S.Amdt. 2589

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   Inserted: H--Additional Revenue Provisions

   Inserted: PART I--ADMINISTRATIVE PROVISIONS

   Inserted: SEC. 5671. EXTENSION OF CUSTOMS USER FEES.

   Inserted: Section 13031(j)(3) of the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended by striking "March 31, 2004" and inserting "September 30, 2009".

   Inserted: SEC. 5672. EXTENSION OF IRS USER FEES.

   Inserted: (a) In General.--Section 7528(c) (relating to termination) is amended by striking "December 31, 2004" and inserting "September 30, 2013".

   Inserted: (b) Effective Date.--The amendment made by this section shall apply to requests after the date of the enactment of this Act.

   Inserted: PART II--FINANCIAL INSTRUMENTS

   Inserted: SEC. 5673. TREATMENT OF STRIPPED INTERESTS IN BOND AND PREFERRED STOCK FUNDS, ETC.

   Inserted: (a) In General.--Section 1286 (relating to tax treatment of stripped bonds) is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:

   Inserted: "(f) Treatment of Stripped Interests in Bond and Preferred Stock Funds, Etc.--In the case of an account or entity substantially all of the assets of which consist of bonds, preferred stock, or a combination thereof, the Secretary may by regulations provide that rules similar to the rules of this section and 305(e), as appropriate, shall apply to interests in such account or entity to which (but for this subsection) this section or section 305(e), as the case may be, would not apply.".

   Inserted: (b) Cross Reference.--Subsection (e) of section 305 is amended by adding at the end the following new paragraph:

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   Inserted: "(7) Cross reference.--

   Inserted: "For treatment of stripped interests in certain accounts or entities holding preferred stock, see section 1286(f).".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to purchases and dispositions after the date of the enactment of this Act.

   Inserted: SEC. 5674. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERSHIPS AND S CORPORATIONS.

   Inserted: (a) In General.--Section 168(j) (relating to limitation on deduction for interest on certain indebtedness) is amended by redesignating paragraph (8) as paragraph (9) and by inserting after paragraph (7) the following new paragraph:

   Inserted: "(8) Application to partnerships and s corporations.--

   Inserted: "(A) In general.--This subsection shall apply to partnerships and S corporations in the same manner as it applies to C corporations.

   Inserted: "(B) Allocations to certain corporate partners.--If a C corporation is a partner in a partnership--

   Inserted: "(i) the corporation's allocable share of indebtedness and interest income of the partnership shall be taken into account in applying this subsection to the corporation, and

   Inserted: "(ii) if a deduction is not disallowed under this subsection with respect to any interest expense of the partnership, this subsection shall be applied separately in determining whether a deduction is allowable to the corporation with respect to the corporation's allocable share of such interest expense.".

   Inserted: (b) Effective Date.--The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

   Inserted: SEC. 5675. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME REALIZED ON SATISFACTION OF DEBT WITH PARTNERSHIP INTEREST.

   Inserted: (a) In General.--Paragraph (8) of section 108(e) (relating to general rules for discharge of indebtedness (including discharges not in title 11 cases or insolvency)) is amended to read as follows:

   Inserted: "(8) Indebtedness satisfied by corporate stock or partnership interest.--For purposes of determining income of a debtor from discharge of indebtedness, if--

   Inserted: "(A) a debtor corporation transfers stock, or

   Inserted: "(B) a debtor partnership transfers a capital or profits interest in such partnership, to a creditor in satisfaction of its recourse or nonrecourse indebtedness, such corporation or partnership shall be treated as having satisfied the indebtedness with an amount of money equal to the fair market value of the stock or interest. In the case of any partnership, any discharge of indebtedness income recognized under this paragraph shall be included in the distributive shares of taxpayers which were the partners in the partnership immediately before such discharge.".

   Inserted: (b) Effective Date.--The amendment made by this section shall apply with respect to cancellations of indebtedness occurring on or after the date of the enactment of this Act.

   Inserted: SEC. 5676. MODIFICATION OF STRADDLE RULES.

   Inserted: (a) Rules Relating to Identified Straddles.--

   Inserted: (1) In general.--Subparagraph (A) of section 1092(a)(2) (relating to special rule for identified straddles) is amended to read as follows:

   Inserted: "(A) In general.--In the case of any straddle which is an identified straddle--

   Inserted: "(i) paragraph (1) shall not apply with respect to identified positions comprising the identified straddle,

   Inserted: "(ii) if there is any loss with respect to any identified position of the identified straddle, the basis of each of the identified offsetting positions in the identified straddle shall be increased by an amount which bears the same ratio to the loss as the unrecognized gain with respect to such offsetting position bears to the aggregate unrecognized gain with respect to all such offsetting positions, and

   Inserted: "(iii) any loss described in clause (ii) shall not otherwise be taken into account for purposes of this title.".

   Inserted: (2) Identified straddle.--Section 1092(a)(2)(B) (defining identified straddle) is amended--

   Inserted: (A) by striking clause (ii) and inserting the following:

   Inserted: "(ii) to the extent provided by regulations, the value of each position of which (in the hands of the taxpayer immediately before the creation of the straddle) is not less than the basis of such position in the hands of the taxpayer at the time the straddle is created, and", and

   Inserted: (B) by adding at the end the following new flush sentence:

   Inserted: "The Secretary shall prescribe regulations which specify the proper methods for clearly identifying a straddle as an identified straddle (and the positions comprising such straddle), which specify the rules for the application of this section for a taxpayer which fails to properly identify the positions of an identified straddle, and which specify the ordering rules in cases where a taxpayer disposes of less than an entire position which is part of an identified straddle.".

   Inserted: (3) Unrecognized gain.--Section 1092(a)(3) (defining unrecognized gain) is amended by redesignating subparagraph (B) as subparagraph (C) and by inserting after subparagraph (A) the following new subparagraph:

   Inserted: "(B) Special rule for identified straddles.--For purposes of paragraph (2)(A)(ii), the unrecognized gain with respect to any identified offsetting position shall be the excess of the fair market value of the position at the time of the determination over the fair market value of the position at the time the taxpayer identified the position as a position in an identified straddle."

   Inserted: (4) Conforming amendment.--Section 1092(c)(2) is amended by striking subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B).

   Inserted: (b) Physically Settled Positions.--Section 1092(d) (relating to definitions and special rules) is amended by adding at the end the following new paragraph:

   Inserted: "(8) Special rules for physically settled positions.--For purposes of subsection (a), if a taxpayer settles a position which is part of a straddle by delivering property to which the position relates (and such position, if terminated, would result in a realization of a loss), then such taxpayer shall be treated as if such taxpayer--

   Inserted: "(A) terminated the position for its fair market value immediately before the settlement, and

   Inserted: "(B) sold the property so delivered by the taxpayer at its fair market value.".

   Inserted: (c) Repeal of Stock Exception.--

   Inserted: (1) In general.--Section 1092(d)(3) is repealed.

   Inserted: (2) Conforming amendment.--Section 1258(d)(1) is amended by striking "; except that the term 'personal property' shall include stock".

   Inserted: (d) Repeal of Qualified Covered Call Exception.--Section 1092(c)(4) is amended by adding at the end the following new subparagraph:

   Inserted: "(I) Termination.--This paragraph shall not apply to any position established on or after the date of the enactment of this subparagraph.".

   Inserted: (e) Effective Date.--The amendments made by this section shall apply to positions established on or after the date of the enactment of this Act.

   Inserted: SEC. 5677. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL READILY TRADEABLE DEBT.

   Inserted: (a) In General.--Section 453(f)(4)(B) (relating to purchaser evidences of indebtedness payable on demand or readily tradeable) is amended by striking "is issued by a corporation or a government or political subdivision thereof and".

   Inserted: (b) Effective Date.--The amendment made by this section shall apply to sales occurring on or after the date of the enactment of this Act.

   Inserted: PART III--CORPORATIONS AND PARTNERSHIPS

   Inserted: SEC. 5678. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS IN DIVISIVE REORGANIZATIONS.

   Inserted: (a) In General.--Section 361(b)(3) (relating to treatment of transfers to creditors) is amended by adding at the end the following new sentence: "In the case of a reorganization described in section 368(a)(1)(D) with respect to which stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 355, this paragraph shall apply only to the extent that the sum of the money and the fair market value of other property transferred to such creditors does not exceed the adjusted bases of such assets transferred.".

   Inserted: (b) Liabilities in Excess of Basis.--Section 357(c)(1)(B) is amended by inserting "with respect to which stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 355" after "section 368(a)(1)(D)".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to transfers of money or other property, or liabilities assumed, in connection with a reorganization occurring on or after the date of the enactment of this Act.

   Inserted: SEC. 5679. CLARIFICATION OF DEFINITION OF NONQUALIFIED PREFERRED STOCK.

   Inserted: (a) In General.--Section 351(g)(3)(A) is amended by adding at the end the following: "Stock shall not be treated as participating in corporate growth to any significant extent unless there is a real and meaningful likelihood of the shareholder actually participating in the earnings and growth of the corporation.".

   Inserted: (b) Effective Date.--The amendment made by this section shall apply to transactions after May 14, 2003.

   Inserted: SEC. 5680. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF CORPORATIONS.

   Inserted: (a) In General.--Section 1563(a)(2) (relating to brother-sister controlled group) is amended by striking "possessing--" and all that follows through "(B)" and inserting "possessing".

   Inserted: (b) Application of Existing Rules to Other Code Provisions.--Section 1563(f) (relating to other definitions and rules) is amended by adding at the end the following new paragraph:

   Inserted: "(5) Brother-sister controlled group definition for provisions other than this part.--

   Inserted: "(A) In general.--Except as specifically provided in an applicable provision, subsection (a)(2) shall be applied to an applicable provision as if it read as follows:

   Inserted: '(2) Brother-sister controlled group.--Two or more corporations if 5 or fewer persons who are individuals, estates, or trusts own (within the meaning of subsection (d)(2) stock possessing--

   Inserted: '(A) at least 80 percent of the total combined voting power of all classes of stock entitled to vote, or at least 80 percent of the total value of shares of all classes of stock, of each corporation, and

   Inserted: '(B) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation.'

   Inserted: "(B) Applicable provision.--For purposes of this paragraph, an applicable provision is any provision of law (other than this part) which incorporates the definition of controlled group of corporations under subsection (a).".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

   Inserted: SEC. 5681. MANDATORY BASIS ADJUSTMENTS IN CONNECTION WITH PARTNERSHIP DISTRIBUTIONS AND TRANSFERS OF PARTNERSHIP INTERESTS.

   Inserted: (a) In General.--Section 754 is repealed.

   Inserted: (b) Adjustment to Basis of Undistributed Partnership Property.--Section 734 is amended--

   Inserted: (1) by striking ", with respect to which the election provided in section 754 is in effect," in the matter preceding paragraph (1) of subsection (b),

   Inserted: (2) by striking "(as adjusted by section 732(d))" both places it appears in subsection (b),

   Inserted: (3) by striking the last sentence of subsection (b),

   Inserted: (4) by striking subsection (a) and by redesignating subsections (b) and (c) as subsections (a) and (b), respectively, and

   Inserted: (5) by striking "optional" in the heading.

   Inserted: (c) Adjustment to Basis of Partnership Property.--Section 743 is amended--

   Inserted: (1) by striking "with respect to which the election provided in section 754 is in effect" in the matter preceding paragraph (1) of subsection (b),

   Inserted: (2) by striking subsection (a) and by redesignating subsections (b) and (c) as subsections (a) and (b), respectively,

   Inserted: (3) by adding at the end the following new subsection:

   Inserted: "(c) Election to Adjust Basis for Transfers Upon Death of Partner.--Subsection (a) shall not apply and no adjustments shall be made in the case of any transfer of an interest in a partnership upon the death of a partner unless an election to do so is made by the partnership. Such an election shall apply with respect to all such transfers of interests in the partnership. Any election under section 754 in effect on the date of the enactment of this subsection shall constitute an election made under this subsection. Such election may be revoked by the partnership, subject to such limitations as may be provided by regulations prescribed by the Secretary.", and

   Inserted: (4) by striking "OPTIONAL" in the heading.

   Inserted: (d) Conforming Amendments.--

   Inserted: (1) Subsection (d) of section 732 is repealed.

   Inserted: (2) Section 755(a) is amended--

   Inserted: (A) by striking "section 734(b) (relating to the optional adjustment" and inserting "section 734(a) (relating to the adjustment", and

   Inserted: (B) by striking "section 743(b) (relating to the optional adjustment" and inserting "section 743(a) (relating to the adjustment".

   Inserted: (3) Section 761(e)(2) is amended by striking "optional".

   Inserted: (4) Section 774(a) is amended by striking "743(b)" both places it appears and inserting "743(a)".

   Inserted: (5) The item relating to section 734 in the table of sections for subpart B of part II of subchapter K of chapter 1 is amended by striking "Optional".

   Inserted: (6) The item relating to section 743 in the table of sections for subpart C of part II of subchapter K of chapter 1 is amended by striking "Optional".

   Inserted: (e) Effective Dates.--

   Inserted: (1) In general.--Except as provided in paragraph (2), the amendments made by this section shall apply to transfers and distributions made after the date of the enactment of this Act.

   Inserted: (2) Repeal of section 732(d).--The amendments made by subsections (b)(2) and (d)(1) shall apply to--

   Inserted: (A) except as provided in subparagraph (B), transfers made after the date of the enactment of this Act, and

   Inserted: (B) in the case of any transfer made on or before such date to which section 732(d) applies, distributions made after the date which is 2 years after such date of enactment.

   Inserted: PART IV--DEPRECIATION AND AMORTIZATION

   Inserted: SEC. 5682. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS FRANCHISES.

   Inserted: (a) In General.--Section 197(e) (relating to exceptions to definition of section 197 intangible) is amended by striking paragraph (6) and by redesignating paragraphs (7) and (8) as paragraphs (6) and (7), respectively.

   Inserted: (b) Conforming Amendments.--

   Inserted: (1)(A) Section 1056 (relating to basis limitation for player contracts transferred in connection with the sale of a franchise) is repealed.

   Inserted: (B) The table of sections for part IV of subchapter O of chapter 1 is amended by striking the item relating to section 1056.

   Inserted: (2) Section 1245(a) (relating to gain from disposition of certain depreciable property) is amended by striking paragraph (4).

   Inserted: (3) Section 1253 (relating to transfers of franchises, trademarks, and trade names) is amended by striking subsection (e).

   Inserted: (c) Effective Dates.--

   Inserted: (1) In general.--Except as provided in paragraph (2), the amendments made by this section shall apply to property acquired after the date of the enactment of this Act.

   Inserted: (2) Section 1245.--The amendment made by subsection (b)(2) shall apply to franchises acquired after the date of the enactment of this Act.

   Inserted: SEC. 5683. CLASS LIVES FOR UTILITY GRADING COSTS.

   Inserted: (a) Gas Utility Property.--Section 168(e)(3)(E) (defining 15-year property) is amended by striking "and" at the end of clause (ii), by striking the period at the end of clause (iii) and inserting ", and", and by adding at the end the following new clause:

   Inserted: "(iv) initial clearing and grading land improvements with respect to gas utility property.".

   Inserted: (b) Electric Utility Property.--Section 168(e)(3) is amended by adding at the end the following new subparagraph:

   Inserted: "(F) 20-year property.--The term '20-year property' means initial clearing and grading land improvements with respect to any electric utility transmission and distribution plant.".

   Inserted: (c) Conforming Amendments.--The table contained in section 168(g)(3)(B) is amended--

   Inserted: (1) by inserting "or (E)(iv)" after "(E)(iii)", and

   Inserted: (2) by adding at the end the following new item:

   Inserted: "(F).......................................................25".....

   Inserted: (d) Effective Date.--The amendments made by this section shall apply to property placed in service after the date of the enactment of this Act.

   Inserted: SEC. 5684. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.

   Inserted: (a) Start-Up Expenditures.--

   Inserted: (1) Allowance of deduction.--Paragraph (1) of section 195(b) (relating to start-up expenditures) is amended to read as follows:

   Inserted: "(1) Allowance of deduction.--If a taxpayer elects the application of this subsection with respect to any start-up expenditures--

   Inserted: "(A) the taxpayer shall be allowed a deduction for the taxable year in which the active trade or business begins in an amount equal to the lesser of--

   Inserted: "(i) the amount of start-up expenditures with respect to the active trade or business, or

   Inserted: "(ii) $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, and

   Inserted: "(B) the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins.".

   Inserted: (2) Conforming amendment.--Subsection (b) of section 195 is amended by striking "Amortize" and inserting "Deduct" in the heading.

   Inserted: (b) Organizational Expenditures.--Subsection (a) of section 248 (relating to organizational expenditures) is amended to read as follows:

   Inserted: "(a) Election to Deduct.--If a corporation elects the application of this subsection (in accordance with regulations prescribed by the Secretary) with respect to any organizational expenditures--

   Inserted: "(1) the corporation shall be allowed a deduction for the taxable year in which the corporation begins business in an amount equal to the lesser of--

   Inserted: "(A) the amount of organizational expenditures with respect to the taxpayer, or

   Inserted: "(B) $5,000, reduced (but not below zero) by the amount by which such organizational expenditures exceed $50,000, and

   Inserted: "(2) the remainder of such organizational expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the corporation begins business.".

   Inserted: (c) Treatment of Organizational and Syndication Fees or Partnerships.--

   Inserted: (1) In general.--Section 709(b) (relating to amortization of organization fees) is amended by redesignating paragraph (2) as paragraph (3) and by amending paragraph (1) to read as follows:

   Inserted: "(1) Allowance of deduction.--If a taxpayer elects the application of this subsection (in accordance with regulations prescribed by the Secretary) with respect to any organizational expenses--

   Inserted: "(A) the taxpayer shall be allowed a deduction for the taxable year in which the partnership begins business in an amount equal to the lesser of--

   Inserted: "(i) the amount of organizational expenses with respect to the partnership, or

   Inserted: "(ii) $5,000, reduced (but not below zero) by the amount by which such organizational expenses exceed $50,000, and

   Inserted: "(B) the remainder of such organizational expenses shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the partnership begins business.

   Inserted: "(2) Dispositions before close of amortization period.--In any case in which a partnership is liquidated before the end of the period to which paragraph (1)(B) applies, any deferred expenses attributable to the partnership which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165.".

   Inserted: (2) Conforming amendment.--Subsection (b) of section 709 is amended by striking "Amortization" and inserting "Deduction" in the heading.

   Inserted: (d) Effective Date.--The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act.

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