Index for HR3962: Affordable Health Care for America Act

To provide affordable, quality health care for all Americans and reduce the growth in health care spending, and for other purposes.

Mr. Dingell (for himself, Mr. Rangel, Mr. Waxman, Mr. George Miller of California, Mr. Stark, Mr. Pallone, and Mr. Andrews) introduced the following bill; which was referred to the Committee on Energy and Commerce, and in addition to the Committees on Ways and Means, Education and Labor, Oversight and Government Reform, and the Budget, 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

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

(a) In general.—Subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new part:

“(a) Tax imposed.—In the case of any individual who does not meet the requirements of subsection (d) at any time during the taxable year, there is hereby imposed a tax equal to 2.5 percent of the excess of—

“(1) the taxpayer’s modified adjusted gross income for the taxable year, over

“(2) the amount of gross income specified in section 6012(a)(1) with respect to the taxpayer.

“(b) Limitations.—

“(1) TAX LIMITED TO AVERAGE PREMIUM.—

“(A) IN GENERAL.—The tax imposed under subsection (a) with respect to any taxpayer for any taxable year shall not exceed the applicable national average premium for such taxable year.

“(B) APPLICABLE NATIONAL AVERAGE PREMIUM.—

“(i) IN GENERAL.—For purposes of subparagraph (A), the ‘applicable national average premium’ means, with respect to any taxable year, the average premium (as determined by the Secretary, in coordination with the Health Choices Commissioner) for self-only coverage under a basic plan which is offered in a Health Insurance Exchange for the calendar year in which such taxable year begins.

“(ii) FAILURE TO PROVIDE COVERAGE FOR MORE THAN ONE INDIVIDUAL.—In the case of any taxpayer who fails to meet the requirements of subsection (d) with respect to more than one individual during the taxable year, clause (i) shall be applied by substituting ‘family coverage’ for ‘self-only coverage’.

“(2) PRORATION FOR PART YEAR FAILURES.—The tax imposed under subsection (a) with respect to any taxpayer for any taxable year shall not exceed the amount which bears the same ratio to the amount of tax so imposed (determined without regard to this paragraph and after application of paragraph (1)) as—

“(A) the aggregate periods during such taxable year for which such individual failed to meet the requirements of subsection (d), bears to

“(B) the entire taxable year.

“(c) Exceptions.—

“(1) DEPENDENTS.—Subsection (a) shall not apply to any individual for any taxable year if a deduction is allowable under section 151 with respect to such individual to another taxpayer for any taxable year beginning in the same calendar year as such taxable year.

“(2) NONRESIDENT ALIENS.—Subsection (a) shall not apply to any individual who is a nonresident alien.

“(3) INDIVIDUALS RESIDING OUTSIDE UNITED STATES.—Any qualified individual (as defined in section 911(d)) (and any qualifying child residing with such individual) shall be treated for purposes of this section as covered by acceptable coverage during the period described in subparagraph (A) or (B) of section 911(d)(1), whichever is applicable.

“(4) INDIVIDUALS RESIDING IN POSSESSIONS OF THE UNITED STATES.—Any individual who is a bona fide resident of any possession of the United States (as determined under section 937(a)) for any taxable year (and any qualifying child residing with such individual) shall be treated for purposes of this section as covered by acceptable coverage during such taxable year.

“(5) RELIGIOUS CONSCIENCE EXEMPTION.—

“(A) IN GENERAL.—Subsection (a) shall not apply to any individual (and any qualifying child residing with such individual) for any period if such individual has in effect an exemption which certifies that such individual is a member of a recognized religious sect or division thereof described in section 1402(g)(1) and an adherent of established tenets or teachings of such sect or division as described in such section.

“(B) EXEMPTION.—An application for the exemption described in subparagraph (A) shall be filed with the Secretary at such time and in such form and manner as the Secretary may prescribe. The Secretary may treat an application for exemption under section 1402(g)(1) as an application for exemption under this section, or may otherwise coordinate applications under such sections, as the Secretary determines appropriate. Any such exemption granted by the Secretary shall be effective for such period as the Secretary determines appropriate.

“(d) Acceptable coverage requirement.—

“(1) IN GENERAL.—The requirements of this subsection are met with respect to any individual for any period if such individual (and each qualifying child of such individual) is covered by acceptable coverage at all times during such period.

“(2) ACCEPTABLE COVERAGE.—For purposes of this section, the term ‘acceptable coverage’ means any of the following:

“(A) QUALIFIED HEALTH BENEFITS PLAN COVERAGE.—Coverage under a qualified health benefits plan (as defined in section 100(c) of the ).

“(B) GRANDFATHERED HEALTH INSURANCE COVERAGE; COVERAGE UNDER GRANDFATHERED EMPLOYMENT-BASED HEALTH PLAN.—Coverage under a grandfathered health insurance coverage (as defined in subsection (a) of section 202 of the ) or under a current employment-based health plan (within the meaning of subsection (b) of such section).

“(C) MEDICARE.—Coverage under part A of title XVIII of the Social Security Act.

“(D) MEDICAID.—Coverage for medical assistance under title XIX of the Social Security Act.

“(E) MEMBERS OF THE ARMED FORCES AND DEPENDENTS (INCLUDING TRICARE).—Coverage under chapter 55 of title 10, United States Code, including similar coverage furnished under section 1781 of title 38 of such Code.

“(F) VA.—Coverage under the veteran’s health care program under chapter 17 of title 38, United States Code.

“(G) MEMBERS OF INDIAN TRIBES.—Health care services made available through the Indian Health Service, a tribal organization (as defined in section 4 of the Indian Health Care Improvement Act), or an urban Indian organization (as defined in such section) to members of an Indian tribe (as defined in such section).

“(H) OTHER COVERAGE.—Such other health benefits coverage as the Secretary, in coordination with the Health Choices Commissioner, recognizes for purposes of this subsection.

“(e) Other definitions and special rules.—

“(1) QUALIFYING CHILD.—For purposes of this section, the term ‘qualifying child’ has the meaning given such term by section 152(c). With respect to any period during which health coverage for a child must be provided by an individual pursuant to a child support order, such child shall be treated as a qualifying child of such individual (and not as a qualifying child of any other individual).

“(2) BASIC PLAN.—For purposes of this section, the term ‘basic plan’ has the meaning given such term under section 100(c) of the .

“(3) HEALTH INSURANCE EXCHANGE.—For purposes of this section, the term ‘Health Insurance Exchange’ has the meaning given such term under section 100(c) of the , including any State-based health insurance exchange approved for operation under section 308 of such Act.

“(4) FAMILY COVERAGE.—For purposes of this section, the term ‘family coverage’ means any coverage other than self-only coverage.

“(5) MODIFIED ADJUSTED GROSS INCOME.—For purposes of this section, the term ‘modified adjusted gross income’ means adjusted gross income increased by—

“(A) any amount excluded from gross income under section 911, and

“(B) any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax.

“(6) 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 or for purposes of section 55.

“(f) 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 (developed in coordination with the Health Choices Commissioner) which provide—

“(1) exemption from the tax imposed under subsection (a) in cases of de minimis lapses of acceptable coverage, and

“(2) a waiver of the application of subsection (a) in cases of hardship, including a process for applying for such a waiver.”.

(b) Information reporting.—

(1) IN GENERAL.—Subpart B of part III of subchapter A of chapter 61 of such Code is amended by inserting after section 6050W the following new section:

“(a) Requirement of reporting.—Every person who provides acceptable coverage (as defined in section 59B(d)) to any individual during any calendar year shall, at such time as the Secretary may prescribe, make the return described in subsection (b) with respect to such individual.

“(b) Form and manner of returns.—A return is described in this subsection if such return—

“(1) is in such form as the Secretary may prescribe, and

“(2) contains—

“(A) the name, address, and TIN of the primary insured and the name of each other individual obtaining coverage under the policy,

“(B) the period for which each such individual was provided with the coverage referred to in subsection (a), and

“(C) such other information as the Secretary may require.

“(c) Statements to be furnished to individuals with respect to whom information is required.—Every person required to make a return under subsection (a) shall furnish to each primary insured whose name is required to be set forth in such return a written statement showing—

“(1) the name and address of the person required to make such return and the phone number of the information contact for such person, and

“(2) the information required to be shown on the return with respect to such individual.

“(d) Coverage provided by governmental units.—In the case of coverage provided by any governmental unit or any agency or instrumentality thereof, the officer or employee who enters into the agreement to provide such coverage (or the person appropriately designated for purposes of this section) shall make the returns and statements required by this section.”.

(2) PENALTY FOR FAILURE TO FILE.—

(A) RETURN.—Subparagraph (B) of section 6724(d)(1) of such Code is amended by striking “or” at the end of clause (xxii), by striking “and” at the end of clause (xxiii) and inserting “or”, and by adding at the end the following new clause:

“(xxiv) section 6050X (relating to returns relating to health insurance coverage), and”.

(B) STATEMENT.—Paragraph (2) of section 6724(d) of such Code is amended by striking “or” at the end of subparagraph (EE), by striking the period at the end of subparagraph (FF) and inserting “, or”, and by inserting after subparagraph (FF) the following new subparagraph:

“(GG) section 6050X (relating to returns relating to health insurance coverage).”.

(c) Return requirement.—Subsection (a) of section 6012 of such Code is amended by inserting after paragraph (9) the following new paragraph:

“(10) Every individual to whom section 59B(a) applies and who fails to meet the requirements of section 59B(d) with respect to such individual or any qualifying child (as defined in section 152(c)) of such individual.”.

(d) Clerical amendments.—

(1) The table of parts for subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

(2) The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by adding at the end the following new item:

(e) Section 15 not to apply.—The amendment made by subsection (a) shall not be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986.

(f) Effective date.—

(1) IN GENERAL.—The amendments made by this section shall apply to taxable years beginning after December 31, 2012.

(2) RETURNS.—The amendments made by subsection (b) shall apply to calendar years beginning after December 31, 2012.

(a) In general.—Chapter 43 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

“(a) Election of employer responsibility to provide health coverage.—

“(1) IN GENERAL.—Subsection (b) shall apply to any employer with respect to whom an election under paragraph (2) is in effect.

“(2) TIME AND MANNER.—An employer may make an election under this paragraph at such time and in such form and manner as the Secretary may prescribe.

“(3) AFFILIATED GROUPS.—In the case of any employer which is part of a group of employers who are treated as a single employer under subsection (b), (c), (m), or (o) of section 414, the election under paragraph (2) shall be made by such person as the Secretary may provide. Any such election, once made, shall apply to all members of such group.

“(4) SEPARATE ELECTIONS.—Under regulations prescribed by the Secretary, separate elections may be made under paragraph (2) with respect to—

“(A) separate lines of business, and

“(B) full-time employees and employees who are not full-time employees.

“(5) TERMINATION OF ELECTION IN CASES OF SUBSTANTIAL NONCOMPLIANCE.—The Secretary may terminate the election of any employer under paragraph (2) if the Secretary (in coordination with the Health Choices Commissioner) determines that such employer is in substantial noncompliance with the health coverage participation requirements.

“(b) Excise tax with respect to failure to meet health coverage participation requirements.—

“(1) IN GENERAL.—In the case of any employer who fails (during any period with respect to which the election under subsection (a) is in effect) to satisfy the health coverage participation requirements with respect to any employee to whom such election applies, there is hereby imposed on each such failure with respect to each such employee a tax of $100 for each day in the period beginning on the date such failure first occurs and ending on the date such failure is corrected.

“(2) LIMITATIONS ON AMOUNT OF TAX.—

“(A) TAX NOT TO APPLY WHERE FAILURE NOT DISCOVERED EXERCISING REASONABLE DILIGENCE.—No tax shall be imposed by paragraph (1) on any failure during any period for which it is established to the satisfaction of the Secretary that the employer neither knew, nor exercising reasonable diligence would have known, that such failure existed.

“(B) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN 30 DAYS.—No tax shall be imposed by paragraph (1) on any failure if—

“(i) such failure was due to reasonable cause and not to willful neglect, and

“(ii) such failure is corrected during the 30-day period beginning on the 1st date that the employer knew, or exercising reasonable diligence would have known, that such failure existed.

“(C) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—In the case of failures which are due to reasonable cause and not to willful neglect, the tax imposed by subsection (a) for failures during the taxable year of the employer shall not exceed the amount equal to the lesser of—

“(i) 10 percent of the aggregate amount paid or incurred by the employer (or predecessor employer) during the preceding taxable year for employment-based health plans, or

“(ii) $500,000.

“(D) COORDINATION WITH OTHER ENFORCEMENT PROVISIONS.—The tax imposed under paragraph (1) with respect to any failure shall be reduced (but not below zero) by the amount of any civil penalty collected under section 502(c)(11) of the Employee Retirement Income Security Act of 1974 or section 2793(g) of the Public Health Service Act with respect to such failure.

“(c) Health coverage participation requirements.—For purposes of this section, the term ‘health coverage participation requirements’ means the requirements of part I of subtitle B of title IV of the (as in effect on the date of the enactment of this section).”.

(b) Clerical amendment.—The table of sections for chapter 43 of such Code is amended by adding at the end the following new item:

(c) Effective date.—The amendments made by this section shall apply to periods beginning after December 31, 2012.

(a) In general.—Section 3111 of the Internal Revenue Code of 1986 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:

“(c) Employers electing not to provide health benefits.—

“(1) IN GENERAL.—In addition to other taxes, there is hereby imposed on every nonelecting employer an excise tax, with respect to having individuals in his employ, equal to 8 percent of the wages (as defined in section 3121(a)) paid by him with respect to employment (as defined in section 3121(b)).

“(2) SPECIAL RULES FOR SMALL EMPLOYERS.—

“(A) IN GENERAL.—In the case of any employer who is small employer for any calendar year, paragraph (1) shall be applied by substituting the applicable percentage determined in accordance with the following table for ‘8 percent’:

“(B) SMALL EMPLOYER.—For purposes of this paragraph, the term ‘small employer’ means any employer for any calendar year if the annual payroll of such employer for the preceding calendar year does not exceed $750,000.

“(C) ANNUAL PAYROLL.—For purposes of this paragraph, the term ‘annual payroll’ means, with respect to any employer for any calendar year, the aggregate wages (as defined in section 3121(a)) paid by him with respect to employment (as defined in section 3121(b)) during such calendar year.

“(3) NONELECTING EMPLOYER.—For purposes of paragraph (1), the term ‘nonelecting employer’ means any employer for any period with respect to which such employer does not have an election under section 4980H(a) in effect.

“(4) SPECIAL RULE FOR SEPARATE ELECTIONS.—In the case of an employer who makes a separate election described in section 4980H(a)(4) for any period, paragraph (1) shall be applied for such period by taking into account only the wages paid to employees who are not subject to such election.

“(5) AGGREGATION; PREDECESSORS.—For purposes of this subsection—

“(A) all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer, and

“(B) any reference to any person shall be treated as including a reference to any predecessor of such person.”.

(b) Definitions.—Section 3121 of such Code is amended by adding at the end the following new subsection:

“(aa) Special rules for tax on employers electing not to provide health benefits.—For purposes of section 3111(c)—

“(1) Paragraphs (1), (5), and (19) of subsection (b) shall not apply.

“(2) Paragraph (7) of subsection (b) shall apply by treating all services as not covered by the retirement systems referred to in subparagraphs (C) and (F) thereof.

“(3) Subsection (e) shall not apply and the term ‘State’ shall include the District of Columbia.”.

(c) Conforming amendment.—Subsection (d) of section 3111 of such Code, as redesignated by this section, is amended by striking “this section” and inserting “subsections (a) and (b)”.

(d) Application to railroads.—

(1) IN GENERAL.—Section 3221 of such Code is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:

“(c) Employers electing not to provide health benefits.—

“(1) IN GENERAL.—In addition to other taxes, there is hereby imposed on every nonelecting employer an excise tax, with respect to having individuals in his employ, equal to 8 percent of the compensation paid during any calendar year by such employer for services rendered to such employer.

“(2) EXCEPTION FOR SMALL EMPLOYERS.—Rules similar to the rules of section 3111(c)(2) shall apply for purposes of this subsection.

“(3) NONELECTING EMPLOYER.—For purposes of paragraph (1), the term ‘nonelecting employer’ means any employer for any period with respect to which such employer does not have an election under section 4980H(a) in effect.

“(4) SPECIAL RULE FOR SEPARATE ELECTIONS.—In the case of an employer who makes a separate election described in section 4980H(a)(4) for any period, subsection (a) shall be applied for such period by taking into account only the compensation paid to employees who are not subject to such election.”.

(2) DEFINITIONS.—Subsection (e) of section 3231 of such Code is amended by adding at the end the following new paragraph:

“(13) SPECIAL RULES FOR TAX ON EMPLOYERS ELECTING NOT TO PROVIDE HEALTH BENEFITS.—For purposes of section 3221(c)—

“(A) Paragraph (1) shall be applied without regard to the third sentence thereof.

“(B) Paragraph (2) shall not apply.”.

(3) CONFORMING AMENDMENT.—Subsection (d) of section 3221 of such Code, as redesignated by this section, is amended by striking “subsections (a) and (b), see section 3231(e)(2)” and inserting “this section, see paragraphs (2) and (13)(B) of section 3231(e)”.

(e) Effective date.—The amendments made by this section shall apply to periods beginning after December 31, 2012.

(a) In general.—Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to business-related credits) is amended by adding at the end the following new section:

“(a) In general.—For purposes of section 38, in the case of a qualified small employer, the small business employee health coverage credit determined under this section for the taxable year is an amount equal to the applicable percentage of the qualified employee health coverage expenses of such employer for such taxable year.

“(b) Applicable percentage.—

“(1) IN GENERAL.—For purposes of this section, the applicable percentage is 50 percent.

“(2) PHASEOUT BASED ON AVERAGE COMPENSATION OF EMPLOYEES.—In the case of an employer whose average annual employee compensation for the taxable year exceeds $20,000, the percentage specified in paragraph (1) shall be reduced by a number of percentage points which bears the same ratio to 50 as such excess bears to $20,000.

“(c) Limitations.—

“(1) PHASEOUT BASED ON EMPLOYER SIZE.—In the case of an employer who employs more than 10 qualified employees during the taxable year, the credit determined under subsection (a) shall be reduced by an amount which bears the same ratio to the amount of such credit (determined without regard to this paragraph and after the application of the other provisions of this section) as—

“(A) the excess of—

“(i) the number of qualified employees employed by the employer during the taxable year, over

“(ii) 10, bears to

“(B) 15.

“(2) CREDIT NOT ALLOWED WITH RESPECT TO CERTAIN HIGHLY COMPENSATED EMPLOYEES.—No credit shall be determined under subsection (a) with respect to qualified employee health coverage expenses paid or incurred with respect to any employee for any taxable year if the aggregate compensation paid by the employer to such employee during such taxable year exceeds $80,000.

“(3) CREDIT ALLOWED FOR ONLY 2 TAXABLE YEARS.—No credit shall be determined under subsection (a) with respect to any employer for any taxable year unless the employer elects to have this section apply for such taxable year. An employer may elect the application of this section with respect to not more than 2 taxable years.

“(d) Qualified employee health coverage expenses.—For purposes of this section—

“(1) IN GENERAL.—The term ‘qualified employee health coverage expenses’ means, with respect to any employer for any taxable year, the aggregate amount paid or incurred by such employer during such taxable year for coverage of any qualified employee of the employer (including any family coverage which covers such employee) under qualified health coverage.

“(2) QUALIFIED HEALTH COVERAGE.—The term ‘qualified health coverage’ means acceptable coverage (as defined in section 59B(d)) which—

“(A) is provided pursuant to an election under section 4980H(a), and

“(B) satisfies the requirements referred to in section 4980H(c).

“(e) Other definitions.—For purposes of this section—

“(1) QUALIFIED SMALL EMPLOYER.—For purposes of this section, the term ‘qualified small employer’ means any employer for any taxable year if—

“(A) the number of qualified employees employed by such employer during the taxable year does not exceed 25, and

“(B) the average annual employee compensation of such employer for such taxable year does not exceed the sum of the dollar amounts in effect under subsection (b)(2).

“(2) QUALIFIED EMPLOYEE.—The term ‘qualified employee’ means any employee of an employer for any taxable year of the employer if such employee received at least $5,000 of compensation from such employer for services performed in the trade or business of such employer during such taxable year.

“(3) AVERAGE ANNUAL EMPLOYEE COMPENSATION.—The term ‘average annual employee compensation’ means, with respect to any employer for any taxable year, the average amount of compensation paid by such employer to qualified employees of such employer during such taxable year.

“(4) COMPENSATION.—The term ‘compensation’ has the meaning given such term in section 408(p)(6)(A).

“(5) FAMILY COVERAGE.—The term ‘family coverage’ means any coverage other than self-only coverage.

“(f) Special rules.—For purposes of this section—

“(1) SPECIAL RULE FOR PARTNERSHIPS AND SELF-EMPLOYED.—In the case of a partnership (or a trade or business carried on by an individual) which has one or more qualified employees (determined without regard to this paragraph) with respect to whom the election under section 4980H(a) applies, each partner (or, in the case of a trade or business carried on by an individual, such individual) shall be treated as an employee.

“(2) AGGREGATION RULE.—All persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer.

“(3) PREDECESSORS.—Any reference in this section to an employer shall include a reference to any predecessor of such employer.

“(4) DENIAL OF DOUBLE BENEFIT.—Any deduction otherwise allowable with respect to amounts paid or incurred for health insurance coverage to which subsection (a) applies shall be reduced by the amount of the credit determined under this section.

“(5) INFLATION ADJUSTMENT.—In the case of any taxable year beginning after 2013, each of the dollar amounts in subsections (b)(2), (c)(2), and (e)(2) shall be increased by an amount equal to—

“(A) such dollar amount, multiplied by

“(B) the cost of living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins determined by substituting ‘calendar year 2012’ for ‘calendar year 1992’ in subparagraph (B) thereof.

If any increase determined under this paragraph is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.”.

(b) Credit to be part of general business credit.—Subsection (b) of section 38 of such Code (relating to general business credit) is amended by striking “plus” at the end of paragraph (34), by striking the period at the end of paragraph (35) and inserting “, plus” , and by adding at the end the following new paragraph:

“(36) in the case of a qualified small employer (as defined in section 45R(e)), the small business employee health coverage credit determined under section 45R(a).”.

(c) Clerical amendment.—The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 45Q the following new item:

(d) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2012.

(a) HSAs.—Subparagraph (A) of section 223(d)(2) of the Internal Revenue Code of 1986 is amended by adding at the end the following: “Such term shall include an amount paid for medicine or a drug only if such medicine or drug is a prescribed drug or is insulin.”.

(b) Archer MSAs.—Subparagraph (A) of section 220(d)(2) of such Code is amended by adding at the end the following: “Such term shall include an amount paid for medicine or a drug only if such medicine or drug is a prescribed drug or is insulin.”.

(c) Health flexible spending arrangements and health reimbursement arrangements.—Section 106 of such Code is amended by adding at the end the following new subsection:

“(f) Reimbursements for medicine restricted to prescribed drugs and insulin.—For purposes of this section and section 105, reimbursement for expenses incurred for a medicine or a drug shall be treated as a reimbursement for medical expenses only if such medicine or drug is a prescribed drug or is insulin.”.

(d) Effective dates.—The amendment made by this section shall apply to expenses incurred after December 31, 2010.

(a) In general.—Section 125 of the Internal Revenue Code of 1986 is amended—

(1) by redesignating subsections (i) and (j) as subsections (j) and (k), respectively, and

(2) by inserting after subsection (h) the following new subsection:

“(i) Limitation on health flexible spending arrangements.—

“(1) IN GENERAL.—For purposes of this section, if a benefit is provided under a cafeteria plan through employer contributions to a health flexible spending arrangement, such benefit shall not be treated as a qualified benefit unless the cafeteria plan provides that an employee may not elect for any taxable year to have salary reduction contributions in excess of $2,500 made to such arrangement.

“(2) INFLATION ADJUSTMENT.—In the case of any taxable year beginning after 2013, the dollar amount in paragraph (1) shall be increased by an amount equal to—

“(A) such dollar amount, multiplied by

“(B) the cost of living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins determined by substituting ‘calendar year 2012’ for ‘calendar year 1992’ in subparagraph (B) thereof.

If any increase determined under this paragraph is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.”.

(b) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2012.

(a) In general.—Subparagraph (A) of section 223(f)(4) of the Internal Revenue Code of 1986 is amended by striking “10 percent” and inserting “20 percent”.

(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2010.

(a) In general.—Section 139A of the Internal Revenue Code of 1986 is amended by striking the second sentence.

(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2010.

(a) In general.—Subsection (l) of section 6103 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

“(21) DISCLOSURE OF RETURN INFORMATION TO CARRY OUT HEALTH INSURANCE EXCHANGE SUBSIDIES.—

“(A) IN GENERAL.—The Secretary, upon written request from the Health Choices Commissioner or the head of a State-based health insurance exchange approved for operation under section 308 of the , shall disclose to officers and employees of the Health Choices Administration or such State-based health insurance exchange, as the case may be, return information of any taxpayer whose income is relevant in determining any affordability credit described in subtitle C of title III of the . Such return information shall be limited to—

“(i) taxpayer identity information with respect to such taxpayer,

“(ii) the filing status of such taxpayer,

“(iii) the modified adjusted gross income of such taxpayer (as defined in section 59B(e)(5)),

“(iv) the number of dependents of the taxpayer,

“(v) such other information as is prescribed by the Secretary by regulation as might indicate whether the taxpayer is eligible for such affordability credits (and the amount thereof), and

“(vi) the taxable year with respect to which the preceding information relates or, if applicable, the fact that such information is not available.

“(B) RESTRICTION ON USE OF DISCLOSED INFORMATION.—Return information disclosed under subparagraph (A) may be used by officers and employees of the Health Choices Administration or such State-based health insurance exchange, as the case may be, only for the purposes of, and to the extent necessary in, establishing and verifying the appropriate amount of any affordability credit described in subtitle C of title III of the and providing for the repayment of any such credit which was in excess of such appropriate amount.”.

(b) Procedures and recordkeeping related to disclosures.—Paragraph (4) of section 6103(p) of such Code is amended—

(1) by inserting “, or any entity described in subsection (l)(21),” after “or (20)” in the matter preceding subparagraph (A),

(2) by inserting “or any entity described in subsection (l)(21),” after “or (o)(1)(A),” in subparagraph (F)(ii), and

(3) by inserting “or any entity described in subsection (l)(21),” after “or (20),” both places it appears in the matter after subparagraph (F).

(c) Unauthorized disclosure or inspection.—Paragraph (2) of section 7213(a) of such Code is amended by striking “or (20)” and inserting “(20), or (21)”.

(a) In general.—Subsection (f) of section 125 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

“(3) CERTAIN EXCHANGE-PARTICIPATING HEALTH BENEFITS PLANS NOT QUALIFIED.—

“(A) IN GENERAL.—The term ‘qualified benefit’ shall not include any exchange-participating health benefits plan (as defined in section 101(c) of the ).

“(B) EXCEPTION FOR EXCHANGE-ELIGIBLE EMPLOYERS.—Subparagraph (A) shall not apply with respect to any employee if such employee’s employer is an exchange-eligible employer (as defined in section 302 of the ).”.

(b) Conforming amendments.—Subsection (f) of section 125 of such Code is amended—

(1) by striking “For purposes of this section, the term” and inserting “For purposes of this section—

“(1) In general.—The term”, and

(2) by striking “Such term shall not include” and inserting the following:

“(2) LONG-TERM CARE INSURANCE NOT QUALIFIED.—The term ‘qualified benefit’ shall not include”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2012.

(a) In general.—Section 139A of the Internal Revenue Code of 1986 is amended—

(1) by striking “Gross income” and inserting the following:

“(a) Federal subsidies for prescription drug plans.—Gross income”, and

(2) by adding at the end the following new subsection:

“(b) Federal reinsurance program for retirees.—A rule similar to the rule of subsection (a) shall apply with respect to payments made under section 111 of the Affordable Health Care for America Act.”.

(b) Conforming amendment.—The heading of section 139A of such Code (and the item relating to such section in the table of sections for part III of subchapter B of chapter 1 of such Code) is amended by inserting “and retiree health plans” after “prescription drug plans”.

(c) Effective date.—The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

(a) In general.—Subsection (f) of section 7702B of the Internal Revenue Code of 1986 is amended—

(1) by striking “State long-term care plan” in paragraph (1)(A) and inserting “government long-term care plan”,

(2) by redesignating paragraph (2) as paragraph (3), and

(3) by inserting after paragraph (2) the following new paragraph:

“(2) GOVERNMENT LONG-TERM CARE PLAN.—For purposes of this subsection, the term ‘government long-term care plan’ means—

“(A) the CLASS program established under title XXXII of the Public Health Service Act, and

“(B) any State long-term care plan.”.

(b) Conforming amendments.—

(1) Paragraph (3) of section 7702B(f) of such Code, as redesignated by subsection (a), is amended by striking “paragraph (1)” and inserting “this subsection”.

(2) Subsection (f) of section 7702(B) of such Code is amended by striking “State-maintained” in the heading thereof and inserting “government”.

(c) Effective date.—The amendments made by this section shall apply to taxable years ending after December 31, 2010.

(a) In general.—Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to items specifically excluded from gross income) is amended by inserting after section 139C the following new section:

“(a) In general.—Gross income does not include—

“(1) health services or benefits provided or purchased by the Indian Health Service, either directly or indirectly, through a grant to or a contract or compact with an Indian tribe or tribal organization or through programs of third parties funded by the Indian Health Service,

“(2) medical care provided by an Indian tribe or tribal organization to a member of an Indian tribe (including for this purpose, to the member’s spouse or dependents) through any one of the following: provided or purchased medical care services; accident or health insurance (or an arrangement having the effect of accident or health insurance); or amounts paid, directly or indirectly, to reimburse the member for expenses incurred for medical care,

“(3) the value of accident or health plan coverage provided by an Indian tribe or tribal organization for medical care to a member of an Indian tribe (including for this purpose, coverage that extends to such member's spouse or dependents) under an accident or health plan (or through an arrangement having the effect of accident or health insurance), and

“(4) any other medical care provided by an Indian tribe that supplements, replaces, or substitutes for the programs and services provided by the Federal Government to Indian tribes or Indians.

“(b) Definitions.—For purposes of this section—

“(1) IN GENERAL.—The terms ‘accident or health insurance’ and ‘accident or health plan’ have the same meaning as when used in sections 104 and 106.

“(2) MEDICAL CARE.—The term ‘medical care’ has the meaning given such term in section 213.

“(3) DEPENDENT.—The term ‘dependent’ has the meaning given such term in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B).

“(4) INDIAN TRIBE.—The term ‘Indian tribe’ means any Indian tribe, band, nation, pueblo, or other organized group or community, including any Alaska Native village, or regional or village corporation, as defined in, or established pursuant to, the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.), which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians.

“(5) TRIBAL ORGANIZATION.—The term ‘tribal organization’ has the meaning given such term in section 4(l) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450b(l)).”.

(b) Clerical amendment.—The table of sections for such part III is amended by inserting after the item relating to section 139C the following new item:

(c) Effective date.—The amendments made by this section shall apply to health benefits and coverage provided after the date of enactment of this Act.

(d) No inference.—Nothing in the amendments made by this section shall be construed to create an inference with respect to the exclusion from gross income of—

(1) benefits provided by Indian tribes that are not within the scope of this section, and

(2) health benefits or coverage provided by Indian tribes prior to the effective date of this section.

(a) In general.—Part VIII of subchapter A of chapter 1 of the Internal Revenue Code of 1986, as added by this title, is amended by adding at the end the following new subpart:

“subpart B—Surcharge on high income individuals

“(a) General rule.—In the case of a taxpayer other than a corporation, there is hereby imposed (in addition to any other tax imposed by this subtitle) a tax equal to 5.4 percent of so much of the modified adjusted gross income of the taxpayer as exceeds $1,000,000.

“(b) Taxpayers not making a joint return.—In the case of any taxpayer other than a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), subsection (a) shall be applied by substituting ‘$500,000’ for ‘$1,000,000’.

“(c) Modified adjusted gross income.—For purposes of this section, the term ‘modified adjusted gross income’ means adjusted gross income reduced by any deduction (not taken into account in determining adjusted gross income) allowed for investment interest (as defined in section 163(d)). In the case of an estate or trust, adjusted gross income shall be determined as provided in section 67(e).

“(d) Special rules.—

“(1) NONRESIDENT ALIEN.—In the case of a nonresident alien individual, only amounts taken into account in connection with the tax imposed under section 871(b) shall be taken into account under this section.

“(2) CITIZENS AND RESIDENTS LIVING ABROAD.—The dollar amount in effect under subsection (a) (after the application of subsection (b)) shall be decreased by the excess of—

“(A) the amounts excluded from the taxpayer’s gross income under section 911, over

“(B) the amounts of any deductions or exclusions disallowed under section 911(d)(6) with respect to the amounts described in subparagraph (A).

“(3) CHARITABLE TRUSTS.—Subsection (a) shall not apply to a trust all the unexpired interests in which are devoted to one or more of the purposes described in section 170(c)(2)(B).

“(4) 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 or for purposes of section 55.”.

(b) Clerical amendment.—The table of subparts for part VIII of subchapter A of chapter 1 of such Code, as added by this title, is amended by inserting after the item relating to subpart A the following new item:

(c) Section 15 not to apply.—The amendment made by subsection (a) shall not be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986.

(d) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2010.

(a) In general.—Chapter 31 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subchapter:

“subchapter D—Medical devices

“(a) In general.—There is hereby imposed on the first taxable sale of any medical device a tax equal to 2.5 percent of the price for which so sold.

“(b) First taxable sale.—For purposes of this section—

“(1) IN GENERAL.—The term ‘first taxable sale’ means the first sale, for a purpose other than for resale, after production, manufacture, or importation.

“(2) EXCEPTION FOR SALES AT RETAIL ESTABLISHMENTS.—Such term shall not include the sale of any medical device if—

“(A) such sale is made at a retail establishment on terms which are available to the general public, and

“(B) such medical device is of a type (and purchased in a quantity) which is purchased by the general public.

“(3) EXCEPTION FOR EXPORTS, ETC.—Rules similar to the rules of sections 4221 (other than paragraphs (3), (4), (5), and (6) of subsection (a) thereof) and 4222 shall apply for purposes of this section. To the extent provided by the Secretary, section 4222 may be extended to, and made applicable with respect to, the exemption provided by paragraph (2).

“(4) SALES TO PATIENTS NOT TREATED AS RESALES.—If a medical device is sold for use in connection with providing any health care service to an individual, such sale shall not be treated as being for the purpose of resale (even if such device is sold to such individual).

“(c) Other definitions and special rules.—For purposes of this section—

“(1) MEDICAL DEVICE.—The term ‘medical device’ means any device (as defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act) intended for humans.

“(2) LEASE TREATED AS SALE.—Rules similar to the rules of section 4217 shall apply.

“(3) USE TREATED AS SALE.—

“(A) IN GENERAL.—If any person uses a medical device before the first taxable sale of such device, then such person shall be liable for tax under such subsection in the same manner as if such use were the first taxable sale of such device.

“(B) EXCEPTIONS.—The preceding sentence shall not apply to—

“(i) use of a medical device as material in the manufacture or production of, or as a component part of, another medical device to be manufactured or produced by such person, or

“(ii) use of a medical device after a sale described in subsection (b)(2).

“(4) DETERMINATION OF PRICE.—

“(A) IN GENERAL.—Rules similar to the rules of subsections (a), (c), and (d) of section 4216 shall apply for purposes of this section.

“(B) CONSTRUCTIVE SALE PRICE.—If—

“(i) a medical device is sold (otherwise than through an arm’s length transaction) at less than the fair market price, or

“(ii) a person is liable for tax for a use described in paragraph (3),

the tax under this section shall be computed on the price for which such or similar devices are sold in the ordinary course of trade as determined by the Secretary.

“(5) RESALES PURSUANT TO CERTAIN CONTRACT ARRANGEMENTS.—

“(A) IN GENERAL.—In the case of a specified contract sale of a medical device, the seller referred to in subparagraph (B)(i) shall be entitled to recover from the producer, manufacturer, or importer referred to in subparagraph (B)(ii) the amount of the tax paid by such seller under this section with respect to such sale.

“(B) SPECIFIED CONTRACT SALE.—For purposes of this paragraph, the term ‘specified contract sale’ means, with respect to any medical device, the first taxable sale of such device if—

“(i) the seller is not the producer, manufacturer, or importer of such device,

“(ii) the price at which such device is so sold is determined in accordance with a contract between the producer, manufacturer, or importer of such device and the person to whom such device is so sold.

“(C) SPECIAL RULES RELATED TO CREDITS AND REFUNDS.—In the case of any credit or refund under section 6416 of the tax imposed under this section on a specified contract sale of a medical device—

“(i) such credit or refund shall be allowed or made only if the seller has filed with the Secretary the written consent of the producer, manufacturer, or importer referred to in subparagraph (B)(ii) to the allowance of such credit or the making of such refund, and

“(ii) the amount of tax taken into account under subparagraph (A) shall be reduced by the amount of such credit or refund.”.

(b) Conforming amendments.—

(1) Paragraph (2) of section 6416(b) of such Code is amended—

(A) by inserting “or 4061” after “under section 4051”, and

(B) by adding at the end the following: “In the case of the tax imposed by section 4061, subparagraphs (B), (C), (D), and (E) shall not apply.”.

(2) The table of subchapters for chapter 31 of such Code is amended by adding at the end the following new item:

(c) Effective date.—The amendments made by this section shall apply to sales (and leases and uses treated as sales) after December 31, 2012.

(a) In general.—Section 6041 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsections:

“(h) Application to corporations.—Notwithstanding any regulation prescribed by the Secretary before the date of the enactment of this subsection, for purposes of this section the term ‘person’ includes any corporation that is not an organization exempt from tax under section 501(a).

“(i) Regulations.—The Secretary may prescribe such regulations and other guidance as may be appropriate or necessary to carry out the purposes of this section, including rules to prevent duplicative reporting of transactions.”.

(b) Payments for property and other gross proceeds.—Subsection (a) of section 6041 of the Internal Revenue Code of 1986 is amended—

(1) by inserting “amounts in consideration for property,” after “wages,”,

(2) by inserting “gross proceeds,” after “emoluments, or other”, and

(3) by inserting “gross proceeds,” after “setting forth the amount of such”.

(c) Effective date.—The amendments made by this section shall apply to payments made after December 31, 2011.

(a) In general.—Paragraphs (5)(D) and (6) of section 864(f) of the Internal Revenue Code of 1986 are each amended by striking “December 31, 2010” and inserting “December 31, 2019”.

(b) Transition.—Subsection (f) of section 864 of such Code is amended by striking paragraph (7).

(a) In general.—Section 894 of the Internal Revenue Code of 1986 (relating to income affected by treaty) is amended by adding at the end the following new subsection:

“(d) Limitation on treaty benefits for certain deductible payments.—

“(1) IN GENERAL.—In the case of any deductible related-party payment, any withholding tax imposed under chapter 3 (and any tax imposed under subpart A or B of this part) with respect to such payment may not be reduced under any treaty of the United States unless any such withholding tax would be reduced under a treaty of the United States if such payment were made directly to the foreign parent corporation.

“(2) DEDUCTIBLE RELATED-PARTY PAYMENT.—For purposes of this subsection, the term ‘deductible related-party payment’ means any payment made, directly or indirectly, by any person to any other person if the payment is allowable as a deduction under this chapter and both persons are members of the same foreign controlled group of entities.

“(3) FOREIGN CONTROLLED GROUP OF ENTITIES.—For purposes of this subsection—

“(A) IN GENERAL.—The term ‘foreign controlled group of entities’ means a controlled group of entities the common parent of which is a foreign corporation.

“(B) CONTROLLED GROUP OF ENTITIES.—The term ‘controlled group of entities’ means a controlled group of corporations as defined in section 1563(a)(1), except that—

“(i) ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears therein, and

“(ii) the determination shall be made 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).

“(4) FOREIGN PARENT CORPORATION.—For purposes of this subsection, the term ‘foreign parent corporation’ means, with respect to any deductible related-party payment, the common parent of the foreign controlled group of entities referred to in paragraph (3)(A).

“(5) REGULATIONS.—The Secretary may prescribe such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance which provide for—

“(A) the treatment of two or more persons as members of a foreign controlled group of entities if such persons would be the common parent of such group if treated as one corporation, and

“(B) the treatment of any member of a foreign controlled group of entities as the common parent of such group if such treatment is appropriate taking into account the economic relationships among such entities.”.

(b) Effective date.—The amendment made by this section shall apply to payments made after the date of the enactment of this Act.

(a) In general.—Section 7701 of the Internal Revenue Code of 1986 is amended by redesignating subsection (o) as subsection (p) and by inserting after subsection (n) the following new subsection:

“(o) Clarification of economic substance doctrine.—

“(1) APPLICATION OF DOCTRINE.—In the case of any transaction to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if—

“(A) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, and

“(B) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.

“(2) SPECIAL RULE WHERE TAXPAYER RELIES ON PROFIT POTENTIAL.—

“(A) IN GENERAL.—The potential for profit of a transaction shall be taken into account in determining whether the requirements of subparagraphs (A) and (B) of paragraph (1) are met with respect to the transaction only if the present value of the reasonably expected pre-tax profit from the transaction is substantial in relation to the present value of the expected net tax benefits that would be allowed if the transaction were respected.

“(B) TREATMENT OF FEES AND FOREIGN TAXES.—Fees and other transaction expenses and foreign taxes shall be taken into account as expenses in determining pre-tax profit under subparagraph (A).

“(3) STATE AND LOCAL TAX BENEFITS.—For purposes of paragraph (1), any State or local income tax effect which is related to a Federal income tax effect shall be treated in the same manner as a Federal income tax effect.

“(4) FINANCIAL ACCOUNTING BENEFITS.—For purposes of paragraph (1)(B), achieving a financial accounting benefit shall not be taken into account as a purpose for entering into a transaction if the origin of such financial accounting benefit is a reduction of Federal income tax.

“(5) DEFINITIONS AND SPECIAL RULES.—For purposes of this subsection—

“(A) ECONOMIC SUBSTANCE DOCTRINE.—The term ‘economic substance doctrine’ means the common law doctrine under which tax benefits under subtitle A with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose.

“(B) EXCEPTION FOR PERSONAL TRANSACTIONS OF INDIVIDUALS.—In the case of an individual, paragraph (1) shall apply only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income.

“(C) OTHER COMMON LAW DOCTRINES NOT AFFECTED.—Except as specifically provided in this subsection, the provisions of this subsection shall not be construed as altering or supplanting any other rule of law, and the requirements of this subsection shall be construed as being in addition to any such other rule of law.

“(D) DETERMINATION OF APPLICATION OF DOCTRINE NOT AFFECTED.—The determination of whether the economic substance doctrine is relevant to a transaction (or series of transactions) shall be made in the same manner as if this subsection had never been enacted.

“(6) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.”.

(b) Penalty for underpayments attributable to transactions lacking economic substance.—

(1) IN GENERAL.—Subsection (b) of section 6662 of such Code is amended by inserting after paragraph (5) the following new paragraph:

“(6) Any disallowance of claimed tax benefits by reason of a transaction lacking economic substance (within the meaning of section 7701(o)) or failing to meet the requirements of any similar rule of law.”.

(2) INCREASED PENALTY FOR NONDISCLOSED TRANSACTIONS.—Section 6662 of such Code is amended by adding at the end the following new subsection:

“(i) Increase in penalty in case of nondisclosed noneconomic substance transactions.—

“(1) IN GENERAL.—In the case of any portion of an underpayment which is attributable to one or more nondisclosed noneconomic substance transactions, subsection (a) shall be applied with respect to such portion by substituting ‘40 percent’ for ‘20 percent’.

“(2) NONDISCLOSED NONECONOMIC SUBSTANCE TRANSACTIONS.—For purposes of this subsection, the term ‘nondisclosed noneconomic substance transaction’ means any portion of a transaction described in subsection (b)(6) with respect to which the relevant facts affecting the tax treatment are not adequately disclosed in the return nor in a statement attached to the return.

“(3) SPECIAL RULE FOR AMENDED RETURNS.—Except as provided in regulations, in no event shall any amendment or supplement to a return of tax be taken into account for purposes of this subsection if the amendment or supplement is filed after the earlier of the date the taxpayer is first contacted by the Secretary regarding the examination of the return or such other date as is specified by the Secretary.”.

(3) CONFORMING AMENDMENT.—Subparagraph (B) of section 6662A(e)(2) of such Code is amended—

(A) by striking “section 6662(h)” and inserting “subsections (h) or (i) of section 6662”, and

(B) by striking “gross valuation misstatement penalty” in the heading and inserting “certain increased underpayment penalties”.

(c) Reasonable cause exception not applicable to noneconomic substance transactions and tax shelters.—

(1) REASONABLE CAUSE EXCEPTION FOR UNDERPAYMENTS.—Subsection (c) of section 6664 of such Code is amended—

(A) by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively,

(B) by striking “paragraph (2)” in paragraph (4)(A), as so redesignated, and inserting “paragraph (3)”, and

(C) by inserting after paragraph (1) the following new paragraph:

“(2) EXCEPTION.—Paragraph (1) shall not apply to any portion of an underpayment which is attributable to one or more tax shelters (as defined in section 6662(d)(2)(C)) or transactions described in section 6662(b)(6).”.

(2) REASONABLE CAUSE EXCEPTION FOR REPORTABLE TRANSACTION UNDERSTATEMENTS.—Subsection (d) of section 6664 of such Code is amended—

(A) by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively,

(B) by striking “paragraph (2)(C)” in paragraph (4), as so redesignated, and inserting “paragraph (3)(C)”, and

(C) by inserting after paragraph (1) the following new paragraph:

“(2) EXCEPTION.—Paragraph (1) shall not apply to any portion of a reportable transaction understatement which is attributable to one or more tax shelters (as defined in section 6662(d)(2)(C)) or transactions described in section 6662(b)(6).”.

(d) Application of penalty for erroneous claim for refund or credit to noneconomic substance transactions.—Section 6676 of such Code is amended by redesignating subsection (c) as subsection (d) and inserting after subsection (b) the following new subsection:

“(c) Noneconomic substance transactions treated as lacking reasonable basis.—For purposes of this section, any excessive amount which is attributable to any transaction described in section 6662(b)(6) shall not be treated as having a reasonable basis.”.

(e) Effective Date.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.

(2) UNDERPAYMENTS.—The amendments made by subsections (b) and (c)(1) shall apply to underpayments attributable to transactions entered into after the date of the enactment of this Act.

(3) UNDERSTATEMENTS.—The amendments made by subsection (c)(2) shall apply to understatements attributable to transactions entered into after the date of the enactment of this Act.

(4) REFUNDS AND CREDITS.—The amendment made by subsection (d) shall apply to refunds and credits attributable to transactions entered into after the date of the enactment of this Act.

(a) In general.—Subsection (c) of section 6664 of the Internal Revenue Code of 1986, as amended by section 562, is amended—

(1) by redesignating paragraphs (3) and (4) as paragraphs (4) and (5), respectively,

(2) by striking “paragraph (3)” in paragraph (4)(A), as so redesignated, and inserting “paragraph (4)”, and

(3) by inserting after paragraph (2) the following new paragraph:

“(3) SPECIAL RULE FOR CERTAIN LARGE OR PUBLICLY TRADED PERSONS.—

“(A) IN GENERAL.—In the case of any specified person, paragraph (1) shall apply to the portion of an underpayment which is attributable to any item only if such person has a reasonable belief that the tax treatment of such item by such person is more likely than not the proper tax treatment of such item.

“(B) SPECIFIED PERSON.—For purposes of this paragraph, the term ‘specified person’ means—

“(i) any person required to file periodic or other reports under section 13 of the Securities Exchange Act of 1934, and

“(ii) any corporation with gross receipts in excess of $100,000,000 for the taxable year involved.

All persons treated as a single employer under section 52(a) shall be treated as one person for purposes of clause (ii).”.

(b) Nonapplication of substantial authority and reasonable basis standards for reducing understatements.—Paragraph (2) of section 6662(d) of such Code is amended by adding at the end the following new subparagraph:

“(D) REDUCTION NOT TO APPLY TO CERTAIN LARGE OR PUBLICLY TRADED PERSONS.—Subparagraph (B) shall not apply to any specified person (as defined in section 6664(c)(3)(B)).”.

(c) Effective Date.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to underpayments attributable to transactions entered into after the date of the enactment of this Act.

(2) NONAPPLICATION OF UNDERSTATEMENT REDUCTION.—The amendment made by subsection (b) shall apply to understatements attributable to transactions entered into after the date of the enactment of this Act.

(a) Application of accident and health plans to eligible beneficiaries.—

(1) EXCLUSION OF CONTRIBUTIONS.—Section 106 of the Internal Revenue Code of 1986 (relating to contributions by employer to accident and health plans), as amended by section 531, is amended by adding at the end the following new subsection:

“(g) Coverage provided for eligible beneficiaries of employees.—

“(1) IN GENERAL.—Subsection (a) shall apply with respect to any eligible beneficiary of the employee.

“(2) ELIGIBLE BENEFICIARY.—For purposes of this subsection, the term ‘eligible beneficiary’ means any individual who is eligible to receive benefits or coverage under an accident or health plan.”.

(2) EXCLUSION OF AMOUNTS EXPENDED FOR MEDICAL CARE.—The first sentence of section 105(b) of such Code (relating to amounts expended for medical care) is amended—

(A) by striking “and his dependents” and inserting “his dependents”, and

(B) by inserting before the period the following: “and any eligible beneficiary (within the meaning of section 106(g)) with respect to the taxpayer”.

(3) PAYROLL TAXES.—

(A) Section 3121(a)(2) of such Code is amended—

(i) by striking “or any of his dependents” in the matter preceding subparagraph (A) and inserting “, any of his dependents, or any eligible beneficiary (within the meaning of section 106(g)) with respect to the employee”,

(ii) by striking “or any of his dependents,” in subparagraph (A) and inserting “, any of his dependents, or any eligible beneficiary (within the meaning of section 106(g)) with respect to the employee,”, and

(iii) by striking “and their dependents” both places it appears and inserting “and such employees’ dependents and eligible beneficiaries (within the meaning of section 106(g))”.

(B) Section 3231(e)(1) of such Code is amended—

(i) by striking “or any of his dependents” and inserting “, any of his dependents, or any eligible beneficiary (within the meaning of section 106(g)) with respect to the employee,”, and

(ii) by striking “and their dependents” both places it appears and inserting “and such employees’ dependents and eligible beneficiaries (within the meaning of section 106(g))”.

(C) Section 3306(b)(2) of such Code is amended—

(i) by striking “or any of his dependents” in the matter preceding subparagraph (A) and inserting “, any of his dependents, or any eligible beneficiary (within the meaning of section 106(g)) with respect to the employee,”,

(ii) by striking “or any of his dependents” in subparagraph (A) and inserting “, any of his dependents, or any eligible beneficiary (within the meaning of section 106(g)) with respect to the employee”, and

(iii) by striking “and their dependents” both places it appears and inserting “and such employees’ dependents and eligible beneficiaries (within the meaning of section 106(g))”.

(D) Section 3401(a) of such Code is amended by striking “or” at the end of paragraph (22), by striking the period at the end of paragraph (23) and inserting “; or”, and by inserting after paragraph (23) the following new paragraph:

“(24) for any payment made to or for the benefit of an employee or any eligible beneficiary (within the meaning of section 106(g)) if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under section 106 or under section 105 by reference in section 105(b) to section 106(g).”.

(b) Expansion of dependency for purposes of deduction for health insurance costs of self-employed individuals.—

(1) IN GENERAL.—Paragraph (1) of section 162(l) of the Internal Revenue Code of 1986 (relating to special rules for health insurance costs of self-employed individuals) is amended to read as follows: