation of a corporation or a 
                partnership having an ascertainable life, would 
                be amortizable over such life.
          (4) Application to certain disregarded entities.--In 
        the case of any entity with a single owner that is 
        disregarded as an entity separate from its owner, this 
        section shall be applied in the same manner as if such 
        entity were a corporation.
  [(d)] (e) Election.--
          (1) Time for making election.--An election under 
        subsection (b) shall be made not later than the time 
        prescribed by law for filing the return for the taxable 
        year in which the trade or business begins (including 
        extensions thereof).
          [(2) Scope of election.--The period selected under 
        subsection (b) shall be adhered to in computing taxable 
        income for the taxable year for which the election is 
        made and all subsequent taxable years.]
          (2) Partnerships and s corporations.--In the case of 
        any partnership or S corporation, the election under 
        subsection (b) shall be made (and this section shall be 
        applied) at the entity level.

           *       *       *       *       *       *       *


             PART VIII--SPECIAL DEDUCTIONS FOR CORPORATIONS

[Sec. 248. Organizational expenditures.]

           *       *       *       *       *       *       *


[SEC. 248. ORGANIZATIONAL EXPENDITURES.

  [(a) Election to deduct.--If a corporation elects the 
application of this subsection (in accordance with regulations 
prescribed by the Secretary) with respect to any organizational 
expenditures--
          [(1) the corporation shall be allowed a deduction for 
        the taxable year in which the corporation begins 
        business in an amount equal to the lesser of--
                  [(A) the amount of organizational 
                expenditures with respect to the taxpayer, or
                  [(B) $5,000, reduced (but not below zero) by 
                the amount by which such organizational 
                expenditures exceed $50,000, and
          [(2) the remainder of such organizational 
        expenditures shall be allowed as a deduction ratably 
        over the 180-month period beginning with the month in 
        which the corporation begins business.
  [(b) Organizational expenditures defined.--The term 
``organizational expenditures'' means any expenditure which--
          [(1) is incident to the creation of the corporation;
          [(2) is chargeable to capital account; and
          [(3) is of a character which, if expended incident to 
        the creation of a corporation having a limited life, 
        would be amortizable over such life.
  [(c) Time for and scope of election.--The election provided 
by subsection (a) may be made for any taxable year but only if 
made not later than the time prescribed by law for filing the 
return for such taxable year (including extensions thereof). 
The period so elected shall be adhered to in computing the 
taxable income of the corporation for the taxable year for 
which the election is made and all subsequent taxable years.]

           *       *       *       *       *       *       *


Subchapter C--Corporate Distributions and Adjustments

           *       *       *       *       *       *       *


PART I--DISTRIBUTIONS BY CORPORATIONS

           *       *       *       *       *       *       *


Subpart B--Effects on Corporation

           *       *       *       *       *       *       *


SEC. 312. EFFECT ON EARNINGS AND PROFITS.

  (a) General rule.--Except as otherwise provided in this 
section, on the distribution of property by a corporation with 
respect to its stock, the earnings and profits of the 
corporation (to the extent thereof) shall be decreased by the 
sum of--
          (1) the amount of money,
          (2) the principal amount of the obligations of such 
        corporation (or, in the case of obligations having 
        original issue discount, the aggregate issue price of 
        such obligations), and
          (3) the adjusted basis of the other property, so 
        distributed.
  (b) Distributions of appreciated property.--On the 
distribution by a corporation, with respect to its stock, of 
any property (other than an obligation of such corporation) the 
fair market value of which exceeds the adjusted basis thereof--
          (1) the earnings and profits of the corporation shall 
        be increased by the amount of such excess, and
          (2) subsection (a)(3) shall be applied by 
        substituting ``fair market value'' for ``adjusted 
        basis''.
For purposes of this subsection and subsection (a), the 
adjusted basis of any property is its adjusted basis as 
determined for purposes of computing earnings and profits.
  (c) Adjustments for liabilities.--In making the adjustments 
to the earnings and profits of a corporation under subsection 
(a) or (b), proper adjustment shall be made for--
          (1) the amount of any liability to which the property 
        distributed is subject, and
          (2) the amount of any liability of the corporation 
        assumed by a shareholder in connection with the 
        distribution.
  (d) Certain distributions of stock and securities.--
          (1) In general.--The distribution to a distributee by 
        or on behalf of a corporation of its stock or 
        securities, of stock or securities in another 
        corporation, or of property, in a distribution to which 
        this title applies, shall not be considered a 
        distribution of the earnings and profits of any 
        corporation--
                  (A) if no gain to such distributee from the 
                receipt of such stock or securities, or 
                property, was recognized under this title, or
                  (B) if the distribution was not subject to 
                tax in the hands of such distributee by reason 
                of section 305(a).
          (2) Stock or securities.--For purposes of this 
        subsection, the term ``stock or securities'' includes 
        rights to acquire stock or securities.
  (f) Effect on earnings and profits of gain or loss and of 
receipt of tax-free distributions.--
          (1) Effect on earnings and profits of gain or loss.--
        The gain or loss realized from the sale or other 
        disposition (after February 28, 1913) of property by a 
        corporation--
                  (A) for the purpose of the computation of the 
                earnings and profits of the corporation, shall 
                (except as provided in subparagraph (B)) be 
                determined by using as the adjusted basis the 
                adjusted basis (under the law applicable to the 
                year in which the sale or other disposition was 
                made) for determining gain, except that no 
                regard shall be had to the value of the 
                property as of March 1, 1913; but
                  (B) for purposes of the computation of the 
                earnings and profits of the corporation for any 
                period beginning after February 28, 1913, shall 
                be determined by using as the adjusted basis 
                the adjusted basis (under the law applicable to 
                the year in which the sale or other disposition 
                was made) for determining gain.
        Gain or loss so realized shall increase or decrease the 
        earnings and profits to, but not beyond, the extent to 
        which such a realized gain or loss was recognized in 
        computing taxable income under the law applicable to 
        the year in which such sale or disposition was made. 
        Where, in determining the adjusted basis used in 
        computing such realized gain or loss, the adjustment to 
        the basis differs from the adjustment proper for the 
        purpose of determining earnings and profits, then the 
        latter adjustment shall be used in determining the 
        increase or decrease above provided. For purposes of 
        this subsection, a loss with respect to which a 
        deduction is disallowed under section 1091 (relating to 
        wash sales of stock or securities), or the 
        corresponding provision of prior law, shall not be 
        deemed to be recognized.
          (2) Effect on earnings and profits of receipt of tax-
        free distributions.--Where a corporation receives 
        (after February 28, 1913) a distribution from a second 
        corporation which (under the law applicable to the year 
        in which the distribution was made) was not a taxable 
        dividend to the shareholders of the second corporation, 
        the amount of such distribution shall not increase the 
        earnings and profits of the first corporation in the 
        following cases:
                  (A) no such increase shall be made in respect 
                of the part of such distribution which (under 
                such law) is directly applied in reduction of 
                the basis of the stock in respect of which the 
                distribution was made; and
                  (B) no such increase shall be made if (under 
                such law) the distribution causes the basis of 
                the stock in respect of which the distribution 
                was made to be allocated between such stock and 
                the property received (or such basis would, but 
                for section 307(b), be so allocated).
  (g) Earnings and profits - increase in value accrued before 
March 1, 1913.--
          (1) If any increase or decrease in the earnings and 
        profits for any period beginning after February 28, 
        1913, with respect to any matter would be different had 
        the adjusted basis of the property involved been 
        determined without regard to its March 1, 1913, value, 
        then, except as provided in paragraph (2), an increase 
        (properly reflecting such difference) shall be made in 
        that part of the earnings and profits consisting of 
        increase in value of property accrued before March 1, 
        1913.
          (2) If the application of subsection (f) to a sale or 
        other disposition after February 28, 1913, results in a 
        loss which is to be applied in decrease of earnings and 
        profits for any period beginning after February 28, 
        1913, then, notwithstanding subsection (f) and in lieu 
        of the rule provided in paragraph (1) of this 
        subsection, the amount of such loss so to be applied 
        shall be reduced by the amount, if any, by which the 
        adjusted basis of the property used in determining the 
        loss exceeds the adjusted basis computed without regard 
        to the value of the property on March 1, 1913, and if 
        such amount so applied in reduction of the decrease 
        exceeds such loss, the excess over such loss shall 
        increase that part of the earnings and profits 
        consisting of increase in value of property accrued 
        before March 1, 1913.
  (h) Allocation in certain corporate separations and 
reorganizations.--
          (1) Section 355.--In the case of a distribution or 
        exchange to which section 355 (or so much of section 
        356 as relates to section 355) applies, proper 
        allocation with respect to the earnings and profits of 
        the distributing corporation and the controlled 
        corporation (or corporations) shall be made under 
        regulations prescribed by the Secretary.
          (2) Section 368(a)(1)(C) or (D).--In the case of a 
        reorganization described in subparagraph (C) or (D) of 
        section 368(a)(1), proper allocation with respect to 
        the earnings and profits of the acquired corporation 
        shall, under regulations prescribed by the Secretary, 
        be made between the acquiring corporation and the 
        acquired corporation (or any corporation which had 
        control of the acquired corporation before the 
        reorganization).
  (i) Distribution of proceeds of loan insured by the United 
States.--If a corporation distributes property with respect to 
its stock and if, at the time of distribution--
          (1) there is outstanding a loan to such corporation 
        which was made, guaranteed, or insured by the United 
        States (or by any agency or instrumentality thereof), 
        and
          (2) the amount of such loan so outstanding exceeds 
        the adjusted basis of the property constituting 
        security for such loan,
then the earnings and profits of the corporation shall be 
increased by the amount of such excess, and (immediately after 
the distribution) shall be decreased by the amount of such 
excess. For purposes of paragraph (2), the adjusted basis of 
the property at the time of distribution shall be determined 
without regard to any adjustment under section 1016(a)(2) 
(relating to adjustment for depreciation, etc.). For purposes 
of this subsection, a commitment to make, guarantee, or insure 
a loan shall be treated as the making, guaranteeing, or 
insuring of a loan.
  (k) Effect of depreciation on earnings and profits.--
          (1) General rule.--For purposes of computing the 
        earnings and profits of a corporation for any taxable 
        year beginning after June 30, 1972, the allowance for 
        depreciation (and amortization, if any) shall be deemed 
        to be the amount which would be allowable for such year 
        if the straight line method of depreciation had been 
        used for each taxable year beginning after June 30, 
        1972.
          (2) Exception.--If for any taxable year a method of 
        depreciation was used by the taxpayer which the 
        Secretary has determined results in a reasonable 
        allowance under section 167(a) and which is the unit-
        of-production method or other method not expressed in a 
        term of years, then the adjustment to earnings and 
        profits for depreciation for such year shall be 
        determined under the method so used (in lieu of the 
        straight line method).
          (3) Exception for tangible property.--
                  (A) In general.--Except as provided in 
                subparagraph (B), in the case of tangible 
                property to which section 168 applies, the 
                adjustment to earnings and profits for 
                depreciation for any taxable year shall be 
                determined under the alternative depreciation 
                system (within the meaning of section 
                168(g)(2)).
                  (B) Treatment of amounts deductible under 
                section 179, 179B, 179C, 179D, or 179E.--For 
                purposes of computing the earnings and profits 
                of a corporation, any amount deductible under 
                section 179, 179B, 179C, 179D, or 179E shall be 
                allowed as a deduction ratably over the period 
                of 5 taxable years (beginning with the taxable 
                year for which such amount is deductible under 
                section 179, 179B, 179C, 179D, or 179E, as the 
                case may be).
          (4) Certain foreign corporations.--The provisions of 
        paragraph (1) shall not apply in computing the earnings 
        and profits of a foreign corporation for any taxable 
        year for which less than 20 percent of the gross income 
        from all sources of such corporation is derived from 
        sources within the United States.
          (5) Basis adjustment not taken into account.--In 
        computing the earnings and profits of a corporation for 
        any taxable year, the allowance for depreciation (and 
        amortization, if any) shall be computed without regard 
        to any basis adjustment under section 50(c).
  (l) Discharge of indebtedness income.--
          (1) Does not increase earnings and profits if applied 
        to reduce basis.--The earnings and profits of a 
        corporation shall not include income from the discharge 
        of indebtedness to the extent of the amount applied to 
        reduce basis under section 1017.
          (2) Reduction of deficit in earnings and profits in 
        certain cases.--If--
                  (A) the interest of any shareholder of a 
                corporation is terminated or extinguished in a 
                title 11 or similar case (within the meaning of 
                section 368(a)(3)(A)), and
                  (B) there is a deficit in the earnings and 
                profits of the corporation,
        then such deficit shall be reduced by an amount equal 
        to the paid-in capital which is allocable to the 
        interest of the shareholder which is so terminated or 
        extinguished.
  (m) No adjustment for interest paid on certain registration-
required obligations not in registered form.--The earnings and 
profits of any corporation shall not be decreased by any 
interest with respect to which a deduction is not or would not 
be allowable by reason of section 163(f), unless at the time of 
issuance the issuer is a foreign corporation that is not a 
controlled foreign corporation (within the meaning of section 
957) and the issuance did not have as a purpose the avoidance 
of section 163(f) of this subsection
  (n) Adjustments to earnings and profits to more accurately 
reflect economic gain and loss.--For purposes of computing the 
earnings and profits of a corporation, the following 
adjustments shall be made:
          (1) Construction period carrying charges.--
                  (A) In general.--In the case of any amount 
                paid or incurred for construction period 
                carrying charges--
                          (i) no deduction shall be allowed 
                        with respect to such amount, and
                          (ii) the basis of the property with 
                        respect to which such charges are 
                        allocable shall be increased by such 
                        amount.
                  (B) Construction period carrying charges 
                defined.--For purposes of this paragraph, the 
                term ``construction period carrying charges'' 
                means all--
                          (i) interest paid or accrued on 
                        indebtedness incurred or continued to 
                        acquire, construct, or carry property,
                          (ii) property taxes, and
                          (iii) similar carrying charges, to 
                        the extent such interest, taxes, or 
                        charges are attributable to the 
                        construction period for such property 
                        and would be allowable as a deduction 
                        in determining taxable income under 
                        this chapter for the taxable year in 
                        which paid or incurred.
                  (C) Construction period.--The term 
                ``construction period'' has the meaning given 
                the term production period under section 
                263A(f)(4)(B).
          (2) Intangible drilling costs and mineral exploration 
        and development costs.--
                  (A) Intangible drilling costs.--Any amount 
                allowable as a deduction under section 263(c) 
                in determining taxable income (other than costs 
                incurred in connection with a nonproductive 
                well)--
                          (i) shall be capitalized, and
                          (ii) shall be allowed as a deduction 
                        ratably over the 60-month period 
                        beginning with the month in which such 
                        amount was paid or incurred.
                  (B) Mineral exploration and development 
                costs.--Any amount allowable as a deduction 
                under section 616(a) or 617 in determining 
                taxable income--
                          (i) shall be capitalized, and
                          (ii) shall be allowed as a deduction 
                        ratably over the 120-month period 
                        beginning with the later of--
                                  (I) the month in which 
                                production from the deposit 
                                begins, or
                                  (II) the month in which such 
                                amount was paid or incurred.
          (3) Certain amortization provisions not to apply.--
        [Sections 173 and 248] Sections 173 and 195 shall not 
        apply.
          (4) LIFO inventory adjustments.--
                  (A) In general.--Earnings and profits shall 
                be increased or decreased by the amount of any 
                increase or decrease in the LIFO recapture 
                amount as of the close of each taxable year; 
                except that any decrease below the LIFO 
                recapture amount as of the close of the taxable 
                year preceding the 1st taxable year to which 
                this paragraph applies to the taxpayer shall be 
                taken into account only to the extent provided 
                in regulations prescribed by the Secretary.
                  (B) LIFO recapture amount.--For purposes of 
                this paragraph, the term ``LIFO recapture 
                amount'' means the amount (if any) by which--
                          (i) the inventory amount of the 
                        inventory assets under the first-in, 
                        first-out method authorized by section 
                        471, exceeds
                          (ii) the inventory amount of such 
                        assets under the LIFO method.
                  (C) Definitions.--For purposes of this 
                paragraph--
                          (i) LIFO method.--The term ``LIFO 
                        method'' means the method authorized by 
                        section 472 (relating to last-in, 
                        first-out inventories).
                          (ii) Inventory assets.--The term 
                        ``inventory assets'' means stock in 
                        trade of the corporation, or other 
                        property of a kind which would properly 
                        be included in the inventory of the 
                        corporation if on hand at the close of 
                        the taxable year.
                          (iii) Inventory amount.--The 
                        inventory amount of assets under the 
                        first-in, first-out method authorized 
                        by section 471 shall be determined--
                                  (I) if the corporation uses 
                                the retail method of valuing 
                                inventories under section 472, 
                                by using such method, or
                                  (II) if subclause (I) does 
                                not apply, by using cost or 
                                market, whichever is lower.
          (5) Installment sales.--In the case of any 
        installment sale, earnings and profits shall be 
        computed as if the corporation did not use the 
        installment method.
          (6) Completed contract method of accounting.--In the 
        case of a taxpayer who uses the completed contract 
        method of accounting, earnings and profits shall be 
        computed as if such taxpayer used the percentage of 
        completion method of accounting.
          (7) Redemptions.--If a corporation distributes 
        amounts in a redemption to which section 302(a) or 303 
        applies, the part of such distribution which is 
        properly chargeable to earnings and profits shall be an 
        amount which is not in excess of the ratable share of 
        the earnings and profits of such corporation 
        accumulated after February 28, 1913, attributable to 
        the stock so redeemed.
          (8) Special rule for certain foreign corporations.--
        In the case of a foreign corporation described in 
        subsection (k)(4)--
                  (A) paragraphs (4) and (6) shall apply only 
                in the case of taxable years beginning after 
                December 31, 1985, and
                  (B) paragraph (5) shall apply only in the 
                case of taxable years beginning after December 
                31, 1987.
  (o) Definition of original issue discount and issue price for 
purposes of subsection (a)(2).--For purposes of subsection 
(a)(2), the terms ``original issue discount'' and ``issue 
price'' have the same respective meanings as when used in 
subpart A of part V of subchapter P of this chapter.

           *       *       *       *       *       *       *


PART V--CARRYOVERS

           *       *       *       *       *       *       *


SEC. 382. LIMITATION ON NET OPERATING LOSS CARRYFORWARDS AND CERTAIN 
                    BUILT-IN LOSSES FOLLOWING OWNERSHIP CHANGE.

  (a) General rule.--The amount of the taxable income of any 
new loss corporation for any post-change year which may be 
offset by pre-change losses shall not exceed the section 382 
limitation for such year.
  (b) Section 382 limitation.--For purposes of this section--
          (1) In general.--Except as otherwise provided in this 
        section, the section 382 limitation for any post-change 
        year is an amount equal to--
                  (A) the value of the old loss corporation, 
                multiplied by
                  (B) the long-term tax-exempt rate.
          (2) Carryforward of unused limitation.--If the 
        section 382 limitation for any post-change year exceeds 
        the taxable income of the new loss corporation for such 
        year which was offset by pre-change losses, the section 
        382 limitation for the next post-change year shall be 
        increased by the amount of such excess.
          (3) Special rule for post-change year which includes 
        change date.--In the case of any post-change year which 
        includes the change date--
                  (A) Limitation does not apply to taxable 
                income before change.--Subsection (a) shall not 
                apply to the portion of the taxable income for 
                such year which is allocable to the period in 
                such year on or before the change date. Except 
                as provided in subsection (h)(5) and in 
                regulations, taxable income shall be allocated 
                ratably to each day in the year.
                  (B) Limitation for period after change.--For 
                purposes of applying the limitation of 
                subsection (a) to the remainder of the taxable 
                income for such year, the section 382 
                limitation shall be an amount which bears the 
                same ratio to such limitation (determined 
                without regard to this paragraph) as--
                          (i) the number of days in such year 
                        after the change date, bears to
                          (ii) the total number of days in such 
                        year.
  (c) Carryforwards disallowed if continuity of business 
requirements not met.--
          (1) In general.--Except as provided in paragraph (2), 
        if the new loss corporation does not continue the 
        business enterprise of the old loss corporation at all 
        times during the 2-year period beginning on the change 
        date, the section 382 limitation for any post-change 
        year shall be zero.
          (2) Exception for certain gains.--The section 382 
        limitation for any post-change year shall not be less 
        than the sum of--
                  (A) any increase in such limitation under--
                          (i) subsection (h)(1)(A) for 
                        recognized built-in gains for such 
                        year, and
                          (ii) subsection (h)(1)(C) for gain 
                        recognized by reason of an election 
                        under section 338, plus (B) any 
                        increase in such limitation under 
                        subsection (b)(2) for amounts described 
                        in subparagraph (A) which are carried 
                        forward to such year.
  (d) Pre-change loss and post-change year.--For purposes of 
this section--
          (1) Pre-change loss.--The term ``pre-change loss'' 
        means--
                  (A) any net operating loss carryforward of 
                the old loss corporation to the taxable year 
                ending with the ownership change or in which 
                the change date occurs, and
                  (B) the net operating loss of the old loss 
                corporation for the taxable year in which the 
                ownership change occurs to the extent such loss 
                is allocable to the period in such year on or 
                before the change date.
        Except as provided in subsection (h)(5) and in 
        regulations, the net operating loss shall, for purposes 
        of subparagraph (B), be allocated ratably to each day 
        in the year.
          (2) Post-change year.--The term ``post-change year'' 
        means any taxable year ending after the change date.
          (3) Application to carryforward of disallowed 
        interest.--The term ``pre-change loss'' shall include 
        any carryover of disallowed interest described in 
        section 163(j)(2) under rules similar to the rules of 
        paragraph (1).
          (4) Exception for start-up losses.--
                  (A) In general.--In the case of any net 
                operating loss carryforward described in 
                paragraph (1)(A) which arose in a start-up 
                period taxable year, the amount of such net 
                operating loss carryforward otherwise taken 
                into account under such paragraph shall be 
                reduced by the net start-up loss determined 
                with respect to the trade or business referred 
                to in subparagraph (B)(i) for such start-up 
                period taxable year.
                  (B) Start-up period taxable year.--The term 
                ``start-up period taxable year'' means any 
                taxable year of the old loss corporation 
                which--
                          (i) begins before the close of the 3-
                        year period beginning on the date on 
                        which any trade or business of such 
                        corporation begins as an active trade 
                        or business (as determined under 
                        section 195(d)(2) without regard to 
                        subparagraph (B) thereof), and
                          (ii) ends after September 10, 2018.
                  (C) Net start-up loss.--
                          (i) In general.--The term ``net 
                        start-up loss'' means, with respect to 
                        any trade or business referred to in 
                        subparagraph (B)(i) for any start-up 
                        period taxable year, the amount which 
                        bears the same ratio (but not greater 
                        than 1) to the net operating loss 
                        carryforward which arose in such start-
                        up period taxable year as--
                                  (I) the net operating loss 
                                (if any) which would have been 
                                determined for such start-up 
                                period taxable year if only 
                                items of income, gain, 
                                deduction, and loss properly 
                                allocable to such trade or 
                                business were taken into 
                                account, bears to
                                  (II) the amount of the net 
                                operating loss determined for 
                                such start-up period taxable 
                                year.
                          (ii) Special rule for last taxable 
                        year in start-up period.--In the case 
                        of any start-up period taxable year 
                        which ends after the close of the 3-
                        year period described in subparagraph 
                        (B)(i) with respect to any trade or 
                        business, the net start-up loss with 
                        respect to such trade or business for 
                        such start-up period taxable year shall 
                        be the same proportion of such loss 
                        (determined without regard to this 
                        clause) as the proportion of such 
                        start-up period taxable year which is 
                        on or before the last day of such 
                        period.
                  (D) Application to net operating loss arising 
                in year of ownership change.--Subparagraph (A) 
                shall apply to any net operating loss described 
                in paragraph (1)(B) in the same manner as such 
                subparagraph applies to net operating loss 
                carryforwards described in paragraph (1)(A), 
                but by only taking into account the amount of 
                such net operating loss (and the amount of the 
                net start-up loss) which is allocable under 
                paragraph (1)(B) to the period described in 
                such paragraph. Proper adjustment in the 
                allocation of the net start-up loss under the 
                preceding sentence shall be made in the case of 
                a taxable year to which subparagraph (C)(ii) 
                applies.
                  (E) Application to taxable years which are 
                start-up period taxable years with respect to 
                more than 1 trade or business.--In the case of 
                any net operating loss carryforward which arose 
                in a taxable year which is a start-up period 
                taxable year with respect to more than 1 trade 
                or business--
                          (i) this paragraph shall be applied 
                        separately with respect to each such 
                        trade or business, and
                          (ii) the aggregate reductions under 
                        subparagraph (A) shall not exceed such 
                        net operating loss carryforward.
                  (F) Continuity of business requirement.--If 
                the new loss corporation does not continue the 
                trade or business referred to in subparagraph 
                (B)(i) at all times during the 2-year period 
                beginning on the change date, this paragraph 
                shall not apply with respect to such trade or 
                business.
                  (G) Certain title 11 or similar cases.--
                          (i) Multiple ownership changes.--In 
                        the case of a 2nd ownership change to 
                        which subsection (l)(5)(D) applies, 
                        this paragraph shall not apply for 
                        purposes of determining the pre-change 
                        loss with respect to such 2nd ownership 
                        change.
                          (ii) Certain insolvency 
                        transactions.--If subsection (l)(6) 
                        applies for purposes of determining the 
                        value of the old loss corporation under 
                        subsection (e), this paragraph shall 
                        not apply.
                  (H) Not applicable to disallowed interest.--
                This paragraph shall not apply for purposes of 
                applying the rules of paragraph (1) to the 
                carryover of disallowed interest under 
                paragraph (3).
                  (I) Transition rule.--This paragraph shall 
                not apply with respect to any trade or business 
                if the date on which such trade or business 
                begins as an active trade or business (as 
                determined under section 195(d)(2) without 
                regard to subparagraph (B) thereof) is on or 
                before September 10, 2018.
  (e) Value of old loss corporation.--For purposes of this 
section--
          (1) In general.--Except as otherwise provided in this 
        subsection, the value of the old loss corporation is 
        the value of the stock of such corporation (including 
        any stock described in section 1504(a)(4)) immediately 
        before the ownership change.
          (2) Special rule in the case of redemption or other 
        corporate contraction.--If a redemption or other 
        corporate contraction occurs in connection with an 
        ownership change, the value under paragraph (1) shall 
        be determined after taking such redemption or other 
        corporate contraction into account.
          (3) Treatment of foreign corporations.--Except as 
        otherwise provided in regulations, in determining the 
        value of any old loss corporation which is a foreign 
        corporation, there shall be taken into account only 
        items treated as connected with the conduct of a trade 
        or business in the United States.
  (f) Long-term tax-exempt rate.--For purposes of this 
section--
          (1) In general.--The long-term tax-exempt rate shall 
        be the highest of the adjusted Federal long-term rates 
        in effect for any month in the 3-calendar-month period 
        ending with the calendar month in which the change date 
        occurs.
          (2) Adjusted Federal long-term rate.--For purposes of 
        paragraph (1), the term ``adjusted Federal long-term 
        rate'' means the Federal long-term rate determined 
        under section 1274(d), except that--
                  (A) paragraphs (2) and (3) thereof shall not 
                apply, and
                  (B) such rate shall be properly adjusted for 
                differences between rates on long-term taxable 
                and tax-exempt obligations.
  (g) Ownership change.--For purposes of this section--
          (1) In general.--There is an ownership change if, 
        immediately after any owner shift involving a 5-percent 
        shareholder or any equity structure shift--
                  (A) the percentage of the stock of the loss 
                corporation owned by 1 or more 5-percent 
                shareholders has increased by more than 50 
                percentage points, over
                  (B) the lowest percentage of stock of the 
                loss corporation (or any predecessor 
                corporation) owned by such shareholders at any 
                time during the testing period.
          (2) Owner shift involving 5-percent shareholder.--
        There is an owner shift involving a 5-percent 
        shareholder if--
                  (A) there is any change in the respective 
                ownership of stock of a corporation, and
                  (B) such change affects the percentage of 
                stock of such corporation owned by any person 
                who is a 5-percent shareholder before or after 
                such change.
          (3) Equity structure shift defined.--
                  (A) In general.--The term ``equity structure 
                shift'' means any reorganization (within the 
                meaning of section 368). Such term shall not 
                include--
                          (i) any reorganization described in 
                        subparagraph (D) or (G) of section 
                        368(a)(1) unless the requirements of 
                        section 354(b)(1) are met, and
                          (ii) any reorganization described in 
                        subparagraph (F) of section 368(a)(1).
                  (B) Taxable reorganization-type transactions, 
                etc..--To the extent provided in regulations, 
                the term ``equity structure shift'' includes 
                taxable reorganization-type transactions, 
                public offerings, and similar transactions.
          (4) Special rules for application of subsection.--
                  (A) Treatment of less than 5-percent 
                shareholders.--Except as provided in 
                subparagraphs (B)(i) and (C), in determining 
                whether an ownership change has occurred, all 
                stock owned by shareholders of a corporation 
                who are not 5-percent shareholders of such 
                corporation shall be treated as stock owned by 
                1 5-percent shareholder of such corporation.
                  (B) Coordination with equity structure 
                shifts.--For purposes of determining whether an 
                equity structure shift (or subsequent 
                transaction) is an ownership change--
                          (i) Less than 5-percent 
                        shareholders.--Subparagraph (A) shall 
                        be applied separately with respect to 
                        each group of shareholders (immediately 
                        before such equity structure shift) of 
                        each corporation which was a party to 
                        the reorganization involved in such 
                        equity structure shift.
                          (ii) Acquisitions of stock.--Unless a 
                        different proportion is established, 
                        acquisitions of stock after such equity 
                        structure shift shall be treated as 
                        being made proportionately from all 
                        shareholders immediately before such 
                        acquisition.
                  (C) Coordination with other owner shifts.--
                Except as provided in regulations, rules 
                similar to the rules of subparagraph (B) shall 
                apply in determining whether there has been an 
                owner shift involving a 5-percent shareholder 
                and whether such shift (or subsequent 
                transaction) results in an ownership change.
                  (D) Treatment of worthless stock.--If any 
                stock held by a 50-percent shareholder is 
                treated by such shareholder as becoming 
                worthless during any taxable year of such 
                shareholder and such stock is held by such 
                shareholder as of the close of such taxable 
                year, for purposes of determining whether an 
                ownership change occurs after the close of such 
                taxable year, such shareholder--
                          (i) shall be treated as having 
                        acquired such stock on the 1st day of 
                        his 1st succeeding taxable year, and
                          (ii) shall not be treated as having 
                        owned such stock during any prior 
                        period.
                For purposes of the preceding sentence, the 
                term ``50-percent shareholder'' means any 
                person owning 50 percent or more of the stock 
                of the corporation at any time during the 3-
                year period ending on the last day of the 
                taxable year with respect to which the stock 
                was so treated.
  (h) Special rules for built-in gains and losses and section 
338 gains.--For purposes of this section--
          (1) In general.--
                  (A) Net unrealized built-in gain.--
                          (i) In general.--If the old loss 
                        corporation has a net unrealized built-
                        in gain, the section 382 limitation for 
                        any recognition period taxable year 
                        shall be increased by the recognized 
                        built-in gains for such taxable year.
                          (ii) Limitation.--The increase under 
                        clause (i) for any recognition period 
                        taxable year shall not exceed--
                                  (I) the net unrealized built-
                                in gain, reduced by
                                  (II) recognized built-in 
                                gains for prior years ending in 
                                the recognition period.
                  (B) Net unrealized built-in loss.--
                          (i) In general.--If the old loss 
                        corporation has a net unrealized built-
                        in loss, the recognized built-in loss 
                        for any recognition period taxable year 
                        shall be subject to limitation under 
                        this section in the same manner as if 
                        such loss were a pre-change loss.
                          (ii) Limitation.--Clause (i) shall 
                        apply to recognized built-in losses for 
                        any recognition period taxable year 
                        only to the extent such losses do not 
                        exceed--
                                  (I) the net unrealized built-
                                in loss, reduced by
                                  (II) recognized built-in 
                                losses for prior taxable years 
                                ending in the recognition 
                                period.
                  (C) Special rules for certain section 338 
                gains.--If an election under section 338 is 
                made in connection with an ownership change and 
                the net unrealized built-in gain is zero by 
                reason of paragraph (3)(B), then, with respect 
                to such change, the section 382 limitation for 
                the post-change year in which gain is 
                recognized by reason of such election shall be 
                increased by the lesser of--
                          (i) the recognized built-in gains by 
                        reason of such election, or
                          (ii) the net unrealized built-in gain 
                        (determined without regard to paragraph 
                        (3)(B)).
          (2) Recognized built-in gain and loss.--
                  (A) Recognized built-in gain.--The term 
                ``recognized built-in gain'' means any gain 
                recognized during the recognition period on the 
                disposition of any asset to the extent the new 
                loss corporation establishes that--
                          (i) such asset was held by the old 
                        loss corporation immediately before the 
                        change date, and
                          (ii) such gain does not exceed the 
                        excess of--
                                  (I) the fair market value of 
                                such asset on the change date, 
                                over
                                  (II) the adjusted basis of 
                                such asset on such date.
                  (B) Recognized built-in loss.--The term 
                ``recognized built-in loss'' means any loss 
                recognized during the recognition period on the 
                disposition of any asset except to the extent 
                the new loss corporation establishes that--
                          (i) such asset was not held by the 
                        old loss corporation immediately before 
                        the change date, or
                          (ii) such loss exceeds the excess 
                        of--
                                  (I) the adjusted basis of 
                                such asset on the change date, 
                                over
                                  (II) the fair market value of 
                                such asset on such date.
                Such term includes any amount allowable as 
                depreciation, amortization, or depletion for 
                any period within the recognition period except 
                to the extent the new loss corporation 
                establishes that the amount so allowable is not 
                attributable to the excess described in clause 
                (ii).
          (3) Net unrealized built-in gain and loss defined.--
                  (A) Net unrealized built-in gain and loss.--
                          (i) In general.--The terms ``net 
                        unrealized built-in gain'' and ``net 
                        unrealized built-in loss'' mean, with 
                        respect to any old loss corporation, 
                        the amount by which--
                                  (I) the fair market value of 
                                the assets of such corporation 
                                immediately before an ownership 
                                change is more or less, 
                                respectively, than
                                  (II) the aggregate adjusted 
                                basis of such assets at such 
                                time.
                          (ii) Special rule for redemptions or 
                        other corporate contractions.--If a 
                        redemption or other corporate 
                        contraction occurs in connection with 
                        an ownership change, to the extent 
                        provided in regulations, determinations 
                        under clause (i) shall be made after 
                        taking such redemption or other 
                        corporate contraction into account.
                  (B) Threshold requirement.--
                          (i) In general.--If the amount of the 
                        net unrealized built-in gain or net 
                        unrealized built-in loss (determined 
                        without regard to this subparagraph) of 
                        any old loss corporation is not greater 
                        than the lesser of--
                                  (I) 15 percent of the amount 
                                determined for purposes of 
                                subparagraph (A)(i)(I), or
                                  (II) $10,000,000,
                        the net unrealized built-in gain or net 
                        unrealized built-in loss shall be zero.
                          (ii) Cash and cash items not taken 
                        into account.--In computing any net 
                        unrealized built-in gain or net 
                        unrealized built-in loss under clause 
                        (i), except as provided in regulations, 
                        there shall not be taken into account--
                                  (I) any cash or cash item, or
                                  (II) any marketable security 
                                which has a value which does 
                                not substantially differ from 
                                adjusted basis.
          (4) Disallowed loss allowed as a carryforward.--If a 
        deduction for any portion of a recognized built-in loss 
        is disallowed for any post-change year, such portion--
                  (A) shall be carried forward to subsequent 
                taxable years under rules similar to the rules 
                for the carrying forward of net operating 
                losses (or to the extent the amount so 
                disallowed is attributable to capital losses, 
                under rules similar to the rules for the 
                carrying forward of net capital losses), but
                  (B) shall be subject to limitation under this 
                section in the same manner as a pre-change 
                loss.
          (5) Special rules for post-change year which includes 
        change date.--For purposes of subsection (b)(3)--
                  (A) in applying subparagraph (A) thereof, 
                taxable income shall be computed without regard 
                to recognized built-in gains to the extent such 
                gains increased the section 382 limitation for 
                the year (or recognized built-in losses to the 
                extent such losses are treated as pre-change 
                losses), and gain described in paragraph 
                (1)(C), for the year, and
                  (B) in applying subparagraph (B) thereof, the 
                section 382 limitation shall be computed 
                without regard to recognized built-in gains, 
                and gain described in paragraph (1)(C), for the 
                year.
          (6) Treatment of certain built-in items.--
                  (A) Income items.--Any item of income which 
                is properly taken into account during the 
                recognition period but which is attributable to 
                periods before the change date shall be treated 
                as a recognized built-in gain for the taxable 
                year in which it is properly taken into 
                account.
                  (B) Deduction items.--Any amount which is 
                allowable as a deduction during the recognition 
                period (determined without regard to any 
                carryover) but which is attributable to periods 
                before the change date shall be treated as a 
                recognized built-in loss for the taxable year 
                for which it is allowable as a deduction.
                  (C) Adjustments.--The amount of the net 
                unrealized built-in gain or loss shall be 
                properly adjusted for amounts which would be 
                treated as recognized built-in gains or losses 
                under this paragraph if such amounts were 
                properly taken into account (or allowable as a 
                deduction) during the recognition period.
          (7) Recognition period, etc.
                  (A) Recognition period.--The term 
                ``recognition period'' means, with respect to 
                any ownership change, the 5-year period 
                beginning on the change date.
                  (B) Recognition period taxable year.--The 
                term ``recognition period taxable year'' means 
                any taxable year any portion of which is in the 
                recognition period.
          (8) Determination of fair market value in certain 
        cases.--If 80 percent or more in value of the stock of 
        a corporation is acquired in 1 transaction (or in a 
        series of related transactions during any 12-month 
        period), for purposes of determining the net unrealized 
        built-in loss, the fair market value of the assets of 
        such corporation shall not exceed the grossed up amount 
        paid for such stock properly adjusted for indebtedness 
        of the corporation and other relevant items.
          (9) Tax-free exchanges or transfers.--The Secretary 
        shall prescribe such regulations as may be necessary to 
        carry out the purposes of this subsection where 
        property held on the change date was acquired (or is 
        subsequently transferred) in a transaction where gain 
        or loss is not recognized (in whole or in part).
  (i) Testing period.--For purposes of this section--
          (1) 3-year period.--Except as otherwise provided in 
        this section, the testing period is the 3-year period 
        ending on the day of any owner shift involving a 5-
        percent shareholder or equity structure shift.
          (2) Shorter period where there has been recent 
        ownership change.--If there has been an ownership 
        change under this section, the testing period for 
        determining whether a 2nd ownership change has occurred 
        shall not begin before the 1st day following the change 
        date for such earlier ownership change.
          (3) Shorter period where all losses arise after 3-
        year period begins.--The testing period shall not begin 
        before the earlier of the 1st day of the 1st taxable 
        year from which there is a carryforward of a loss or of 
        an excess credit to the 1st post-change year or the 
        taxable year in which the transaction being tested 
        occurs. Except as provided in regulations, this 
        paragraph shall not apply to any loss corporation which 
        has a net unrealized built-in loss (determined after 
        application of subsection (h)(3)(B)).
  (j) Change date.--For purposes of this section, the change 
date is--
          (1) in the case where the last component of an 
        ownership change is an owner shift involving a 5-
        percent shareholder, the date on which such shift 
        occurs, and
          (2) in the case where the last component of an 
        ownership change is an equity structure shift, the date 
        of the reorganization.
  (k) Definitions and special rules.--For purposes of this 
section--
          (1) Loss corporation.--The term ``loss corporation'' 
        means a corporation entitled to use a net operating 
        loss carryover or having a net operating loss for the 
        taxable year in which the ownership change occurs. Such 
        term shall include any corporation entitled to use a 
        carryforward of disallowed interest described in 
        section 381(c)(20). Except to the extent provided in 
        regulations, such term includes any corporation with a 
        net unrealized built-in loss.
          (2) Old loss corporation.--The term ``old loss 
        corporation'' means any corporation--
                  (A) with respect to which there is an 
                ownership change, and
                  (B) which (before the ownership change) was a 
                loss corporation.
          (3) New loss corporation.--The term ``new loss 
        corporation'' means a corporation which (after an 
        ownership change) is a loss corporation. Nothing in 
        this section shall be treated as implying that the same 
        corporation may not be both the old loss corporation 
        and the new loss corporation.
          (4) Taxable income.--Taxable income shall be computed 
        with the modifications set forth in section 172(d).
          (5) Value.--The term ``value'' means fair market 
        value.
          (6) Rules relating to stock.--
                  (A) Preferred stock.--Except as provided in 
                regulations and subsection (e), the term 
                ``stock'' means stock other than stock 
                described in section 1504(a)(4).
                  (B) Treatment of certain rights, etc..--The 
                Secretary shall prescribe such regulations as 
                may be necessary--
                          (i) to treat warrants, options, 
                        contracts to acquire stock, convertible 
                        debt interests, and other similar 
                        interests as stock, and
                          (ii) to treat stock as not stock.
                  (C) Determinations on basis of value.--
                Determinations of the percentage of stock of 
                any corporation held by any person shall be 
                made on the basis of value.
          (7) 5-percent shareholder.--The term ``5-percent 
        shareholder'' means any person holding 5 percent or 
        more of the stock of the corporation at any time during 
        the testing period.
  (l) Certain additional operating rules.--For purposes of this 
section--
          (1) Certain capital contributions not taken into 
        account.--
                  (A) In general.--Any capital contribution 
                received by an old loss corporation as part of 
                a plan a principal purpose of which is to avoid 
                or increase any limitation under this section 
                shall not be taken into account for purposes of 
                this section.
                  (B) Certain contributions treated as part of 
                plan.--For purposes of subparagraph (A), any 
                capital contribution made during the 2-year 
                period ending on the change date shall, except 
                as provided in regulations, be treated as part 
                of a plan described in subparagraph (A).
          (2) Ordering rules for application of section.--
                  (A) Coordination with section 172(b) 
                carryover rules.--In the case of any pre-change 
                loss for any taxable year (hereinafter in this 
                subparagraph referred to as the ``loss year'') 
                subject to limitation under this section, for 
                purposes of determining under the 2nd sentence 
                of section 172(b)(2) the amount of such loss 
                which may be carried to any taxable year, 
                taxable income for any taxable year shall be 
                treated as not greater than--
                          (i) the section 382 limitation for 
                        such taxable year, reduced by
                          (ii) the unused pre-change losses for 
                        taxable years preceding the loss year.
                Similar rules shall apply in the case of any 
                credit or loss subject to limitation under 
                section 383.
                  (B) Ordering rule for losses carried from 
                same taxable year.--In any case in which--
                          (i) a pre-change loss of a loss 
                        corporation for any taxable year is 
                        subject to a section 382 limitation, 
                        and
                          (ii) a net operating loss of such 
                        corporation from such taxable year is 
                        not subject to such limitation,
                taxable income shall be treated as having been 
                offset first by the loss subject to such 
                limitation.
          (3) Operating rules relating to ownership of stock.--
                  (A) Constructive ownership.--Section 318 
                (relating to constructive ownership of stock) 
                shall apply in determining ownership of stock, 
                except that--
                          (i) paragraphs (1) and (5)(B) of 
                        section 318(a) shall not apply and an 
                        individual and all members of his 
                        family described in paragraph (1) of 
                        section 318(a) shall be treated as 1 
                        individual for purposes of applying 
                        this section,
                          (ii) paragraph (2) of section 318(a) 
                        shall be applied--
                                  (I) without regard to the 50-
                                percent limitation contained in 
                                subparagraph (C) thereof, and
                                  (II) except as provided in 
                                regulations, by treating stock 
                                attributed thereunder as no 
                                longer being held by the entity 
                                from which attributed,
                          (iii) paragraph (3) of section 318(a) 
                        shall be applied only to the extent 
                        provided in regulations,
                          (iv) except to the extent provided in 
                        regulations, an option to acquire stock 
                        shall be treated as exercised if such 
                        exercise results in an ownership 
                        change, and
                          (v) in attributing stock from an 
                        entity under paragraph (2) of section 
                        318(a), there shall not be taken into 
                        account--
                                  (I) in the case of 
                                attribution from a corporation, 
                                stock which is not treated as 
                                stock for purposes of this 
                                section, or
                                  (II) in the case of 
                                attribution from another 
                                entity, an interest in such 
                                entity similar to stock 
                                described in subclause (I).
                A rule similar to the rule of clause (iv) shall 
                apply in the case of any contingent purchase, 
                warrant, convertible debt, put, stock subject 
                to a risk of forfeiture, contract to acquire 
                stock, or similar interests.
                  (B) Stock acquired by reason of death, gift, 
                divorce, separation, etc..--If--
                          (i) the basis of any stock in the 
                        hands of any person is determined--
                                  (I) under section 1014 
                                (relating to property acquired 
                                from a decedent),
                                  (II) section 1015 (relating 
                                to property acquired by a gift 
                                or transfer in trust), or
                                  (III) section 1041(b)(2) 
                                (relating to transfers of 
                                property between spouses or 
                                incident to divorce),
                          (ii) stock is received by any person 
                        in satisfaction of a right to receive a 
                        pecuniary bequest, or
                          (iii) stock is acquired by a person 
                        pursuant to any divorce or separation 
                        instrument (within the meaning of 
                        section 121(d)(3)(C)),
                such person shall be treated as owning such 
                stock during the period such stock was owned by 
                the person from whom it was acquired.
                  (C) Certain changes in percentage ownership 
                which are attributable to fluctuations in value 
                not taken into account.--Except as provided in 
                regulations, any change in proportionate 
                ownership which is attributable solely to 
                fluctuations in the relative fair market values 
                of different classes of stock shall not be 
                taken into account.
          (4) Reduction in value where substantial nonbusiness 
        assets.--
                  (A) In general.--If, immediately after an 
                ownership change, the new loss corporation has 
                substantial nonbusiness assets, the value of 
                the old loss corporation shall be reduced by 
                the excess (if any) of--
                          (i) the fair market value of the 
                        nonbusiness assets of the old loss 
                        corporation, over
                          (ii) the nonbusiness asset share of 
                        indebtedness for which such corporation 
                        is liable.
                  (B) Corporation having substantial 
                nonbusiness assets.--For purposes of 
                subparagraph (A)--
                          (i) In general.--The old loss 
                        corporation shall be treated as having 
                        substantial nonbusiness assets if at 
                        least 1/3 of the value of the total 
                        assets of such corporation consists of 
                        nonbusiness assets.
                          (ii) Exception for certain investment 
                        entities.--A regulated investment 
                        company to which part I of subchapter M 
                        applies, a real estate investment trust 
                        to which part II of subchapter M 
                        applies, or a REMIC to which part IV of 
                        subchapter M applies, shall not be 
                        treated as a new loss corporation 
                        having substantial nonbusiness assets.
                  (C) Nonbusiness assets.--For purposes of this 
                paragraph, the term ``nonbusiness assets'' 
                means assets held for investment.
                  (D) Nonbusiness asset share.--For purposes of 
                this paragraph, the nonbusiness asset share of 
                the indebtedness of the corporation is an 
                amount which bears the same ratio to such 
                indebtedness as--
                          (i) the fair market value of the 
                        nonbusiness assets of the corporation, 
                        bears to
                          (ii) the fair market value of all 
                        assets of such corporation.
                  (E) Treatment of subsidiaries.--For purposes 
                of this paragraph, stock and securities in any 
                subsidiary corporation shall be disregarded and 
                the parent corporation shall be deemed to own 
                its ratable share of the subsidiary's assets. 
                For purposes of the preceding sentence, a 
                corporation shall be treated as a subsidiary if 
                the parent owns 50 percent or more of the 
                combined voting power of all classes of stock 
                entitled to vote, and 50 percent or more of the 
                total value of shares of all classes of stock.
          (5) Title 11 or similar case.--
                  (A) In general.--Subsection (a) shall not 
                apply to any ownership change if--
                          (i) the old loss corporation is 
                        (immediately before such ownership 
                        change) under the jurisdiction of the 
                        court in a title 11 or similar case, 
                        and
                          (ii) the shareholders and creditors 
                        of the old loss corporation (determined 
                        immediately before such ownership 
                        change) own (after such ownership 
                        change and as a result of being 
                        shareholders or creditors immediately 
                        before such change) stock of the new 
                        loss corporation (or stock of a 
                        controlling corporation if also in 
                        bankruptcy) which meets the 
                        requirements of section 1504(a)(2) 
                        (determined by substituting ``50 
                        percent'' for ``80 percent'' each place 
                        it appears).
                  (B) Reduction for interest payments to 
                creditors becoming shareholders.--In any case 
                to which subparagraph (A) applies, the pre-
                change losses and excess credits (within the 
                meaning of section 383(a)(2)) which may be 
                carried to a post-change year shall be computed 
                as if no deduction was allowable under this 
                chapter for the interest paid or accrued by the 
                old loss corporation on indebtedness which was 
                converted into stock pursuant to title 11 or 
                similar case during--
                          (i) any taxable year ending during 
                        the 3-year period preceding the taxable 
                        year in which the ownership change 
                        occurs, and
                          (ii) the period of the taxable year 
                        in which the ownership change occurs on 
                        or before the change date.
                  (C) Coordination with section 108.--In 
                applying section 108(e)(8) to any case to which 
                subparagraph (A) applies, there shall not be 
                taken into account any indebtedness for 
                interest described in subparagraph (B).
                  (D) Section 382 limitation zero if another 
                change within 2 years.--If, during the 2-year 
                period immediately following an ownership 
                change to which this paragraph applies, an 
                ownership change of the new loss corporation 
                occurs, this paragraph shall not apply and the 
                section 382 limitation with respect to the 2nd 
                ownership change for any post-change year 
                ending after the change date of the 2nd 
                ownership change shall be zero.
                  (E) Only certain stock taken into account.--
                For purposes of subparagraph (A)(ii), stock 
                transferred to a creditor shall be taken into 
                account only to the extent such stock is 
                transferred in satisfaction of indebtedness and 
                only if such indebtedness--
                          (i) was held by the creditor at least 
                        18 months before the date of the filing 
                        of the title 11 or similar case, or
                          (ii) arose in the ordinary course of 
                        the trade or business of the old loss 
                        corporation and is held by the person 
                        who at all times held the beneficial 
                        interest in such indebtedness.
                  (F) Title 11 or similar case.--For purposes 
                of this paragraph, the term ``title 11 or 
                similar case'' has the meaning given such term 
                by section 368(a)(3)(A).
                  (G) Election not to have paragraph apply.--A 
                new loss corporation may elect, subject to such 
                terms and conditions as the Secretary may 
                prescribe, not to have the provisions of this 
                paragraph apply.
          (6) Special rule for insolvency transactions.--If 
        paragraph (5) does not apply to any reorganization 
        described in subparagraph (G) of section 368(a)(1) or 
        any exchange of debt for stock in a title 11 or similar 
        case (as defined in section 368(a)(3)(A)), the value 
        under subsection (e) shall reflect the increase (if 
        any) in value of the old loss corporation resulting 
        from any surrender or cancellation of creditors' claims 
        in the transaction.
          (7) Coordination with alternative minimum tax.--The 
        Secretary shall by regulation provide for the 
        application of this section to the alternative tax net 
        operating loss deduction under section 56(d).
          (8) Predecessor and successor entities.--Except as 
        provided in regulations, any entity and any predecessor 
        or successor entities of such entity shall be treated 
        as 1 entity.
  (m) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section and section 383, including (but not 
limited to) regulations--
          (1) providing for the application of this section and 
        section 383 where an ownership change with respect to 
        the old loss corporation is followed by an ownership 
        change with respect to the new loss corporation, and
          (2) providing for the application of this section and 
        section 383 in the case of a short taxable year,
          (3) providing for such adjustments to the application 
        of this section and section 383 as is necessary to 
        prevent the avoidance of the purposes of this section 
        and section 383, including the avoidance of such 
        purposes through the use of related persons, pass-thru 
        entities, or other intermediaries,
          (4) providing for the application of subsection 
        (g)(4) where there is only 1 corporation involved, and
          (5) providing, in the case of any group of 
        corporations described in section 1563(a) (determined 
        by substituting ``50 percent'' for ``80 percent'' each 
        place it appears and determined without regard to 
        paragraph (4) thereof), appropriate adjustments to 
        value, built-in gain or loss, and other items so that 
        items are not omitted or taken into account more than 
        once.
  (n) Special rule for certain ownership changes.--
          (1) In general.--The limitation contained in 
        subsection (a) shall not apply in the case of an 
        ownership change which is pursuant to a restructuring 
        plan of a taxpayer which--
                  (A) is required under a loan agreement or a 
                commitment for a line of credit entered into 
                with the Department of the Treasury under the 
                Emergency Economic Stabilization Act of 2008, 
                and
                  (B) is intended to result in a 
                rationalization of the costs, capitalization, 
                and capacity with respect to the manufacturing 
                workforce of, and suppliers to, the taxpayer 
                and its subsidiaries.
          (2) Subsequent acquisitions.--Paragraph (1) shall not 
        apply in the case of any subsequent ownership change 
        unless such ownership change is described in such 
        paragraph.
          (3) Limitation based on control in corporation.--
                  (A) In general.--Paragraph (1) shall not 
                apply in the case of any ownership change if, 
                immediately after such ownership change, any 
                person (other than a voluntary employees' 
                beneficiary association under section 
                501(c)(9)) owns stock of the new loss 
                corporation possessing 50 percent or more of 
                the total combined voting power of all classes 
                of stock entitled to vote, or of the total 
                value of the stock of such corporation.
                  (B) Treatment of related persons.--
                          (i) In general.--Related persons 
                        shall be treated as a single person for 
                        purposes of this paragraph.
                          (ii) Related persons.--For purposes 
                        of clause (i), a person shall be 
                        treated as related to another person 
                        if--
                                  (I) such person bears a 
                                relationship to such other 
                                person described in section 
                                267(b) or 707(b), or
                                  (II) such persons are members 
                                of a group of persons acting in 
                                concert.

SEC. 383. SPECIAL LIMITATIONS ON CERTAIN EXCESS CREDITS, ETC.

  (a) Excess credits.--
          (1) In general.--Under regulations, if an ownership 
        change occurs with respect to a corporation, the amount 
        of any excess credit for any taxable year which may be 
        used in any post-change year shall be limited to an 
        amount determined on the basis of the tax liability 
        which is attributable to so much of the taxable income 
        as does not exceed the section 382 limitation for such 
        post-change year to the extent available after the 
        application of section 382 and subsections (b) and (c) 
        of this section.
          (2) Excess credit.--For purposes of paragraph (1), 
        the term ``excess credit'' means--
                  (A) any unused general business credit of the 
                corporation under section 39, and
                  (B) any unused minimum tax credit of the 
                corporation under section 53.
  (b) Limitation on net capital loss.--If an ownership change 
occurs with respect to a corporation, the amount of any net 
capital loss under section 1212 for any taxable year before the 
1st post-change year which may be used in any post-change year 
shall be limited under regulations which shall be based on the 
principles applicable under section 382. Such regulations shall 
provide that any such net capital loss used in a post-change 
year shall reduce the section 382 limitation which is applied 
to pre-change losses under section 382 for such year.
  (c) Foreign tax credits.--If an ownership change occurs with 
respect to a corporation, the amount of any excess foreign 
taxes under section 904(c) for any taxable year before the 1st 
post-change taxable year shall be limited under regulations 
which shall be consistent with purposes of this section and 
section 382.
  (d) Pro ration rules for year which includes change.--For 
purposes of this section, rules similar to the rules of 
subsections (b)(3) and (d)(1)(B) of section 382 shall apply.
  (e) Exception for Start-up Excess Credits.--
          (1) In general.--In the case of any unused general 
        business credit of the corporation under section 39 
        which arose in a start-up period taxable year, the 
        amount of such unused general business credit otherwise 
        taken into account under subsection (a)(2)(A) shall be 
        reduced by the start-up excess credit determined with 
        respect to any trade or business referred to in section 
        382(d)(4)(B)(i) for such start-up period taxable year.
          (2) Start-up period taxable year.--For purposes of 
        this subsection, the term ``start-up period taxable 
        year'' has the meaning given such term in section 
        382(d)(4)(B).
          (3) Start-up excess credit.--For purposes of this 
        subsection, the term ``start-up excess credit'' means, 
        with respect to any trade or business referred to in 
        section 382(d)(4)(B)(i) for any start-up period taxable 
        year, the amount which bears the same ratio to the 
        unused general business credit which arose in such 
        start-up period taxable year as--
                  (A) the amount of the general business credit 
                which would have been determined for such 
                start-up period taxable year if only credits 
                properly allocable to such trade or business 
                were taken into account, bears to
                  (B) the amount of the general business credit 
                determined for such start-up period taxable 
                year.
          (4) Application of certain rules.--Rules similar to 
        the rules of subparagraphs (C)(ii), (D), (E), and (F) 
        of section 382(d)(4) shall apply for purposes of this 
        subsection.
          (5) Transition rule.--This subsection shall not apply 
        with respect to any trade or business if the date on 
        which such trade or business begins as an active trade 
        or business (as determined under section 195(d)(2) 
        without regard to subparagraph (B) thereof) is on or 
        before September 10, 2018.
  [(e)] (f) Definitions.--Terms used in this section shall have 
the same respective meanings as when used in section 382, 
except that appropriate adjustments shall be made to take into 
account that the limitations of this section apply to credits 
and net capital losses.

           *       *       *       *       *       *       *


Subchapter G--Corporations Used to Avoid Income Tax on Shareholders

           *       *       *       *       *       *       *


PART I--CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS

           *       *       *       *       *       *       *


SEC. 535. ACCUMULATED TAXABLE INCOME.

  (a) Definition.--For purposes of this subtitle, the term 
``accumulated taxable income'' means the taxable income, 
adjusted in the manner provided in subsection (b), minus the 
sum of the dividends paid deduction (as defined in section 561) 
and the accumulated earnings credit (as defined in subsection 
(c)).
  (b) Adjustments to taxable income.--For purposes of 
subsection (a), taxable income shall be adjusted as follows:
          (1) Taxes.--There shall be allowed as a deduction 
        Federal income and excess profits taxes and income, war 
        profits, and excess profits taxes of foreign countries 
        and possessions of the United States (to the extent not 
        allowable as a deduction under section 275(a)(4)), 
        accrued during the taxable year or deemed to be paid by 
        a domestic corporation under section 960 for the 
        taxable year, but not including the accumulated 
        earnings tax imposed by section 531 or the personal 
        holding company tax imposed by section 541.
          (2) Charitable contributions.--The deduction for 
        charitable contributions provided under section 170 
        shall be allowed without regard to section 170(b)(2).
          (3) Special deductions disallowed.--The special 
        deductions for corporations provided in part VIII 
        [(except section 248)] of subchapter B (section 241 and 
        following, relating to the deduction for dividends 
        received by corporations, etc.) shall not be allowed.
          (4) Net operating loss.--The net operating loss 
        deduction provided in section 172 shall not be allowed.
          (5) Capital losses.--
                  (A) In general.--Except as provided in 
                subparagraph (B), there shall be allowed as a 
                deduction an amount equal to the net capital 
                loss for the taxable year (determined without 
                regard to paragraph (7)(A)).
                  (B) Recapture of previous deductions for 
                capital gains.--The aggregate amount allowable 
                as a deduction under subparagraph (A) for any 
                taxable year shall be reduced by the lesser 
                of--
                          (i) the nonrecaptured capital gains 
                        deductions, or
                          (ii) the amount of the accumulated 
                        earnings and profits of the corporation 
                        as of the close of the preceding 
                        taxable year.
                  (C) Nonrecaptured capital gains deductions.--
                For purposes of subparagraph (B), the term 
                ``nonrecaptured capital gains deductions'' 
                means the excess of--
                          (i) the aggregate amount allowable as 
                        a deduction under paragraph (6) for 
                        preceding taxable years beginning after 
                        July 18, 1984, over
                          (ii) the aggregate of the reductions 
                        under subparagraph (B) for preceding 
                        taxable years.
          (6) Net capital gains.--
                  (A) In general.--There shall be allowed as a 
                deduction--
                          (i) the net capital gain for the 
                        taxable year (determined with the 
                        application of paragraph (7)), reduced 
                        by
                          (ii) the taxes attributable to such 
                        net capital gain.
                  (B) Attributable taxes.--For purposes of 
                subparagraph (A), the taxes attributable to the 
                net capital gain shall be an amount equal to 
                the difference between--
                          (i) the taxes imposed by this 
                        subtitle (except the tax imposed by 
                        this part) for the taxable year, and
                          (ii) such taxes computed for such 
                        year without including in taxable 
                        income the net capital gain for the 
                        taxable year (determined without the 
                        application of paragraph (7)).
          (7) Capital loss carryovers.--
                  (A) Unlimited carryforward.--The net capital 
                loss for any taxable year shall be treated as a 
                short-term capital loss in the next taxable 
                year.
                  (B) Section 1212 inapplicable.--No allowance 
                shall be made for the capital loss carryback or 
                carryforward provided in section 1212.
          (8) Special rules for mere holding or investment 
        companies.--In the case of a mere holding or investment 
        company--
                  (A) Capital loss deduction, etc., not 
                allowed.--Paragraphs (5) and (7)(A) shall not 
                apply.
                  (B) Deduction for certain offsets.--There 
                shall be allowed as a deduction the net short-
                term capital gain for the taxable year to the 
                extent such gain does not exceed the amount of 
                any capital loss carryover to such taxable year 
                under section 1212 (determined without regard 
                to paragraph (7)(B)).
                  (C) Earnings and profits.--For purposes of 
                subchapter C, the accumulated earnings and 
                profits at any time shall not be less than they 
                would be if this subsection had applied to the 
                computation of earnings and profits for all 
                taxable years beginning after July 18, 1984.
          (9) Special rule for capital gains and losses of 
        foreign corporations.--In the case of a foreign 
        corporation, paragraph (6) shall be applied by taking 
        into account only gains and losses which are 
        effectively connected with the conduct of a trade or 
        business within the United States and are not exempt 
        from tax under treaty.
          (10) Controlled foreign corporations.--There shall be 
        allowed as a deduction the amount of the corporation's 
        income for the taxable year which is included in the 
        gross income of a United States shareholder under 
        section 951(a). In the case of any corporation the 
        accumulated taxable income of which would (but for this 
        sentence) be determined without allowance of any 
        deductions, the deduction under this paragraph shall be 
        allowed and shall be appropriately adjusted to take 
        into account any deductions which reduced such 
        inclusion.
  (c) Accumulated earnings credit.--
          (1) General rule.--For purposes of subsection (a), in 
        the case of a corporation other than a mere holding or 
        investment company the accumulated earnings credit is 
        (A) an amount equal to such part of the earnings and 
        profits for the taxable year as are retained for the 
        reasonable needs of the business, minus (B) the 
        deduction allowed by subsection (b)(6). For purposes of 
        this paragraph, the amount of the earnings and profits 
        for the taxable year which are retained is the amount 
        by which the earnings and profits for the taxable year 
        exceed the dividends paid deduction (as defined in 
        section 561) for such year.
          (2) Minimum credit.--
                  (A) In general.--The credit allowable under 
                paragraph (1) shall in no case be less than the 
                amount by which $250,000 exceeds the 
                accumulated earnings and profits of the 
                corporation at the close of the preceding 
                taxable year.
                  (B) Certain service corporations.--In the 
                case of a corporation the principal function of 
                which is the performance of services in the 
                field of health, law, engineering, 
                architecture, accounting, actuarial science, 
                performing arts, or consulting, subparagraph 
                (A) shall be applied by substituting 
                ``$150,000'' for ``$250,000''.
          (3) Holding and investment companies.--In the case of 
        a corporation which is a mere holding or investment 
        company, the accumulated earnings credit is the amount 
        (if any) by which $250,000 exceeds the accumulated 
        earnings and profits of the corporation at the close of 
        the preceding taxable year.
          (4) Accumulated earnings and profits.--For purposes 
        of paragraphs (2) and (3), the accumulated earnings and 
        profits at the close of the preceding taxable year 
        shall be reduced by the dividends which under section 
        563(a) (relating to dividends paid after the close of 
        the taxable year) are considered as paid during such 
        taxable year.
          (5) Cross reference.--For limitation on credit 
        provided in paragraph (2) or (3) in the case of certain 
        controlled corporations, see section 1561.
  (d) Income distributed to United States-owned foreign 
corporation retains United States connection.--
          (1) In general.--For purposes of this part, if 10 
        percent or more of the earnings and profits of any 
        foreign corporation for any taxable year--
                  (A) is derived from sources within the United 
                States, or
                  (B) is effectively connected with the conduct 
                of a trade or business within the United 
                States,
        any distribution out of such earnings and profits (and 
        any interest payment) received (directly or through 1 
        or more other entities) by a United States-owned 
        foreign corporation shall be treated as derived by such 
        corporation from sources within the United States.
          (2) United States-owned foreign corporation.--The 
        term ``United States-owned foreign corporation'' has 
        the meaning given to such term by section 904(h)(6).

           *       *       *       *       *       *       *


PART II--PERSONAL HOLDING COMPANIES

           *       *       *       *       *       *       *


SEC. 545. UNDISTRIBUTED PERSONAL HOLDING COMPANY INCOME.

  (a) Definition.--For purposes of this part, the term 
``undistributed personal holding company income'' means the 
taxable income of a personal holding company adjusted in the 
manner provided in subsections (b), (c), and (d), minus the 
dividends paid deduction as defined in section 561. In the case 
of a personal holding company which is a foreign corporation, 
not more than 10 percent in value of the outstanding stock of 
which is owned (within the meaning of section 958(a)) during 
the last half of the taxable year by United States persons, the 
term ``undistributed personal holding company income'' means 
the amount determined by multiplying the undistributed personal 
holding company income (determined without regard to this 
sentence) by the percentage in value of its outstanding stock 
which is the greatest percentage in value of its outstanding 
stock so owned by United States persons on any one day during 
such period.
  (b) Adjustments to taxable income.--For the purposes of 
subsection (a), the taxable income shall be adjusted as 
follows:
          (1) Taxes.--There shall be allowed as a deduction 
        Federal income and excess profits taxes and income, war 
        profits and excess profits taxes of foreign countries 
        and possessions of the United States (to the extent not 
        allowable as a deduction under section 275(a)(4)), 
        accrued during the taxable year or deemed to be paid by 
        a domestic corporation under section 960 for the 
        taxable year, but not including the accumulated 
        earnings tax imposed by section 531 or the personal 
        holding company tax imposed by section 541.
          (2) Charitable contributions.--The deduction for 
        charitable contributions provided under section 170 
        shall be allowed, but in computing such deduction the 
        limitations in section 170(b)(1)(A), (B), (D), and (E) 
        shall apply, and section 170(b)(2) and (d)(1) shall not 
        apply. For purposes of this paragraph, the term 
        ``contribution base'' when used in section 170(b)(1) 
        means the taxable income computed with the adjustments 
        (other than the 10-percent limitation) provided in 
        section 170(b)(2) and (d)(1) and without deduction of 
        the amount disallowed under paragraph (6) of this 
        subsection.
          (3) Special deductions disallowed.--The special 
        deductions for corporations provided in part VIII 
        [(except section 248)] of subchapter B (section 241 and 
        following, relating to the deduction for dividends 
        received by corporations, etc.) shall not be allowed.
          (4) Net operating loss.--The net operating loss 
        deduction provided in section 172 shall not be allowed, 
        but there shall be allowed as a deduction the amount of 
        the net operating loss (as defined in section 172(c)) 
        for the preceding taxable year computed without the 
        deductions provided in part VIII [(except section 248)] 
        of subchapter B.
          (5) Net capital gains.--There shall be allowed as a 
        deduction the net capital gain for the taxable year, 
        minus the taxes imposed by this subtitle attributable 
        to such net capital gain. The taxes attributable to 
        such net capital gain shall be an amount equal to the 
        difference between--
                  (A) the taxes imposed by this subtitle 
                (except the tax imposed by this part) for such 
                year, and
                  (B) such taxes computed for such year without 
                including such excess in taxable income.
          (6) Expenses and depreciation applicable to property 
        of the taxpayer.--The aggregate of the deductions 
        allowed under section 162 (relating to trade or 
        business expenses) and section 167 (relating to 
        depreciation), which are allocable to the operation and 
        maintenance of property owned or operated by the 
        corporation, shall be allowed only in an amount equal 
        to the rent or other compensation received for the use 
        of, or the right to use, the property, unless it is 
        established (under regulations prescribed by the 
        Secretary) to the satisfaction of the Secretary--
                  (A) that the rent or other compensation 
                received was the highest obtainable, or, if 
                none was received, that none was obtainable;
                  (B) that the property was held in the course 
                of a business carried on bona fide for profit; 
                and
                  (C) either that there was reasonable 
                expectation that the operation of the property 
                would result in a profit, or that the property 
                was necessary to the conduct of the business.
          (7) Special rule for capital gains and losses of 
        foreign corporations.--In the case of a foreign 
        corporation, paragraph (5) shall be applied by taking 
        into account only gains and losses which are 
        effectively connected with the conduct of a trade or 
        business within the United States and are not exempt 
        from tax under treaty.
  (c) Certain foreign corporations.--In the case of a foreign 
corporation all of the outstanding stock of which during the 
last half of the taxable year is owned by nonresident alien 
individuals (whether directly or indirectly through foreign 
estates, foreign trusts, foreign partnerships, or other foreign 
corporations), the taxable income for purposes of subsection 
(a) shall be the income which constitutes personal holding 
company income under section 543(a)(7), reduced by the 
deductions attributable to such income, and adjusted, with 
respect to such income, in the manner provided in subsection 
(b).

           *       *       *       *       *       *       *


Subchapter K--Partners and Partnerships

           *       *       *       *       *       *       *


                 PART I--DETERMINATION OF TAX LIABILITY

     * * * * * * *
[Sec. 709. Treatment of organization and syndication fees.]
Sec. 709. Treatment of syndication fees.

           *       *       *       *       *       *       *


[SEC. 709. TREATMENT OF ORGANIZATION AND SYNDICATION FEES.

  [(a) General rule.--Except as provided in subsection (b), no 
deduction shall be allowed under this chapter to the 
partnership or to any partner for any amounts paid or incurred 
to organize a partnership or to promote the sale of (or to 
sell) an interest in such partnership.
  [(b) Deduction of organization fees.--
          [(1) Allowance of deduction.--If a partnership elects 
        the application of this subsection (in accordance with 
        regulations prescribed by the Secretary) with respect 
        to any organizational expenses--
                  [(A) the partnership shall be allowed a 
                deduction for the taxable year in which the 
                partnership begins business in an amount equal 
                to the lesser of--
                          [(i) the amount of organizational 
                        expenses with respect to the 
                        partnership, or
                          [(ii) $5,000, reduced (but not below 
                        zero) by the amount by which such 
                        organizational expenses exceed $50,000, 
                        and
                  [(B) the remainder of such organizational 
                expenses shall be allowed as a deduction 
                ratably over the 180-month period beginning 
                with the month in which the partnership begins 
                business.
          [(2) Dispositions before close of amortization 
        period.--In any case in which a partnership is 
        liquidated before the end of the period to which 
        paragraph (1)(B) applies, any deferred expenses 
        attributable to the partnership which were not allowed 
        as a deduction by reason of this section may be 
        deducted to the extent allowable under section 165.
          [(3) Organizational expenses defined.--The 
        organizational expenses to which paragraph (1) applies, 
        are expenditures which--
                  [(A) are incident to the creation of the 
                partnership;
                  [(B) are chargeable to capital account; and
                  [(C) are of a character which, if expended 
                incident to the creation of a partnership 
                having an ascertainable life, would be 
                amortized over such life.]

SEC. 709. TREATMENT OF SYNDICATION FEES.

  No deduction shall be allowed under this chapter to a 
partnership or to any partner of the partnership for any 
amounts paid or incurred to promote the sale of (or to sell) an 
interest in the partnership.

           *       *       *       *       *       *       *


Subchapter L--Insurance Companies

           *       *       *       *       *       *       *


PART II--OTHER INSURANCE COMPANIES

           *       *       *       *       *       *       *


SEC. 834. DETERMINATION OF TAXABLE INVESTMENT INCOME.

  (a) General rule.--For purposes of section 831(b), the term 
``taxable investment income'' means the gross investment 
income, minus the deductions provided in subsection (c).
  (b) Gross investment income.--For purposes of subsection (a), 
the term ``gross investment income'' means the sum of the 
following:
          (1) The gross amount of income during the taxable 
        year from--
                  (A) interest, dividends, rents, and 
                royalties,
                  (B) the entering into of any lease, mortgage, 
                or other instrument or agreement from which the 
                insurance company derives interest, rents, or 
                royalties,
                  (C) the alteration or termination of any 
                instrument or agreement described in 
                subparagraph (B), and
                  (D) gains from sales or exchanges of capital 
                assets to the extent provided in subchapter P 
                (relating to capital gains and losses).
          (2) The gross income during the taxable year from any 
        trade or business (other than an insurance business) 
        carried on by the insurance company, or by a 
        partnership of which the insurance company is a 
        partner. In computing gross income under this 
        paragraph, there shall be excluded any item described 
        in paragraph (1).
  (c) Deductions.--In computing taxable investment income, the 
following deductions shall be allowed:
          (1) Tax-free interest.--The amount of interest which 
        under section 103 is excluded for the taxable year from 
        gross income.
          (2) Investment expenses.--Investment expenses paid or 
        accrued during the taxable year. If any general 
        expenses are in part assigned to or included in the 
        investment expenses, the total deduction under this 
        paragraph shall not exceed one-fourth of 1 percent of 
        the mean of the book value of the invested assets held 
        at the beginning and end of the taxable year plus one-
        fourth of the amount by which taxable investment income 
        (computed without any deduction for investment expenses 
        allowed by this paragraph, for tax-free interest 
        allowed by paragraph (1), or for dividends received 
        allowed by paragraph (7)), exceeds 3 3/4 percent of the 
        book value of the mean of the invested assets held at 
        the beginning and end of the taxable year.
          (3) Real estate expenses.--Taxes (as provided in 
        section 164), and other expenses, paid or accrued 
        during the taxable year exclusively on or with respect 
        to the real estate owned by the company. No deduction 
        shall be allowed under this paragraph for any amount 
        paid out for new buildings, or for permanent 
        improvements or betterments made to increase the value 
        of any property.
          (4) Depreciation.--The depreciation deduction allowed 
        by section 167.
          (5) Interest paid or accrued.--All interest paid or 
        accrued within the taxable year on indebtedness, except 
        on indebtedness incurred or continued to purchase or 
        carry obligations the interest on which is wholly 
        exempt from taxation under this subtitle.
          (6) Capital losses.--Capital losses to the extent 
        provided in subchapter P (sec. 1201 and following) plus 
        losses from capital assets sold or exchanged in order 
        to obtain funds to meet abnormal insurance losses and 
        to provide for the payment of dividends and similar 
        distributions to policyholders. Capital assets shall be 
        considered as sold or exchanged in order to obtain 
        funds to meet abnormal insurance losses and to provide 
        for the payment of dividends and similar distributions 
        to policyholders to the extent that the gross receipts 
        from their sale or exchange are not greater than the 
        excess, if any, for the taxable year of the sum of 
        dividends and similar distributions paid to 
        policyholders, losses paid, and expenses paid over the 
        sum of the items described in subsection (b) (other 
        than paragraph (1)(D) thereof) and net premiums 
        received. In the application of section 1212 for 
        purposes of this section, the net capital loss for the 
        taxable year shall be the amount by which losses for 
        such year from sales or exchanges of capital assets 
        exceeds the sum of the gains from such sales or 
        exchanges and whichever of the following amounts is the 
        lesser:
                  (A) the taxable investment income (computed 
                without regard to gains or losses from sales or 
                exchanges of capital assets); or
                  (B) losses from the sale or exchange of 
                capital assets sold or exchanged to obtain 
                funds to meet abnormal insurance losses and to 
                provide for the payment of dividends and 
                similar distributions to policyholders.
          (7) Special deductions.--The special deductions 
        allowed by part VIII [(except section 248)] of 
        subchapter B (sec. 241 and following, relating to 
        dividends received). In applying section 246(b) 
        (relating to limitation on aggregate amount of 
        deductions for dividends received) for purposes of this 
        paragraph, the reference in such section to ``taxable 
        income'' shall be treated as a reference to ``taxable 
        investment income''.
          (8) Trade or business deductions.--The deductions 
        allowed by this subtitle (without regard to this part) 
        which are attributable to any trade or business (other 
        than an insurance business) carried on by the insurance 
        company, or by a partnership of which the insurance 
        company is a partner; except that for purposes of this 
        paragraph--
                  (A) any item, to the extent attributable to 
                the carrying on of the insurance business, 
                shall not be taken into account, and
                  (B) the deduction for net operating losses 
                provided in section 172 shall not be allowed.
          (9) Depletion.--The deduction allowed by section 611 
        (relating to depletion).
  (d) Other applicable rules.--
          (1) Rental value of real estate.--The deduction under 
        subsection (c)(3) or (4) on account of any real estate 
        owned and occupied in whole or in part by a mutual 
        insurance company subject to the tax imposed by section 
        831 shall be limited to an amount which bears the same 
        ratio to such deduction (computed without regard to 
        this paragraph) as the rental value of the space not so 
        occupied bears to the rental value of the entire 
        property.
          (2) Amortization of premium and accrual of 
        discount.--The gross amount of income during the 
        taxable year from interest and the deduction provided 
        in subsection (c)(1) shall each be decreased to reflect 
        the appropriate amortization of premium and increased 
        to reflect the appropriate accrual of discount 
        attributable to the taxable year on bonds, notes, 
        debentures, or other evidences of indebtedness held by 
        a mutual insurance company subject to the tax imposed 
        by section 831. Such amortization and accrual shall be 
        determined--
                  (A) in accordance with the method regularly 
                employed by such company, if such method is 
                reasonable, and
                  (B) in all other cases, in accordance with 
                regulations prescribed by the Secretary.
        No accrual of discount shall be required under this 
        paragraph on any bond (as defined in section 171(d)) 
        except in the case of discount which is original issue 
        discount (as defined in section 1273).
          (3) Double deductions.--Nothing in this part shall 
        permit the same item to be deducted more than once.
  (e) Definitions.--For purposes of this part--
          (1) Net premiums.--The term ``net premiums'' means 
        gross premiums (including deposits and assessments) 
        written or received on insurance contracts during the 
        taxable year less return premiums and premiums paid or 
        incurred for reinsurance. Amounts returned where the 
        amount is not fixed in the insurance contract but 
        depends on the experience of the company or the 
        discretion of the management shall not be included in 
        return premiums but shall be treated as dividends to 
        policyholders under paragraph (2).
          (2) Dividends to policyholders.--The term ``dividends 
        to policyholders'' means dividends and similar 
        distributions paid or declared to policyholders. For 
        purposes of the preceding sentence, the term ``paid or 
        declared'' shall be construed according to the method 
        regularly employed in keeping the books of the 
        insurance company.

           *       *       *       *       *       *       *


Subchapter M--Regulated Investment Companies and Real Estate Investment 
Trusts

           *       *       *       *       *       *       *


PART I--REGULATED INVESTMENT COMPANIES

           *       *       *       *       *       *       *


SEC. 852. TAXATION OF REGULATED INVESTMENT COMPANIES AND THEIR 
                    SHAREHOLDERS.

  (a) Requirements applicable to regulated investment 
companies.--The provisions of this part (other than subsection 
(c) of this section) shall not be applicable to a regulated 
investment company for a taxable year unless--
          (1) the deduction for dividends paid during the 
        taxable year (as defined in section 561, but without 
        regard to capital gain dividends) equals or exceeds the 
        sum of--
                  (A) 90 percent of its investment company 
                taxable income for the taxable year determined 
                without regard to subsection (b)(2)(D); and
                  (B) 90 percent of the excess of (i) its 
                interest income excludable from gross income 
                under section 103(a) over (ii) its deductions 
                disallowed under sections 265 and 171(a)(2), 
                and
          (2) either--
                  (A) the provisions of this part applied to 
                the investment company for all taxable years 
                ending on or after November 8, 1983, or
                  (B) as of the close of the taxable year, the 
                investment company has no earnings and profits 
                accumulated in any taxable year to which the 
                provisions of this part (or the corresponding 
                provisions of prior law) did not apply to it.
The Secretary may waive the requirements of paragraph (1) for 
any taxable year if the regulated investment company 
establishes to the satisfaction of the Secretary that it was 
unable to meet such requirements by reason of distributions 
previously made to meet the requirements of section 4982.
  (b) Method of taxation of companies and shareholders.--
          (1) Imposition of tax on regulated investment 
        companies.--There is hereby imposed for each taxable 
        year upon the investment company taxable income of 
        every regulated investment company a tax computed as 
        provided in section 11, as though the investment 
        company taxable income were the taxable income referred 
        to in section 11.
          (2) Investment company taxable income.--The 
        investment company taxable income shall be the taxable 
        income of the regulated investment company adjusted as 
        follows:
                  (A) There shall be excluded the amount of the 
                net capital gain, if any.
                  (B) The net operating loss deduction provided 
                in section 172 shall not be allowed.
                  (C) The deductions for corporations provided 
                in part VIII [(except section 248)] in 
                subchapter B (section 241 and following, 
                relating to the deduction for dividends 
                received, etc.) shall not be allowed.
                  (D) The deduction for dividends paid (as 
                defined in section 561) shall be allowed, but 
                shall be computed without regard to capital 
                gain dividends and exempt-interest dividends.
                  (E) The taxable income shall be computed 
                without regard to section 443(b) (relating to 
                computation of tax on change of annual 
                accounting period).
                  (F) The taxable income shall be computed 
                without regard to section 454(b) (relating to 
                short-term obligations issued on a discount 
                basis) if the company so elects in a manner 
                prescribed by the Secretary.
                  (G) There shall be deducted an amount equal 
                to the tax imposed by subsections (d)(2) and 
                (i) of section 851 for the taxable year.
          (3) Capital gains.--
                  (A) Imposition of tax.--There is hereby 
                imposed for each taxable year in the case of 
                every regulated investment company a tax, 
                determined as provided in section 11(b), on the 
                excess, if any, of the net capital gain over 
                the deduction for dividends paid (as defined in 
                section 561) determined with reference to 
                capital gain dividends only.
                  (B) Treatment of capital gain dividends by 
                shareholders.--A capital gain dividend shall be 
                treated by the shareholders as a gain from the 
                sale or exchange of a capital asset held for 
                more than 1 year.
                  (C) Definition of capital gain dividend.--For 
                purposes of this part--
                          (i) In general.--Except as provided 
                        in clause (ii), a capital gain dividend 
                        is any dividend, or part thereof, which 
                        is reported by the company as a capital 
                        gain dividend in written statements 
                        furnished to its shareholders.
                          (ii) Excess reported amounts.--If the 
                        aggregate reported amount with respect 
                        to the company for any taxable year 
                        exceeds the net capital gain of the 
                        company for such taxable year, a 
                        capital gain dividend is the excess 
                        of--
                                  (I) the reported capital gain 
                                dividend amount, over
                                  (II) the excess reported 
                                amount which is allocable to 
                                such reported capital gain 
                                dividend amount.
                          (iii) Allocation of excess reported 
                        amount.--
                                  (I) In general.--Except as 
                                provided in subclause (II), the 
                                excess reported amount (if any) 
                                which is allocable to the 
                                reported capital gain dividend 
                                amount is that portion of the 
                                excess reported amount which 
                                bears the same ratio to the 
                                excess reported amount as the 
                                reported capital gain dividend 
                                amount bears to the aggregate 
                                reported amount.
                                  (II) Special rule for 
                                noncalendar year taxpayers.--In 
                                the case of any taxable year 
                                which does not begin and end in 
                                the same calendar year, if the 
                                post-December reported amount 
                                equals or exceeds the excess 
                                reported amount for such 
                                taxable year, subclause (I) 
                                shall be applied by 
                                substituting ``post-December 
                                reported amount'' for 
                                ``aggregate reported amount'' 
                                and no excess reported amount 
                                shall be allocated to any 
                                dividend paid on or before 
                                December 31 of such taxable 
                                year.
                          (iv) Definitions.--For purposes of 
                        this subparagraph--
                                  (I) Reported capital gain 
                                dividend amount.--The term 
                                ``reported capital gain 
                                dividend amount'' means the 
                                amount reported to its 
                                shareholders under clause (i) 
                                as a capital gain dividend.
                                  (II) Excess reported 
                                amount.--The term ``excess 
                                reported amount'' means the 
                                excess of the aggregate 
                                reported amount over the net 
                                capital gain of the company for 
                                the taxable year.
                                  (III) Aggregate reported 
                                amount.--The term ``aggregate 
                                reported amount'' means the 
                                aggregate amount of dividends 
                                reported by the company under 
                                clause (i) as capital gain 
                                dividends for the taxable year 
                                (including capital gain 
                                dividends paid after the close 
                                of the taxable year described 
                                in section 855).
                                  (IV) Post-December reported 
                                amount.--The term ``post-
                                December reported amount'' 
                                means the aggregate reported 
                                amount determined by taking 
                                into account only dividends 
                                paid after December 31 of the 
                                taxable year.
                          (v) Adjustment for determinations.--
                        If there is an increase in the excess 
                        described in subparagraph (A) for the 
                        taxable year which results from a 
                        determination (as defined in section 
                        860(e)), the company may, subject to 
                        the limitations of this subparagraph, 
                        increase the amount of capital gain 
                        dividends reported under clause (i).
                          (vi) Special rule for losses late in 
                        the calendar year.--For special rule 
                        for certain losses after October 31, 
                        see paragraph (8).
                  (D) Treatment by shareholders of 
                undistributed capital gains.--
                          (i) Every shareholder of a regulated 
                        investment company at the close of the 
                        company's taxable year shall include, 
                        in computing his long-term capital 
                        gains in his return for his taxable 
                        year in which the last day of the 
                        company's taxable year falls, such 
                        amount as the company shall designate 
                        in respect of such shares in a written 
                        notice mailed to its shareholders at 
                        any time prior to the expiration of 60 
                        days after close of its taxable year, 
                        but the amount so includible by any 
                        shareholder shall not exceed that part 
                        of the amount subjected to tax in 
                        subparagraph (A) which he would have 
                        received if all of such amount had been 
                        distributed as capital gain dividends 
                        by the company to the holders of such 
                        shares at the close of its taxable 
                        year.
                          (ii) For purposes of this title, 
                        every such shareholder shall be deemed 
                        to have paid, for his taxable year 
                        under clause (i), the tax imposed by 
                        subparagraph (A) on the amounts 
                        required by this subparagraph to be 
                        included in respect of such shares in 
                        computing his long-term capital gains 
                        for that year; and such shareholder 
                        shall be allowed credit or refund, as 
                        the case may be, for the tax so deemed 
                        to have been paid by him.
                          (iii) The adjusted basis of such 
                        shares in the hands of the shareholder 
                        shall be increased, with respect to the 
                        amounts required by this subparagraph 
                        to be included in computing his long-
                        term capital gains, by the difference 
                        between the amount of such includible 
                        gains and the tax deemed paid by such 
                        shareholder in respect of such shares 
                        under clause (ii).
                          (iv) In the event of such designation 
                        the tax imposed by subparagraph (A) 
                        shall be paid by the regulated 
                        investment company within 30 days after 
                        close of its taxable year.
                          (v) The earnings and profits of such 
                        regulated investment company, and the 
                        earnings and profits of any such 
                        shareholder which is a corporation, 
                        shall be appropriately adjusted in 
                        accordance with regulations prescribed 
                        by the Secretary.
                  (E) Certain distributions.--In the case of a 
                distribution to which section 897 does not 
                apply by reason of the second sentence of 
                section 897(h)(1), the amount of such 
                distribution which would be included in 
                computing long-term capital gains for the 
                shareholder under subparagraph (B) or (D) 
                (without regard to this subparagraph)--
                          (i) shall not be included in 
                        computing such shareholder's long-term 
                        capital gains, and
                          (ii) shall be included in such 
                        shareholder's gross income as a 
                        dividend from the regulated investment 
                        company.
          (4) Loss on sale or exchange of stock held 6 months 
        or less.--
                  (A) Loss attributable to capital gain 
                dividend.--If--
                          (i) subparagraph (B) or (D) of 
                        paragraph (3) provides that any amount 
                        with respect to any share is to be 
                        treated as long-term capital gain, and
                          (ii) such share is held by the 
                        taxpayer for 6 months or less,
                then any loss (to the extent not disallowed 
                under subparagraph (B)) on the sale or exchange 
                of such share shall, to the extent of the 
                amount described in clause (i), be treated as a 
                long-term capital loss.
                  (B) Loss attributable to exempt-interest 
                dividend.--If--
                          (i) a shareholder of a regulated 
                        investment company receives an exempt-
                        interest dividend with respect to any 
                        share, and
                          (ii) such share is held by the 
                        taxpayer for 6 months or less,
                then any loss on the sale or exchange of such 
                share shall, to the extent of the amount of 
                such exempt-interest dividend, be disallowed.
                  (C) Determination of holding periods.--For 
                purposes of this paragraph, in determining the 
                period for which the taxpayer has held any 
                share of stock--
                          (i) the rules of paragraphs (3) and 
                        (4) of section 246(c) shall apply, and
                          (ii) there shall not be taken into 
                        account any day which is more than 6 
                        months after the date on which such 
                        share becomes ex-dividend.
                  (D) Losses incurred under a periodic 
                liquidation plan.--To the extent provided in 
                regulations, subparagraphs (A) and (B) shall 
                not apply to losses incurred on the sale or 
                exchange of shares of stock in a regulated 
                investment company pursuant to a plan which 
                provides for the periodic liquidation of such 
                shares.
                  (E) Exception to holding period requirement 
                for certain regularly declared exempt-interest 
                dividends.--
                          (i) Daily dividend companies.--Except 
                        as otherwise provided by regulations, 
                        subparagraph (B) shall not apply with 
                        respect to a regular dividend paid by a 
                        regulated investment company which 
                        declares exempt-interest dividends on a 
                        daily basis in an amount equal to at 
                        least 90 percent of its net tax-exempt 
                        interest and distributes such dividends 
                        on a monthly or more frequent basis.
                          (ii) Authority to shorten required 
                        holding period with respect to other 
                        companies.--In the case of a regulated 
                        investment company (other than a 
                        company described in clause (i)) which 
                        regularly distributes at least 90 
                        percent of its net tax-exempt interest, 
                        the Secretary may by regulations 
                        prescribe that subparagraph (B) (and 
                        subparagraph (C) to the extent it 
                        relates to subparagraph (B)) shall be 
                        applied on the basis of a holding 
                        period requirement shorter than 6 
                        months; except that such shorter 
                        holding period requirement shall not be 
                        shorter than the greater of 31 days or 
                        the period between regular 
                        distributions of exempt-interest 
                        dividends.
          (5) Exempt-interest dividends.--If, at the close of 
        each quarter of its taxable year, at least 50 percent 
        of the value (as defined in section 851(c)(4)) of the 
        total assets of the regulated investment company 
        consists of obligations described in section 103(a), 
        such company shall be qualified to pay exempt-interest 
        dividends, as defined herein, to its shareholders.
                  (A) Definition of exempt-interest dividend.--
                          (i) In general.--Except as provided 
                        in clause (ii), an exempt-interest 
                        dividend is any dividend or part 
                        thereof (other than a capital gain 
                        dividend) paid by a regulated 
                        investment company and reported by the 
                        company as an exempt-interest dividend 
                        in written statements furnished to its 
                        shareholders.
                          (ii) Excess reported amounts.--If the 
                        aggregate reported amount with respect 
                        to the company for any taxable year 
                        exceeds the exempt interest of the 
                        company for such taxable year, an 
                        exempt-interest dividend is the excess 
                        of--
                                  (I) the reported exempt-
                                interest dividend amount, over
                                  (II) the excess reported 
                                amount which is allocable to 
                                such reported exempt-interest 
                                dividend amount.
                          (iii) Allocation of excess reported 
                        amount.--
                                  (I) In general.--Except as 
                                provided in subclause (II), the 
                                excess reported amount (if any) 
                                which is allocable to the 
                                reported exempt-interest 
                                dividend amount is that portion 
                                of the excess reported amount 
                                which bears the same ratio to 
                                the excess reported amount as 
                                the reported exempt-interest 
                                dividend amount bears to the 
                                aggregate reported amount.
                                  (II) Special rule for 
                                noncalendar year taxpayers.--In 
                                the case of any taxable year 
                                which does not begin and end in 
                                the same calendar year, if the 
                                post-December reported amount 
                                equals or exceeds the excess 
                                reported amount for such 
                                taxable year, subclause (I) 
                                shall be applied by 
                                substituting ``post-December 
                                reported amount'' for 
                                ``aggregate reported amount'' 
                                and no excess reported amount 
                                shall be allocated to any 
                                dividend paid on or before 
                                December 31 of such taxable 
                                year.
                          (iv) Definitions.--For purposes of 
                        this subparagraph--
                                  (I) Reported exempt-interest 
                                dividend amount.--The term 
                                ``reported exempt-interest 
                                dividend amount'' means the 
                                amount reported to its 
                                shareholders under clause (i) 
                                as an exempt-interest dividend.
                                  (II) Excess reported 
                                amount.--The term ``excess 
                                reported amount'' means the 
                                excess of the aggregate 
                                reported amount over the exempt 
                                interest of the company for the 
                                taxable year.
                                  (III) Aggregate reported 
                                amount.--The term ``aggregate 
                                reported amount'' means the 
                                aggregate amount of dividends 
                                reported by the company under 
                                clause (i) as exempt-interest 
                                dividends for the taxable year 
                                (including exempt-interest 
                                dividends paid after the close 
                                of the taxable year described 
                                in section 855).
                                  (IV) Post-December reported 
                                amount.--The term ``post-
                                December reported amount'' 
                                means the aggregate reported 
                                amount determined by taking 
                                into account only dividends 
                                paid after December 31 of the 
                                taxable year.
                                  (V) Exempt interest.--The 
                                term ``exempt interest'' means, 
                                with respect to any regulated 
                                investment company, the excess 
                                of the amount of interest 
                                excludable from gross income 
                                under section 103(a) over the 
                                amounts disallowed as 
                                deductions under sections 265 
                                and 171(a)(2).
                  (B) Treatment of exempt-interest dividends by 
                shareholders.--An exempt-interest dividend 
                shall be treated by the shareholders for all 
                purposes of this subtitle as an item of 
                interest excludable from gross income under 
                section 103(a). Such purposes include but are 
                not limited to--
                          (i) the determination of gross income 
                        and taxable income,
                          (ii) the determination of 
                        distributable net income under 
                        subchapter J,
                          (iii) the allowance of, or 
                        calculation of the amount of, any 
                        credit or deduction, and
                          (iv) the determination of the basis 
                        in the hands of any shareholder of any 
                        share of stock of the company.
          (6) Section 311(b) not to apply to certain 
        distributions.--Section 311(b) shall not apply to any 
        distribution by a regulated investment company to which 
        this part applies, if such distribution is in 
        redemption of its stock upon the demand of the 
        shareholder.
          (7) Time certain dividends taken into account.--For 
        purposes of this title, any dividend declared by a 
        regulated investment company in October, November, or 
        December of any calendar year and payable to 
        shareholders of record on a specified date in such a 
        month shall be deemed--
                  (A) to have been received by each shareholder 
                on December 31 of such calendar year, and
                  (B) to have been paid by such company on 
                December 31 of such calendar year (or, if 
                earlier, as provided in section 855).
        The preceding sentence shall apply only if such 
        dividend is actually paid by the company during January 
        of the following calendar year.
          (8) Elective deferral of certain late-year losses.--
                  (A) In general.--Except as otherwise provided 
                by the Secretary, a regulated investment 
                company may elect for any taxable year to treat 
                any portion of any qualified late-year loss for 
                such taxable year as arising on the first day 
                of the following taxable year for purposes of 
                this title.
                  (B) Qualified late-year loss.--For purposes 
                of this paragraph, the term ``qualified late-
                year loss'' means--
                          (i) any post-October capital loss, 
                        and
                          (ii) any late-year ordinary loss.
                  (C) Post-October capital loss.--For purposes 
                of this paragraph, the term ``post-October 
                capital loss'' means--
                          (i) any net capital loss attributable 
                        to the portion of the taxable year 
                        after October 31, or
                          (ii) if there is no such loss--
                                  (I) any net long-term capital 
                                loss attributable to such 
                                portion of the taxable year, or
                                  (II) any net short-term 
                                capital loss attributable to 
                                such portion of the taxable 
                                year.
                  (D) Late-year ordinary loss.--For purposes of 
                this paragraph, the term ``late-year ordinary 
                loss'' means the sum of any post-October 
                specified loss and any post-December ordinary 
                loss.
                  (E) Post-October specified loss.--For 
                purposes of this paragraph, the term ``post-
                October specified loss'' means the excess (if 
                any) of--
                          (i) the specified losses (as defined 
                        in section 4982(e)(5)(B)(ii)) 
                        attributable to the portion of the 
                        taxable year after October 31, over
                          (ii) the specified gains (as defined 
                        in section 4982(e)(5)(B)(i)) 
                        attributable to such portion of the 
                        taxable year.
                  (F) Post-December ordinary loss.--For 
                purposes of this paragraph, the term ``post-
                December ordinary loss'' means the excess (if 
                any) of--
                          (i) the ordinary losses not described 
                        in subparagraph (E)(i) and attributable 
                        to the portion of the taxable year 
                        after December 31, over
                          (ii) the ordinary income not 
                        described in subparagraph (E)(ii) and 
                        attributable to such portion of the 
                        taxable year.
                  (G) Special rule for companies determining 
                required capital gain distributions on taxable 
                year basis.--In the case of a company to which 
                an election under section 4982(e)(4) applies--
                          (i) if such company's taxable year 
                        ends with the month of November, the 
                        amount of qualified late-year losses 
                        (if any) shall be computed without 
                        regard to any income, gain, or loss 
                        described in subparagraphs (C) and (E), 
                        and
                          (ii) if such company's taxable year 
                        ends with the month of December, 
                        subparagraph (A) shall not apply.
          (9) Dividends treated as received by company on ex-
        dividend date.--For purposes of this title, if a 
        regulated investment company is the holder of record of 
        any share of stock on the record date for any dividend 
        payable with respect to such stock, such dividend shall 
        be included in gross income by such company as of the 
        later of--
                  (A) the date such share became ex-dividend 
                with respect to such dividend, or
                  (B) the date such company acquired such 
                share.
  (c) Earnings and profits.--
          (1) Treatment of nondeductible items.--
                  (A) Net capital loss.--If a regulated 
                investment company has a net capital loss for 
                any taxable year--
                          (i) such net capital loss shall not 
                        be taken into account for purposes of 
                        determining the company's earnings and 
                        profits, and
                          (ii) any capital loss arising on the 
                        first day of the next taxable year by 
                        reason of clause (ii) or (iii) of 
                        section 1212(a)(3)(A) shall be treated 
                        as so arising for purposes of 
                        determining earnings and profits.
                  (B) Other nondeductible items.--
                          (i) In general.--The earnings and 
                        profits of a regulated investment 
                        company for any taxable year (but not 
                        its accumulated earnings and profits) 
                        shall not be reduced by any amount 
                        which is not allowable as a deduction 
                        (other than by reason of section 265 or 
                        171(a)(2)) in computing its taxable 
                        income for such taxable year.
                          (ii) Coordination with treatment of 
                        net capital losses.--Clause (i) shall 
                        not apply to a net capital loss to 
                        which subparagraph (A) applies.
          (2) Coordination with tax on undistributed income.--
        For purposes of applying this chapter to distributions 
        made by a regulated investment company with respect to 
        any calendar year, the earnings and profits of such 
        company shall be determined without regard to any net 
        capital loss attributable to the portion of the taxable 
        year after October 31, without regard to any late-year 
        ordinary loss (as defined in subsection (b)(8)(D)), 
        without regard to any capital loss arising on the first 
        day of the taxable year by reason of clauses (ii) and 
        (iii) of section 1212(a)(3)(A), and with such other 
        adjustments as the Secretary may prescribe. The 
        preceding sentence shall apply--
                  (A) only to the extent that the amount 
                distributed by the company with respect to the 
                calendar year does not exceed the required 
                distribution for such calendar year (as 
                determined under section 4982 by substituting 
                ``100 percent'' for each percentage set forth 
                in section 4982(b)(1)), and
                  (B) except as provided in regulations, only 
                if an election under section 4982(e)(4) is not 
                in effect with respect to such company.
          (3) Distributions to meet requirements of subsection 
        (a)(2)(B).--Any distribution which is made in order to 
        comply with the requirements of subsection (a)(2)(B)--
                  (A) shall be treated for purposes of this 
                subsection and subsection (a)(2)(B) as made 
                from earnings and profits which, but for the 
                distribution, would result in a failure to meet 
                such requirements (and allocated to such 
                earnings on a first-in, first-out basis), and
                  (B) to the extent treated under subparagraph 
                (A) as made from accumulated earnings and 
                profits, shall not be treated as a distribution 
                for purposes of subsection (b)(2)(D) and 
                section 855.
          (4) Regulated investment company.--For purposes of 
        this subsection, the term ``regulated investment 
        company'' includes a domestic corporation which is a 
        regulated investment company determined without regard 
        to the requirements of subsection (a).
  (d) Distributions in redemption of interests in unit 
investment trusts.--In the case of a unit investment trust--
          (1) which is registered under the Investment Company 
        Act of 1940 (15 U.S.C. 80a-1 and following) and issues 
        periodic payment plan certificates (as defined in such 
        Act), and
          (2) substantially all of the assets of which consist 
        of securities issued by a management company (as 
        defined in such Act), section 562(c) (relating to 
        preferential dividends) shall not apply to a 
        distribution by such trust to a holder of an interest 
        in such trust in redemption of part or all of such 
        interest, with respect to the capital gain net income 
        of such trust attributable to such redemption.
  (e) Procedures similar to deficiency dividend procedures made 
applicable.--
          (1) In general.--If--
                  (A) there is a determination that the 
                provisions of this part do not apply to an 
                investment company for any taxable year 
                (hereinafter in this subsection referred to as 
                the ``non-RIC year''), and
                  (B) such investment company meets the 
                distribution requirements of paragraph (2) with 
                respect to the non-RIC year,
        for purposes of applying subsection (a)(2) to 
        subsequent taxable years, the provisions of this part 
        shall be treated as applying to such investment company 
        for the non-RIC year. If the determination under 
        subparagraph (A) is solely as a result of the failure 
        to meet the requirements of subsection (a)(2), the 
        preceding sentence shall also apply for purposes of 
        applying subsection (a)(2) to the non-RIC year and the 
        amount referred to in paragraph (2)(A)(i) shall be the 
        portion of the accumulated earnings and profits which 
        resulted in such failure.
          (2) Distribution requirements.--
                  (A) In general.--The distribution 
                requirements of this paragraph are met with 
                respect to any non-RIC year if, within the 90-
                day period beginning on the date of the 
                determination (or within such longer period as 
                the Secretary may permit), the investment 
                company makes 1 or more qualified designated 
                distributions and the amount of such 
                distributions is not less than the excess of--
                          (i) the portion of the accumulated 
                        earnings and profits of the investment 
                        company (as of the date of the 
                        determination) which are attributable 
                        to the non-RIC year, over
                          (ii) any interest payable under 
                        paragraph (3).
                  (B) Qualified designated distribution.--For 
                purposes of this paragraph, the term 
                ``qualified designated distribution'' means any 
                distribution made by the investment company 
                if--
                          (i) section 301 applies to such 
                        distribution, and
                          (ii) such distribution is designated 
                        (at such time and in such manner as the 
                        Secretary shall by regulations 
                        prescribe) as being taken into account 
                        under this paragraph with respect to 
                        the non-RIC year.
                  (C) Effect on dividends paid deduction.--Any 
                qualified designated distribution shall not be 
                included in the amount of dividends paid for 
                purposes of computing the dividends paid 
                deduction for any taxable year.
          (3) Interest charge.--
                  (A) In general.--If paragraph (1) applies to 
                any non-RIC year of an investment company, such 
                investment company shall pay interest at the 
                underpayment rate established under section 
                6621--
                          (i) on an amount equal to 50 percent 
                        of the amount referred to in paragraph 
                        (2)(A)(i),
                          (ii) for the period--
                                  (I) which begins on the last 
                                day prescribed for payment of 
                                the tax imposed for the non-RIC 
                                year (determined without regard 
                                to extensions), and
                                  (II) which ends on the date 
                                the determination is made.
                  (B) Coordination with subtitle F.--Any 
                interest payable under subparagraph (A) may be 
                assessed and collected at any time during the 
                period during which any tax imposed for the 
                taxable year in which the determination is made 
                may be assessed and collected.
          (4) Provision not to apply in the case of fraud.--The 
        provisions of this subsection shall not apply if the 
        determination contains a finding that the failure to 
        meet any requirement of this part was due to fraud with 
        intent to evade tax.
          (5) Determination.--For purposes of this subsection, 
        the term ``determination'' has the meaning given to 
        such term by section 860(e). Such term also includes a 
        determination by the investment company filed with the 
        Secretary that the provisions of this part do not apply 
        to the investment company for a taxable year.
  (f) Treatment of certain load charges.--
          (1) In general.--If--
                  (A) the taxpayer incurs a load charge in 
                acquiring stock in a regulated investment 
                company and, by reason of incurring such charge 
                or making such acquisition, the taxpayer 
                acquires a reinvestment right,
                  (B) such stock is disposed of before the 91st 
                day after the date on which such stock was 
                acquired, and
                  (C) the taxpayer acquires, during the period 
                beginning on the date of the disposition 
                referred to in subparagraph (B) and ending on 
                January 31 of the calendar year following the 
                calendar year that includes the date of such 
                disposition, stock in such regulated investment 
                company or in another regulated investment 
                company and the otherwise applicable load 
                charge is reduced by reason of the reinvestment 
                right,
        the load charge referred to in subparagraph (A) (to the 
        extent it does not exceed the reduction referred to in 
        subparagraph (C)) shall not be taken into account for 
        purposes of determining the amount of gain or loss on 
        the disposition referred to in subparagraph (B). To the 
        extent such charge is not taken into account in 
        determining the amount of such gain or loss, such 
        charge shall be treated as incurred in connection with 
        the acquisition referred to in subparagraph (C) 
        (including for purposes of reapplying this paragraph).
          (2) Definitions and special rules.--For purposes of 
        this subsection--
                  (A) Load charge.--The term ``load charge'' 
                means any sales or similar charge incurred by a 
                person in acquiring stock of a regulated 
                investment company. Such term does not include 
                any charge incurred by reason of the 
                reinvestment of a dividend.
                  (B) Reinvestment right.--The term 
                ``reinvestment right'' means any right to 
                acquire stock of 1 or more regulated investment 
                companies without the payment of a load charge 
                or with the payment of a reduced charge.
                  (C) Nonrecognition transactions.--If the 
                taxpayer acquires stock in a regulated 
                investment company from another person in a 
                transaction in which gain or loss is not 
                recognized, the taxpayer shall succeed to the 
                treatment of such other person under this 
                subsection.
  (g) Special rules for fund of funds.--
          (1) In general.--In the case of a qualified fund of 
        funds--
                  (A) such fund shall be qualified to pay 
                exempt-interest dividends to its shareholders 
                without regard to whether such fund satisfies 
                the requirements of the first sentence of 
                subsection (b)(5), and
                  (B) such fund may elect the application of 
                section 853 (relating to foreign tax credit 
                allowed to shareholders) without regard to the 
                requirement of subsection (a)(1) thereof.
          (2) Qualified fund of funds.--For purposes of this 
        subsection, the term ``qualified fund of funds'' means 
        a regulated investment company if (at the close of each 
        quarter of the taxable year) at least 50 percent of the 
        value of its total assets is represented by interests 
        in other regulated investment companies.

           *       *       *       *       *       *       *


PART II--REAL ESTATE INVESTMENT TRUSTS

           *       *       *       *       *       *       *


SEC. 857. TAXATION OF REAL ESTATE INVESTMENT TRUSTS AND THEIR 
                    BENEFICIARIES.

  (a) Requirements applicable to real estate investment 
trusts.--The provisions of this part (other than subsection (d) 
of this section and subsection (g) of section 856) shall not 
apply to a real estate investment trust for a taxable year 
unless--
          (1) the deduction for dividends paid during the 
        taxable year (as defined in section 561, but determined 
        without regard to capital gains dividends) equals or 
        exceeds--
                  (A) the sum of--
                          (i) 90 percent of the real estate 
                        investment trust taxable income for the 
                        taxable year (determined without regard 
                        to the deduction for dividends paid (as 
                        defined in section 561) and by 
                        excluding any net capital gain); and
                          (ii) 90 percent of the excess of the 
                        net income from foreclosure property 
                        over the tax imposed on such income by 
                        subsection (b)(4)(A); minus
                  (B) any excess noncash income (as determined 
                under subsection (e)); and
          (2) either--
                  (A) the provisions of this part apply to the 
                real estate investment trust for all taxable 
                years beginning after February 28, 1986, or
                  (B) as of the close of the taxable year, the 
                real estate investment trust has no earnings 
                and profits accumulated in any non-REIT year.
For purposes of the preceding sentence, the term ``non-REIT 
year'' means any taxable year to which the provisions of this 
part did not apply with respect to the entity. The Secretary 
may waive the requirements of paragraph (1) for any taxable 
year if the real estate investment trust establishes to the 
satisfaction of the Secretary that it was unable to meet such 
requirements by reason of distributions previously made to meet 
the requirements of section 4981.
  (b) Method of taxation of real estate investment trusts and 
holders of shares or certificates of beneficial interest.--
          (1) Imposition of tax on real estate investment 
        trusts.--There is hereby imposed for each taxable year 
        on the real estate investment trust taxable income of 
        every real estate investment trust a tax computed as 
        provided in section 11, as though the real estate 
        investment trust taxable income were the taxable income 
        referred to in section 11.
          (2) Real estate investment trust taxable income.--For 
        purposes of this part, the term ``real estate 
        investment trust taxable income'' means the taxable 
        income of the real estate investment trust, adjusted as 
        follows:
                  (A) The deductions for corporations provided 
                in part VIII [(except section 248)] of 
                subchapter B (section 241 and following, 
                relating to the deduction for dividends 
                received, etc.) shall not be allowed.
                  (B) The deduction for dividends paid (as 
                defined in section 561) shall be allowed, but 
                shall be computed without regard to that 
                portion of such deduction which is attributable 
                to the amount excluded under subparagraph (D).
                  (C) The taxable income shall be computed 
                without regard to section 443(b) (relating to 
                computation of tax on change of annual 
                accounting period).
                  (D) There shall be excluded an amount equal 
                to the net income from foreclosure property.
                  (E) There shall be deducted an amount equal 
                to the tax imposed by paragraphs (5) and (7) of 
                this subsection, section 856(c)(7)(C), and 
                section 856(g)(5) for the taxable year.
                  (F) There shall be excluded an amount equal 
                to any net income derived from prohibited 
                transactions.
          (3) Capital gains.--
                  (A) Treatment of capital gain dividends by 
                shareholders.--A capital gain dividend shall be 
                treated by the shareholders or holders of 
                beneficial interests as a gain from the sale or 
                exchange of a capital asset held for more than 
                1 year.
                  (B) Definition of capital gain dividend.--For 
                purposes of this part, a capital gain dividend 
                is any dividend, or part thereof, which is 
                designated by the real estate investment trust 
                as a capital gain dividend in a written notice 
                mailed to its shareholders or holders of 
                beneficial interests at any time before the 
                expiration of 30 days after the close of its 
                taxable year (or mailed to its shareholders or 
                holders of beneficial interests with its annual 
                report for the taxable year); except that, if 
                there is an increase in the excess described in 
                subparagraph (A)(ii) of this paragraph for such 
                year which results from a determination (as 
                defined in section 860(e)), such designation 
                may be made with respect to such increase at 
                any time before the expiration of 120 days 
                after the date of such determination. If the 
                aggregate amount so designated with respect to 
                a taxable year of the trust (including capital 
                gain dividends paid after the close of the 
                taxable year described in section 858) is 
                greater than the net capital gain of the 
                taxable year, the portion of each distribution 
                which shall be a capital gain dividend shall be 
                only that proportion of the amount so 
                designated which such net capital gain bears to 
                the aggregate amount so designated. For 
                purposes of this subparagraph, the amount of 
                the net capital gain for any taxable year which 
                is not a calendar year shall be determined 
                without regard to any net capital loss 
                attributable to transactions after December 31 
                of such year, and any such net capital loss 
                shall be treated as arising on the 1st day of 
                the next taxable year. To the extent provided 
                in regulations, the preceding sentence shall 
                apply also for purposes of computing the 
                taxable income of the real estate investment 
                trust.
                  (C) Treatment by shareholders of 
                undistributed capital gains.--
                          (i) Every shareholder of a real 
                        estate investment trust at the close of 
                        the trust's taxable year shall include, 
                        in computing his long-term capital 
                        gains in his return for his taxable 
                        year in which the last day of the 
                        trust's taxable year falls, such amount 
                        as the trust shall designate in respect 
                        of such shares in a written notice 
                        mailed to its shareholders at any time 
                        prior to the expiration of 60 days 
                        after the close of its taxable year (or 
                        mailed to its shareholders or holders 
                        of beneficial interests with its annual 
                        report for the taxable year), but the 
                        amount so includible by any shareholder 
                        shall not exceed that part of the 
                        amount subjected to tax in paragraph 
                        (1) which he would have received if all 
                        of such amount had been distributed as 
                        capital gain dividends by the trust to 
                        the holders of such shares at the close 
                        of its taxable year.
                          (ii) For purposes of this title, 
                        every such shareholder shall be deemed 
                        to have paid, for his taxable year 
                        under clause (i), the tax imposed by 
                        paragraph (1) on undistributed capital 
                        gain on the amounts required by this 
                        subparagraph to be included in respect 
                        of such shares in computing his long-
                        term capital gains for that year; and 
                        such shareholders shall be allowed 
                        credit or refund as the case may be, 
                        for the tax so deemed to have been paid 
                        by him.
                          (iii) The adjusted basis of such 
                        shares in the hands of the holder shall 
                        be increased with respect to the 
                        amounts required by this subparagraph 
                        to be included in computing his long-
                        term capital gains, by the difference 
                        between the amount of such includible 
                        gains and the tax deemed paid by such 
                        shareholder in respect of such shares 
                        under clause (ii).
                          (iv) In the event of such 
                        designation, the tax imposed by 
                        paragraph (1) on undistributed capital 
                        gain shall be paid by the real estate 
                        investment trust within 30 days after 
                        the close of its taxable year.
                          (v) The earnings and profits of such 
                        real estate investment trust, and the 
                        earnings and profits of any such 
                        shareholder which is a corporation, 
                        shall be appropriately adjusted in 
                        accordance with regulations prescribed 
                        by the Secretary.
                          (vi) As used in this subparagraph, 
                        the terms ``shares'' and 
                        ``shareholders'' shall include 
                        beneficial interests and holders of 
                        beneficial interests, respectively.
                  (D) Coordination with net operating loss 
                provisions.--For purposes of section 172, if a 
                real estate investment trust pays capital gain 
                dividends during any taxable year, the amount 
                of the net capital gain for such taxable year 
                (to the extent such gain does not exceed the 
                amount of such capital gain dividends) shall be 
                excluded in determining--
                          (i) the net operating loss for the 
                        taxable year, and
                          (ii) the amount of the net operating 
                        loss of any prior taxable year which 
                        may be carried through such taxable 
                        year under section 172(b)(2) to a 
                        succeeding taxable year.
                  (E) Certain distributions.--In the case of a 
                shareholder of a real estate investment trust 
                to whom section 897 does not apply by reason of 
                the second sentence of section 897(h)(1) or 
                subparagraph (A)(ii) or (C) of section 
                897(k)(2), the amount which would be included 
                in computing long-term capital gains for such 
                shareholder under subparagraph (A) or (C) 
                (without regard to this subparagraph)--
                          (i) shall not be included in 
                        computing such shareholder's long-term 
                        capital gains, and
                          (ii) shall be included in such 
                        shareholder's gross income as a 
                        dividend from the real estate 
                        investment trust.
                  (F) Undistributed capital gain.--For purposes 
                of this paragraph, the term ``undistributed 
                capital gain'' means the excess of the net 
                capital gain over the deduction for dividends 
                paid (as defined in section 561) determined 
                with reference to capital gain dividends only.
          (4) Income from foreclosure property.--
                  (A) Imposition of tax.--A tax is hereby 
                imposed for each taxable year on the net income 
                from foreclosure property of every real estate 
                investment trust. Such tax shall be computed by 
                multiplying the net income from foreclosure 
                property by the highest rate of tax specified 
                in section 11(b).
                  (B) Net income from foreclosure property.--
                For purposes of this part, the term ``net 
                income from foreclosure property'' means the 
                excess of--
                          (i) gain (including any foreign 
                        currency gain, as defined in section 
                        988(b)(1)) from the sale or other 
                        disposition of foreclosure property 
                        described in section 1221(a)(1) and the 
                        gross income for the taxable year 
                        derived from foreclosure property (as 
                        defined in section 856(e)), but only to 
                        the extent such gross income is not 
                        described in (or, in the case of 
                        foreign currency gain, not attributable 
                        to gross income described in) section 
                        856(c)(3) other than subparagraph (F) 
                        thereof, over
                          (ii) the deductions allowed by this 
                        chapter which are directly connected 
                        with the production of the income 
                        referred to in clause (i).
          (5) Imposition of tax in case of failure to meet 
        certain requirements.--If section 856(c)(6) applies to 
        a real estate investment trust for any taxable year, 
        there is hereby imposed on such trust a tax in an 
        amount equal to the greater of--
                  (A) the excess of--
                          (i) 95 percent of the gross income 
                        (excluding gross income from prohibited 
                        transactions) of the real estate 
                        investment trust, over
                          (ii) the amount of such gross income 
                        which is derived from sources referred 
                        to in section 856(c)(2); or
                  (B) the excess of--
                          (i) 75 percent of the gross income 
                        (excluding gross income from prohibited 
                        transactions) of the real estate 
                        investment trust, over
                          (ii) the amount of such gross income 
                        which is derived from sources referred 
                        to in section 856(c)(3),
                multiplied by a fraction the numerator of which 
                is the real estate investment trust taxable 
                income for the taxable year (determined without 
                regard to the deductions provided in paragraphs 
                (2)(B) and (2)(E), without regard to any net 
                operating loss deduction, and by excluding any 
                net capital gain) and the denominator of which 
                is the gross income for the taxable year 
                (excluding gross income from prohibited 
                transactions; gross income and gain from 
                foreclosure property (as defined in section 
                856(e), but only to the extent such gross 
                income and gain is not described in 
                subparagraph (A), (B), (C), (D), (E), or (G) of 
                section 856(c)(3)); long-term capital gain; and 
                short-term capital gain to the extent of any 
                short-term capital loss).
          (6) Income from prohibited transactions.--
                  (A) Imposition of tax.--There is hereby 
                imposed for each taxable year of every real 
                estate investment trust a tax equal to 100 
                percent of the net income derived from 
                prohibited transactions.
                  (B) Definitions.--For purposes of this part--
                          (i) the term ``net income derived 
                        from prohibited transactions'' means 
                        the excess of the gain (including any 
                        foreign currency gain, as defined in 
                        section 988(b)(1)) from prohibited 
                        transactions over the deductions 
                        (including any foreign currency loss, 
                        as defined in section 988(b)(2)) 
                        allowed by this chapter which are 
                        directly connected with prohibited 
                        transactions;
                          (ii) in determining the amount of the 
                        net income derived from prohibited 
                        transactions, there shall not be taken 
                        into account any item attributable to 
                        any prohibited transaction for which 
                        there was a loss; and
                          (iii) the term ``prohibited 
                        transaction'' means a sale or other 
                        disposition of property described in 
                        section 1221(a)(1) which is not 
                        foreclosure property.
                  (C) Certain sales not to constitute 
                prohibited transactions.--For purposes of this 
                part, the term ``prohibited transaction'' does 
                not include a sale of property which is a real 
                estate asset (as defined in section 
                856(c)(5)(B)) if--
                          (i) the trust has held the property 
                        for not less than 2 years;
                          (ii) aggregate expenditures made by 
                        the trust, or any partner of the trust, 
                        during the 2-year period preceding the 
                        date of sale which are includible in 
                        the basis of the property do not exceed 
                        30 percent of the net selling price of 
                        the property;
                          (iii)(I) during the taxable year the 
                        trust does not make more than 7 sales 
                        of property (other than sales of 
                        foreclosure property or sales to which 
                        section 1033 applies), or (II) the 
                        aggregate adjusted bases (as determined 
                        for purposes of computing earnings and 
                        profits) of property (other than sales 
                        of foreclosure property or sales to 
                        which section 1033 applies) sold during 
                        the taxable year does not exceed 10 
                        percent of the aggregate bases (as so 
                        determined) of all of the assets of the 
                        trust as of the beginning of the 
                        taxable year, or (III) the fair market 
                        value of property (other than sales of 
                        foreclosure property or sales to which 
                        section 1033 applies) sold during the 
                        taxable year does not exceed 10 percent 
                        of the fair market value of all of the 
                        assets of the trust as of the beginning 
                        of the taxable year, or (IV) the trust 
                        satisfies the requirements of subclause 
                        (II) applied by substituting ``20 
                        percent'' for ``10 percent'' and the 3-
                        year average adjusted bases percentage 
                        for the taxable year (as defined in 
                        subparagraph (G)) does not exceed 10 
                        percent, or (V) the trust satisfies the 
                        requirements of subclause (III) applied 
                        by substituting ``20 percent'' for ``10 
                        percent'' and the 3-year average fair 
                        market value percentage for the taxable 
                        year (as defined in subparagraph (H)) 
                        does not exceed 10 percent;
                          (iv) in the case of property, which 
                        consists of land or improvements, not 
                        acquired through foreclosure (or deed 
                        in lieu of foreclosure), or lease 
                        termination, the trust has held the 
                        property for not less than 2 years for 
                        production of rental income; and
                          (v) if the requirement of clause 
                        (iii)(I) is not satisfied, 
                        substantially all of the marketing and 
                        development expenditures with respect 
                        to the property were made through an 
                        independent contractor (as defined in 
                        section 856(d)(3)) from whom the trust 
                        itself does not derive or receive any 
                        income or a taxable REIT subsidiary.
                  (D) Certain sales not to constitute 
                prohibited transactions.--For purposes of this 
                part, the term ``prohibited transaction'' does 
                not include a sale of property which is a real 
                estate asset (as defined in section 
                856(c)(5)(B)) if--
                          (i) the trust held the property for 
                        not less than 2 years in connection 
                        with the trade or business of producing 
                        timber,
                          (ii) the aggregate expenditures made 
                        by the trust, or a partner of the 
                        trust, during the 2-year period 
                        preceding the date of sale which--
                                  (I) are includible in the 
                                basis of the property (other 
                                than timberland acquisition 
                                expenditures), and
                                  (II) are directly related to 
                                operation of the property for 
                                the production of timber or for 
                                the preservation of the 
                                property for use as timberland,
                        do not exceed 30 percent of the net 
                        selling price of the property,
                          (iii) the aggregate expenditures made 
                        by the trust, or a partner of the 
                        trust, during the 2-year period 
                        preceding the date of sale which--
                                  (I) are includible in the 
                                basis of the property (other 
                                than timberland acquisition 
                                expenditures), and
                                  (II) are not directly related 
                                to operation of the property 
                                for the production of timber, 
                                or for the preservation of the 
                                property for use as timberland,
                        do not exceed 5 percent of the net 
                        selling price of the property,
                          (iv)(I) during the taxable year the 
                        trust does not make more than 7 sales 
                        of property (other than sales of 
                        foreclosure property or sales to which 
                        section 1033 applies), or
                                  (II) the aggregate adjusted 
                                bases (as determined for 
                                purposes of computing earnings 
                                and profits) of property (other 
                                than sales of foreclosure 
                                property or sales to which 
                                section 1033 applies) sold 
                                during the taxable year does 
                                not exceed 10 percent of the 
                                aggregate bases (as so 
                                determined) of all of the 
                                assets of the trust as of the 
                                beginning of the taxable year, 
                                or
                                  (III) the fair market value 
                                of property (other than sales 
                                of foreclosure property or 
                                sales to which section 1033 
                                applies) sold during the 
                                taxable year does not exceed 10 
                                percent of the fair market 
                                value of all of the assets of 
                                the trust as of the beginning 
                                of the taxable year, or
                                  (IV) the trust satisfies the 
                                requirements of subclause (II) 
                                applied by substituting ``20 
                                percent'' for ``10 percent'' 
                                and the 3-year average adjusted 
                                bases percentage for the 
                                taxable year (as defined in 
                                subparagraph (G)) does not 
                                exceed 10 percent, or
                                  (V) the trust satisfies the 
                                requirements of subclause (III) 
                                applied by substituting ``20 
                                percent'' for ``10 percent'' 
                                and the 3-year average fair 
                                market value percentage for the 
                                taxable year (as defined in 
                                subparagraph (H)) does not 
                                exceed 10 percent,
                          (v) in the case that the requirement 
                        of clause (iv)(I) is not satisfied, 
                        substantially all of the marketing 
                        expenditures with respect to the 
                        property were made through an 
                        independent contractor (as defined in 
                        section 856(d)(3)) from whom the trust 
                        itself does not derive or receive any 
                        income, or a taxable REIT subsidiary, 
                        and
                          (vi) the sales price of the property 
                        sold by the trust is not based in whole 
                        or in part on income or profits, 
                        including income or profits derived 
                        from the sale or operation of such 
                        property.
                  (E) Special rules.--In applying subparagraphs 
                (C) and (D) the following special rules apply:
                          (i) The holding period of property 
                        acquired through foreclosure (or deed 
                        in lieu of foreclosure), or termination 
                        of the lease, includes the period for 
                        which the trust held the loan which 
                        such property secured, or the lease of 
                        such property.
                          (ii) In the case of a property 
                        acquired through foreclosure (or deed 
                        in lieu of foreclosure), or termination 
                        of a lease, expenditures made by, or 
                        for the account of, the mortgagor or 
                        lessee after default became imminent 
                        will be regarded as made by the trust.
                          (iii) Expenditures (including 
                        expenditures regarded as made directly 
                        by the trust, or indirectly by any 
                        partner of the trust, under clause 
                        (ii)) will not be taken into account if 
                        they relate to foreclosure property and 
                        did not cause the property to lose its 
                        status as foreclosure property.
                          (iv) Expenditures will not be taken 
                        into account if they are made solely to 
                        comply with standards or requirements 
                        of any government or governmental 
                        authority having relevant jurisdiction, 
                        or if they are made to restore the 
                        property as a result of losses arising 
                        from fire, storm or other casualty.
                          (v) The term ``expenditures'' does 
                        not include advances on a loan made by 
                        the trust.
                          (vi) The sale of more than one 
                        property to one buyer as part of one 
                        transaction constitutes one sale.
                          (vii) The term ``sale'' does not 
                        include any transaction in which the 
                        net selling price is less than $10,000.
                  (F) No inference with respect to treatment as 
                inventory property.--The determination of 
                whether property is described in section 
                1221(a)(1) shall be made without regard to this 
                paragraph.
                  (G) 3-year average adjusted bases 
                percentage.--The term ``3-year average adjusted 
                bases percentage'' means, with respect to any 
                taxable year, the ratio (expressed as a 
                percentage) of--
                          (i) the aggregate adjusted bases (as 
                        determined for purposes of computing 
                        earnings and profits) of property 
                        (other than sales of foreclosure 
                        property or sales to which section 1033 
                        applies) sold during the 3 taxable year 
                        period ending with such taxable year, 
                        divided by
                          (ii) the sum of the aggregate 
                        adjusted bases (as so determined) of 
                        all of the assets of the trust as of 
                        the beginning of each of the 3 taxable 
                        years which are part of the period 
                        referred to in clause (i).
                  (H) 3-year average fair market value 
                percentage.--The term ``3-year average fair 
                market value percentage'' means, with respect 
                to any taxable year, the ratio (expressed as a 
                percentage) of--
                          (i) the fair market value of property 
                        (other than sales of foreclosure 
                        property or sales to which section 1033 
                        applies) sold during the 3 taxable year 
                        period ending with such taxable year, 
                        divided by
                          (ii) the sum of the fair market value 
                        of all of the assets of the trust as of 
                        the beginning of each of the 3 taxable 
                        years which are part of the period 
                        referred to in clause (i).
                  (I) Sales of property that are not a 
                prohibited transaction.--In the case of a sale 
                on or before the termination date, the sale of 
                property which is not a prohibited transaction 
                through the application of subparagraph (D) 
                shall be considered property held for 
                investment or for use in a trade or business 
                and not property described in section 
                1221(a)(1) for all purposes of this subtitle. 
                For purposes of the preceding sentence, the 
                reference to subparagraph (D) shall be a 
                reference to such subparagraph as in effect on 
                the day before the enactment of the Housing 
                Assistance Tax Act of 2008, as modified by 
                subparagraph (G) as so in effect.
                  (J) Termination date.--For purposes of this 
                paragraph, the term ``termination date'' has 
                the meaning given such term by section 
                856(c)(10).
          (7) Income from redetermined rents, redetermined 
        deductions, and excess interest.--
                  (A) Imposition of tax.--There is hereby 
                imposed for each taxable year of the real 
                estate investment trust a tax equal to 100 
                percent of redetermined rents, redetermined 
                deductions, excess interest, and redetermined 
                TRS service income.
                  (B) Redetermined rents.--
                          (i) In general.--The term 
                        ``redetermined rents'' means rents from 
                        real property (as defined in section 
                        856(d)) to the extent the amount of the 
                        rents would (but for subparagraph (F)) 
                        be reduced on distribution, 
                        apportionment, or allocation under 
                        section 482 to clearly reflect income 
                        as a result of services furnished or 
                        rendered by a taxable REIT subsidiary 
                        of the real estate investment trust to 
                        a tenant of such trust.
                          (ii) Exception for de minimis 
                        amounts.--Clause (i) shall not apply to 
                        amounts described in section 
                        856(d)(7)(A) with respect to a property 
                        to the extent such amounts do not 
                        exceed the one percent threshold 
                        described in section 856(d)(7)(B) with 
                        respect to such property.
                          (iii) Exception for comparably priced 
                        services.--Clause (i) shall not apply 
                        to any service rendered by a taxable 
                        REIT subsidiary of a real estate 
                        investment trust to a tenant of such 
                        trust if--
                                  (I) such subsidiary renders a 
                                significant amount of similar 
                                services to persons other than 
                                such trust and tenants of such 
                                trust who are unrelated (within 
                                the meaning of section 
                                856(d)(8)(F)) to such 
                                subsidiary, trust, and tenants, 
                                but
                                  (II) only to the extent the 
                                charge for such service so 
                                rendered is substantially 
                                comparable to the charge for 
                                the similar services rendered 
                                to persons referred to in 
                                subclause (I).
                          (iv) Exception for certain separately 
                        charged services.--Clause (i) shall not 
                        apply to any service rendered by a 
                        taxable REIT subsidiary of a real 
                        estate investment trust to a tenant of 
                        such trust if--
                                  (I) the rents paid to the 
                                trust by tenants (leasing at 
                                least 25 percent of the net 
                                leasable space in the trust's 
                                property) who are not receiving 
                                such service from such 
                                subsidiary are substantially 
                                comparable to the rents paid by 
                                tenants leasing comparable 
                                space who are receiving such 
                                service from such subsidiary, 
                                and
                                  (II) the charge for such 
                                service from such subsidiary is 
                                separately stated.
                          (v) Exception for certain services 
                        based on subsidiary's income from the 
                        services.--Clause (i) shall not apply 
                        to any service rendered by a taxable 
                        REIT subsidiary of a real estate 
                        investment trust to a tenant of such 
                        trust if the gross income of such 
                        subsidiary from such service is not 
                        less than 150 percent of such 
                        subsidiary's direct cost in furnishing 
                        or rendering the service.
                          (vi) Exceptions granted by 
                        secretary.--The Secretary may waive the 
                        tax otherwise imposed by subparagraph 
                        (A) if the trust establishes to the 
                        satisfaction of the Secretary that 
                        rents charged to tenants were 
                        established on an arms' length basis 
                        even though a taxable REIT subsidiary 
                        of the trust provided services to such 
                        tenants.
                  (C) Redetermined deductions.--The term 
                ``redetermined deductions'' means deductions 
                (other than redetermined rents) of a taxable 
                REIT subsidiary of a real estate investment 
                trust to the extent the amount of such 
                deductions would (but for subparagraph (F)) be 
                decreased on distribution, apportionment, or 
                allocation under section 482 to clearly reflect 
                income as between such subsidiary and such 
                trust.
                  (D) Excess interest.--The term ``excess 
                interest'' means any deductions for interest 
                payments by a taxable REIT subsidiary of a real 
                estate investment trust to such trust to the 
                extent that the interest payments are in excess 
                of a rate that is commercially reasonable.
                  (E) Redetermined TRS service income.--
                          (i) In general.--The term 
                        ``redetermined TRS service income'' 
                        means gross income of a taxable REIT 
                        subsidiary of a real estate investment 
                        trust attributable to services provided 
                        to, or on behalf of, such trust (less 
                        deductions properly allocable thereto) 
                        to the extent the amount of such income 
                        (less such deductions) would (but for 
                        subparagraph (F)) be increased on 
                        distribution, apportionment, or 
                        allocation under section 482.
                          (ii) Coordination with redetermined 
                        rents.--Clause (i) shall not apply with 
                        respect to gross income attributable to 
                        services furnished or rendered to a 
                        tenant of the real estate investment 
                        trust (or to deductions properly 
                        allocable thereto).
                  (F) Coordination with section 482.--The 
                imposition of tax under subparagraph (A) shall 
                be in lieu of any distribution, apportionment, 
                or allocation under section 482.
                  (G) Regulatory authority.--The Secretary 
                shall prescribe such regulations as may be 
                necessary or appropriate to carry out the 
                purposes of this paragraph. Until the Secretary 
                prescribes such regulations, real estate 
                investment trusts and their taxable REIT 
                subsidiaries may base their allocations on any 
                reasonable method.
          (8) Loss on sale or exchange of stock held 6 months 
        or less.--
                  (A) In general.--If--
                          (i) subparagraph (B) or (D) of 
                        paragraph (3) provides that any amount 
                        with respect to any share or beneficial 
                        interest is to be treated as a long-
                        term capital gain, and
                          (ii) the taxpayer has held such share 
                        or interest for 6 months or less,
                then any loss on the sale or exchange of such 
                share or interest shall, to the extent of the 
                amount described in clause (i), be treated as a 
                long-term capital loss.
                  (B) Determination of holding periods.--For 
                purposes of this paragraph, in determining the 
                period for which the taxpayer has held any 
                share of stock or beneficial interest--
                          (i) the rules of paragraphs (3) and 
                        (4) of section 246(c) shall apply, and
                          (ii) there shall not be taken into 
                        account any day which is more than 6 
                        months after the date on which such 
                        share or interest becomes ex-dividend.
                  (C) Exception for losses incurred under 
                periodic liquidation plans.--To the extent 
                provided in regulations, subparagraph (A) shall 
                not apply to any loss incurred on the sale or 
                exchange of shares of stock of, or beneficial 
                interest in, a real estate investment trust 
                pursuant to a plan which provides for the 
                periodic liquidation of such shares or 
                interests.
          (9) Time certain dividends taken into account.--For 
        purposes of this title, any dividend declared by a real 
        estate investment trust in October, November, or 
        December of any calendar year and payable to 
        shareholders of record on a specified date in such a 
        month shall be deemed--
                  (A) to have been received by each shareholder 
                on December 31 of such calendar year, and
                  (B) to have been paid by such trust on 
                December 31 of such calendar year (or, if 
                earlier, as provided in section 858).
        The preceding sentence shall apply only if such 
        dividend is actually paid by the company during January 
        of the following calendar year.
  (c) Restrictions applicable to dividends received from real 
estate investment trusts.--
          (1) Section 243.--For purposes of section 243 
        (relating to deductions for dividends received by 
        corporations), a dividend received from a real estate 
        investment trust which meets the requirements of this 
        part shall not be considered a dividend.
          (2) Section ( 1)(h)(11)
                  (A) In general.--In any case in which--
                          (i) a dividend is received from a 
                        real estate investment trust (other 
                        than a capital gain dividend), and
                          (ii) such trust meets the 
                        requirements of section 856(a) for the 
                        taxable year during which it paid such 
                        dividend,
                then, in computing qualified dividend income, 
                there shall be taken into account only that 
                portion of such dividend designated by the real 
                estate investment trust.
                  (B) Limitation.--The aggregate amount which 
                may be designated as qualified dividend income 
                under subparagraph (A) shall not exceed the sum 
                of--
                          (i) the qualified dividend income of 
                        the trust for the taxable year,
                          (ii) the excess of--
                                  (I) the sum of the real 
                                estate investment trust taxable 
                                income computed under section 
                                857(b)(2) for the preceding 
                                taxable year and the income 
                                subject to tax by reason of the 
                                application of the regulations 
                                under section 337(d) for such 
                                preceding taxable year, over
                                  (II) the sum of the taxes 
                                imposed on the trust for such 
                                preceding taxable year under 
                                section 857(b)(1) and by reason 
                                of the application of such 
                                regulations, and
                          (iii) the amount of any earnings and 
                        profits which were distributed by the 
                        trust for such taxable year and 
                        accumulated in a taxable year with 
                        respect to which this part did not 
                        apply.
                  (C) Notice to shareholders.--The amount of 
                any distribution by a real estate investment 
                trust which may be taken into account as 
                qualified dividend income shall not exceed the 
                amount so designated by the trust in a written 
                notice to its shareholders mailed not later 
                than 60 days after the close of its taxable 
                year.
                  (D) Qualified dividend income.--For purposes 
                of this paragraph, the term ``qualified 
                dividend income'' has the meaning given such 
                term by section 1(h)(11)(B).
  (d) Earnings and profits.--
          (1) In general.--The earnings and profits of a real 
        estate investment trust for any taxable year (but not 
        its accumulated earnings) shall not be reduced by any 
        amount which--
                  (A) is not allowable in computing its taxable 
                income for such taxable year, and
                  (B) was not allowable in computing its 
                taxable income for any prior taxable year.
          (2) Coordination with tax on undistributed income.--A 
        real estate investment trust shall be treated as having 
        sufficient earnings and profits to treat as a dividend 
        any distribution (other than in a redemption to which 
        section 302(a) applies) which is treated as a dividend 
        by such trust. The preceding sentence shall not apply 
        to the extent that the amount distributed during any 
        calendar year by the trust exceeds the required 
        distribution for such calendar year (as determined 
        under section 4981).
          (3) Distributions to meet requirements of subsection 
        (a)(2)(B).--Any distribution which is made in order to 
        comply with the requirements of subsection (a)(2)(B)--
                  (A) shall be treated for purposes of this 
                subsection and subsection (a)(2)(B) as made 
                from earnings and profits which, but for the 
                distribution, would result in a failure to meet 
                such requirements (and allocated to such 
                earnings on a first-in, first-out basis), and
                  (B) to the extent treated under subparagraph 
                (A) as made from accumulated earnings and 
                profits, shall not be treated as a distribution 
                for purposes of subsection (b)(2)(B) and 
                section 858.
          (4) Real estate investment trust.--For purposes of 
        this subsection, the term ``real estate investment 
        trust'' includes a domestic corporation, trust, or 
        association which is a real estate investment trust 
        determined without regard to the requirements of 
        subsection (a).
          (5) Special rules for determining earnings and 
        profits for purposes of the deduction for dividends 
        paid.--For special rules for determining the earnings 
        and profits of a real estate investment trust for 
        purposes of the deduction for dividends paid, see 
        section 562(e)(1).
  (e) Excess noncash income.--
          (1) In general.--For purposes of subsection 
        (a)(1)(B), the term ``excess noncash income'' means the 
        excess (if any) of--
                  (A) the amount determined under paragraph (2) 
                for the taxable year, over
                  (B) 5 percent of the real estate investment 
                trust taxable income for the taxable year 
                determined without regard to the deduction for 
                dividends paid (as defined in section 561) and 
                by excluding any net capital gain.
          (2) Determination of amount.--The amount determined 
        under this paragraph for the taxable year is the sum 
        of--
                  (A) the amount (if any) by which--
                          (i) the amounts includible in gross 
                        income under section 467 (relating to 
                        certain payments for the use of 
                        property or services), exceed
                          (ii) the amounts which would have 
                        been includible in gross income without 
                        regard to such section,
                  (B) any income on the disposition of a real 
                estate asset if--
                          (i) there is a determination (as 
                        defined in section 860(e)) that such 
                        income is not eligible for 
                        nonrecognition under section 1031, and
                          (ii) failure to meet the requirements 
                        of section 1031 was due to reasonable 
                        cause and not to willful neglect,
                  (C) the amount (if any) by which--
                          (i) the amounts includible in gross 
                        income with respect to instruments to 
                        which section 860E(a) or 1272 applies, 
                        exceed
                          (ii) the amount of money and the fair 
                        market value of other property received 
                        during the taxable year under such 
                        instruments, and
                  (D) amounts includible in income by reason of 
                cancellation of indebtedness.
  (f) Real estate investment trusts to ascertain ownership.--
          (1) In general.--Each real estate investment trust 
        shall each taxable year comply with regulations 
        prescribed by the Secretary for the purposes of 
        ascertaining the actual ownership of the outstanding 
        shares, or certificates of beneficial interest, of such 
        trust.
          (2) Failure to comply.--
                  (A) In general.--If a real estate investment 
                trust fails to comply with the requirements of 
                paragraph (1) for a taxable year, such trust 
                shall pay (on notice and demand by the 
                Secretary and in the same manner as tax) a 
                penalty of $25,000.
                  (B) Intentional disregard.--If any failure 
                under paragraph (1) is due to intentional 
                disregard of the requirement under paragraph 
                (1), the penalty under subparagraph (A) shall 
                be $50,000.
                  (C) Failure to comply after notice.--The 
                Secretary may require a real estate investment 
                trust to take such actions as the Secretary 
                determines appropriate to ascertain actual 
                ownership if the trust fails to meet the 
                requirements of paragraph (1). If the trust 
                fails to take such actions, the trust shall pay 
                (on notice and demand by the Secretary and in 
                the same manner as tax) an additional penalty 
                equal to the penalty determined under 
                subparagraph (A) or (B), whichever is 
                applicable.
                  (D) Reasonable cause.--No penalty shall be 
                imposed under this paragraph with respect to 
                any failure if it is shown that such failure is 
                due to reasonable cause and not to willful 
                neglect.
  (g) Limitations on designation of dividends.--
          (1) Overall limitation.--The aggregate amount of 
        dividends designated by a real estate investment trust 
        under subsections (b)(3)(C) and (c)(2)(A) with respect 
        to any taxable year may not exceed the dividends paid 
        by such trust with respect to such year. For purposes 
        of the preceding sentence, dividends paid after the 
        close of the taxable year described in section 858 
        shall be treated as paid with respect to such year.
          (2) Proportionality.--The Secretary may prescribe 
        regulations or other guidance requiring the 
        proportionality of the designation of particular types 
        of dividends among shares or beneficial interests of a 
        real estate investment trust.
  (h) Cross reference.--For provisions relating to excise tax 
based on certain real estate investment trust taxable income 
not distributed during the taxable year, see section 4981.

           *       *       *       *       *       *       *


Subchapter P--Capital Gains and Losses

           *       *       *       *       *       *       *


PART I--TREATMENT OF CAPITAL GAINS

           *       *       *       *       *       *       *


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

  (a) Exclusion.--
          (1) In general.--In the case of a taxpayer other than 
        a corporation, gross income shall not include 50 
        percent of any gain from the sale or exchange of 
        qualified small business stock held for more than 5 
        years.
          (2) Empowerment zone businesses.--
                  (A) In general.--In the case of qualified 
                small business stock acquired after the date of 
                the enactment of this paragraph in a 
                corporation which is a qualified business 
                entity (as defined in section 1397C(b)) during 
                substantially all of the taxpayer's holding 
                period for such stock, paragraph (1) shall be 
                applied by substituting ``60 percent'' for ``50 
                percent''.
                  (B) Certain rules to apply.--Rules similar to 
                the rules of paragraphs (5) and (7) of section 
                1400B(b) (as in effect before its repeal) shall 
                apply for purposes of this paragraph.
                  (C) Gain after 2018 not qualified.--
                Subparagraph (A) shall not apply to gain 
                attributable to periods after December 31, 
                2018.
                  (D) Treatment of DC zone.--The District of 
                Columbia Enterprise Zone shall not be treated 
                as an empowerment zone for purposes of this 
                paragraph.
          (3) Special rules for 2009 and certain periods in 
        2010.--In the case of qualified small business stock 
        acquired after the date of the enactment of this 
        paragraph and on or before the date of the enactment of 
        the Creating Small Business Jobs Act of 2010--
                  (A) paragraph (1) shall be applied by 
                substituting ``75 percent'' for ``50 percent'', 
                and
                  (B) paragraph (2) shall not apply.
        In the case of any stock which would be described in 
        the preceding sentence (but for this sentence), the 
        acquisition date for purposes of this subsection shall 
        be the first day on which such stock was held by the 
        taxpayer determined after the application of section 
        1223.
          (4) 100 percent exclusion for stock acquired during 
        certain periods in 2010 and thereafter.--In the case of 
        qualified small business stock acquired after the date 
        of the enactment of the Creating Small Business Jobs 
        Act of 2010--
                  (A) paragraph (1) shall be applied by 
                substituting ``100 percent'' for ``50 
                percent'',
                  (B) paragraph (2) shall not apply, and
                  (C) paragraph (7) of section 57(a) shall not 
                apply.
        In the case of any stock which would be described in 
        the preceding sentence (but for this sentence), the 
        acquisition date for purposes of this subsection shall 
        be the first day on which such stock was held by the 
        taxpayer determined after the application of section 
        1223.
  (b) Per-issuer limitation on taxpayer's eligible gain.--
          (1) In general.--If the taxpayer has eligible gain 
        for the taxable year from 1 or more dispositions of 
        stock issued by any corporation, the aggregate amount 
        of such gain from dispositions of stock issued by such 
        corporation which may be taken into account under 
        subsection (a) for the taxable year shall not exceed 
        the greater of--
                  (A) $10,000,000 reduced by the aggregate 
                amount of eligible gain taken into account by 
                the taxpayer under subsection (a) for prior 
                taxable years and attributable to dispositions 
                of stock issued by such corporation, or
                  (B) 10 times the aggregate adjusted bases of 
                qualified small business stock issued by such 
                corporation and disposed of by the taxpayer 
                during the taxable year.
        For purposes of subparagraph (B), the adjusted basis of 
        any stock shall be determined without regard to any 
        addition to basis after the date on which such stock 
        was originally issued.
          (2) Eligible gain.--For purposes of this subsection, 
        the term ``eligible gain'' means any gain from the sale 
        or exchange of qualified small business stock held for 
        more than 5 years.
          (3) Treatment of married individuals.--
                  (A) Separate returns.--In the case of a 
                separate return by a married individual, 
                paragraph (1)(A) shall be applied by 
                substituting ``$5,000,000'' for 
                ``$10,000,000''.
                  (B) Allocation of exclusion.--In the case of 
                any joint return, the amount of gain taken into 
                account under subsection (a) shall be allocated 
                equally between the spouses for purposes of 
                applying this subsection to subsequent taxable 
                years.
                  (C) Marital status.--For purposes of this 
                subsection, marital status shall be determined 
                under section 7703.
  (c) Qualified small business stock.--For purposes of this 
section--
          (1) In general.--Except as otherwise provided in this 
        section, the term ``qualified small business stock'' 
        means any stock in a C corporation which is originally 
        issued after the date of the enactment of the Revenue 
        Reconciliation Act of 1993, if--
                  (A) as of the date of issuance, such 
                corporation is a qualified small business, and
                  (B) except as provided in subsections (f) and 
                (h), such stock is acquired by the taxpayer at 
                its original issue (directly or through an 
                underwriter)--
                          (i) in exchange for money or other 
                        property (not including stock), or
                          (ii) as compensation for services 
                        provided to such corporation (other 
                        than services performed as an 
                        underwriter of such stock).
          (2) Active business requirement; etc.
                  (A) In general.--Stock in a corporation shall 
                not be treated as qualified small business 
                stock unless, during substantially all of the 
                taxpayer's holding period for such stock, such 
                corporation meets the active business 
                requirements of subsection (e) and such 
                corporation is a C corporation.
                  (B) Special rule for certain small business 
                investment companies.--
                          (i) Waiver of active business 
                        requirement.--Notwithstanding any 
                        provision of subsection (e), a 
                        corporation shall be treated as meeting 
                        the active business requirements of 
                        such subsection for any period during 
                        which such corporation qualifies as a 
                        specialized small business investment 
                        company.
                          (ii) Specialized small business 
                        investment company.--For purposes of 
                        clause (i), the term ``specialized 
                        small business investment company'' 
                        means any eligible corporation (as 
                        defined in subsection (e)(4)) which is 
                        licensed to operate under section 
                        301(d) of the Small Business Investment 
                        Act of 1958 (as in effect on May 13, 
                        1993).
          (3) Certain purchases by corporation of its own 
        stock.--
                  (A) Redemptions from taxpayer or related 
                person.--Stock acquired by the taxpayer shall 
                not be treated as qualified small business 
                stock if, at any time during the 4-year period 
                beginning on the date 2 years before the 
                issuance of such stock, the corporation issuing 
                such stock purchased (directly or indirectly) 
                any of its stock from the taxpayer or from a 
                person related (within the meaning of section 
                267(b) or 707(b)) to the taxpayer.
                  (B) Significant redemptions.--Stock issued by 
                a corporation shall not be treated as qualified 
                business stock if, during the 2-year period 
                beginning on the date 1 year before the 
                issuance of such stock, such corporation made 1 
                or more purchases of its stock with an 
                aggregate value (as of the time of the 
                respective purchases) exceeding 5 percent of 
                the aggregate value of all of its stock as of 
                the beginning of such 2-year period.
                  (C) Treatment of certain transactions.--If 
                any transaction is treated under section 304(a) 
                as a distribution in redemption of the stock of 
                any corporation, for purposes of subparagraphs 
                (A) and (B), such corporation shall be treated 
                as purchasing an amount of its stock equal to 
                the amount treated as such a distribution under 
                section 304(a).
  (d) Qualified small business.--For purposes of this section--
          (1) In general.--The term ``qualified small 
        business'' means any domestic corporation which is a C 
        corporation if--
                  (A) the aggregate gross assets of such 
                corporation (or any predecessor thereof) at all 
                times on or after the date of the enactment of 
                the Revenue Reconciliation Act of 1993 and 
                before the issuance did not exceed $50,000,000,
                  (B) the aggregate gross assets of such 
                corporation immediately after the issuance 
                (determined by taking into account amounts 
                received in the issuance) do not exceed 
                $50,000,000, and
                  (C) such corporation agrees to submit such 
                reports to the Secretary and to shareholders as 
                the Secretary may require to carry out the 
                purposes of this section.
          (2) Aggregate gross assets.--
                  (A) In general.--For purposes of paragraph 
                (1), the term ``aggregate gross assets'' means 
                the amount of cash and the aggregate adjusted 
                bases of other property held by the 
                corporation.
                  (B) Treatment of contributed property.--For 
                purposes of subparagraph (A), the adjusted 
                basis of any property contributed to the 
                corporation (or other property with a basis 
                determined in whole or in part by reference to 
                the adjusted basis of property so contributed) 
                shall be determined as if the basis of the 
                property contributed to the corporation 
                (immediately after such contribution) were 
                equal to its fair market value as of the time 
                of such contribution.
          (3) Aggregation rules.--
                  (A) In general.--All corporations which are 
                members of the same parent-subsidiary 
                controlled group shall be treated as 1 
                corporation for purposes of this subsection.
                  (B) Parent-subsidiary controlled group.--For 
                purposes of subparagraph (A), the term 
                ``parent-subsidiary controlled group'' means 
                any controlled group of corporations as defined 
                in section 1563(a)(1), except that--
                          (i) ``more than 50 percent'' shall be 
                        substituted for ``at least 80 percent'' 
                        each place it appears in section 
                        1563(a)(1), and
                          (ii) section 1563(a)(4) shall not 
                        apply.
  (e) Active business requirement.--
          (1) In general.--For purposes of subsection (c)(2), 
        the requirements of this subsection are met by a 
        corporation for any period if during such period--
                  (A) at least 80 percent (by value) of the 
                assets of such corporation are used by such 
                corporation in the active conduct of 1 or more 
                qualified trades or businesses, and
                  (B) such corporation is an eligible 
                corporation.
          (2) Special rule for certain activities.--For 
        purposes of paragraph (1), if, in connection with any 
        future qualified trade or business, a corporation is 
        engaged in--
                  (A) start-up activities described in [section 
                195(c)(1)(A)] section 195(d)(1)(A),
                  (B) activities resulting in the payment or 
                incurring of expenditures which may be treated 
                as research and experimental expenditures under 
                section 174, or
                  (C) activities with respect to in-house 
                research expenses described in section 
                41(b)(4),
        assets used in such activities shall be treated as used 
        in the active conduct of a qualified trade or business. 
        Any determination under this paragraph shall be made 
        without regard to whether a corporation has any gross 
        income from such activities at the time of the 
        determination.
          (3) Qualified trade or business.--For purposes of 
        this subsection, the term ``qualified trade or 
        business'' means any trade or business other than--
                  (A) any trade or business involving the 
                performance of services in the fields of 
                health, law, engineering, architecture, 
                accounting, actuarial science, performing arts, 
                consulting, athletics, financial services, 
                brokerage services, or any trade or business 
                where the principal asset of such trade or 
                business is the reputation or skill of 1 or 
                more of its employees,
                  (B) any banking, insurance, financing, 
                leasing, investing, or similar business,
                  (C) any farming business (including the 
                business of raising or harvesting trees),
                  (D) any business involving the production or 
                extraction of products of a character with 
                respect to which a deduction is allowable under 
                section 613 or 613A, and
                  (E) any business of operating a hotel, motel, 
                restaurant, or similar business.
          (4) Eligible corporation.--For purposes of this 
        subsection, the term ``eligible corporation'' means any 
        domestic corporation; except that such term shall not 
        include--
                  (A) a DISC or former DISC,
                  (B) a regulated investment company, real 
                estate investment trust, or REMIC, and
                  (C) a cooperative.
          (5) Stock in other corporations.--
                  (A) Look-thru in case of subsidiaries.--For 
                purposes of this subsection, stock and debt in 
                any subsidiary corporation shall be disregarded 
                and the parent corporation shall be deemed to 
                own its ratable share of the subsidiary's 
                assets, and to conduct its ratable share of the 
                subsidiary's activities.
                  (B) Portfolio stock or securities.--A 
                corporation shall be treated as failing to meet 
                the requirements of paragraph (1) for any 
                period during which more than 10 percent of the 
                value of its assets (in excess of liabilities) 
                consists of stock or securities in other 
                corporations which are not subsidiaries of such 
                corporation (other than assets described in 
                paragraph (6)).
                  (C) Subsidiary.--For purposes of this 
                paragraph, a corporation shall be considered a 
                subsidiary if the parent owns more than 50 
                percent of the combined voting power of all 
                classes of stock entitled to vote, or more than 
                50 percent in value of all outstanding stock, 
                of such corporation.
          (6) Working capital.--For purposes of paragraph 
        (1)(A), any assets which--
                  (A) are held as a part of the reasonably 
                required working capital needs of a qualified 
                trade or business of the corporation, or
                  (B) are held for investment and are 
                reasonably expected to be used within 2 years 
                to finance research and experimentation in a 
                qualified trade or business or increases in 
                working capital needs of a qualified trade or 
                business,
        shall be treated as used in the active conduct of a 
        qualified trade or business. For periods after the 
        corporation has been in existence for at least 2 years, 
        in no event may more than 50 percent of the assets of 
        the corporation qualify as used in the active conduct 
        of a qualified trade or business by reason of this 
        paragraph.
          (7) Maximum real estate holdings.--A corporation 
        shall not be treated as meeting the requirements of 
        paragraph (1) for any period during which more than 10 
        percent of the total value of its assets consists of 
        real property which is not used in the active conduct 
        of a qualified trade or business. For purposes of the 
        preceding sentence, the ownership of, dealing in, or 
        renting of real property shall not be treated as the 
        active conduct of a qualified trade or business.
          (8) Computer software royalties.--For purposes of 
        paragraph (1), rights to computer software which 
        produces active business computer software royalties 
        (within the meaning of section 543(d)(1)) shall be 
        treated as an asset used in the active conduct of a 
        trade or business.
  (f) Stock acquired on conversion of other stock.--If any 
stock in a corporation is acquired solely through the 
conversion of other stock in such corporation which is 
qualified small business stock in the hands of the taxpayer--
          (1) the stock so acquired shall be treated as 
        qualified small business stock in the hands of the 
        taxpayer, and
          (2) the stock so acquired shall be treated as having 
        been held during the period during which the converted 
        stock was held.
  (g) Treatment of pass-thru entities.--
          (1) In general.--If any amount included in gross 
        income by reason of holding an interest in a pass-thru 
        entity meets the requirements of paragraph (2)--
                  (A) such amount shall be treated as gain 
                described in subsection (a), and
                  (B) for purposes of applying subsection (b), 
                such amount shall be treated as gain from a 
                disposition of stock in the corporation issuing 
                the stock disposed of by the pass-thru entity 
                and the taxpayer's proportionate share of the 
                adjusted basis of the pass-thru entity in such 
                stock shall be taken into account.
          (2) Requirements.--An amount meets the requirements 
        of this paragraph if--
                  (A) such amount is attributable to gain on 
                the sale or exchange by the pass-thru entity of 
                stock which is qualified small business stock 
                in the hands of such entity (determined by 
                treating such entity as an individual) and 
                which was held by such entity for more than 5 
                years, and
                  (B) such amount is includible in the gross 
                income of the taxpayer by reason of the holding 
                of an interest in such entity which was held by 
                the taxpayer on the date on which such pass-
                thru entity acquired such stock and at all 
                times thereafter before the disposition of such 
                stock by such pass-thru entity.
          (3) Limitation based on interest originally held by 
        taxpayer.--Paragraph (1) shall not apply to any amount 
        to the extent such amount exceeds the amount to which 
        paragraph (1) would have applied if such amount were 
        determined by reference to the interest the taxpayer 
        held in the pass-thru entity on the date the qualified 
        small business stock was acquired.
          (4) Pass-thru entity.--For purposes of this 
        subsection, the term ``pass-thru entity'' means--
                  (A) any partnership,
                  (B) any S corporation,
                  (C) any regulated investment company, and
                  (D) any common trust fund.
  (h) Certain tax-free and other transfers.--For purposes of 
this section--
          (1) In general.--In the case of a transfer described 
        in paragraph (2), the transferee shall be treated as--
                  (A) having acquired such stock in the same 
                manner as the transferor, and
                  (B) having held such stock during any 
                continuous period immediately preceding the 
                transfer during which it was held (or treated 
                as held under this subsection) by the 
                transferor.
          (2) Description of transfers.--A transfer is 
        described in this subsection if such transfer is--
                  (A) by gift,
                  (B) at death, or
                  (C) from a partnership to a partner of stock 
                with respect to which requirements similar to 
                the requirements of subsection (g) are met at 
                the time of the transfer (without regard to the 
                5-year holding period requirement).
          (3) Certain rules made applicable.--Rules similar to 
        the rules of section 1244(d)(2) shall apply for 
        purposes of this section.
          (4) Incorporations and reorganizations involving 
        nonqualified stock.--
                  (A) In general.--In the case of a transaction 
                described in section 351 or a reorganization 
                described in section 368, if qualified small 
                business stock is exchanged for other stock 
                which would not qualify as qualified small 
                business stock but for this subparagraph, such 
                other stock shall be treated as qualified small 
                business stock acquired on the date on which 
                the exchanged stock was acquired.
                  (B) Limitation.--This section shall apply to 
                gain from the sale or exchange of stock treated 
                as qualified small business stock by reason of 
                subparagraph (A) only to the extent of the gain 
                which would have been recognized at the time of 
                the transfer described in subparagraph (A) if 
                section 351 or 368 had not applied at such 
                time. The preceding sentence shall not apply if 
                the stock which is treated as qualified small 
                business stock by reason of subparagraph (A) is 
                issued by a corporation which (as of the time 
                of the transfer described in subparagraph (A)) 
                is a qualified small business.
                  (C) Successive application.--For purposes of 
                this paragraph, stock treated as qualified 
                small business stock under subparagraph (A) 
                shall be so treated for subsequent transactions 
                or reorganizations, except that the limitation 
                of subparagraph (B) shall be applied as of the 
                time of the first transfer to which such 
                limitation applied (determined after the 
                application of the second sentence of 
                subparagraph (B)).
                  (D) Control test.--In the case of a 
                transaction described in section 351, this 
                paragraph shall apply only if, immediately 
                after the transaction, the corporation issuing 
                the stock owns directly or indirectly stock 
                representing control (within the meaning of 
                section 368(c)) of the corporation whose stock 
                was exchanged.
  (i) Basis rules.--For purposes of this section--
          (1) Stock exchanged for property.--In the case where 
        the taxpayer transfers property (other than money or 
        stock) to a corporation in exchange for stock in such 
        corporation--
                  (A) such stock shall be treated as having 
                been acquired by the taxpayer on the date of 
                such exchange, and
                  (B) the basis of such stock in the hands of 
                the taxpayer shall in no event be less than the 
                fair market value of the property exchanged.
          (2) Treatment of contributions to capital.--If the 
        adjusted basis of any qualified small business stock is 
        adjusted by reason of any contribution to capital after 
        the date on which such stock was originally issued, in 
        determining the amount of the adjustment by reason of 
        such contribution, the basis of the contributed 
        property shall in no event be treated as less than its 
        fair market value on the date of the contribution.
  (j) Treatment of certain short positions.--
          (1) In general.--If the taxpayer has an offsetting 
        short position with respect to any qualified small 
        business stock, subsection (a) shall not apply to any 
        gain from the sale or exchange of such stock unless--
                  (A) such stock was held by the taxpayer for 
                more than 5 years as of the first day on which 
                there was such a short position, and
                  (B) the taxpayer elects to recognize gain as 
                if such stock were sold on such first day for 
                its fair market value.
          (2) Offsetting short position.--For purposes of 
        paragraph (1), the taxpayer shall be treated as having 
        an offsetting short position with respect to any 
        qualified small business stock if--
                  (A) the taxpayer has made a short sale of 
                substantially identical property,
                  (B) the taxpayer has acquired an option to 
                sell substantially identical property at a 
                fixed price, or
                  (C) to the extent provided in regulations, 
                the taxpayer has entered into any other 
                transaction which substantially reduces the 
                risk of loss from holding such qualified small 
                business stock.
        For purposes of the preceding sentence, any reference 
        to the taxpayer shall be treated as including a 
        reference to any person who is related (within the 
        meaning of section 267(b) or 707(b)) to the taxpayer.
  (k) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out the purposes of 
this section, including regulations to prevent the avoidance of 
the purposes of this section through split-ups, shell 
corporations, partnerships, or otherwise.

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Subchapter S--Tax Treatment of S Corporations and Their Shareholders

           *       *       *       *       *       *       *


PART I--IN GENERAL

           *       *       *       *       *       *       *


SEC. 1363. EFFECT OF ELECTION ON CORPORATION.

  (a) General rule.--Except as otherwise provided in this 
subchapter, an S corporation shall not be subject to the taxes 
imposed by this chapter.
  (b) Computation of corporation's taxable income.--The taxable 
income of an S corporation shall be computed in the same manner 
as in the case of an individual, except that--
          (1) the items described in section 1366(a)(1)(A) 
        shall be separately stated,
          (2) the deductions referred to in section 703(a)(2) 
        shall not be allowed to the corporation, and
          [(3) section 248 shall apply, and]
          [(4)] (3) section 291 shall apply if the S 
        corporation (or any predecessor) was a C corporation 
        for any of the 3 immediately preceding taxable years.
  (c) Elections of the S corporation.--
          (1) In general.--Except as provided in paragraph (2), 
        any election affecting the computation of items derived 
        from an S corporation shall be made by the corporation.
          (2) Exceptions.--In the case of an S corporation, 
        elections under the following provisions shall be made 
        by each shareholder separately--
                  (A) section 617 (relating to deduction and 
                recapture of certain mining exploration 
                expenditures), and
                  (B) section 901 (relating to taxes of foreign 
                countries and possessions of the United 
                States).
  (d) Recapture of LIFO benefits.--
          (1) In general.--If--
                  (A) an S corporation was a C corporation for 
                the last taxable year before the first taxable 
                year for which the election under section 
                1362(a) was effective, and
                  (B) the corporation inventoried goods under 
                the LIFO method for such last taxable year,
        the LIFO recapture amount shall be included in the 
        gross income of the corporation for such last taxable 
        year (and appropriate adjustments to the basis of 
        inventory shall be made to take into account the amount 
        included in gross income under this paragraph).
          (2) Additional tax payable in installments.--
                  (A) In general.--Any increase in the tax 
                imposed by this chapter by reason of this 
                subsection shall be payable in 4 equal 
                installments.
                  (B) Date for payment of installments.--The 
                first installment under subparagraph (A) shall 
                be paid on or before the due date (determined 
                without regard to extensions) for the return of 
                the tax imposed by this chapter for the last 
                taxable year for which the corporation was a C 
                corporation and the 3 succeeding installments 
                shall be paid on or before the due date (as so 
                determined) for the corporation's return for 
                the 3 succeeding taxable years.
                  (C) No interest for period of extension.--
                Notwithstanding section 6601(b), for purposes 
                of section 6601, the date prescribed for the 
                payment of each installment under this 
                paragraph shall be determined under this 
                paragraph.
          (3) LIFO recapture amount.--For purposes of this 
        subsection, the term ``LIFO recapture amount'' means 
        the amount (if any) by which--
                  (A) the inventory amount of the inventory 
                asset under the first-in, first-out method 
                authorized by section 471, exceeds
                  (B) the inventory amount of such assets under 
                the LIFO method.
        For purposes of the preceding sentence, inventory 
        amounts shall be determined as of the close of the last 
        taxable year referred to in paragraph (1).
          (4) Other definitions.--For purposes of this 
        subsection--
                  (A) LIFO method.--The term ``LIFO method'' 
                means the method authorized by section 472.
                  (B) Inventory assets.--The term ``inventory 
                assets'' means stock in trade of the 
                corporation, or other property of a kind which 
                would properly be included in the inventory of 
                the corporation if on hand at the close of the 
                taxable year.
                  (C) Method of determining inventory amount.--
                The inventory amount of assets under a method 
                authorized by section 471 shall be determined--
                          (i) if the corporation uses the 
                        retail method of valuing inventories 
                        under section 472, by using such 
                        method, or
                          (ii) if clause (i) does not apply, by 
                        using cost or market, whichever is 
                        lower.
                  (D) Not treated as member of affiliated 
                group.--Except as provided in regulations, the 
                corporation referred to in paragraph (1) shall 
                not be treated as a member of an affiliated 
                group with respect to the amount included in 
                gross income under paragraph (1).
          (5) Special rule.--Sections 1367(a)(2)(D) and 
        1371(c)(1) shall not apply with respect to any increase 
        in the tax imposed by reason of this subsection.

           *       *       *       *       *       *       *


PART III--SPECIAL RULES

           *       *       *       *       *       *       *


SEC. 1375. TAX IMPOSED WHEN PASSIVE INVESTMENT INCOME OF CORPORATION 
                    HAVING ACCUMULATED EARNINGS AND PROFITS EXCEEDS 25 
                    PERCENT OF GROSS RECEIPTS.

  (a) General rule.--If for the taxable year an S corporation 
has--
          (1) accumulated earnings and profits at the close of 
        such taxable year, and
          (2) gross receipts more than 25 percent of which are 
        passive investment income,
then there is hereby imposed a tax on the income of such 
corporation for such taxable year. Such tax shall be computed 
by multiplying the excess net passive income by the highest 
rate of tax specified in section 11(b).
  (b) Definitions.--For purposes of this section--
          (1) Excess net passive income.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the term ``excess net passive 
                income'' means an amount which bears the same 
                ratio to the net passive income for the taxable 
                year as--
                          (i) the amount by which the passive 
                        investment income for the taxable year 
                        exceeds 25 percent of the gross 
                        receipts for the taxable year, bears to
                          (ii) the passive investment income 
                        for the taxable year.
                  (B) Limitation.--The amount of the excess net 
                passive income for any taxable year shall not 
                exceed the amount of the corporation's taxable 
                income for such taxable year as determined 
                under section 63(a)--
                          (i) without regard to the deductions 
                        allowed by part VIII of subchapter B 
                        [(other than the deduction allowed by 
                        section 248, relating to organization 
                        expenditures)], and
                          (ii) without regard to the deduction 
                        under section 172.
          (2) Net passive income.--The term ``net passive 
        income'' means--
                  (A) passive investment income, reduced by
                  (B) the deductions allowable under this 
                chapter which are directly connected with the 
                production of such income (other than 
                deductions allowable under section 172 and part 
                VIII of subchapter B).
          (3) Passive investment income, etc..--The terms 
        ``passive investment income'' and ``gross receipts'' 
        have the same respective meanings as when used in 
        paragraph (3) of section 1362(d).
          (4) Coordination with section 1374.--Notwithstanding 
        paragraph (3), the amount of passive investment income 
        shall be determined by not taking into account any 
        recognized built-in gain or loss of the S corporation 
        for any taxable year in the recognition period. Terms 
        used in the preceding sentence shall have the same 
        respective meanings as when used in section 1374.
  (c) Credits not allowable.--No credit shall be allowed under 
part IV of subchapter A of this chapter (other than section 34) 
against the tax imposed by subsection (a).
  (d) Waiver of tax in certain cases.--If the S corporation 
establishes to the satisfaction of the Secretary that--
          (1) it determined in good faith that it had no 
        accumulated earnings and profits at the close of a 
        taxable year, and
          (2) during a reasonable period of time after it was 
        determined that it did have accumulated earnings and 
        profits at the close of such taxable year such earnings 
        and profits were distributed,
the Secretary may waive the tax imposed by subsection (a) for 
such taxable year.

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    Democrats believe in American innovation and 
entrepreneurship. Democrats support small businesses who are 
the backbone of our economy. My Democratic colleagues and I 
would have enthusiastically and actively participated in the 
construction of bipartisan legislation to help small businesses 
deduct more of their startup costs. We are interested in 
helping idea incubators attract capital in an efficient way.
    But that is not the process that the majority adopted. This 
exercise, capped off by what appears to be a dead-on-arrival 
reception in the Senate, told us how serious the majority is 
about making law. The Republicans are driving these bills down 
a road to nowhere. If they were serious about helping small 
business and innovative startups, they surely would not have 
treated these provisions like an afterthought to their 2017 tax 
bill. We can and should work together to ensure that small 
businesses and innovative startups have the tools to not just 
survive but actually thrive in this economy. We can and should 
do so in a fiscally responsible manner that does not further 
add to the deficit. We can and should be better.
                                   Richard E. Neal,
                                           Ranking Member.

                                  [all]