[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2936 Introduced in Senate (IS)]
110th CONGRESS
2d Session
S. 2936
To amend title XXI of the Social Security Act to reauthorize the State
Children's Health Insurance Program, to limit income eligibility
expansions under that program until the lowest income eligible
individuals are enrolled, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
April 29, 2008
Mrs. Dole introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend title XXI of the Social Security Act to reauthorize the State
Children's Health Insurance Program, to limit income eligibility
expansions under that program until the lowest income eligible
individuals are enrolled, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Responsible
Expansion of the State Children's Health Insurance Program Act of
2008''.
(b) References to SCHIP; Secretary.--In this Act:
(1) SCHIP.--The term ``SCHIP'' means the State Children's
Health Insurance Program established under title XXI of the
Social Security Act (42 U.S.C. 1397aa et seq.).
(2) Secretary.--The term ``Secretary'' means the Secretary
of Health and Human Services.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; amendments to Social Security Act; references;
table of contents.
TITLE I--SCHIP REAUTHORIZATION
Sec. 101. Reauthorization through fiscal year 2013.
Sec. 102. Requiring outreach and coverage before expansion of
eligibility.
Sec. 103. Application of DRA Medicaid citizenship documentation
requirements to SCHIP.
Sec. 104. Phase-out of coverage for nonpregnant adults under SCHIP.
Sec. 105. Preventing substitution of SCHIP coverage for private
coverage.
TITLE II--REVENUE PROVISIONS
Sec. 201. Nonqualified deferred compensation from certain tax
indifferent parties.
Sec. 202. Income of partners for performing investment management
services treated as ordinary income
received for performance of services.
TITLE I--SCHIP REAUTHORIZATION
SEC. 101. REAUTHORIZATION THROUGH FISCAL YEAR 2013.
(a) In General.--Section 2104 of the Social Security Act (42 U.S.C.
1397dd(a)), as amended by section 201(a)(1) of the Medicare, Medicaid,
and SCHIP Extension Act of 2007 (Public Law 110-173) is amended--
(1) in subsection (a)--
(A) by striking ``and'' at the end of paragraph
(10);
(B) in paragraph (11)--
(i) by striking ``each of fiscal years 2008
and 2009'' and inserting ``fiscal year 2008'';
and
(ii) by striking the period at the end and
inserting a semicolon; and
(C) by adding at the end the following new
paragraphs:
``(12) for fiscal year 2009, $7,000,000,000;
``(13) for fiscal year 2010, $8,000,000,000; and
``(14) for each of fiscal years 2011 through 2013,
$9,000,000,000.''; and
(2) in subsection (c)(4)(B), by striking ``2009'' and
inserting ``2013''.
(b) Repeal of Limitation on Availability of Funding for Fiscal
Years 2008 and 2009.--Section 201 of the Medicare, Medicaid, and SCHIP
Extension Act of 2007 (Public Law 110-173) is amended--
(1) in subsection (a), by striking paragraph (2) and
redesignating paragraphs (3) and (4), as paragraphs (2) and (3)
respectively; and
(2) in subsection (b), by striking paragraph (2) and
redesignating paragraph (3) as paragraph (2).
SEC. 102. REQUIRING OUTREACH AND COVERAGE BEFORE EXPANSION OF
ELIGIBILITY.
(a) State Plan Required To Specify How It Will Achieve Coverage for
85 Percent of Targeted Low-Income Children.--
(1) In general.--Section 2102(a) of the Social Security Act
(42 U.S.C. 1397bb(a)) is amended--
(A) in paragraph (6), by striking ``and'' at the
end;
(B) in paragraph (7), by striking the period at the
end and inserting ``; and''; and
(C) by adding at the end the following new
paragraph:
``(8) how the eligibility and benefits provided for under
the plan for each fiscal year (beginning with fiscal year 2009)
will allow for the State's annual funding allotment to cover at
least 85 percent of the eligible targeted low-income children
in the State.''.
(2) Effective date.--The amendments made by paragraph (1)
shall apply to State child health plans for fiscal years
beginning with fiscal year 2009.
(b) Limitation on Program Expansions Until Lowest Income Eligible
Individuals Enrolled.--Section 2105(c) of such Act (42 U.S.C.
1397dd(c)) is amended by adding at the end the following new paragraph:
``(8) Limitation on increased coverage of higher income
children.--For child health assistance furnished in any fiscal
year beginning with fiscal year 2009:
``(A) No payment for children with family income
above 300 percent of poverty line.--Payment shall not
be made under this section for child health assistance
for a targeted low-income child in a family the income
of which exceeds 300 percent of the poverty line
applicable to a family of the size involved.
``(B) Special rules for payment for children with
family income above 200 percent of poverty line.--In
the case of child health assistance for a targeted low-
income child in a family the income of which exceeds
200 percent (but does not exceed 300 percent) of the
poverty line applicable to a family of the size
involved no payment shall be made under this section
for such assistance unless the State demonstrates to
the satisfaction of the Secretary that--
``(i) the State has met the 85 percent
retrospective coverage test specified in
subparagraph (C)(i) for the previous fiscal
year; and
``(ii) the State will meet the 85 percent
prospective coverage test specified in
subparagraph (C)(ii) for the fiscal year.
``(C) 85 percent coverage tests.--
``(i) Retrospective test.--The 85 percent
retrospective coverage test specified in this
clause is, for a State for a fiscal year, that
on average during the fiscal year, the State
has enrolled under this title or title XIX at
least 85 percent of the individuals residing in
the State who--
``(I) are children under 19 years
of age (or are pregnant women) and are
eligible for medical assistance under
title XIX; or
``(II) are targeted low-income
children whose family income does not
exceed 200 percent of the poverty line
and who are eligible for child health
assistance under this title.
``(ii) Prospective test.--The 85 percent
prospective test specified in this clause is,
for a State for a fiscal year, that on average
during the fiscal year, the State will enroll
under this title or title XIX at least 85
percent of the individuals residing in the
State who--
``(I) are children under 19 years
of age (or are pregnant women) and are
eligible for medical assistance under
title XIX; or
``(II) are targeted low-income
children whose family income does not
exceed such percent of the poverty line
(in excess of 200 percent) as the State
elects consistent with this paragraph
and who are eligible for child health
assistance under this title.
``(D) Phase-in requirement for expanded coverage if
85 percent tests met for low-income coverage.--With
respect to a fiscal year, if a State meets both of the
coverage tests specified in clauses (i) and (ii) of
subparagraph (C) for such year--
``(i) payment may be made to the State
under this section for child health assistance
for a targeted low-income child in a family the
income of which exceeds 200 percent, but does
not exceed 250 percent poverty line applicable
to a family of the size involved; and
``(ii) payment may be made to the State
under this section child health assistance for
a targeted low-income child in a family the
income of which 250 percent, but does not
exceed 300 percent of the poverty line
applicable to a family of the size involved
only if the State can also meet the
retrospective test applied under clause (i) of
subparagraph (C) for the previous fiscal year
by substituting `250' for `200' in subclause
(II) of such clause.
``(E) Treatment of pregnant women.--In this
paragraph and sections 2102(a)(8) and 2104(a)(2), the
term `targeted low-income child' includes an individual
under age 19, including the period from conception to
birth, who is eligible for child health assistance
under this title by virtue of the definition of the
term `child' under section 457.10 of title 42, Code of
Federal Regulations.''.
(c) Standardization of Income Determinations.--
(1) In general.--Section 2110(d) of such Act (42 U.S.C.
1397jj) is amended by adding at the end the following new
subsection:
``(d) Standardization of Income Determinations.--In determining
family income under this title (including in the case of a State child
health plan that provides health benefits coverage in the manner
described in section 2101(a)(2)), a State shall base such determination
on gross income (including amounts that would be included in gross
income if they were not exempt from income taxation) and may only take
into consideration such income disregards as the Secretary shall
develop and specify on a uniform national basis.''.
(2) Effective date.--(A) Subject to subparagraph (B), the
amendment made by paragraph (1) shall apply to determinations
(and redeterminations) of income made on or after October 1,
2008.
(B) In the case of a State child health plan under title
XXI of the Social Security Act which the Secretary of Health
and Human Services determines requires State legislation (other
than legislation appropriating funds) in order for the plan to
meet the additional requirement imposed by the amendment made
by paragraph (1), the State child health plan shall not be
regarded as failing to comply with the requirements of such
title solely on the basis of its failure to meet this
additional requirement before the first day of the first
calendar quarter beginning after the close of the first regular
session of the State legislature that begins after the date of
the enactment of this Act. For purposes of the previous
sentence, in the case of a State that has a 2-year legislative
session, each year of such session shall be deemed to be a
separate regular session of the State legislature.
SEC. 103. APPLICATION OF DRA MEDICAID CITIZENSHIP DOCUMENTATION
REQUIREMENTS TO SCHIP.
(a) In General.--Section 2105(c) of the Social Security Act (42
U.S.C. 1397dd(c)), as amended by section 102(b), is amended by adding
at the end the following new paragraph:
``(9) Application of citizenship documentation
requirements.--
``(A) In general.--Subject to subparagraph (B), no
payment may be made under this section to a State with
respect to amounts expended for child health assistance
for an individual who declares under section
1137(d)(1)(A) to be a citizen or national of the United
States for purposes of establishing eligibility for
benefits under this title, unless the requirement of
section 1903(x) is met.
``(B) Treatment of pregnant women.--For purposes of
applying subparagraph (A) in the case of a pregnant
woman who qualifies for child health assistance by
virtue of the application of section 457.10 of title
42, Code of Federal Regulations, the requirement of
section 1903(x) shall be deemed to be satisfied by the
presentation of documentation of personal identity
described in section 274A(b)(1)(D) of the Immigration
and Nationality Act or any other documentation of
personal identity of such other type as the Secretary
finds, by regulation, provides a reliable means of
identification.''.
(b) Effective Date.--The amendment made by paragraph (1) shall
apply to eligibility determinations and redeterminations made after the
date of enactment of this Act.
SEC. 104. PHASE-OUT OF COVERAGE FOR NONPREGNANT ADULTS UNDER SCHIP.
(a) In General.--Title XXI of the Social Security Act (42 U.S.C.
1397aa et seq.) is amended by adding at the end the following new
section:
``SEC. 2111. PHASE-OUT OF COVERAGE FOR NONPREGNANT ADULTS.
``(a) Termination of Coverage for Nonpregnant Adults.--
``(1) No new schip waivers; automatic extensions at state
option through december 2008.--Notwithstanding section 1115 or
any other provision of this title, except as provided in this
subsection--
``(A) the Secretary shall not on or after the date
of the enactment of the Responsible Expansion of the
State Children's Health Insurance Program Act of 2008,
approve or renew a waiver, experimental, pilot, or
demonstration project that would allow funds made
available under this title to be used to provide child
health assistance or other health benefits coverage to
a nonpregnant adult; and
``(B) notwithstanding the terms and conditions of
an applicable existing waiver, the provisions of
paragraph (2) shall apply for purposes of any period
beginning on or after January 1, 2009, in determining
the period to which the waiver applies, the individuals
eligible to be covered by the waiver, and the amount of
the Federal payment under this title.
``(2) Termination of schip coverage under applicable
existing waivers at the end of 2008.--
``(A) In general.--No funds shall be available
under this title for child health assistance or other
health benefits coverage that is provided to a
nonpregnant adult under an applicable existing waiver
after December 31, 2008.
``(B) Extension upon state request.--If an
applicable existing waiver described in subparagraph
(A) would otherwise expire before January 1, 2009, and
the State requests an extension of such waiver, the
Secretary shall grant such an extension, but only
through December 31, 2008.
``(C) Application of enhanced fmap.--The enhanced
FMAP determined under section 2105(b) shall apply to
expenditures under an applicable existing waiver for
the provision of child health assistance or other
health benefits coverage to a nonpregnant childless
adult during the period beginning on the date of the
enactment of this subsection and ending on December 31,
2008.
``(b) Applicable Existing Waiver.--For purposes of this section--
``(1) In general.--The term `applicable existing waiver'
means a waiver, experimental, pilot, or demonstration project
under section 1115, grandfathered under section 6102(c)(3) of
the Deficit Reduction Act of 2005, or otherwise conducted under
authority that--
``(A) would allow funds made available under this
title to be used to provide child health assistance or
other health benefits coverage to--
``(i) a parent of a targeted low-income
child;
``(ii) a nonpregnant childless adult; or
``(iii) individuals described in both
clauses (i) and (ii); and
``(B) was in effect on October 1, 2007.
``(2) Definitions.--The term `nonpregnant adult' means any
individual who is not a targeted low-income pregnant woman (as
defined in section 2112(d)(2)) or a targeted low-income
child.''.
(b) Conforming Amendments.--
(1) Section 2107(f) of such Act (42 U.S.C. 1397gg(f)) is
amended--
(A) by striking ``, the Secretary'' and inserting
``:
``(1) The Secretary'';
(B) in the first sentence, by striking
``childless'';
(C) by striking the second sentence; and
(D) by adding at the end the following new
paragraph:
``(2) The Secretary may not approve, extend, renew, or
amend a waiver, experimental, pilot, or demonstration project
with respect to a State after the date of enactment of the
Responsible Expansion of the State Children's Health Insurance
Program Act of 2008 that would waive or modify the requirements
of section 2111.''.
(2) Section 6102(c) of the Deficit Reduction Act of 2005
(Public Law 109-171; 120 Stat. 131) is amended by striking
``Nothing'' and inserting ``Subject to section 2111 of the
Social Security Act, as added by section 104 of the Responsible
Expansion of the State Children's Health Insurance Program Act
of 2008, nothing''.
SEC. 105. PREVENTING SUBSTITUTION OF SCHIP COVERAGE FOR PRIVATE
COVERAGE.
(a) Findings.--
(1) Congress agrees with the President that low-income
children should be the first priority of all States in
providing child health assistance under SCHIP.
(2) Congress agrees with the President and the
Congressional Budget Office that the substitution of SCHIP
coverage for private coverage occurs more frequently for
children in families at higher income levels.
(3) Congress agrees with the President that it is
appropriate that States that expand SCHIP eligibility to
children at higher income levels should have achieved a high
level of health benefits coverage for low-income children and
should implement strategies to address such substitution.
(4) Congress concludes that the policies specified in this
section (and the amendments made by this section) are the
appropriate policies to address these issues.
(b) Analyses of Best Practices and Methodology in Addressing Crowd-
Out.--
(1) GAO report.--Not later than 18 months after the date of
the enactment of this Act, the Comptroller General of the
United States shall submit to the Committee on Finance of the
Senate and the Committee on Energy and Commerce of the House of
Representatives and the Secretary a report describing the best
practices by States in addressing the issue of SCHIP crowd-out.
Such report shall include--
(A) analyses of--
(i) the impact of different geographic
areas, including urban and rural areas, on
SCHIP crowd-out;
(ii) the impact of different State labor
markets on SCHIP crowd-out;
(iii) the impact of different strategies
for addressing SCHIP crowd-out;
(iv) the incidence of crowd-out for
children with different levels of family
income; and
(v) the relationship (if any) between
changes in the availability and affordability
of dependent coverage under employer-sponsored
health insurance and SCHIP crowd-out; and
(B) recommendations for such legislative changes as
the Comptroller General determines are likely to most
effective for addressing the issue of SCHIP crowd-out,
together with proposed legislative language.
(2) IOM report on methodology.--The Secretary shall enter
into an arrangement with the Institute of Medicine under which
the Institute submits to the Committee on Finance of the Senate
and the Committee on Energy and Commerce of the House of
Representatives and the Secretary, not later than 18 months
after the date of the enactment of this Act, a report on--
(A) the most accurate, reliable, and timely way to
measure--
(i) on a State-by-State basis, the rate of
public and private health benefits coverage
among low-income children with family income
that does not exceed 200 percent of the poverty
line; and
(ii) SCHIP crowd-out, including in the case
of children with family income that exceeds 200
percent of the poverty line; and
(B) the least burdensome way to gather the
necessary data to conduct the measurements described in
subparagraph (A).
Out of any money in the Treasury not otherwise appropriated,
there are hereby appropriated $2,000,000 to carry out this
paragraph for the period ending September 30, 2009.
(3) Incorporation of definitions.--In this section, the
terms ``SCHIP crowd-out'', ``children'', ``poverty line'', and
``State'' have the meanings given such terms for purposes of
SCHIP.
(4) Definition of schip crowd-out.--Section 2110(c) of the
Social Security Act (42 U.S.C. 1397jj(c)) is amended by adding
at the end the following:
``(9) SCHIP crowd-out.--The term `SCHIP crowd-out' means
the substitution of--
``(A) health benefits coverage for a child under
this title, for
``(B) health benefits coverage for the child other
than under this title or title XIX.''.
(c) Development of Best Practice Recommendations.--Section 2107 of
such Act (42 U.S.C. 1397gg) is amended by adding at the end the
following:
``(g) Development of Best Practice Recommendations.--Within 6
months after the date of receipt of the reports under subsections (a)
and (b) of section 105 of the Responsible Expansion of the State
Children's Health Insurance Program Act of 2008, the Secretary, in
consultation with States, including Medicaid and SCHIP directors in
States, shall publish in the Federal Register, and post on the public
website for the Department of Health and Human Services--
``(1) recommendations regarding best practices for States
to use to address SCHIP crowd-out; and
``(2) uniform standards for data collection by States to
measure and report--
``(A) health benefits coverage for children with
family income below 200 percent of the poverty line;
and
``(B) on SCHIP crowd-out, including for children
with family income that exceeds 200 percent of the
poverty line.
The Secretary, in consultation with States, including Medicaid and
SCHIP directors in States, may from time to time update the best
practice recommendations and uniform standards set published under
paragraphs (1) and (2) and shall provide for publication and posting of
such updated recommendations and standards.''.
(d) Requirement To Address SCHIP Crowd-Out; Secretarial Review.--
Section 2106 of such Act (42 U.S.C. 1397ff) is amended by adding at the
end the following:
``(f) Requirement To Address SCHIP Crowd-Out; Secretarial Review.--
``(1) In general.--Not later than 6 months after the best
practice application date described in paragraph (2), each
State that has a State child health plan shall submit to the
Secretary a State plan amendment describing how the State--
``(A) will address SCHIP crowd-out; and
``(B) will incorporate recommended best practices
referred to in such paragraph.
``(2) Best practice application date.--The best practice
application date described in this paragraph is the date that
is 6 months after the date of publication of recommendations
regarding best practices under section 2107(g)(1).
``(3) Secretarial review.--The Secretary shall--
``(A) review each State plan amendment submitted
under paragraph (1);
``(B) determine whether the amendment incorporates
recommended best practices referred to in paragraph
(2);
``(C) in the case of a higher income eligibility
State (as defined in section 2105(c)(10)(B)), determine
whether the State meets the enrollment targets required
under reference section 2105(c)(10)(C); and
``(D) notify the State of such determinations.''.
(e) Limitation on Payments for States Covering Higher Income
Children.--
(1) In general.--Section 2105(c) of such Act (42 U.S.C.
1397ee(c)), as amended by sections 102(b) and 103(a), is
amended by adding at the end the following new paragraph:
``(10) Limitation on payments for states covering higher
income children.--
``(A) Determinations.--
``(i) In general.--The Secretary shall
determine within 6 months of the date of the
submission of a State plan amendment to provide
child health assistance to higher income
children (or, in the case of any State that is
a higher income eligibility State on the date
of enactment of this paragraph, within 6 months
of such date of enactment), whether the State
meets the target rate of coverage of low-income
children required under subparagraphs (C) and
(D) of paragraph (8) and shall notify the State
of such determination.
``(ii) Determination of failure.--If the
Secretary determines that a State does not meet
such target rate of coverage, no payment shall
be made under this section for child health
assistance provided for higher-income children
(as defined in subparagraph (C)) under the
State child health plan (beginning, in the case
of any State that is determined to be a higher
income eligibility State within of the date of
enactment of this paragraph, on January 1,
2009) unless and until the State establishes it
is in compliance with such requirement.
``(B) Higher income eligibility state.--A higher
income eligibility State described in this clause is a
State that--
``(i) applies under its State child health
plan an eligibility income standard for
targeted low-income children that exceeds 200
percent of the poverty line; or
``(ii) because of the application of a
general exclusion of a block of income that is
not determined by type of expense or type of
income, applies an effective income standard
under the State child health plan for such
children that exceeds 200 percent of the
poverty line.
``(C) Higher-income child.--For purposes of this
paragraph, the term `higher income child' means, with
respect to a State child health plan, a targeted low-
income child whose family income--
``(i) exceeds 200 percent of the poverty
line; or
``(ii) would exceed 200 percent of the
poverty line if there were not taken into
account any general exclusion described in
subparagraph (B)(ii).
``(D) Notice and opportunity to comply with target
rate.--If the Secretary makes a determination that a
State does not meet the target rate of coverage of low-
income children required under subparagraphs (C) and
(D) of paragraph (8), the Secretary--
``(i) shall provide the State with the
opportunity to submit and implement a
corrective action plan for the State to come
into compliance with the requirement of
subparagraphs (C) and (D) of paragraph (8)
before October 1 of any year; and
``(ii) shall not effect a denial of payment
under subparagraph (A) on the basis of a
determination that a State has not come into
compliance with such requirement before
December 31 of such year.''.
(2) Construction.--Nothing in the amendment made by
paragraph (1) or this section this shall be construed as
authorizing the Secretary of Health and Human Services to limit
payments under title XXI of the Social Security Act in the case
of a State that is not a higher income eligibility State (as
defined in section 2105(c)(10)(B) of such Act, as added by
paragraph (1)).
(f) Treatment of Medical Support Orders.--Section 2102(b) of such
Act (42 U.S.C. 1397bb(c)) is amended by adding at the end the
following:
``(5) Treatment of medical support orders.--
``(A) In general.--Nothing in this title shall be
construed to allow the Secretary to require that a
State deny eligibility for child health assistance to a
child who is otherwise eligible on the basis of the
existence of a valid medical support order being in
effect.
``(B) State election.--A State may elect to limit
eligibility for child health assistance to a targeted
low-income child on the basis of the existence of a
valid medical support order on the child's behalf, but
only if the State does not deny such eligibility for a
child on such basis if the child asserts that the order
is not being complied with for any of the reasons
described in subparagraph (C) unless the State
demonstrates that none of such reasons applies in the
case involved.
``(C) Reasons for noncompliance.--The reasons
described in this subparagraph for noncompliance with a
medical support order with respect to a child are that
the child is not being provided health benefits
coverage pursuant to such order because--
``(i) of failure of the noncustodial parent
to comply with the order;
``(ii) of the failure of an employer, group
health plan or health insurance issuer to
comply with such order; or
``(iii) the child resides in a geographic
area in which benefits under the health
benefits coverage are generally unavailable.''.
(g) Effective Date of Amendments; Consistency of Policies.--The
amendments made by this section shall take effect as if enacted on
August 16, 2007. The Secretary may not impose (or continue in effect)
any requirement, prevent the implementation of any provision, or
condition the approval of any provision under any State child health
plan, State plan amendment, or waiver request on the basis of any
policy or interpretation relating to SCHIP crowd-out, coordination with
other sources of coverage, target rate of coverage, or medical support
order other than under the amendments made by this section. In the case
of a State plan amendment which was denied on or after August 16, 2007,
on the basis of any such policy or interpretation in effect before the
date of the enactment of this Act, if the State submits a modification
of such State plan amendment that complies with title XXI of the Social
Security Act as amended by this Act, such submitted State plan
amendment, as so modified, shall be considered as if it had been
submitted (as so modified) as of the date of its original submission,
but such State plan amendment shall not be effective before the date of
the enactment of this Act.
TITLE II--REVENUE PROVISIONS
SEC. 201. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX
INDIFFERENT PARTIES.
(a) In General.--Subpart B of part II of subchapter E of chapter 1
of the Internal Revenue Code of 1986 (relating to taxable year for
which items of gross income included) is amended by inserting after
section 457 the following new section:
``SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX
INDIFFERENT PARTIES.
``(a) In General.--Any compensation which is deferred under a
nonqualified deferred compensation plan of a nonqualified entity shall
be taken into account for purposes of this chapter when there is no
substantial risk of forfeiture of the rights to such compensation.
``(b) Nonqualified Entity.--For purposes of this section, the term
`nonqualified entity' means--
``(1) any foreign corporation unless substantially all of
such income is--
``(A) effectively connected with the conduct of a
trade or business in the United States, or
``(B) subject to a comprehensive foreign income
tax, and
``(2) any partnership unless substantially all of such
income is allocated to persons other than--
``(A) foreign persons with respect to whom such
income is not subject to a comprehensive foreign income
tax, and
``(B) organizations which are exempt from tax under
this title.
``(c) Ascertainability of Amounts of Compensation.--
``(1) In general.--If the amount of any compensation is not
ascertainable at the time that such compensation is otherwise
to be taken into account under subsection (a)--
``(A) such amount shall be so taken into account
when ascertainable, and
``(B) the tax imposed under this chapter for the
taxable year in which such compensation is taken into
account under subparagraph (A) shall be increased by
the sum of--
``(i) the amount of interest determined
under paragraph (2), and
``(ii) an amount equal to 20 percent of the
amount of such compensation.
``(2) Interest.--For purposes of paragraph (1)(B)(i), the
interest determined under this paragraph for any taxable year
is the amount of interest at the underpayment rate under
section 6621 plus 1 percentage point on the underpayments that
would have occurred had the deferred compensation been
includible in gross income for the taxable year in which first
deferred or, if later, the first taxable year in which such
deferred compensation is not subject to a substantial risk of
forfeiture.
``(d) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Substantial risk of forfeiture.--
``(A) In general.--The rights of a person to
compensation shall be treated as subject to a
substantial risk of forfeiture only if such person's
rights to such compensation are conditioned upon the
future performance of substantial services by any
individual.
``(B) Exception for compensation based on gain
recognized on an investment asset.--
``(i) In general.--To the extent provided
in regulations prescribed by the Secretary, if
compensation is determined solely by reference
to the amount of gain recognized on the
disposition of an investment asset, such
compensation shall be treated as subject to a
substantial risk of forfeiture until the date
of such disposition.
``(ii) Investment asset.--For purposes of
clause (i), the term `investment asset' means
any single asset (other than an investment fund
or similar entity)--
``(I) acquired directly by an
investment fund or similar entity,
``(II) with respect to which such
entity does not (nor does any person
related to such entity) participate in
the active management of such asset (or
if such asset is an interest in an
entity, in the active management of the
activities of such entity), and
``(III) substantially all of any
gain on the disposition of which (other
than such deferred compensation) is
allocated to investors in such entity.
``(iii) Coordination with special rule for
short-term deferrals of compensation.--
Paragraph (3)(B) shall not apply to any
compensation to which clause (i) applies.
``(2) Comprehensive foreign income tax.--The term
`comprehensive foreign income tax' means, with respect to any
foreign person, the income tax of a foreign country if--
``(A) such person is eligible for the benefits of a
comprehensive income tax treaty between such foreign
country and the United States, or
``(B) such person demonstrates to the satisfaction
of the Secretary that such foreign country has a
comprehensive income tax.
Such term shall not include any tax unless such tax includes
rules for the deductibility of deferred compensation which are
similar to the rules of this title.
``(3) Nonqualified deferred compensation plan.--
``(A) In general.--The term `nonqualified deferred
compensation plan' has the meaning given such term
under section 409A(d), except that such term shall
include any plan that provides a right to compensation
based on the appreciation in value of a specified
number of equity units of the service recipient.
``(B) Exception for short-term deferrals.--
Compensation shall not be treated as deferred for
purposes of this section if the service provider
receives payment of such compensation not later than 12
months after the end of the taxable year of the service
recipient during which the right to the payment of such
compensation is no longer subject to a substantial risk
of forfeiture.
``(4) Exception for certain compensation with respect to
effectively connected income.--In the case a foreign
corporation with income which is taxable under section 882,
this section shall not apply to compensation which, had such
compensation had been paid in cash on the date that such
compensation ceased to be subject to a substantial risk of
forfeiture, would have been deductible by such foreign
corporation against such income.
``(5) Application of rules.--Rules similar to the rules of
paragraphs (5) and (6) of section 409A(d) shall apply.
``(e) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section, including regulations disregarding a substantial risk of
forfeiture in cases where necessary to carry out the purposes of this
section.''.
(b) Conforming Amendment.--Section 26(b)(2) of such Code is amended
by striking ``and'' at the end of subparagraph (U), by striking the
period at the end of subparagraph (V) and inserting ``, and'', and by
adding at the end the following new subparagraph:
``(W) section 457A(c)(1)(B) (relating to
ascertainability of amounts of compensation).''.
(c) Clerical Amendment.--The table of sections of subpart B of part
II of subchapter E of chapter 1 of such Code is amended by inserting
after the item relating to section 457 the following new item:
``Sec. 457A. Nonqualified deferred compensation from certain tax
indifferent parties.''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
amounts deferred which are attributable to services performed
after the date of enactment of this Act.
(2) Application to existing deferrals.--In the case of any
amount deferred to which the amendments made by this section do
not apply solely by reason of the fact that the amount is
attributable to services performed before the date of enactment
of this Act, to the extent such amount is not includible in
gross income in a taxable year beginning before 2017, such
amounts shall be includible in gross income in the later of--
(A) the last taxable year beginning before 2017, or
(B) the taxable year in which there is no
substantial risk of forfeiture of the rights to such
compensation (determined in the same manner as
determined for purposes of section 457A of the Internal
Revenue Code of 1986, as added by this section).
(3) Accelerated payments.--No later than 60 days after the
date of the enactment of this Act, the Secretary shall issue
guidance providing a limited period of time during which a
nonqualified deferred compensation arrangement attributable to
services performed on or before the date of enactment of this
Act, may, without violating the requirements of section 409A(a)
of the Internal Revenue Code of 1986, be amended to conform the
date of distribution to the date the amounts are required to be
included in income.
(4) Certain back-to-back arrangements.--If the taxpayer is
also a service recipient and maintains one or more nonqualified
deferred compensation arrangements for its service providers
under which any amount is attributable to services performed on
or before the date of the enactment of this Act, the guidance
issued under paragraph (3) shall permit such arrangements to be
amended to conform the dates of distribution under such
arrangement to the date amounts are required to be included in
the income of such taxpayer under this subsection.
(5) Accelerated payment not treated as material
modification.--Any amendment to a nonqualified deferred
compensation arrangement made pursuant to paragraph (3) or (4)
shall not be treated as a material modification of the
arrangement for purposes of section 409A of the Internal
Revenue Code of 1986.
SEC. 202. INCOME OF PARTNERS FOR PERFORMING INVESTMENT MANAGEMENT
SERVICES TREATED AS ORDINARY INCOME RECEIVED FOR
PERFORMANCE OF SERVICES.
(a) In General.--Part I of subchapter K of chapter 1 of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new section:
``SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT
SERVICES TO PARTNERSHIP.
``(a) Treatment of Distributive Share of Partnership Items.--For
purposes of this title, in the case of an investment services
partnership interest--
``(1) In general.--Notwithstanding section 702(b)--
``(A) any net income with respect to such interest
for any partnership taxable year shall be treated as
ordinary income for the performance of services, and
``(B) any net loss with respect to such interest
for such year, to the extent not disallowed under
paragraph (2) for such year, shall be treated as an
ordinary loss.
``(2) Treatment of losses.--
``(A) Limitation.--Any net loss with respect to
such interest shall be allowed for any partnership
taxable year only to the extent that such loss does not
exceed the excess (if any) of--
``(i) the aggregate net income with respect
to such interest for all prior partnership
taxable years, over
``(ii) the aggregate net loss with respect
to such interest not disallowed under this
subparagraph for all prior partnership taxable
years.
``(B) Carryforward.--Any net loss for any
partnership taxable year which is not allowed by reason
of subparagraph (A) shall be treated as an item of loss
with respect to such partnership interest for the
succeeding partnership taxable year.
``(C) Basis adjustment.--No adjustment to the basis
of a partnership interest shall be made on account of
any net loss which is not allowed by reason of
subparagraph (A).
``(D) Exception for basis attributable to purchase
of a partnership interest.--In the case of an
investment services partnership interest acquired by
purchase, paragraph (1)(B) shall not apply to so much
of any net loss with respect to such interest for any
taxable year as does not exceed the excess of--
``(i) the basis of such interest
immediately after such purchase, over
``(ii) the aggregate net loss with respect
to such interest to which paragraph (1)(B) did
not apply by reason of this subparagraph for
all prior taxable years.
Any net loss to which paragraph (1)(B) does not apply
by reason of this subparagraph shall not be taken into
account under subparagraph (A).
``(E) Prior partnership years.--Any reference in
this paragraph to prior partnership taxable years shall
only include prior partnership taxable years to which
this section applies.
``(3) Net income and loss.--For purposes of this section--
``(A) Net income.--The term `net income' means,
with respect to any investment services partnership
interest, for any partnership taxable year, the excess
(if any) of--
``(i) all items of income and gain taken
into account by the holder of such interest
under section 702 with respect to such interest
for such year, over
``(ii) all items of deduction and loss so
taken into account.
``(B) Net loss.--The term `net loss' means with
respect to such interest for such year, the excess (if
any) of the amount described in subparagraph (A)(ii)
over the amount described in subparagraph (A)(i).
``(b) Dispositions of Partnership Interests.--
``(1) Gain.--Any gain on the disposition of an investment
services partnership interest shall be treated as ordinary
income for the performance of services.
``(2) Loss.--Any loss on the disposition of an investment
services partnership interest shall be treated as an ordinary
loss to the extent of the excess (if any) of--
``(A) the aggregate net income with respect to such
interest for all partnership taxable years, over
``(B) the aggregate net loss with respect to such
interest allowed under subsection (a)(2) for all
partnership taxable years.
``(3) Disposition of portion of interest.--In the case of
any disposition of an investment services partnership interest,
the amount of net loss which otherwise would have (but for
subsection (a)(2)(C)) applied to reduce the basis of such
interest shall be disregarded for purposes of this section for
all succeeding partnership taxable years.
``(4) Distributions of partnership property.--In the case
of any distribution of appreciated property by a partnership
with respect to any investment services partnership interest,
gain shall be recognized by the partnership in the same manner
as if the partnership sold such property at fair market value
at the time of the distribution. For purposes of this
paragraph, the term `appreciated property' means any property
with respect to which gain would be determined if sold as
described in the preceding sentence.
``(5) Application of section 751.--In applying section
751(a), an investment services partnership interest shall be
treated as an inventory item.
``(c) Investment Services Partnership Interest.--For purposes of
this section--
``(1) In general.--The term `investment services
partnership interest' means any interest in a partnership which
is held by any person if such person provides (directly or
indirectly) a substantial quantity of any of the following
services with respect to the assets of the partnership in the
conduct of the trade or business of providing such services:
``(A) Advising as to the advisability of investing
in, purchasing, or selling any specified asset.
``(B) Managing, acquiring, or disposing of any
specified asset.
``(C) Arranging financing with respect to acquiring
specified assets.
``(D) Any activity in support of any service
described in subparagraphs (A) through (C).
For purposes of this paragraph, the term `specified asset'
means securities (as defined in section 475(c)(2) without
regard to the last sentence thereof), real estate, commodities
(as defined in section 475(e)(2)), or options or derivative
contracts with respect to securities (as so defined), real
estate, or commodities (as so defined).
``(2) Exception for certain capital interests.--
``(A) In general.--If--
``(i) a portion of an investment services
partnership interest is acquired on account of
a contribution of invested capital, and
``(ii) the partnership makes a reasonable
allocation of partnership items between the
portion of the distributive share that is with
respect to invested capital and the portion of
such distributive share that is not with
respect to invested capital,
then subsection (a) shall not apply to the portion of
the distributive share that is with respect to invested
capital. An allocation will not be treated as
reasonable for purposes of this subparagraph if such
allocation would result in the partnership allocating a
greater portion of income to invested capital than any
other partner not providing services would have been
allocated with respect to the same amount of invested
capital.
``(B) Special rule for dispositions.--In any case
to which subparagraph (A) applies, subsection (b) shall
not apply to any gain or loss allocable to invested
capital. The portion of any gain or loss attributable
to invested capital is the proportion of such gain or
loss which is based on the distributive share of gain
or loss that would have been allocable to invested
capital under subparagraph (A) if the partnership sold
all of its assets immediately before the disposition.
``(C) Invested capital.--For purposes of this
paragraph, the term `invested capital' means, the fair
market value at the time of contribution of any money
or other property contributed to the partnership.
``(D) Treatment of certain loans.--
``(i) Proceeds of partnership loans not
treated as invested capital of service
providing partners.--For purposes of this
paragraph, an investment services partnership
interest shall not be treated as acquired on
account of a contribution of invested capital
to the extent that such capital is attributable
to the proceeds of any loan or other advance
made or guaranteed, directly or indirectly, by
any partner or the partnership.
``(ii) Loans from nonservice providing
partners to the partnership treated as invested
capital.--For purposes of this paragraph, any
loan or other advance to the partnership made
or guaranteed, directly or indirectly, by a
partner not providing services to the
partnership shall be treated as invested
capital of such partner and amounts of income
and loss treated as allocable to invested
capital shall be adjusted accordingly.
``(d) Other Income and Gain in Connection With Investment
Management Services.--
``(1) In general.--If--
``(A) a person performs (directly or indirectly)
investment management services for any entity,
``(B) such person holds a disqualified interest
with respect to such entity, and
``(C) the value of such interest (or payments
thereunder) is substantially related to the amount of
income or gain (whether or not realized) from the
assets with respect to which the investment management
services are performed,
any income or gain with respect to such interest shall be
treated as ordinary income for the performance of services.
Rules similar to the rules of subsection (c)(2) shall apply
where such interest was acquired on account of invested capital
in such entity.
``(2) Definitions.--For purposes of this subsection--
``(A) Disqualified interest.--The term
`disqualified interest' means, with respect to any
entity--
``(i) any interest in such entity other
than indebtedness,
``(ii) convertible or contingent debt of
such entity,
``(iii) any option or other right to
acquire property described in clause (i) or
(ii), and
``(iv) any derivative instrument entered
into (directly or indirectly) with such entity
or any investor in such entity.
Such term shall not include a partnership interest and
shall not include stock in a taxable corporation.
``(B) Taxable corporation.--The term `taxable
corporation' means--
``(i) a domestic C corporation, or
``(ii) a foreign corporation subject to a
comprehensive foreign income tax (as defined in
section 457A(d)(4)).
``(C) Investment management services.--The term
`investment management services' means a substantial
quantity of any of the services described in subsection
(c)(1) which are provided in the conduct of the trade
or business of providing such services.
``(e) Regulations.--The Secretary shall prescribe such regulations
as are necessary or appropriate to carry out the purposes of this
section, including regulations to--
``(1) prevent the avoidance of the purposes of this
section, and
``(2) coordinate this section with the other provisions of
this subchapter.
``(f) Cross Reference.--For 40 percent no fault penalty on certain
underpayments due to the avoidance of this section, see section
6662.''.
(b) Application to Real Estate Investment Trusts.--Subsection (c)
of section 856 of such Code is amended by adding at the end the
following new paragraph:
``(8) Exception from recharacterization of income from
investment services partnership interests.--
``(A) In general.--Paragraphs (2), (3), and (4)
shall be applied without regard to section 710
(relating to special rules for partners providing
investment management services to partnership).
``(B) Special rule for partnerships owned by
reits.--Section 7704 shall be applied without regard to
section 710 in the case of a partnership which meets
each of the following requirements:
``(i) Such partnership is treated as
publicly traded under section 7704 solely by
reason of interests in such partnership being
convertible into interests in a real estate
investment trust which is publicly traded.
``(ii) 50 percent or more of the capital
and profits interests of such partnership are
owned, directly or indirectly, at all times
during the taxable year by such real estate
investment trust (determined with the
application of section 267(c)).
``(iii) Such partnership meets the
requirements of paragraphs (2), (3), and (4)
(applied without regard to section 710).''.
(c) Imposition of Penalty on Underpayments.--
(1) In general.--Subsection (b) of section 6662 of such
Code is amended by inserting after paragraph (5) the following
new paragraph:
``(6) The application of subsection (d) of section 710 or
the regulations prescribed under section 710(e) to prevent the
avoidance of the purposes of section 710.''.
(2) Amount of penalty.--
(A) In general.--Section 6662 of such Code is
amended by adding at the end the following new
subsection:
``(i) Increase in Penalty in Case of Property Transferred for
Investment Management Services.--In the case of any portion of an
underpayment to which this section applies by reason of subsection
(b)(6), subsection (a) shall be applied with respect to such portion by
substituting `40 percent' for `20 percent'.''.
(B) Conforming amendments.--Subparagraph (B) of
section 6662A(e)(2) of such Code is amended--
(i) by striking ``section 6662(h)'' and
inserting ``subsection (h) or (i) of section
6662'', and
(ii) by striking ``gross valuation
misstatement penalty'' in the heading and
inserting ``certain increased underpayment
penalties''.
(3) Reasonable cause exception not applicable.--Subsection
(c) of section 6664 of such Code is amended--
(A) by redesignating paragraphs (2) and (3) as
paragraphs (3) and (4), respectively,
(B) by striking ``paragraph (2)'' in paragraph (4),
as so redesignated, and inserting ``paragraph (3)'',
and
(C) by inserting after paragraph (1) the following
new paragraph:
``(2) Exception.--Paragraph (1) shall not apply to any
portion of an underpayment to which this section applies by
reason of subsection (b)(6).''.
(d) Conforming Amendments.--
(1) Subsection (d) of section 731 of such Code is amended
by inserting ``section 710(b)(4) (relating to distributions of
partnership property),'' before ``section 736''.
(2) Section 741 of such Code is amended by inserting ``or
section 710 (relating to special rules for partners providing
investment management services to partnership)'' before the
period at the end.
(3) Paragraph (13) of section 1402(a) of such Code is
amended--
(A) by striking ``other than guaranteed'' and
inserting ``other than--
``(A) guaranteed'',
(B) by striking the semi-colon at the end and
inserting ``, and'', and
(C) by adding at the end the following new
subparagraph:
``(B) any income treated as ordinary income under
section 710 received by an individual who provides
investment management services (as defined in section
710(d)(2));''.
(4) Paragraph (12) of section 211(a) of the Social Security
Act is amended--
(A) by striking ``other than guaranteed'' and
inserting ``other than--
``(A) guaranteed'',
(B) by striking the semi-colon at the end and
inserting ``, and'', and
(C) by adding at the end the following new
subparagraph:
``(B) any income treated as ordinary income under
section 710 of the Internal Revenue Code of 1986
received by an individual who provides investment
management services (as defined in section 710(d)(2) of
such Code);''.
(5) The table of sections for part I of subchapter K of
chapter 1 of such Code is amended by adding at the end the
following new item:
``Sec. 710. Special rules for partners providing investment management
services to partnership.''.
(e) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years ending after the date of enactment of this Act.
(2) Partnership taxable years which include effective
date.--In applying section 710(a) of the Internal Revenue Code
of 1986 (as added by this section) in the case of any
partnership taxable year which includes the date of enactment
of this Act, the amount of the net income referred to in such
section shall be treated as being the lesser of the net income
for the entire partnership taxable year or the net income
determined by only taking into account items attributable to
the portion of the partnership taxable year which is after such
date.
(3) Dispositions of partnership interests.--Section 710(b)
of the Internal Revenue Code of 1986 (as added by this section)
shall apply to dispositions and distributions after the date of
enactment of this Act.
(4) Other income and gain in connection with investment
management services.--Section 710(d) of such Code (as added by
this section) shall take effect on the date of enactment of
this Act.
(5) Publicly traded partnerships.--For purposes of applying
section 7704, the amendments made by this section shall apply
to taxable years beginning after December 31, 2009.
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