[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5106 Introduced in House (IH)]
<DOC>
114th CONGRESS
2d Session
H. R. 5106
To make college more affordable, reduce student debt, and provide
greater access to higher education for all students of the United
States.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
April 28, 2016
Ms. Duckworth (for herself, Mr. Scott of Virginia, Mr. Hinojosa, and
Mr. Courtney) introduced the following bill; which was referred to the
Committee on Education and the Workforce, and in addition to the
Committees on Ways and Means and Natural Resources, for a period to be
subsequently determined by the Speaker, in each case for consideration
of such provisions as fall within the jurisdiction of the committee
concerned
_______________________________________________________________________
A BILL
To make college more affordable, reduce student debt, and provide
greater access to higher education for all students of the United
States.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``In the Red Act of
2016''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--AMERICA'S COLLEGE PROMISE
Sec. 101. State and Indian tribe grants for community college.
Sec. 102. Pathways to student success.
TITLE II--STUDENT LOAN REFINANCING
Sec. 201. Refinancing programs.
TITLE III--FEDERAL PELL GRANT PROTECTION
Sec. 301. Federal Pell Grant protection.
Sec. 302. Point of order against cutting Federal Pell Grants.
Sec. 303. Affirming that Federal Pell Grants are a foundational
investment in affordable higher education.
TITLE IV--ACCOUNTABILITY
Sec. 401. Supporting efforts to ensure that institutions of higher
education are accountable for ensuring the
high value of degrees and credentials.
TITLE V--OFFSETS
Sec. 501. Amendment of 1986 Code.
Sec. 502. Fair share tax on high-income taxpayers.
Sec. 503. Expansion of denial of deduction for certain excessive
employee remuneration.
Sec. 504. Partnership interests transferred in connection with
performance of services.
Sec. 505. Special rules for partners providing investment management
services to partnerships.
Sec. 506. Consistent treatment of stock options by corporations.
Sec. 507. Application of executive pay deduction limit.
Sec. 508. Modifications to rules relating to inverted corporations.
Sec. 509. Modifications of foreign tax credit rules applicable to major
integrated oil companies which are dual
capacity taxpayers.
Sec. 510. Limitation on section 199 deduction attributable to oil,
natural gas, or primary products thereof.
Sec. 511. Limitation on deduction for intangible drilling and
development costs; amortization of
disallowed amounts.
Sec. 512. Limitation on percentage depletion allowance for oil and gas
wells.
Sec. 513. Limitation on deduction for tertiary injectants.
Sec. 514. Modification of definition of major integrated oil company.
Sec. 515. Repeal of outer Continental Shelf deep water and deep gas
royalty relief.
Sec. 516. Coordination of American Opportunity Credit and Lifetime
Learning Credit with Pell Grants not used
for qualified tuition and related expenses.
Sec. 517. Expansion of Pell Grant exclusion from gross income.
TITLE I--AMERICA'S COLLEGE PROMISE
SEC. 101. STATE AND INDIAN TRIBE GRANTS FOR COMMUNITY COLLEGE.
(a) In General.--From amounts appropriated under subsection (g)(1)
for any fiscal year, the Secretary shall award grants to eligible
States and Indian tribes to pay the Federal share of expenditures
needed to carry out the activities and services described in subsection
(e).
(b) Federal Share; Non-Federal Share.--
(1) Federal share.--
(A) Formula.--Subject to subparagraph (B), the
Federal share of a grant under this section shall be
based on a formula, determined by the Secretary, that--
(i) accounts for the State or Indian
tribe's share of eligible students; and
(ii) provides, for each eligible student in
the State or Indian tribe, a per-student amount
that is--
(I) not less than 300 percent of
the per-student amount of the State or
Indian tribe share, determined under
paragraph (2), subject to subclause
(II); and
(II) not greater than 75 percent
of--
(aa) for the 2016-2017
award year, the average
resident community college
tuition and fees per student in
all States for the most recent
year for which data are
available; and
(bb) for each subsequent
award year, the average
resident community college
tuition and fees per student in
all States calculated under
this subclause for the
preceding year, increased by
the lesser of--
(AA) the percentage
by which the average
resident community
college tuition and
fees per student in all
States for the most
recent year for which
data are available
increased as compared
to such average for the
preceding year; or
(BB) 3 percent.
(B) Exception for certain indian tribes.--In any
case in which not less than 75 percent of the students
at the community colleges operated or controlled by an
Indian tribe are low-income students, the amount of the
Federal share for such Indian tribe shall be not less
than 95 percent of the total amount needed to waive
tuition and fees for all eligible students enrolled in
such community colleges.
(2) State or tribal share.--
(A) Formula.--
(i) In general.--The State or tribal share
of a grant under this section for each fiscal
year shall be the amount needed to pay 25
percent of the average community college
resident tuition and fees per student in all
States in the 2016-2017 award year for all
eligible students in the State or Indian tribe,
respectively, for such fiscal year, except as
provided in clause (ii).
(ii) Exception for certain indian tribes.--
In a case in which not less than 5 percent of
the students at the community colleges operated
or controlled by an Indian tribe are low-income
students, the amount of such Indian tribe's
tribal share shall not exceed 5 percent of the
total amount needed to waive tuition and fees
for all eligible students enrolled in such
community colleges.
(B) Need-based aid.--A State or Indian tribe may
include any need-based financial aid provided through
State or tribal funds to eligible students as part of
the State or tribal share.
(C) No in-kind contributions.--A State or Indian
tribe shall not include in-kind contributions for
purposes of the State or tribal share described in
subparagraph (A).
(c) Eligibility.--To be eligible for a grant under this section, a
State or Indian tribe shall agree to waive community college resident
tuition and fees for all eligible students for each year of the grant.
(d) Applications.--
(1) Submission.--For each fiscal year for which a State or
Indian tribe desires a grant under this section, an application
shall be submitted to the Secretary at such time, in such
manner, and containing such information as the Secretary may
require. Such application shall be submitted by--
(A) in the case of a State, the Governor, the State
agency with jurisdiction over higher education, or
another agency designated by the Governor to administer
the program under this section; or
(B) in the case of an Indian tribe, the governing
body of such tribe.
(2) Contents.--Each State or Indian tribe application shall
include, at a minimum--
(A) an estimate of the number of eligible students
in the State or Indian tribe and the cost of waiving
community college resident tuition and fees for all
eligible students for each fiscal year covered by the
grant, with annual increases of an amount that shall
not exceed 3 percent of the prior year's average
resident community college tuition and fees;
(B) an assurance that all community colleges in the
State or under the jurisdiction of the Indian tribe,
respectively, will waive resident tuition and fees for
eligible students in programs that are--
(i) academic programs with credits that can
fully transfer via articulation agreement
toward a baccalaureate degree or
postbaccalaureate degree at any public
institution of higher education in the State;
or
(ii) occupational skills training programs
that lead to a recognized postsecondary
credential that is in an in-demand industry
sector or occupation in the State;
(C) a description of the promising and evidence-
based institutional reforms and innovative practices to
improve student outcomes, including completion or
transfer rates, that have been or will be adopted by
the participating community colleges, such as--
(i) providing comprehensive academic and
student support services, including mentoring
and advising, especially for first-generation
and minority students;
(ii) providing accelerated learning
opportunities, such as dual or concurrent
enrollment programs;
(iii) advancing competency-based education;
(iv) strengthening remedial education,
especially for low-income students, first
generation students, adult students, and
students from other underrepresented groups in
postsecondary education;
(v) implementing course redesigns of high-
enrollment courses to improve student outcomes
and reduce cost; or
(vi) utilizing career pathways or degree
pathways;
(D) a description of how the State or Indian tribe
will promote alignment between its public secondary
school and postsecondary education systems, including
between 2-year and 4-year public institutions of higher
education and with minority-serving institutions
described in section 371 of the Higher Education Act of
1965 (20 U.S.C. 1067q), to expand awareness of and
access to postsecondary education, reduce the need for
remediation and repeated coursework, and improve
student outcomes;
(E) a description of how the State or Indian tribe
will ensure that programs leading to a recognized
postsecondary credential meet the quality criteria
established by the State under section 123(a) of the
Workforce Innovation and Opportunity Act (29 U.S.C.
3153(a)) or other quality criteria determined
appropriate by the State or Indian tribe;
(F) an assurance that all participating community
colleges in the State or under the authority of the
Indian tribe have entered into program participation
agreements under section 487 of the Higher Education
Act of 1965 (20 U.S.C. 1094);
(G) an assurance that, for each year of the grant,
the State or Indian tribe will notify each eligible
student of the student's remaining eligibility for
assistance under this section; and
(H) a description of how the State or Indian tribe
will promote the improved performance of public
institutions of higher education through funding
reform, including through the use of a performance-
based model that allocates a portion of the State or
Indian tribe's public higher education expenditures
based on the performance of those institutions on
State-specified metrics, including successful student
outcomes.
(e) Allowable Uses of Funds.--
(1) In general.--A State or Indian tribe shall use a grant
under this section only to provide funds to participating
community colleges to waive resident tuition and fees for
eligible students who are enrolled in--
(A) academic programs with credits that can fully
transfer via articulation agreement toward a
baccalaureate degree or postbaccalaureate degree at any
public institution of higher education in the State; or
(B) occupational skills training programs that lead
to a recognized postsecondary credential that is in an
in-demand industry sector or occupation in the State.
(2) Additional uses.--If a State or Indian tribe
demonstrates to the Secretary that it has grant funds remaining
after meeting the demand for activities described in paragraph
(1), the State or Indian tribe may use those funds to carry out
one or more of the following:
(A) Expanding the waiver of resident tuition and
fees at community college to students who are returning
students or otherwise not enrolling in postsecondary
education for the first time, and who meet the student
eligibility requirements of clauses (ii) through (v) of
subsection (f)(4)(A).
(B) Expanding the scope and capacity of high-
quality academic and occupational skills training
programs at community colleges.
(C) Improving postsecondary education readiness in
the State or Indian tribe, through outreach and early
intervention.
(D) Expanding access to dual or concurrent
enrollment programs.
(E) Improving affordability at 4-year public
institutions of higher education.
(3) Use of funds for administrative purposes.--A State or
Indian tribe that receives a grant under this section may not
use any funds provided under this section for administrative
purposes relating to such grant.
(4) Maintenance of effort.--A State or Indian tribe
receiving a grant under this section is entitled to receive its
full allotment of funds under this section for a fiscal year
only if, for each year of the grant, the State or Indian tribe
provides financial support for public higher education at a
level equal to or exceeding the average amount provided per
full-time equivalent student for public institutions of higher
education for the 3 consecutive preceding State or Indian tribe
fiscal years. In making the calculation under this paragraph,
the State or Indian tribe shall exclude capital expenses and
research and development costs and include need-based financial
aid for students who attend public institutions of higher
education.
(5) Annual report.--A State or Indian tribe receiving a
grant under this section shall submit an annual report to the
Secretary--
(A) describing the uses of grant funds under this
section, the progress made in fulfilling the
requirements of the grant, and the rates of graduation,
transfer, and attainment of a recognized postsecondary
credential for the students at participating community
colleges; and
(B) including any other information as the
Secretary may require.
(6) Reporting by secretary.--The Secretary annually shall--
(A) compile and analyze the information described
in paragraph (5); and
(B) prepare and submit a report to the Committee on
Health, Education, Labor, and Pensions of the Senate
and the Committee on Education and the Workforce of the
House of Representatives containing the analysis
described in subparagraph (A) and an identification of
State and Indian tribe best practices for achieving the
purpose of this section.
(7) Technical assistance.--The Secretary shall provide
technical assistance to eligible States and Indian tribes
concerning best practices regarding the promising and evidence-
based institutional reforms and innovative practices to improve
student outcomes as described in subsection (d)(2)(C) and shall
disseminate such best practices among the States and Indian
tribes.
(8) Continuation of funding.--
(A) In general.--A State or Indian tribe receiving
a grant under this section for a fiscal year may
continue to receive funding under this section for
future fiscal years conditioned on the availability of
budget authority and on meeting the requirements of the
grant, as determined by the Secretary.
(B) Discontinuation.--The Secretary may discontinue
funding of the Federal share of a grant under this
section if the State or Indian tribe has violated the
terms of the grant or is not making adequate progress
in implementing the reforms described in the
application submitted under subsection (d).
(f) Definitions.--In this section:
(1) Career pathway.--The term ``career pathway'' has the
meaning given the term in section 3 of the Workforce Innovation
and Opportunity Act (29 U.S.C. 3102).
(2) Community college.--The term ``community college''
means a public institution of higher education at which the
highest degree that is predominantly awarded to students is an
associate's degree, including 2-year tribally controlled
colleges under section 316 of the Higher Education Act of 1965
(20 U.S.C. 1059c) and public 2-year State institutions of
higher education.
(3) Dual or concurrent enrollment program.--The term ``dual
or concurrent enrollment program'' means an academic program
through which a secondary school student is able simultaneously
to earn credit toward a secondary school diploma and a
postsecondary degree or other recognized postsecondary
credential, including an early college high school program.
(4) Eligible student.--
(A) Definition.--The term ``eligible student''
means a student who--
(i)(I) enrolls in a community college for
the first time, regardless of age, after the
date of enactment of this Act; or
(II) is enrolled in a community college,
for the first time, as of the date of enactment
of this Act;
(ii) attends the community college on not
less than a half-time basis;
(iii) is maintaining satisfactory progress,
as defined in section 484(c) of the Higher
Education Act of 1965 (20 U.S.C. 1091(c)), in
the student's course of study;
(iv) qualifies for resident tuition, as
determined by the State or Indian tribe; and
(v) is enrolled in an eligible program
described in subsection (d)(2)(B).
(B) Special rule.--An otherwise eligible student
shall lose eligibility 3 calendar years after first
receiving benefits under this section.
(5) In-demand industry sector or occupation.--The term
``in-demand industry sector or occupation'' has the meaning
given the term in section 3 of the Workforce Innovation and
Opportunity Act (29 U.S.C. 3102).
(6) Indian tribe.--The term ``Indian tribe'' has the
meaning given the term in section 102 of the Federally
Recognized Indian Tribe List Act of 1994 (25 U.S.C. 479a).
(7) Institution of higher education.--The term
``institution of higher education'' has the meaning given the
term in section 101 of the Higher Education Act of 1965 (20
U.S.C. 1001).
(8) Recognized postsecondary credential.--The term
``recognized postsecondary credential'' has the meaning as
described in section 3 of the Workforce Innovation and
Opportunity Act (29 U.S.C. 3102).
(9) Secretary.--The term ``Secretary'' means the Secretary
of Education.
(10) State.--The term ``State'' has the meaning given the
term in section 103 of the Higher Education Act of 1965 (20
U.S.C. 1003).
(g) Appropriations.--
(1) Authorization and appropriations.--For the purpose of
making grants under this section, there are authorized to be
appropriated, and there are appropriated--
(A) $1,365,000,000 for fiscal year 2016;
(B) $3,020,000,000 for fiscal year 2017;
(C) $3,854,000,000 for fiscal year 2018;
(D) $5,395,000,000 for fiscal year 2019;
(E) $7,061,000,000 for fiscal year 2020;
(F) $8,085,000,000 for fiscal year 2021;
(G) $10,182,000,000 for fiscal year 2022;
(H) $13,019,000,000 for fiscal year 2023;
(I) $13,583,000,000 for fiscal year 2024; and
(J) $14,171,000,000 for fiscal year 2025 and each
succeeding fiscal year.
(2) Availability.--Funds appropriated under paragraph (1)
shall remain available to the Secretary until expended.
(3) Insufficient funds.--If the amount appropriated under
paragraph (1) for a fiscal year is not sufficient to award each
participating State and Indian tribe a grant under this section
that is equal to the minimum amount of the Federal share
described in subsection (b)(1), the Secretary may ratably
reduce the amount of each such grant or take other actions
necessary to ensure an equitable distribution of such amount.
SEC. 102. PATHWAYS TO STUDENT SUCCESS.
(a) Pathways to Student Success for Historically Black Colleges and
Universities.--
(1) In general.--From amounts appropriated under subsection
(d)(1) for any fiscal year, the Secretary shall award grants to
participating 4-year historically black colleges or
universities that meet the requirements of paragraph (2) to--
(A) encourage students to enroll as first-time
students and successfully complete a bachelor's degree
at participating institutions;
(B) provide incentives to community college
students to transfer to participating institutions
through strong transfer pathways to complete a
bachelor's degree program; and
(C) support participating institutions to better
serve new and existing students by engaging in reforms
and innovations designed to improve completion rates
and other student outcomes.
(2) Eligibility.--To be eligible to receive a grant under
the program under this subsection, an institution shall be a
historically black college or university that--
(A) has a student body of which not less than 35
percent are low-income students;
(B) commits to maintaining or adopting and
implementing promising and evidence-based institutional
reforms and innovative practices to improve the
completion rates and other student outcomes, such as--
(i) providing comprehensive academic and
student support services, including mentoring
and advising;
(ii) providing accelerated learning
opportunities and degree pathways, such as dual
enrollment and pathways to graduate and
professional degree programs;
(iii) advancing distance and competency-
based education;
(iv) partnering with employers, industry,
not-for-profit associations, and other groups
to provide opportunities to advance learning
outside the classroom, including work-based
learning opportunities such as internships or
apprenticeships or programs designed to improve
intercultural development and personal growth,
such as foreign exchange and study abroad
programs;
(v) reforming remedial education,
especially for low-income students, first
generation college students, adult students,
and other underrepresented students; or
(vi) implementing course redesigns of high-
enrollment courses to improve student outcomes
and reduce cost;
(C) sets performance goals for improving student
outcomes for the duration of the grant; and
(D) if receiving a grant for transfer students, has
articulation agreements with community colleges at the
national, State, or local level to ensure that
community college credits can fully transfer to the
participating institution.
(3) Grant amount.--
(A) Initial amount.--For the first year that an
eligible institution participates in the grant program
under this subsection and subject to subparagraph (C),
such eligible institution shall receive a grant in an
amount based on the product of--
(i) the actual cost of tuition and fees at
the eligible institution in such year (referred
to in this subsection as the ``per-student
rebate''); multiplied by
(ii) the number of eligible students
enrolled in the eligible institution for the
preceding year.
(B) Subsequent increases.--For each succeeding year
after the first year of the grant program under this
subsection, each participating eligible institution
shall receive a grant in the amount determined under
subparagraph (A) for such year, except that in no case
shall the amount of the per-student rebate for an
eligible institution increase by more than 3 percent as
compared to the amount of such rebate for the preceding
year.
(C) Limitations.--
(i) Maximum per-student rebate.--No
eligible institution participating in the grant
program under this subsection shall receive a
per-student rebate amount for any year that is
greater than the national average of annual
tuition and fees at public 4-year institutions
of higher education for such year, as
determined by the Secretary.
(ii) First year tuition and fees.--During
the first year of participation in the grant
program under this subsection, no eligible
institution may increase tuition and fees at a
rate greater than any annual increase at the
eligible institution in the previous 5 years.
(4) Application.--An eligible institution that desires a
grant under this subsection shall submit an application to the
Secretary at such time, in such manner, and containing such
information as the Secretary may require.
(5) Use of funds.--Funds awarded under this subsection to a
participating eligible institution shall be--
(A) applied in their entirety to student accounts;
and
(B) used to waive or significantly reduce tuition
and fees for eligible students in an amount of not more
than up to the annual per-student rebate amount for
each student, for not more than the first 60 credits an
eligible student enrolls in the participating eligible
institution.
(b) Pathways to Student Success for Hispanic-Serving Institutions,
Asian American and Native American Pacific Islander-Serving
Institutions, Tribal Colleges and Universities, Alaska Native-Serving
Institutions, Native Hawaiian-Serving Institutions, Predominantly Black
Institutions, and Native American-Serving Nontribal Institutions.--
(1) In general.--From amounts appropriated under subsection
(d)(1) for any fiscal year, the Secretary shall award grants to
participating 4-year minority-serving institutions to--
(A) encourage students to enroll as first-time
students and successfully complete a bachelor's degree
at participating institutions;
(B) provide incentives to community college
students to transfer to participating institutions
through strong transfer pathways to complete a
bachelor's degree program; and
(C) support participating institutions to better
serve new and existing students by engaging in reforms
and innovations designed to improve completion rates
and other student outcomes.
(2) Institutional eligibility.--To be eligible to
participate and receive a grant under this subsection, an
institution shall be a minority-serving institution that--
(A) has a student body of which not less than 35
percent are low-income students;
(B) commits to maintaining or adopting and
implementing promising and evidence-based institutional
reforms and innovative practices to improve the
completion rates and other student outcomes, such as--
(i) providing comprehensive academic and
student support services, including mentoring
and advising;
(ii) providing accelerated learning
opportunities and degree pathways, such as dual
enrollment and pathways to graduate and
professional degree programs;
(iii) advancing distance and competency-
based education;
(iv) partnering with employers, industry,
not-for-profit associations, and other groups
to provide opportunities to advance learning
outside the classroom, including work-based
learning opportunities such as internships or
apprenticeships or programs designed to improve
intercultural development and personal growth,
such as foreign exchange and study abroad
programs;
(v) reforming remedial education,
especially for low-income students, first
generation college students, adult students,
and other underrepresented students; and
(vi) implementing course redesigns of high-
enrollment courses to improve student outcomes
and reduce cost;
(C) sets performance goals for improving student
outcomes for the duration of the grant; and
(D) if receiving a grant for transfer students, has
articulation agreements with community colleges at the
national, State, or local levels to ensure that
community college credits can fully transfer to the
participating institution.
(3) Grant amount.--
(A) Initial amount.--For the first year that an
eligible institution participates in the grant program
under this subsection and subject to subparagraph (C),
such participating eligible institution shall receive a
grant in an amount based on the product of--
(i) the actual cost of tuition and fees at
the eligible institution in such year (referred
to in this subsection as the ``per-student
rebate''); multiplied by
(ii) the number of eligible students
enrolled in the eligible institution for the
preceding year.
(B) Subsequent increases.--For each succeeding year
after the first year of the grant program under this
subsection, each participating eligible institution
shall receive a grant in the amount determined under
subparagraph (A) for such year, except that in no case
shall the amount of the per-student rebate increase by
more than 3 percent as compared to the amount of such
rebate for the preceding year.
(C) Limitations.--
(i) Maximum per-student rebate.--No
eligible institution participating in the grant
program under this subsection shall receive a
per-student rebate amount for a grant year
greater than the national average of public 4-
year institutional tuition and fees, as
determined by the Secretary.
(ii) First year tuition and fees.--During
the first year of participation in the grant
program under this subsection, no eligible
institution may increase tuition and fees at a
rate greater than any annual increase made by
the institution in the previous 5 years.
(4) Application.--An eligible institution shall submit an
application to the Secretary at such time, in such a manner,
and containing such information as determined by the Secretary.
(5) Use of funds.--Funds awarded under this subsection to a
participating eligible institution shall be--
(A) applied in their entirety to student accounts;
and
(B) used to waive or significantly reduce tuition
and fees for eligible students in an amount of not more
than up to the annual per-student rebate amount for
each student, for not more than the first 60 credits an
eligible student enrolls in the participating eligible
institution.
(c) Definitions.--In this section:
(1) Eligible student.--
(A) Definition.--The term ``eligible student''
means a student, regardless of age, who--
(i)(I) enrolls in a historically black
college or university, or minority-serving
institution, for the first time; or
(II) transfers from a community college
into a historically black college or
university, or minority-serving institution,
for the first time;
(ii) attends the historically black college
or university, or minority serving institution,
on at least a half-time basis;
(iii) maintains satisfactory academic
progress; and
(iv) is a low-income student.
(B) Special rules.--
(i) First 3 years.--An otherwise eligible
student shall lose eligibility 3 calendar years
after first receiving benefits under this
section.
(ii) Special rule for certain students.--
Notwithstanding subparagraph (A)(i), an
otherwise eligible student whose parent or
guardian was denied a PLUS loan after November
2011 and before March 29, 2015, and who
subsequently withdrew from a historically black
college or university, or minority-serving
institution, and has not yet completed a
program of study at such historically black
college or university or minority-serving
institution, shall be eligible to participate
under subsection (a) or (b) in order to
complete such program of study, subject to all
other requirements of subsection (a) or (b) (as
the case may be).
(2) Historically black college or university.--The term
``historically black college or university'' means a part B
institution described in section 322(2) of the Higher Education
Act of 1965 (20 U.S.C. 1061(2)).
(3) Low-income student.--The term ``low-income student''
has the meaning given such term by the Secretary, except that
such term shall not exclude any student eligible for a Federal
Pell Grant under section 401 of the Higher Education Act of
1965 (20 U.S.C. 1070a).
(4) Minority-serving institution.--The term ``minority-
serving institution'' means any public or not-for-profit
institution of higher education--
(A) described in paragraphs (2) through (7) of
section 371(a) of the Higher Education Act of 1965 (20
U.S.C. 1067q(a)); and
(B) designated as a minority-serving institution by
the Secretary.
(d) Appropriations.--
(1) Authorization and appropriations for hbcu and msi
grants.--For the purpose of carrying out subsections (a) and
(b), there are authorized to be appropriated, and there are
appropriated--
(A) $55,000,000 for fiscal year 2016;
(B) $180,000,000 for fiscal year 2017;
(C) $1,072,000,000 for fiscal year 2018;
(D) $1,115,000,000 for fiscal year 2019;
(E) $1,160,000,000 for fiscal year 2020;
(F) $1,206,000,000 for fiscal year 2021;
(G) $1,225,000,000 for fiscal year 2022;
(H) $1,306,000,000 for fiscal year 2023;
(I) $1,359,000,000 for fiscal year 2024; and
(J) $1,414,000,000 for fiscal year 2025 and each
succeeding fiscal year.
(2) Availability.--Funds appropriated under paragraph (1)
are to remain available to the Secretary until expended.
(3) Insufficient funds.--If the amount appropriated under
paragraph (1) for a fiscal year is not sufficient to award, to
each participating institution in the grant programs under
subsections (a) and (b), a grant under this section equal to
100 percent of the grant amount determined under subsection
(a)(3) or (b)(3) (as the case may be), the Secretary may
ratably reduce the amount of each such grant or take other
actions necessary to ensure an equitable distribution of such
amount.
TITLE II--STUDENT LOAN REFINANCING
SEC. 201. REFINANCING PROGRAMS.
(a) Program Authority.--Section 451(a) of the Higher Education Act
of 1965 (20 U.S.C. 1087a(a)) is amended--
(1) by striking ``and (2)'' and inserting ``(2)''; and
(2) by inserting ``; and (3) to make loans under section
460A and section 460B'' after ``section 459A''.
(b) Refinancing Program.--Part D of title IV of the Higher
Education Act of 1965 (20 U.S.C. 1087a et seq.) is amended by adding at
the end the following:
``SEC. 460A. REFINANCING FFEL AND FEDERAL DIRECT LOANS.
``(a) In General.--Beginning not later than 180 days after the date
of enactment of the In the Red Act of 2016, the Secretary shall
establish a program under which the Secretary, upon the receipt of an
application from a qualified borrower, makes a loan under this part, in
accordance with the provisions of this section, in order to permit the
borrower to obtain the interest rate provided under subsection (c).
``(b) Refinancing Direct Loans.--
``(1) Federal direct loans.--Upon application of a
qualified borrower, the Secretary shall repay a Federal Direct
Stafford Loan, a Federal Direct Unsubsidized Stafford Loan, a
Federal Direct PLUS Loan, or a Federal Direct Consolidation
Loan of the qualified borrower, for which the first
disbursement was made, or the application for the consolidation
loan was received, before July 1, 2016, with the proceeds of a
refinanced Federal Direct Stafford Loan, a Federal Direct
Unsubsidized Stafford Loan, a Federal Direct PLUS Loan, or a
Federal Direct Consolidation Loan, respectively, issued to the
borrower in an amount equal to the sum of the unpaid principal,
accrued unpaid interest, and late charges of the original loan.
``(2) Refinancing ffel program loans as refinanced federal
direct loans.--Upon application of a qualified borrower for any
loan that was made, insured, or guaranteed under part B and for
which the first disbursement was made, or the application for
the consolidation loan was received, before July 1, 2010, the
Secretary shall make a loan under this part, in an amount equal
to the sum of the unpaid principal, accrued unpaid interest,
and late charges of the original loan to the borrower in
accordance with the following:
``(A) The Secretary shall pay the proceeds of such
loan to the eligible lender of the loan made, insured,
or guaranteed under part B, in order to discharge the
borrower from any remaining obligation to the lender
with respect to the original loan.
``(B) A loan made under this section that was
originally--
``(i) a loan originally made, insured, or
guaranteed under section 428 shall be a Federal
Direct Stafford Loan;
``(ii) a loan originally made, insured, or
guaranteed under section 428B shall be a
Federal Direct PLUS Loan;
``(iii) a loan originally made, insured, or
guaranteed under section 428H shall be a
Federal Direct Unsubsidized Stafford Loan; and
``(iv) a loan originally made, insured, or
guaranteed under section 428C shall be a
Federal Direct Consolidation Loan.
``(C) The interest rate for each loan made by the
Secretary under this paragraph shall be the rate
provided under subsection (c).
``(c) Interest Rates.--
``(1) In general.--The interest rate for the refinanced
Federal Direct Stafford Loans, Federal Direct Unsubsidized
Stafford Loans, Federal Direct PLUS Loans, and Federal Direct
Consolidation Loans, shall be a rate equal to--
``(A) in any case where the original loan was a
loan under section 428 or 428H, a Federal Direct
Stafford loan, or a Federal Direct Unsubsidized
Stafford Loan, that was issued to an undergraduate
student, a rate equal to the rate for Federal Direct
Stafford Loans and Federal Direct Unsubsidized Stafford
Loans issued to undergraduate students for the 12-month
period beginning on July 1, 2013, and ending on June
30, 2014;
``(B) in any case where the original loan was a
loan under section 428 or 428H, a Federal Direct
Stafford Loan, or a Federal Direct Unsubsidized
Stafford Loan, that was issued to a graduate or
professional student, a rate equal to the rate for
Federal Direct Unsubsidized Stafford Loans issued to
graduate or professional students for the 12-month
period beginning on July 1, 2013, and ending on June
30, 2014;
``(C) in any case where the original loan was a
loan under section 428B or a Federal Direct PLUS Loan,
a rate equal to the rate for Federal Direct PLUS Loans
for the 12-month period beginning on July 1, 2013, and
ending on June 30, 2014; and
``(D) in any case where the original loan was a
loan under section 428C or a Federal Direct
Consolidation Loan, a rate calculated in accordance
with paragraph (2).
``(2) Interest rates for consolidation loans.--
``(A) Method of calculation.--In order to determine
the interest rate for any refinanced Federal Direct
Consolidation Loan under paragraph (1)(D), the
Secretary shall--
``(i) determine each of the component loans
that were originally consolidated in the loan
under section 428C or the Federal Direct
Consolidation Loan, and calculate the
proportion of the unpaid principal balance of
the loan under section 428C or the Federal
Direct Consolidation Loan that each component
loan represents;
``(ii) use the proportions determined in
accordance with clause (i) and the interest
rate applicable for each component loan, as
determined under subparagraph (B), to calculate
the weighted average of the interest rates on
the loans consolidated into the loan under
section 428C or the Federal Direct
Consolidation Loan; and
``(iii) apply the weighted average
calculated under clause (ii) as the interest
rate for the refinanced Federal Direct
Consolidation Loan.
``(B) Interest rates for component loans.--The
interest rates for the component loans of a loan made
under section 428C or a Federal Direct Consolidation
Loan shall be the following:
``(i) The interest rate for any loan under
section 428 or 428H, Federal Direct Stafford
Loan, or Federal Direct Unsubsidized Stafford
Loan issued to an undergraduate student shall
be a rate equal to the lesser of--
``(I) the rate for Federal Direct
Stafford Loans and Federal Direct
Unsubsidized Stafford Loans issued to
undergraduate students for the 12-month
period beginning on July 1, 2013, and
ending on June 30, 2014; or
``(II) the original interest rate
of the component loan.
``(ii) The interest rate for any loan under
section 428 or 428H, Federal Direct Stafford
Loan, or Federal Direct Unsubsidized Stafford
Loan issued to a graduate or professional
student shall be a rate equal to the lesser
of--
``(I) the rate for Federal Direct
Unsubsidized Stafford Loans issued to
graduate or professional students for
the 12-month period beginning on July
1, 2013, and ending on June 30, 2014;
or
``(II) the original interest rate
of the component loan.
``(iii) The interest rate for any loan
under section 428B or Federal Direct PLUS Loan
shall be a rate equal to the lesser of--
``(I) the rate for Federal Direct
PLUS Loans for the 12-month period
beginning on July 1, 2013, and ending
on June 30, 2014; or
``(II) the original interest rate
of the component loan.
``(iv) The interest rate for any component
loan that is a loan under section 428C or a
Federal Direct Consolidation Loan shall be the
weighted average of the interest rates that
would apply under this subparagraph for each
loan comprising the component consolidation
loan.
``(v) The interest rate for any eligible
loan that is a component of a loan made under
section 428C or a Federal Direct Consolidation
Loan and is not described in clauses (i)
through (iv) shall be the interest rate on the
original component loan.
``(3) Fixed rate.--The applicable rate of interest
determined under paragraph (1) for a refinanced loan under this
section shall be fixed for the period of the loan.
``(d) Terms and Conditions of Loans.--
``(1) In general.--A loan that is refinanced under this
section shall have the same terms and conditions as the
original loan, except as otherwise provided in this section.
``(2) No automatic extension of repayment period.--
Refinancing a loan under this section shall not result in the
extension of the duration of the repayment period of the loan,
and the borrower shall retain the same repayment term that was
in effect on the original loan. Nothing in this paragraph shall
be construed to prevent a borrower from electing a different
repayment plan at any time in accordance with section
455(d)(3).
``(e) Definition of Qualified Borrower.--
``(1) In general.--For purposes of this section, the term
`qualified borrower' means a borrower--
``(A) of a loan under this part or part B for which
the first disbursement was made, or the application for
a consolidation loan was received, before July 1, 2016;
and
``(B) who meets the eligibility requirements based
on income or debt-to-income ratio established by the
Secretary.
``(2) Income requirements.--Not later than 180 days after
the date of enactment of the In the Red Act of 2016, the
Secretary shall establish eligibility requirements based on
income or debt-to-income ratio that take into consideration
providing access to refinancing under this section for
borrowers with the greatest financial need.
``(f) Notification to Borrowers.--The Secretary, in coordination
with the Director of the Bureau of Consumer Financial Protection, shall
undertake a campaign to alert borrowers of loans that are eligible for
refinancing under this section that the borrowers are eligible to apply
for such refinancing. The campaign shall include the following
activities:
``(1) Developing consumer information materials about the
availability of Federal student loan refinancing.
``(2) Requiring servicers of loans under this part or part
B to provide such consumer information to borrowers in a manner
determined appropriate by the Secretary, in consultation with
the Director of the Bureau of Consumer Financial Protection.
``SEC. 460B. FEDERAL DIRECT REFINANCED PRIVATE LOAN PROGRAM.
``(a) Definitions.--In this section:
``(1) Eligible private education loan.--The term `eligible
private education loan' means a private education loan, as
defined in section 140(a) of the Truth in Lending Act (15
U.S.C. 1650(a)), that--
``(A) was disbursed to the borrower before July 1,
2016; and
``(B) was for the borrower's own postsecondary
educational expenses for an eligible program at an
institution of higher education participating in the
loan program under this part, as of the date that the
loan was disbursed.
``(2) Federal direct refinanced private loan.--The term
`Federal Direct Refinanced Private Loan' means a loan issued
under subsection (b)(1).
``(3) Private educational lender.--The term `private
educational lender' has the meaning given the term in section
140(a) of the Truth in Lending Act (15 U.S.C. 1650(a)).
``(4) Qualified borrower.--The term `qualified borrower'
means an individual who--
``(A) has an eligible private education loan;
``(B) has been current on payments on the eligible
private education loan for the 6 months prior to the
date of the qualified borrower's application for
refinancing under this section, and is in good standing
on the loan at the time of such application;
``(C) is not in default on the eligible private
education loan or on any loan made, insured, or
guaranteed under this part or part B or E; and
``(D) meets the eligibility requirements described
in subsection (b)(2).
``(b) Program Authorized.--
``(1) In general.--The Secretary, in consultation with the
Secretary of the Treasury, shall carry out a program under
which the Secretary, upon application by a qualified borrower
who has an eligible private education loan, shall issue such
borrower a loan under this part in accordance with the
following:
``(A) The loan issued under this program shall be
in an amount equal to the sum of the unpaid principal,
accrued unpaid interest, and late charges of the
private education loan.
``(B) The Secretary shall pay the proceeds of the
loan issued under this program to the private
educational lender of the private education loan, in
order to discharge the qualified borrower from any
remaining obligation to the lender with respect to the
original loan.
``(C) The Secretary shall require that the
qualified borrower undergo loan counseling that
provides all of the information and counseling required
under clauses (i) through (viii) of section
485(b)(1)(A) before the loan is refinanced in
accordance with this section, and before the proceeds
of such loan are paid to the private educational
lender.
``(D) The Secretary shall issue the loan as a
Federal Direct Refinanced Private Loan, which shall
have the same terms, conditions, and benefits as a
Federal Direct Unsubsidized Stafford Loan, except as
otherwise provided in this section.
``(2) Borrower eligibility.--Not later than 180 days after
the date of enactment of the In the Red Act of 2016, the
Secretary, in consultation with the Secretary of the Treasury
and the Director of the Bureau of Consumer Financial
Protection, shall establish eligibility requirements--
``(A) based on income or debt-to-income ratio that
take into consideration providing access to refinancing
under this section for borrowers with the greatest
financial need;
``(B) to ensure eligibility only for borrowers in
good standing;
``(C) to minimize inequities between Federal Direct
Refinanced Private Loans and other Federal student
loans;
``(D) to preclude windfall profits for private
educational lenders; and
``(E) to ensure full access to the program
authorized in this subsection for borrowers with
private loans who otherwise meet the criteria
established in accordance with subparagraphs (A) and
(B).
``(c) Interest Rate.--
``(1) In general.--The interest rate for a Federal Direct
Refinanced Private Loan is--
``(A) in the case of a Federal Direct Refinanced
Private Loan for a private education loan originally
issued for undergraduate postsecondary educational
expenses, a rate equal to the rate for Federal Direct
Stafford Loans and Federal Direct Unsubsidized Stafford
Loans issued to undergraduate students for the 12-month
period beginning on July 1, 2013, and ending on June
30, 2014; and
``(B) in the case of a Federal Direct Refinanced
Private Loan for a private education loan originally
issued for graduate or professional degree
postsecondary educational expenses, a rate equal to the
rate for Federal Direct Unsubsidized Stafford Loans
issued to graduate or professional students for the 12-
month period beginning on July 1, 2013, and ending on
June 30, 2014.
``(2) Combined undergraduate and graduate study loans.--If
a Federal Direct Refinanced Private Loan is for a private
education loan originally issued for both undergraduate and
graduate or professional postsecondary educational expenses,
the interest rate shall be a rate equal to the rate for Federal
Direct PLUS Loans for the 12-month period beginning on July 1,
2013, and ending on June 30, 2014.
``(3) Fixed rate.--The applicable rate of interest
determined under this subsection for a Federal Direct
Refinanced Private Loan shall be fixed for the period of the
loan.
``(d) No Inclusion in Aggregate Limits.--The amount of a Federal
Direct Refinanced Private Loan, or a Federal Direct Consolidated Loan
to the extent such loan was used to repay a Federal Direct Refinanced
Private Loan, shall not be included in calculating a borrower's annual
or aggregate loan limits under section 428 or 428H.
``(e) No Eligibility for Service-Related Repayment.--
Notwithstanding sections 428K(a)(2)(A), 428L(b)(2), 455(m)(3)(A), and
460(b), a Federal Direct Refinanced Private Loan, or any Federal Direct
Consolidation Loan to the extent such loan was used to repay a Federal
Direct Refinanced Private Loan, shall not be eligible for any loan
repayment or loan forgiveness program under section 428K, 428L, or 460
or for the repayment plan for public service employees under section
455(m).
``(f) Private Educational Lender Reporting Requirement.--
``(1) Reporting required.--Not later than 180 days after
the date of enactment of the In the Red Act of 2016, the
Secretary, in consultation with the Secretary of the Treasury
and the Director of the Bureau of Consumer Financial
Protection, shall establish a requirement that private
educational lenders report the data described in paragraph (2)
to the Secretary, to Congress, to the Secretary of the
Treasury, and to the Director of the Bureau of Consumer
Financial Protection, in order to allow for an assessment of
the private education loan market.
``(2) Contents of reporting.--The data that private
educational lenders shall report in accordance with paragraph
(1) shall include each of the following about private education
loans (as defined in section 140(a) of the Truth in Lending Act
(15 U.S.C. 1650(a))):
``(A) The total amount of private education loan
debt the lender holds.
``(B) The total number of private education loan
borrowers the lender serves.
``(C) The average interest rate on the outstanding
private education loan debt held by the lender.
``(D) The proportion of private education loan
borrowers who are in default on a loan held by the
lender.
``(E) The proportion of the outstanding private
education loan volume held by the lender that is in
default.
``(F) The proportions of outstanding private
education loan borrowers who are 30, 60, and 90 days
delinquent.
``(G) The proportions of outstanding private
education loan volume that is 30, 60, and 90 days
delinquent.
``(g) Notification to Borrowers.--The Secretary, in coordination
with the Secretary of the Treasury and the Director of the Bureau of
Consumer Financial Protection, shall undertake a campaign to alert
borrowers about the availability of private student loan refinancing
under this section.''.
(c) Amendments to Public Service Repayment Plan Provisions.--
Section 455(m) of the Higher Education Act of 1965 (20 U.S.C. 1087e(m))
is amended--
(1) by redesignating paragraphs (3) and (4) as paragraphs
(4) and (5), respectively;
(2) by inserting after paragraph (2) the following:
``(3) Special rules for section 460a loans.--
``(A) Refinanced federal direct loans.--
Notwithstanding paragraph (1), in determining the
number of monthly payments that meet the requirements
of such paragraph for an eligible Federal Direct Loan
refinanced under section 460A that was originally a
loan under this part, the Secretary shall include all
monthly payments made on the original loan that meet
the requirements of such paragraph.
``(B) Refinanced ffel loans.--In the case of an
eligible Federal Direct Loan refinanced under section
460A that was originally a loan under part B, only
monthly payments made after the date on which the loan
was refinanced may be included for purposes of
paragraph (1).''; and
(3) in paragraph (4)(A) (as redesignated by paragraph (1)),
by inserting ``(including any Federal Direct Stafford Loan,
Federal Direct PLUS Loan, Federal Direct Unsubsidized Stafford
Loan, or Federal Direct Consolidation Loan refinanced under
section 460A)'' before the period at the end.
(d) Income-Based Repayment.--Section 493C of the Higher Education
Act of 1965 (20 U.S.C. 1098e) is amended by adding at the end the
following:
``(f) Special Rule for Refinanced Loans.--
``(1) Refinanced federal direct and ffel loans.--In
calculating the period of time during which a borrower of a
loan that is refinanced under section 460A has made monthly
payments for purposes of subsection (b)(7), the Secretary shall
deem the period to include all monthly payments made for the
original loan, and all monthly payments made for the refinanced
loan, that otherwise meet the requirements of this section.
``(2) Federal direct refinanced private loans.--In
calculating the period of time during which a borrower of a
Federal Direct Refinanced Private Loan under section 460B has
made monthly payments for purposes of subsection (b)(7), the
Secretary shall include only payments--
``(A) that are made after the date of the issuance
of the Federal Direct Refinanced Private Loan; and
``(B) that otherwise meet the requirements of this
section.''.
TITLE III--FEDERAL PELL GRANT PROTECTION
SEC. 301. FEDERAL PELL GRANT PROTECTION.
Section 401(b)(7) of the Higher Education Act of 1965 (20 U.S.C.
1070a(b)(7)) is amended--
(1) in subparagraph (A)(iii), by striking ``clauses (ii)
and (iii) of subparagraph (B)'' and inserting ``subparagraph
(B)(ii)''; and
(2) in subparagraph (C)--
(A) in clause (ii)--
(i) in the clause heading, by striking
``Award years 2014-2015 through 2017-2018'' and
inserting ``Award year 2014-2015 and subsequent
award years'';
(ii) in the matter preceding subclause (I),
by striking ``each of the award years 2014-2015
through 2017-2018'' and inserting ``award year
2014-2015 and each subsequent award year''; and
(iii) in subclause (I), by striking
``clause (iv)(II)'' and inserting ``clause
(iii)(II)'';
(B) by striking clause (iii); and
(C) by redesignating clause (iv) as clause (iii).
SEC. 302. POINT OF ORDER AGAINST CUTTING FEDERAL PELL GRANTS.
(a) Point of Order.--It shall not be in order in the Senate to
consider any bill, joint resolution, motion, amendment, amendment
between the Houses, or conference report that would decrease the
appropriations provided for Federal Pell Grants under section 401(b)(7)
of the Higher Education Act of 1965 (20 U.S.C. 1070a(b)(7)) or restrict
eligibility for Federal Pell Grants.
(b) Waiver and Appeal.--Subsection (a) may be waived or suspended
in the Senate only by an affirmative vote of three-fifths of the
Members, duly chosen and sworn. An affirmative vote of three-fifths of
the Members of the Senate, duly chosen and sworn, shall be required to
sustain an appeal of the ruling of the Chair on a point of order raised
under subsection (a).
SEC. 303. AFFIRMING THAT FEDERAL PELL GRANTS ARE A FOUNDATIONAL
INVESTMENT IN AFFORDABLE HIGHER EDUCATION.
(a) Findings.--Congress finds the following:
(1) Research shows that with higher educational attainment,
individuals are more likely to be employed, earn higher wages,
secure health and retirement benefits, make healthier life
choices, and be more engaged citizens of their communities.
(2) Higher education, whether at a 2- or 4-year
institution, can help people of the United States from lower
income backgrounds climb into the middle class.
(3) In 2015, more than 20,000,000 students enrolled in
colleges and universities in the United States--an increase of
4,900,000 since 2000.
(4) Despite the benefits of further education beyond high
school, many students from low-income backgrounds do not attend
college. According to the United States Census Bureau,
approximately 80 percent of high school graduates from the
wealthiest families pursue higher education, while only a
little more than half from the lowest income quartile attend
college.
(5) Federal Pell Grants provide need-based aid to students
who want to further their education and are the single largest
source of grant aid for helping students afford college.
(6) In award year 2013-2014, an estimated 73 percent of all
Pell Grant recipients had a total family income equal to or
less than $30,000.
(7) In 2015, more than 8,200,000 students, or approximately
41 percent of all undergraduates, used Federal Pell Grants to
finance their education.
(b) Sense of the Senate.--It is the sense of the Senate that
Congress should--
(1) affirm that Federal Pell Grants are a foundational
investment in affordable higher education for students and
families; and
(2) commit to ensuring that Federal Pell Grants remain a
stable source of financial support for students and families.
TITLE IV--ACCOUNTABILITY
SEC. 401. SUPPORTING EFFORTS TO ENSURE THAT INSTITUTIONS OF HIGHER
EDUCATION ARE ACCOUNTABLE FOR ENSURING THE HIGH VALUE OF
DEGREES AND CREDENTIALS.
(a) Findings.--Congress finds the following:
(1) The employment rate for people of the United States
between the ages of 21 to 25 has declined by 12 percent from
2000 through 2012.
(2) The cost of attending a 4-year public institution of
higher education has increased by 32 percent from 2002 through
2012.
(3) More than 1 in 4 student loan borrowers are now in
default or delinquent on a student loan.
(4) There are limited means through which to ensure that
institutions of higher education are held accountable for the
value of the degrees and credentials obtained by students, or
the outcomes of those students.
(5) Student borrowers who obtain a high-value degree or
credential are much more likely to be able to find a good
paying job and repay their student loan debt.
(b) Sense of the Senate.--It is the sense of the Senate that
Congress should support efforts to ensure that institutions of higher
education have strong incentives to ensure that students graduate with
degrees and credentials that have a high value, and that will enable
graduates to secure good-paying employment in their field of study and
enjoy long-term success, by--
(1) enhancing accountability for institutions of higher
education for the quality and cost of degree programs,
including student debt burden;
(2) holding institutions of higher education and their
leaders financially accountable when the institutions or
leaders engage in fraud or misconduct that violates Federal and
State laws;
(3) creating incentives and tools that will allow State
governments and institutions of higher education to curb
tuition inflation and maintain investment in higher education;
(4) creating incentives for institutions of higher
education to direct more resources to their academic programs
and to provide pathways to ensure that all students can
complete their degrees and credentials in a timely manner; and
(5) guaranteeing that the servicing of student loans made,
insured, or guaranteed under part B or D of title IV of the
Higher Education Act of 1965 (20 U.S.C. 1071 et seq., 1087a et
seq.) provided through these institutions of higher education
will meet the highest standards of quality, customer service,
and compliance with the law to promote borrower success and
minimize defaults.
TITLE V--OFFSETS
SEC. 501. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in this title an
amendment or repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be considered to
be made to a section or other provision of the Internal Revenue Code of
1986.
SEC. 502. FAIR SHARE TAX ON HIGH-INCOME TAXPAYERS.
(a) In General.--Subchapter A of chapter 1 is amended by adding at
the end the following new part:
``PART VII--FAIR SHARE TAX ON HIGH-INCOME TAXPAYERS
``Sec. 59A. Fair share tax.
``SEC. 59A. FAIR SHARE TAX.
``(a) General Rule.--
``(1) Phase-in of tax.--In the case of any high-income
taxpayer, there is hereby imposed for a taxable year (in
addition to any other tax imposed by this subtitle) a tax equal
to the product of--
``(A) the amount determined under paragraph (2),
and
``(B) a fraction (not to exceed 1)--
``(i) the numerator of which is the excess
of--
``(I) the taxpayer's adjusted gross
income, over
``(II) the dollar amount in effect
under subsection (c)(1), and
``(ii) the denominator of which is the
dollar amount in effect under subsection
(c)(1).
``(2) Amount of tax.--The amount of tax determined under
this paragraph is an amount equal to the excess (if any) of--
``(A) the tentative fair share tax for the taxable
year, over
``(B) the excess of--
``(i) the sum of--
``(I) the regular tax liability (as
defined in section 26(b)) for the
taxable year, determined without regard
to any tax liability determined under
this section,
``(II) the tax imposed by section
55 for the taxable year, plus
``(III) the payroll tax for the
taxable year, over
``(ii) the credits allowable under part IV
of subchapter A (other than sections 27(a), 31,
and 34).
``(b) Tentative Fair Share Tax.--For purposes of this section--
``(1) In general.--The tentative fair share tax for the
taxable year is 30 percent of the excess of--
``(A) the adjusted gross income of the taxpayer,
over
``(B) the modified charitable contribution
deduction for the taxable year.
``(2) Modified charitable contribution deduction.--For
purposes of paragraph (1)--
``(A) In general.--The modified charitable
contribution deduction for any taxable year is an
amount equal to the amount which bears the same ratio
to the deduction allowable under section 170 (section
642(c) in the case of a trust or estate) for such
taxable year as--
``(i) the amount of itemized deductions
allowable under the regular tax (as defined in
section 55) for such taxable year, determined
after the application of section 68, bears to
``(ii) such amount, determined before the
application of section 68.
``(B) Taxpayer must itemize.--In the case of any
individual who does not elect to itemize deductions for
the taxable year, the modified charitable contribution
deduction shall be zero.
``(c) High-Income Taxpayer.--For purposes of this section--
``(1) In general.--The term `high-income taxpayer' means,
with respect to any taxable year, any taxpayer (other than a
corporation) with an adjusted gross income for such taxable
year in excess of $1,000,000 (50 percent of such amount in the
case of a married individual who files a separate return).
``(2) Inflation adjustment.--
``(A) In general.--In the case of a taxable year
beginning after 2016, the $1,000,000 amount under
paragraph (1) shall be increased by an amount equal
to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(f)(3) for the
calendar year in which the taxable year begins,
determined by substituting `calendar year 2015'
for `calendar year 1992' in subparagraph (B)
thereof.
``(B) Rounding.--If any amount as adjusted under
subparagraph (A) is not a multiple of $10,000, such
amount shall be rounded to the next lowest multiple of
$10,000.
``(d) Payroll Tax.--For purposes of this section, the payroll tax
for any taxable year is an amount equal to the excess of--
``(1) the taxes imposed on the taxpayer under sections
1401, 1411, 3101, 3201, and 3211(a) (to the extent such tax is
attributable to the rate of tax in effect under section 3101)
with respect to such taxable year or wages or compensation
received during such taxable year, over
``(2) the deduction allowable under section 164(f) for such
taxable year.
``(e) Special Rule for Estates and Trusts.--For purposes of this
section, in the case of an estate or trust, adjusted gross income shall
be computed in the manner described in section 67(e).
``(f) Not Treated as Tax Imposed by This Chapter for Certain
Purposes.--The tax imposed under this section shall not be treated as
tax imposed by this chapter for purposes of determining the amount of
any credit under this chapter (other than the credit allowed under
section 27(a)) or for purposes of section 55.''.
(b) Clerical Amendment.--The table of parts for subchapter A of
chapter 1 is amended by adding at the end the following new item:
``Part VII. Fair Share Tax on High-Income Taxpayers''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2015.
SEC. 503. EXPANSION OF DENIAL OF DEDUCTION FOR CERTAIN EXCESSIVE
EMPLOYEE REMUNERATION.
(a) Application to All Current and Former Employees.--
(1) In general.--Section 162(m) is amended--
(A) by striking ``covered employee'' each place it
appears in paragraphs (1) and (4) and inserting
``covered individual'', and
(B) by striking ``such employee'' each place it
appears in subparagraphs (A) and (G) of paragraph (4)
and inserting ``such individual''.
(2) Covered individual.--Paragraph (3) of section 162(m) is
amended to read as follows:
``(3) Covered individual.--For purposes of this subsection,
the term `covered individual' means any individual who is an
officer, director, or employee of the taxpayer or a former
officer, director, or employee of the taxpayer.''.
(3) Conforming amendments.--
(A) Section 48D(b)(3)(A) is amended by inserting
``(as in effect for taxable years beginning before
January 1, 2016)'' after ``section 162(m)(3)''.
(B) Section 409A(b)(3)(D)(ii) is amended by
inserting ``(as in effect for taxable years beginning
before January 1, 2016)'' after ``section 162(m)(3)''.
(b) Expansion of Applicable Employee Remuneration.--
(1) Elimination of exception for commission-based pay.--
(A) In general.--Paragraph (4) of section 162(m),
as amended by subsection (a), is amended by striking
subparagraph (B) and by redesignating subparagraphs (C)
through (G) as subparagraphs (B) through (F),
respectively.
(B) Conforming amendments.--
(i) Section 162(m)(5) is amended--
(I) by striking ``subparagraphs
(B), (C), and (D) thereof'' in
subparagraph (E) and inserting
``subparagraphs (B) and (C) thereof'',
and
(II) by striking ``subparagraphs
(F) and (G)'' in subparagraph (G) and
inserting ``subparagraphs (E) and
(F)''.
(ii) Section 162(m)(6) is amended--
(I) by striking ``subparagraphs
(B), (C), and (D) thereof'' in
subparagraph (D) and inserting
``subparagraphs (B) and (C) thereof'',
and
(II) by striking ``subparagraphs
(F) and (G)'' in subparagraph (G) and
inserting ``subparagraphs (E) and
(F)''.
(2) Inclusion of performance-based compensation.--
(A) In general.--Paragraph (4) of section 162(m),
as amended by subsection (a) and paragraph (1) of this
subsection, is amended by striking subparagraph (B) and
redesignating subparagraphs (C) through (F) as
subparagraphs (B) through (E), respectively.
(B) Conforming amendments.--
(i) Section 162(m)(5), as amended by
paragraph (1), is amended--
(I) by striking ``subparagraphs (B)
and (C) thereof'' in subparagraph (E)
and inserting ``subparagraph (B)
thereof'', and
(II) by striking ``subparagraphs
(E) and (F)'' in subparagraph (G) and
inserting ``subparagraphs (D) and
(E)''.
(ii) Section 162(m)(6), as amended by
paragraph (1), is amended--
(I) by striking ``subparagraphs (B)
and (C) thereof'' in subparagraph (D)
and inserting ``subparagraph (B)
thereof'', and
(II) by striking ``subparagraphs
(E) and (F)'' in subparagraph (G) and
inserting ``subparagraphs (D) and
(E)''.
(c) Expansion of Applicable Employer.--Paragraph (2) of section
162(m) is amended to read as follows:
``(2) Publicly held corporation.--For purposes of this
subsection, the term `publicly held corporation' means any
corporation which is an issuer (as defined in section 3 of the
Securities Exchange Act of 1934 (15 U.S.C. 78c))--
``(A) the securities of which are registered under
section 12 of such Act (15 U.S.C. 78l), or
``(B) that is required to file reports under
section 15(d) of such Act (15 U.S.C. 780(d)).''.
(d) Regulatory Authority.--
(1) In general.--Section 162(m) is amended by adding at the
end the following new paragraph:
``(7) Regulations.--The Secretary may prescribe such
guidance, rules, or regulations, including with respect to
reporting, as are necessary to carry out the purposes of this
subsection.''.
(2) Conforming amendment.--Paragraph (6) of section 162(m)
is amended by striking subparagraph (H).
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2015.
SEC. 504. PARTNERSHIP INTERESTS TRANSFERRED IN CONNECTION WITH
PERFORMANCE OF SERVICES.
(a) Modification to Election To Include Partnership Interest in
Gross Income in Year of Transfer.--Subsection (c) of section 83 is
amended by redesignating paragraph (4) as paragraph (5) and by
inserting after paragraph (3) the following new paragraph:
``(4) Partnership interests.--Except as provided by the
Secretary--
``(A) In general.--In the case of any transfer of
an interest in a partnership in connection with the
provision of services to (or for the benefit of) such
partnership--
``(i) the fair market value of such
interest shall be treated for purposes of this
section as being equal to the amount of the
distribution which the partner would receive if
the partnership sold (at the time of the
transfer) all of its assets at fair market
value and distributed the proceeds of such sale
(reduced by the liabilities of the partnership)
to its partners in liquidation of the
partnership, and
``(ii) the person receiving such interest
shall be treated as having made the election
under subsection (b)(1) unless such person
makes an election under this paragraph to have
such subsection not apply.
``(B) Election.--The election under subparagraph
(A)(ii) shall be made under rules similar to the rules
of subsection (b)(2).''.
(b) Effective Date.--The amendments made by this section shall
apply to interests in partnerships transferred after the date of the
enactment of this Act.
SEC. 505. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT
SERVICES TO PARTNERSHIPS.
(a) In General.--Part I of subchapter K of chapter 1 is amended by
adding at the end the following new section:
``SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT
SERVICES TO PARTNERSHIPS.
``(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) an amount equal to the net capital gain with
respect to such interest for any partnership taxable
year shall be treated as ordinary income, and
``(B) subject to the limitation of paragraph (2),
an amount equal to the net capital loss with respect to
such interest for any partnership taxable year shall be
treated as an ordinary loss.
``(2) Recharacterization of losses limited to
recharacterized gains.--The amount treated as ordinary loss
under paragraph (1)(B) for any taxable year shall not exceed
the excess (if any) of--
``(A) the aggregate amount treated as ordinary
income under paragraph (1)(A) with respect to the
investment services partnership interest for all
preceding partnership taxable years to which this
section applies, over
``(B) the aggregate amount treated as ordinary loss
under paragraph (1)(B) with respect to such interest
for all preceding partnership taxable years to which
this section applies.
``(3) Allocation to items of gain and loss.--
``(A) Net capital gain.--The amount treated as
ordinary income under paragraph (1)(A) shall be
allocated ratably among the items of long-term capital
gain taken into account in determining such net capital
gain.
``(B) Net capital loss.--The amount treated as
ordinary loss under paragraph (1)(B) shall be allocated
ratably among the items of long-term capital loss and
short-term capital loss taken into account in
determining such net capital loss.
``(4) Terms relating to capital gains and losses.--For
purposes of this section--
``(A) In general.--Net capital gain, long-term
capital gain, and long-term capital loss, with respect
to any investment services partnership interest for any
taxable year, shall be determined under section 1222,
except that such section shall be applied--
``(i) without regard to the
recharacterization of any item as ordinary
income or ordinary loss under this section,
``(ii) by only taking into account items of
gain and loss taken into account by the holder
of such interest under section 702 (other than
subsection (a)(9) thereof) with respect to such
interest for such taxable year, and
``(iii) by treating property which is taken
into account in determining gains and losses to
which section 1231 applies as capital assets
held for more than 1 year.
``(B) Net capital loss.--The term `net capital
loss' means the excess of the losses from sales or
exchanges of capital assets over the gains from such
sales or exchanges. Rules similar to the rules of
clauses (i) through (iii) of subparagraph (A) shall
apply for purposes of the preceding sentence.
``(5) Special rule for dividends.--Any dividend allocated
with respect to any investment services partnership interest
shall not be treated as qualified dividend income for purposes
of section 1(h).
``(6) Special rule for qualified small business stock.--
Section 1202 shall not apply to any gain from the sale or
exchange of qualified small business stock (as defined in
section 1202(c)) allocated with respect to any investment
services partnership interest.
``(b) Dispositions of Partnership Interests.--
``(1) Gain.--
``(A) In general.--Any gain on the disposition of
an investment services partnership interest shall be--
``(i) treated as ordinary income, and
``(ii) recognized notwithstanding any other
provision of this subtitle.
``(B) Gift and transfers at death.--In the case of
a disposition of an investment services partnership
interest by gift or by reason of death of the
taxpayer--
``(i) subparagraph (A) shall not apply,
``(ii) such interest shall be treated as an
investment services partnership interest in the
hands of the person acquiring such interest,
and
``(iii) any amount that would have been
treated as ordinary income under this
subsection had the decedent sold such interest
immediately before death shall be treated as an
item of income in respect of a decedent under
section 691.
``(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 amount treated as ordinary
income under subsection (a) with respect to such
interest for all partnership taxable years to which
this section applies, over
``(B) the aggregate amount treated as ordinary loss
under subsection (a) with respect to such interest for
all partnership taxable years to which this section
applies.
``(3) Election with respect to certain exchanges.--
Paragraph (1)(A)(ii) shall not apply to the contribution of an
investment services partnership interest to a partnership in
exchange for an interest in such partnership if--
``(A) the taxpayer makes an irrevocable election to
treat the partnership interest received in the exchange
as an investment services partnership interest, and
``(B) the taxpayer agrees to comply with such
reporting and recordkeeping requirements as the
Secretary may prescribe.
``(4) Distributions of partnership property.--
``(A) In general.--In the case of any distribution
of property by a partnership with respect to any
investment services partnership interest held by a
partner, the partner receiving such property shall
recognize gain equal to the excess (if any) of--
``(i) the fair market value of such
property at the time of such distribution, over
``(ii) the adjusted basis of such property
in the hands of such partner (determined
without regard to subparagraph (C)).
``(B) Treatment of gain as ordinary income.--Any
gain recognized by such partner under subparagraph (A)
shall be treated as ordinary income to the same extent
and in the same manner as the increase in such
partner's distributive share of the taxable income of
the partnership would be treated under subsection (a)
if, immediately prior to the distribution, the
partnership had sold the distributed property at fair
market value and all of the gain from such disposition
were allocated to such partner. For purposes of
applying subsection (a)(2), any gain treated as
ordinary income under this subparagraph shall be
treated as an amount treated as ordinary income under
subsection (a)(1)(A).
``(C) Adjustment of basis.--In the case of a
distribution to which subparagraph (A) applies, the
basis of the distributed property in the hands of the
distributee partner shall be the fair market value of
such property.
``(D) Special rules with respect to mergers,
divisions, and technical terminations.--In the case of
a taxpayer which satisfies requirements similar to the
requirements of subparagraphs (A) and (B) of paragraph
(3), this paragraph and paragraph (1)(A)(ii) shall not
apply to the distribution of a partnership interest if
such distribution is in connection with a contribution
(or deemed contribution) of any property of the
partnership to which section 721 applies pursuant to a
transaction described in paragraph (1)(B) or (2) of
section 708(b).
``(c) Investment Services Partnership Interest.--For purposes of
this section--
``(1) In general.--The term `investment services
partnership interest' means any interest in an investment
partnership acquired or held by any person in connection with
the conduct of a trade or business described in paragraph (2)
by such person (or any person related to such person). An
interest in an investment partnership held by any person--
``(A) shall not be treated as an investment
services partnership interest for any period before the
first date on which it is so held in connection with
such a trade or business,
``(B) shall not cease to be an investment services
partnership interest merely because such person holds
such interest other than in connection with such a
trade or business, and
``(C) shall be treated as an investment services
partnership interest if acquired from a related person
in whose hands such interest was an investment services
partnership interest.
``(2) Businesses to which this section applies.--A trade or
business is described in this paragraph if such trade or
business primarily involves the performance of any of the
following services with respect to assets held (directly or
indirectly) by one or more investment partnerships referred to
in paragraph (1):
``(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).
``(3) Investment partnership.--
``(A) In general.--The term `investment
partnership' means any partnership if, at the end of
any two consecutive calendar quarters ending after the
date of enactment of this section--
``(i) substantially all of the assets of
the partnership are specified assets
(determined without regard to any section 197
intangible within the meaning of section
197(d)), and
``(ii) less than 75 percent of the capital
of the partnership is attributable to qualified
capital interests which constitute property
held in connection with a trade or business of
the owner of such interest.
``(B) Look-through of certain wholly owned entities
for purposes of determining assets of the
partnership.--
``(i) In general.--For purposes of
determining the assets of a partnership under
subparagraph (A)(i)--
``(I) any interest in a specified
entity shall not be treated as an asset
of such partnership, and
``(II) such partnership shall be
treated as holding its proportionate
share of each of the assets of such
specified entity.
``(ii) Specified entity.--For purposes of
clause (i), the term `specified entity' means,
with respect to any partnership (hereafter
referred to as the upper-tier partnership), any
person which engages in the same trade or
business as the upper-tier partnership and is--
``(I) a partnership all of the
capital and profits interests of which
are held directly or indirectly by the
upper-tier partnership, or
``(II) a foreign corporation which
does not engage in a trade or business
in the United States and all of the
stock of which is held directly or
indirectly by the upper-tier
partnership.
``(C) Special rules for determining if property
held in connection with trade or business.--
``(i) In general.--Except as otherwise
provided by the Secretary, solely for purposes
of determining whether any interest in a
partnership constitutes property held in
connection with a trade or business under
subparagraph (A)(ii)--
``(I) a trade or business of any
person closely related to the owner of
such interest shall be treated as a
trade or business of such owner,
``(II) such interest shall be
treated as held by a person in
connection with a trade or business
during any taxable year if such
interest was so held by such person
during any 3 taxable years preceding
such taxable year, and
``(III) paragraph (5)(B) shall not
apply.
``(ii) Closely related persons.--For
purposes of clause (i)(I), a person shall be
treated as closely related to another person
if, taking into account the rules of section
267(c), the relationship between such persons
is described in--
``(I) paragraph (1) or (9) of
section 267(b), or
``(II) section 267(b)(4), but
solely in the case of a trust with
respect to which each current
beneficiary is the grantor or a person
whose relationship to the grantor is
described in paragraph (1) or (9) of
section 267(b).
``(D) Anti-abuse rules.--The Secretary may issue
regulations or other guidance which prevent the
avoidance of the purposes of subparagraph (A),
including regulations or other guidance which treat
convertible and contingent debt (and other debt having
the attributes of equity) as a capital interest in the
partnership.
``(E) Controlled groups of entities.--
``(i) In general.--In the case of a
controlled group of entities, if an interest in
the partnership received in exchange for a
contribution to the capital of the partnership
by any member of such controlled group would
(in the hands of such member) constitute
property held in connection with a trade or
business, then any interest in such partnership
held by any member of such group shall be
treated for purposes of subparagraph (A) as
constituting (in the hands of such member)
property held in connection with a trade or
business.
``(ii) Controlled group of entities.--For
purposes of clause (i), the term `controlled
group of entities' means a controlled group of
corporations as defined in section 1563(a)(1),
applied without regard to subsections (a)(4)
and (b)(2) of section 1563. A partnership or
any other entity (other than a corporation)
shall be treated as a member of a controlled
group of entities if such entity is controlled
(within the meaning of section 954(d)(3)) by
members of such group (including any entity
treated as a member of such group by reason of
this sentence).
``(F) Special rule for corporations.--For purposes
of this paragraph, in the case of a corporation, the
determination of whether property is held in connection
with a trade or business shall be determined as if the
taxpayer were an individual.
``(4) Specified asset.--The term `specified asset' means
securities (as defined in section 475(c)(2) without regard to
the last sentence thereof), real estate held for rental or
investment, interests in partnerships, commodities (as defined
in section 475(e)(2)), cash or cash equivalents, or options or
derivative contracts with respect to any of the foregoing.
``(5) Related persons.--
``(A) In general.--A person shall be treated as
related to another person if the relationship between
such persons is described in section 267(b) or 707(b).
``(B) Attribution of partner services.--Any service
described in paragraph (2) which is provided by a
partner of a partnership shall be treated as also
provided by such partnership.
``(d) Exception for Certain Capital Interests.--
``(1) In general.--In the case of any portion of an
investment services partnership interest which is a qualified
capital interest, all items of gain and loss (and any
dividends) which are allocated to such qualified capital
interest shall not be taken into account under subsection (a)
if--
``(A) allocations of items are made by the
partnership to such qualified capital interest in the
same manner as such allocations are made to other
qualified capital interests held by partners who do not
provide any services described in subsection (c)(2) and
who are not related to the partner holding the
qualified capital interest, and
``(B) the allocations made to such other interests
are significant compared to the allocations made to
such qualified capital interest.
``(2) Authority to provide exceptions to allocation
requirements.--To the extent provided by the Secretary in
regulations or other guidance--
``(A) Allocations to portion of qualified capital
interest.--Paragraph (1) may be applied separately with
respect to a portion of a qualified capital interest.
``(B) No or insignificant allocations to nonservice
providers.--In any case in which the requirements of
paragraph (1)(B) are not satisfied, items of gain and
loss (and any dividends) shall not be taken into
account under subsection (a) to the extent that such
items are properly allocable under such regulations or
other guidance to qualified capital interests.
``(C) Allocations to service providers' qualified
capital interests which are less than other
allocations.--Allocations shall not be treated as
failing to meet the requirement of paragraph (1)(A)
merely because the allocations to the qualified capital
interest represent a lower return than the allocations
made to the other qualified capital interests referred
to in such paragraph.
``(3) Special rule for changes in services and capital
contributions.--In the case of an interest in a partnership
which was not an investment services partnership interest and
which, by reason of a change in the services with respect to
assets held (directly or indirectly) by the partnership or by
reason of a change in the capital contributions to such
partnership, becomes an investment services partnership
interest, the qualified capital interest of the holder of such
partnership interest immediately after such change shall not,
for purposes of this subsection, be less than the fair market
value of such interest (determined immediately before such
change).
``(4) Special rule for tiered partnerships.--Except as
otherwise provided by the Secretary, in the case of tiered
partnerships, all items which are allocated in a manner which
meets the requirements of paragraph (1) to qualified capital
interests in a lower-tier partnership shall retain such
character to the extent allocated on the basis of qualified
capital interests in any upper-tier partnership.
``(5) Exception for no-self-charged carry and management
fee provisions.--Except as otherwise provided by the Secretary,
an interest shall not fail to be treated as satisfying the
requirement of paragraph (1)(A) merely because the allocations
made by the partnership to such interest do not reflect the
cost of services described in subsection (c)(2) which are
provided (directly or indirectly) to the partnership by the
holder of such interest (or a related person).
``(6) Special rule for dispositions.--In the case of any
investment services partnership interest any portion of which
is a qualified capital interest, subsection (b) shall not apply
to so much of any gain or loss as bears the same proportion to
the entire amount of such gain or loss as--
``(A) the distributive share of gain or loss that
would have been allocated to the qualified capital
interest (consistent with the requirements of paragraph
(1)) if the partnership had sold all of its assets at
fair market value immediately before the disposition,
bears to
``(B) the distributive share of gain or loss that
would have been so allocated to the investment services
partnership interest of which such qualified capital
interest is a part.
``(7) Qualified capital interest.--For purposes of this
section--
``(A) In general.--The term `qualified capital
interest' means so much of a partner's interest in the
capital of the partnership as is attributable to--
``(i) the fair market value of any money or
other property contributed to the partnership
in exchange for such interest (determined
without regard to section 752(a)),
``(ii) any amounts which have been included
in gross income under section 83 with respect
to the transfer of such interest, and
``(iii) the excess (if any) of--
``(I) any items of income and gain
taken into account under section 702
with respect to such interest, over
``(II) any items of deduction and
loss so taken into account.
``(B) Adjustment to qualified capital interest.--
``(i) Distributions and losses.--The
qualified capital interest shall be reduced by
distributions from the partnership with respect
to such interest and by the excess (if any) of
the amount described in subparagraph
(A)(iii)(II) over the amount described in
subparagraph (A)(iii)(I).
``(ii) Special rule for contributions of
property.--In the case of any contribution of
property described in subparagraph (A)(i) with
respect to which the fair market value of such
property is not equal to the adjusted basis of
such property immediately before such
contribution, proper adjustments shall be made
to the qualified capital interest to take into
account such difference consistent with such
regulations or other guidance as the Secretary
may provide.
``(C) Technical terminations, etc., disregarded.--
No increase or decrease in the qualified capital
interest of any partner shall result from a
termination, merger, consolidation, or division
described in section 708, or any similar transaction.
``(8) Treatment of certain loans.--
``(A) Proceeds of partnership loans not treated as
qualified capital interest of service providing
partners.--For purposes of this subsection, an
investment services partnership interest shall not be
treated as a qualified capital interest to the extent
that such interest is acquired in connection with the
proceeds of any loan or other advance made or
guaranteed, directly or indirectly, by any other
partner or the partnership (or any person related to
any such other partner or the partnership). The
preceding sentence shall not apply to the extent the
loan or other advance is repaid before the date of the
enactment of this section unless such repayment is made
with the proceeds of a loan or other advance described
in the preceding sentence.
``(B) Reduction in allocations to qualified capital
interests for loans from nonservice-providing partners
to the partnership.--For purposes of this subsection,
any loan or other advance to the partnership made or
guaranteed, directly or indirectly, by a partner not
providing services described in subsection (c)(2) to
the partnership (or any person related to such partner)
shall be taken into account in determining the
qualified capital interests of the partners in the
partnership.
``(9) Special rule for qualified family partnerships.--
``(A) In general.--In the case of any specified
family partnership interest, paragraph (1)(A) shall be
applied without regard to the phrase `and who are not
related to the partner holding the qualified capital
interest'.
``(B) Specified family partnership interest.--For
purposes of this paragraph, the term `specified family
partnership interest' means any investment services
partnership interest if--
``(i) such interest is an interest in a
qualified family partnership,
``(ii) such interest is held by a natural
person or by a trust with respect to which each
beneficiary is a grantor or a person whose
relationship to the grantor is described in
section 267(b)(1), and
``(iii) all other interests in such
qualified family partnership with respect to
which significant allocations are made (within
the meaning of paragraph (1)(B) and in
comparison to the allocations made to the
interest described in clause (ii)) are held by
persons who--
``(I) are related to the natural
person or trust referred to in clause
(ii), or
``(II) provide services described
in subsection (c)(2).
``(C) Qualified family partnership.--For purposes
of this paragraph, the term `qualified family
partnership' means any partnership if--
``(i) all of the capital and profits
interests of such partnership are held by--
``(I) specified family members,
``(II) any person closely related
(within the meaning of subsection
(c)(3)(C)(ii)) to a specified family
member, or
``(III) any other person (not
described in subclause (I) or (II)) if
such interest is an investment services
partnership interest with respect to
such person, and
``(ii) such partnership does not hold
itself out to the public as an investment
advisor.
``(D) Specified family members.--For purposes of
subparagraph (C), individuals shall be treated as
specified family members if such individuals would be
treated as one person under the rules of section
1361(c)(1) if the applicable date (within the meaning
of subparagraph (B)(iii) thereof) were the latest of--
``(i) the date of the establishment of the
partnership,
``(ii) the earliest date that the common
ancestor holds a capital or profits interest in
the partnership, or
``(iii) the date of the enactment of this
section.
``(e) 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 investment
entity,
``(B) such person holds (directly or indirectly) 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. Rules similar to the rules of
subsections (a)(5) and (d) shall apply for purposes of this
subsection.
``(2) Definitions.--For purposes of this subsection--
``(A) Disqualified interest.--
``(i) In general.--The term `disqualified
interest' means, with respect to any investment
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
subclause (I) or (II), and
``(IV) any derivative instrument
entered into (directly or indirectly)
with such entity or any investor in
such entity.
``(ii) Exceptions.--Such term shall not
include--
``(I) a partnership interest,
``(II) except as provided by the
Secretary, any interest in a taxable
corporation, and
``(III) except as provided by the
Secretary, stock in an S corporation.
``(B) Taxable corporation.--The term `taxable
corporation' means--
``(i) a domestic C corporation, or
``(ii) a foreign corporation substantially
all of the income of which is--
``(I) effectively connected with
the conduct of a trade or business in
the United States, or
``(II) subject to a comprehensive
foreign income tax (as defined in
section 457A(d)(2)).
``(C) Investment management services.--The term
`investment management services' means a substantial
quantity of any of the services described in subsection
(c)(2).
``(D) Investment entity.--The term `investment
entity' means any entity which, if it were a
partnership, would be an investment partnership.
``(f) Exception for Domestic C Corporations.--Except as otherwise
provided by the Secretary, in the case of a domestic C corporation--
``(1) subsections (a) and (b) shall not apply to any item
allocated to such corporation with respect to any investment
services partnership interest (or to any gain or loss with
respect to the disposition of such an interest), and
``(2) subsection (e) shall not apply.
``(g) Regulations.--The Secretary shall prescribe such regulations
or other guidance as is necessary or appropriate to carry out the
purposes of this section, including regulations or other guidance to--
``(1) require such reporting and recordkeeping by any
person in such manner and at such time as the Secretary may
prescribe for purposes of enabling the partnership to meet the
requirements of section 6031 with respect to any item described
in section 702(a)(9),
``(2) provide modifications to the application of this
section (including treating related persons as not related to
one another) to the extent such modification is consistent with
the purposes of this section,
``(3) prevent the avoidance of the purposes of this section
(including through the use of qualified family partnerships),
and
``(4) coordinate this section with the other provisions of
this title.
``(h) Cross Reference.--For 40-percent penalty on certain
underpayments due to the avoidance of this section, see section
6662.''.
(b) Application of Section 751 to Indirect Dispositions of
Investment Services Partnership Interests.--
(1) In general.--Subsection (a) of section 751 is amended
by striking ``or'' at the end of paragraph (1), by inserting
``or'' at the end of paragraph (2), and by inserting after
paragraph (2) the following new paragraph:
``(3) investment services partnership interests held by the
partnership,''.
(2) Certain distributions treated as sales or exchanges.--
Subparagraph (A) of section 751(b)(1) is amended by striking
``or'' at the end of clause (i), by inserting ``or'' at the end
of clause (ii), and by inserting after clause (ii) the
following new clause:
``(iii) investment services partnership
interests held by the partnership,''.
(3) Application of special rules in the case of tiered
partnerships.--Subsection (f) of section 751 is amended--
(A) by striking ``or'' at the end of paragraph (1),
by inserting ``or'' at the end of paragraph (2), and by
inserting after paragraph (2) the following new
paragraph:
``(3) an investment services partnership interest held by
the partnership,'', and
(B) by striking ``partner.'' and inserting
``partner (other than a partnership in which it holds
an investment services partnership interest).''.
(4) Investment services partnership interests; qualified
capital interests.--Section 751 is amended by adding at the end
the following new subsection:
``(g) Investment Services Partnership Interests.--For purposes of
this section--
``(1) In general.--The term `investment services
partnership interest' has the meaning given such term by
section 710(c).
``(2) Adjustments for qualified capital interests.--The
amount to which subsection (a) applies by reason of paragraph
(3) thereof shall not include so much of such amount as is
attributable to any portion of the investment services
partnership interest which is a qualified capital interest
(determined under rules similar to the rules of section
710(d)).
``(3) Exception for publicly traded partnerships.--Except
as otherwise provided by the Secretary, in the case of an
exchange of an interest in a publicly traded partnership (as
defined in section 7704) to which subsection (a) applies--
``(A) this section shall be applied without regard
to subsections (a)(3), (b)(1)(A)(iii), and (f)(3), and
``(B) such partnership shall be treated as owning
its proportionate share of the property of any other
partnership in which it is a partner.
``(4) Recognition of gains.--Any gain with respect to which
subsection (a) applies by reason of paragraph (3) thereof shall
be recognized notwithstanding any other provision of this
title.
``(5) Coordination with inventory items.--An investment
services partnership interest held by the partnership shall not
be treated as an inventory item of the partnership.
``(6) Prevention of double counting.--Under regulations or
other guidance prescribed by the Secretary, subsection (a)(3)
shall not apply with respect to any amount to which section 710
applies.
``(7) Valuation methods.--The Secretary shall prescribe
regulations or other guidance which provide the acceptable
methods for valuing investment services partnership interests
for purposes of this section.''.
(c) Treatment for Purposes of Section 7704.--Subsection (d) of
section 7704 is amended by adding at the end the following new
paragraph:
``(6) Income from certain carried interests not
qualified.--
``(A) In general.--Specified carried interest
income shall not be treated as qualifying income.
``(B) Specified carried interest income.--For
purposes of this paragraph--
``(i) In general.--The term `specified
carried interest income' means--
``(I) any item of income or gain
allocated to an investment services
partnership interest (as defined in
section 710(c)) held by the
partnership,
``(II) any gain on the disposition
of an investment services partnership
interest (as so defined) or a
partnership interest to which (in the
hands of the partnership) section 751
applies, and
``(III) any income or gain taken
into account by the partnership under
subsection (b)(4) or (e) of section
710.
``(ii) Exception for qualified capital
interests.--A rule similar to the rule of
section 710(d) shall apply for purposes of
clause (i).
``(C) Coordination with other provisions.--
Subparagraph (A) shall not apply to any item described
in paragraph (1)(E) (or so much of paragraph (1)(F) as
relates to paragraph (1)(E)).
``(D) Special rules for certain partnerships.--
``(i) Certain partnerships owned by real
estate investment trusts.--Subparagraph (A)
shall not apply in the case of a partnership
which meets each of the following requirements:
``(I) Such partnership is treated
as publicly traded under this section
solely by reason of interests in such
partnership being convertible into
interests in a real estate investment
trust which is publicly traded.
``(II) Fifty 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) of section 856(c).
``(ii) Certain partnerships owning other
publicly traded partnerships.--Subparagraph (A)
shall not apply in the case of a partnership
which meets each of the following requirements:
``(I) Substantially all of the
assets of such partnership consist of
interests in one or more publicly
traded partnerships (determined without
regard to subsection (b)(2)).
``(II) Substantially all of the
income of such partnership is ordinary
income or section 1231 gain (as defined
in section 1231(a)(3)).
``(E) Transitional rule.--Subparagraph (A) shall
not apply to any taxable year of the partnership
beginning before the date which is 10 years after the
date of the enactment of this paragraph.''.
(d) Imposition of Penalty on Underpayments.--
(1) In general.--Subsection (b) of section 6662 is amended
by inserting after paragraph (7) the following new paragraph:
``(8) The application of section 710(e) or the regulations
or other guidance prescribed under section 710(g) to prevent
the avoidance of the purposes of section 710.''.
(2) Amount of penalty.--
(A) In general.--Section 6662 is amended by adding
at the end the following new subsection:
``(k) 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)(8), subsection (a) shall be applied with respect to such portion by
substituting `40 percent' for `20 percent'.''.
(B) Conforming amendment.--Subparagraph (B) of
section 6662A(e)(2) is amended by striking ``or (i)''
and inserting ``, (i), or (k)''.
(3) Special rules for application of reasonable cause
exception.--Subsection (c) of section 6664 is amended--
(A) by redesignating paragraphs (3) and (4) as
paragraphs (4) and (5), respectively;
(B) by striking ``paragraph (3)'' in paragraph
(5)(A), as so redesignated, and inserting ``paragraph
(4)''; and
(C) by inserting after paragraph (2) the following
new paragraph:
``(3) Special rule for underpayments attributable to
investment management services.--
``(A) In general.--Paragraph (1) shall not apply to
any portion of an underpayment to which section 6662
applies by reason of subsection (b)(8) unless--
``(i) the relevant facts affecting the tax
treatment of the item are adequately disclosed,
``(ii) there is or was substantial
authority for such treatment, and
``(iii) the taxpayer reasonably believed
that such treatment was more likely than not
the proper treatment.
``(B) Rules relating to reasonable belief.--Rules
similar to the rules of subsection (d)(3) shall apply
for purposes of subparagraph (A)(iii).''.
(e) Income and Loss From Investment Services Partnership Interests
Taken Into Account in Determining Net Earnings From Self-Employment.--
(1) Internal revenue code.--
(A) In general.--Section 1402(a) is amended by
striking ``and'' at the end of paragraph (16), by
striking the period at the end of paragraph (17) and
inserting ``; and'', and by inserting after paragraph
(17) the following new paragraph:
``(18) notwithstanding the preceding provisions of this
subsection, in the case of any individual engaged in the trade
or business of providing services described in section
710(c)(2) with respect to any entity, investment services
partnership income or loss (as defined in subsection (m)) of
such individual with respect to such entity shall be taken into
account in determining the net earnings from self-employment of
such individual.''.
(B) Investment services partnership income or
loss.--Section 1402 is amended by adding at the end the
following new subsection:
``(m) Investment Services Partnership Income or Loss.--For purposes
of subsection (a)--
``(1) In general.--The term `investment services
partnership income or loss' means, with respect to any
investment services partnership interest (as defined in section
710(c)) or disqualified interest (as defined in section
710(e)), the net of--
``(A) the amounts treated as ordinary income or
ordinary loss under subsections (b) and (e) of section
710 with respect to such interest,
``(B) all items of income, gain, loss, and
deduction allocated to such interest, and
``(C) the amounts treated as realized from the sale
or exchange of property other than a capital asset
under section 751 with respect to such interest.
``(2) Exception for qualified capital interests.--A rule
similar to the rule of section 710(d) shall apply for purposes
of applying paragraph (1)(B).''.
(2) Social security act.--Section 211(a) of the Social
Security Act is amended by striking ``and'' at the end of
paragraph (15), by striking the period at the end of paragraph
(16) and inserting ``; and'', and by inserting after paragraph
(16) the following new paragraph:
``(17) Notwithstanding the preceding provisions of this
subsection, in the case of any individual engaged in the trade
or business of providing services described in section
710(c)(2) of the Internal Revenue Code of 1986 with respect to
any entity, investment services partnership income or loss (as
defined in section 1402(m) of such Code) shall be taken into
account in determining the net earnings from self-employment of
such individual.''.
(f) Separate Accounting by Partner.--Section 702(a) is amended by
striking ``and'' at the end of paragraph (7), by striking the period at
the end of paragraph (8) and inserting ``, and'', and by inserting
after paragraph (8) the following:
``(9) any amount treated as ordinary income or loss under
subsection (a), (b), or (e) of section 710.''.
(g) Conforming Amendments.--
(1) Subsection (d) of section 731 is amended by inserting
``section 710(b)(4) (relating to distributions of partnership
property),'' after ``to the extent otherwise provided by''.
(2) Section 741 is amended by inserting ``or section 710
(relating to special rules for partners providing investment
management services to partnerships)'' before the period at the
end.
(3) The table of sections for part I of subchapter K of
chapter 1 is amended by adding at the end the following new
item:
``Sec. 710. Special rules for partners providing investment management
services to partnerships.''.
(h) 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 the 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 the
enactment of this Act, the amount of the net capital gain
referred to in such section shall be treated as being the
lesser of the net capital gain for the entire partnership
taxable year or the net capital gain 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.--
(A) In general.--Section 710(b) of such Code (as
added by this section) shall apply to dispositions and
distributions after the date of the enactment of this
Act.
(B) Indirect dispositions.--The amendments made by
subsection (b) shall apply to transactions after the
date of the enactment of this Act.
(4) Other income and gain in connection with investment
management services.--Section 710(e) of such Code (as added by
this section) shall take effect on the date of the enactment of
this Act.
SEC. 506. CONSISTENT TREATMENT OF STOCK OPTIONS BY CORPORATIONS.
(a) Consistent Treatment for Wage Deduction.--
(1) In general.--Section 83(h) is amended--
(A) by striking ``In the case of'' and inserting:
``(1) In general.--In the case of'', and
(B) by adding at the end the following new
paragraph:
``(2) Stock options.--In the case of property transferred
to a person in connection with a stock option, any deduction
related to such stock option shall be allowed only under
section 162(q) and paragraph (1) shall not apply.''.
(2) Treatment of compensation paid with stock options.--
Section 162 is amended by redesignating subsection (q) as
subsection (r) and by inserting after subsection (p) the
following new subsection:
``(q) Treatment of Compensation Paid With Stock Options.--
``(1) In general.--In the case of compensation for personal
services that is paid with stock options, the deduction under
subsection (a)(1) shall not exceed the amount the taxpayer has
treated as compensation cost with respect to such stock options
for the purpose of ascertaining income, profit, or loss in a
report or statement to shareholders, partners, or other
proprietors (or to beneficiaries), and shall be taken into
account in the same period that such compensation cost is
recognized for such purpose.
``(2) Special rules for controlled groups.--The Secretary
may prescribe rules for the application of paragraph (1) in
cases where the stock option is granted by--
``(A) a parent or subsidiary corporation (within
the meaning of section 424) of the taxpayer, or
``(B) another corporation.''.
(b) Consistent Treatment for Research Tax Credit.--Section
41(b)(2)(D) is amended by inserting at the end the following new
clause:
``(iv) Special rule for stock options.--The
amount which may be treated as wages for any
taxable year in connection with the issuance of
a stock option shall not exceed the amount
allowed for such taxable year as a compensation
deduction under section 162(q) with respect to
such stock option.''.
(c) Application of Amendments.--The amendments made by this section
shall apply to stock options exercised after the date of the enactment
of this Act, except that--
(1) such amendments shall not apply to stock options that
were granted before such date and that vested in taxable
periods beginning on or before June 15, 2005,
(2) for stock options that were granted before such date of
enactment and vested during taxable periods beginning after
June 15, 2005, and ending before such date of enactment, a
deduction under section 162(q) of the Internal Revenue Code of
1986 (as added by subsection (a)(2)) shall be allowed in the
first taxable period of the taxpayer that ends after such date
of enactment,
(3) for public entities reporting as small business issuers
and for nonpublic entities required to file public reports of
financial condition, paragraphs (1) and (2) shall be applied by
substituting ``December 15, 2005'' for ``June 15, 2005'', and
(4) no deduction shall be allowed under section 83(h) or
section 162(q) of such Code with respect to any stock option
the vesting date of which is changed to accelerate the time at
which the option may be exercised in order to avoid the
applicability of such amendments.
SEC. 507. APPLICATION OF EXECUTIVE PAY DEDUCTION LIMIT.
(a) In General.--Subparagraph (B) of section 162(m)(4), as
redesignated by paragraphs (1)(A) and (2)(A) of section 503(b) of this
Act, is amended to read as follows:
``(B) Stock option compensation.--The term
`applicable employee remuneration' shall include any
compensation deducted under subsection (q).''.
(b) Effective Date.--The amendment made by this section shall apply
to stock options exercised or granted after the date of the enactment
of this Act.
SEC. 508. MODIFICATIONS TO RULES RELATING TO INVERTED CORPORATIONS.
(a) In General.--Subsection (b) of section 7874 of the Internal
Revenue Code of 1986 is amended to read as follows:
``(b) Inverted Corporations Treated as Domestic Corporations.--
``(1) In general.--Notwithstanding section 7701(a)(4), a
foreign corporation shall be treated for purposes of this title
as a domestic corporation if--
``(A) such corporation would be a surrogate foreign
corporation if subsection (a)(2) were applied by
substituting `80 percent' for `60 percent', or
``(B) such corporation is an inverted domestic
corporation.
``(2) Inverted domestic corporation.--For purposes of this
subsection, a foreign corporation shall be treated as an
inverted domestic corporation if, pursuant to a plan (or a
series of related transactions)--
``(A) the entity completes after February 10, 2016,
the direct or indirect acquisition of--
``(i) substantially all of the properties
held directly or indirectly by a domestic
corporation, or
``(ii) substantially all of the assets of,
or substantially all of the properties
constituting a trade or business of, a domestic
partnership, and
``(B) after the acquisition, more than 50 percent
of the stock (by vote or value) of the entity is held--
``(i) in the case of an acquisition with
respect to a domestic corporation, by former
shareholders of the domestic corporation by
reason of holding stock in the domestic
corporation, or
``(ii) in the case of an acquisition with
respect to a domestic partnership, by former
partners of the domestic partnership by reason
of holding a capital or profits interest in the
domestic partnership.
``(3) Exception for corporations with substantial business
activities in foreign country of organization.--A foreign
corporation described in paragraph (2) shall not be treated as
an inverted domestic corporation if after the acquisition the
expanded affiliated group which includes the entity has
substantial business activities in the foreign country in which
or under the law of which the entity is created or organized
when compared to the total business activities of such expanded
affiliated group. For purposes of subsection (a)(2)(B)(iii) and
the preceding sentence, the term `substantial business
activities' shall have the meaning given such term under
regulations in effect on February 10, 2016, except that the
Secretary may issue regulations increasing the threshold
percent in any of the tests under such regulations for
determining if business activities constitute substantial
business activities for purposes of this paragraph.''.
(b) Conforming Amendments.--
(1) Clause (i) of section 7874(a)(2)(B) of such Code is
amended by striking ``after March 4, 2003,'' and inserting
``after March 4, 2003, and before February 11, 2016,''.
(2) Subsection (c) of section 7874 of such Code is
amended--
(A) in paragraph (2)--
(i) by striking ``subsection
(a)(2)(B)(ii)'' and inserting ``subsections
(a)(2)(B)(ii) and (b)(2)(B)'', and
(ii) by inserting ``or (b)(2)(A)'' after
``(a)(2)(B)(i)'' in subparagraph (B),
(B) in paragraph (3), by inserting ``or (b)(2)(B),
as the case may be,'' after ``(a)(2)(B)(ii)'',
(C) in paragraph (5), by striking ``subsection
(a)(2)(B)(ii)'' and inserting ``subsections
(a)(2)(B)(ii) and (b)(2)(B)'', and
(D) in paragraph (6), by inserting ``or inverted
domestic corporation, as the case may be,'' after
``surrogate foreign corporation''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years ending after February 10, 2016.
SEC. 509. MODIFICATIONS OF FOREIGN TAX CREDIT RULES APPLICABLE TO MAJOR
INTEGRATED OIL COMPANIES WHICH ARE DUAL CAPACITY
TAXPAYERS.
(a) In General.--Section 901 of the Internal Revenue Code of 1986
is amended by redesignating subsection (n) as subsection (o) and by
inserting after subsection (m) the following new subsection:
``(n) Special Rules Relating to Major Integrated Oil Companies
Which Are Dual Capacity Taxpayers.--
``(1) General rule.--Notwithstanding any other provision of
this chapter, any amount paid or accrued by a dual capacity
taxpayer which is a major integrated oil company (within the
meaning of section 167(h)(5)) to a foreign country or
possession of the United States for any period shall not be
considered a tax--
``(A) if, for such period, the foreign country or
possession does not impose a generally applicable
income tax, or
``(B) to the extent such amount exceeds the amount
(determined in accordance with regulations) which--
``(i) is paid by such dual capacity
taxpayer pursuant to the generally applicable
income tax imposed by the country or
possession, or
``(ii) would be paid if the generally
applicable income tax imposed by the country or
possession were applicable to such dual
capacity taxpayer.
Nothing in this paragraph shall be construed to imply the
proper treatment of any such amount not in excess of the amount
determined under subparagraph (B).
``(2) Dual capacity taxpayer.--For purposes of this
subsection, the term `dual capacity taxpayer' means, with
respect to any foreign country or possession of the United
States, a person who--
``(A) is subject to a levy of such country or
possession, and
``(B) receives (or will receive) directly or
indirectly a specific economic benefit (as determined
in accordance with regulations) from such country or
possession.
``(3) Generally applicable income tax.--For purposes of
this subsection--
``(A) In general.--The term `generally applicable
income tax' means an income tax (or a series of income
taxes) which is generally imposed under the laws of a
foreign country or possession on income derived from
the conduct of a trade or business within such country
or possession.
``(B) Exceptions.--Such term shall not include a
tax unless it has substantial application, by its terms
and in practice, to--
``(i) persons who are not dual capacity
taxpayers, and
``(ii) persons who are citizens or
residents of the foreign country or
possession.''.
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxes paid or accrued in taxable years beginning after
the date of the enactment of this Act.
(2) Contrary treaty obligations upheld.--The amendments
made by this section shall not apply to the extent contrary to
any treaty obligation of the United States.
SEC. 510. LIMITATION ON SECTION 199 DEDUCTION ATTRIBUTABLE TO OIL,
NATURAL GAS, OR PRIMARY PRODUCTS THEREOF.
(a) Denial of Deduction.--Paragraph (4) of section 199(c) of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new subparagraph:
``(E) Special rule for certain oil and gas
income.--In the case of any taxpayer who is a major
integrated oil company (within the meaning of section
167(h)(5)) for the taxable year, the term `domestic
production gross receipts' shall not include gross
receipts from the production, refining, processing,
transportation, or distribution of oil, gas, or any
primary product (within the meaning of subsection
(d)(9)) thereof.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2015.
SEC. 511. LIMITATION ON DEDUCTION FOR INTANGIBLE DRILLING AND
DEVELOPMENT COSTS; AMORTIZATION OF DISALLOWED AMOUNTS.
(a) In General.--Section 263(c) of the Internal Revenue Code of
1986 is amended to read as follows:
``(c) Intangible Drilling and Development Costs in the Case of Oil
and Gas Wells and Geothermal Wells.--
``(1) In general.--Notwithstanding subsection (a), and
except as provided in subsection (i), regulations shall be
prescribed by the Secretary under this subtitle corresponding
to the regulations which granted the option to deduct as
expenses intangible drilling and development costs in the case
of oil and gas wells and which were recognized and approved by
the Congress in House Concurrent Resolution 50, Seventy-ninth
Congress. Such regulations shall also grant the option to
deduct as expenses intangible drilling and development costs in
the case of wells drilled for any geothermal deposit (as
defined in section 613(e)(2)) to the same extent and in the
same manner as such expenses are deductible in the case of oil
and gas wells. This subsection shall not apply with respect to
any costs to which any deduction is allowed under section 59(e)
or 291.
``(2) Exclusion.--
``(A) In general.--This subsection shall not apply
to amounts paid or incurred by a taxpayer in any
taxable year in which such taxpayer is a major
integrated oil company (within the meaning of section
167(h)(5)).
``(B) Amortization of amounts not allowable as
deductions under subparagraph (a).--The amount not
allowable as a deduction for any taxable year by reason
of subparagraph (A) shall be allowable as a deduction
ratably over the 60-month period beginning with the
month in which the costs are paid or incurred. For
purposes of section 1254, any deduction under this
subparagraph shall be treated as a deduction under this
subsection.''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid or incurred in taxable years beginning after December
31, 2015.
SEC. 512. LIMITATION ON PERCENTAGE DEPLETION ALLOWANCE FOR OIL AND GAS
WELLS.
(a) In General.--Section 613A of the Internal Revenue Code of 1986
is amended by adding at the end the following new subsection:
``(f) Application With Respect to Major Integrated Oil Companies.--
In the case of any taxable year in which the taxpayer is a major
integrated oil company (within the meaning of section 167(h)(5)), the
allowance for percentage depletion shall be zero.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2015.
SEC. 513. LIMITATION ON DEDUCTION FOR TERTIARY INJECTANTS.
(a) In General.--Section 193 of the Internal Revenue Code of 1986
is amended by adding at the end the following new subsection:
``(d) Application With Respect to Major Integrated Oil Companies.--
``(1) In general.--This section shall not apply to amounts
paid or incurred by a taxpayer in any taxable year in which
such taxpayer is a major integrated oil company (within the
meaning of section 167(h)(5)).
``(2) Amortization of amounts not allowable as deductions
under paragraph (1).--The amount not allowable as a deduction
for any taxable year by reason of paragraph (1) shall be
allowable as a deduction ratably over the 60-month period
beginning with the month in which the costs are paid or
incurred.''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid or incurred in taxable years beginning after December
31, 2015.
SEC. 514. MODIFICATION OF DEFINITION OF MAJOR INTEGRATED OIL COMPANY.
(a) In General.--Paragraph (5) of section 167(h) of the Internal
Revenue Code of 1986 is amended by adding at the end the following new
subparagraph:
``(C) Certain successors in interest.--For purposes
of this paragraph, the term `major integrated oil
company' includes any successor in interest of a
company that was described in subparagraph (B) in any
taxable year, if such successor controls more than 50
percent of the crude oil production or natural gas
production of such company.''.
(b) Conforming Amendments.--
(1) In general.--Subparagraph (B) of section 167(h)(5) of
the Internal Revenue Code of 1986 is amended by inserting
``except as provided in subparagraph (C),'' after ``For
purposes of this paragraph,''.
(2) Taxable years tested.--Clause (iii) of section
167(h)(5)(B) of such Code is amended--
(A) by striking ``does not apply by reason of
paragraph (4) of section 613A(d)'' and inserting ``did
not apply by reason of paragraph (4) of section 613A(d)
for any taxable year after 2004'', and
(B) by striking ``does not apply'' in subclause
(II) and inserting ``did not apply for the taxable
year''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2015.
SEC. 515. REPEAL OF OUTER CONTINENTAL SHELF DEEP WATER AND DEEP GAS
ROYALTY RELIEF.
(a) In General.--Sections 344 and 345 of the Energy Policy Act of
2005 (42 U.S.C. 15904, 15905) are repealed.
(b) Administration.--The Secretary of the Interior shall not be
required to provide for royalty relief in the lease sale terms
beginning with the first lease sale held on or after the date of
enactment of this Act for which a final notice of sale has not been
published.
SEC. 516. COORDINATION OF AMERICAN OPPORTUNITY CREDIT AND LIFETIME
LEARNING CREDIT WITH PELL GRANTS NOT USED FOR QUALIFIED
TUITION AND RELATED EXPENSES.
(a) In General.--Section 25A(g)(2) of the Internal Revenue Code of
1986 is amended to read as follows:
``(2) Adjustment for certain scholarships, etc.--
``(A) In general.--The amount of qualified tuition
and related expenses otherwise taken into account under
subsection (a) with respect to an individual for an
academic period shall be reduced (before the
application of subsections (b), (c), and (d)) by the
sum of any amounts paid for the benefit of such
individual which are allocable to such period as--
``(i) a qualified scholarship which is
excludable from gross income under section 117,
``(ii) an educational assistance allowance
under chapter 30, 31, 32, 34, or 35 of title
38, United States Code, or under chapter 1606
of title 10, United States Code, and
``(iii) a payment (other than a gift,
bequest, devise, or inheritance within the
meaning of section 102(a)) for such
individual's educational expenses, or
attributable to such individual's enrollment at
an eligible educational institution, which is
excludable from gross income under any law of
the United States.
``(B) Coordination with pell grants not used for
qualified tuition and related expenses.--For purposes
of subparagraph (A), the amount of any Federal Pell
Grant under section 401 of the Higher Education Act of
1965 (20 U.S.C. 1070a) shall be reduced (but not below
zero) by the amount of expenses (other than qualified
tuition and related expenses) which are taken into
account in determining the cost of attendance (as
defined in section 472 of the Higher Education Act of
1965, as in effect on the date of the enactment of this
subparagraph) of such individual at an eligible
educational institution for the academic period for
which the credit under this section is being
determined.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2015.
SEC. 517. EXPANSION OF PELL GRANT EXCLUSION FROM GROSS INCOME.
(a) In General.--Paragraph (1) of section 117(b) of the Internal
Revenue Code of 1986 is amended--
(1) by striking the period at the end and inserting ``,
or'',
(2) by striking ``received by an individual as a
scholarship'' and inserting the following: ``received by an
individual--
``(A) as a scholarship'', and
(3) by adding at the end the following new subparagraph:
``(B) as a Federal Pell Grant under section 401 of
the Higher Education Act of 1965 (20 U.S.C. 1070a).''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2015.
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