SUBCHAPTER A—PERMANENT U.S. BUSINESS TAX REFORM AND BOOSTING DOMESTIC INVESTMENT
SEC. 70301. Full expensing for certain business property.
(a) Made permanent.—
(1) IN GENERAL.—Section 168(k)(2)(A) is amended by adding “and” at the end of clause (i), by striking “, and” at the end of clause (ii) and inserting a period, and by striking clause (iii).
(2) PROPERTY WITH LONGER PRODUCTION PERIODS.—Section 168(k)(2)(B) is amended—
(A) in clause (i), by striking subclauses (II) and (III) and redesignating subclauses (IV), (V), and (VI), as subclauses (II), (III), and (IV), respectively, and
(B) by striking clause (ii) and redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively.
(3) SELF-CONSTRUCTED PROPERTY.—Section 168(k)(2)(E) is amended by striking clause (i) and redesignating clauses (ii) and (iii) as clauses (i) and (ii), respectively.
(4) CERTAIN PLANTS.—Section 168(k)(5)(A) is amended by striking “planted before January 1, 2027, or is grafted before such date to a plant that has already been planted,” in the matter preceding clause (i) and inserting “planted or grafted”.
(5) CONFORMING AMENDMENTS.—
(A) Section 168(k)(2)(A)(ii) is amended by striking “clause (ii) of subparagraph (E)” and inserting “clause (i) of subparagraph (E)”.
(B) Section 168(k)(2)(C)(i) is amended by striking “and subclauses (II) and (III) of subparagraph (B)(i)”.
(C) Section 168(k)(2)(C)(ii) is amended by striking “subparagraph (B)(iii)” and inserting “subparagraph (B)(ii)”.
(D) Section 460(c)(6)(B) is amended by striking “which” and all that follows through the period and inserting “which has a recovery period of 7 years or less.”.
(b) 100 percent expensing.—
(1) IN GENERAL.—Section 168(k) is amended—
(A) in paragraph (1)(A), by striking “the applicable percentage” and inserting “100 percent”, and
(B) by striking paragraphs (6) and (8).
(2) CERTAIN PLANTS.—Section 168(k)(5)(A)(i) is amended by striking “the applicable percentage” and inserting “100 percent”.
(3) TRANSITIONAL ELECTION OF REDUCED PERCENTAGE.—Section 168(k)(10) is amended by striking subparagraph (A), by redesignating subparagraph (B) as subparagraph (C), and by inserting before subparagraph (C) (as so redesignated) the following new subparagraphs:
“(A) IN GENERAL.—In the case of qualified property placed in service by the taxpayer during the first taxable year ending after January 19, 2025, if the taxpayer elects to have this paragraph apply for such taxable year, paragraph (1)(A) shall be applied—
“(i) in the case of property which is not described in clause (ii), by substituting ‘40 percent’ for ‘100 percent’, or
“(ii) in the case of property which is described in subparagraph (B) or (C) of paragraph (2), by substituting ‘60 percent’ for ‘100 percent’.
“(B) SPECIFIED PLANTS.—In the case of any specified plant planted or grafted by the taxpayer during the first taxable year ending after January 19, 2025, if the taxpayer elects to have this paragraph apply for such taxable year, paragraph (5)(A)(i) shall be applied by substituting ‘40 percent’ for ‘100 percent’.”.
(c) Effective date.—
(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to property acquired after January 19, 2025.
(2) SPECIFIED PLANTS.—Except as provided in paragraph (3), in the case of any specified plant (as defined in section 168(k)(5)(B) of the Internal Revenue Code of 1986, as amended by this section), the amendments made by this section shall apply to such plants which are planted or grafted after January 19, 2025.
(3) TRANSITIONAL ELECTION OF REDUCED PERCENTAGE.—The amendment made by subsection (b)(3) shall apply to taxable years ending after January 19, 2025.
(4) ACQUISITION DATE DETERMINATION.—For purposes of paragraph (1), property shall not be treated as acquired after the date on which a written binding contract is entered into for such acquisition.
SEC. 70302. Full expensing of domestic research and experimental expenditures.
(a) In general.—Part VI of subchapter B of chapter 1 is amended by inserting after section 174 the following new section:
“SEC. 174A. Domestic research or experimental expenditures.
“(a) Treatment as expenses.—Notwithstanding section 263, there shall be allowed as a deduction any domestic research or experimental expenditures which are paid or incurred by the taxpayer during the taxable year.
“(b) Domestic research or experimental expenditures.—For purposes of this section, the term ‘domestic research or experimental expenditures’ means research or experimental expenditures paid or incurred by the taxpayer in connection with the taxpayer’s trade or business other than such expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F)).
“(c) Amortization of certain domestic research or experimental expenditures.—
“(1) IN GENERAL.—At the election of the taxpayer, made in accordance with regulations or other guidance provided by the Secretary, in the case of domestic research or experimental expenditures which would (but for subsection (a)) be chargeable to capital account but not chargeable to property of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion), subsection (a) shall not apply and the taxpayer shall—
“(A) charge such expenditures to capital account, and
“(B) be allowed an amortization deduction of such expenditures ratably over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the taxpayer first realizes benefits from such expenditures).
“(2) TIME FOR AND SCOPE OF ELECTION.—The election provided by paragraph (1) may be made for any taxable year, but only if made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). The method so elected, and the period selected by the taxpayer, shall be adhered to in computing taxable income for the taxable year for which the election is made and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method (or to a different period) is authorized with respect to part or all of such expenditures. The election shall not apply to any expenditure paid or incurred during any taxable year before the taxable year for which the taxpayer makes the election.
“(d) Special rules.—
“(1) LAND AND OTHER PROPERTY.—This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures.
“(2) EXPLORATION EXPENDITURES.—This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas).
“(3) SOFTWARE DEVELOPMENT.—For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.”.
(b) Coordination with certain other provisions.—
(1) FOREIGN RESEARCH EXPENSES.—Section 174 is amended—
(A) in subsection (a)—
(i) by striking “a taxpayer’s specified research or experimental expenditures” and inserting “a taxpayer’s foreign research or experimental expenditures”, and
(ii) by striking “over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F)))” in paragraph (2)(B) and inserting “over the 15-year period”,
(B) in subsection (b)—
(i) by striking “specified research” and inserting “foreign research”,
(ii) by inserting “and which are attributable to foreign research (within the meaning of section 41(d)(4)(F))” before the period at the end, and
(iii) by striking “specified” in the heading thereof and inserting “foreign”, and
(C) in subsection (d)—
(i) by striking “specified research or experimental expenditures” and inserting “foreign research or experimental expenditures”, and
(ii) by inserting “or reduction to amount realized” after “no deduction”.
(2) RESEARCH CREDIT.—
(A) Section 41(d)(1)(A) is amended to read as follows:
“(A) with respect to which expenditures are treated as domestic research or experimental expenditures under section 174A,”.
(B) Section 280C(c)(1) is amended to read as follows:
“(1) IN GENERAL.—The domestic research or experimental expenditures (as defined in section 174A(b)) otherwise taken into account as a deduction or charged to capital account under this chapter shall be reduced by the amount of the credit allowed under section 41(a).”.
(3) AMT ADJUSTMENT.—Section 56(b)(2) is amended—
(A) in subparagraph (A)—
(i) by striking “or 174(a)” in the matter preceding clause (i) and inserting “, 174(a), or 174A(a)”, and
(ii) by striking “research and experimental expenditures described in section 174(a)” in clause (ii) thereof and inserting “foreign research or experimental expenditures described in section 174(a) and domestic research or experimental expenditures in section 174A(a)”, and
(B) in subparagraph (C), by inserting “or 174A(a)” after “174(a)”.
(4) OPTIONAL 10-YEAR WRITEOFF.—Section 59(e)(2)(B) is amended by striking “section 174(a) (relating to research and experimental expenditures)” and inserting “section 174A(a) (relating to domestic research or experimental expenditures)”.
(5) QUALIFIED SMALL ISSUE BONDS.—Section 144(a)(4)(C)(iv) is amended by striking “174(a)” and inserting “174A(a)”.
(6) START-UP EXPENDITURES.—Section 195(c)(1) is amended by striking “or 174” in the last sentence and inserting “174, or 174A”.
(7) CAPITAL EXPENDITURES.—
(A) Section 263(a)(1)(B) is amended by inserting “or 174A” after “174”.
(B) Section 263A(c)(2) is amended by inserting “or 174A” after “174”.
(8) ACTIVE BUSINESS COMPUTER SOFTWARE ROYALTIES.—Section 543(d)(4)(A)(i) is amended by inserting “174A,” after “174,”.
(9) SOURCE RULES.—Section 864(g)(2) is amended—
(A) by striking “research and experimental expenditures within the meaning of section 174” in the first sentence and inserting “foreign research or experimental expenditures within the meaning of section 174 or domestic research or experimental expenditures within the meaning of section 174A”, and
(B) in the last sentence—
(i) by striking “treated as deferred expenses under subsection (b) of section 174” and inserting “allowed as an amortization deduction under section 174(a) or section 174A(c),”, and
(ii) by striking “such subsection” and inserting “such section (as the case may be)”.
(10) BASIS ADJUSTMENT.—Section 1016(a)(14) is amended by striking “deductions as deferred expenses under section 174(b)(1) (relating to research and experimental expenditures)” and inserting “deductions under section 174 or 174A(c)”.
(11) SMALL BUSINESS STOCK.—Section 1202(e)(2)(B) is amended by striking “which may be treated as research and experimental expenditures under section 174” and inserting “which are treated as foreign research or experimental expenditures under section 174 or domestic research or experimental expenditures under section 174A”.
(c) Change in method of accounting.—
(1) IN GENERAL.—The amendments made by subsection (a) shall be treated as a change in method of accounting for purposes of section 481 of the Internal Revenue Code of 1986 and—
(A) such change shall be treated as initiated by the taxpayer,
(B) such change shall be treated as made with the consent of the Secretary, and
(C) such change shall be applied only on a cut-off basis for any domestic research or experimental expenditures (as defined in section 174A(b) of such Code (as added by this section) and determined by applying the rules of section 174A(d) of such Code) paid or incurred in taxable years beginning after December 31, 2024, and no adjustments under section 481(a) shall be made.
(2) SPECIAL RULES.—In the case of a taxable year which begins after December 31, 2024, and ends before the date of the enactment of this Act—
(A) paragraph (1)(C) shall not apply, and
(B) the change in method of accounting under paragraph (1) shall be applied on a modified cut-off basis, taking into account for purposes of section 481(a) of such Code only the domestic research or experimental expenditures (as defined in section 174A(b) of such Code (as added by this section) and determined by applying the rules of section 174A(d) of such Code) paid or incurred in such taxable year but not allowed as a deduction in such taxable year.
(d) Clerical amendment.—The table of sections for part VI of subchapter B of chapter 1 is amended by inserting after the item relating to section 174 the following new item:
“Sec. 174A. Domestic research or experimental expenditures.”.
(e) Effective date.—
(1) IN GENERAL.—Except as otherwise provided in this subsection or subsection (f)(1), the amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2024.
(2) TREATMENT OF FOREIGN RESEARCH OR EXPERIMENTAL EXPENDITURES UPON DISPOSITION.—
(A) IN GENERAL.—The amendment by subsection (b)(1)(C)(ii) shall apply to property disposed, retired, or abandoned after May 12, 2025.
(B) NO INFERENCE.—The amendment made by subsection (b)(1)(C)(ii) shall not be construed to create any inference with respect to the proper application of section 174(d) of the Internal Revenue Code of 1986 with respect to taxable years beginning before May 13, 2025.
(3) COORDINATION WITH RESEARCH CREDIT.—The amendment made by subsection (b)(2)(B) shall apply to taxable years beginning after December 31, 2024.
(4) NO INFERENCE WITH RESPECT TO COORDINATION WITH RESEARCH CREDIT FOR PRIOR PERIODS.—The amendment made by subsection (b)(2)(B) shall not be construed to create any inference with respect to the proper application of section 280C(c) of the Internal Revenue Code of 1986 with respect to taxable years beginning before January 1, 2025.
(f) Transition rules.—
(1) ELECTION FOR RETROACTIVE APPLICATION BY CERTAIN SMALL BUSINESSES.—
(A) IN GENERAL.—At the election of an eligible taxpayer, paragraphs (1) and (3) of subsection (e) shall each be applied by substituting “December 31, 2021” for “December 31, 2024”. An election made under this subparagraph shall be made in such manner as the Secretary may provide and not later than the date that is 1 year after the date of the enactment of this Act. The taxpayer shall file an amended return for each taxable year affected by such election.
(B) ELIGIBLE TAXPAYER.—For purposes of this paragraph, the term “eligible taxpayer” means any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for the first taxable year beginning after December 31, 2024.
(C) ELECTION TREATED AS CHANGE IN METHOD OF ACCOUNTING.—In the case of any taxpayer which elects the application of subparagraph (A)—
(i) such election may be treated as a change in method of accounting for purposes of section 481 of such Code for the taxpayer’s first taxable year affected by such election,
(ii) such change shall be treated as initiated by the taxpayer for such taxable year,
(iii) such change shall be treated as made with the consent of the Secretary, and
(iv) subsection (c) shall not apply to such taxpayer.
(D) ELECTION REGARDING COORDINATION WITH RESEARCH CREDIT.—An election under section 280C(c)(2) of the Internal Revenue Code of 1986 (or revocation of such election) for any taxable year beginning after December 31, 2021, by an eligible taxpayer making an election under subparagraph (A) shall not fail to be treated as timely made (or as made on the return) if made during the 1-year period beginning on the date of the enactment of this Act on an amended return for such taxable year.
(2) ELECTION TO DEDUCT CERTAIN UNAMORTIZED AMOUNTS PAID OR INCURRED IN TAXABLE YEARS BEGINNING BEFORE JANUARY 1, 2025.—
(A) IN GENERAL.—In the case of any domestic research or experimental expenditures (as defined in section 174A, as added by subsection (a)) which are paid or incurred in taxable years beginning after December 31, 2021, and before January 1, 2025, and which was charged to capital account, a taxpayer may elect—
(i) to deduct any remaining unamortized amount with respect to such expenditures in the first taxable year beginning after December 31, 2024, or
(ii) to deduct such remaining unamortized amount with respect to such expenditures ratably over the 2-taxable year period beginning with the first taxable year beginning after December 31, 2024.
(B) CHANGE IN METHOD OF ACCOUNTING.—In the case of a taxpayer who makes an election under this paragraph—
(i) such taxpayer shall be treated as initiating a change in method of accounting for purposes of section 481 of the Internal Revenue Code of 1986 with respect to the expenditures to which the election applies,
(ii) such change shall be treated as made with the consent of the Secretary, and
(iii) such change shall be applied only on a cut-off basis for such expenditures and no adjustments under section 481(a) shall be made.
(C) REGULATIONS.—The Secretary of the Treasury (or the Secretary’s delegate) shall publish such guidance or regulations as may be necessary to carry out the purposes of this paragraph, including regulations or guidance allowing for the deduction allowed under subparagraph (A) in the case of taxpayers with taxable years beginning after December 31, 2024, and ending before the date of the enactment of this Act.
SEC. 70303. Modification of limitation on business interest.
(a) In general.—Section 163(j)(8)(A)(v) is amended by striking “in the case of taxable years beginning before January 1, 2022,”.
(b) Floor plan financing applicable to certain trailers and campers.—Section 163(j)(9)(C) is amended by adding at the end the following new flush sentence:
“Such term shall also include any trailer or camper which is designed to provide temporary living quarters for recreational, camping, or seasonal use and is designed to be towed by, or affixed to, a motor vehicle.”.
(c) Effective date and special rule.—
(1) IN GENERAL.—The amendments made by this section shall apply to taxable years beginning after December 31, 2024.
(2) SPECIAL RULE FOR SHORT TAXABLE YEARS.—The Secretary of the Treasury (or the Secretary’s delegate) may prescribe such rules as are necessary or appropriate to provide for the application of the amendments made by this section in the case of any taxable year of less than 12 months that begins after December 31, 2024, and ends before the date of the enactment of this Act.
SEC. 70304. Extension and enhancement of paid family and medical leave credit.
(a) In general.—Section 45S is amended—
(1) in subsection (a)—
(A) by striking paragraph (1) and inserting the following:
“(1) IN GENERAL.—For purposes of section 38, in the case of an eligible employer, the paid family and medical leave credit is an amount equal to either of the following (as elected by such employer):
“(A) The applicable percentage of the amount of wages paid to qualifying employees with respect to any period in which such employees are on family and medical leave.
“(B) If such employer has an insurance policy with regards to the provision of paid family and medical leave which is in force during the taxable year, the applicable percentage of the total amount of premiums paid or incurred by such employer during such taxable year with respect to such insurance policy.”, and
(B) by adding at the end the following:
“(3) RATE OF PAYMENT DETERMINED WITHOUT REGARD TO WHETHER LEAVE IS TAKEN.—For purposes of determining the applicable percentage with respect to paragraph (1)(B), the rate of payment under the insurance policy shall be determined without regard to whether any qualifying employees were on family and medical leave during the taxable year.”,
(2) in subsection (b)(1), by striking “credit allowed” and inserting “wages taken into account”,
(3) in subsection (c), by striking paragraphs (3) and (4) and inserting the following:
“(3) AGGREGATION RULE.—
“(A) IN GENERAL.—Except as provided in subparagraph (B), all persons which are treated as a single employer under subsections (b) and (c) of section 414 shall be treated as a single employer.
“(B) EXCEPTION.—
“(i) IN GENERAL.—Subparagraph (A) shall not apply to any person who establishes to the satisfaction of the Secretary that such person has a substantial and legitimate business reason for failing to provide a written policy described in paragraph (1) or (2).
“(ii) SUBSTANTIAL AND LEGITIMATE BUSINESS REASON.—For purposes of clause (i), the term ‘substantial and legitimate business reason’ shall not include the operation of a separate line of business, the rate of wages or category of jobs for employees (or any similar basis), or the application of State or local laws relating to family and medical leave, but may include the grouping of employees of a common law employer.
“(4) TREATMENT OF BENEFITS MANDATED OR PAID FOR BY STATE OR LOCAL GOVERNMENTS.—For purposes of this section, any leave which is paid by a State or local government or required by State or local law—
“(A) except as provided in subparagraph (B), shall be taken into account in determining the amount of paid family and medical leave provided by the employer, and
“(B) shall not be taken into account in determining the amount of the paid family and medical leave credit under subsection (a).”,
(4) in subsection (d)—
(A) in paragraph (1), by inserting “(or, at the election of the employer, for not less than 6 months)” after “1 year or more”,
(B) in paragraph (2)—
(i) by inserting “, as determined on an annualized basis (pro-rata for part-time employees),” after “compensation”, and
(ii) by striking the period at the end and inserting “, and”, and
(C) by adding at the end the following:
“(3) is customarily employed for not less than 20 hours per week.”, and
(5) by striking subsection (i).
(b) No double benefit.—Section 280C(a) is amended—
(1) by striking “45S(a)” and inserting “45S(a)(1)(A)”, and
(2) by inserting after the first sentence the following: “No deduction shall be allowed for that portion of the premiums paid or incurred for the taxable year which is equal to that portion of the paid family and medical leave credit which is determined for the taxable year under section 45S(a)(1)(B).”.
(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
SEC. 70305. Exceptions from limitations on deduction for business meals.
(a) Exception to denial of deduction for business meals.—Section 274(o), as added by section 13304 of Public Law 115–97, is amended by striking “No deduction” and inserting “Except in the case of an expense described in subsection (e)(8) or (n)(2)(C), no deduction”.
(b) Meals provided on certain fishing boats and at certain fish processing facilities not subject to 50 percent limitation.—Section 274(n)(2)(C) of the Internal Revenue Code of 1986 is amended by striking “or” at the end of clause (iii) and by adding at the end the following new clause:
“(v) provided—
“(I) on a fishing vessel, fish processing vessel, or fish tender vessel (as such terms are defined in section 2101 of title 46, United States Code), or
“(II) at a facility for the processing of fish for commercial use or consumption which—
“(aa) is located in the United States north of 50 degrees north latitude, and
“(bb) is not located in a metropolitan statistical area (within the meaning of section 143(k)(2)(B)), or”.
(c) Effective date.—The amendments made by this section shall apply to amounts paid or incurred after December 31, 2025.
SEC. 70306. Increased dollar limitations for expensing of certain depreciable business assets.
(a) In general.—Section 179(b) is amended—
(1) in paragraph (1), by striking “$1,000,000” and inserting “$2,500,000”, and
(2) in paragraph (2), by striking “$2,500,000” and inserting “$4,000,000”.
(b) Conforming amendments.—Section 179(b)(6)(A) is amended—
(1) by inserting “(2025 in the case of the dollar amounts in paragraphs (1) and (2))” after “In the case of any taxable year beginning after 2018”, and
(2) in clause (ii), by striking “determined by substituting ‘calendar year 2017’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.” and inserting "determined by substituting in subparagraph (A)(ii) thereof—
“(I) in the case of amounts in paragraphs (1) and (2), ‘calendar year 2024’ for ‘calendar year 2016’, and
“(II) in the case of the amount in paragraph (5)(A), ‘calendar year 2017’ for ‘calendar year 2016’.”.
(c) Effective date.—The amendments made by this section shall apply to property placed in service in taxable years beginning after December 31, 2024.
SEC. 70307. Special depreciation allowance for qualified production property.
(a) In general.—Section 168 is amended by adding at the end the following new subsection:
“(n) Special allowance for qualified production property.—
“(1) IN GENERAL.—In the case of any qualified production property of a taxpayer making an election under this subsection—
“(A) the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to 100 percent of the adjusted basis of the qualified production property, and
“(B) the adjusted basis of the qualified production property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.
“(2) QUALIFIED PRODUCTION PROPERTY.—For purposes of this subsection—
“(A) IN GENERAL.—The term ‘qualified production property’ means that portion of any nonresidential real property—
“(i) to which this section applies,
“(ii) which is used by the taxpayer as an integral part of a qualified production activity,
“(iii) which is placed in service in the United States or any possession of the United States,
“(iv) the original use of which commences with the taxpayer,
“(v) the construction of which begins after January 19, 2025, and before January 1, 2029,
“(vi) which is designated by the taxpayer in the election made under this subsection, and
“(vii) which is placed in service before January 1, 2031.
For purposes of clause (ii), in the case of property with respect to which the taxpayer is a lessor, property used by a lessee shall not be considered to be used by the taxpayer as part of a qualified production activity.
“(B) SPECIAL RULE FOR CERTAIN PROPERTY NOT PREVIOUSLY USED IN QUALIFIED PRODUCTION ACTIVITIES.—
“(i) IN GENERAL.—In the case of property acquired by the taxpayer during the period described in subparagraph (A)(v), the requirements of clauses (iv) and (v) of subparagraph (A) shall be treated as satisfied if—
“(I) such property was not used in a qualified production activity (determined without regard to the second sentence of subparagraph (D)) by any person at any time during the period beginning on January 1, 2021, and ending on May 12, 2025,
“(II) such property was not used by the taxpayer at any time prior to such acquisition, and
“(III) the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of section 179(d).
“(ii) WRITTEN BINDING CONTRACTS.—For purposes of determining under clause (i)—
“(I) whether such property is acquired before the period described in subparagraph (A)(v), such property shall be treated as acquired not later than the date on which the taxpayer enters into a written binding contract for such acquisition, and
“(II) whether such property is acquired after such period, such property shall be treated as acquired not earlier than such date.
“(C) EXCLUSION OF OFFICE SPACE, ETC.—The term ‘qualified production property’ shall not include that portion of any nonresidential real property which is used for offices, administrative services, lodging, parking, sales activities, research activities, software development or engineering activities, or other functions unrelated to the manufacturing, production, or refining of tangible personal property.
“(D) QUALIFIED PRODUCTION ACTIVITY.—The term ‘qualified production activity’ means the manufacturing, production, or refining of a qualified product. The activities of any taxpayer do not constitute manufacturing, production, or refining of a qualified product unless the activities of such taxpayer result in a substantial transformation of the property comprising the product.
“(E) PRODUCTION.—The term ‘production’ shall not include activities other than agricultural production and chemical production.
“(F) QUALIFIED PRODUCT.—The term ‘qualified product’ means any tangible personal property if such property is not a food or beverage prepared in the same building as a retail establishment in which such property is sold.
“(G) SYNDICATION.—For purposes of subparagraph (A)(iv), rules similar to the rules of subsection (k)(2)(E)(iii) shall apply.
“(H) EXTENSION OF PLACED IN SERVICE DATE UNDER CERTAIN CIRCUMSTANCES.—The Secretary may extend the date under subparagraph (A)(vii) with respect to any property that meets the requirements of clauses (i) through (vi) of subparagraph (A) if the Secretary determines that an act of God (as defined in section 101(1) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980) prevents the taxpayer from placing such property in service before such date.
“(3) DEDUCTION ALLOWED IN COMPUTING MINIMUM TAX.—For purposes of determining alternative minimum taxable income under section 55, the deduction under section 167 for qualified production property shall be determined under this section without regard to any adjustment under section 56.
“(4) COORDINATION WITH CERTAIN OTHER PROVISIONS.—
“(A) OTHER SPECIAL DEPRECIATION ALLOWANCES.—For purposes of subsections (k)(7), (l)(3)(D), and (m)(2)(B)(iii)—
“(i) qualified production property shall be treated as a separate class of property, and
“(ii) the taxpayer shall be treated as having made an election under such subsections with respect to such class.
“(B) ALTERNATIVE DEPRECIATION PROPERTY.—The term ‘qualified production property’ shall not include any property to which the alternative depreciation system under subsection (g) applies. For purposes of subsection (g)(7)(A), qualified production property to which this subsection applies shall be treated as separate nonresidential real property.
“(5) RECAPTURE.—If, at any time during the 10-year period beginning on the date that any qualified production property is placed in service by the taxpayer, such property ceases to be used as described in paragraph (2)(A)(ii) and is used by the taxpayer in a productive use not described in paragraph (2)(A)(ii)—
“(A) section 1245 shall be applied—
“(i) by treating such property as having been disposed of by the taxpayer as of the first time such property is so used in a productive use not described in paragraph (2)(A)(ii), and
“(ii) by treating the amount described in subparagraph (B) of section 1245(a)(1) with respect to such disposition as being not less than the amount described in subparagraph (A) of such section, and
“(B) the basis of the taxpayer in such property, and the taxpayer’s allowance for depreciation with respect to such property, shall be appropriately adjusted to take into account amounts recognized by reason of subparagraph (A).
“(6) ELECTION.—
“(A) IN GENERAL.—An election under this subsection for any taxable year shall—
“(i) specify the nonresidential real property subject to the election and the portion of such property designated under paragraph (2)(A)(vi), and
“(ii) except as otherwise provided by the Secretary, be made on the taxpayer’s return of the tax imposed by this chapter for the taxable year.
Such election shall be made in such manner as the Secretary may prescribe by regulations or other guidance.
“(B) ELECTION.—Any election made under this subsection, and any specification contained in any such election, may not be revoked except with the consent of the Secretary (and the Secretary shall provide such consent only in extraordinary circumstances).
“(7) REGULATIONS.—The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance—
“(A) providing rules for regarding what constitutes substantial transformation of property which are consistent with guidance provided under section 954(d), and
“(B) providing for the application of paragraph (5) with respect to a change in use described in such paragraph by a transferee following a fully or partially tax free transfer of qualified production property.”.
(b) Treatment of qualified production property as section 1245 property.—Section 1245(a)(3) is amended by striking “or” at the end of subparagraph (E), by striking the period at the end of subparagraph (F) and inserting “, or”, and by adding at the end the following new subparagraph:
“(G) any qualified production property (as defined in section 168(n)(2)).”.
(c) Effective date.—The amendments made by this section shall apply to property placed in service after the date of the enactment of this Act.
SEC. 70308. Enhancement of advanced manufacturing investment credit.
(a) In general.—Section 48D(a) is amended by striking “25 percent” and inserting “35 percent”.
(b) Effective date.—The amendments made by this section shall apply to property placed in service after December 31, 2025.
SEC. 70309. Spaceports are treated like airports under exempt facility bond rules.
(a) In general.—Section 142(a)(1) is amended to read as follows:
“(1) airports and spaceports,”.
(b) Treatment of ground leases.—Section 142(b)(1) is amended by adding at the end the following new subparagraph:
“(C) SPECIAL RULE FOR SPACEPORT GROUND LEASES.—For purposes of subparagraph (A), spaceport property located on land leased by a governmental unit from the United States shall not fail to be treated as owned by a governmental unit if the requirements of this paragraph are met by the lease and any subleases of the property.”.
(c) Definition of spaceport.—Section 142 is amended by adding at the end the following new subsection:
“(p) Spaceport.—
“(1) IN GENERAL.—For purposes of subsection (a)(1), the term ‘spaceport’ means any facility located at or in close proximity to a launch site or reentry site used for—
“(A) manufacturing, assembling, or repairing spacecraft, space cargo, other facilities described in this paragraph, or any component of the foregoing,
“(B) flight control operations,
“(C) providing launch services and reentry services, or
“(D) transferring crew, spaceflight participants, or space cargo to or from spacecraft.
“(2) ADDITIONAL TERMS.—For purposes of paragraph (1)—
“(A) SPACE CARGO.—The term ‘space cargo’ includes satellites, scientific experiments, other property transported into space, and any other type of payload, whether or not such property returns from space.
“(B) SPACECRAFT.—The term ‘spacecraft’ means a launch vehicle or a reentry vehicle.
“(C) OTHER TERMS.—The terms ‘launch site’, ‘crew’, ‘space flight participant’, ‘launch services’, ‘launch vehicle’, ‘payload’, ‘reentry services’, ‘reentry site’, a ‘reentry vehicle’ shall have the respective meanings given to such terms by section 50902 of title 51, United States Code (as in effect on the date of enactment of this subsection).
“(3) PUBLIC USE REQUIREMENT.—A facility shall not be required to be available for use by the general public to be treated as a spaceport for purposes of this section.
“(4) MANUFACTURING FACILITIES AND INDUSTRIAL PARKS ALLOWED.—With respect to spaceports, subsection (c)(2)(E) shall not apply to spaceport property described in paragraph (1)(A).”.
(d) Exception from federally guaranteed bond prohibition.—Section 149(b)(3) is amended by adding at the end the following new subparagraph:
“(F) EXCEPTION FOR SPACEPORTS.—A bond shall not be treated as federally guaranteed merely because of the payment of rent, user fees, or other charges by the United States (or any agency or instrumentality thereof) in exchange for the use of the spaceport by the United States (or any agency or instrumentality thereof).”.
(e) Conforming amendment.—The heading for section 142(c) is amended by inserting “Spaceports,” after “Airports,”.
(f) Effective date.—The amendments made by this section shall apply to obligations issued after the date of the enactment of this Act.
SUBCHAPTER B—PERMANENT AMERICA-FIRST INTERNATIONAL TAX REFORMS
SEC. 70311. Modifications related to foreign tax credit limitation.
(a) Rules for allocation of certain deductions to foreign source net CFC tested income for purposes of foreign tax credit limitation.—Section 904(b) is amended by adding at the end the following new paragraph:
“(5) DEDUCTIONS TREATED AS ALLOCABLE TO FOREIGN SOURCE NET CFC TESTED INCOME.—Solely for purposes of the application of subsection (a) with respect to amounts described in subsection (d)(1)(A), the taxpayer’s taxable income from sources without the United States shall be determined by allocating and apportioning—
“(A) any deduction allowed under section 250(a)(1)(B) (and any deduction allowed under section 164(a)(3) for taxes imposed on amounts described in section 250(a)(1)(B)) to such income,
“(B) no amount of interest expense or research and experimental expenditures to such income, and
“(C) any other deduction to such income only if such deduction is directly allocable to such income.
Any amount or deduction which would (but for subparagraphs (B) and (C)) have been allocated or apportioned to such income shall only be allocated or apportioned to income which is from sources within the United States.”.
(b) Other modifications.—
(1) Section 904(d)(2)(H)(i) is amended by striking “paragraph (1)(B)” and inserting “paragraph (1)(D)”.
(2) Section 904(d)(4)(C)(ii) is amended by striking “paragraph (1)(A)” and inserting “paragraph (1)(C)”.
(3) Section 951A(f)(1)(A) is amended by striking “904(h)(1)” and inserting “904(h)”.
(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
SEC. 70312. Modifications to determination of deemed paid credit for taxes properly attributable to tested income.
(a) Increase in deemed paid credit.—
(1) IN GENERAL.—Section 960(d)(1) is amended by striking “80 percent” and inserting “90 percent”.
(2) GROSS UP FOR DEEMED PAID FOREIGN TAX CREDIT.—Section 78 is amended—
(A) by striking “subsections (a), (b), and (d)” and inserting “subsections (a) and (d)”, and
(B) by striking “80 percent” and inserting “90 percent”.
(b) Disallowance of foreign tax credit with respect to distributions of previously taxed net CFC tested income.—Section 960(d) is amended by adding at the end the following new paragraph:
“(4) DISALLOWANCE OF FOREIGN TAX CREDIT WITH RESPECT TO DISTRIBUTIONS OF PREVIOUSLY TAXED NET CFC TESTED INCOME.—No credit shall be allowed under section 901 for 10 percent of any foreign income taxes paid or accrued (or deemed paid under subsection (b)(1)) with respect to any amount excluded from gross income under section 959(a) by reason of an inclusion in gross income under section 951A(a).”.
(c) Effective dates.—
(1) IN GENERAL.—The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 2025.
(2) DISALLOWANCE.—The amendment made by subsection (b) shall apply to foreign income taxes paid or accrued (or deemed paid under section 960(b)(1) of the Internal Revenue Code of 1986) with respect to any amount excluded from gross income under section 959(a) of such Code by reason of an inclusion in gross income under section 951A(a) of such Code after June 28, 2025.
SEC. 70313. Sourcing certain income from the sale of inventory produced in the United States.
(a) In general.—Section 904(b), as amended by section 70311, is amended by adding at the end the following new paragraph:
“(6) SOURCE RULES FOR CERTAIN INVENTORY PRODUCED IN THE UNITED STATES AND SOLD THROUGH FOREIGN BRANCHES.—For purposes of this section, if a United States person maintains an office or other fixed place of business in a foreign country (determined under rules similar to the rules of section 864(c)(5)), the portion of income which—
“(A) is from the sale or exchange outside the United States of inventory property (within the meaning of section 865(i)(1))—
“(i) which is produced in the United States,
“(ii) which is for use outside the United States, and
“(iii) to which the third sentence of section 863(b) applies, and
“(B) is attributable (determined under rules similar to the rules of section 864(c)(5)) to such office or other fixed place of business,
shall be treated as from sources without the United States, except that the amount so treated shall not exceed 50 percent of the income from the sale or exchange of such inventory property.”.
(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2025.
PART II—FOREIGN-DERIVED DEDUCTION ELIGIBLE INCOME AND NET CFC TESTED INCOME
SEC. 70321. Modification of deduction for foreign-derived deduction eligible income and net CFC tested income.
(a) In general.—Section 250(a) is amended—
(1) by striking “37.5 percent” in paragraph (1)(A) and inserting “33.34 percent”,
(2) by striking “50 percent” in paragraph (1)(B) and inserting “40 percent”, and
(3) by striking paragraph (3).
(b) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
SEC. 70322. Determination of deduction eligible income.
(a) Sales or other dispositions of certain property.—
(1) IN GENERAL.—Section 250(b)(3)(A)(i) is amended—
(A) by striking “and” at the end of subclause (V),
(B) by striking “over” at the end of subclause (VI) and inserting “and”, and
(C) by adding at the end the following new subclause:
“(VII) except as otherwise provided by the Secretary, any income and gain from the sale or other disposition (including pursuant to the deemed sale or other deemed disposition or a transaction subject to section 367(d)) of—
“(aa) intangible property (as defined in section 367(d)(4)), and
“(bb) any other property of a type that is subject to depreciation, amortization, or depletion by the seller, over”.
(2) CONFORMING AMENDMENT.—Section 250(b)(5)(E) is amended by inserting “(other than paragraph (3)(A)(i)(VII))” after “For purposes of this subsection”.
(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to sales or other dispositions (including pursuant to deemed sales or other deemed dispositions or a transaction subject to section 367(d) of the Internal Revenue Code of 1986) occurring after June 16, 2025.
(b) Expense apportionment limited to properly allocable expenses.—
(1) IN GENERAL.—Section 250(b)(3)(A)(ii) is amended to read as follows:
“(ii) expenses and deductions (including taxes), other than interest expense and research or experimental expenditures, properly allocable to such gross income.”.
(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to taxable years beginning after December 31, 2025.
SEC. 70323. Rules related to deemed intangible income.
(a) Taxation of net CFC tested income.—
(1) IN GENERAL.—Section 951A(a) is amended by striking “global intangible low-taxed income” and inserting “net CFC tested income”.
(2) REPEAL OF TAX-FREE DEEMED RETURN ON FOREIGN INVESTMENTS.—Section 951A, as amended by the preceding provisions of this Act, is amended by striking subsections (b) and (d) and by redesignating subsections (c), (e), and (f) as subsections (b), (c), and (d), respectively.
(3) CONFORMING AMENDMENTS.—
(A) (i) Section 250 is amended by striking “global intangible low-taxed income” each place it appears in subsections (a)(1)(B)(i), (a)(2), and (b)(3)(A)(i)(II) and inserting “net CFC tested income”.
(ii) The heading for section 250 of such Code is amended by striking “Global Intangible Low-Taxed Income” and inserting “Net CFC Tested Income”.
(iii) The item relating to section 250 in the table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking “global intangible low-taxed income” and inserting “net CFC tested income”.
(B) Section 951A(c)(1), as redesignated by paragraph (2), is amended by striking “subsections (b), (c)(1)(A), and (c)(1)(B)” and inserting “subsections (b)(1)(A) and (b)(1)(B)”.
(C) Section 951A(d), as redesignated by paragraph (2), is amended—
(i) by striking “global intangible low-taxed income” each place it appears and inserting “net CFC tested income”, and
(ii) by striking “subsection (c)(1)(A)” in paragraph (2)(B)(ii) and inserting “subsection (b)(1)(A)”.
(D) Section 960(d)(2) is amended—
(i) by striking “global intangible low-taxed income” in subparagraph (A) and inserting “net CFC tested income”, and
(ii) by striking “section 951A(c)(1)(A)” in subparagraph (B) and inserting “section 951A(b)(1)(A)”.
(E) (i) The heading for section 951A is amended by striking “Global Intangible Low-Taxed Income” and inserting “Net CFC Tested Income”.
(ii) The item relating to section 951A in the table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking “Global intangible low-taxed income” and inserting “Net CFC tested income”.
(b) Deduction for foreign-derived deduction eligible income.—
(1) IN GENERAL.—Section 250(a)(1)(A) is amended by striking “foreign-derived intangible income” and inserting “foreign-derived deduction eligible income”.
(2) CONFORMING AMENDMENTS.—
(A) Section 250(a)(2) is amended by striking “foreign-derived intangible income” each place it appears and inserting “foreign-derived deduction eligible income”.
(B) Section 250(b), as amended by subsection (a), is amended—
(i) by striking paragraphs (1) and (2),
(ii) by redesignating paragraphs (4) and (5) as paragraphs (1) and (2), respectively, and by moving such paragraphs before paragraph (3),
(iii) in paragraph (2)(B)(ii), as so redesignated, by striking “paragraph (4)(B)” and inserting “paragraph (1)(B)”, and
(iv) by striking “intangible” in the heading thereof and inserting “deduction eligible”.
(C) (i) The heading for section 250 is amended by striking “intangible” in the heading thereof and inserting “deduction eligible”.
(ii) The heading for section 172(d)(9) is amended by striking “intangible” and inserting “deduction eligible”.
(iii) The item relating to section 250 in the table of sections for part VIII of subchapter B of chapter 1 is amended by striking “intangible” and inserting “deduction eligible”.
(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
PART III—BASE EROSION MINIMUM TAX
SEC. 70331. Extension and modification of base erosion minimum tax amount.
(a) In general.—Section 59A(b) is amended—
(1) by striking “10 percent” in paragraph (1) and inserting “10.5 percent”, and
(2) by striking paragraph (2) and by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.
(b) Conforming amendments.—
(1) Section 59A(b)(1) is amended by striking “Except as provided in paragraphs (2) and (3)” and inserting “Except as provided in paragraph (2)”.
(2) Section 59A(b)(2), as redesignated by subsection (a)(2), is amended by striking “the percentage otherwise in effect under paragraphs (1)(A) and (2)(A) shall each be increased” and inserting “the percentages otherwise in effect under paragraph (1)(A) shall be increased”.
(3) Section 59A(e)(1)(C) is amended by striking “in the case of a taxpayer described in subsection (b)(3)(B)” and inserting “in the case of a taxpayer described in subsection (b)(2)(B)”.
(c) Other modifications.—
(1) Section 59A(b)(2)(B)(ii), as redesignated by subsection (a)(2), is amended by striking “registered securities dealer” and inserting “securities dealer registered”.
(2) Section 59A(h)(2)(B) is amended by striking “section 6038B(b)(2)” and inserting “section 6038A(b)(2)”.
(3) Section 59A(i)(2) is amended—
(A) by striking “subsection (g)” and inserting “subsection (h)”, and
(B) by striking “subsection (g)(3)” and inserting “subsection (h)(3)”.
(d) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
PART IV—BUSINESS INTEREST LIMITATION
SEC. 70341. Coordination of business interest limitation with interest capitalization provisions.
(a) In general.—Section 163(j) is amended by redesignating paragraphs (10) and (11) as paragraphs (11) and (12) and by inserting after paragraph (9) the following:
“(10) COORDINATION WITH INTEREST CAPITALIZATION PROVISIONS.—
“(A) IN GENERAL.—In applying this subsection—
“(i) the limitation under paragraph (1) shall apply to business interest without regard to whether the taxpayer would otherwise deduct such business interest or capitalize such business interest under an interest capitalization provision, and
“(ii) any reference in this subsection to a deduction for business interest shall be treated as including a reference to the capitalization of business interest.
“(B) AMOUNT ALLOWED APPLIED FIRST TO CAPITALIZED INTEREST.—The amount allowed after taking into account the limitation described in paragraph (1)—
“(i) shall be applied first to the aggregate amount of business interest which would otherwise be capitalized, and
“(ii) the remainder (if any) shall be applied to the aggregate amount of business interest which would be deducted.
“(C) TREATMENT OF DISALLOWED INTEREST CARRIED FORWARD.—No portion of any business interest carried forward under paragraph (2) from any taxable year to any succeeding taxable year shall, for purposes of this title (including any interest capitalization provision which previously applied to such portion) be treated as interest to which an interest capitalization provision applies.
“(D) INTEREST CAPITALIZATION PROVISION.—For purposes of this section, the term ‘interest capitalization provision’ means any provision of this subtitle under which interest—
“(i) is required to be charged to capital account, or
“(ii) may be deducted or charged to capital account.”.
(b) Certain capitalized interest not treated as business interest.—Section 163(j)(5) is amended by adding at the end the following new sentence: “Such term shall not include any interest which is capitalized under section 263(g) or 263A(f).”.
(c) Regulatory authority.—Section 163(j), as amended by subsection (a), is amended by redesignating paragraphs (11) and (12) as paragraphs (12) and (13) and by inserting after paragraph (10) the following:
“(11) REGULATORY AUTHORITY.—The Secretary shall issue such regulations or guidance as may be necessary or appropriate to carry out the purposes of this subsection, including regulations or guidance to determine which business interest is taken into account under this subsection and section 59A(c)(3).”.
(d) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
SEC. 70342. Definition of adjusted taxable income for business interest limitation.
(a) In general.—Subparagraph (A) of section 163(j)(8) is amended—
(1) by striking “and” at the end of clause (iv), and
(2) by adding at the end the following new clause:
“(vi) the amounts included in gross income under sections 951(a), 951A(a), and 78 (and the portion of the deductions allowed under sections 245A(a) (by reason of section 964(e)(4)) and 250(a)(1)(B) by reason of such inclusions), and”.
(b) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
PART V—OTHER INTERNATIONAL TAX REFORMS
SEC. 70351. Permanent extension of look-thru rule for related controlled foreign corporations.
(a) In general.—Section 954(c)(6)(C) is amended by striking “and before January 1, 2026,”.
(b) Effective date.—The amendment made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2025.
SEC. 70352. Repeal of election for 1-month deferral in determination of taxable year of specified foreign corporations.
(a) In general.—Section 898(c) is amended by striking paragraph (2) and redesignating paragraph (3) as paragraph (2).
(b) Effective date.—The amendments made by this section shall apply to taxable years of specified foreign corporations beginning after November 30, 2025.
(c) Transition rule.—
(1) IN GENERAL.—In the case of a corporation that is a specified foreign corporation as of November 30, 2025, such corporation’s first taxable year beginning after such date shall end at the same time as the first required year (within the meaning of section 898(c)(1) of the Internal Revenue Code of 1986) ending after such date. If any specified foreign corporation is required by the amendments made by this section to change its taxable year for its first taxable year beginning after November 30, 2025—
(A) such change shall be treated as initiated by such corporation,
(B) such change shall be treated as having been made with the consent of the Secretary, and
(C) the Secretary shall issue regulations or other guidance for allocating foreign taxes that are paid or accrued in such first taxable year and the succeeding taxable year among such taxable years in the manner the Secretary determines appropriate to carry out the purposes of this section.
(2) SECRETARY.—For purposes of this subsection, the term “Secretary” means the Secretary of the Treasury or the Secretary’s delegate.
SEC. 70353. Restoration of limitation on downward attribution of stock ownership in applying constructive ownership rules.
(a) In general.—Section 958(b) is amended—
(1) by inserting after paragraph (3) the following:
“(4) Subparagraphs (A), (B), and (C) of section 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States person.”, and
(2) by striking “Paragraph (1)” in the last sentence and inserting “Paragraphs (1) and (4)”.
(b) Foreign controlled United States shareholders.—Subpart F of part III of subchapter N of chapter 1 is amended by inserting after section 951A the following new section:
“SEC. 951B. Amounts included in gross income of foreign controlled United States shareholders.
“(a) In general.—In the case of any foreign controlled United States shareholder of a foreign controlled foreign corporation—
“(1) this subpart (other than sections 951A, 951(b), and 957) shall be applied with respect to such shareholder (separately from, and in addition to, the application of this subpart without regard to this section)—
“(A) by substituting ‘foreign controlled United States shareholder’ for ‘United States shareholder’ each place it appears therein, and
“(B) by substituting ‘foreign controlled foreign corporation’ for ‘controlled foreign corporation’ each place it appears therein, and
“(2) section 951A (and such other provisions of this subpart as provided by the Secretary) shall be applied with respect to such shareholder—
“(A) by treating each reference to ‘United States shareholder’ in such section as including a reference to such shareholder, and
“(B) by treating each reference to ‘controlled foreign corporation’ in such section as including a reference to such foreign controlled foreign corporation.
“(b) Foreign controlled United States shareholder.—For purposes of this section, the term ‘foreign controlled United States shareholder’ means, with respect to any foreign corporation, any United States person which would be a United States shareholder with respect to such foreign corporation if—
“(1) section 951(b) were applied by substituting ‘more than 50 percent’ for ‘10 percent or more’, and
“(2) section 958(b) were applied without regard to paragraph (4) thereof.
“(c) Foreign controlled foreign corporation.—For purposes of this section, the term ‘foreign controlled foreign corporation’ means a foreign corporation, other than a controlled foreign corporation, which would be a controlled foreign corporation if section 957(a) were applied—
“(1) by substituting ‘foreign controlled United States shareholders’ for ‘United States shareholders’, and
“(2) by substituting ‘section 958(b) (other than paragraph (4) thereof)’ for ‘section 958(b)’.
“(d) Regulations.—The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance—
“(1) to treat a foreign controlled United States shareholder or a foreign controlled foreign corporation as a United States shareholder or as a controlled foreign corporation, respectively, for purposes of provisions of this title other than this subpart (including any reporting requirement), and
“(2) with respect to the treatment of foreign controlled foreign corporations that are passive foreign investment companies (as defined in section 1297).”.
(c) Clerical amendment.—The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by inserting after the item relating to section 951A the following new item:
“Sec. 951B. Amounts included in gross income of foreign controlled United States shareholders.”.
(d) Effective date.—The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2025.
(e) Special rule.—
(1) IN GENERAL.—Except to the extent provided by the Secretary of the Treasury (or the Secretary’s delegate), the effective date of any amendment to the Internal Revenue Code of 1986 shall be applied by treating references to United States shareholders as including references to foreign controlled United States shareholders, and by treating references to controlled foreign corporations as including references to foreign controlled foreign corporations.
(2) DEFINITIONS.—Any term used in paragraph (1) which is used in subpart F of part III of subchapter N of chapter 1 of the Internal Revenue Code of 1986 (as amended by this section) shall have the meaning given such term in such subpart.
(f) No inference.—The amendments made by this section shall not be construed to create any inference with respect to the proper application of any provision of the Internal Revenue Code of 1986 with respect to taxable years beginning before the taxable years to which such amendments apply.
SEC. 70354. Modifications to pro rata share rules.
(a) In general.—Subsection (a) of section 951 is amended to read as follows:
“(a) Amounts included.—
“(1) IN GENERAL.—If a foreign corporation is a controlled foreign corporation at any time during a taxable year of the foreign corporation (in this subsection referred to as the ‘CFC year’)—
“(A) each United States shareholder which owns (within the meaning of section 958(a)) stock in such corporation on any day during the CFC year shall include in gross income such shareholder’s pro rata share (determined under paragraph (2)) of the corporation’s subpart F income for the CFC year, and
“(B) each United States shareholder which owns (within the meaning of section 958(a)) stock in such corporation on the last day, in the CFC year, on which such corporation is a controlled foreign corporation shall include in gross income the amount determined under section 956 with respect to such shareholder for the CFC year (but only to the extent not excluded from gross income under section 959(a)(2)).
“(2) PRO RATA SHARE OF SUBPART F INCOME.—A United States shareholder’s pro rata share of a controlled foreign corporation’s subpart F income for a CFC year shall be the portion of such income which is attributable to—
“(A) the stock of such corporation owned (within the meaning of section 958(a)) by such shareholder, and
“(B) any period of the CFC year during which—
“(i) such shareholder owned (within the meaning of section 958(a)) such stock,
“(ii) such shareholder was a United States shareholder of such corporation, and
“(iii) such corporation was a controlled foreign corporation.
“(3) TAXABLE YEAR OF INCLUSION.—Any amount required to be included in gross income by a United States shareholder under paragraph (1) with respect to a CFC year shall be included in gross income for the shareholder’s taxable year which includes the last day on which the shareholder owns (within the meaning of section 958(a)) stock in the controlled foreign corporation during such CFC year.
“(4) REGULATORY AUTHORITY.—The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance allowing taxpayers to elect, or requiring taxpayers, to close the taxable year of a controlled foreign corporation upon a direct or indirect disposition of stock of such corporation.”.
(b) Coordination with section 951A.—
(1) TESTED INCOME.—Section 951A(b), as redesignated by section 70323(a)(2), is amended—
(A) in paragraph (1)(A), by striking “(determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder)”, and
(B) in paragraph (1)(B), by striking “(determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder)”.
(2) PRO RATA SHARE.—Section 951A(c), as redesignated by section 70323(a)(2), is amended—
(A) in paragraph (1), by striking “in which or with which the taxable year of the controlled foreign corporation ends” and inserting “determined under section 951(a)(3)”, and
(B) in paragraph (2), by striking “the last day in the taxable year of such foreign corporation on which such foreign corporation is a controlled foreign corporation” and inserting “any day in such taxable year”.
(c) Effective dates.—
(1) IN GENERAL.—The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2025.
(2) TRANSITION RULE FOR DIVIDENDS.—Except to the extent provided by the Secretary of the Treasury (or the Secretary’s delegate), a dividend paid (or deemed paid) by a controlled foreign corporation shall not be treated as a dividend for purposes of applying section 951(a)(2)(B) of the Internal Revenue Code of 1986 (as in effect before the amendments made by this section) if—
(A) such dividend—
(i) was paid (or deemed paid) on or before June 28, 2025, during the taxable year of such controlled foreign corporation which includes such date and the United States shareholder described in section 951(a)(1) of such Code (as so in effect) did not own (within the meaning of section 958(a) of such Code) the stock of such controlled foreign corporation during the portion of such taxable year on or before June 28, 2025, or
(ii) was paid (or deemed paid) after June 28, 2025, and before such controlled foreign corporation’s first taxable year beginning after December 31, 2025, and
(B) such dividend does not increase the taxable income of a United States person that is subject to Federal income tax for the taxable year (including by reason of a dividends received deduction, an exclusion from gross income, or an exclusion from subpart F income).