S.Amdt. 2672Senate108th Congress (2003-2005)
S.Amdt. 2672
Sponsored by 
Sen. Rick Santorum (R-PA)
Sen. Rick Santorum (R-PA)Submitted March 3, 2004
Text
Submitted
This amendment's own text couldn't be picked out of its Congressional Record passage, so the passage is shown in full.
TEXT OF AMENDMENTS
SA 2638. Mr. SANTORUM (for himself, Mr. Bayh, and Mr. Bingaman)
submitted an amendment intended to be proposed by him to the bill S.
1637, to amend the Internal Revenue Code of 1986 to comply with the
World Trade Organization rulings on the FSC/ETI benefit in a manner
that preserves jobs and production activities in the United States, to
reform and simplify the international taxation rules of the United
States, and for other purposes; which was ordered to lie on the table;
as follows:
On page 179, after line 25, insert the following:
SEC. __. MODIFICATIONS TO WORK OPPORTUNITY CREDIT AND
WELFARE-TO-WORK CREDIT.
(a) Extension of Credit.--
(1) Subparagraph (B) of section 51(c)(4) is amended by
striking ``December 31, 2003'' and inserting ``December 31,
2005''.
(2) Subsection (f) of section 51A is amended by striking by
striking ``December 31, 2003'' and inserting ``December 31,
2005''.
(b) Eligibility of Ex-Felons Determined Without Regard to
Family Income.--Paragraph (4) of section 51(d) is amended by
adding ``and'' at the end of subparagraph (A), by striking
``, and'' at the end of subparagraph (B) and inserting a
period, and by striking all that follows subparagraph (B).
(c) Increase in Maximum Age for Eligibility of Food Stamp
Recipients.--Clause (i) of section 51(d)(8)(A) is amended by
striking ``25'' and inserting ``40''.
(d) Increase in Maximum Age for Designated Community
residents.--
(1) In general.--Paragraph (5) of section 51(d) is amended
to read as follows:
``(5) Designated community residents.--
``(A) In general.--The term `designated community resident'
means any individual who is certified by the designated local
agency--
``(i) as having attained age 18 but not age 40 on the
hiring date, and
``(ii) as having his principal place of abode within an
empowerment zone, enterprise community, or renewal community.
``(B) Individual must continue to reside in zone or
community.--In the case of a designated community resident,
the term `qualified wages' shall not include wages paid or
incurred for services performed while the individual's
principal place of abode is outside an empowerment zone,
enterprise community, or renewal community.''
(2) Conforming amendment.--Subparagraph (D) of section
51(d)(1) is amended to read as follows:
``(D) a designated community resident,''.
(e) Clarification of Treatment of Individuals Under
Individual Work Plans.--Subparagraph (B) of section 51(d)(6)
(relating to vocational rehabilitation referral) is amended
by striking ``or'' at the end of clause (i), by striking the
period at the end of clause (ii) and inserting ``, or'', and
by adding at the end the following new clause:
``(iii) an individual work plan developed and implemented
by an employment network pursuant to subsection (g) of
section 1148 of the Social Security Act with respect to which
the requirements of such subsection are met.''
(f) Effective Dates.--
(1) Extension of credits.--The amendments made by
subsection (a) shall apply to individuals who begin work for
the employer after December 31, 2003.
(2) Modifications.--The amendments made by subsections (b),
(c), (d), and (e) shall apply to individuals who begin work
for the employer after December 31, 2004.
SEC. 503. CONSOLIDATION OF WORK OPPORTUNITY CREDIT WITH
WELFARE-TO-WORK CREDIT.
(a) In General.--Paragraph (1) of section 51(d) is amended
by striking ``or'' at the end of subparagraph (G), by
striking the period at the end of subparagraph (H) and
inserting ``, or'', and by adding at the end the following
new subparagraph:
``(I) a long-term family assistance recipient.''
(b) Long-Term Family Assistance Recipient.--Subsection (d)
of section 51 is amended by redesignating paragraphs (10)
through (12) as paragraphs (11) through (13), respectively,
and by inserting after paragraph (9) the following new
paragraph:
``(10) Long-term family assistance recipient.--The term
`long-term family assistance recipient' means any individual
who is certified by the designated local agency--
``(A) as being a member of a family receiving assistance
under a IV-A program (as defined in paragraph (2)(B)) for at
least the 18-month period ending on the hiring date,
``(B)(i) as being a member of a family receiving such
assistance for 18 months beginning after August 5, 1997, and
``(ii) as having a hiring date which is not more than 2
years after the end of the earliest such 18-month period, or
``(C)(i) as being a member of a family which ceased to be
eligible for such assistance by reason of any limitation
imposed by Federal or State law on the maximum period such
assistance is payable to a family, and
``(ii) as having a hiring date which is not more than 2
years after the date of such cessation.''
(c) Increased Credit for Employment of Long-Term Family
Assistance Recipients and Qualified Ex-Felons.--Section 51 is
amended by inserting after subsection (d) the following new
subsection:
``(e) Credit for Second-Year Wages for Employment of Long-
Term Family Assistance Recipients and Qualified Ex-Felons.--
``(1) In general.--With respect to the employment of a
long-term family assistance recipient or a qualified ex-
felon--
``(A) the amount of the work opportunity credit determined
under this section for the taxable year shall include 50
percent of the qualified second-year wages for such year, and
``(B) in lieu of applying subsection (b)(3), the amount of
the qualified first-year wages, and the amount of qualified
second-year wages, which may be taken into account with
respect to such a recipient shall not exceed $10,000 per
year.
``(2) Qualified second-year wages.--For purposes of this
subsection, the term `qualified second-year wages' means
qualified wages--
``(A) which are paid to a long-term family assistance
recipient or a qualified ex-felon, and
``(B) which are attributable to service rendered during the
1-year period beginning on the day after the last day of the
1-year period with respect to such recipient determined under
subsection (b)(2).
``(3) Special rules for agricultural and railway labor.--If
such recipient is an employee to whom subparagraph (A) or (B)
of subsection (h)(1) applies, rules similar to the rules of
such subparagraphs shall apply except that--
``(A) such subparagraph (A) shall be applied by
substituting `$10,000' for `$6,000', and
``(B) such subparagraph (B) shall be applied by
substituting `$833.33' for `$500'.''
(d) Repeal of Separate Welfare-to-Work Credit.--
(1) In general.--Section 51A is hereby repealed.
(2) Clerical amendment.--The table of sections for subpart
F of part IV of subchapter A of chapter 1 is amended by
striking the item relating to section 51A.
(e) Effective Date.--The amendments made by this section
shall apply to individuals who begin work for the employer
after December 31, 2004.
______
2639. Mr. ALLEN submitted an amendment intended to be proposed by him
to the bill S. 1637, to amend the Internal Revenue Code of 1986 to
comply with the World Trade Organization rulings on the FSC/ETI benefit
in a manner that preserves jobs and production activities in the United
States, to reform and simplify the international taxation rules of the
United States, and for other purposes; which was ordered to lie on the
table; as follows:
At the end add the following:
TITLE III--HOMESTEAD PRESERVATION ACT
SEC. 301. SHORT TITLE.
This title may be cited as the ``Homestead Preservation
Act''.
SEC. 302. MORTGAGE PAYMENT ASSISTANCE.
(a) Establishment of Program.--The Secretary of Labor
(referred to in this section as the ``Secretary'') shall
establish a program under which the Secretary shall award
low-interest loans to eligible individuals to enable such
individuals to continue to make mortgage payments with
respect to the primary residences of such individuals.
(b) Eligibility.--To be eligible to receive a loan under
the program established under subsection (a), an individual
shall--
(1) be--
(A) an adversely affected worker with respect to whom a
certification of eligibility has been issued by the Secretary
of Labor under chapter 2 of title II of the Trade Act of 1974
(19 U.S.C. 2271 et seq.); or
(B) an individual who would be an individual described in
subparagraph (A) but who resides in a State that has not
entered into an agreement under section 239 of such Act (19
U.S.C. 2311);
(2) be a borrower under a loan which requires the
individual to make monthly mortgage payments with respect to
the primary place of residence of the individual; and
(3) be enrolled in a job training or job assistance
program.
(c) Loan Requirements.--
(1) In general.--A loan provided to an eligible individual
under this section shall--
(A) be for a period of not to exceed 12 months;
(B) be for an amount that does not exceed the sum of--
(i) the amount of the monthly mortgage payment owed by the
individual; and
(ii) the number of months for which the loan is provided;
(C) have an applicable rate of interest that equals 4
percent;
(D) require repayment as provided for in subsection (d);
and
(E) be subject to such other terms and conditions as the
Secretary determines appropriate.
(2) Account.--A loan awarded to an individual under this
section shall be deposited into an account from which a
monthly mortgage payment will be made in accordance with the
terms and conditions of such loan.
[[Page S2112]]
(d) Repayment.--
(1) In general.--An individual to which a loan has been
awarded under this section shall be required to begin making
repayments on the loan on the earlier of--
(A) the date on which the individual has been employed on a
full-time basis for 6 consecutive months; or
(B) the date that is 1 year after the date on which the
loan has been approved under this section.
(2) Repayment period and amount.--
(A) Repayment period.--A loan awarded under this section
shall be repaid on a monthly basis over the 5-year period
beginning on the date determined under paragraph (1).
(B) Amount.--The amount of the monthly payment described in
subparagraph (A) shall be determined by dividing the total
amount provided under the loan (plus interest) by 60.
(C) Rule of construction.--Nothing in this paragraph shall
be construed to prohibit an individual from--
(i) paying off a loan awarded under this section in less
than 5 years; or
(ii) from paying a monthly amount under such loan in excess
of the monthly amount determined under subparagraph (B) with
respect to the loan.
(e) Regulations.--Not later than 6 weeks after the date of
enactment of this section, the Secretary shall promulgate
regulations necessary to carry out this section, including
regulations that permit an individual to certify that the
individual is an eligible individual under subsection (b).
(f) Authorization of Appropriations.--There is authorized
to be appropriated to carry out this section, $10,000,000 for
each of fiscal years 2004 through 2008.
______
SA 2640. Mr. INOUYE submitted an amendment intended to be proposed by
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to
comply with the World Trade Organization rulings on the FSC/ETI benefit
in a manner that preserves jobs and production activities in the United
States, to reform and simplify the international taxation rules of the
United States, and for other purposes; which was ordered to lie on the
table; as follows:
On page 179, after line 25, insert the following:
SEC. 312. EXTENSION OF POSSESSION TAX CREDIT WITH RESPECT TO
AMERICAN SAMOA.
Subparagraph (A) of section 936(j)(8) of the Internal
Revenue Code of 1986 (relating to special rules for certain
possessions) is amended by inserting before the period at the
end the following: ``(January 1, 2016, in the case of
American Samoa)''.
______
SA 2641. Mrs. LINCOLN submitted an amendment intended to be proposed
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
On page 179, after line 25, add the following:
SEC. __. REPEAL OF ESTATE TAX ON FAMILY-OWNED BUSINESSES AND
FARMS.
(a) Repeal of Qualified Family-Owned Business Interest.--
Part IV of subchapter A of chapter 11 (relating to taxable
estate) is amended by striking section 2057.
(b) Carryover Business Interest Exclusion.--Part IV of
subchapter A of chapter 11 (relating to taxable estate) is
amended by inserting after section 2058 the following new
section:
``SEC. 2059. CARRYOVER BUSINESS INTERESTS.
``(a) General Rules.--
``(1) Allowance of deduction.--For purposes of the tax
imposed by section 2001, in the case of an estate of a
decedent to which this section applies, the value of the
taxable estate shall be determined by deducting from the
value of the gross estate the adjusted value of the carryover
business interests of the decedent which are described in
subsection (b)(2).
``(2) Application of carryover basis rules.--With respect
to the adjusted value of the carryover business interests of
the decedent which are described in subsection (b)(2), the
rules of section 1023 shall apply.
``(b) Estates to Which Section Applies.--
``(1) In general.--This section shall apply to an estate
if--
``(A) the decedent was (at the date of the decedent's
death) a citizen or resident of the United States,
``(B) the executor elects the application of this section
under rules similar to the rules of paragraphs (1) and (3) of
section 2032A(d) and files the agreement referred to in
subsection (e), and
``(C) during the 8-year period ending on the date of the
decedent's death there have been periods aggregating 5 years
or more during which--
``(i) the carryover business interests described in
paragraph (2) were owned by the decedent or a member of the
decedent's family, and
``(ii) there was material participation (within the meaning
of section 2032A(e)(6)) by the decedent, a member of the
decedent's family, or a qualified heir in the operation of
the business to which such interests relate.
``(2) Includible carryover business interests.--The
carryover business interests described in this paragraph are
the interests which--
``(A) are included in determining the value of the gross
estate (other than qualified spousal property with respect to
which an aggregate spousal property basis increase is
allocated under section 1023(c)),
``(B) are acquired by any qualified heir from, or passed to
any qualified heir from, the decedent (within the meaning of
section 2032A(e)(9)), and
``(C) are subject to the election under paragraph (1)(B).
``(3) Rules regarding material participation.--For purposes
of paragraph (1)(C)(ii)--
``(A) in the case a surviving spouse, material
participation by such spouse may be satisfied under rules
similar to the rules under section 2032A(b)(5),
``(B) in the case of a carryover business interest in an
entity carrying on multiple trades or businesses, material
participation in each trade or business is satisfied by
material participation in the entity or in 1 or more of the
multiple trades or businesses, and
``(C) in the case of a lending and finance business (as
defined in section 6166(b)(10)(B)(ii)), material
participation is satisfied under the rules under subclause
(I) or (II) of section 6166(b)(10)(B)(i).
``(c) Adjusted Value of the Carryover Business Interests.--
For purposes of this section--
``(1) In general.--The adjusted value of any carryover
business interest is the value of such interest for purposes
of this chapter (determined without regard to this section),
as adjusted under paragraph (2).
``(2) Adjustment for previous transfers.--The Secretary may
increase the value of any carryover business interest by that
portion of those assets transferred from such carryover
business interest to the decedent's taxable estate within 3
years before the date of the decedent's death.
``(d) Carryover Business Interest.--
``(1) In general.--For purposes of this section, the term
`carryover business interest' means--
``(A) an interest as a proprietor in a trade or business
carried on as a proprietorship, or
``(B) an interest in an entity carrying on a trade or
business, if--
``(i) at least--
``(I) 50 percent of such entity is owned (directly or
indirectly) by the decedent and members of the decedent's
family,
``(II) 70 percent of such entity is so owned by members of
2 families, or
``(III) 90 percent of such entity is so owned by members of
3 families, and
``(ii) for purposes of subclause (II) or (III) of clause
(i), at least 30 percent of such entity is so owned by the
decedent and members of the decedent's family.
For purposes of the preceding sentence, a decedent shall be
treated as engaged in a trade or business if any member of
the decedent's family is engaged in such trade or business.
``(2) Lending and finance business.--For purposes of this
section, any asset used in a lending and finance business (as
defined in section 6166(b)(10)(B)(ii)) shall be treated as an
asset which is used in carrying on a trade or business.
``(3) Limitation.--Such term shall not include--
``(A) any interest in a trade or business the principal
place of business of which is not located in the United
States,
``(B) any interest in an entity, if the stock or debt of
such entity or a controlled group (as defined in section
267(f)(1)) of which such entity was a member was readily
tradable on an established securities market or secondary
market (as defined by the Secretary) at any time,
``(C) that portion of an interest in an entity transferred
by gift to such interest within 3 years before the date of
the decedent's death, and
``(D) that portion of an interest in an entity which is
attributable to cash or marketable securities, or both, in
any amount in excess of the reasonably anticipated business
needs of such entity.
In any proceeding before the United States Tax Court
involving a notice of deficiency based in whole or in part on
the allegation that cash or marketable securities, or both,
are accumulated in an amount in excess of the reasonably
anticipated business needs of such entity, the burden of
proof with respect to such allegation shall be on the
Secretary to the extent such cash or marketable securities
are less than 35 percent of the value of the interest in such
entity.
``(4) Rules regarding ownership.--
``(A) Ownership of entities.--For purposes of paragraph
(1)(B)--
``(i) Corporations.--Ownership of a corporation shall be
determined by the holding of stock possessing the appropriate
percentage of the total combined voting power of all classes
of stock entitled to vote and the appropriate percentage of
the total value of shares of all classes of stock.
``(ii) Partnerships.--Ownership of a partnership shall be
determined by the owning of the appropriate percentage of the
capital interest in such partnership.
``(B) Ownership of tiered entities.--For purposes of this
section, if by reason of holding an interest in a trade or
business, a decedent, any member of the decedent's family,
[[Page S2113]]
any qualified heir, or any member of any qualified heir's
family is treated as holding an interest in any other trade
or business--
``(i) such ownership interest in the other trade or
business shall be disregarded in determining if the ownership
interest in the first trade or business is a carryover
business interest, and
``(ii) this section shall be applied separately in
determining if such interest in any other trade or business
is a carryover business interest.
``(C) Individual ownership rules.--For purposes of this
section, an interest owned, directly or indirectly, by or for
an entity described in paragraph (1)(B) shall be considered
as being owned proportionately by or for the entity's
shareholders, partners, or beneficiaries. A person shall be
treated as a beneficiary of any trust only if such person has
a present interest in such trust.
``(e) Agreement.--The agreement referred to in this
subsection is a written agreement signed by each person in
being who has an interest (whether or not in possession) in
any property designated in such agreement consenting to the
application of this section with respect to such property.
``(f) Other Definitions and Applicable Rules.--For purposes
of this section--
``(1) Qualified heir.--The term `qualified heir' means a
United States citizen who is--
``(A) described in section 2032A(e)(1), or
``(B) an active employee of the trade or business to which
the carryover business interest relates if such employee has
been employed by such trade or business for a period of at
least 10 years before the date of the decedent's death.
``(2) Member of the family.--The term `member of the
family' has the meaning given to such term by section
2032A(e)(2).
``(3) Applicable rules.--Rules similar to the following
rules shall apply:
``(A) Section 2032A(b)(4) (relating to decedents who are
retired or disabled).
``(B) Section 2032A(e)(10) (relating to community
property).
``(C) Section 2032A(e)(14) (relating to treatment of
replacement property acquired in section 1031 or 1033
transactions).
``(D) Section 2032A(g) (relating to application to
interests in partnerships, corporations, and trusts).
``(4) Safe harbor for active entities held by entity
carrying on a trade or business.--For purposes of this
section, if--
``(A) an entity carrying on a trade or business owns 20
percent or more in value of the voting interests of another
entity, or such other entity has 15 or fewer owners, and
``(B) 80 percent or more of the value of the assets of each
such entity is attributable to assets used in an active
business operation,
then the requirements under subsections (b)(1)(C)(ii) and
(d)(3)(D) shall be met with respect to an interest in such an
entity.''.
(c) Modification of Treatment of Marital Deduction;
Limitation on Step-Up in Basis.--Section 2056 (relating to
bequests, etc., to surviving spouses) is amended by adding at
the end the following new subsection:
``(e) Application of Carryover Basis Rules.--With respect
to the value of the interests of the decedent which are
described in subsection (a), the rules of section 1023 shall
apply.''.
(d) Carryover Basis Rules for Carryover Business Interests
and Spousal Property.--Part II of subchapter O of chapter 1
(relating to basis rules of general application) is amended
by inserting after section 1022 the following new section:
``SEC. 1023. TREATMENT OF CARRYOVER BUSINESS INTERESTS AND
SPOUSAL PROPERTY.
``(a) In General.--Except as otherwise provided in this
section--
``(1) qualified property acquired from a decedent shall be
treated for purposes of this subtitle as transferred by gift,
and
``(2) the basis of the person acquiring qualified property
from such a decedent shall be the lesser of--
``(A) the adjusted basis of the decedent, or
``(B) the fair market value of the property at the date of
the decedent's death.
``(b) Qualified Property.--For purposes of this section,
the term `qualified property' means--
``(1) the carryover business interests of the decedent with
respect to which an election is made under section
2059(b)(1)(B), and
``(2) the qualified spousal property.
``(c) Additional Basis Increase for Property Acquired by
Surviving Spouse.--
``(1) In general.--In the case of property to which this
subsection applies and which is qualified spousal property,
the basis of such property under subsection (a) shall be
increased by its spousal property basis increase.
``(2) Spousal property basis increase.--For purposes of
this subsection--
``(A) In general.--The spousal property basis increase for
property referred to in paragraph (1) is the portion of the
aggregate spousal property basis increase which is allocated
to the property pursuant to this section.
``(B) Aggregate spousal property basis increase.--In the
case of any estate, the aggregate spousal property basis
increase is $3,000,000.
``(3) Qualified spousal property.--For purposes of this
section, the term `qualified spousal property' means any
interest in property which passes or has passed from the
decedent to the decedent's surviving spouse with respect to
which a deduction is allowed under section 2056.
``(4) Definitions and special rules.--
``(A) Property to which subsection applies.--The basis of
property acquired from a decedent may be increased under this
subsection only if the property was owned by the decedent at
the time of death.
``(B) Rules relating to ownership.--
``(i) Jointly held property.--In the case of property which
was owned by the decedent and another person as joint tenants
with right of survivorship or tenants by the entirety--
``(I) if the only such other person is the surviving
spouse, the decedent shall be treated as the owner of only 50
percent of the property,
``(II) in any case (to which subclause (I) does not apply)
in which the decedent furnished consideration for the
acquisition of the property, the decedent shall be treated as
the owner to the extent of the portion of the property which
is proportionate to such consideration, and
``(III) in any case (to which subclause (I) does not apply)
in which the property has been acquired by gift, bequest,
devise, or inheritance by the decedent and any other
person as joint tenants with right of survivorship and
their interests are not otherwise specified or fixed by
law, the decedent shall be treated as the owner to the
extent of the value of a fractional part to be determined
by dividing the value of the property by the number of
joint tenants with right of survivorship.
``(ii) Revocable trusts.--The decedent shall be treated as
owning property transferred by the decedent during life to a
qualified revocable trust (as defined in section 645(b)(1)).
``(iii) Powers of appointment.--The decedent shall not be
treated as owning any property by reason of holding a power
of appointment with respect to such property.
``(iv) Community property.--Property which represents the
surviving spouse's one-half share of community property held
by the decedent and the surviving spouse under the community
property laws of any State or possession of the United States
or any foreign country shall be treated for purposes of this
section as owned by, and acquired from, the decedent if at
least one-half of the whole of the community interest in such
property is treated as owned by, and acquired from, the
decedent without regard to this clause.
``(C) Property acquired by decedent by gift within 3 years
of death.--
``(i) In general.--This subsection shall not apply to
property acquired by the decedent by gift or by inter vivos
transfer for less than adequate and full consideration in
money or money's worth during the 3-year period ending on the
date of the decedent's death.
``(ii) Exception for certain gifts from spouse.--Clause (i)
shall not apply to property acquired by the decedent from the
decedent's spouse unless, during such 3-year period, such
spouse acquired the property in whole or in part by gift or
by inter vivos transfer for less than adequate and full
consideration in money or money's worth.
``(D) Stock of certain entities.--This subsection shall not
apply to--
``(i) stock or securities of a foreign personal holding
company,
``(ii) stock of a DISC or former DISC,
``(iii) stock of a foreign investment company, or
``(iv) stock of a passive foreign investment company unless
such company is a qualified electing fund (as defined in
section 1295) with respect to the decedent.
``(E) Fair market value limitation.--The adjustments under
this subsection shall not increase the basis of any interest
in property acquired from the decedent above its fair market
value in the hands of the decedent as of the date of the
decedent's death.
``(d) Property Acquired From the Decedent.--For purposes of
this section, the following property shall be considered to
have been acquired from the decedent:
``(1) Property acquired by bequest, devise, or inheritance,
or by the decedent's estate from the decedent.
``(2) Property transferred by the decedent during his
lifetime--
``(A) to a qualified revocable trust (as defined in section
645(b)(1)), or
``(B) to any other trust with respect to which the decedent
reserved the right to make any change in the enjoyment
thereof through the exercise of a power to alter, amend, or
terminate the trust.
``(3) Any other property passing from the decedent by
reason of death to the extent that such property passed
without consideration.
``(e) Coordination With Section 691.--This section shall
not apply to property which constitutes a right to receive an
item of income in respect of a decedent under section 691.
``(f) Certain Liabilities Disregarded.--
``(1) In general.--In determining whether gain is
recognized on the acquisition of property--
``(A) from a decedent by a decedent's estate or any
beneficiary other than a tax-exempt beneficiary, and
``(B) from the decedent's estate by any beneficiary other
than a tax-exempt beneficiary,
and in determining the adjusted basis of such property,
liabilities in excess of basis shall be disregarded.
[[Page S2114]]
``(2) Tax-exempt beneficiary.--For purposes of paragraph
(1), the term `tax-exempt beneficiary' means--
``(A) the United States, any State or political subdivision
thereof, any possession of the United States, any Indian
tribal government (within the meaning of section 7871), or
any agency or instrumentality of any of the foregoing,
``(B) an organization (other than a cooperative described
in section 521) which is exempt from tax imposed by chapter
1,
``(C) any foreign person or entity (within the meaning of
section 168(h)(2)), and
``(D) to the extent provided in regulations, any person to
whom property is transferred for the principal purpose of tax
avoidance.
``(g) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this section.''.
(e) Clerical Amendments.--
(1) The table of sections for part IV of subchapter A of
chapter 11 is amended by striking the item relating to
section 2057 and by inserting after the item relating to
section 2058 the following new item:
``Sec. 2059. Carryover business exclusion.''.
(2) The table of sections for part II of subchapter O of
chapter 1 of such Code is amended by inserting after the item
relating to section 1022 the following new item:
``Sec. 1023. Treatment of carryover business interests and spousal
property.''.
(f) Effective Dates.--The amendments made by this section
shall apply to estates of decedents dying, and gifts made--
(1) after December 31, 2003, and before January 1, 2010,
and
(2) after December 31, 2011.
______
SA 2642. Mrs. LINCOLN submitted an amendment intended to be proposed
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
On page 179, after line 25, add the following:
SEC. __. RESTORATION OF EXCLUSION FOR AMOUNTS RECEIVED UNDER
QUALIFIED GROUP LEGAL SERVICES PLANS.
(a) Increase of Exclusion.--Subsection (a) of section 120
(relating to exclusion by employee for contributions and
legal services) is amended by striking the last sentence
thereof.
(b) Restoration of Exclusion.--Section 120 is amended by
striking subsection (e) and by redesignating subsection (f)
as subsection (e).
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2004, and before December 31, 2009.
______
SA 2643. Mrs. LINCOLN (for herself and Mr. Coleman) submitted an
amendment intended to be proposed by her to the bill S. 1637, to amend
the Internal Revenue Code of 1986 to comply with the World Trade
Organization rulings on the FSC/ETI benefit in a manner that preserves
jobs and production activities in the United States, to reform and
simplify the international taxation rules of the United States, and for
other purposes; which was ordered to lie on the table; as follows:
On page 179, after line 25, insert the following:
SEC. __. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES
WITHOUT REDUCING PATRONAGE DIVIDENDS.
(a) In General.--Subsection (a) of section 1388 (relating
to patronage dividend defined) is amended by adding at the
end the following new sentence: ``For purposes of paragraph
(3), net earnings shall not be reduced by amounts paid during
the year as dividends on capital stock or other proprietary
capital interests of the organization to the extent that the
articles of incorporation or bylaws of such organization or
other contract with patrons provide that such dividends are
in addition to amounts otherwise payable to patrons which are
derived from business done with or for patrons during the
taxable year.''.
(b) Effective Date.--The amendment made by this section
shall apply to distributions in taxable years beginning after
the date of the enactment of this Act.
______
SA 2644. Mrs. LINCOLN submitted an amendment intended to be proposed
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
On page 177, strike lines 13 through 16, and insert the
following:
``(I) Special rule.--In the case of a net operating loss
for any taxable year ending after December 31, 2002, and
before February 1, 2004, subparagraph (A)(i) shall be applied
by substituting `3' for `2'.''.
On page 178, strike lines 9 through 15, and insert the
following:
(1) In general.--Section 56(d)(1)(A)(ii)(I) (relating to
general rule defining alternative tax net operating loss
deduction) is amended--
(A) by striking ``or 2002'' and inserting ``, 2002, or
after December 31, 2002, and before February 1, 2004,'', and
(B) by striking ``and 2002'' and inserting ``, 2002, and
after December 31, 2002, and before February 1, 2004''.
On page 179, line 17, strike ``during 2003'' and inserting
``after December 31, 2002, and before February 1, 2004''.
______
SA 2645. Mr. GRASSLEY (for himself and Mr. Baucus) proposed an
amendment to the bill S. 1637, to amend the Internal Revenue Code of
1986 to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; as follows:
Strike title IV and insert the following:
TITLE IV--ADDITIONAL PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
SEC. 401. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.
(a) In General.--Section 7701 is amended by redesignating
subsection (n) as subsection (o) and by inserting after
subsection (m) the following new subsection:
``(n) Clarification of Economic Substance Doctrine; Etc.--
``(1) General rules.--
``(A) In general.--In any case in which a court determines
that the economic substance doctrine is relevant for purposes
of this title to a transaction (or series of transactions),
such transaction (or series of transactions) shall have
economic substance only if the requirements of this paragraph
are met.
``(B) Definition of economic substance.--For purposes of
subparagraph (A)--
``(i) In general.--A transaction has economic substance
only if--
``(I) the transaction changes in a meaningful way (apart
from Federal tax effects) the taxpayer's economic position,
and
``(II) the taxpayer has a substantial nontax purpose for
entering into such transaction and the transaction is a
reasonable means of accomplishing such purpose.
In applying subclause (II), a purpose of achieving a
financial accounting benefit shall not be taken into account
in determining whether a transaction has a substantial nontax
purpose if the origin of such financial accounting benefit is
a reduction of income tax.
``(ii) Special rule where taxpayer relies on profit
potential.--A transaction shall not be treated as having
economic substance by reason of having a potential for profit
unless--
``(I) 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, and
``(II) the reasonably expected pre-tax profit from the
transaction exceeds a risk-free rate of return.
``(C) 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 (B)(ii).
``(2) Special rules for transactions with tax-indifferent
parties.--
``(A) Special rules for financing transactions.--The form
of a transaction which is in substance the borrowing of money
or the acquisition of financial capital directly or
indirectly from a tax-indifferent party shall not be
respected if the present value of the deductions to be
claimed with respect to the transaction is substantially in
excess of the present value of the anticipated economic
returns of the person lending the money or providing the
financial capital. A public offering shall be treated as a
borrowing, or an acquisition of financial capital, from a
tax-indifferent party if it is reasonably expected that at
least 50 percent of the offering will be placed with tax-
indifferent parties.
``(B) Artificial income shifting and basis adjustments.--
The form of a transaction with a tax-indifferent party shall
not be respected if--
``(i) it results in an allocation of income or gain to the
tax-indifferent party in excess of such party's economic
income or gain, or
``(ii) it results in a basis adjustment or shifting of
basis on account of overstating the income or gain of the
tax-indifferent party.
``(3) 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.
[[Page S2115]]
``(B) Tax-indifferent party.--The term `tax-indifferent
party' means any person or entity not subject to tax imposed
by subtitle A. A person shall be treated as a tax-indifferent
party with respect to a transaction if the items taken into
account with respect to the transaction have no substantial
impact on such person's liability under subtitle A.
``(C) Exception for personal transactions of individuals.--
In the case of an individual, this subsection shall apply
only to transactions entered into in connection with a trade
or business or an activity engaged in for the production of
income.
``(D) Treatment of lessors.--In applying paragraph
(1)(B)(ii) to the lessor of tangible property subject to a
lease--
``(i) the expected net tax benefits with respect to the
leased property shall not include the benefits of--
``(I) depreciation,
``(II) any tax credit, or
``(III) any other deduction as provided in guidance by the
Secretary, and
``(ii) subclause (II) of paragraph (1)(B)(ii) shall be
disregarded in determining whether any of such benefits are
allowable.
``(4) 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.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this subsection. Such regulations may include
exemptions from the application of this subsection.''.
(b) Effective Date.--The amendments made by this section
shall apply to transactions entered into after the date of
the enactment of this Act.
SEC. 402. PENALTY FOR FAILING TO DISCLOSE REPORTABLE
TRANSACTION.
(a) In General.--Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by inserting
after section 6707 the following new section:
``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE
TRANSACTION INFORMATION WITH RETURN OR
STATEMENT.
``(a) Imposition of Penalty.--Any person who fails to
include on any return or statement any information with
respect to a reportable transaction which is required under
section 6011 to be included with such return or statement
shall pay a penalty in the amount determined under subsection
(b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraphs (2) and
(3), the amount of the penalty under subsection (a) shall be
$50,000.
``(2) Listed transaction.--The amount of the penalty under
subsection (a) with respect to a listed transaction shall be
$100,000.
``(3) Increase in penalty for large entities and high net
worth individuals.--
``(A) In general.--In the case of a failure under
subsection (a) by--
``(i) a large entity, or
``(ii) a high net worth individual,
the penalty under paragraph (1) or (2) shall be twice the
amount determined without regard to this paragraph.
``(B) Large entity.--For purposes of subparagraph (A), the
term `large entity' means, with respect to any taxable year,
a person (other than a natural person) with gross receipts in
excess of $10,000,000 for the taxable year in which the
reportable transaction occurs or the preceding taxable year.
Rules similar to the rules of paragraph (2) and subparagraphs
(B), (C), and (D) of paragraph (3) of section 448(c) shall
apply for purposes of this subparagraph.
``(C) High net worth individual.--For purposes of
subparagraph (A), the term `high net worth individual' means,
with respect to a reportable transaction, a natural person
whose net worth exceeds $2,000,000 immediately before the
transaction.
``(c) Definitions.--For purposes of this section--
``(1) Reportable transaction.--The term `reportable
transaction' means any transaction with respect to which
information is required to be included with a return or
statement because, as determined under regulations prescribed
under section 6011, such transaction is of a type which the
Secretary determines as having a potential for tax avoidance
or evasion.
``(2) Listed transaction.--Except as provided in
regulations, the term `listed transaction' means a reportable
transaction which is the same as, or substantially similar
to, a transaction specifically identified by the Secretary as
a tax avoidance transaction for purposes of section 6011.
``(d) Authority To Rescind Penalty.--
``(1) In general.--The Commissioner of Internal Revenue may
rescind all or any portion of any penalty imposed by this
section with respect to any violation if--
``(A) the violation is with respect to a reportable
transaction other than a listed transaction,
``(B) the person on whom the penalty is imposed has a
history of complying with the requirements of this title,
``(C) it is shown that the violation is due to an
unintentional mistake of fact;
``(D) imposing the penalty would be against equity and good
conscience, and
``(E) rescinding the penalty would promote compliance with
the requirements of this title and effective tax
administration.
``(2) Discretion.--The exercise of authority under
paragraph (1) shall be at the sole discretion of the
Commissioner and may be delegated only to the head of the
Office of Tax Shelter Analysis. The Commissioner, in the
Commissioner's sole discretion, may establish a procedure to
determine if a penalty should be referred to the Commissioner
or the head of such Office for a determination under
paragraph (1).
``(3) No appeal.--Notwithstanding any other provision of
law, any determination under this subsection may not be
reviewed in any administrative or judicial proceeding.
``(4) Records.--If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the Office
of the Commissioner the opinion of the Commissioner or the
head of the Office of Tax Shelter Analysis with respect to
the determination, including--
``(A) the facts and circumstances of the transaction,
``(B) the reasons for the rescission, and
``(C) the amount of the penalty rescinded.
``(5) Report.--The Commissioner shall each year report to
the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate--
``(A) a summary of the total number and aggregate amount of
penalties imposed, and rescinded, under this section, and
``(B) a description of each penalty rescinded under this
subsection and the reasons therefor.
``(e) Penalty Reported to SEC.--In the case of a person--
``(1) which is required to file periodic reports under
section 13 or 15(d) of the Securities Exchange Act of 1934 or
is required to be consolidated with another person for
purposes of such reports, and
``(2) which--
``(A) is required to pay a penalty under this section with
respect to a listed transaction,
``(B) is required to pay a penalty under section 6662A with
respect to any reportable transaction at a rate prescribed
under section 6662A(c), or
``(C) is required to pay a penalty under section 6662B with
respect to any noneconomic substance transaction,
the requirement to pay such penalty shall be disclosed in
such reports filed by such person for such periods as the
Secretary shall specify. Failure to make a disclosure in
accordance with the preceding sentence shall be treated as a
failure to which the penalty under subsection (b)(2) applies.
``(f) Coordination With Other Penalties.--The penalty
imposed by this section is in addition to any penalty imposed
under this title.''.
(b) Conforming Amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by inserting after
the item relating to section 6707 the following:
``Sec. 6707A. Penalty for failure to include reportable transaction
information with return or statement.''.
(c) Effective Date.--The amendments made by this section
shall apply to returns and statements the due date for which
is after the date of the enactment of this Act.
SEC. 403. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS
AND OTHER REPORTABLE TRANSACTIONS HAVING A
SIGNIFICANT TAX AVOIDANCE PURPOSE.
(a) In General.--Subchapter A of chapter 68 is amended by
inserting after section 6662 the following new section:
``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERSTATEMENTS WITH RESPECT TO REPORTABLE
TRANSACTIONS.
``(a) Imposition of Penalty.--If a taxpayer has a
reportable transaction understatement for any taxable year,
there shall be added to the tax an amount equal to 20 percent
of the amount of such understatement.
``(b) Reportable Transaction Understatement.--For purposes
of this section--
``(1) In general.--The term `reportable transaction
understatement' means the sum of--
``(A) the product of--
``(i) the amount of the increase (if any) in taxable income
which results from a difference between the proper tax
treatment of an item to which this section applies and the
taxpayer's treatment of such item (as shown on the taxpayer's
return of tax), and
``(ii) the highest rate of tax imposed by section 1
(section 11 in the case of a taxpayer which is a
corporation), and
``(B) the amount of the decrease (if any) in the aggregate
amount of credits determined under subtitle A which results
from a difference between the taxpayer's treatment of an item
to which this section applies (as shown on the taxpayer's
return of tax) and the proper tax treatment of such item.
For purposes of subparagraph (A), any reduction of the excess
of deductions allowed for the taxable year over gross income
for such year, and any reduction in the amount of capital
losses which would (without regard to section 1211) be
allowed for such year, shall be treated as an increase in
taxable income.
``(2) Items to which section applies.--This section shall
apply to any item which is attributable to--
``(A) any listed transaction, and
``(B) any reportable transaction (other than a listed
transaction) if a significant purpose of such transaction is
the avoidance or evasion of Federal income tax.
[[Page S2116]]
``(c) Higher Penalty for Nondisclosed Listed and Other
Avoidance Transactions.--
``(1) In general.--Subsection (a) shall be applied by
substituting `30 percent' for `20 percent' with respect to
the portion of any reportable transaction understatement with
respect to which the requirement of section 6664(d)(2)(A) is
not met.
``(2) Rules applicable to assertion and compromise of
penalty.--
``(A) In general.--Only upon the approval by the Chief
Counsel for the Internal Revenue Service or the Chief
Counsel's delegate at the national office of the Internal
Revenue Service may a penalty to which paragraph (1) applies
be included in a 1st letter of proposed deficiency which
allows the taxpayer an opportunity for administrative review
in the Internal Revenue Service Office of Appeals. If such a
letter is provided to the taxpayer, only the Commissioner of
Internal Revenue may compromise all or any portion of such
penalty.
``(B) Applicable rules.--The rules of paragraphs (2), (3),
(4), and (5) of section 6707A(d) shall apply for purposes of
subparagraph (A).
``(d) Definitions of Reportable and Listed Transactions.--
For purposes of this section, the terms `reportable
transaction' and `listed transaction' have the respective
meanings given to such terms by section 6707A(c).
``(e) Special Rules.--
``(1) Coordination with penalties, etc., on other
understatements.--In the case of an understatement (as
defined in section 6662(d)(2))--
``(A) the amount of such understatement (determined without
regard to this paragraph) shall be increased by the aggregate
amount of reportable transaction understatements and
noneconomic substance transaction understatements for
purposes of determining whether such understatement is a
substantial understatement under section 6662(d)(1), and
``(B) the addition to tax under section 6662(a) shall apply
only to the excess of the amount of the substantial
understatement (if any) after the application of subparagraph
(A) over the aggregate amount of reportable transaction
understatements and noneconomic substance transaction
understatements.
``(2) Coordination with other penalties.--
``(A) Application of fraud penalty.--References to an
underpayment in section 6663 shall be treated as including
references to a reportable transaction understatement and a
noneconomic substance transaction understatement.
``(B) No double penalty.--This section shall not apply to
any portion of an understatement on which a penalty is
imposed under section 6662B or 6663.
``(3) Special rule for amended returns.--Except as provided
in regulations, in no event shall any tax treatment included
with an amendment or supplement to a return of tax be taken
into account in determining the amount of any reportable
transaction understatement or noneconomic
substance transaction understatement 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.
``(4) Noneconomic substance transaction understatement.--
For purposes of this subsection, the term `noneconomic
substance transaction understatement' has the meaning given
such term by section 6662B(c).
``(5) Cross reference.--
``For reporting of section 6662A(c) penalty to the Securities and
Exchange Commission, see section 6707A(e).''.
(b) Determination of Other Understatements.--Subparagraph
(A) of section 6662(d)(2) is amended by adding at the end the
following flush sentence:
``The excess under the preceding sentence shall be determined
without regard to items to which section 6662A applies and
without regard to items with respect to which a penalty is
imposed by section 6662B.''.
(c) Reasonable Cause Exception.--
(1) In general.--Section 6664 is amended by adding at the
end the following new subsection:
``(d) Reasonable Cause Exception for Reportable Transaction
Understatements.--
``(1) In general.--No penalty shall be imposed under
section 6662A with respect to any portion of a reportable
transaction understatement if it is shown that there was a
reasonable cause for such portion and that the taxpayer acted
in good faith with respect to such portion.
``(2) Special rules.--Paragraph (1) shall not apply to any
reportable transaction understatement unless--
``(A) the relevant facts affecting the tax treatment of the
item are adequately disclosed in accordance with the
regulations prescribed under section 6011,
``(B) there is or was substantial authority for such
treatment, and
``(C) the taxpayer reasonably believed that such treatment
was more likely than not the proper treatment.
A taxpayer failing to adequately disclose in accordance with
section 6011 shall be treated as meeting the requirements of
subparagraph (A) if the penalty for such failure was
rescinded under section 6707A(d).
``(3) Rules relating to reasonable belief.--For purposes of
paragraph (2)(C)--
``(A) In general.--A taxpayer shall be treated as having a
reasonable belief with respect to the tax treatment of an
item only if such belief--
``(i) is based on the facts and law that exist at the time
the return of tax which includes such tax treatment is filed,
and
``(ii) relates solely to the taxpayer's chances of success
on the merits of such treatment and does not take into
account the possibility that a return will not be audited,
such treatment will not be raised on audit, or such treatment
will be resolved through settlement if it is raised.
``(B) Certain opinions may not be relied upon.--
``(i) In general.--An opinion of a tax advisor may not be
relied upon to establish the reasonable belief of a taxpayer
if--
``(I) the tax advisor is described in clause (ii), or
``(II) the opinion is described in clause (iii).
``(ii) Disqualified tax advisors.--A tax advisor is
described in this clause if the tax advisor--
``(I) is a material advisor (within the meaning of section
6111(b)(1)) who participates in the organization, management,
promotion, or sale of the transaction or who is related
(within the meaning of section 267(b) or 707(b)(1)) to any
person who so participates,
``(II) is compensated directly or indirectly by a material
advisor with respect to the transaction,
``(III) has a fee arrangement with respect to the
transaction which is contingent on all or part of the
intended tax benefits from the transaction being sustained,
or
``(IV) as determined under regulations prescribed by the
Secretary, has a disqualifying financial interest with
respect to the transaction.
``(iii) Disqualified opinions.--For purposes of clause (i),
an opinion is disqualified if the opinion--
``(I) is based on unreasonable factual or legal assumptions
(including assumptions as to future events),
``(II) unreasonably relies on representations, statements,
findings, or agreements of the taxpayer or any other person,
``(III) does not identify and consider all relevant facts,
or
``(IV) fails to meet any other requirement as the Secretary
may prescribe.''.
(2) Conforming amendment.--The heading for subsection (c)
of section 6664 is amended by inserting ``for Underpayments''
after ``Exception''.
(d) Conforming Amendments.--
(1) Subparagraph (C) of section 461(i)(3) is amended by
striking ``section 6662(d)(2)(C)(iii)'' and inserting
``section 1274(b)(3)(C)''.
(2) Paragraph (3) of section 1274(b) is amended--
(A) by striking ``(as defined in section
6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
(B) by adding at the end the following new subparagraph:
``(C) Tax shelter.--For purposes of subparagraph (B), the
term `tax shelter' means--
``(i) a partnership or other entity,
``(ii) any investment plan or arrangement, or
``(iii) any other plan or arrangement,
if a significant purpose of such partnership, entity, plan,
or arrangement is the avoidance or evasion of Federal income
tax.''.
(3) Section 6662(d)(2) is amended by striking subparagraphs
(C) and (D).
(4) Section 6664(c)(1) is amended by striking ``this part''
and inserting ``section 6662 or 6663''.
(5) Subsection (b) of section 7525 is amended by striking
``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(6)(A) The heading for section 6662 is amended to read as
follows:
``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERPAYMENTS.''.
(B) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to
section 6662 and inserting the following new items:
``Sec. 6662. Imposition of accuracy-related penalty on underpayments.
``Sec. 6662A. Imposition of accuracy-related penalty on understatements
with respect to reportable transactions.''.
(e) Effective Date.--The amendments made by this section
shall apply to taxable years ending after the date of the
enactment of this Act.
SEC. 404. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO
TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.
(a) In General.--Subchapter A of chapter 68 is amended by
inserting after section 6662A the following new section:
``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO
TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.
``(a) Imposition of Penalty.--If a taxpayer has an
noneconomic substance transaction understatement for any
taxable year, there shall be added to the tax an amount equal
to 40 percent of the amount of such understatement.
``(b) Reduction of Penalty for Disclosed Transactions.--
Subsection (a) shall be applied by substituting `20 percent'
for `40 percent' with respect to the portion of any
noneconomic substance transaction understatement with respect
to which the relevant facts affecting the tax treatment of
the item are adequately disclosed in the return or a
statement attached to the return.
[[Page S2117]]
``(c) Noneconomic Substance Transaction Understatement.--
For purposes of this section--
``(1) In general.--The term `noneconomic substance
transaction understatement' means any amount which would be
an understatement under section 6662A(b)(1) if section 6662A
were applied by taking into account items attributable to
noneconomic substance transactions rather than items to which
section 6662A would apply without regard to this paragraph.
``(2) Noneconomic substance transaction.--The term
`noneconomic substance transaction' means any transaction
if--
``(A) there is a lack of economic substance (within the
meaning of section 7701(n)(1)) for the transaction giving
rise to the claimed benefit or the transaction was not
respected under section 7701(n)(2), or
``(B) the transaction fails to meet the requirements of any
similar rule of law.
``(d) Rules Applicable To Compromise of Penalty.--
``(1) In general.--If the 1st letter of proposed deficiency
which allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of Appeals has
been sent with respect to a penalty to which this section
applies, only the Commissioner of Internal Revenue may
compromise all or any portion of such penalty.
``(2) Applicable rules.--The rules of paragraphs (2), (3),
(4), and (5) of section 6707A(d) shall apply for purposes of
paragraph (1).
``(e) Coordination With Other Penalties.--Except as
otherwise provided in this part, the penalty imposed by this
section shall be in addition to any other penalty imposed by
this title.
``(f) Cross References.--
``(1) For coordination of penalty with understatements under section
6662 and other special rules, see section 6662A(e).
``(2) For reporting of penalty imposed under this section to the
Securities and Exchange Commission, see section 6707A(e).''.
(b) Clerical Amendment.--The table of sections for part II
of subchapter A of chapter 68 is amended by inserting after
the item relating to section 6662A the following new item:
``Sec. 6662B. Penalty for understatements attributable to transactions
lacking economic substance, etc.''.
(c) Effective Date.--The amendments made by this section
shall apply to transactions entered into after the date of
the enactment of this Act.
SEC. 405. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY
FOR NONREPORTABLE TRANSACTIONS.
(a) Substantial Understatement of Corporations.--Section
6662(d)(1)(B) (relating to special rule for corporations) is
amended to read as follows:
``(B) Special rule for corporations.--In the case of a
corporation other than an S corporation or a personal holding
company (as defined in section 542), there is a substantial
understatement of income tax for any taxable year if the
amount of the understatement for the taxable year exceeds the
lesser of--
``(i) 10 percent of the tax required to be shown on the
return for the taxable year (or, if greater, $10,000), or
``(ii) $10,000,000.''.
(b) Reduction for Understatement of Taxpayer Due to
Position of Taxpayer or Disclosed Item.--
(1) In general.--Section 6662(d)(2)(B)(i) (relating to
substantial authority) is amended to read as follows:
``(i) the tax treatment of any item by the taxpayer if the
taxpayer had reasonable belief that the tax treatment was
more likely than not the proper treatment, or''.
(2) Conforming amendment.--Section 6662(d) is amended by
adding at the end the following new paragraph:
``(3) Secretarial list.--For purposes of this subsection,
section 6664(d)(2), and section 6694(a)(1), the Secretary may
prescribe a list of positions for which the Secretary
believes there is not substantial authority or there is no
reasonable belief that the tax treatment is more likely than
not the proper tax treatment. Such list (and any revisions
thereof) shall be published in the Federal Register or the
Internal Revenue Bulletin.''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 406. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES
RELATING TO TAXPAYER COMMUNICATIONS.
(a) In General.--Section 7525(b) (relating to section not
to apply to communications regarding corporate tax shelters)
is amended to read as follows:
``(b) Section Not To Apply to Communications Regarding Tax
Shelters.--The privilege under subsection (a) shall not apply
to any written communication which is--
``(1) between a federally authorized tax practitioner and--
``(A) any person,
``(B) any director, officer, employee, agent, or
representative of the person, or
``(C) any other person holding a capital or profits
interest in the person, and
``(2) in connection with the promotion of the direct or
indirect participation of the person in any tax shelter (as
defined in section 1274(b)(3)(C)).''.
(b) Effective Date.--The amendment made by this section
shall apply to communications made on or after the date of
the enactment of this Act.
SEC. 407. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) In General.--Section 6111 (relating to registration of
tax shelters) is amended to read as follows:
``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
``(a) In General.--Each material advisor with respect to
any reportable transaction shall make a return (in such form
as the Secretary may prescribe) setting forth--
``(1) information identifying and describing the
transaction,
``(2) information describing any potential tax benefits
expected to result from the transaction, and
``(3) such other information as the Secretary may
prescribe.
Such return shall be filed not later than the date specified
by the Secretary.
``(b) Definitions.--For purposes of this section--
``(1) Material advisor.--
``(A) In general.--The term `material advisor' means any
person--
``(i) who provides any material aid, assistance, or advice
with respect to organizing, managing, promoting, selling,
implementing, or carrying out any reportable transaction, and
``(ii) who directly or indirectly derives gross income in
excess of the threshold amount for such aid, assistance, or
advice.
``(B) Threshold amount.--For purposes of subparagraph (A),
the threshold amount is--
``(i) $50,000 in the case of a reportable transaction
substantially all of the tax benefits from which are provided
to natural persons, and
``(ii) $250,000 in any other case.
``(2) Reportable transaction.--The term `reportable
transaction' has the meaning given to such term by section
6707A(c).
``(c) Regulations.--The Secretary may prescribe regulations
which provide--
``(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2 or more
persons would otherwise be required to meet such
requirements,
``(2) exemptions from the requirements of this section, and
``(3) such rules as may be necessary or appropriate to
carry out the purposes of this section.''.
(b) Conforming Amendments.--
(1) The item relating to section 6111 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6111. Disclosure of reportable transactions.''.
(2)(A) So much of section 6112 as precedes subsection (c)
thereof is amended to read as follows:
``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS
MUST KEEP LISTS OF ADVISEES.
``(a) In General.--Each material advisor (as defined in
section 6111) with respect to any reportable transaction (as
defined in section 6707A(c)) shall maintain, in such manner
as the Secretary may by regulations prescribe, a list--
``(1) identifying each person with respect to whom such
advisor acted as such a material advisor with respect to such
transaction, and
``(2) containing such other information as the Secretary
may by regulations require.
This section shall apply without regard to whether a material
advisor is required to file a return under section 6111 with
respect to such transaction.''.
(B) Section 6112 is amended by redesignating subsection (c)
as subsection (b).
(C) Section 6112(b), as redesignated by subparagraph (B),
is amended--
(i) by inserting ``written'' before ``request'' in
paragraph (1)(A), and
(ii) by striking ``shall prescribe'' in paragraph (2) and
inserting ``may prescribe''.
(D) The item relating to section 6112 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6112. Material advisors of reportable transactions must keep
lists of advisees.''.
(3)(A) The heading for section 6708 is amended to read as
follows:
``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH
RESPECT TO REPORTABLE TRANSACTIONS.''.
(B) The item relating to section 6708 in the table of
sections for part I of subchapter B of chapter 68 is amended
to read as follows:
``Sec. 6708. Failure to maintain lists of advisees with respect to
reportable transactions.''.
(c) Required Disclosure Not Subject to Claim of
Confidentiality.--Subparagraph (A) of section 6112(b)(1), as
redesignated by subsection (b)(2)(B), is amended by adding at
the end the following new flush sentence:
``For purposes of this section, the identity of any person on
such list shall not be privileged.''.
(d) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to transactions
with respect to which material aid, assistance, or advice
referred to in section 6111(b)(1)(A)(i) of the Internal
Revenue Code of 1986 (as added by this section) is provided
after the date of the enactment of this Act.
(2) No claim of confidentiality against disclosure.--The
amendment made by subsection (c) shall take effect as if
included in the amendments made by section 142 of the Deficit
Reduction Act of 1984.
[[Page S2118]]
SEC. 408. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER
TAX SHELTERS.
(a) In General.--Section 6707 (relating to failure to
furnish information regarding tax shelters) is amended to
read as follows:
``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING
REPORTABLE TRANSACTIONS.
``(a) In General.--If a person who is required to file a
return under section 6111(a) with respect to any reportable
transaction--
``(1) fails to file such return on or before the date
prescribed therefor, or
``(2) files false or incomplete information with the
Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return
in the amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
penalty imposed under subsection (a) with respect to any
failure shall be $50,000.
``(2) Listed transactions.--The penalty imposed under
subsection (a) with respect to any listed transaction shall
be an amount equal to the greater of--
``(A) $200,000, or
``(B) 50 percent of the gross income derived by such person
with respect to aid, assistance, or advice which is provided
with respect to the listed transaction before the date the
return including the transaction is filed under section 6111.
Subparagraph (B) shall be applied by substituting `75
percent' for `50 percent' in the case of an intentional
failure or act described in subsection (a).
``(c) Certain Rules To Apply.--The provisions of section
6707A(d) shall apply to any penalty imposed under this
section.
``(d) Reportable and Listed Transactions.--The terms
`reportable transaction' and `listed transaction' have the
respective meanings given to such terms by section
6707A(c).''.
(b) Clerical Amendment.--The item relating to section 6707
in the table of sections for part I of subchapter B of
chapter 68 is amended by striking ``tax shelters'' and
inserting ``reportable transactions''.
(c) Effective Date.--The amendments made by this section
shall apply to returns the due date for which is after the
date of the enactment of this Act.
SEC. 409. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN
LISTS OF INVESTORS.
(a) In General.--Subsection (a) of section 6708 is amended
to read as follows:
``(a) Imposition of Penalty.--
``(1) In general.--If any person who is required to
maintain a list under section 6112(a) fails to make such list
available upon written request to the Secretary in accordance
with section 6112(b)(1)(A) within 20 business days after the
date of the Secretary's request, such person shall pay a
penalty of $10,000 for each day of such failure after such
20th day.
``(2) Reasonable cause exception.--No penalty shall be
imposed by paragraph (1) with respect to the failure on any
day if such failure is due to reasonable cause.''.
(b) Effective Date.--The amendment made by this section
shall apply to requests made after the date of the enactment
of this Act.
SEC. 410. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT
RELATED TO TAX SHELTERS AND REPORTABLE
TRANSACTIONS.
(a) In General.--Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by
redesignating subsection (c) as subsection (d) and by
striking subsections (a) and (b) and inserting the following
new subsections:
``(a) Authority To Seek Injunction.--A civil action in the
name of the United States to enjoin any person from further
engaging in specified conduct may be commenced at the request
of the Secretary. Any action under this section shall be
brought in the district court of the United States for the
district in which such person resides, has his principal
place of business, or has engaged in specified conduct. The
court may exercise its jurisdiction over such action (as
provided in section 7402(a)) separate and apart from any
other action brought by the United States against such
person.
``(b) Adjudication and Decree.--In any action under
subsection (a), if the court finds--
``(1) that the person has engaged in any specified conduct,
and
``(2) that injunctive relief is appropriate to prevent
recurrence of such conduct,
the court may enjoin such person from engaging in such
conduct or in any other activity subject to penalty under
this title.
``(c) Specified Conduct.--For purposes of this section, the
term `specified conduct' means any action, or failure to take
action, subject to penalty under section 6700, 6701, 6707, or
6708.''.
(b) Conforming Amendments.--
(1) The heading for section 7408 is amended to read as
follows:
``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.''.
(2) The table of sections for subchapter A of chapter 67 is
amended by striking the item relating to section 7408 and
inserting the following new item:
``Sec. 7408. Actions to enjoin specified conduct related to tax
shelters and reportable transactions.''.
(c) Effective Date.--The amendment made by this section
shall take effect on the day after the date of the enactment
of this Act.
SEC. 411. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME
TAX RETURN PREPARER.
(a) Standards Conformed to Taxpayer Standards.--Section
6694(a) (relating to understatements due to unrealistic
positions) is amended--
(1) by striking ``realistic possibility of being sustained
on its merits'' in paragraph (1) and inserting ``reasonable
belief that the tax treatment in such position was more
likely than not the proper treatment'',
(2) by striking ``or was frivolous'' in paragraph (3) and
inserting ``or there was no reasonable basis for the tax
treatment of such position'', and
(3) by striking ``Unrealistic'' in the heading and
inserting ``Improper''.
(b) Amount of Penalty.--Section 6694 is amended--
(1) by striking ``$250'' in subsection (a) and inserting
``$1,000'', and
(2) by striking ``$1,000'' in subsection (b) and inserting
``$5,000''.
(c) Effective Date.--The amendments made by this section
shall apply to documents prepared after the date of the
enactment of this Act.
SEC. 412. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN
FINANCIAL ACCOUNTS.
(a) In General.--Section 5321(a)(5) of title 31, United
States Code, is amended to read as follows:
``(5) Foreign financial agency transaction violation.--
``(A) Penalty authorized.--The Secretary of the Treasury
may impose a civil money penalty on any person who violates,
or causes any violation of, any provision of section 5314.
``(B) Amount of penalty.--
``(i) In general.--Except as provided in subparagraph (C),
the amount of any civil penalty imposed under subparagraph
(A) shall not exceed $5,000.
``(ii) Reasonable cause exception.--No penalty shall be
imposed under subparagraph (A) with respect to any violation
if--
``(I) such violation was due to reasonable cause, and
``(II) the amount of the transaction or the balance in the
account at the time of the transaction was properly reported.
``(C) Willful violations.--In the case of any person
willfully violating, or willfully causing any violation of,
any provision of section 5314--
``(i) the maximum penalty under subparagraph (B)(i) shall
be increased to the greater of--
``(I) $25,000, or
``(II) the amount (not exceeding $100,000) determined under
subparagraph (D), and
``(ii) subparagraph (B)(ii) shall not apply.
``(D) Amount.--The amount determined under this
subparagraph is--
``(i) in the case of a violation involving a transaction,
the amount of the transaction, or
``(ii) in the case of a violation involving a failure to
report the existence of an account or any identifying
information required to be provided with respect to an
account, the balance in the account at the time of the
violation.''.
(b) Effective Date.--The amendment made by this section
shall apply to violations occurring after the date of the
enactment of this Act.
SEC. 413. FRIVOLOUS TAX SUBMISSIONS.
(a) Civil Penalties.--Section 6702 is amended to read as
follows:
``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.
``(a) Civil Penalty for Frivolous Tax Returns.--A person
shall pay a penalty of $5,000 if--
``(1) such person files what purports to be a return of a
tax imposed by this title but which--
``(A) does not contain information on which the substantial
correctness of the self-assessment may be judged, or
``(B) contains information that on its face indicates that
the self-assessment is substantially incorrect; and
``(2) the conduct referred to in paragraph (1)--
``(A) is based on a position which the Secretary has
identified as frivolous under subsection (c), or
``(B) reflects a desire to delay or impede the
administration of Federal tax laws.
``(b) Civil Penalty for Specified Frivolous Submissions.--
``(1) Imposition of penalty.--Except as provided in
paragraph (3), any person who submits a specified frivolous
submission shall pay a penalty of $5,000.
``(2) Specified frivolous submission.--For purposes of this
section--
``(A) Specified frivolous submission.--The term `specified
frivolous submission' means a specified submission if any
portion of such submission--
``(i) is based on a position which the Secretary has
identified as frivolous under subsection (c), or
``(ii) reflects a desire to delay or impede the
administration of Federal tax laws.
``(B) Specified submission.--The term `specified
submission' means--
``(i) a request for a hearing under--
``(I) section 6320 (relating to notice and opportunity for
hearing upon filing of notice of lien), or
``(II) section 6330 (relating to notice and opportunity for
hearing before levy), and
[[Page S2119]]
``(ii) an application under--
``(I) section 6159 (relating to agreements for payment of
tax liability in installments),
``(II) section 7122 (relating to compromises), or
``(III) section 7811 (relating to taxpayer assistance
orders).
``(3) Opportunity to withdraw submission.--If the Secretary
provides a person with notice that a submission is a
specified frivolous submission and such person withdraws such
submission within 30 days after such notice, the penalty
imposed under paragraph (1) shall not apply with respect to
such submission.
``(c) Listing of Frivolous Positions.--The Secretary shall
prescribe (and periodically revise) a list of positions which
the Secretary has identified as being frivolous for purposes
of this subsection. The Secretary shall not include in such
list any position that the Secretary determines meets the
requirement of section 6662(d)(2)(B)(ii)(II).
``(d) Reduction of Penalty.--The Secretary may reduce the
amount of any penalty imposed under this section if the
Secretary determines that such reduction would promote
compliance with and administration of the Federal tax laws.
``(e) Penalties in Addition to Other Penalties.--The
penalties imposed by this section shall be in addition to any
other penalty provided by law.''.
(b) Treatment of Frivolous Requests for Hearings Before
Levy.--
(1) Frivolous requests disregarded.--Section 6330 (relating
to notice and opportunity for hearing before levy) is amended
by adding at the end the following new subsection:
``(g) Frivolous Requests for Hearing, etc.--Notwithstanding
any other provision of this section, if the Secretary
determines that any portion of a request for a hearing under
this section or section 6320 meets the requirement of clause
(i) or (ii) of section 6702(b)(2)(A), then the Secretary may
treat such portion as if it were never submitted and such
portion shall not be subject to any further administrative or
judicial review.''.
(2) Preclusion from raising frivolous issues at hearing.--
Section 6330(c)(4) is amended--
(A) by striking ``(A)'' and inserting ``(A)(i)'';
(B) by striking ``(B)'' and inserting ``(ii)'';
(C) by striking the period at the end of the first sentence
and inserting ``; or''; and
(D) by inserting after subparagraph (A)(ii) (as so
redesignated) the following:
``(B) the issue meets the requirement of clause (i) or (ii)
of section 6702(b)(2)(A).''.
(3) Statement of grounds.--Section 6330(b)(1) is amended by
striking ``under subsection (a)(3)(B)'' and inserting ``in
writing under subsection (a)(3)(B) and states the grounds for
the requested hearing''.
(c) Treatment of Frivolous Requests for Hearings Upon
Filing of Notice of Lien.--Section 6320 is amended--
(1) in subsection (b)(1), by striking ``under subsection
(a)(3)(B)'' and inserting ``in writing under subsection
(a)(3)(B) and states the grounds for the requested hearing'',
and
(2) in subsection (c), by striking ``and (e)'' and
inserting ``(e), and (g)''.
(d) Treatment of Frivolous Applications for Offers-in-
Compromise and Installment Agreements.--Section 7122 is
amended by adding at the end the following new subsection:
``(e) Frivolous Submissions, etc.--Notwithstanding any
other provision of this section, if the Secretary determines
that any portion of an application for an offer-in-compromise
or installment agreement submitted under this section or
section 6159 meets the requirement of clause (i) or (ii) of
section 6702(b)(2)(A), then the Secretary may treat such
portion as if it were never submitted and such portion shall
not be subject to any further administrative or judicial
review.''.
(e) Clerical Amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by striking the item
relating to section 6702 and inserting the following new
item:
``Sec. 6702. Frivolous tax submissions.''.
(f) Effective Date.--The amendments made by this section
shall apply to submissions made and issues raised after the
date on which the Secretary first prescribes a list under
section 6702(c) of the Internal Revenue Code of 1986, as
amended by subsection (a).
SEC. 414. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE
DEPARTMENT OF TREASURY.
(a) Censure; Imposition of Penalty.--
(1) In general.--Section 330(b) of title 31, United States
Code, is amended--
(A) by inserting ``, or censure,'' after ``Department'',
and
(B) by adding at the end the following new flush sentence:
``The Secretary may impose a monetary penalty on any
representative described in the preceding sentence. If the
representative was acting on behalf of an employer or any
firm or other entity in connection with the conduct giving
rise to such penalty, the Secretary may impose a monetary
penalty on such employer, firm, or entity if it knew, or
reasonably should have known, of such conduct. Such penalty
shall not exceed the gross income derived (or to be derived)
from the conduct giving rise to the penalty and may be in
addition to, or in lieu of, any suspension, disbarment, or
censure of the representative.''.
(2) Effective date.--The amendments made by this subsection
shall apply to actions taken after the date of the enactment
of this Act.
(b) Tax Shelter Opinions, etc.--Section 330 of such title
31 is amended by adding at the end the following new
subsection:
``(d) Nothing in this section or in any other provision of
law shall be construed to limit the authority of the
Secretary of the Treasury to impose standards applicable to
the rendering of written advice with respect to any entity,
transaction plan or arrangement, or other plan or
arrangement, which is of a type which the Secretary
determines as having a potential for tax avoidance or
evasion.''.
SEC. 415. PENALTY ON PROMOTERS OF TAX SHELTERS.
(a) Penalty on Promoting Abusive Tax Shelters.--Section
6700(a) is amended by adding at the end the following new
sentence: ``Notwithstanding the first sentence, if an
activity with respect to which a penalty imposed under this
subsection involves a statement described in paragraph
(2)(A), the amount of the penalty shall be equal to 50
percent of the gross income derived (or to be derived) from
such activity by the person on which the penalty is
imposed.''.
(b) Effective Date.--The amendment made by this section
shall apply to activities after the date of the enactment of
this Act.
SEC. 416. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH
REQUIRED LISTED TRANSACTIONS NOT REPORTED.
(a) In General.--Section 6501(c) (relating to exceptions)
is amended by adding at the end the following new paragraph:
``(10) Listed transactions.--If a taxpayer fails to include
on any return or statement for any taxable year any
information with respect to a listed transaction (as defined
in section 6707A(c)(2)) which is required under section 6011
to be included with such return or statement, the time for
assessment of any tax imposed by this title with respect to
such transaction shall not expire before the date which is 1
year after the earlier of--
``(A) the date on which the Secretary is furnished the
information so required; or
``(B) the date that a material advisor (as defined in
section 6111) meets the requirements of section 6112 with
respect to a request by the Secretary under section 6112(b)
relating to such transaction with respect to such
taxpayer.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years with respect to which the period
for assessing a deficiency did not expire before the date of
the enactment of this Act.
SEC. 417. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND
NONECONOMIC SUBSTANCE TRANSACTIONS.
(a) In General.--Section 163 (relating to deduction for
interest) is amended by redesignating subsection (m) as
subsection (n) and by inserting after subsection (l) the
following new subsection:
``(m) Interest on Unpaid Taxes Attributable To Nondisclosed
Reportable Transactions and Noneconomic Substance
Transactions.--No deduction shall be allowed under this
chapter for any interest paid or accrued under section 6601
on any underpayment of tax which is attributable to--
``(1) the portion of any reportable transaction
understatement (as defined in section 6662A(b)) with respect
to which the requirement of section 6664(d)(2)(A) is not met,
or
``(2) any noneconomic substance transaction understatement
(as defined in section 6662B(c)).''.
(b) Effective Date.--The amendments made by this section
shall apply to transactions in taxable years beginning after
the date of the enactment of this Act.
SEC. 418. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW
ENFORCEMENT.
There is authorized to be appropriated $300,000,000 for
each fiscal year beginning after September 30, 2003, for the
purpose of carrying out tax law enforcement to combat tax
avoidance transactions and other tax shelters, including the
use of offshore financial accounts to conceal taxable income.
Subtitle B--Other Corporate Governance Provisions
SEC. 421. AFFIRMATION OF CONSOLIDATED RETURN REGULATION
AUTHORITY.
(a) In General.--Section 1502 (relating to consolidated
return regulations) is amended by adding at the end the
following new sentence: ``In prescribing such regulations,
the Secretary may prescribe rules applicable to corporations
filing consolidated returns under section 1501 that are
different from other provisions of this title that would
apply if such corporations filed separate returns.''.
(b) Result Not Overturned.--Notwithstanding subsection (a),
the Internal Revenue Code of 1986 shall be construed by
treating Treasury regulation Sec. 1.1502-20(c)(1)(iii) (as in
effect on January 1, 2001) as being inapplicable to the type
of factual situation in 255 F.3d 1357 (Fed. Cir. 2001).
(c) Effective Date.--The provisions of this section shall
apply to taxable years beginning before, on, or after the
date of the enactment of this Act.
SEC. 422. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE
OFFICER.
(a) In General.--Section 6062 (relating to signing of
corporation returns) is amended by inserting after the first
sentence the following new sentences: ``The return of a
corporation with respect to income shall also include a
declaration signed by the chief executive officer of such
corporation (or other
[[Page S2120]]
such officer of the corporation as the Secretary may
designate if the corporation does not have a chief executive
officer), under penalties of perjury, that the chief
executive officer ensures that such return complies with this
title and that the chief executive officer was provided
reasonable assurance of the accuracy of all material
aspects of such return. The preceding sentence shall not
apply to any return of a regulated investment company
(within the meaning of section 851).''.
(b) Effective Date.--The amendment made by this section
shall apply to returns filed after the date of the enactment
of this Act.
SEC. 423. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES,
AND OTHER AMOUNTS.
(a) In General.--Subsection (f) of section 162 (relating to
trade or business expenses) is amended to read as follows:
``(f) Fines, Penalties, and Other Amounts.--
``(1) In general.--Except as provided in paragraph (2), no
deduction otherwise allowable shall be allowed under this
chapter for any amount paid or incurred (whether by suit,
agreement, or otherwise) to, or at the direction of, a
government or entity described in paragraph (4) in relation
to the violation of any law or the investigation or inquiry
by such government or entity into the potential violation of
any law.
``(2) Exception for amounts constituting restitution.--
Paragraph (1) shall not apply to any amount which the
taxpayer establishes constitutes restitution (including
remediation of property) for damage or harm caused by or
which may be caused by the violation of any law or the
potential violation of any law. This paragraph shall not
apply to any amount paid or incurred as reimbursement to the
government or entity for the costs of any investigation or
litigation.
``(3) Exception for amounts paid or incurred as the result
of certain court orders.--Paragraph (1) shall not apply to
any amount paid or incurred by order of a court in a suit in
which no government or entity described in paragraph (4) is a
party.
``(4) Certain nongovernmental regulatory entities.--An
entity is described in this paragraph if it is--
``(A) a nongovernmental entity which exercises self-
regulatory powers (including imposing sanctions) in
connection with a qualified board or exchange (as defined in
section 1256(g)(7)), or
``(B) to the extent provided in regulations, a
nongovernmental entity which exercises self-regulatory powers
(including imposing sanctions) as part of performing an
essential governmental function.''.
(b) Effective Date.--The amendment made by this section
shall apply to amounts paid or incurred after April 27, 2003,
except that such amendment shall not apply to amounts paid or
incurred under any binding order or agreement entered into on
or before April 27, 2003. Such exception shall not apply to
an order or agreement requiring court approval unless the
approval was obtained on or before April 27, 2003.
SEC. 424. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.
(a) Disallowance of Deduction.--
(1) In general.--Section 162(g) (relating to treble damage
payments under the antitrust laws) is amended by adding at
the end the following new paragraph:
``(2) Punitive damages.--No deduction shall be allowed
under this chapter for any amount paid or incurred for
punitive damages in connection with any judgment in, or
settlement of, any action. This paragraph shall not apply to
punitive damages described in section 104(c).''.
(2) Conforming amendments.--
(A) Section 162(g) is amended--
(i) by striking ``If'' and inserting:
``(1) Treble damages.--If'', and
(ii) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively.
(B) The heading for section 162(g) is amended by inserting
``or Punitive Damages'' after ``Laws''.
(b) Inclusion in Income of Punitive Damages Paid by Insurer
or Otherwise.--
(1) In general.--Part II of subchapter B of chapter 1
(relating to items specifically included in gross income) is
amended by adding at the end the following new section:
``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR
OTHERWISE.
``Gross income shall include any amount paid to or on
behalf of a taxpayer as insurance or otherwise by reason of
the taxpayer's liability (or agreement) to pay punitive
damages.''.
(2) Reporting requirements.--Section 6041 (relating to
information at source) is amended by adding at the end the
following new subsection:
``(f) Section To Apply to Punitive Damages Compensation.--
This section shall apply to payments by a person to or on
behalf of another person as insurance or otherwise by reason
of the other person's liability (or agreement) to pay
punitive damages.''.
(3) Conforming amendment.--The table of sections for part
II of subchapter B of chapter 1 is amended by adding at the
end the following new item:
``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
(c) Effective Date.--The amendments made by this section
shall apply to damages paid or incurred on or after the date
of the enactment of this Act.
SEC. 425. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION
FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE
TO FRAUD.
(a) In General.--Section 7206 (relating to fraud and false
statements) is amended--
(1) by striking ``Any person who--'' and inserting ``(a) In
General.--Any person who--'', and
(2) by adding at the end the following new subsection:
``(b) Increase in Monetary Limitation for Underpayment or
Overpayment of Tax Due to Fraud.--If any portion of any
underpayment (as defined in section 6664(a)) or overpayment
(as defined in section 6401(a)) of tax required to be shown
on a return is attributable to fraudulent action described in
subsection (a), the applicable dollar amount under subsection
(a) shall in no event be less than an amount equal to such
portion. A rule similar to the rule under section 6663(b)
shall apply for purposes of determining the portion so
attributable.''.
(b) Increase in Penalties.--
(1) Attempt to evade or defeat tax.--Section 7201 is
amended--
(A) by striking ``$100,000'' and inserting ``$250,000'',
(B) by striking ``$500,000'' and inserting ``$1,000,000'',
and
(C) by striking ``5 years'' and inserting ``10 years''.
(2) Willful failure to file return, supply information, or
pay tax.--Section 7203 is amended--
(A) in the first sentence--
(i) by striking ``misdemeanor'' and inserting ``felony'',
and
(ii) by striking ``1 year'' and inserting ``10 years'', and
(B) by striking the third sentence.
(3) Fraud and false statements.--Section 7206(a) (as
redesignated by subsection (a)) is amended--
(A) by striking ``$100,000'' and inserting ``$250,000'',
(B) by striking ``$500,000'' and inserting ``$1,000,000'',
and
(C) by striking ``3 years'' and inserting ``5 years''.
(c) Effective Date.--The amendments made by this section
shall apply to underpayments and overpayments attributable to
actions occurring after the date of the enactment of this
Act.
Subtitle C--Enron-Related Tax Shelter Provisions
SEC. 431. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN
LOSSES.
(a) In General.--Section 362 (relating to basis to
corporations) is amended by adding at the end the following
new subsection:
``(e) Limitations on Built-In Losses.--
``(1) Limitation on importation of built-in losses.--
``(A) In general.--If in any transaction described in
subsection (a) or (b) there would (but for this subsection)
be an importation of a net built-in loss, the basis of each
property described in subparagraph (B) which is acquired in
such transaction shall (notwithstanding subsections (a) and
(b)) be its fair market value immediately after such
transaction.
``(B) Property described.--For purposes of subparagraph
(A), property is described in this subparagraph if--
``(i) gain or loss with respect to such property is not
subject to tax under this subtitle in the hands of the
transferor immediately before the transfer, and
``(ii) gain or loss with respect to such property is
subject to such tax in the hands of the transferee
immediately after such transfer.
In any case in which the transferor is a partnership, the
preceding sentence shall be applied by treating each partner
in such partnership as holding such partner's proportionate
share of the property of such partnership.
``(C) Importation of net built-in loss.--For purposes of
subparagraph (A), there is an importation of a net built-in
loss in a transaction if the transferee's aggregate adjusted
bases of property described in subparagraph (B) which is
transferred in such transaction would (but for this
paragraph) exceed the fair market value of such property
immediately after such transaction.''.
``(2) Limitation on transfer of built-in losses in section
351 transactions.--
``(A) In general.--If--
``(i) property is transferred by a transferor in any
transaction which is described in subsection (a) and which is
not described in paragraph (1) of this subsection, and
``(ii) the transferee's aggregate adjusted bases of such
property so transferred would (but for this paragraph) exceed
the fair market value of such property immediately after such
transaction,
then, notwithstanding subsection (a), the transferee's
aggregate adjusted bases of the property so transferred shall
not exceed the fair market value of such property immediately
after such transaction.
``(B) Allocation of basis reduction.--The aggregate
reduction in basis by reason of subparagraph (A) shall be
allocated among the property so transferred in proportion to
their respective built-in losses immediately before the
transaction.
``(C) Exception for transfers within affiliated group.--
Subparagraph (A) shall not apply to any transaction if the
transferor owns stock in the transferee meeting the
requirements of section 1504(a)(2). In the case of property
to which subparagraph (A) does not apply by reason of the
preceding sentence, the transferor's basis in the stock
received for such property shall not exceed its
[[Page S2121]]
fair market value immediately after the transfer.''.
(b) Comparable Treatment Where Liquidation.--Paragraph (1)
of section 334(b) (relating to liquidation of subsidiary) is
amended to read as follows:
``(1) In general.--If property is received by a corporate
distributee in a distribution in a complete liquidation to
which section 332 applies (or in a transfer described in
section 337(b)(1)), the basis of such property in the hands
of such distributee shall be the same as it would be in the
hands of the transferor; except that the basis of such
property in the hands of such distributee shall be the fair
market value of the property at the time of the
distribution--
``(A) in any case in which gain or loss is recognized by
the liquidating corporation with respect to such property, or
``(B) in any case in which the liquidating corporation is a
foreign corporation, the corporate distributee is a domestic
corporation, and the corporate distributee's aggregate
adjusted bases of property described in section 362(e)(1)(B)
which is distributed in such liquidation would (but for this
subparagraph) exceed the fair market value of such property
immediately after such liquidation.''.
(c) Effective Date.--The amendments made by this section
shall apply to transactions after February 13, 2003.
SEC. 432. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK
HELD BY PARTNERSHIP IN CORPORATE PARTNER.
(a) In General.--Section 755 is amended by adding at the
end the following new subsection:
``(c) No Allocation of Basis Decrease to Stock of Corporate
Partner.--In making an allocation under subsection (a) of any
decrease in the adjusted basis of partnership property under
section 734(b)--
``(1) no allocation may be made to stock in a corporation
(or any person which is related (within the meaning of
section 267(b) or 707(b)(1)) to such corporation) which is a
partner in the partnership, and
``(2) any amount not allocable to stock by reason of
paragraph (1) shall be allocated under subsection (a) to
other partnership property in such manner as the Secretary
may prescribe.
Gain shall be recognized to the partnership to the extent
that the amount required to be allocated under paragraph (2)
to other partnership property exceeds the aggregate adjusted
basis of such other property immediately before the
allocation required by paragraph (2).''.
(b) Effective Date.--The amendment made by this section
shall apply to distributions after February 13, 2003.
SEC. 433. REPEAL OF SPECIAL RULES FOR FASITS.
(a) In General.--Part V of subchapter M of chapter 1
(relating to financial asset securitization investment
trusts) is hereby repealed.
(b) Conforming Amendments.--
(1) Paragraph (6) of section 56(g) is amended by striking
``REMIC, or FASIT'' and inserting ``or REMIC''.
(2) Clause (ii) of section 382(l)(4)(B) is amended by
striking ``a REMIC to which part IV of subchapter M applies,
or a FASIT to which part V of subchapter M applies,'' and
inserting ``or a REMIC to which part IV of subchapter M
applies,''.
(3) Paragraph (1) of section 582(c) is amended by striking
``, and any regular interest in a FASIT,''.
(4) Subparagraph (E) of section 856(c)(5) is amended by
striking the last sentence.
(5)(A) Section 860G(a)(1) is amended by adding at the end
the following new sentence: ``An interest shall not fail to
qualify as a regular interest solely because the specified
principal amount of the regular interest (or the amount of
interest accrued on the regular interest) can be reduced as a
result of the nonoccurrence of 1 or more contingent payments
with respect to any reverse mortgage loan held by the REMIC
if, on the startup day for the REMIC, the sponsor reasonably
believes that all principal and interest due under the
regular interest will be paid at or prior to the liquidation
of the REMIC.''.
(B) The last sentence of section 860G(a)(3) is amended by
inserting ``, and any reverse mortgage loan (and each balance
increase on such loan meeting the requirements of
subparagraph (A)(iii)) shall be treated as an obligation
secured by an interest in real property'' before the period
at the end.
(6) Paragraph (3) of section 860G(a) is amended by adding
``and'' at the end of subparagraph (B), by striking ``, and''
at the end of subparagraph (C) and inserting a period, and by
striking subparagraph (D).
(7) Section 860G(a)(3), as amended by paragraph (6), is
amended by adding at the end the following new sentence:
``For purposes of subparagraph (A), if more than 50 percent
of the obligations transferred to, or purchased by, the REMIC
are originated by the United States or any State (or any
political subdivision, agency, or instrumentality of the
United States or any State) and are principally secured by an
interest in real property, then each obligation transferred
to, or purchased by, the REMIC shall be treated as secured by
an interest in real property.''.
(8)(A) Section 860G(a)(3)(A) is amended by striking ``or''
at the end of clause (i), by inserting ``or'' at the end of
clause (ii), and by inserting after clause (ii) the following
new clause:
``(iii) represents an increase in the principal amount
under the original terms of an obligation described in clause
(i) or (ii) if such increase--
``(I) is attributable to an advance made to the obligor
pursuant to the original terms of the obligation,
``(II) occurs after the startup day, and
``(III) is purchased by the REMIC pursuant to a fixed price
contract in effect on the startup day.''.
(B) Section 860G(a)(7)(B) is amended to read as follows:
``(B) Qualified reserve fund.--For purposes of subparagraph
(A), the term `qualified reserve fund' means any reasonably
required reserve to--
``(i) provide for full payment of expenses of the REMIC or
amounts due on regular interests in the event of defaults on
qualified mortgages or lower than expected returns on cash
flow investments, or
``(ii) provide a source of funds for the purchase of
obligations described in clause (ii) or (iii) of paragraph
(3)(A).
The aggregate fair market value of the assets held in any
such reserve shall not exceed 50 percent of the aggregate
fair market value of all of the assets of the REMIC on the
startup day, and the amount of any such reserve shall be
promptly and appropriately reduced to the extent the amount
held in such reserve is no longer reasonably required for
purposes specified in clause (i) or (ii) of paragraph
(3)(A).''.
(9) Subparagraph (C) of section 1202(e)(4) is amended by
striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
(10) Clause (xi) of section 7701(a)(19)(C) is amended--
(A) by striking ``and any regular interest in a FASIT,'',
and
(B) by striking ``or FASIT'' each place it appears.
(11) Subparagraph (A) of section 7701(i)(2) is amended by
striking ``or a FASIT''.
(12) The table of parts for subchapter M of chapter 1 is
amended by striking the item relating to part V.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall take effect on February
14, 2003.
(2) Exception for existing fasits.--Paragraph (1) shall not
apply to any FASIT in existence on the date of the enactment
of this Act to the extent that regular interests issued by
the FASIT before such date continue to remain outstanding in
accordance with the original terms of issuance.
SEC. 434. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON
CONVERTIBLE DEBT.
(a) In General.--Paragraph (2) of section 163(l) is amended
by striking ``or a related party'' and inserting ``or equity
held by the issuer (or any related party) in any other
person''.
(b) Capitalization Allowed With Respect to Equity of
Persons Other Than Issuer and Related Parties.--Section
163(l) is amended by redesignating paragraphs (4) and (5) as
paragraphs (5) and (6) and by inserting after paragraph (3)
the following new paragraph:
``(4) Capitalization allowed with respect to equity of
persons other than issuer and related parties.--If the
disqualified debt instrument of a corporation is payable in
equity held by the issuer (or any related party) in any other
person (other than a related party), the basis of such equity
shall be increased by the amount not allowed as a deduction
by reason of paragraph (1) with respect to the instrument.''.
(c) Exception for Certain Instruments Issued by Dealers in
Securities.--Section 163(l), as amended by subsection (b), is
amended by redesignating paragraphs (5) and (6) as paragraphs
(6) and (7) and by inserting after paragraph (4) the
following new paragraph:
``(5) Exception for certain instruments issued by dealers
in securities.--For purposes of this subsection, the term
`disqualified debt instrument' does not include indebtedness
issued by a dealer in securities (or a related party) which
is payable in, or by reference to, equity (other than equity
of the issuer or a related party) held by such dealer in its
capacity as a dealer in securities. For purposes of this
paragraph, the term `dealer in securities' has the meaning
given such term by section 475.''.
(c) Conforming Amendments.--Paragraph (3) of section 163(l)
is amended--
(1) by striking ``or a related party'' in the material
preceding subparagraph (A) and inserting ``or any other
person'', and
(2) by striking ``or interest'' each place it appears.
(d) Effective Date.--The amendments made by this section
shall apply to debt instruments issued after February 13,
2003.
SEC. 435. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER
SECTION 269.
(a) In General.--Subsection (a) of section 269 (relating to
acquisitions made to evade or avoid income tax) is amended to
read as follows:
``(a) In General.--If--
``(1)(A) any person or persons acquire, directly or
indirectly, control of a corporation, or
``(B) any corporation acquires, directly or indirectly,
property of another corporation and the basis of such
property, in the hands of the acquiring corporation, is
determined by reference to the basis in the hands of the
transferor corporation, and
``(2) the principal purpose for which such acquisition was
made is evasion or avoidance of Federal income tax,
then the Secretary may disallow such deduction, credit, or
other allowance. For purposes
[[Page S2122]]
of paragraph (1)(A), control means the ownership of stock
possessing at least 50 percent of the total combined voting
power of all classes of stock entitled to vote or at least 50
percent of the total value of all shares of all classes of
stock of the corporation.''.
(b) Effective Date.--The amendment made by this section
shall apply to stock and property acquired after February 13,
2003.
SEC. 436. MODIFICATION OF INTERACTION BETWEEN SUBPART F AND
PASSIVE FOREIGN INVESTMENT COMPANY RULES.
(a) Limitation on Exception From PFIC Rules for United
States Shareholders of Controlled Foreign Corporations.--
Paragraph (2) of section 1297(e) (relating to passive foreign
investment company) is amended by adding at the end the
following flush sentence:
``Such term shall not include any period if the earning of
subpart F income by such corporation during such period would
result in only a remote likelihood of an inclusion in gross
income under section 951(a)(1)(A)(i).''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years of controlled foreign
corporations beginning after February 13, 2003, and to
taxable years of United States shareholders with or within
which such taxable years of controlled foreign corporations
end.
Subtitle D--Provisions to Discourage Expatriation
SEC. 441. TAX TREATMENT OF INVERTED CORPORATE ENTITIES
(a) In General.--Subchapter C of chapter 80 (relating to
provisions affecting more than one subtitle) is amended by
adding at the end the following new section:
``SEC. 7874. RULES RELATING TO INVERTED CORPORATE ENTITIES
``(a) Inverted Corporations Treated as Domestic
Corporations.--
``(1) In general.--If a foreign incorporated entity is
treated as an inverted domestic corporation, then,
notwithstanding section 7701(a)(4), such entity shall be
treated for purposes of this title as a domestic corporation.
``(2) Inverted domestic corporation.--For purposes of this
section, a foreign incorporated entity shall be treated as an
inverted domestic corporation if, pursuant to a plan (or a
series of related transactions)--
``(A) the entity completes after March 20, 2002, the direct
or indirect acquisition of substantially all of the
properties held directly or indirectly by a domestic
corporation or substantially all of the properties
constituting a trade or business of a domestic partnership,
``(B) after the acquisition at least 80 percent of the
stock (by vote or value) of the entity is held--
``(i) in the case of an acquisition with respect to a
domestic corporation, by former shareholders of the domestic
corporation by reason of holding stock in the domestic
corporation, or
``(ii) in the case of an acquisition with respect to a
domestic partnership, by former partners of the domestic
partnership by reason of holding a capital or profits
interest in the domestic partnership, and
``(C) the expanded affiliated group which after the
acquisition includes the entity does not have substantial
business activities in the foreign country in which or under
the law of which the entity is created or organized when
compared to the total business activities of such expanded
affiliated group.
Except as provided in regulations, an acquisition of
properties of a domestic corporation shall not be treated as
described in subparagraph (A) if none of the corporation's
stock was readily tradeable on an established securities
market at any time during the 4-year period ending on the
date of the acquisition.
``(b) Preservation of Domestic Tax Base in Certain
Inversion Transactions to Which Subsection (a) Does Not
Apply.--
``(1) In general.--If a foreign incorporated entity would
be treated as an inverted domestic corporation with respect
to an acquired entity if either--
``(A) subsection (a)(2)(A) were applied by substituting
`after December 31, 1996, and on or before March 20, 2002'
for `after March 20, 2002' and subsection (a)(2)(B) were
applied by substituting `more than 50 percent' for `at least
80 percent', or
``(B) subsection (a)(2)(B) were applied by substituting
`more than 50 percent' for `at least 80 percent',
then the rules of subsection (c) shall apply to any inversion
gain of the acquired entity during the applicable period and
the rules of subsection (d) shall apply to any related party
transaction of the acquired entity during the applicable
period. This subsection shall not apply for any taxable year
if subsection (a) applies to such foreign incorporated entity
for such taxable year.
``(2) Acquired entity.--For purposes of this section--
``(A) In general.--The term `acquired entity' means the
domestic corporation or partnership substantially all of the
properties of which are directly or indirectly acquired in an
acquisition described in subsection (a)(2)(A) to which this
subsection applies.
``(B) Aggregation rules.--Any domestic person bearing a
relationship described in section 267(b) or 707(b) to an
acquired entity shall be treated as an acquired entity with
respect to the acquisition described in subparagraph (A).
``(3) Applicable period.--For purposes of this section--
``(A) In general.--The term `applicable period' means the
period--
``(i) beginning on the first date properties are acquired
as part of the acquisition described in subsection (a)(2)(A)
to which this subsection applies, and
``(ii) ending on the date which is 10 years after the last
date properties are acquired as part of such acquisition.
``(B) Special rule for inversions occurring before march
21, 2002.--In the case of any acquired entity to which
paragraph (1)(A) applies, the applicable period shall be the
10-year period beginning on January 1, 2003.
``(c) Tax on Inversion Gains May Not Be Offset.--If
subsection (b) applies--
``(1) In general.--The taxable income of an acquired entity
(or any expanded affiliated group which includes such entity)
for any taxable year which includes any portion of the
applicable period shall in no event be less than the
inversion gain of the entity for the taxable year.
``(2) Credits not allowed against tax on inversion gain.--
Credits shall be allowed against the tax imposed by this
chapter on an acquired entity for any taxable year described
in paragraph (1) only to the extent such tax exceeds the
product of--
``(A) the amount of the inversion gain for the taxable
year, and
``(B) the highest rate of tax specified in section
11(b)(1).
For purposes of determining the credit allowed by section 901
inversion gain shall be treated as from sources within the
United States.
``(3) Special rules for partnerships.--In the case of an
acquired entity which is a partnership--
``(A) the limitations of this subsection shall apply at the
partner rather than the partnership level,
``(B) the inversion gain of any partner for any taxable
year shall be equal to the sum of--
``(i) the partner's distributive share of inversion gain of
the partnership for such taxable year, plus
``(ii) income or gain required to be recognized for the
taxable year by the partner under section 367(a), 741, or
1001, or under any other provision of chapter 1, by reason of
the transfer during the applicable period of any partnership
interest of the partner in such partnership to the foreign
incorporated entity, and
``(C) the highest rate of tax specified in the rate
schedule applicable to the partner under chapter 1 shall be
substituted for the rate of tax under paragraph (2)(B).
``(4) Inversion gain.--For purposes of this section, the
term `inversion gain' means any income or gain required to be
recognized under section 304, 311(b), 367, 1001, or 1248, or
under any other provision of chapter 1, by reason of the
transfer during the applicable period of stock or other
properties by an acquired entity--
``(A) as part of the acquisition described in subsection
(a)(2)(A) to which subsection (b) applies, or
``(B) after such acquisition to a foreign related person.
The Secretary may provide that income or gain from the sale
of inventories or other transactions in the ordinary course
of a trade or business shall not be treated as inversion gain
under subparagraph (B) to the extent the Secretary determines
such treatment would not be inconsistent with the purposes of
this section.
``(5) Coordination with section 172 and minimum tax.--Rules
similar to the rules of paragraphs (3) and (4) of section
860E(a) shall apply for purposes of this section.
``(6) Statute of limitations.--
``(A) In general.--The statutory period for the assessment
of any deficiency attributable to the inversion gain of any
taxpayer for any pre-inversion year shall not expire before
the expiration of 3 years from the date the Secretary is
notified by the taxpayer (in such manner as the Secretary may
prescribe) of the acquisition described in subsection
(a)(2)(A) to which such gain relates and such deficiency may
be assessed before the expiration of such 3-year period
notwithstanding the provisions of any other law or rule of
law which would otherwise prevent such assessment.
``(B) Pre-inversion year.--For purposes of subparagraph
(A), the term `pre-inversion year' means any taxable year
if--
``(i) any portion of the applicable period is included in
such taxable year, and
``(ii) such year ends before the taxable year in which the
acquisition described in subsection (a)(2)(A) is completed.
``(d) Special Rules Applicable to Acquired Entities to
Which Subsection (b) Applies.--
``(1) Increases in accuracy-related penalties.--In the case
of any underpayment of tax of an acquired entity to which
subsection (b) applies--
``(A) section 6662(a) shall be applied with respect to such
underpayment by substituting `30 percent' for `20 percent',
and
``(B) if such underpayment is attributable to one or more
gross valuation understatements, the increase in the rate of
penalty under section 6662(h) shall be to 50 percent rather
than 40 percent.
``(2) Modifications of limitation on interest deduction.--
In the case of an acquired entity to which subsection (b)
applies, section 163(j) shall be applied--
``(A) without regard to paragraph (2)(A)(ii) thereof, and
[[Page S2123]]
``(B) by substituting `25 percent' for `50 percent' each
place it appears in paragraph (2)(B) thereof.
``(e) Other Definitions and Special Rules.--For purposes of
this section--
``(1) Rules for application of subsection (a)(2).--In
applying subsection (a)(2) for purposes of subsections (a)
and (b), the following rules shall apply:
``(A) Certain stock disregarded.--There shall not be taken
into account in determining ownership for purposes of
subsection (a)(2)(B)--
``(i) stock held by members of the expanded affiliated
group which includes the foreign incorporated entity, or
``(ii) stock of such entity which is sold in a public
offering or private placement related to the acquisition
described in subsection (a)(2)(A).
``(B) Plan deemed in certain cases.--If a foreign
incorporated entity acquires directly or indirectly
substantially all of the properties of a domestic corporation
or partnership during the 4-year period beginning on the date
which is 2 years before the ownership requirements of
subsection (a)(2)(B) are met with respect to such domestic
corporation or partnership, such actions shall be treated
as pursuant to a plan.
``(C) Certain transfers disregarded.--The transfer of
properties or liabilities (including by contribution or
distribution) shall be disregarded if such transfers are part
of a plan a principal purpose of which is to avoid the
purposes of this section.
``(D) Special rule for related partnerships.--For purposes
of applying subsection (a)(2) to the acquisition of a
domestic partnership, except as provided in regulations, all
partnerships which are under common control (within the
meaning of section 482) shall be treated as 1 partnership.
``(E) Treatment of certain rights.--The Secretary shall
prescribe such regulations as may be necessary--
``(i) to treat warrants, options, contracts to acquire
stock, convertible debt instruments, and other similar
interests as stock, and
``(ii) to treat stock as not stock.
``(2) Expanded affiliated group.--The term `expanded
affiliated group' means an affiliated group as defined in
section 1504(a) but without regard to section 1504(b)(3),
except that section 1504(a) shall be applied by substituting
`more than 50 percent' for `at least 80 percent' each place
it appears.
``(3) Foreign incorporated entity.--The term `foreign
incorporated entity' means any entity which is, or but for
subsection (a)(1) would be, treated as a foreign corporation
for purposes of this title.
``(4) Foreign related person.--The term `foreign related
person' means, with respect to any acquired entity, a foreign
person which--
``(A) bears a relationship to such entity described in
section 267(b) or 707(b), or
``(B) is under the same common control (within the meaning
of section 482) as such entity.
``(5) Subsequent acquisitions by unrelated domestic
corporations.--
``(A) In general.--Subject to such conditions, limitations,
and exceptions as the Secretary may prescribe, if, after an
acquisition described in subsection (a)(2)(A) to which
subsection (b) applies, a domestic corporation stock of which
is traded on an established securities market acquires
directly or indirectly any properties of one or more acquired
entities in a transaction with respect to which the
requirements of subparagraph (B) are met, this section shall
cease to apply to any such acquired entity with respect to
which such requirements are met.
``(B) Requirements.--The requirements of the subparagraph
are met with respect to a transaction involving any
acquisition described in subparagraph (A) if--
``(i) before such transaction the domestic corporation did
not have a relationship described in section 267(b) or
707(b), and was not under common control (within the meaning
of section 482), with the acquired entity, or any member of
an expanded affiliated group including such entity, and
``(ii) after such transaction, such acquired entity--
``(I) is a member of the same expanded affiliated group
which includes the domestic corporation or has such a
relationship or is under such common control with any member
of such group, and
``(II) is not a member of, and does not have such a
relationship and is not under such common control with any
member of, the expanded affiliated group which before such
acquisition included such entity.
``(f) Regulations.--The Secretary shall provide such
regulations as are necessary to carry out this section,
including regulations providing for such adjustments to the
application of this section as are necessary to prevent the
avoidance of the purposes of this section, including the
avoidance of such purposes through--
``(1) the use of related persons, pass-thru or other
noncorporate entities, or other intermediaries, or
``(2) transactions designed to have persons cease to be (or
not become) members of expanded affiliated groups or related
persons.''.
(b) Information Reporting.--The Secretary of the Treasury
shall exercise the Secretary's authority under the Internal
Revenue Code of 1986 to require entities involved in
transactions to which section 7874 of such Code (as added by
subsection (a)) applies to report to the Secretary,
shareholders, partners, and such other persons as the
Secretary may prescribe such information as is necessary to
ensure the proper tax treatment of such transactions.
(c) Conforming Amendment.--The table of sections for
subchapter C of chapter 80 is amended by adding at the end
the following new item:
``Sec. 7874. Rules relating to inverted corporate entities.''.
(d) Transition Rule for Certain Regulated Investment
Companies and Unit Investment Trusts.--Notwithstanding
section 7874 of the Internal Revenue Code of 1986 (as added
by subsection (a)), a regulated investment company, or other
pooled fund or trust specified by the Secretary of the
Treasury, may elect to recognize gain by reason of section
367(a) of such Code with respect to a transaction under which
a foreign incorporated entity is treated as an inverted
domestic corporation under section 7874(a) of such Code by
reason of an acquisition completed after March 20, 2002, and
before January 1, 2004.
SEC. 442. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS WHO
EXPATRIATE.
(a) In General.--Subpart A of part II of subchapter N of
chapter 1 is amended by inserting after section 877 the
following new section:
``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
``(a) General Rules.--For purposes of this subtitle--
``(1) Mark to market.--Except as provided in subsections
(d) and (f), all property of a covered expatriate to whom
this section applies shall be treated as sold on the day
before the expatriation date for its fair market value.
``(2) Recognition of gain or loss.--In the case of any sale
under paragraph (1)--
``(A) notwithstanding any other provision of this title,
any gain arising from such sale shall be taken into account
for the taxable year of the sale, and
``(B) any loss arising from such sale shall be taken into
account for the taxable year of the sale to the extent
otherwise provided by this title, except that section 1091
shall not apply to any such loss.
Proper adjustment shall be made in the amount of any gain or
loss subsequently realized for gain or loss taken into
account under the preceding sentence.
``(3) Exclusion for certain gain.--
``(A) In general.--The amount which, but for this
paragraph, would be includible in the gross income of any
individual by reason of this section shall be reduced (but
not below zero) by $600,000. For purposes of this paragraph,
allocable expatriation gain taken into account under
subsection (f)(2) shall be treated in the same manner as an
amount required to be includible in gross income.
``(B) Cost-of-living adjustment.--
``(i) In general.--In the case of an expatriation date
occurring in any calendar year after 2004, the $600,000
amount under subparagraph (A) shall be increased by an amount
equal to--
``(I) such dollar amount, multiplied by
``(II) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year, determined by
substituting `calendar year 2003' for `calendar year 1992' in
subparagraph (B) thereof.
``(ii) Rounding rules.--If any amount after adjustment
under clause (i) is not a multiple of $1,000, such amount
shall be rounded to the next lower multiple of $1,000.
``(4) Election to continue to be taxed as united states
citizen.--
``(A) In general.--If a covered expatriate elects the
application of this paragraph--
``(i) this section (other than this paragraph and
subsection (i)) shall not apply to the expatriate, but
``(ii) in the case of property to which this section would
apply but for such election, the expatriate shall be subject
to tax under this title in the same manner as if the
individual were a United States citizen.
``(B) Requirements.--Subparagraph (A) shall not apply to an
individual unless the individual--
``(i) provides security for payment of tax in such form and
manner, and in such amount, as the Secretary may require,
``(ii) consents to the waiver of any right of the
individual under any treaty of the United States which would
preclude assessment or collection of any tax which may be
imposed by reason of this paragraph, and
``(iii) complies with such other requirements as the
Secretary may prescribe.
``(C) Election.--An election under subparagraph (A) shall
apply to all property to which this section would apply but
for the election and, once made, shall be irrevocable. Such
election shall also apply to property the basis of which is
determined in whole or in part by reference to the property
with respect to which the election was made.
``(b) Election To Defer Tax.--
``(1) In general.--If the taxpayer elects the application
of this subsection with respect to any property treated as
sold by reason of subsection (a), the payment of the
additional tax attributable to such property shall be
postponed until the due date of the return for the taxable
year in which such property is disposed of (or, in the case
of property disposed of in a transaction in which gain is not
recognized in whole or in part, until such other date as the
Secretary may prescribe).
``(2) Determination of tax with respect to property.--For
purposes of paragraph (1), the additional tax attributable to
any property is an amount which bears the same
[[Page S2124]]
ratio to the additional tax imposed by this chapter for the
taxable year solely by reason of subsection (a) as the gain
taken into account under subsection (a) with respect to such
property bears to the total gain taken into account under
subsection (a) with respect to all property to which
subsection (a) applies.
``(3) Termination of postponement.--No tax may be postponed
under this subsection later than the due date for the return
of tax imposed by this chapter for the taxable year which
includes the date of death of the expatriate (or, if earlier,
the time that the security provided with respect to the
property fails to meet the requirements of paragraph (4),
unless the taxpayer corrects such failure within the time
specified by the Secretary).
``(4) Security.--
``(A) In general.--No election may be made under paragraph
(1) with respect to any property unless adequate security is
provided to the Secretary with respect to such property.
``(B) Adequate security.--For purposes of subparagraph (A),
security with respect to any property shall be treated as
adequate security if--
``(i) it is a bond in an amount equal to the deferred tax
amount under paragraph (2) for the property, or
``(ii) the taxpayer otherwise establishes to the
satisfaction of the Secretary that the security is adequate.
``(5) Waiver of certain rights.--No election may be made
under paragraph (1) unless the taxpayer consents to the
waiver of any right under any treaty of the United States
which would preclude assessment or collection of any tax
imposed by reason of this section.
``(6) Elections.--An election under paragraph (1) shall
only apply to property described in the election and, once
made, is irrevocable. An election may be made under paragraph
(1) with respect to an interest in a trust with respect to
which gain is required to be recognized under subsection
(f)(1).
``(7) Interest.--For purposes of section 6601--
``(A) the last date for the payment of tax shall be
determined without regard to the election under this
subsection, and
``(B) section 6621(a)(2) shall be applied by substituting
`5 percentage points' for `3 percentage points' in
subparagraph (B) thereof.
``(c) Covered Expatriate.--For purposes of this section--
``(1) In general.--Except as provided in paragraph (2), the
term `covered expatriate' means an expatriate.
``(2) Exceptions.--An individual shall not be treated as a
covered expatriate if--
``(A) the individual--
``(i) became at birth a citizen of the United States and a
citizen of another country and, as of the expatriation date,
continues to be a citizen of, and is taxed as a resident of,
such other country, and
``(ii) has not been a resident of the United States (as
defined in section 7701(b)(1)(A)(ii)) during the 5 taxable
years ending with the taxable year during which the
expatriation date occurs, or
``(B)(i) the individual's relinquishment of United States
citizenship occurs before such individual attains age 18\1/
2\, and
``(ii) the individual has been a resident of the United
States (as so defined) for not more than 5 taxable years
before the date of relinquishment.
``(d) Exempt Property; Special Rules for Pension Plans.--
``(1) Exempt property.--This section shall not apply to the
following:
``(A) United states real property interests.--Any United
States real property interest (as defined in section
897(c)(1)), other than stock of a United States real property
holding corporation which does not, on the day before the
expatriation date, meet the requirements of section
897(c)(2).
``(B) Specified property.--Any property or interest in
property not described in subparagraph (A) which the
Secretary specifies in regulations.
``(2) Special rules for certain retirement plans.--
``(A) In general.--If a covered expatriate holds on the day
before the expatriation date any interest in a retirement
plan to which this paragraph applies--
``(i) such interest shall not be treated as sold for
purposes of subsection (a)(1), but
``(ii) an amount equal to the present value of the
expatriate's nonforfeitable accrued benefit shall be treated
as having been received by such individual on such date as a
distribution under the plan.
``(B) Treatment of subsequent distributions.--In the case
of any distribution on or after the expatriation date to or
on behalf of the covered expatriate from a plan from which
the expatriate was treated as receiving a distribution under
subparagraph (A), the amount otherwise includible in gross
income by reason of the subsequent distribution shall be
reduced by the excess of the amount includible in gross
income under subparagraph (A) over any portion of such amount
to which this subparagraph previously applied.
``(C) Treatment of subsequent distributions by plan.--For
purposes of this title, a retirement plan to which this
paragraph applies, and any person acting on the plan's
behalf, shall treat any subsequent distribution described in
subparagraph (B) in the same manner as such distribution
would be treated without regard to this paragraph.
``(D) Applicable plans.--This paragraph shall apply to--
``(i) any qualified retirement plan (as defined in section
4974(c)),
``(ii) an eligible deferred compensation plan (as defined
in section 457(b)) of an eligible employer described in
section 457(e)(1)(A), and
``(iii) to the extent provided in regulations, any foreign
pension plan or similar retirement arrangements or programs.
``(e) Definitions.--For purposes of this section--
``(1) Expatriate.--The term `expatriate' means--
``(A) any United States citizen who relinquishes
citizenship, and
``(B) any long-term resident of the United States who--
``(i) ceases to be a lawful permanent resident of the
United States (within the meaning of section 7701(b)(6)), or
``(ii) commences to be treated as a resident of a foreign
country under the provisions of a tax treaty between the
United States and the foreign country and who does not waive
the benefits of such treaty applicable to residents of the
foreign country.
``(2) Expatriation date.--The term `expatriation date'
means--
``(A) the date an individual relinquishes United States
citizenship, or
``(B) in the case of a long-term resident of the United
States, the date of the event described in clause (i) or (ii)
of paragraph (1)(B).
``(3) Relinquishment of citizenship.--A citizen shall be
treated as relinquishing United States citizenship on the
earliest of--
``(A) the date the individual renounces such individual's
United States nationality before a diplomatic or consular
officer of the United States pursuant to paragraph (5) of
section 349(a) of the Immigration and Nationality Act (8
U.S.C. 1481(a)(5)),
``(B) the date the individual furnishes to the United
States Department of State a signed statement of voluntary
relinquishment of United States nationality confirming the
performance of an act of expatriation specified in paragraph
(1), (2), (3), or (4) of section 349(a) of the Immigration
and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
``(C) the date the United States Department of State issues
to the individual a certificate of loss of nationality, or
``(D) the date a court of the United States cancels a
naturalized citizen's certificate of naturalization.
Subparagraph (A) or (B) shall not apply to any individual
unless the renunciation or voluntary relinquishment is
subsequently approved by the issuance to the individual of a
certificate of loss of nationality by the United States
Department of State.
``(4) Long-term resident.--The term `long-term resident'
has the meaning given to such term by section 877(e)(2).
``(f) Special Rules Applicable to Beneficiaries' Interests
in Trust.--
``(1) In general.--Except as provided in paragraph (2), if
an individual is determined under paragraph (3) to hold an
interest in a trust on the day before the expatriation date--
``(A) the individual shall not be treated as having sold
such interest,
``(B) such interest shall be treated as a separate share in
the trust, and
``(C)(i) such separate share shall be treated as a separate
trust consisting of the assets allocable to such share,
``(ii) the separate trust shall be treated as having sold
its assets on the day before the expatriation date for their
fair market value and as having distributed all of its assets
to the individual as of such time, and
``(iii) the individual shall be treated as having
recontributed the assets to the separate trust.
Subsection (a)(2) shall apply to any income, gain, or loss of
the individual arising from a distribution described in
subparagraph (C)(ii). In determining the amount of such
distribution, proper adjustments shall be made for
liabilities of the trust allocable to an individual's share
in the trust.
``(2) Special rules for interests in qualified trusts.--
``(A) In general.--If the trust interest described in
paragraph (1) is an interest in a qualified trust--
``(i) paragraph (1) and subsection (a) shall not apply, and
``(ii) in addition to any other tax imposed by this title,
there is hereby imposed on each distribution with respect to
such interest a tax in the amount determined under
subparagraph (B).
``(B) Amount of tax.--The amount of tax under subparagraph
(A)(ii) shall be equal to the lesser of--
``(i) the highest rate of tax imposed by section 1(e) for
the taxable year which includes the day before the
expatriation date, multiplied by the amount of the
distribution, or
``(ii) the balance in the deferred tax account immediately
before the distribution determined without regard to any
increases under subparagraph (C)(ii) after the 30th day
preceding the distribution.
``(C) Deferred tax account.--For purposes of subparagraph
(B)(ii)--
``(i) Opening balance.--The opening balance in a deferred
tax account with respect to any trust interest is an amount
equal to the tax which would have been imposed on the
allocable expatriation gain with respect to the trust
interest if such gain had been included in gross income under
subsection (a).
[[Page S2125]]
``(ii) Increase for interest.--The balance in the deferred
tax account shall be increased by the amount of interest
determined (on the balance in the account at the time the
interest accrues), for periods after the 90th day after the
expatriation date, by using the rates and method applicable
under section 6621 for underpayments of tax for such periods,
except that section 6621(a)(2) shall be applied by
substituting `5 percentage points' for `3 percentage points'
in subparagraph (B) thereof.
``(iii) Decrease for taxes previously paid.--The balance in
the tax deferred account shall be reduced--
``(I) by the amount of taxes imposed by subparagraph (A) on
any distribution to the person holding the trust interest,
and
``(II) in the case of a person holding a nonvested
interest, to the extent provided in regulations, by the
amount of taxes imposed by subparagraph (A) on distributions
from the trust with respect to nonvested interests not
held by such person.
``(D) Allocable expatriation gain.--For purposes of this
paragraph, the allocable expatriation gain with respect to
any beneficiary's interest in a trust is the amount of gain
which would be allocable to such beneficiary's vested and
nonvested interests in the trust if the beneficiary held
directly all assets allocable to such interests.
``(E) Tax deducted and withheld.--
``(i) In general.--The tax imposed by subparagraph (A)(ii)
shall be deducted and withheld by the trustees from the
distribution to which it relates.
``(ii) Exception where failure to waive treaty rights.--If
an amount may not be deducted and withheld under clause (i)
by reason of the distributee failing to waive any treaty
right with respect to such distribution--
``(I) the tax imposed by subparagraph (A)(ii) shall be
imposed on the trust and each trustee shall be personally
liable for the amount of such tax, and
``(II) any other beneficiary of the trust shall be entitled
to recover from the distributee the amount of such tax
imposed on the other beneficiary.
``(F) Disposition.--If a trust ceases to be a qualified
trust at any time, a covered expatriate disposes of an
interest in a qualified trust, or a covered expatriate
holding an interest in a qualified trust dies, then, in lieu
of the tax imposed by subparagraph (A)(ii), there is hereby
imposed a tax equal to the lesser of--
``(i) the tax determined under paragraph (1) as if the day
before the expatriation date were the date of such cessation,
disposition, or death, whichever is applicable, or
``(ii) the balance in the tax deferred account immediately
before such date.
Such tax shall be imposed on the trust and each trustee shall
be personally liable for the amount of such tax and any other
beneficiary of the trust shall be entitled to recover from
the covered expatriate or the estate the amount of such tax
imposed on the other beneficiary.
``(G) Definitions and special rules.--For purposes of this
paragraph--
``(i) Qualified trust.--The term `qualified trust' means a
trust which is described in section 7701(a)(30)(E).
``(ii) Vested interest.--The term `vested interest' means
any interest which, as of the day before the expatriation
date, is vested in the beneficiary.
``(iii) Nonvested interest.--The term `nonvested interest'
means, with respect to any beneficiary, any interest in a
trust which is not a vested interest. Such interest shall be
determined by assuming the maximum exercise of discretion in
favor of the beneficiary and the occurrence of all
contingencies in favor of the beneficiary.
``(iv) Adjustments.--The Secretary may provide for such
adjustments to the bases of assets in a trust or a deferred
tax account, and the timing of such adjustments, in order to
ensure that gain is taxed only once.
``(v) Coordination with retirement plan rules.--This
subsection shall not apply to an interest in a trust which is
part of a retirement plan to which subsection (d)(2) applies.
``(3) Determination of beneficiaries' interest in trust.--
``(A) Determinations under paragraph (1).--For purposes of
paragraph (1), a beneficiary's interest in a trust shall be
based upon all relevant facts and circumstances, including
the terms of the trust instrument and any letter of wishes or
similar document, historical patterns of trust distributions,
and the existence of and functions performed by a trust
protector or any similar adviser.
``(B) Other determinations.--For purposes of this section--
``(i) Constructive ownership.--If a beneficiary of a trust
is a corporation, partnership, trust, or estate, the
shareholders, partners, or beneficiaries shall be deemed to
be the trust beneficiaries for purposes of this section.
``(ii) Taxpayer return position.--A taxpayer shall clearly
indicate on its income tax return--
``(I) the methodology used to determine that taxpayer's
trust interest under this section, and
``(II) if the taxpayer knows (or has reason to know) that
any other beneficiary of such trust is using a different
methodology to determine such beneficiary's trust interest
under this section.
``(g) Termination of Deferrals, etc.--In the case of any
covered expatriate, notwithstanding any other provision of
this title--
``(1) any period during which recognition of income or gain
is deferred shall terminate on the day before the
expatriation date, and
``(2) any extension of time for payment of tax shall cease
to apply on the day before the expatriation date and the
unpaid portion of such tax shall be due and payable at the
time and in the manner prescribed by the Secretary.
``(h) Imposition of Tentative Tax.--
``(1) In general.--If an individual is required to include
any amount in gross income under subsection (a) for any
taxable year, there is hereby imposed, immediately before the
expatriation date, a tax in an amount equal to the amount of
tax which would be imposed if the taxable year were a short
taxable year ending on the expatriation date.
``(2) Due date.--The due date for any tax imposed by
paragraph (1) shall be the 90th day after the expatriation
date.
``(3) Treatment of tax.--Any tax paid under paragraph (1)
shall be treated as a payment of the tax imposed by this
chapter for the taxable year to which subsection (a) applies.
``(4) Deferral of tax.--The provisions of subsection (b)
shall apply to the tax imposed by this subsection to the
extent attributable to gain includible in gross income by
reason of this section.
``(i) Special Liens for Deferred Tax Amounts.--
``(1) Imposition of lien.--
``(A) In general.--If a covered expatriate makes an
election under subsection (a)(4) or (b) which results in the
deferral of any tax imposed by reason of subsection (a), the
deferred amount (including any interest, additional amount,
addition to tax, assessable penalty, and costs attributable
to the deferred amount) shall be a lien in favor of the
United States on all property of the expatriate located in
the United States (without regard to whether this section
applies to the property).
``(B) Deferred amount.--For purposes of this subsection,
the deferred amount is the amount of the increase in the
covered expatriate's income tax which, but for the election
under subsection (a)(4) or (b), would have occurred by reason
of this section for the taxable year including the
expatriation date.
``(2) Period of lien.--The lien imposed by this subsection
shall arise on the expatriation date and continue until--
``(A) the liability for tax by reason of this section is
satisfied or has become unenforceable by reason of lapse of
time, or
``(B) it is established to the satisfaction of the
Secretary that no further tax liability may arise by reason
of this section.
``(3) Certain rules apply.--The rules set forth in
paragraphs (1), (3), and (4) of section 6324A(d) shall apply
with respect to the lien imposed by this subsection as if it
were a lien imposed by section 6324A.
``(j) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this section.''.
(b) Inclusion in Income of Gifts and Bequests Received by
United States Citizens and Residents From Expatriates.--
Section 102 (relating to gifts, etc. not included in gross
income) is amended by adding at the end the following new
subsection:
``(d) Gifts and Inheritances From Covered Expatriates.--
``(1) In general.--Subsection (a) shall not exclude from
gross income the value of any property acquired by gift,
bequest, devise, or inheritance from a covered expatriate
after the expatriation date. For purposes of this subsection,
any term used in this subsection which is also used in
section 877A shall have the same meaning as when used in
section 877A.
``(2) Exceptions for transfers otherwise subject to estate
or gift tax.--Paragraph (1) shall not apply to any property
if either--
``(A) the gift, bequest, devise, or inheritance is--
``(i) shown on a timely filed return of tax imposed by
chapter 12 as a taxable gift by the covered expatriate, or
``(ii) included in the gross estate of the covered
expatriate for purposes of chapter 11 and shown on a timely
filed return of tax imposed by chapter 11 of the estate of
the covered expatriate, or
``(B) no such return was timely filed but no such return
would have been required to be filed even if the covered
expatriate were a citizen or long-term resident of the United
States.''.
(c) Definition of Termination of United States
Citizenship.--Section 7701(a) is amended by adding at the end
the following new paragraph:
``(48) Termination of united states citizenship.--
``(A) In general.--An individual shall not cease to be
treated as a United States citizen before the date on which
the individual's citizenship is treated as relinquished under
section 877A(e)(3).
``(B) Dual citizens.--Under regulations prescribed by the
Secretary, subparagraph (A) shall not apply to an individual
who became at birth a citizen of the United States and a
citizen of another country.''.
(d) Ineligibility for Visa or Admission to United States.--
(1) In general.--Section 212(a)(10)(E) of the Immigration
and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to
read as follows:
[[Page S2126]]
``(E) Former citizens not in compliance with expatriation
revenue provisions.--Any alien who is a former citizen of the
United States who relinquishes United States citizenship
(within the meaning of section 877A(e)(3) of the Internal
Revenue Code of 1986) and who is not in compliance with
section 877A of such Code (relating to expatriation).''.
(2) Availability of information.--
(A) In general.--Section 6103(l) (relating to disclosure of
returns and return information for purposes other than tax
administration) is amended by adding at the end the following
new paragraph:
``(19) Disclosure to deny visa or admission to certain
expatriates.--Upon written request of the Attorney General or
the Attorney General's delegate, the Secretary shall disclose
whether an individual is in compliance with section 877A (and
if not in compliance, any items of noncompliance) to officers
and employees of the Federal agency responsible for
administering section 212(a)(10)(E) of the Immigration and
Nationality Act solely for the purpose of, and to the extent
necessary in, administering such section 212(a)(10)(E).''.
(B) Safeguards.--
(i) Technical amendments.--Paragraph (4) of section 6103(p)
of the Internal Revenue Code of 1986, as amended by section
202(b)(2)(B) of the Trade Act of 2002 (Public Law 107-210;
116 Stat. 961), is amended by striking ``or (17)'' after
``any other person described in subsection (l)(16)'' each
place it appears and inserting ``or (18)''.
(ii) Conforming amendments.--Section 6103(p)(4) (relating
to safeguards), as amended by clause (i), is amended by
striking ``or (18)'' after ``any other person described in
subsection (l)(16)'' each place it appears and inserting
``(18), or (19)''.
(3) Effective dates.--
(A) In general.--Except as provided in subparagraph (B),
the amendments made by this subsection shall apply to
individuals who relinquish United States citizenship on or
after the date of the enactment of this Act.
(B) Technical amendments.--The amendments made by paragraph
(2)(B)(i) shall take effect as if included in the amendments
made by section 202(b)(2)(B) of the Trade Act of 2002 (Public
Law 107-210; 116 Stat. 961).
(e) Conforming Amendments.--
(1) Section 877 is amended by adding at the end the
following new subsection:
``(g) Application.--This section shall not apply to an
expatriate (as defined in section 877A(e)) whose expatriation
date (as so defined) occurs on or after January 1, 2004.''.
(2) Section 2107 is amended by adding at the end the
following new subsection:
``(f) Application.--This section shall not apply to any
expatriate subject to section 877A.''.
(3) Section 2501(a)(3) is amended by adding at the end the
following new subparagraph:
``(F) Application.--This paragraph shall not apply to any
expatriate subject to section 877A.''.
(4)(A) Paragraph (1) of section 6039G(d) is amended by
inserting ``or 877A'' after ``section 877''.
(B) The second sentence of section 6039G(e) is amended by
inserting ``or who relinquishes United States citizenship
(within the meaning of section 877A(e)(3))'' after
``877(a))''.
(C) Section 6039G(f) is amended by inserting ``or
877A(e)(2)(B)'' after ``877(e)(1)''.
(f) Clerical Amendment.--The table of sections for subpart
A of part II of subchapter N of chapter 1 is amended by
inserting after the item relating to section 877 the
following new item:
``Sec. 877A. Tax responsibilities of expatriation.''.
(g) Effective Date.--
(1) In general.--Except as provided in this subsection, the
amendments made by this section shall apply to expatriates
(within the meaning of section 877A(e) of the Internal
Revenue Code of 1986, as added by this section) whose
expatriation date (as so defined) occurs on or after January
1, 2004.
(2) Gifts and bequests.--Section 102(d) of the Internal
Revenue Code of 1986 (as added by subsection (b)) shall apply
to gifts and bequests received on or after January 1, 2004,
from an individual or the estate of an individual whose
expatriation date (as so defined) occurs after such date.
(3) Due date for tentative tax.--The due date under section
877A(h)(2) of the Internal Revenue Code of 1986, as added by
this section, shall in no event occur before the 90th day
after the date of the enactment of this Act.
SEC. 443. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN
INVERTED CORPORATIONS.
(a) In General.--Subtitle D is amended by adding at the end
the following new chapter:
``CHAPTER 48--STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS
``Sec. 5000A. Stock compensation of insiders in inverted corporations
entities.
``SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN INVERTED
CORPORATIONS.
``(a) Imposition of Tax.--In the case of an individual who
is a disqualified individual with respect to any inverted
corporation, there is hereby imposed on such person a tax
equal to 20 percent of the value (determined under subsection
(b)) of the specified stock compensation held (directly or
indirectly) by or for the benefit of such individual or a
member of such individual's family (as defined in section
267) at any time during the 12-month period beginning on the
date which is 6 months before the inversion date.
``(b) Value.--For purposes of subsection (a)--
``(1) In general.--The value of specified stock
compensation shall be--
``(A) in the case of a stock option (or other similar
right) or any stock appreciation right, the fair value of
such option or right, and
``(B) in any other case, the fair market value of such
compensation.
``(2) Date for determining value.--The determination of
value shall be made--
``(A) in the case of specified stock compensation held on
the inversion date, on such date,
``(B) in the case of such compensation which is canceled
during the 6 months before the inversion date, on the day
before such cancellation, and
``(C) in the case of such compensation which is granted
after the inversion date, on the date such compensation is
granted.
``(c) Tax To Apply Only if Shareholder Gain Recognized.--
Subsection (a) shall apply to any disqualified individual
with respect to an inverted corporation only if gain (if any)
on any stock in such corporation is recognized in whole or
part by any shareholder by reason of the acquisition referred
to in section 7874(a)(2)(A) (determined by substituting `July
10, 2002' for `March 20, 2002') with respect to such
corporation.
``(d) Exception Where Gain Recognized on Compensation.--
Subsection (a) shall not apply to--
``(1) any stock option which is exercised on the inversion
date or during the 6-month period before such date and to the
stock acquired in such exercise, if income is recognized
under section 83 on or before the inversion date with respect
to the stock acquired pursuant to such exercise, and
``(2) any specified stock compensation which is exercised,
sold, exchanged, distributed, cashed out, or otherwise paid
during such period in a transaction in which gain or loss is
recognized in full.
``(e) Definitions.--For purposes of this section--
``(1) Disqualified individual.--The term `disqualified
individual' means, with respect to a corporation, any
individual who, at any time during the 12-month period
beginning on the date which is 6 months before the inversion
date--
``(A) is subject to the requirements of section 16(a) of
the Securities Exchange Act of 1934 with respect to such
corporation, or
``(B) would be subject to such requirements if such
corporation were an issuer of equity securities referred to
in such section.
``(2) Inverted corporation; inversion date.--
``(A) Inverted corporation.--The term `inverted
corporation' means any corporation to which subsection (a) or
(b) of section 7874 applies determined--
``(i) by substituting `July 10, 2002' for `March 20, 2002'
in section 7874(a)(2)(A), and
``(ii) without regard to subsection (b)(1)(A).
Such term includes any predecessor or successor of such a
corporation.
``(B) Inversion date.--The term `inversion date' means,
with respect to a corporation, the date on which the
corporation first becomes an inverted corporation.
``(3) Specified stock compensation.--
``(A) In general.--The term `specified stock compensation'
means payment (or right to payment) granted by the inverted
corporation (or by any member of the expanded affiliated
group which includes such corporation) to any person in
connection with the performance of services by a disqualified
individual for such corporation or member if the value of
such payment or right is based on (or determined by reference
to) the value (or change in value) of stock in such
corporation (or any such member).
``(B) Exceptions.--Such term shall not include--
``(i) any option to which part II of subchapter D of
chapter 1 applies, or
``(ii) any payment or right to payment from a plan referred
to in section 280G(b)(6).
``(4) Expanded affiliated group.--The term `expanded
affiliated group' means an affiliated group (as defined in
section 1504(a) without regard to section 1504(b)(3)); except
that section 1504(a) shall be applied by substituting `more
than 50 percent' for `at least 80 percent' each place it
appears.
``(f) Special Rules.--For purposes of this section--
``(1) Cancellation of restriction.--The cancellation of a
restriction which by its terms will never lapse shall be
treated as a grant.
``(2) Payment or reimbursement of tax by corporation
treated as specified stock compensation.--Any payment of the
tax imposed by this section directly or indirectly by the
inverted corporation or by any member of the expanded
affiliated group which includes such corporation--
``(A) shall be treated as specified stock compensation, and
``(B) shall not be allowed as a deduction under any
provision of chapter 1.
``(3) Certain restrictions ignored.--Whether there is
specified stock compensation, and the value thereof, shall be
determined without regard to any restriction other than a
restriction which by its terms will never lapse.
``(4) Property transfers.--Any transfer of property shall
be treated as a payment and any right to a transfer of
property shall be treated as a right to a payment.
[[Page S2127]]
``(5) Other administrative provisions.--For purposes of
subtitle F, any tax imposed by this section shall be treated
as a tax imposed by subtitle A.
``(g) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this section.''.
(b) Denial of Deduction.--
(1) In general.--Paragraph (6) of section 275(a) is amended
by inserting ``48,'' after ``46,''.
(2) $1,000,000 limit on deductible compensation reduced by
payment of excise tax on specified stock compensation.--
Paragraph (4) of section 162(m) is amended by adding at the
end the following new subparagraph:
``(G) Coordination with excise tax on specified stock
compensation.--The dollar limitation contained in paragraph
(1) with respect to any covered employee shall be reduced
(but not below zero) by the amount of any payment (with
respect to such employee) of the tax imposed by section 5000A
directly or indirectly by the inverted corporation (as
defined in such section) or by any member of the expanded
affiliated group (as defined in such section) which includes
such corporation.''.
(c) Conforming Amendments.--
(1) The last sentence of section 3121(v)(2)(A) is amended
by inserting before the period ``or to any specified stock
compensation (as defined in section 5000A) on which tax is
imposed by section 5000A''.
(2) The table of chapters for subtitle D is amended by
adding at the end the following new item:
``Chapter 48. Stock compensation of insiders in inverted
corporations.''.
(d) Effective Date.--The amendments made by this section
shall take effect on July 11, 2002; except that periods
before such date shall not be taken into account in applying
the periods in subsections (a) and (e)(1) of section 5000A of
the Internal Revenue Code of 1986, as added by this section.
SEC. 444. REINSURANCE OF UNITED STATES RISKS IN FOREIGN
JURISDICTIONS.
(a) In General.--Section 845(a) (relating to allocation in
case of reinsurance agreement involving tax avoidance or
evasion) is amended by striking ``source and character'' and
inserting ``amount, source, or character''.
(b) Effective Date.--The amendments made by this section
shall apply to any risk reinsured after April 11, 2002.
SEC. 445. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.
(a) In General.--Subpart B of part III of subchapter A of
chapter 61 is amended by inserting after section 6043 the
following new section:
``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.
``(a) In General.--The acquiring corporation in any taxable
acquisition shall make a return (according to the forms or
regulations prescribed by the Secretary) setting forth--
``(1) a description of the acquisition,
``(2) the name and address of each shareholder of the
acquired corporation who is required to recognize gain (if
any) as a result of the acquisition,
``(3) the amount of money and the fair market value of
other property transferred to each such shareholder as part
of such acquisition, and
``(4) such other information as the Secretary may
prescribe.
To the extent provided by the Secretary, the requirements of
this section applicable to the acquiring corporation shall be
applicable to the acquired corporation and not to the
acquiring corporation.
``(b) Nominee Reporting.--Any person who holds stock as a
nominee for another person shall furnish in the manner
prescribed by the Secretary to such other person the
information provided by the corporation under subsection (d).
``(c) Taxable Acquisition.--For purposes of this section,
the term `taxable acquisition' means any acquisition by a
corporation of stock in or property of another corporation if
any shareholder of the acquired corporation is required to
recognize gain (if any) as a result of such acquisition.
``(d) Statements To Be Furnished to Shareholders.--Every
person required to make a return under subsection (a) shall
furnish to each shareholder whose name is required to be set
forth in such return a written statement showing--
``(1) the name, address, and phone number of the
information contact of the person required to make such
return,
``(2) the information required to be shown on such return
with respect to such shareholder, and
``(3) such other information as the Secretary may
prescribe.
The written statement required under the preceding sentence
shall be furnished to the shareholder on or before January 31
of the year following the calendar year during which the
taxable acquisition occurred.''.
(b) Assessable Penalties.--
(1) Subparagraph (B) of section 6724(d)(1) (relating to
definitions) is amended by redesignating clauses (ii) through
(xvii) as clauses (iii) through (xviii), respectively, and by
inserting after clause (i) the following new clause:
``(ii) section 6043A(a) (relating to returns relating to
taxable mergers and acquisitions),''.
(2) Paragraph (2) of section 6724(d) is amended by
redesignating subparagraphs (F) through (AA) as subparagraphs
(G) through (BB), respectively, and by inserting after
subparagraph (E) the following new subparagraph:
``(F) subsections (b) and (d) of section 6043A (relating to
returns relating to taxable mergers and acquisitions).''.
(c) Clerical Amendment.--The table of sections for subpart
B of part III of subchapter A of chapter 61 is amended by
inserting after the item relating to section 6043 the
following new item:
``Sec. 6043A. Returns relating to taxable mergers and acquisitions.''.
(d) Effective Date.--The amendments made by this section
shall apply to acquisitions after the date of the enactment
of this Act.
Subtitle E--International Tax
SEC. 451. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF
DETERMINING INVESTMENT OF EARNINGS IN UNITED
STATES PROPERTY.
(a) In General.--Subparagraph (A) of section 956(c)(2) is
amended to read as follows:
``(A) obligations of the United States, money, or deposits
with--
``(i) any bank (as defined by section 2(c) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(c)), without
regard to subparagraphs (C) and (G) of paragraph (2) of such
section), or
``(ii) any corporation not described in clause (i) with
respect to which a bank holding company (as defined by
section 2(a) of such Act) or financial holding company (as
defined by section 2(p) of such Act) owns directly or
indirectly more than 80 percent by vote or value of the stock
of such corporation;''.
(b) Effective Date.--The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 452. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH
COMPLETE LIQUIDATION OF HOLDING COMPANY.
(a) In General.--Section 332 is amended by adding at the
end the following new subsection:
``(d) Recognition of Gain on Liquidation of Certain Holding
Companies.--
``(1) In general.--In the case of any distribution to a
foreign corporation in complete liquidation of an applicable
holding company--
``(A) subsection (a) and section 331 shall not apply to
such distribution, and
``(B) such distribution shall be treated as a distribution
to which section 301 applies.
``(2) Applicable holding company.--For purposes of this
subsection--
``(A) In general.--The term `applicable holding company'
means any domestic corporation--
``(i) which is a common parent of an affiliated group,
``(ii) stock of which is directly owned by the distributee
foreign corporation,
``(iii) substantially all of the assets of which consist of
stock in other members of such affiliated group, and
``(iv) which has not been in existence at all times during
the 5 years immediately preceding the date of the
liquidation.
``(B) Affiliated group.--For purposes of this subsection,
the term `affiliated group' has the meaning given such term
by section 1504(a) (without regard to paragraphs (2) and (4)
of section 1504(b)).
``(3) Coordination with subpart f.--If the distributee of a
distribution described in paragraph (1) is a controlled
foreign corporation (as defined in section 957), then
notwithstanding paragraph (1) or subsection (a), such
distribution shall be treated as a distribution to which
section 331 applies.
``(4) Regulations.--The Secretary shall provide such
regulations as appropriate to prevent the abuse of this
subsection, including regulations which provide, for the
purposes of clause (iv) of paragraph (2)(A), that a
corporation is not in existence for any period unless it is
engaged in the active conduct of a trade or business or owns
a significant ownership interest in another corporation so
engaged.''.
(b) Effective Date.--The amendment made by this section
shall apply to distributions in complete liquidation
occurring on or after the date of the enactment of this Act.
SEC. 453. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL
ISSUE DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS
IN TRANSACTIONS WITH RELATED FOREIGN PERSONS.
(a) Original Issue Discount.--Section 163(e)(3) (relating
to special rule for original issue discount on obligation
held by related foreign person) is amended by redesignating
subparagraph (B) as subparagraph (C) and by inserting after
subparagraph (A) the following new subparagraph:
``(B) Special rule for certain foreign entities.--
``(i) In general.--In the case of any debt instrument
having original issue discount which is held by a related
foreign person which is a foreign personal holding company
(as defined in section 552), a controlled foreign corporation
(as defined in section 957), or a passive foreign investment
company (as defined in section 1297), a deduction shall be
allowable to the issuer with respect to such original issue
discount for any taxable year before the taxable year in
which paid only to the extent such original issue discount is
included during such prior taxable year in the gross income
of a United States person who owns (within the meaning of
section 958(a)) stock in such corporation.
[[Page S2128]]
``(ii) Secretarial authority.--The Secretary may by
regulation exempt transactions from the application of clause
(i), including any transaction which is entered into by a
payor in the ordinary course of a trade or business in which
the payor is predominantly engaged.''.
(b) Interest and Other Deductible Amounts.--Section
267(a)(3) is amended--
(1) by striking ``The Secretary'' and inserting:
``(A) In general.--The Secretary'', and
(2) by adding at the end the following new subparagraph:
``(B) Special rule for certain foreign entities.--
``(i) In general.--Notwithstanding subparagraph (A), in the
case of any amount payable to a foreign personal holding
company (as defined in section 552), a controlled foreign
corporation (as defined in section 957), or a passive foreign
investment company (as defined in section 1297), a deduction
shall be allowable to the payor with respect to such amount
for any taxable year before the taxable year in which paid
only to the extent such amount is included during such prior
taxable year in the gross income of a United States person
who owns (within the meaning of section 958(a)) stock in such
corporation.
``(ii) Secretarial authority.--The Secretary may by
regulation exempt transactions from the application of clause
(i), including any transaction which is entered into by a
payor in the ordinary course of a trade or business in which
the payor is predominantly engaged and in which the payment
of the accrued amounts occurs within 8\1/2\ months after
accrual or within such other period as the Secretary may
prescribe.''.
(c) Effective Date.--The amendments made by this section
shall apply to payments accrued on or after the date of the
enactment of this Act.
SEC. 454. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN
FOREIGN SOURCE INCOME.
(a) In General.--Section 864(c)(4)(B) (relating to
treatment of income from sources without the United States as
effectively connected income) is amended by adding at the end
the following new flush sentence:
``Any income or gain which is equivalent to any item of
income or gain described in clause (i), (ii), or (iii) shall
be treated in the same manner as such item for purposes of
this subparagraph.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 455. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF
CONTROLLED FOREIGN CORPORATION.
(a) In General.--Section 904(f)(3) (relating to
dispositions) is amending by adding at the end the following
new subparagraph:
``(D) Application to dispositions of stock in controlled
foreign corporations.--In the case of any disposition by a
taxpayer of any share of stock in a controlled foreign
corporation (as defined in section 957), this paragraph shall
apply to such disposition in the same manner as if it were a
disposition of property described in subparagraph (A), except
that the exception contained in subparagraph (C)(i) shall not
apply.''.
(b) Effective Date.--The amendment made by this section
shall apply to dispositions after the date of the enactment
of this Act.
SEC. 456. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON
WITHHOLDING TAXES ON INCOME OTHER THAN
DIVIDENDS.
(a) In General.--Section 901 is amended by redesignating
subsection (l) as subsection (m) and by inserting after
subsection (k) the following new subsection:
``(l) Minimum Holding Period for Withholding Taxes on Gain
and Income Other Than Dividends etc.--
``(1) In general.--In no event shall a credit be allowed
under subsection (a) for any withholding tax (as defined in
subsection (k)) on any item of income or gain with respect to
any property if--
``(A) such property is held by the recipient of the item
for 15 days or less during the 30-day period beginning on the
date which is 15 days before the date on which the right to
receive payment of such item arises, or
``(B) to the extent that the recipient of the item is under
an obligation (whether pursuant to a short sale or otherwise)
to make related payments with respect to positions in
substantially similar or related property.
This paragraph shall not apply to any dividend to which
subsection (k) applies.
``(2) Exception for taxes paid by dealers.--
``(A) In general.--Paragraph (1) shall not apply to any
qualified tax with respect to any property held in the active
conduct in a foreign country of a business as a dealer in
such property.
``(B) Qualified tax.--For purposes of subparagraph (A), the
term `qualified tax' means a tax paid to a foreign country
(other than the foreign country referred to in subparagraph
(A)) if--
``(i) the item to which such tax is attributable is subject
to taxation on a net basis by the country referred to in
subparagraph (A), and
``(ii) such country allows a credit against its net basis
tax for the full amount of the tax paid to such other foreign
country.
``(C) Dealer.--For purposes of subparagraph (A), the term
`dealer' means--
``(i) with respect to a security, any person to whom
paragraphs (1) and (2) of subsection (k) would not apply by
reason of paragraph (4) thereof if such security were stock,
and
``(ii) with respect to any other property, any person with
respect to whom such property is described in section
1221(a)(1).
``(D) Regulations.--The Secretary may prescribe such
regulations as may be appropriate to carry out this
paragraph, including regulations to prevent the abuse of the
exception provided by this paragraph and to treat other taxes
as qualified taxes.
``(3) Exceptions.--The Secretary may by regulation provide
that paragraph (1) shall not apply to property where the
Secretary determines that the application of paragraph (1) to
such property is not necessary to carry out the purposes of
this subsection.
``(4) Certain rules to apply.--Rules similar to the rules
of paragraphs (5), (6), and (7) of subsection (k) shall apply
for purposes of this subsection.
``(5) Determination of holding period.--Holding periods
shall be determined for purposes of this subsection without
regard to section 1235 or any similar rule.''.
(b) Conforming Amendment.--The heading of subsection (k) of
section 901 is amended by inserting ``on Dividends'' after
``Taxes''.
(c) Effective Date.--The amendments made by this section
shall apply to amounts paid or accrued more than 30 days
after the date of the enactment of this Act.
Subtitle F--Other Revenue Provisions
PART I--FINANCIAL INSTRUMENTS
SEC. 461. TREATMENT OF STRIPPED INTERESTS IN BOND AND
PREFERRED STOCK FUNDS, ETC.
(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:
``(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.''.
(b) Cross Reference.--Subsection (e) of section 305 is
amended by adding at the end the following new paragraph:
``(7) Cross reference.--
``For treatment of stripped interests in certain accounts or entities
holding preferred stock, see section 1286(f).''.
(c) Effective Date.--The amendments made by this section
shall apply to purchases and dispositions after the date of
the enactment of this Act.
SEC. 462. APPLICATION OF EARNINGS STRIPPING RULES TO
PARTNERSHIPS AND S CORPORATIONS.
(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:
``(8) Application to partnerships and s corporations.--
``(A) In general.--This subsection shall apply to
partnerships and S corporations in the same manner as it
applies to C corporations.
``(B) Allocations to certain corporate partners.--If a C
corporation is a partner in a partnership--
``(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
``(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.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 463. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME
REALIZED ON SATISFACTION OF DEBT WITH
PARTNERSHIP INTEREST.
(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:
``(8) Indebtedness satisfied by corporate stock or
partnership interest.--For purposes of determining income of
a debtor from discharge of indebtedness, if--
``(A) a debtor corporation transfers stock, or
``(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.''.
(b) Effective Date.--The amendment made by this section
shall apply with respect to cancellations of indebtedness
occurring on
[[Page S2129]]
or after the date of the enactment of this Act.
SEC. 464. MODIFICATION OF STRADDLE RULES.
(a) Rules Relating to Identified Straddles.--
(1) In general.--Subparagraph (A) of section 1092(a)(2)
(relating to special rule for identified straddles) is
amended to read as follows:
``(A) In general.--In the case of any straddle which is an
identified straddle--
``(i) paragraph (1) shall not apply with respect to
identified positions comprising the identified straddle,
``(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
``(iii) any loss described in clause (ii) shall not
otherwise be taken into account for purposes of this
title.''.
(2) Identified straddle.--Section 1092(a)(2)(B) (defining
identified straddle) is amended--
(A) by striking clause (ii) and inserting the following:
``(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
(B) by adding at the end the following new flush sentence:
``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.''.
(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:
``(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.''
(4) Conforming amendment.--Section 1092(c)(2) is amended by
striking subparagraph (B) and by redesignating subparagraph
(C) as subparagraph (B).
(b) Physically Settled Positions.--Section 1092(d)
(relating to definitions and special rules) is amended by
adding at the end the following new paragraph:
``(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--
``(A) terminated the position for its fair market value
immediately before the settlement, and
``(B) sold the property so delivered by the taxpayer at its
fair market value.''.
(c) Repeal of Stock Exception.--
(1) In general.--Section 1092(d)(3) is repealed.
(2) Conforming amendment.--Section 1258(d)(1) is amended by
striking ``; except that the term `personal property' shall
include stock''.
(d) Repeal of Qualified Covered Call Exception.--Section
1092(c)(4) is amended by adding at the end the following new
subparagraph:
``(I) Termination.--This paragraph shall not apply to any
position established on or after the date of the enactment of
this subparagraph.''.
(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.
SEC. 465. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL
READILY TRADEABLE DEBT.
(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''.
(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.
PART II--CORPORATIONS AND PARTNERSHIPS
SEC. 466. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS
IN DIVISIVE REORGANIZATIONS.
(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.''.
(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)''.
(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.
SEC. 467. CLARIFICATION OF DEFINITION OF NONQUALIFIED
PREFERRED STOCK.
(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.''.
(b) Effective Date.--The amendment made by this section
shall apply to transactions after May 14, 2003.
SEC. 468. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF
CORPORATIONS.
(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''.
(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:
``(5) Brother-sister controlled group definition for
provisions other than this part.--
``(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:
`(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--
`(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
`(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.'
``(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).''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 469. MANDATORY BASIS ADJUSTMENTS IN CONNECTION WITH
PARTNERSHIP DISTRIBUTIONS AND TRANSFERS OF
PARTNERSHIP INTERESTS.
(a) In General.--Section 754 is repealed.
(b) Adjustment to Basis of Undistributed Partnership
Property.--Section 734 is amended--
(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),
(2) by striking ``(as adjusted by section 732(d))'' both
places it appears in subsection (b),
(3) by striking the last sentence of subsection (b),
(4) by striking subsection (a) and by redesignating
subsections (b) and (c) as subsections (a) and (b),
respectively, and
(5) by striking ``optional'' in the heading.
(c) Adjustment to Basis of Partnership Property.--Section
743 is amended--
(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),
(2) by striking subsection (a) and by redesignating
subsections (b) and (c) as subsections (a) and (b),
respectively,
(3) by adding at the end the following new subsection:
``(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
(4) by striking ``optional'' in the heading.
(d) Conforming Amendments.--
[[Page S2130]]
(1) Subsection (d) of section 732 is repealed.
(2) Section 755(a) is amended--
(A) by striking ``section 734(b) (relating to the optional
adjustment'' and inserting ``section 734(a) (relating to the
adjustment'', and
(B) by striking ``section 743(b) (relating to the optional
adjustment'' and inserting ``section 743(a) (relating to the
adjustment''.
(3) Section 755(c), as added by this Act, is amended by
striking ``section 734(b)'' and inserting ``section 734(a)''.
(4) Section 761(e)(2) is amended by striking ``optional''.
(5) Section 774(a) is amended by striking ``743(b)'' both
places it appears and inserting ``743(a)''.
(6) 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''.
(7) 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''.
(e) Effective Dates.--
(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.
(2) Repeal of section 732(d).--The amendments made by
subsections (b)(2) and (d)(1) shall apply to--
(A) except as provided in subparagraph (B), transfers made
after the date of the enactment of this Act, and
(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.
PART III--DEPRECIATION AND AMORTIZATION
SEC. 471. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS
FRANCHISES.
(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.
(b) Conforming Amendments.--
(1)(A) Section 1056 (relating to basis limitation for
player contracts transferred in connection with the sale of a
franchise) is repealed.
(B) The table of sections for part IV of subchapter O of
chapter 1 is amended by striking the item relating to section
1056.
(2) Section 1245(a) (relating to gain from disposition of
certain depreciable property) is amended by striking
paragraph (4).
(3) Section 1253 (relating to transfers of franchises,
trademarks, and trade names) is amended by striking
subsection (e).
(c) Effective Dates.--
(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.
(2) Section 1245.--The amendment made by subsection (b)(2)
shall apply to franchises acquired after the date of the
enactment of this Act.
SEC. 472. SERVICE CONTRACTS TREATED IN SAME MANNER AS LEASES
FOR RULES RELATING TO TAX-EXEMPT USE PROPERTY.
(a) In General.--Section 168(h)(7) (defining lease) is
amended by adding at the end the following: ``Such term shall
also include any service contract or other similar
arrangement.''.
(b) Lease Term.--Section 168(i)(3) (relating to lease term)
is amended by adding at the end the following new
subparagraph:
``(C) Special rule for service contracts.--In the case of
any service contract or other similar arrangement treated as
a lease under subsection (h)(7), the lease term shall be
determined in the same manner as a lease.''.
(c) Conforming Amendments.--Section 168(g)(3)(A) is
amended--
(1) by inserting ``(as defined in subsection (h)(7)'' after
``lease'' the first place it appears, and
(2) by inserting ``(as determined under subsection
(i)(3))'' after ``term''.
(d) Effective Date.--The amendments made by this section
shall apply to leases and service contracts or other similar
arrangements entered into after the date of the enactment of
this Act.
SEC. 473. CLASS LIVES FOR UTILITY GRADING COSTS.
(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:
``(iv) initial clearing and grading land improvements with
respect to gas utility property.''.
(b) Electric Utility Property.--Section 168(e)(3) is
amended by adding at the end the following new subparagraph:
``(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.''.
(c) Conforming Amendments.--The table contained in section
168(g)(3)(B) is amended--
(1) by inserting ``or (E)(iv)'' after ``(E)(iii)'', and
(2) by adding at the end the following new item:
``(F).......................................................25''.....
(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.
SEC. 474. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN
PASSENGER AUTOMOBILES.
(a) In General.--Section 179(b) (relating to limitations)
is amended by adding at the end the following new paragraph:
``(6) Limitation on cost taken into account for certain
passenger vehicles.--
``(A) In general.--The cost of any sport utility vehicle
for any taxable year which may be taken into account under
this section shall not exceed $25,000.
``(B) Sport utility vehicle.--For purposes of subparagraph
(A)--
``(i) In general.--The term `sport utility vehicle' means
any 4-wheeled vehicle which--
``(I) is manufactured primarily for use on public streets,
roads, and highways,
``(II) is not subject to section 280F, and
``(III) is rated at not more than 14,000 pounds gross
vehicle weight.
``(ii) Certain vehicles excluded.--Such term does not
include any vehicle which--
``(I) does not have the primary load carrying device or
container attached,
``(II) has a seating capacity of more than 12 individuals,
``(III) is designed for more than 9 individuals in seating
rearward of the driver's seat,
``(IV) is equipped with an open cargo area, or a covered
box not readily accessible from the passenger compartment, of
at least 72.0 inches in interior length, or
``(V) has an integral enclosure, fully enclosing the driver
compartment and load carrying device, does not have seating
rearward of the driver's seat, and has no body section
protruding more than 30 inches ahead of the leading edge of
the windshield.''.
(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. 475. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.
(a) Start-Up Expenditures.--
(1) Allowance of deduction.--Paragraph (1) of section
195(b) (relating to start-up expenditures) is amended to read
as follows:
``(1) Allowance of deduction.--If a taxpayer elects the
application of this subsection with respect to any start-up
expenditures--
``(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--
``(i) the amount of start-up expenditures with respect to
the active trade or business, or
``(ii) $5,000, reduced (but not below zero) by the amount
by which such start-up expenditures exceed $50,000, and
``(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.''.
(2) Conforming amendment.--Subsection (b) of section 195 is
amended by striking ``Amortize'' and inserting ``Deduct'' in
the heading.
(b) Organizational Expenditures.--Subsection (a) of section
248 (relating to organizational expenditures) is amended to
read as follows:
``(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--
``(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--
``(A) the amount of organizational expenditures with
respect to the taxpayer, or
``(B) $5,000, reduced (but not below zero) by the amount by
which such organizational expenditures exceed $50,000, and
``(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.''.
(c) Treatment of Organizational and Syndication Fees or
Partnerships.--
(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:
``(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--
``(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--
``(i) the amount of organizational expenses with respect to
the partnership, or
``(ii) $5,000, reduced (but not below zero) by the amount
by which such organizational expenses exceed $50,000, and
``(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.
``(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
[[Page S2131]]
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.''.
(2) Conforming amendment.--Subsection (b) of section 709 is
amended by striking ``Amortization'' and inserting
``Deduction'' in the heading.
(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.
SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED
BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.
(a) In General.--Subpart C of part II of subchapter E of
chapter 1 (relating to taxable year for which deductions
taken) is amended by adding at the end the following new
section:
``SEC. 470. DEDUCTIONS ALLOCABLE TO PROPERTY USED BY
GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.
``(a) General Rule.--The aggregate amount of deductions
otherwise allowable to the taxpayer with respect to tax-
exempt use property for any taxable year shall not exceed
the aggregate amount of income includible in gross income
of the taxpayer for the taxable year with respect to such
property.
``(b) Disallowed Deduction Carried to Next Year.--Except as
otherwise provided in this section, any deduction with
respect to any tax-exempt use property which is disallowed
under subsection (a) shall, subject to the limitation under
subsection (a), be treated as a deduction with respect to
such property in the next taxable year.
``(c) Tax-Exempt Use Property.--For purposes of this
section--
``(1) In general.--The term `tax-exempt use property' has
the meaning given such term by section 168(h), except that
such section shall be applied without regard to paragraphs
(2)(C)(ii) and (3).
``(2) Special rules for service contracts and similar
arrangements.--If tangible property is subject to a service
contract or other similar arrangement between a taxpayer (or
any related person) and any tax-exempt entity, such contract
or arrangement shall be treated in the same manner as if it
were a lease for purposes of determining whether such
property is tax-exempt use property under paragraph (1).
``(d) Special Rules.--
``(1) Allocable deductions.--Subsection (a) shall apply
to--
``(A) any deduction directly allocable to any tax-exempt
use property, and
``(B) a proper share of other deductions that are not
directly allocable to such property.
``(2) Property ceasing to be tax-exempt use property.--If
property of a taxpayer ceases to be tax-exempt use property
in the hands of the taxpayer--
``(A) any unused deduction allocable to such property under
subsection (b) shall only be allowable as a deduction for any
taxable year to the extent of any net income of the taxpayer
allocable to such property, and
``(B) any portion of such unused deduction remaining after
application of subparagraph (A) shall, subject to the
limitation of subparagraph (A), be treated as a deduction
allocable to such property in the next taxable year.
``(3) Disposition of entire interest in property.--If
during the taxable year a taxpayer disposes of the taxpayer's
entire interest in tax-exempt use property, rules similar to
the rules of section 469(g) shall apply for purposes of this
section.
``(e) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the provisions of this section.''.
(b) Conforming Amendment.--The table of sections for
subpart C of part II of subchapter E of chapter 1 is amended
by adding at the end the following new item:
``Sec. 470. Deductions allocable to property used by governments or
other tax-exempt entities.''.
(c) Effective Date.--The amendments made by this section
shall apply to leases and service contracts or similar
arrangements entered into after the date of the enactment of
this Act.
PART IV--ADMINISTRATIVE PROVISIONS
SEC. 481. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX
FOR CERTAIN DEEMED ASSET SALES.
(a) In General.--Paragraph (13) of section 338(h) (relating
to tax on deemed sale not taken into account for estimated
tax purposes) is amended by adding at the end the following:
``The preceding sentence shall not apply with respect to a
qualified stock purchase for which an election is made under
paragraph (10).''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to transactions occurring after the date of the
enactment of this Act.
SEC. 482. EXTENSION OF IRS USER FEES.
(a) In General.--Section 7528(c) (relating to termination)
is amended by striking ``December 31, 2004'' and inserting
``September 30, 2013''.
(b) Effective Date.--The amendment made by this section
shall apply to requests after the date of the enactment of
this Act.
SEC. 483. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST
ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE
FINANCIAL ARRANGEMENT.
(a) General Rule.--If--
(1) a taxpayer eligible to participate in--
(A) the Department of the Treasury's Offshore Voluntary
Compliance Initiative, or
(B) the Department of the Treasury's voluntary disclosure
initiative which applies to the taxpayer by reason of the
taxpayer's underreporting of United States income tax
liability through financial arrangements which rely on the
use of offshore arrangements which were the subject of the
initiative described in subparagraph (A), and
(2) any interest or applicable penalty is imposed with
respect to any arrangement to which any initiative described
in paragraph (1) applied or to any underpayment of Federal
income tax attributable to items arising in connection with
any arrangement described in paragraph (1),
then, notwithstanding any other provision of law, the amount
of such interest or penalty shall be equal to twice that
determined without regard to this section.
(b) Definitions and Rules.--For purposes of this section--
(1) Applicable penalty.--The term ``applicable penalty''
means any penalty, addition to tax, or fine imposed under
chapter 68 of the Internal Revenue Code of 1986.
(2) Voluntary offshore compliance initiative.--The term
``Voluntary Offshore Compliance Initiative'' means the
program established by the Department of the Treasury in
January of 2003 under which any taxpayer was eligible to
voluntarily disclose previously undisclosed income on assets
placed in offshore accounts and accessed through credit card
and other financial arrangements.
(3) Participation.--A taxpayer shall be treated as having
participated in the Voluntary Offshore Compliance Initiative
if the taxpayer submitted the request in a timely manner and
all information requested by the Secretary of the Treasury or
his delegate within a reasonable period of time following the
request.
(c) Effective Date.--The provisions of this section shall
apply to interest, penalties, additions to tax, and fines
with respect to any taxable year if as of the date of the
enactment of this Act, the assessment of any tax, penalty, or
interest with respect to such taxable year is not prevented
by the operation of any law or rule of law.
SEC. 484. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT
AGREEMENTS.
(a) In General.--
(1) Section 6159(a) (relating to authorization of
agreements) is amended--
(A) by striking ``satisfy liability for payment of'' and
inserting ``make payment on'', and
(B) by inserting ``full or partial'' after ``facilitate''.
(2) Section 6159(c) (relating to Secretary required to
enter into installment agreements in certain cases) is
amended in the matter preceding paragraph (1) by inserting
``full'' before ``payment''.
(b) Requirement To Review Partial Payment Agreements Every
Two Years.--Section 6159, as amended by this Act, is amended
by redesignating subsections (d), (e), and (f) as subsections
(e), (f), and (g), respectively, and inserting after
subsection (c) the following new subsection:
``(d) Secretary Required To Review Installment Agreements
for Partial Collection Every Two Years.--In the case of an
agreement entered into by the Secretary under subsection (a)
for partial collection of a tax liability, the Secretary
shall review the agreement at least once every 2 years.''.
(c) Effective Date.--The amendments made by this section
shall apply to agreements entered into on or after the date
of the enactment of this Act.
SEC. 485. EXTENSION OF CUSTOMS USER FEES.
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,
2013''.
SEC. 486. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON
POTENTIAL UNDERPAYMENTS.
(a) In General.--Subchapter A of chapter 67 (relating to
interest on underpayments) is amended by adding at the end
the following new section:
``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON
POTENTIAL UNDERPAYMENTS, ETC.
``(a) Authority To Make Deposits Other Than As Payment of
Tax.--A taxpayer may make a cash deposit with the Secretary
which may be used by the Secretary to pay any tax imposed
under subtitle A or B or chapter 41, 42, 43, or 44 which has
not been assessed at the time of the deposit. Such a deposit
shall be made in such manner as the Secretary shall
prescribe.
``(b) No Interest Imposed.--To the extent that such deposit
is used by the Secretary to pay tax, for purposes of section
6601 (relating to interest on underpayments), the tax shall
be treated as paid when the deposit is made.
``(c) Return of Deposit.--Except in a case where the
Secretary determines that collection of tax is in jeopardy,
the Secretary shall return to the taxpayer any amount of the
deposit (to the extent not used for a payment of tax) which
the taxpayer requests in writing.
``(d) Payment of Interest.--
``(1) In general.--For purposes of section 6611 (relating
to interest on overpayments), a deposit which is returned to
a taxpayer shall be treated as a payment of tax for any
period to the extent (and only to the extent) attributable to
a disputable tax for such period.
[[Page S2132]]
Under regulations prescribed by the Secretary, rules similar
to the rules of section 6611(b)(2) shall apply.
``(2) Disputable tax.--
``(A) In general.--For purposes of this section, the term
`disputable tax' means the amount of tax specified at the
time of the deposit as the taxpayer's reasonable estimate of
the maximum amount of any tax attributable to disputable
items.
``(B) Safe harbor based on 30-day letter.--In the case of a
taxpayer who has been issued a 30-day letter, the maximum
amount of tax under subparagraph (A) shall not be less than
the amount of the proposed deficiency specified in such
letter.
``(3) Other definitions.--For purposes of paragraph (2)--
``(A) Disputable item.--The term `disputable item' means
any item of income, gain, loss, deduction, or credit if the
taxpayer--
``(i) has a reasonable basis for its treatment of such
item, and
``(ii) reasonably believes that the Secretary also has a
reasonable basis for disallowing the taxpayer's treatment of
such item.
``(B) 30-day letter.--The term `30-day letter' means the
first letter of proposed deficiency which allows the taxpayer
an opportunity for administrative review in the Internal
Revenue Service Office of Appeals.
``(4) Rate of interest.--The rate of interest allowable
under this subsection shall be the Federal short-term rate
determined under section 6621(b), compounded daily.
``(e) Use of Deposits.--
``(1) Payment of tax.--Except as otherwise provided by the
taxpayer, deposits shall be treated as used for the payment
of tax in the order deposited.
``(2) Returns of deposits.--Deposits shall be treated as
returned to the taxpayer on a last-in, first-out basis.''.
(b) Clerical Amendment.--The table of sections for
subchapter A of chapter 67 is amended by adding at the end
the following new item:
``Sec. 6603. Deposits made to suspend running of interest on potential
underpayments, etc.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to deposits made after the date of the enactment of
this Act.
(2) Coordination with deposits made under revenue procedure
84-58.--In the case of an amount held by the Secretary of the
Treasury or his delegate on the date of the enactment of this
Act as a deposit in the nature of a cash bond deposit
pursuant to Revenue Procedure 84-58, the date that the
taxpayer identifies such amount as a deposit made pursuant to
section 6603 of the Internal Revenue Code (as added by this
Act) shall be treated as the date such amount is deposited
for purposes of such section 6603.
SEC. 487. QUALIFIED TAX COLLECTION CONTRACTS.
(a) Contract Requirements.--
(1) In general.--Subchapter A of chapter 64 (relating to
collection) is amended by adding at the end the following new
section:
``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.
``(a) In General.--Nothing in any provision of law shall be
construed to prevent the Secretary from entering into a
qualified tax collection contract.
``(b) Qualified Tax Collection Contract.--For purposes of
this section, the term `qualified tax collection contract'
means any contract which--
``(1) is for the services of any person (other than an
officer or employee of the Treasury Department)--
``(A) to locate and contact any taxpayer specified by the
Secretary,
``(B) to request full payment from such taxpayer of an
amount of Federal tax specified by the Secretary and, if such
request cannot be met by the taxpayer, to offer the taxpayer
an installment agreement providing for full payment of such
amount during a period not to exceed 3 years, and
``(C) to obtain financial information specified by the
Secretary with respect to such taxpayer,
``(2) prohibits each person providing such services under
such contract from committing any act or omission which
employees of the Internal Revenue Service are prohibited from
committing in the performance of similar services,
``(3) prohibits subcontractors from--
``(A) having contacts with taxpayers,
``(B) providing quality assurance services, and
``(C) composing debt collection notices, and
``(4) permits subcontractors to perform other services only
with the approval of the Secretary.
``(c) Fees.--The Secretary may retain and use an amount not
in excess of 25 percent of the amount collected under any
qualified tax collection contract for the costs of services
performed under such contract. The Secretary shall keep
adequate records regarding amounts so retained and used. The
amount credited as paid by any taxpayer shall be determined
without regard to this subsection.
``(d) No Federal Liability.--The United States shall not be
liable for any act or omission of any person performing
services under a qualified tax collection contract.
``(e) Application of Fair Debt Collection Practices Act.--
The provisions of the Fair Debt Collection Practices Act (15
U.S.C. 1692 et seq.) shall apply to any qualified tax
collection contract, except to the extent superseded by
section 6304, section 7602(c), or by any other provision of
this title.
``(f) Cross References.--
``(1) For damages for certain unauthorized collection
actions by persons performing services under a qualified tax
collection contract, see section 7433A.
``(2) For application of Taxpayer Assistance Orders to
persons performing services under a qualified tax collection
contract, see section 7811(a)(4).''.
(2) Conforming amendments.--
(A) Section 7809(a) is amended by inserting ``6306,''
before ``7651''.
(B) The table of sections for subchapter A of chapter 64 is
amended by adding at the end the following new item:
``Sec. 6306. Qualified Tax Collection Contracts.''.
(b) Civil Damages for Certain Unauthorized Collection
Actions by Persons Performing Services Under Qualified Tax
Collection Contracts.--
(1) In general.--Subchapter B of chapter 76 (relating to
proceedings by taxpayers and third parties) is amended by
inserting after section 7433 the following new section:
``SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED
COLLECTION ACTIONS BY PERSONS PERFORMING
SERVICES UNDER QUALIFIED TAX COLLECTION
CONTRACTS.
``(a) In General.--Subject to the modifications provided by
subsection (b), section 7433 shall apply to the acts and
omissions of any person performing services under a qualified
tax collection contract (as defined in section 6306(b)) to
the same extent and in the same manner as if such person were
an employee of the Internal Revenue Service.
``(b) Modifications.--For purposes of subsection (a)--
``(1) Any civil action brought under section 7433 by reason
of this section shall be brought against the person who
entered into the qualified tax collection contract with the
Secretary and shall not be brought against the United States.
``(2) Such person and not the United States shall be liable
for any damages and costs determined in such civil action.
``(3) Such civil action shall not be an exclusive remedy
with respect to such person.
``(4) Subsections (c), (d)(1), and (e) of section 7433
shall not apply.''.
(2) Clerical amendment.--The table of sections for
subchapter B of chapter 76 is amended by inserting after the
item relating to section 7433 the following new item:
``Sec. 7433A. Civil damages for certain unauthorized collection actions
by persons performing services under a qualified tax
collection contract.''.
(c) Application of Taxpayer Assistance Orders to Persons
Performing Services Under a Qualified Tax Collection
Contract.--Section 7811 (relating to taxpayer assistance
orders) is amended by adding at the end the following new
subsection:
``(g) Application to Persons Performing Services Under a
Qualified Tax Collection Contract.--Any order issued or
action taken by the National Taxpayer Advocate pursuant to
this section shall apply to persons performing services under
a qualified tax collection contract (as defined in section
6306(b)) to the same extent and in the same manner as such
order or action applies to the Secretary.''.
(d) Ineligibility of Individuals Who Commit Misconduct To
Perform Under Contract.--Section 1203 of the Internal Revenue
Service Restructuring Act of 1998 (relating to termination of
employment for misconduct) is amended by adding at the end
the following new subsection:
``(e) Individuals Performing Services Under a Qualified Tax
Collection Contract.-- An individual shall cease to be
permitted to perform any services under any qualified tax
collection contract (as defined in section 6306(b) of the
Internal Revenue Code of 1986) if there is a final
determination by the Secretary of the Treasury under such
contract that such individual committed any act or omission
described under subsection (b) in connection with the
performance of such services.''.
(e) Effective Date.--The amendments made to this section
shall take effect on the date of the enactment of this Act.
PART V--MISCELLANEOUS PROVISIONS
SEC. 491. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF
TAXABLE VACCINES.
(a) In General.--Section 4132(a)(1) (defining taxable
vaccine) is amended by redesignating subparagraphs (I), (J),
(K), and (L) as subparagraphs (J), (K), (L), and (M),
respectively, and by inserting after subparagraph (H) the
following new subparagraph:
``(I) Any vaccine against hepatitis A.''.
(b) Conforming Amendment.--Section 9510(c)(1)(A) is amended
by striking ``October 18, 2000'' and inserting ``May 8,
2003''.
(c) Effective Date.--
(1) Sales, etc.--The amendments made by this section shall
apply to sales and uses on or after the first day of the
first month which begins more than 4 weeks after the date of
the enactment of this Act.
(2) Deliveries.--For purposes of paragraph (1) and section
4131 of the Internal Revenue Code of 1986, in the case of
sales on or before the effective date described in such
paragraph for which delivery is made after such date, the
delivery date shall be considered the sale date.
[[Page S2133]]
SEC. 492. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL
RESIDENCE ACQUIRED IN A LIKE-KIND EXCHANGE
WITHIN 5 YEARS OF SALE.
(a) In General.--Section 121(d) (relating to special rules
for exclusion of gain from sale of principal residence) is
amended by adding at the end the following new paragraph:
``(10) Property acquired in like-kind exchange.--If a
taxpayer acquired property in an exchange to which section
1031 applied, subsection (a) shall not apply to the sale or
exchange of such property if it occurs during the 5-year
period beginning with the date of the acquisition of such
property.''.
(b) Effective Date.--The amendment made by this section
shall apply to sales or exchanges after the date of the
enactment of this Act.
SEC. 493. CLARIFICATION OF EXEMPTION FROM TAX FOR SMALL
PROPERTY AND CASUALTY INSURANCE COMPANIES.
(a) In General.--Section 501(c)(15)(A) is amended to read
as follows:
``(A) Insurance companies (as defined in section 816(a))
other than life (including interinsurers and reciprocal
underwriters) if--
``(i) the gross receipts for the taxable year do not exceed
$600,000, and
``(ii) more than 50 percent of such gross receipts consist
of premiums.''.
(b) Controlled Group Rule.--Section 501(c)(15)(C) is
amended by inserting ``, except that in applying section 1563
for purposes of section 831(b)(2)(B)(ii), subparagraphs (B)
and (C) of section 1563(b)(2) shall be disregarded'' before
the period at the end.
(c) Conforming Amendment.--Clause (i) of section
831(b)(2)(A) is amended by striking ``exceed $350,000 but''.
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2003.
SEC. 494. DEFINITION OF INSURANCE COMPANY FOR SECTION 831.
(a) In General.--Section 831 is amended by redesignating
subsection (c) as subsection (d) and by inserting after
subsection (b) the following new subsection:
``(c) Insurance Company Defined.--For purposes of this
section, the term `insurance company' has the meaning given
to such term by section 816(a)).''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2003.
SEC. 495. LIMITATIONS ON DEDUCTION FOR CHARITABLE
CONTRIBUTIONS OF PATENTS AND SIMILAR PROPERTY.
(a) Deduction Allowed Only to the Extent of Basis.--Section
170(e)(1)(B) (relating to certain contributions of ordinary
income and capital gain property) is amended by striking
``or'' at the end of clause (i), by adding ``or'' at the end
of clause (ii), and by inserting after clause (ii) the
following new clause:
``(iii) of any patent, copyright, trademark, trade name,
trade secret, know-how, software, or similar property, or
applications or registrations of such property,''.
(b) Treatment of Contributions Where Donor Receives
Interest.--Section 170(e) is amended by adding at the end the
following new paragraph:
``(7) Special rules for contributions of patents and
similar property where donor receives interest.--
``(A) Disallowance of deduction.--No deduction shall be
allowed under this section with respect to a contribution of
property described in paragraph (1)(B)(iii) if the taxpayer
after the contribution has any interest in the property other
than a qualified interest.
``(B) Contributions with qualified interest.--If a taxpayer
after a contribution of property described in paragraph
(1)(B)(iii) has a qualified interest in the property--
``(i) any payment pursuant to the qualified interest shall
be treated as ordinary income and shall be includible in
gross income of the taxpayer for the taxable year in which
the payment is received by the taxpayer, and
``(ii) subsection (f)(3) and section 1011(b) shall not
apply to the transfer of the property from the taxpayer to
the donee.
``(C) Qualified interest.--For purposes of this paragraph--
``(i) In general.--The term `qualified interest' means,
with respect to any taxpayer, a right to receive from the
donee a percentage (not greater than 50 percent) of any
royalty payment received by the donee with respect to
property described in paragraph (1)(B)(iii) (other than
copyrights which are described in section 1221(a)(3) or
1231(b)(1)(C)) contributed by the taxpayer to the donee.
``(ii) Secretarial authority.--
``(I) In general.--Except as provided in subclause (II),
the Secretary may by regulation or other administrative
guidance treat as a qualified interest the right to receive
other payments from the donee, but only if the donee does not
possess a right to receive any payment (whether royalties or
otherwise) from a third party with respect to the contributed
property.
``(II) Exceptions.--The Secretary may not treat as a
qualified interest the right to receive any payment which
provides a benefit to the donor which is greater than the
benefit retained by the donee or the right to receive any
portion of the proceeds from the sale of the property
contributed.
``(iii) Limitation.--An interest shall be treated as a
qualified interest under this subparagraph only if the
taxpayer has no right to receive any payment described in
clause (i) or (ii)(I) after the earlier of the date on which
the legal life of the contributed property expires or the
date which is 20 years after the date of the contribution.''.
(c) Reporting Requirements.--
(1) In general.--Section 6050L(a) (relating to returns
regarding certain dispositions of donated property) is
amended--
(A) by striking ``If'' and inserting:
``(1) Dispositions of donated property.--If'',
(B) by redesignating paragraphs (1) through (5) as
subparagraphs (A) through (E), respectively, and
(C) by adding at the end the following new paragraph:
``(2) Payments of qualified interests.--Each donee of
property described in section 170(e)(1)(B)(iii) which makes a
payment to a donor pursuant to a qualified interest (as
defined in section 170(e)(7)) during any calendar year shall
make a return (in accordance with forms and regulations
prescribed by the Secretary) showing--
``(A) the name, address, and TIN of the payor and the payee
with respect to such a payment,
``(B) a description, and date of contribution, of the
property to which the qualified interest relates,
``(C) the dates and amounts of any royalty payments
received by the donee with respect to such property,
``(D) the date and the amount of the payment pursuant to
the qualified interest, and
``(E) a description of the terms of the qualified
interest.''.
(2) Conforming amendments.--
(A) The heading for section 6050L is amended by striking
``certain dispositions of''.
(B) The item relating to section 6050L in the table of
sections for subpart B of part III of subchapter A of chapter
61 is amended by striking ``certain dispositions of''.
(d) Anti-Abuse Rules.--The Secretary of the Treasury may
prescribe such regulations or other administrative guidance
as may be necessary or appropriate to prevent the avoidance
of the purposes of section 170(e)(1)(B)(iii) of the Internal
Revenue Code of 1986 (as added by subsection (a)), including
preventing--
(1) the circumvention of the reduction of the charitable
deduction by embedding or bundling the patent or similar
property as part of a charitable contribution of property
that includes the patent or similar property,
(2) the manipulation of the basis of the property to
increase the amount of the charitable deduction through the
use of related persons, pass-thru entities, or other
intermediaries, or through the use of any provision of law or
regulation (including the consolidated return regulations),
and
(3) a donor from changing the form of the patent or similar
property to property of a form for which different deduction
rules would apply.
(e) Effective Date.--The amendments made by this section
shall apply to contributions made after October 1, 2003.
SEC. 496. REPEAL OF 10-PERCENT REHABILITATION TAX CREDIT.
Section 47 is amended by adding at the end the following
new subsection:
``(e) Termination.--This section shall not apply to
expenditures described in subsection (a)(1) incurred in
taxable years beginning after December 31, 2003.''.
SEC. 497. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED
INCOME IS TAXED AS IF PARENT'S INCOME.
(a) In General.--Section 1(g)(2)(A) (relating to child to
whom subsection applies) is amended by striking ``age 14''
and inserting ``age 18''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2003.
______
SA 2646. Mr. GRASSLEY (for himself and Mr. Baucus) proposed an
amendment to amendment SA 2645 proposed by Mr. Grassley (for himself
and Mr. Baucus) to the bill S. 1637, to amend the Internal Revenue Code
of 1986 to comply with the World Trade Organization rulings on the FSC/
ETI benefit in a manner that preserves jobs and production activities
in the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes as follows:
Strike sections 472 through 476 and insert:
SEC. 472. CLASS LIVES FOR UTILITY GRADING COSTS.
(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:
``(iv) initial clearing and grading land improvements with
respect to gas utility property.''.
(b) Electric Utility Property.--Section 168(e)(3) is
amended by adding at the end the following new subparagraph:
``(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.''.
(c) Conforming Amendments.--The table contained in section
168(g)(3)(B) is amended--
(1) by inserting ``or (E)(iv)'' after ``(E)(iii)'', and
(2) by adding at the end the following new item:
``(F).......................................................25''.....
[[Page S2134]]
(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.
SEC. 473. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN
PASSENGER AUTOMOBILES.
(a) In General.--Section 179(b) (relating to limitations)
is amended by adding at the end the following new paragraph:
``(6) Limitation on cost taken into account for certain
passenger vehicles.--
``(A) In general.--The cost of any sport utility vehicle
for any taxable year which may be taken into account under
this section shall not exceed $25,000.
``(B) Sport utility vehicle.--For purposes of subparagraph
(A)--
``(i) In general.--The term `sport utility vehicle' means
any 4-wheeled vehicle which--
``(I) is manufactured primarily for use on public streets,
roads, and highways,
``(II) is not subject to section 280F, and
``(III) is rated at not more than 14,000 pounds gross
vehicle weight.
``(ii) Certain vehicles excluded.--Such term does not
include any vehicle which--
``(I) does not have the primary load carrying device or
container attached,
``(II) has a seating capacity of more than 12 individuals,
``(III) is designed for more than 9 individuals in seating
rearward of the driver's seat,
``(IV) is equipped with an open cargo area, or a covered
box not readily accessible from the passenger compartment, of
at least 72.0 inches in interior length, or
``(V) has an integral enclosure, fully enclosing the driver
compartment and load carrying device, does not have seating
rearward of the driver's seat, and has no body section
protruding more than 30 inches ahead of the leading edge of
the windshield.''.
(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. 474. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.
(a) Start-Up Expenditures.--
(1) Allowance of deduction.--Paragraph (1) of section
195(b) (relating to start-up expenditures) is amended to read
as follows:
``(1) Allowance of deduction.--If a taxpayer elects the
application of this subsection with respect to any start-up
expenditures--
``(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--
``(i) the amount of start-up expenditures with respect to
the active trade or business, or
``(ii) $5,000, reduced (but not below zero) by the amount
by which such start-up expenditures exceed $50,000, and
``(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.''.
(2) Conforming amendment.--Subsection (b) of section 195 is
amended by striking ``Amortize'' and inserting ``Deduct'' in
the heading.
(b) Organizational Expenditures.--Subsection (a) of section
248 (relating to organizational expenditures) is amended to
read as follows:
``(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--
``(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--
``(A) the amount of organizational expenditures with
respect to the taxpayer, or
``(B) $5,000, reduced (but not below zero) by the amount by
which such organizational expenditures exceed $50,000, and
``(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.''.
(c) Treatment of Organizational and Syndication Fees or
Partnerships.--
(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:
``(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--
``(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--
``(i) the amount of organizational expenses with respect to
the partnership, or
``(ii) $5,000, reduced (but not below zero) by the amount
by which such organizational expenses exceed $50,000, and
``(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.
``(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.''.
(2) Conforming amendment.--Subsection (b) of section 709 is
amended by striking ``Amortization'' and inserting
``Deduction'' in the heading.
(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.
SEC. 475. REFORM OF TAX TREATMENT OF LEASING OPERATIONS.
(a) Clarification of Recovery Period for Tax-Exempt Use
Property Subject to Lease.--Subparagraph (A) of section
168(g)(3) (relating to special rules for determining class
life) is amended by inserting ``(notwithstanding any other
subparagraph of this paragraph)'' after ``shall''.
(b) Limitation on Depreciation Period for Software Leased
to Tax-Exempt Entity.--Paragraph (1) of section 167(f) is
amended by adding at the end the following new subparagraph:
``(C) Tax-exempt use property subject to lease.--In the
case of computer software which would be tax-exempt use
property as defined in subsection (h) of section 168 if such
section applied to computer software, the useful life under
subparagraph (A) shall not be less than 125 percent of the
lease term (within the meaning of section 168(i)(3)).''
(c) Lease Term To Include Related Service Contracts.--
Subparagraph (A) of section 168(i)(3) (relating to lease
term) is amended by striking ``and'' at the end of clause
(i), by redesignating clause (ii) as clause (iii), and by
inserting after clause (i) the following new clause:
``(ii) the term of a lease shall include the term of any
service contract or similar arrangement (whether or not
treated as a lease under section 7701(e))--
``(I) which is part of the same transaction (or series of
related transactions) which includes the lease, and
``(II) which is with respect to the property subject to the
lease or substantially similar property, and''.
(d) Effective Date.--The amendments made by this section
shall apply to leases entered into after December 31, 2003.
SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED
BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.
(a) In General.--Subpart C of part II of subchapter E of
chapter 1 (relating to taxable year for which deductions
taken) is amended by adding at the end the following new
section:
``SEC. 470. LIMITATIONS ON LOSSES FROM TAX-EXEMPT USE
PROPERTY.
``(a) Limitation on Losses.--Except as otherwise provided
in this section, a tax-exempt use loss for any taxable year
shall not be allowed.
``(b) Disallowed Loss Carried to Next Year.--Any tax-exempt
use loss with respect to any tax-exempt use property which is
disallowed under subsection (a) for any taxable year shall be
treated as a deduction with respect to such property in the
next taxable year.
``(c) Definitions.--For purposes of this section--
``(1) Tax-exempt use loss.--The term `tax-exempt use loss'
means, with respect to any taxable year, the amount (if any)
by which--
``(A) the sum of--
``(i) the aggregate deductions (other than interest)
directly allocable to a tax-exempt use property, plus
``(ii) the aggregate deductions for interest properly
allocable to such property, exceed
``(B) the aggregate income from such property.
``(2) Tax-exempt use property.--The term `tax-exempt use
property' has the meaning given to such term by section
168(h) (without regard to paragraph (1)(C) or (3)(C) thereof
and determined as if property described in section
167(f)(1)(B) were tangible property).
``(d) Exception for Certain Leases.--This section shall not
apply to any lease of property which meets the requirements
of all of the following paragraphs:
``(1) Property not financed with tax-exempt bonds.--A lease
of property meets the requirements of this paragraph if no
part of the property was financed (directly or indirectly)
from the proceeds of an obligation the interest on which is
exempt from tax under section 103(a) and which (or any
refunding bond of which) is outstanding when the lease is
entered into. The Secretary may by regulations provide for a
de minimis exception from this paragraph.
``(2) Availability of funds.--
``(A) In general.--A lease of property meets the
requirements of this paragraph if (at any time during the
lease term) not more than an allowable amount of funds are--
``(i) subject to any arrangement referred to in
subparagraph (B), or
``(ii) otherwise reasonably expected to remain available,
to or for the benefit of the lessor or any lender, or to or
for the benefit of the lessee to satisfy the lessee's
obligations or options under the lease.
``(B) Arrangements.--The arrangements referred to in this
subparagraph are--
``(i) a defeasance arrangement, a loan by the lessee to the
lessor or any lender, a deposit arrangement, a letter of
credit collateralized with cash or cash equivalents, a
payment undertaking agreement, a lease prepayment, a sinking
fund arrangement, or any similar arrangement (whether or not
[[Page S2135]]
such arrangement provides credit support), and
``(ii) any other arrangement identified by the Secretary in
regulations.
``(C) Allowable amount.--
``(i) In general.--Except as otherwise provided in this
subparagraph, the term `allowable amount' means an amount
equal to 20 percent of the lessor's adjusted basis in the
property at the time the lease is entered into.
``(ii) Higher amount permitted in certain cases.--To the
extent provided in regulations, a higher percentage shall be
permitted under clause (i) where necessary because of the
credit-worthiness of the lessee. In no event may such
regulations permit a percentage of more than 50 percent.
``(iii) Option to purchase.--If under the lease the lessee
has the option to purchase the property for other than the
fair market value of the property (determined at the time of
exercise), the allowable amount at the time such option may
be exercised may not exceed 50 percent of the price at which
such option may be exercised.
``(3) Lessor must make substantial equity investment.--A
lease of property meets the requirements of this paragraph
if--
``(A) the lessor--
``(i) has at the time the lease is entered into an
unconditional at-risk equity investment (as determined by the
Secretary) in the property of at least 20 percent of the
lessor's adjusted basis in the property as of that time, and
``(ii) maintains such investment throughout the term of the
lease, and
``(B) the fair market value of the property at the end of
the lease term is reasonably expected to be equal to at least
20 percent of such basis.
``(4) Lessee may not bear more than minimal risk of loss.--
``(A) In general.--A lease of property meets the
requirements of this paragraph if there is no arrangement
under which more than a minimal risk of loss (as determined
under regulations) in the value of the property is borne by
the lessee.
``(B) Certain arrangements fail requirement.--In no event
will the requirements of this paragraph be met if there is
any arrangement under which the lessee bears--
``(i) any portion of the loss that would occur if the fair
market value of the leased property at the time the lease is
terminated were 25 percent less than its projected fair
market value at the end of the lease term, or
``(ii) more than 50 percent of the loss that would occur if
the fair market value of the leased property at the time the
lease is terminated were zero.
``(5) Regulatory requirements.--A lease of property meets
the requirements of this paragraph if such lease of property
meets such requirements as the Secretary may prescribe by
regulations.
``(e) Special Rules.--
``(1) Treatment of former tax-exempt use property.--
``(A) In general.--In the case of any former tax-exempt use
property--
``(i) any deduction allowable under subsection (b) with
respect to such property for any taxable year shall be
allowed only to the extent of any net income (without regard
to such deduction) from such property for such taxable year,
and
``(ii) any portion of such unused deduction remaining after
application of clause (i) shall be treated as a deduction
allocable to such property in the next taxable year.
``(B) Former tax-exempt use property.--For purposes of this
subsection, the term `former tax-exempt use property' means
any property which--
``(i) is not tax-exempt use property for the taxable year,
but
``(ii) was tax-exempt use property for any prior taxable
year.
``(2) Disposition of entire interest in property.--If
during the taxable year a taxpayer disposes of the taxpayer's
entire interest in tax-exempt use property (or former tax-
exempt use property), rules similar to the rules of section
469(g) shall apply for purposes of this section.
``(3) Coordination with section 469.--This section shall be
applied before the application of section 469.
``(f) Other Definitions.--For purposes of this section--
``(1) Related parties.--The terms `lessor', `lessee', and
`lender' include any related party (within the meaning of
section 197(f)(9)(C)(i)).
``(2) Lease term.--The term `lease term' has the meaning
given to such term by section 168(i)(3).
``(3) Lender.--The term `lender' means, with respect to any
lease, a person that makes a loan to the lessor which is
secured (or economically similar to being secured) by the
lease or the leased property.
``(4) Loan.--The term `loan' includes any similar
arrangement.
``(g) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the provisions of this section, including regulation which--
``(1) allow in appropriate cases the aggregation of
property subject to the same lease, and
``(2) provide for the determination of the allocation of
interest expense for purposes of this section.''
(b) Conforming Amendment.--The table of sections for
subpart C of part II of subchapter E of chapter 1 is amended
by adding at the end the following new item:
``Sec. 470. Limitations on losses from tax-exempt use property.''
(c) Effective Date.--The amendments made by this section
shall apply to leases entered into after December 31, 2003.
______
SA 2647. Mr. HATCH (for himself, Mrs. Murray, Mr. Baucus, Ms.
Cantwell, Mr. Smith, Mr. Bunning, and Mr. Grassley) proposed an
amendment to the bill S. 1637, to amend the Internal Revenue Code of
1986 to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; as follows:
At the end of subtitle A of title III add the following:
SEC. __. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.
(a) Extension.--
(1) In general.--Section 41(h)(1)(B) (relating to
termination) is amended by striking ``June 30, 2004'' and
inserting ``December 31, 2005''.
(2) Conforming amendment.--Section 45C(b)(1)(D) is amended
by striking ``June 30, 2004'' and inserting ``December 31,
2005''.
(b) Increase in Rates of Alternative Incremental Credit.--
Subparagraph (A) of section 41(c)(4) (relating to election of
alternative incremental credit) is amended--
(1) by striking ``2.65 percent'' and inserting ``3
percent'',
(2) by striking ``3.2 percent'' and inserting ``4
percent'', and
(3) by striking ``3.75 percent'' and inserting ``5
percent''.
(c) Alternative Simplified Credit for Qualified Research
Expenses.--
(1) In general.--Subsection (c) of section 41 (relating to
base amount) is amended by redesignating paragraphs (5) and
(6) as paragraphs (6) and (7), respectively, and by inserting
after paragraph (4) the following new paragraph:
``(5) Election of alternative simplified credit.--
``(A) In general.--At the election of the taxpayer, the
credit determined under subsection (a)(1) shall be equal to
12 percent of so much of the qualified research expenses for
the taxable year as exceeds 50 percent of the average
qualified research expenses for the 3 taxable years preceding
the taxable year for which the credit is being determined.
``(B) Special rule in case of no qualified research
expenses in any of 3 preceding taxable years.--
``(i) Taxpayers to which subparagraph applies.--The credit
under this paragraph shall be determined under this
subparagraph if the taxpayer has no qualified research
expenses in any 1 of the 3 taxable years preceding the
taxable year for which the credit is being determined.
``(ii) Credit rate.--The credit determined under this
subparagraph shall be equal to 6 percent of the qualified
research expenses for the taxable year.
``(C) Election.--An election under this paragraph shall
apply to the taxable year for which made and all succeeding
taxable years unless revoked with the consent of the
Secretary. An election under this paragraph may not be made
for any taxable year to which an election under paragraph (4)
applies.''
(2) Coordination with election of alternative incremental
credit.--
(A) In general.--Section 41(c)(4)(B) (relating to election)
is amended by adding at the end the following: ``An election
under this paragraph may not be made for any taxable year to
which an election under paragraph (5) applies.''
(B) Transition rule.--In the case of an election under
section 41(c)(4) of the Internal Revenue Code of 1986 which
applies to the taxable year which includes the date of the
enactment of this Act, such election shall be treated as
revoked with the consent of the Secretary of the Treasury if
the taxpayer makes an election under section 41(c)(5) of such
Code (as added by paragraph (1)) for such year.
(f) Effective Dates.--
(1) Subsection (a).--The amendments made by subsection (a)
shall apply to amounts paid or incurred after the date of the
enactment of this Act.
(2) Subsections (b) and (c).--The amendments made by
subsections (b) and (c) shall apply to taxable years
beginning after December 31, 2004.
______
SA 2648. Ms. CANTWELL submitted an amendment intended to be proposed
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
At the end, add the following:
[[Page S2136]]
TITLE __--UNEMPLOYMENT COMPENSATION
SEC. __01. EXTENSION OF THE TEMPORARY EXTENDED UNEMPLOYMENT
COMPENSATION ACT OF 2002.
(a) In General.--Section 208 of the Temporary Extended
Unemployment Compensation Act of 2002 (Public Law 107-147;
116 Stat. 30), as amended by Public Law 108-1 (117 Stat. 3)
and the Unemployment Compensation Amendments of 2003 (Public
Law 108-26; 117 Stat. 751), is amended--
(1) in subsection (a)(2), by striking ``December 31, 2003''
and inserting ``June 30, 2004'';
(2) in subsection (b)(1), by striking ``December 31, 2003''
and inserting ``June 30, 2004'';
(3) in subsection (b)(2)--
(A) in the heading, by striking ``december 31, 2003'' and
inserting ``june 30, 2004''; and
(B) by striking ``December 31, 2003'' and inserting ``June
30, 2004''; and
(4) in subsection (b)(3), by striking ``March 31, 2004''
and inserting ``September 30, 2004''.
(b) Effective Date.--The amendments made by this section
shall take effect as if included in the enactment of the
Temporary Extended Unemployment Compensation Act of 2002
(Public Law 107-147; 116 Stat. 21).
SEC. __02. ADDITIONAL REVISION TO CURRENT TEUC-X TRIGGER.
(a) In General.--Section 203(c)(2)(B) of the Temporary
Extended Unemployment Compensation Act of 2002 (Public Law
107-147; 116 Stat. 30) is amended to read as follows:
``(B) such a period would then be in effect for such State
under such Act if--
``(i) section 203(d) of such Act were applied as if it had
been amended by striking `5' each place it appears and
inserting `4'; and
``(ii) with respect to weeks of unemployment beginning
after December 27, 2003--
``(I) paragraph (1)(A) of such section 203(d) did not
apply; and
``(II) clause (ii) of section 203(f)(1)(A) of such Act did
not apply.''.
(b) Application.--Section 203(c)(2)(B)(ii) of the Temporary
Extended Unemployment Compensation Act of 2002 (Public Law
107-147; 116 Stat. 30), as added by subsection (a), shall
apply with respect to payments for weeks of unemployment
beginning on or after the date of enactment this Act.
SEC. __03. TEMPORARY STATE AUTHORITY TO WAIVE APPLICATION OF
LOOKBACKS UNDER THE FEDERAL-STATE EXTENDED
UNEMPLOYMENT COMPENSATION ACT OF 1970.
For purposes of conforming with the provisions of the
Federal-State Extended Unemployment Compensation Act of 1970
(26 U.S.C. 3304 note), a State may, during the period
beginning on the date of enactment of this Act and ending on
June 30, 2004, waive the application of either subsection
(d)(1)(A) of section 203 of such Act or subsection
(f)(1)(A)(ii) of such section, or both.
______
SA 2649. Mr. BAYH submitted an amendment intended to be proposed by
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to
comply with the World Trade Organization rulings on the FSC/ETI benefit
in a manner that preserves jobs and production activities in the United
States, to reform and simplify the international taxation rules of the
United States, and for other purposes; which was ordered to lie on the
table; as follows:
At the end of the bill, add the following:
TITLE V--MISCELLANEOUS PROVISIONS
SEC. 501. APPLICATION OF COUNTERVAILING DUTY LAWS TO
NONMARKET ECONOMIES.
(a) In General.--Section 701(a)(1) of the Tariff Act of
1930 (19 U.S.C. 1671(a)(1)) is amended by inserting
``(including a nonmarket economy country)'' after ``country''
each place it appears.
(b) Definitions.--Section 771(5)(C) of the Tariff Act of
1930 (19 U.S.C. 1677(5)(C)) is amended--
(1) by striking ``owned and'' and inserting ``owned,''; and
(2) by striking ``merchandise.'' and inserting
``merchandise, and without regard to whether the country is a
nonmarket economy country.''.
(c) Effective Date.--The amendments made by this section
apply to petitions filed under section 702 of the Tariff Act
of 1930 on or after the date of the enactment of this Act.
______
SA 2650. Mr. BAYH submitted an amendment intended to be proposed by
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to
comply with the World Trade Organization rulings on the FSC/ETI benefit
in a manner that preserves jobs and production activities in the United
States, to reform and simplify the international taxation rules of the
United States, and for other purposes; which was ordered to lie on the
table; as follows:
At the appropriate place, insert the following:
TITLE __--IMPROVEMENT OF CREDIT FOR HEALTH INSURANCE COSTS OF ELIGIBLE
INDIVIDUALS
SEC. __01. IMPROVEMENT OF THE AFFORDABILITY OF THE CREDIT.
(a) In General.--Section 35(a) of the Internal Revenue Code
of 1986 (relating to credit for health insurance costs of
eligible individuals) is amended by striking ``65'' and
inserting ``75''.
(b) Conforming Amendment.--Section 7527(b) of such Code
(relating to advance payment of credit for health insurance
costs of eligible individuals) is amended by striking ``65''
and inserting ``75''.
(c) Effective Date.--The amendments made by this section
apply to taxable years beginning after December 31, 2004.
SEC. __02. ELIGIBILITY OF SPOUSE OF CERTAIN INDIVIDUALS
ENTITLED TO MEDICARE.
(a) In General.--Subsection (b) of section 35 of the
Internal Revenue Code of 1986 (defining eligible coverage
month) is amended by adding at the end the following:
``(3) Special rule for spouse of individual entitled to
medicare.--Any month which would be an eligible coverage
month with respect to a taxpayer (determined without regard
to subsection (f)(2)(A)) shall be an eligible coverage month
for any spouse of such taxpayer.''.
(b) Conforming Amendment.--Section 173(f)(5)(A)(i) of the
Workforce Investment Act of 1998 (29 U.S.C. 2918(f)(5)(A)(i))
is amended by inserting ``(including with respect to any
month for which the eligible individual would have been
treated as such but for the application of paragraph
(7)(B)(i))'' before the comma.
(c) Effective Date.--The amendments made by this section
take effect on the date of enactment of this Act.
SEC. __03. CLARIFICATION OF 3-MONTH REQUIREMENT OF EXISTING
COVERAGE.
(a) In General.--Clause (i) of section 35(e)(2)(B) of the
Internal Revenue Code of 1986 (defining qualifying
individual) is amended by inserting ``(prior to the
employment separation necessary to attain the status of an
eligible individual)'' after ``9801(c)''.
(b) Conforming Amendment.--Section 173(f)(2)(B)(ii)(I) of
the Workforce Investment Act of 1998 (29 U.S.C.
2918(f)(2)(B)(ii)(I)) is amended by inserting ``(prior to the
employment separation necessary to attain the status of an
eligible individual)'' after ``1986''.
(c) Effective Date.--The amendments made by this section
take effect on the date of enactment of this Act.
SEC. __04. DECREASE IN PGBC PENSION RECIPIENT AGE ELIGIBILITY
REQUIREMENT.
(a) In General.--Subparagraph (A) of section 35(c)(4) of
the Internal Revenue Code of 1986 (defining eligible PBGC
pension recipient) is amended by striking ``age 55'' and
inserting ``age 50''.
(b) Effective Date.--The amendments made by this section
apply to taxable years beginning after December 31, 2004.
______
SA 2651. Mr. BINGAMAN (for himself and Mr. Domenici) proposed an
amendment to SA 2647 proposed by Mr. Hatch (for himself, Mrs. Murray,
Mr. Baucus, Ms. Cantwell, Mr. Smith, Mr. Bunning, and Mr. Grassley) to
the bill S. 1637, to amend the Internal Revenue Code of 1986 to comply
with the World Trade Organization rulings on the FSC/ETI benefit in a
manner that preserves jobs and production activities in the United
States, to reform and simplify the international taxation rules of the
United States, and for other purposes; as follows:
At the end of the amendment add the following:
SEC. __. EXPANSION OF RESEARCH CREDIT.
(a) Credit for Expenses Attributable to Certain
Collaborative Research Consortia.--
(1) In general.--Section 41(a) (relating to credit for
increasing research activities) is amended by striking
``and'' at the end of paragraph (1), by striking the period
at the end of paragraph (2) and inserting ``, and'', and by
adding at the end the following new paragraph:
``(3) 20 percent of the amounts paid or incurred by the
taxpayer in carrying on any trade or business of the taxpayer
during the taxable year (including as contributions) to a
research consortium.''.
(2) Research consortium defined.--Section 41(f) (relating
to special rules) is amended by adding at the end the
following new paragraph:
``(6) Research consortium.--
``(A) In general.--The term `research consortium' means any
organization--
``(i) which is--
``(I) described in section 501(c)(3) and is exempt from tax
under section 501(a) and is organized and operated primarily
to conduct energy research, or
``(II) organized and operated primarily to conduct research
in the public interest (within the meaning of section
501(c)(3)),
``(ii) which is not a private foundation,
``(iii) to which at least 5 unrelated persons paid or
incurred during the calendar year in which the taxable year
of the organization begins amounts (including as
contributions) to such organization for research, and
``(iv) to which no single person paid or incurred
(including as contributions) during such calendar year an
amount equal to more than 50 percent of the total amounts
received by such organization during such calendar year for
research.
``(B) Treatment of persons.--All persons treated as a
single employer under subsection (a) or (b) of section 52
shall be treated as related persons for purposes of
subparagraph (A)(iii) and as a single person for purposes of
subparagraph (A)(iv).''.
(3) Conforming amendment.--Section 41(b)(3)(C) is amended
by inserting ``(other
[[Page S2137]]
than a research consortium)'' after ``organization''.
(b) Repeal of Limitation on Contract Research Expenses Paid
to Small Businesses, Universities, and Federal
Laboratories.--Section 41(b)(3) (relating to contract
research expenses) is amended by adding at the end the
following new subparagraph:
``(D) Amounts paid to eligible small businesses,
universities, and federal laboratories.--
``(i) In general.--In the case of amounts paid by the
taxpayer to--
``(I) an eligible small business,
``(II) an institution of higher education (as defined in
section 3304(f)), or
``(III) an organization which is a Federal laboratory,
for qualified research which is energy research, subparagraph
(A) shall be applied by substituting `100 percent' for `65
percent'.
``(ii) Eligible small business.--For purposes of this
subparagraph, the term `eligible small business' means a
small business with respect to which the taxpayer does not
own (within the meaning of section 318) 50 percent or more
of--
``(I) in the case of a corporation, the outstanding stock
of the corporation (either by vote or value), and
``(II) in the case of a small business which is not a
corporation, the capital and profits interests of the small
business.
``(iii) Small business.--For purposes of this
subparagraph--
``(I) In general.--The term `small business' means, with
respect to any calendar year, any person if the annual
average number of employees employed by such person during
either of the 2 preceding calendar years was 500 or fewer.
For purposes of the preceding sentence, a preceding calendar
year may be taken into account only if the person was in
existence throughout the year.
``(II) Startups, controlled groups, and predecessors.--
Rules similar to the rules of subparagraphs (B) and (D) of
section 220(c)(4) shall apply for purposes of this clause.
``(iv) Federal laboratory.--For purposes of this
subparagraph, the term `Federal laboratory' has the meaning
given such term by section 4(6) of the Stevenson-Wydler
Technology Innovation Act of 1980 (15 U.S.C. 3703(6)), as in
effect on the date of the enactment of the Energy Tax
Incentives Act of 2003.''.
(c) Effective Date.--The amendments made by this section
shall apply to amounts paid or incurred after December 31,
2004.
______
SA 2652. Mrs. LINCOLN submitted an amendment intended to be proposed
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
On page 179, after line 25, add the following:
SEC. __. MODIFICATION OF DEPRECIATION ALLOWANCE FOR AIRCRAFT.
(a) Aircraft Treated as Qualified Property.--
(1) In general.--Paragraph (2) of section 168(k) is amended
by redesignating subparagraphs (C) through (F) as
subparagraphs (D) through (G), respectively, and by inserting
after subparagraph (B) the following new subparagraph:
``(C) Certain aircraft.--
``(i) In general.--The term `qualified property' includes
property--
``(I) which meets the requirements of clauses (i), (ii),
and (iii) of subparagraph (A),
``(II) which is an aircraft,
``(III) which is purchased and on which such purchaser, at
the time of the contract for purchase, has made a
nonrefundable deposit of the lesser of 10 percent of the cost
or $100,000, and
``(III) which meets the requirements of clause (ii).
``(ii) Production period and cost.--The requirements of
this clause are met if the property would be subject to
section 263A by reason of clause (iii) of subsection
(f)(1)(B) thereof if such clause were applied--
``(I) by substituting `6 months' for `1 year', and
``(II) by substituting `$250,000' for `$1,000,000'.''.
(2) Placed in service date.--Clause (iv) of section
168(k)(2)(A) is amended by striking ``subparagraph (B)'' and
inserting ``subparagraphs (B) and (C)''.
(b) Conforming Amendments.--
(1) Section 168(k)(2)(B)(iii) is amended by inserting at
the end the following: ``Such term shall not include
aircraft.''.
(2) Section 168(k)(4)(A)(ii) is amended by striking
``paragraph (2)(C)'' and inserting ``paragraph (2)(D)''.
(3) Section 168(k)(4)(B)(iii) is amended by inserting ``and
paragraph (2)(C)'' after ``of this paragraph)''.
(4) Section 168(k)(4)(C) is amended by striking
``subparagraphs (B) and (D)'' and inserting ``subparagraphs
(B), (C), and (E)''.
(5) Section 168(k)(4)(D) is amended by striking ``Paragraph
(2)(E)'' and inserting ``Paragraph (2)(F)''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
______
SA 2653. Mr. REID submitted an amendment intended to be proposed by
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to
comply with the World Trade Organization rulings on the FSC/ETI benefit
in a manner that preserves jobs and production activities in the United
States, to reform and simplify the international taxation rules of the
United States, and for other purposes; which was ordered to lie on the
table; as follows:
At the end of the amendment add the following:
SEC. __. CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN
RENEWABLE RESOURCES TO INCLUDE GEOTHERMAL AND
SOLAR ENERGY FACILITIES.
(a) In General.--Section 45(c)(1) (defining qualified
energy resources) is amended by striking ``and'' at the end
of subparagraph (B), by striking the period at the end of
subparagraph (C) and inserting a comma, and by adding at the
end the following new subparagraphs:
``(D) geothermal energy, and
``(E) solar energy.''.
(b) Facilities Described.--Section 45(c)(3) (defining
qualified facility) is amended by adding at the end the
following new subparagraph:
``(D) Geothermal energy or solar energy facility.--In the
case of a facility using geothermal energy or solar energy to
produce electricity, the term `qualified facility' means any
facility owned by the taxpayer which is originally placed in
service after the date of the enactment of this subparagraph,
and before January 1, 2006.''.
(c) Geothermal Energy Defined.--Section 45(c) (relating to
definitions) is amended by adding at the end the following
new paragraph:
``(5) Geothermal energy.--The term `geothermal energy'
means energy derived from a geothermal deposit (within the
meaning of section 613(e)(2)).''.
(d) Effective Date.--The amendments made by this section
shall apply to electricity produced and sold after the date
of the enactment of this Act, in taxable years ending after
such date.
______
SA 2654. Mr. WARNER submitted an amendment intended to be proposed by
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to
comply with the World Trade Organization rulings on the FSC/ETI benefit
in a manner that preserves jobs and production activities in the United
States, to reform and simplify the international taxation rules of the
United States, and for other purposes; which was ordered to lie on the
table; as follows:
On page 179, after line 25, add the following:
SEC. __. PERMANENT DEDUCTION FOR CERTAIN EXPENSES OF SCHOOL
TEACHERS.
(a) In General.--Section 62(a)(2)(D) (relating to certain
expenses of elementary and secondary school teachers) is
amended by striking ``In the case of taxable years beginning
during 2002 or 2003, the deductions'' and inserting ``The
deductions''.
(b) Effective Date.--The amendment made by this section
shall apply to expenses paid or incurred after December 31,
2003.
______
SA 2655. Mr. BUNNING submitted an amendment intended to be proposed
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
On page 179, after line 25, insert the following:
SEC. __. REDUCTION OF HOLDING PERIOD TO 12 MONTHS FOR
PURPOSES OF DETERMINING WHETHER HORSES ARE
SECTION 1231 ASSETS.
(a) In General.--Subparagraph (A) of section 1231(b)(3)
(relating to definition of property used in the trade or
business) is amended by striking ``and horses''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2003.
______
SA 2656. Mr. BUNNING (for himself and Mr. Bond) submitted an
amendment intended to be proposed by him to the bill S. 1637, to amend
the Internal Revenue Code of 1986 to comply with the World Trade
Organization rulings on the FSC/ETI benefit in a manner that preserves
jobs and production activities in the United States, to reform and
simplify the international taxation rules of the United States, and for
other purposes; which was ordered to lie on the table; as follows:
On page 179, after line 25, insert the following:
[[Page S2138]]
SEC. __. INCOME TAX CREDIT FOR DISTILLED SPIRITS WHOLESALERS
AND FOR DISTILLED SPIRITS IN CONTROL STATE
BAILMENT WAREHOUSES FOR COSTS OF CARRYING
FEDERAL EXCISE TAXES ON BOTTLED DISTILLED
SPIRITS.
(a) In General.--Subpart A of part I of subchapter A of
chapter 51 (relating to gallonage and occupational taxes) is
amended by adding at the end the following new section:
``SEC. 5011. INCOME TAX CREDIT FOR AVERAGE COST OF CARRYING
EXCISE TAX.
``(a) In General.--For purposes of section 38, the amount
of the distilled spirits credit for any taxable year is the
amount equal to the product of--
``(1) in the case of--
``(A) any eligible wholesaler--
``(i) the number of cases of bottled distilled spirits--
``(I) which were bottled in the United States, and
``(II) which are purchased by such wholesaler during the
taxable year directly from the bottler of such spirits, or
``(B) any person which is subject to section 5005 and which
is not an eligible wholesaler, the number of cases of bottled
distilled spirits which are stored in a warehouse operated
by, or on behalf of, a State, or agency or political
subdivision thereof, on which title has not passed on an
unconditional sale basis, and
``(2) the average tax-financing cost per case for the most
recent calendar year ending before the beginning of such
taxable year.
``(b) Eligible Wholesaler.--For purposes of this section,
the term `eligible wholesaler' means any person which holds a
permit under the Federal Alcohol Administration Act as a
wholesaler of distilled spirits which is not a State, or
agency or political subdivision thereof.
``(c) Average Tax-Financing Cost.--
``(1) In general.--For purposes of this section, the
average tax-financing cost per case for any calendar year is
the amount of interest which would accrue at the deemed
financing rate during a 60-day period on an amount equal to
the deemed Federal excise tax per case.
``(2) Deemed financing rate.--For purposes of paragraph
(1), the deemed financing rate for any calendar year is the
average of the corporate overpayment rates under paragraph
(1) of section 6621(a) (determined without regard to the last
sentence of such paragraph) for calendar quarters of such
year.
``(3) Deemed federal excise tax per case.--For purposes of
paragraph (1), the deemed Federal excise tax per case is
$25.68.
``(d) Other Definitions and Special Rules.--For purposes of
this section--
``(1) Case.--The term `case' means 12 80-proof 750
milliliter bottles.
``(2) Number of cases in lot.--The number of cases in any
lot of distilled spirits shall be determined by dividing the
number of liters in such lot by 9.''.
(b) Credit Treated as Part of General Business Credit.--
Section 38(b) (relating to current year business credit), as
amended by section 5103 of this Act, is amended by striking
``plus'' at the end of paragraph (15), by striking the period
at the end of paragraph (16) and inserting ``, plus'', and by
adding at the end the following new paragraph:
``(17) the distilled spirits credit determined under
section 5011(a).''.
(c) Conforming Amendments.--
(1) Section 39(d), as amended by section 5103 of this Act,
is amended by adding at the end the following new paragraph:
``(12) No carryback of section 5011 credit before effective
date.--No portion of the unused business credit for any
taxable year which is attributable to the credit determined
under section 5011(a) may be carried back to a taxable year
beginning before the date of the enactment of section
5011.''.
(2) The table of sections for subpart A of part I of
subchapter A of chapter 51 is amended by adding at the end
the following new item:
``Sec. 5011. Income tax credit for average cost of carrying excise
tax.''.
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
______
SA 2657. Mr. BUNNING (for himself, Mr. Graham of Florida, and Mr.
Nelson of Florida) submitted an amendment intended to be proposed by
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to
comply with the World Trade Organization rulings on the FSC/ETI benefit
in a manner that preserves jobs and production activities in the United
States, to reform and simplify the international taxation rules of the
United States, and for other purposes; which was ordered to lie on the
table; as follows:
On page 179, after line 25, add the following:
SEC. __. TREATMENT OF CREDIT FOR PRODUCING FUEL FROM A
NONCONVENTIONAL SOURCE AS BUSINESS CREDIT.
(a) In General.--
(1) Credit moved to subpart relating to business related
credits.--The Internal Revenue Code of 1986 is amended by
redesignating section 29 as section 45G and by moving section
45G (as so redesignated) from subpart B of part IV of
subchapter A of chapter 1 to the end of subpart D of part IV
of subchapter A of chapter 1.
(2) Credit Treated as Business Credit.--Section 38(b) is
amended by striking ``plus'' at the end of paragraph (14), by
striking the period at the end of paragraph (15) and
inserting ``, plus'', and by adding at the end the following:
``(16) the nonconventional source production credit
determined under section 45G(a).''.
(3) Conforming Amendments.--
(A) Section 30(b)(3)(A) is amended by striking ``sections
27 and 29'' and inserting ``section 27''.
(B) Sections 43(b)(2) and 613A(c)(6)(C) are each amended by
striking ``section 29(d)(2)(C)'' and inserting ``section
45G(d)(2)(C)''.
(C) Section 45G(a), as redesignated by paragraph (1), is
amended by striking ``At the election of the taxpayer, there
shall be allowed as a credit against the tax imposed by this
chapter for the taxable year'' and inserting ``For purposes
of section 38, if the taxpayer elects to have this section
apply, the nonconventional source production credit
determined under this section for the taxable year is''.
(D) Section 45G(b), as so redesignated, is amended by
striking paragraph (6).
(E) Section 53(d)(1)(B)(iii) is amended by striking ``under
section 29'' and all that follows through ``or not allowed''.
(F) Section 55(c)(2) is amended by striking ``29(b)(6),''.
(G) Subsection (a) of section 772 is amended by inserting
``and'' at the end of paragraph (9), by striking paragraph
(10), and by redesignating paragraph (11) as paragraph (10).
(H) Paragraph (5) of section 772(d) is amended by striking
``the foreign tax credit, and the credit allowable under
section 29'' and inserting ``and the foreign tax credit''.
(I) The table of sections for subpart B of part IV of
subchapter A of chapter 1 is amended by striking the item
relating to section 29.
(J) The table of sections for subpart D of part IV of
subchapter A of chapter 1, as amended by this Act, is amended
by inserting after the item relating to section 45F the
following new item:
``Sec. 45G. Credit for producing fuel from a nonconventional source.''.
(b) Determinations Under Natural Gas Policy Act of 1978.--
Subparagraph (A) of section 45G(c)(2), as redesignated by
subsection (a)(1), is amended--
(1) by inserting ``by the Secretary, after consultation
with the Federal Energy Regulatory Commission,'' after
``shall be made'', and
(2) by inserting ``(as in effect before the repeal of such
section)'' after ``1978''.
(c) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to fuel produced
and sold after December 31, 2003, in taxable years ending
after such date.
(2) Determinations under natural gas policy act of 1978.--
The amendments made by subsection (b) shall apply as if
included in the provisions repealing section 503 of the
Natural Gas Policy Act of 1978.
______
SA 2658. Mr. BUNNING submitted an amendment intended to be proposed
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
On page 179, after line 25, add the following:
SEC. __. EXEMPTION OF QUALIFIED 501(C)(3) BONDS FOR NURSING
HOMES FROM FEDERAL GUARANTEE PROHIBITIONS.
(a) In General.--For purposes of section 149(b)(1) of the
Internal Revenue Code of 1986, any qualified 501(c)(3) bond
(as defined in section 145 of such Code) shall not be treated
as federally guaranteed solely because such bond is part of
an issue supported by a letter of credit, if such bond--
(1) is issued after December 31, 2003, and before the date
which is 1 year after the date of the enactment of this Act,
and
(2) is part of an issue 95 percent or more of the net
proceeds of which are to be used to finance 1 or more of the
following facilities primarily for the benefit of the
elderly:
(A) Licensed nursing home facility.
(B) Licensed or certified assisted living facility.
(C) Licensed personal care facility.
(D) Continuing care retirement community.
(b) Limitation on Issuer.--Subsection (a) shall not apply
to any bond described in such subsection if the aggregate
authorized face amount of the issue of which such bond is a
part, when increased by the outstanding amount of such bonds
issued by the issuer during the period described in
subsection (a)(1) exceeds $15,000,000.
(c) Limitation on Beneficiary.--Rules similar to the rules
of section 144(a)(10) of the Internal Revenue Code of 1986
shall apply for purposes of this section, except that--
(1) ``$15,000,000'' shall be substituted for
``$40,000,000'' in subparagraph (A) thereof, and
[[Page S2139]]
(2) such rules shall be applied--
(A) only with respect to bonds described in this section,
and
(B) with respect to the aggregate authorized face amount of
all issues of such bonds which are allocable to the
beneficiary.
(d) Continuing Care Retirement Community.--For purposes of
this section, the term ``continuing care retirement
community'' means a community which provides, on the same
campus, a consortium of residential living options and
support services to persons at least 60 years of age under a
written agreement. For purposes of the preceding sentence,
the residential living options shall include independent
living units, nursing home beds, and either assisted living
units or personal care beds.
______
SA 2659. Mr. BUNNING (for himself and Mr. Schumer) submitted an
amendment intended to be proposed by him to the bill S. 1637, to amend
the Internal Revenue Code of 1986 to comply with the World Trade
Organization rulings on the FSC/ETI benefit in a manner that preserves
jobs and production activities in the United States, to reform and
simplify the international taxation rules of the United States, and for
other purposes; which was ordered to lie on the table; as follows:
On page 179, after line 25, insert the following:
SEC. __. EXPANSION OF DESIGNATED RENEWAL COMMUNITY AREA BASED
ON 2000 CENSUS DATA.
(a) Renewal Communities.--Section 1400E (relating to
designation of renewal communities) is amended by adding at
the end the following new subsection:
``(g) Expansion of Designated Areas.--
``(1) Expansion based on 2000 census.--At the request of
the nominating entity with respect to a renewal community,
the Secretary of Housing and Urban Development may expand the
area of a renewal community to include any census tract--
``(A) which, at the time such community was nominated, met
the requirements of this section for inclusion in such
community but for the failure of such tract to meet 1 or more
of the population and poverty rate requirements of this
section using 1990 census data, and
``(B) which meets all failed population and poverty rate
requirements of this section using 2000 census data.
``(2) Expansion to certain areas which do not meet
population requirements.--
``(A) In general.--At the request of 1 or more local
governments and the State or States in which an area
described in subparagraph (B) is located, the Secretary of
Housing and Urban Development may expand a designated area to
include such area.
``(B) Area.--An area is described in this subparagraph if--
``(i) the area is adjacent to at least 1 other area
designated as a renewal community,
``(ii) the area has a population less than the population
required under subsection (c)(2)(C), and
``(iii)(I) the area meets the requirements of subparagraphs
(A) and (B) of subsection (c)(2) and subparagraph (A) of
subsection (c)(3), or
``(II) the area contains a population of less than 100
people.
``(3) Applicability.--Any expansion of a renewal community
under this section shall take effect as provided in
subsection (b).''.
(b) Effective Date.--The amendment made by this subsection
shall take effect as if included in the amendments made by
section 101 of the Community Renewal Tax Relief Act of 2000.
SEC. __. RENEWAL COMMUNITY EMPLOYERS MAY QUALIFY FOR
EMPLOYMENT CREDIT BY EMPLOYING RESIDENTS OF
CERTAIN OTHER RENEWAL COMMUNITIES.
(a) In General.--Section 1400H(b)(2) (relating to
modification) is amended by striking ``and'' at the end of
paragraph (1), by striking the period at the end of paragraph
(2) and inserting ``, and'', and by adding at the end the
following new paragraph:
``(3) subsection (d)(1)(B) thereof shall be applied by
substituting `such renewal community, an adjacent renewal
community within the same State as such renewal community, or
a renewal community within such State which is within 5 miles
of any border of such renewal community' for `such
empowerment zone'.''.
(b) Effective Date.--The amendments made by subsection (a)
shall take effect as if included in the amendment made by
section 101(a) of the Community Renewal Tax Relief Act of
2000.
______
SA 2660. Mr. DODD (for himself, Mr. Coleman, Mr. Kennedy, Mr.
Corzine, Ms. Mikulski, and Mr. Feingold) proposed an amendment to the
bill S. 1637, to amend the Internal Revenue Code of 1986 to comply with
the World Trade Organization rulings on the FSC/ETI benefit in a manner
that preserves jobs and production activities in the United States, to
reform and simplify the international taxation rules of the United
States, and for other purposes; as follows:
At the end of the bill, add the following:
TITLE V--PROTECTION OF UNITED STATES WORKERS FROM COMPETITION OF
FOREIGN WORKFORCES
SEC. 501. LIMITATIONS ON OFF-SHORE PERFORMANCE OF CONTRACTS.
(a) Limitations.--
(1) In general.--The Office of Federal Procurement Policy
Act (41 U.S.C. 403 et seq.) is amended by adding at the end
the following new section:
``SEC. 42. LIMITATIONS ON OFF-SHORE PERFORMANCE OF CONTRACTS.
``(a) Conversions to Contractor Performance of Federal
Activities.--An activity or function of an executive agency
that is converted to contractor performance under Office of
Management and Budget Circular A-76 may not be performed by
the contractor or any subcontractor at a location outside the
United States except to the extent that such activity or
function was previously performed by Federal Government
employees outside the United States.
``(b) Other Federal Contracts.--(1) A contract that is
entered into by the head of an executive agency may not be
performed outside the United States except to meet a
requirement of the executive agency for the contract to be
performed specifically at a location outside the United
States.
``(2) The prohibition in paragraph (1) does not apply in
the case of a contract of an executive agency if--
``(A) the President determines in writing that it is
necessary in the national security interests of the United
States for the contract to be performed outside the United
States; or
``(B) the head of such executive agency makes a
determination and reports such determination on a timely
basis to the Director of the Office of Management and Budget
that--
``(i) the property or services needed by the executive
agency are available only by means of performance of the
contract outside the United States; and
``(ii) no property or services available by means of
performance of the contract inside the United States would
satisfy the executive agency's need.
``(3) Paragraph (1) does not apply to the performance of a
contract outside the United States under the exception
provided in subsection (a).
``(c) State Contracts.--(1) Except as provided in paragraph
(2), funds appropriated for financial assistance for a State
may not be disbursed to or for such State during a fiscal
year unless the chief executive of that State has transmitted
to the Administrator for Federal Procurement Policy, not
later than April 1 of the preceding fiscal year, a written
certification that none of such funds will be expended for
the performance outside the United States of contracts
entered into by such State.
``(2) The prohibition on disbursement of funds to or for a
State under paragraph (1) does not apply with respect to the
performance of a State contract outside the United States
if--
``(A) the chief executive of such State--
``(i) determines that the property or services needed by
the State are available only by means of performance of the
contract outside the United States and no property or
services available by means of performance of the contract
inside the United States would satisfy the State's need; and
``(ii) transmits a notification of such determination to
the head of the executive agency of the United States that
administers the authority under which such funds are
disbursed to or for the State; and
``(B) the head of the executive agency receiving the
notification of such determination--
``(i) confirms that the facts warrant the determination;
``(ii) approves the determination; and
``(iii) transmits a notification of the approval of the
determination to the Director of the Office of Management and
Budget.
``(3) In this subsection, the term `State' means each of
the several States of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth
of the Northern Mariana Islands, the Virgin Islands, Guam,
American Samoa, and the Trust Territory of the Pacific
Islands.
``(d) Subsection (b) and (c) shall not apply to procurement
covered by the WTO Government Procurement Agreement.
``(e) Responsibilities of OMB.--The Director of the Office
of Management and Budget shall--
``(1) maintain--
``(A) the waivers granted under subsection (b)(2), together
with the determinations and certifications on which such
waivers were based; and
``(B) the notifications received under subsection
(c)(2)(B)(iii); and
``(2) submit to Congress promptly after the end of each
quarter of each fiscal year a report that sets forth--
``(A) the waivers that were granted under subsection (b)(2)
during such quarter; and
``(B) the notifications that were received under subsection
(c)(2)(B)(iii) during such quarter.
``(f) Annual GAO Review.--The Comptroller General shall--
``(1) review, each fiscal year, the waivers granted during
such fiscal year under subsection (b)(2) and the
disbursements of funds authorized pursuant to the exception
in subsection (c)(2); and
``(2) promptly after the end of such fiscal year, transmit
to Congress a report containing a list of the contracts
covered by such waivers and exception together with a brief
description of the performance of each such contract outside
the United States.''.
[[Page S2140]]
(2) Clerical amendment.--The table of sections in section
1(b) of such Act is amended by adding at the end the
following new item:
``Sec. 42. Limitations on off-shore performance of contracts.''.
(b) Inapplicability to States During First Two Fiscal
Years.--Section 42(c) of the Office of Federal Procurement
Policy Act (as added by subsection (a)) shall not apply to
disbursements of funds to a State during the fiscal year in
which this Act is enacted and the next fiscal year.
SEC. 502. REPEAL OF SUPERSEDED LAW.
Section 647 of the Transportation, Treasury, and
Independent Agencies Appropriations Act, 2004 (division F of
Public Law 108-199) is amended by striking subsection (e).
SEC. 503. EFFECTIVE DATE AND APPLICABILITY.
This title and the amendments made by this title shall take
effect 30 days after the date of the enactment of this Act
and, subject to subsection (b) of section 501, shall apply
with respect to new contracts entered into on or after such
date.
______
SA 2661. Mr. BAYH submitted an amendment intended to be proposed by
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to
comply with the World Trade Organization rulings on the FSC/ETI benefit
in a manner that preserves jobs and production activities in the United
States, to reform and simplify the international taxation rules of the
United States, and for other purposes; which was ordered to lie on the
table; as follows:
On page 89, between lines 2 and 3 of Amendment No. 2645, as
agreed to, insert the following:
(e) Disclosure of Corporate Expatriation Transactions.--
(1) In general.--Section 14 of the Securities Exchange Act
of 1934 (15 U.S.C. 78n) is amended by adding at the end the
following new subsection:
``(i) Proxy Solicitations in Connection With Corporate
Expatriation Transactions.--
``(1) Disclosure to shareholders of effects of corporate
expatriation transaction.--The Commission shall, by rule,
require that each domestic issuer shall prominently disclose,
not later than 5 business days before any shareholder vote
relating to a corporate expatriation transaction, as a
separate and distinct document accompanying each proxy
statement relating to the transaction--
``(A) the number of employees of the domestic issuer that
would be located in the new foreign jurisdiction of
incorporation or organization of that issuer upon completion
of the corporate expatriation transaction;
``(B) how the rights of holders of the securities of the
domestic issuer would be impacted by a completed corporate
expatriation transaction, and any differences in such rights
before and after a completed corporate expatriation
transaction; and
``(C) that, as a result of a completed corporate
expatriation transaction, any taxable holder of the
securities of the domestic issuer shall be subject to the
taxation of any capital gains realized with respect to such
securities, and the amount of any such capital gains tax that
would apply as a result of the transaction.
``(2) Definitions.--In this subsection, the following
definitions shall apply:
``(A) Corporate expatriation transaction.--The term
`corporate expatriation transaction' means any transaction,
or series of related transactions, in which an entity
organized under the laws of a foreign country acquires,
directly or indirectly, substantially all of the voting
securities in, or substantially all of the assets of, a
domestic issuer, and--
``(i) immediately after completion of the transaction, more
than 80 percent of the securities (by vote or value) of the
acquiring foreign entity will be held by persons that were
security holders of the domestic issuer immediately prior to
the transaction; or
``(ii) immediately after completion of the transaction,
more than 50 percent of the securities (by vote or value) of
the acquiring foreign entity will be held by persons that
were security holders of the domestic issuer immediately
prior to the transaction, and--
``(I) such foreign entity will not have substantial
business activities in the foreign country in which it is
organized; and
``(II) the securities of the foreign entity will be
publicly traded, and the principal market for the public
trading of such securities will be in the United States.
``(B) Domestic issuer.--The term `domestic issuer' means an
issuer created or organized in the United States or under the
law of the United States or of any State.''.
(2) Effective date.--Section 14(i) of the Securities
Exchange Act of 1934 (as added by this subsection) shall
apply with respect to corporate expatriation transactions (as
defined in that section 14(i)) proposed on and after the date
of enactment of this Act.
______
SA 2662. Mr. AKAKA submitted an amendment intended to be proposed by
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to
comply with the World Trade Organization rulings on the FSC/ETI benefit
in a manner that preserves jobs and production activities in the United
States, to reform and simplify the international taxation rules of the
United States, and for other purposes; which was ordered to lie on the
table; as follows:
At the end add the following:
SEC. __. TERMINATION OF THE DEBT INDICATOR PROGRAM.
The Secretary of the Treasury shall terminate the Debt
Indicator program announced in Internal Revenue Service
Notice 99-58.
______
SA 2663. Ms. CANTWELL (for herself, Mr. Thomas, Mr. Durbin, and Mr.
Leahy) submitted an amendment intended to be proposed by her to the
bill S. 1637, to amend the Internal Revenue Code of 1986 to comply with
the World Trade Organization rulings on the FSC/ETI benefit in a manner
that preserves jobs and production activities in the United States, to
reform and simplify the international taxation rules of the United
States, and for other purposes; which was ordered to lie on the table;
as follows:
At the appropriate place, insert the following:
SEC. __. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER NATIONAL
HEALTH SERVICE CORPS LOAN REPAYMENT PROGRAM AND
CERTAIN STATE LOAN REPAYMENT PROGRAMS.
(a) In General.--Section 108(f) of the Internal Revenue
Code of 1986 (relating to student loans) is amended by adding
at the end the following new paragraph:
``(4) Payments under national health service corps loan
repayment program and certain state loan repayment
programs.--In the case of an individual, gross income shall
not include any amount received under section 338B(g) of the
Public Health Service Act or under a State program described
in section 338I of such Act.''.
(b) Treatment for Purposes of Employment Taxes.--Each of
the following provisions of the Internal Revenue Code of 1986
is amended by inserting ``108(f)(4),'' after ``74(c),'':
(1) Section 3121(a)(20).
(2) Section 3231(e)(5).
(3) Section 3306(b)(16).
(4) Section 3401(a)(19).
(5) Section 209(a)(17) of the Social Security Act.
(c) Effective Date.--The amendments made by this section
shall apply to amounts received by an individual in taxable
years beginning after December 31, 2003.
______
SA 2664. Ms. LANDRIEU (for herself and Ms. Cantwell) submitted an
amendment intended to be proposed by her to the bill S. 1637, to amend
the Internal Revenue Code of 1986 to comply with the World Trade
Organization rulings on the FSC/ETI benefit in a manner that preserves
jobs and production activities in the United States, to reform and
simplify the international taxation rules of the United States, and for
other purposes; which was ordered to lie on the table; as follows:
On page 179, after line 25, add the following:
SEC. __. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT ADDED
TO GENERAL BUSINESS CREDIT.
(a) Ready Reserve-National Guard Credit.--Subpart D of part
IV of subchapter A of chapter 1 (relating to business-related
credits) is amended by adding at the end the following:
``SEC. 45G. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT.
``(a) General Rule.--For purposes of section 38, the Ready
Reserve-National Guard employee credit determined under this
section for any taxable year is an amount equal to 50 percent
of the actual compensation amount for such taxable year.
``(b) Definition of Actual Compensation Amount.--For
purposes of this section, the term `actual compensation
amount' means the amount of compensation paid or incurred by
an employer with respect to a Ready Reserve-National Guard
employee on any day when the employee was absent from
employment for the purpose of performing qualified active
duty.
``(c) Limitations.--
``(1) Maximum period for credit per employee.--The maximum
period with respect to which the credit may be allowed with
respect to any Ready Reserve-National Guard employee shall
not exceed the 12-month period beginning on the first day
such credit is so allowed with respect to such employee.
``(2) Days other than work days.--No credit shall be
allowed with respect to a Ready Reserve-National Guard
employee who performs qualified active duty on any day on
which the employee was not scheduled to work (for reason
other than to participate in qualified active duty).
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Qualified active duty.--The term `qualified active
duty' means--
``(A) active duty, other than the training duty specified
in section 10147 of title 10, United States Code (relating to
training requirements for the Ready Reserve), or section
502(a) of title 32, United States Code (relating to required
drills and field exercises for the National Guard), in
connection with which an employee is entitled to reemployment
rights and other benefits or to a leave
[[Page S2141]]
of absence from employment under chapter 43 of title 38,
United States Code, and
``(B) hospitalization incident to such duty.
``(2) Compensation.--The term `compensation' means any
remuneration for employment, whether in cash or in kind,
which is paid or incurred by a taxpayer and which is
deductible from the taxpayer's gross income under section
162(a)(1).
``(3) Ready reserve-national guard employee.--The term
`Ready Reserve-National Guard employee' means an employee who
is a member of the Ready Reserve or of the National Guard.
``(4) National guard.--The term `National Guard' has the
meaning given such term by section 101(c)(1) of title 10,
United States Code.
``(5) Ready reserve.--The term `Ready Reserve' has the
meaning given such term by section 10142 of title 10, United
States Code.
``(6) Certain rules to apply.--Rules similar to the rules
of section 52 shall apply.''.
(b) Credit To Be Part of General Business Credit.--
Subsection (b) of section 38 (relating to general business
credit) is amended by striking ``plus'' at the end of
paragraph (14), by striking the period at the end of
paragraph (15) and inserting ``, plus'', and by adding at the
end the following:
``(16) the Ready Reserve-National Guard employee credit
determined under section 45G(a).''.
(c) Conforming Amendment.--The table of sections for
subpart D of part IV of subchapter A of chapter 1 is amended
by inserting after the item relating to section 45F the
following:
``Sec. 45G. Ready Reserve-National Guard employee credit.''.
(d) Effective Date.--The amendments made by this section
shall apply to amounts paid or incurred after October 6,
2001, in taxable years ending after such date.
______
SA 2665. Mr. LAUTENBERG submitted an amendment intended to be
proposed by him to the bill S. 1637, to amend the Internal Revenue Code
of 1986 to comply with the World Trade Organization rulings on the FSC/
ETI benefit in a manner that preserves jobs and production activities
in the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
Beginning on page 85, strike line 22 and all that follows
through page 86, line 23.
______
SA 2666. Mr. VOINOVICH submitted an amendment intended to be proposed
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
At the end of the bill insert the following new title:
SECTION 1. SHORT TITLE.
This title may be cited as the ``Fundamental Tax Reform''
Commission Act of 2004''.
SEC. 2. ESTABLISHMENT OF COMMISSION.
(a) Establishment.--There is established the ``Blue Ribbon
Commission on Comprehensive Tax Reform'' (in this Act
referred to as the ``Commission'').
(b) Membership.
(1) Composition.--The Commission shall be composed of 15
members of whom--
(A) 3 shall be appointed by the majority leader of the
Senate;
(B) 2 shall be appointed by the minority leader of the
Senate;
(C) 3 shall be appointed by the Speaker of the House of
Representatives;
(D) 2 shall be appointed by the minority leader of the
House of Representatives; and
(E) 5 shall be appointed by the President, of which--
(i) no more than 3 shall be of the same party as the
President.
(2) Federal employees.--The members of the Commission may
be employees or former employees of the Federal Government.
(3) Date.--The appointments of the members of the
Commission shall be made not later than 45 days subsequent to
enactment of this provision.
(c) Period of Appointment; Vacancies.--Members shall be
appointed for the life of the Commission. Any vacancy in the
Commission shall not affect its powers, but shall be filled
in the same manner as the original appointment.
(d) Initial Meeting.--Not later than 30 days after the date
on which all members of the Commission have been appointed,
the Commission shall hold its first meeting.
(e) Meetings.--The Commission shall meet at the call of the
Chairman.
(f) Quorum.--A majority of the members of the Commission
shall constitute a quorum, but a lesser number of members may
hold hearings.
(g) Chairman and Vice Chairman.--The President shall select
a Chairman and Vice Chairman from among its members.
SEC. 3. DUTIES OF THE COMMISSION.
(a) Study.--The Commission shall conduct a thorough study
of all matters relating to a comprehensive reform of the
Federal tax system, including the reform of the Internal
Revenue Code of 1986 and the implementation (if appropriate)
of other types of tax systems.
(b) Recommendations.--The Commission shall develop
recommendations on how to comprehensively reform the Federal
tax system in a manner which produces a fair, simple, honest
code that generates appropriate revenue for the Federal
Government.
(c) Report.--Not later than 18 months after the date on
which all initial members of the Commission have been
appointed pursuant to section 2(b), the Commission shall
submit a report to the President and Congress which shall
contain a detailed statement of the findings and conclusions
of the Commission, together with its recommendations for such
legislation and administrative actions as it considers
appropriate.
SEC. 4. POWERS OF THE COMMISSION.
(a) Hearings.--The Commission may hold such hearings, sit
and act at such times and places, take such testimony, and
receive such evidence as the Commission considers advisable
to carry out this Act.
(b) Information From Federal Agencies.--The Commission may
secure directly from any Federal department or agency such
information as the Commission considers necessary to carry
out this Act. Upon request of the Chairman of the Commission,
the head of such department or agency shall furnish such
information to the Commission.
(c) Postal Services.--The Commission may use the United
States mails in the same manner and under the same conditions
as other departments and agencies of the Federal Government.
(d) Gifts.--The Commission may accept, use, and dispose of
gifts or donations of services or property.
SEC. 5. COMMISSION PERSONNEL MATTERS.
(a) Compensation of Members.--Each member of the Commission
who is not an officer or employee of the Federal Government
shall be compensated at a rate equal to the daily equivalent
of the annual rate of basic pay prescribed for level IV of
the Executive Schedule under section 5315 of title 5, United
States Code, for each day (including travel time) during
which such member is engaged in the performance of the duties
of the Commission. All members of the Commission who are
officers or employees of the United States shall serve
without compensation in addition to that received for their
services as officers or employees of the United States.
(b) Travel Expenses.--The members of the Commission shall
be allowed travel expenses, including per diem in lieu of
subsistence, at rates authorized for employees of agencies
under subchapter I of chapter 57 of title 5, United States
Code, while away from their homes or regular places of
business in the performance of services for the Commission.
(c) Staff.--
(1) In general.--The Chairman of the Commission may,
without regard to the civil service laws and regulations,
appoint and terminate an executive director and such other
additional personnel as may be necessary to enable the
Commission to perform its duties. The employment of an
executive director shall be subject to confirmation by the
Commission.
(2) Compensation.--The Chairman of the Commission may fix
the compensation of the executive director and other
personnel without regard to chapter 51 and subchapter III of
chapter 53 of title 5, United States Code, relating to
classification of positions and General Schedule pay rates,
except that the rate of pay for the executive director and
other personnel may not exceed the rate payable for level V
of the Executive Schedule under section 5316 of such title.
(d) Detail of Government Employees.--Any Federal Government
employee, including employees of the Legislative Branch, may
be detailed to the Commission without reimbursement, and such
detail shall be without interruption or loss of civil service
status or privilege.
(e) Procurement of Temporary and Intermittent Services.--
The Chairman of the Commission may procure temporary and
intermittent services under section 3109(b) of title 5,
United States Code, at rates for individuals which do not
exceed the daily equivalent of the annual rate of basic pay
prescribed for level V of the Executive Schedule under
section 5316 of such title.
SEC. 6. TERMINATION OF THE COMMISSION.
The Commission shall terminate 90 days after the date on
which the Commission submits its reports under section 3.
SEC. 7. AUTHORIZATION OF APPROPRIATIONS.
There are authorized to be appropriated such sums as are
necessary to the Commission to carry out this Act.
______
SA 2667. Mr. SMITH (for himself, Mr. Lautenberg, and Ms. Murkowski)
submitted an amendment intended to be proposed by him to the bill S.
1637, to amend the Internal Revenue Code of 1986 to comply with the
World Trade Organization rulings on the FSC/ETI benefit in a manner
that preserves jobs and production activities in the United States, to
reform and simplify the international taxation rules of the United
States, and for other purposes; which was ordered to lie on the table;
as follows:
At the appropriate place, insert the following:
[[Page S2142]]
SEC.__. INCOME AVERAGING FOR FARMERS AND FISHERMEN NOT TO
INCREASE ALTERNATIVE MINIMUM TAX LIABILITY.
(a) In General.--Section 55(c) (defining regular tax) is
amended by redesignating paragraph (2) as paragraph (3) and
by inserting after paragraph (1) the following new paragraph:
``(2) Coordination with income averaging for farmers and
fishermen.--Solely for purposes of this section, section 1301
(relating to averaging of farm and fishing income) shall not
apply in computing the regular tax.''.
(b) Allowing Income Averaging for Fishermen.--
(1) In general.--Section 1301(a) is amended by striking
``farming business'' and inserting ``farming business or
fishing business''.
(2) Definition of elected farm income.--
(A) In general.--Clause (i) of section 1301(b)(1)(A) is
amended by inserting ``or fishing business'' before the
semicolon.
(B) Conforming amendment.--Subparagraph (B) of section
1301(b)(1) is amended by inserting ``or fishing business''
after ``farming business'' both places it occurs.
(3) Definition of fishing business.--Section 1301(b) is
amended by adding at the end the following new paragraph:
``(4) Fishing business.--The term `fishing business' means
the conduct of commercial fishing as defined in section 3 of
the Magnuson-Stevens Fishery Conservation and Management Act
(16 U.S.C. 1802).''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2003.
______
SA 2668. Mr. SANTORUM submitted an amendment intended to be proposed
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
At the end of the bill, add the following:
TITLE V--MISCELLANEOUS PROVISIONS
SEC. 501. CERTAIN STEAM GENERATORS OR OTHER GENERATING
BOILERS USED IN NUCLEAR FACILITIES AND CERTAIN
REACTOR VESSEL HEADS USED IN SUCH FACILITIES.
(a) In General.--
(1) Subheading 9902.84.02 of the Harmonized Tariff Schedule
of the United States is amended by striking ``12/31/2006''
and inserting ``12/31/2012''.
(2) Subchapter II of chapter 99 of the Harmonized Tariff
Schedule of the United States is amended by inserting in
numerical sequence the following new heading:
`` 9902.84.03 Reactor vessel Free No change No change On or before 12/
heads for nuclear 31/2012 ''
reactors .
(provided for in
subheading
8401.40.00).
(b) Effective Date.--The amendments made by subsection
(a)(2) shall apply to goods entered, or withdrawn from
warehouse, for consumption on or after January 1, 2005.
______
SA 2669. Mr. HOLLINGS submitted an amendment intended to be proposed
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
On page 71, beginning with line 12, strike through line 23
on page 146 and insert the following:
``(a) Allowance of Deduction.--There shall be allowed as a
deduction an amount equal to 9 percent of the qualified
production activities income of the taxpayer for the taxable
year.
``(b) Deduction Limited to Wages Paid.--
``(1) In general.--The amount of the deduction allowable
under subsection (a) for any taxable year shall not exceed 50
percent of the W-2 wages of the employer for the taxable
year.
``(2) W-2 wages.--For purposes of paragraph (1), the term
`W-2 wages' means the sum of the aggregate amounts the
taxpayer is required to include on statements under
paragraphs (3) and (8) of section 6051(a) with respect to
employment of employees of the taxpayer during the taxpayer's
taxable year.
``(3) Special rules.--
``(A) Pass-thru entities.--In the case of an S corporation,
partnership, estate or trust, or other pass-thru entity, the
limitation under this subsection shall apply at the entity
level.
``(B) Acquisitions and dispositions.--
The Secretary shall provide for the application of this
subsection in cases where the taxpayer acquires, or disposes
of, the major portion of a trade or business or the major
portion of a separate unit of a trade or business during the
taxable year.
``(c) Qualified Production Activities Income.--For purposes
of this section--
``(1) In general.--The term `qualified production
activities income' means an amount equal to the portion of
the modified taxable income of the taxpayer which is
attributable to domestic production activities.
``(2) Reduction for taxable years beginning before 2013.--
The amount otherwise determined under paragraph (1) (the
`unreduced amount') shall not exceed--
``(A) in the case of taxable years beginning before 2010,
the product of the unreduced amount and the domestic/
worldwide fraction, and
``(B) in the case of taxable years beginning in 2010, 2011,
or 2012, an amount equal to the sum of--
``(i) the product of the unreduced amount and the domestic/
worldwide fraction, plus
``(ii) the applicable percentage of an amount equal to the
unreduced amount minus the amount determined under clause
(i).
For purposes of subparagraph (B)(ii), the applicable
percentage is 25 percent for 2010, 50 percent for 2011, and
75 percent for 2012.
``(d) Determination of Income Attributable to Domestic
Production Activities.--For purposes of this section--
``(1) In general.--The portion of the modified taxable
income which is attributable to domestic production
activities is so much of the modified taxable income for the
taxable year as does not exceed--
``(A) the taxpayer's domestic production gross receipts for
such taxable year, reduced by
``(B) the sum of--
``(i) the costs of goods sold that are allocable to such
receipts,
``(ii) other deductions, expenses, or losses directly
allocable to such receipts, and
``(iii) a proper share of other deductions, expenses, and
losses that are not directly allocable to such receipts or
another class of income.
``(2) Allocation method--The Secretary shall prescribe
rules for the proper allocation of items of income,
deduction, expense, and loss for purposes of determining
income attributable to domestic production activities.
``(3) Special rules for determining costs.--
``(A) In general.--For purposes of determining costs under
clause (1) of paragraph (1)(B), any item or service brought
into the United States shall be treated as acquired by
purchase, and its cost shall be treated as not less than its
fair market value immediately after it entered the United
States. A similar rule shall apply in determining the
adjusted basis of leased or rented property where the lease
or rental gives rise to domestic production gross receipts.
``(B) Exports for further manufacture.--In the case of any
property described in subparagraph (A) that had been exported
by the taxpayer for further manufacture, the increase in cost
or adjusted basis under subparagraph (A) shall not exceed the
difference between the value of the property when exported
and the value of the property when brought back into the
United States after the further manufacture.
``(4) Modified taxable income.--The term `modified taxable
income' means taxable income computed without regard to the
deduction allowable under this section.
``(e) Domestic Production Gross Receipts.--For purposes of
this section--
``(1) In general.--The term `domestic production gross
receipts' means the gross receipts of the taxpayer which are
derived from--
``(A) any sale, exchange, or other disposition of, or
``(B) any lease, rental, or license of,
qualifying production property which was manufactured,
produced, grown, or extracted in whole or in significant part
by the taxpayer within the United States.
``(2) Special rules for certain property.--In the case of
any qualifying production property described in subsection
(f)(1)(C)--
``(A) such property shall be treated for purposes of
paragraph (1) as produced in significant part by the taxpayer
within the United States if more than 50 percent of the
aggregate development and production costs are incurred by
the taxpayer within the United States, and
``(B) if a taxpayer acquires such property before such
property begins to generate substantial gross receipts, any
development or production costs incurred before the
acquisition shall be treated as incurred by the taxpayer for
purposes of subparagraph (A) and paragraph (1).
``(f) Qualifying Production Property.--For purposes of this
section--
``(1) In general.--Except as otherwise provided in this
paragraph, the term `qualifying production property' means--
``(A) any tangible personal property,
``(B) any computer software, and
``(C) any property described in section 168(f) (3) or (4),
including any underlying copyright or trademark.
``(2) Exclusions from qualifying production property.--The
term `qualifying production property' shall not include--
``(A) consumable property that is sold, leased, or licensed
by the taxpayer as an integral part of the provision of
services,
``(B) oil or gas,
[[Page S2143]]
``(C) electricity,
``(D) water supplied by pipeline to the consumer,
``(E) utility services, or
``(F) any film, tape, recording, book, magazine,
newspaper, or similar property the market for which is
primarily topical or otherwise essentially transitory in
nature.
``(g) Domestic/Worldwide Fraction.--For purposes of this
section--
``(1) In general.--The term `domestic/worldwide fraction'
means a fraction (not greater than 1)--
``(A) the numerator of which is the value of the domestic
production of the taxpayer, and
``(B) the denominator of which is the value of the
worldwide production of the taxpayer.
``(2) Value of domestic production.--The value of domestic
production is the excess (if any) of--
``(A) the domestic production gross receipts, over
``(B) the cost of purchased inputs allocable to such
receipts that are deductible under this chapter for the
taxable year.
``(3) Purchased inputs.--
``(A) In general.--Purchased inputs are any of the
following items acquired by purchase:
``(i) Services (other than services of employees) used in
manufacture, production, growth, or extraction activities.
``(ii) Items consumed in connection with such activities.
``(iii) Items incorporated as part of the property being
manufactured, produced, grown, or extracted.
``(B) Special rule.--Rules similar to the rules of
subsection (d)(3) shall apply for purposes of this
subsection.
``(4) Value of worldwide production.--
``(A) In general.--The value of worldwide production shall
be determined under the principles of paragraph (2), except
that--
``(i) worldwide production gross receipts shall be taken
into account, and
``(ii) paragraph (3)(B) shall not apply.
``(B) Worldwide production gross receipts.--The worldwide
production gross receipts is the amount that would be
determined under subsection (e) if such subsection were
applied without any reference to the United States.
``(h) Definitions and Special Rules.--
``(1) Application of section to pass-thru entities.--In
the case of an S corporation, partnership, estate or trust,
or other pass-thru entity--
``(A) subject to the provisions of paragraph (2) and
subsection (b)(3)(A), this section shall be applied at the
shareholder, partner, or similar level, and
``(B) the Secretary shall prescribe rules for the
application of this section, including rules relating to--
``(i) restrictions on the allocation of the deduction to
taxpayers at the partner or similar level, and
``(ii) additional reporting requirements.
``(2) Exclusion for patrons of agricultural and
horticultural cooperatives.--
``(A) In general.--If any amount described in paragraph
(1) or (3) of section 1385(a)--
``(i) is received by a person from an organization to
which part I of subchapter T applies which is engaged in the
marketing of agricultural or horticultural products, and
``(ii) is allocable to the portion of the qualified
production activities income of the organization which is
deductible under subsection (a) and designated as such by the
organization in a written notice mailed to its patrons during
the payment period described in section 1382(d),
then such person shall be allowed an exclusion from gross
income with respect to such amount. The taxable income of the
organization shall not be reduced under section 1382 by the
portion of any such amount with respect to which an exclusion
is allowable to a person by reason of this paragraph.
``(B) Special rules.--For purposes of applying subparagraph
(A), in determining the qualified production activities
income of the organization under this section--
``(i) there shall not be taken into account in computing
the organization's modified taxable income any deduction
allowable under subsection (b) or (c) of section 1382
(relating to patronage dividends, per-unit retain
allocations, and nonpatronage distributions), and
``(ii) the organization shall be treated as having
manufactured, produced, grown, or extracted in whole or
significant part any qualifying production property marketed
by the organization which its patrons have so manufactured,
produced, grown, or extracted.
``(3) Special rule for affiliated groups.--
``(A) In general.--All members of an expanded affiliated
group shall be treated as a single corporation for purposes
of this section.
``(B) Expanded affiliated group.--The term `expanded
affiliated group' means an affiliated group as defined in
section 1504(a), determined--
``(i) by substituting `50 percent' for `80 percent' each
place it appears, and
``(ii) without regard to paragraphs (2) and (4) of section
1504(b).
For purposes of determining the domestic/worldwide fraction
under subsection (g), clause (ii) shall be applied by also
disregarding paragraphs (3) and (8) of section 1504(b).
``(4) Coordination with minimum tax.--The deduction under
this section shall be allowed for purposes of the tax imposed
by section 55; except that for purposes of section 55,
alternative minimum taxable income shall be taken into
account in determining the deduction under this section.
``(5) Ordering rule.--The amount of any other deduction
allowable under this chapter shall be determined as if this
section had not been enacted.
``(6) Trade or business requirement.--This section shall be
applied by only taking into account items which are
attributable to the actual conduct of a trade or business.
``(7) Possessions, etc.--
``(A) In general.--For purposes of subsection (d) and (e),
the term `United States' includes the Commonwealth of Puerto
Rico, Guam, American Samoa, the Commonwealth of the Northern
Mariana Islands, and the Virgin Islands of the United States.
``(B) Special rules for applying wage limitation.--For
purposes of applying the limitation under subsection (b) for
any taxable year--
``(i) the determination of W-2 wages of a taxpayer shall be
made without regard to any exclusion under section 3401(a)(8)
for remuneration paid for services performed in a
jurisdiction described in subparagraph (A), and
``(ii) in determining the amount of any credit allowable
under section 30A or 936 for the taxable year, there shall
not be taken into account any wages which are taken into
account in applying such limitation.
``(8) Coordination with transition rules.--For purposes of
this section--
``(A) domestic production gross receipts shall not include
gross receipts from any transaction if the binding contract
transition relief of section 101(c)(2) of the Jumpstart Our
Business Strength (JOBS) Act applies to such transaction, and
``(B) any deduction allowed under section 101(e) of such
Act shall be disregarded in determining the portion of the
taxable income which is attributable to domestic production
gross receipts.''.
(b) Minimum Tax.--Section 56(g)(4)(C) (relating to
disallowance of items not deductible in computing earnings
and profits) is amended by adding at the end the following
new clause:
``(v) Deduction for domestic production.--Clause (i) shall
not apply to any amount allowable as a deduction under
section 199.''.
(c) Clerical Amendment.--The table of sections for part VI
of subchapter B of chapter 1 is amended by adding at the end
the following new item:
``Sec. 199, Income attributable to domestic production activities.''.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment
of this Act.
(2) Application of section 15.--Section 15 of the Internal
Revenue Code of 1986 shall apply to the amendments made by
this section as if they were changes in a rate of tax.
SEC. 103. MODIFICATION TO CORPORATE ESTIMATED TAX
REQUIREMENTS.
(a) Requirements for 2005.--The amount of any required
installment of corporate estimated income tax which is
otherwise due under section 6655 of the Internal Revenue Code
of 1986 after June 30, 2005, and before October 1, 2005,
shall be 110 percent of such amount.
(b) Requirements for 2009.--The amount of any required
installment of corporate estimated income tax which is
otherwise due under section 6655 of the Internal Revenue Code
of 1986 after June 30, 2009, and before October 1, 2009,
shall be 119 percent of such amount.
______
SA 2670. Mr. SANTORUM (for himself and Mr. Lieberman) submitted an
amendment intended to be proposed by him to the bill S. 1637, to amend
the Internal Revenue Code of 1986 to comply with the World Trade
Organization rulings on the FSC/ETI benefit in a manner that preserves
jobs and production activities in the United States, to reform and
simplify the international taxation rules of the United States, and for
other purposes; which was ordered to lie on the table; as follows:
At the end add the following:
DIVISION B--CARE ACT
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This division may be cited as the ``CARE
Act of 2004''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this division an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered
to be made to a section or other provision of the Internal
Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this
division is as follows:
Sec. 1. Short title; etc.
TITLE I--CHARITABLE GIVING INCENTIVES
Sec. 101. Deduction for portion of charitable contributions to be
allowed to individuals who do not itemize deductions.
Sec. 102. Tax-free distributions from individual retirement accounts
for charitable purposes.
Sec. 103. Charitable deduction for contributions of food inventories.
[[Page S2144]]
Sec. 104. Charitable deduction for contributions of book inventories.
Sec. 105. Expansion of charitable contribution allowed for scientific
property used for research and for computer technology
and equipment used for educational purposes.
Sec. 106. Modifications to encourage contributions of capital gain real
property made for conservation purposes.
Sec. 107. Exclusion of 25 percent of gain on sales or exchanges of land
or water interests to eligible entities for conservation
purposes.
Sec. 108. Tax exclusion for cost-sharing payments under Partners for
Fish and Wildlife Program.
Sec. 109. Adjustment to basis of S corporation stock for certain
charitable contributions.
Sec. 110. Enhanced deduction for charitable contribution of literary,
musical, artistic, and scholarly compositions.
Sec. 111. Mileage reimbursements to charitable volunteers excluded from
gross income.
Sec. 112. Extension of enhanced deduction for inventory to include
public schools.
Sec. 113. 10-year divestiture period for certain excess business
holdings of private foundations
TITLE II--PROPOSALS IMPROVING THE OVERSIGHT OF TAX-EXEMPT ORGANIZATIONS
Sec. 201. Disclosure of written determinations.
Sec. 202. Disclosure of Internet web site and name under which
organization does business.
Sec. 203. Modification to reporting capital transactions.
Sec. 204. Disclosure that Form 990 is publicly available.
Sec. 205. Disclosure to State officials of proposed actions related to
section 501(c) organizations.
Sec. 206. Expansion of penalties to preparers of Form 990.
Sec. 207. Notification requirement for entities not currently required
to file.
Sec. 208. Suspension of tax-exempt status of terrorist organizations.
TITLE III--OTHER CHARITABLE AND EXEMPT ORGANIZATION PROVISIONS
Sec. 301. Modification of excise tax on unrelated business taxable
income of charitable remainder trusts.
Sec. 302. Modifications to section 512(b)(13).
Sec. 303. Simplification of lobbying expenditure limitation.
Sec. 304. Expedited review process for certain tax-exemption
applications.
Sec. 305. Clarification of definition of church tax inquiry.
Sec. 306. Expansion of declaratory judgment remedy to tax-exempt
organizations.
Sec. 307. Definition of convention or association of churches.
Sec. 308. Payments by charitable organizations to victims of war on
terrorism and families of astronauts killed in the line
of duty.
Sec. 309. Modification of scholarship foundation rules.
Sec. 310. Treatment of certain hospital support organizations as
qualified organizations for purposes of determining
acquisition indebtedness.
Sec. 311. Charitable contribution deduction for certain expenses
incurred in support of Native Alaskan subsistence
whaling.
Sec. 312. Matching grants to low-income taxpayer clinics for return
preparation.
Sec. 313. Exemption of qualified 501(c)(3) bonds for nursing homes from
Federal guarantee prohibitions.
Sec. 314. Excise taxes exemption for blood collector organizations.
Sec. 315. Pilot project for forest conservation activities.
Sec. 316. Clarification of treatment of Johnny Micheal Spann Patriot
Trusts.
TITLE IV--SOCIAL SERVICES BLOCK GRANT
Sec. 401. Restoration of funds for the Social Services Block Grant.
Sec. 402. Restoration of authority to transfer up to 10 percent of TANF
funds to the Social Services Block Grant.
Sec. 403. Requirement to submit annual report on State activities.
TITLE V--INDIVIDUAL DEVELOPMENT ACCOUNTS
Sec. 501. Short title.
Sec. 502. Purposes.
Sec. 503. Definitions.
Sec. 504. Structure and administration of qualified individual
development account programs.
Sec. 505. Procedures for opening and maintaining an individual
development account and qualifying for matching funds.
Sec. 506. Deposits by qualified individual development account
programs.
Sec. 507. Withdrawal procedures.
Sec. 508. Certification and termination of qualified individual
development account programs.
Sec. 509. Reporting, monitoring, and evaluation.
Sec. 510. Authorization of appropriations.
Sec. 511. Matching funds for individual development accounts provided
through a tax credit for qualified financial
institutions.
Sec. 512. Account funds disregarded for purposes of certain means-
tested Federal programs.
TITLE VI--MANAGEMENT OF EXEMPT ORGANIZATIONS
Sec. 601. Authorization of appropriations.
TITLE VII--REVENUE PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
Sec. 701. Clarification of economic substance doctrine.
Sec. 702. Penalty for failing to disclose reportable transaction.
Sec. 703. Accuracy-related penalty for listed transactions and other
reportable transactions having a significant tax
avoidance purpose.
Sec. 704. Penalty for understatements attributable to transactions
lacking economic substance, etc.
Sec. 705. Modifications of substantial understatement penalty for
nonreportable transactions.
Sec. 706. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 707. Disclosure of reportable transactions.
Sec. 708. Modifications to penalty for failure to register tax
shelters.
Sec. 709. Modification of penalty for failure to maintain lists of
investors.
Sec. 710. Modification of actions to enjoin certain conduct related to
tax shelters and reportable transactions.
Sec. 711. Understatement of taxpayer's liability by income tax return
preparer.
Sec. 712. Penalty on failure to report interests in foreign financial
accounts.
Sec. 713. Frivolous tax submissions.
Sec. 714. Regulation of individuals practicing before the Department of
Treasury.
Sec. 715. Penalty on promoters of tax shelters.
Sec. 716. Statute of limitations for taxable years for which listed
transactions not reported.
Sec. 717. Denial of deduction for interest on underpayments
attributable to nondisclosed reportable and noneconomic
substance transactions.
Sec. 718. Authorization of appropriations for tax law enforcement.
Subtitle B--Other Provisions
Sec. 721. Affirmation of consolidated return regulation authority.
Sec. 722. Signing of corporate tax returns by chief executive officer.
Sec. 723. Securities civil enforcement provisions.
Sec. 724. Review of State agency blindness and disability
determinations.
TITLE VIII--COMPASSION CAPITAL FUND
Sec. 801. Support for nonprofit community-based organizations;
Department of Health and Human Services.
Sec. 802. Support for nonprofit community-based organizations;
Corporation for National and Community Service.
Sec. 803. Support for nonprofit community-based organizations;
Department of Justice.
Sec. 804. Support for nonprofit community-based organizations;
Department of Housing and Urban Development.
Sec. 805. Coordination.
TITLE IX--MATERNITY GROUP HOMES
Sec. 901. Maternity group homes.
TITLE I--CHARITABLE GIVING INCENTIVES
SEC. 101. DEDUCTION FOR PORTION OF CHARITABLE CONTRIBUTIONS
TO BE ALLOWED TO INDIVIDUALS WHO DO NOT ITEMIZE
DEDUCTIONS.
(a) In General.--Section 170 (relating to charitable, etc.,
contributions and gifts) is amended by redesignating
subsection (m) as subsection (n) and by inserting after
subsection (l) the following new subsection:
``(m) Deduction for Individuals Not Itemizing Deductions.--
In the case of an individual who does not itemize deductions
for any taxable year, there shall be taken into account as a
direct charitable deduction under section 63 an amount equal
to the amount allowable under subsection (a) for the taxable
year for cash contributions, to the extent that such
contributions exceed $250 ($500 in the case of a joint
return) but do not exceed $500 ($1,000 in the case of a joint
return).''.
(b) Direct Charitable Deduction.--
(1) In general.--Subsection (b) of section 63 (defining
taxable income) is amended by striking ``and'' at the end of
paragraph (1), by striking the period at the end of paragraph
(2) and inserting ``, and'', and by adding at the end the
following new paragraph:
``(3) the direct charitable deduction.''.
(2) Definition.--Section 63 is amended by redesignating
subsection (g) as subsection (h) and by inserting after
subsection (f) the following new subsection:
``(g) Direct Charitable Deduction.--For purposes of this
section, the term `direct
[[Page S2145]]
charitable deduction' means that portion of the amount
allowable under section 170(a) which is taken as a direct
charitable deduction for the taxable year under section
170(m).''.
(3) Conforming amendment.--Subsection (d) of section 63 is
amended by striking ``and'' at the end of paragraph (1), by
striking the period at the end of paragraph (2) and inserting
``, and'', and by adding at the end the following new
paragraph:
``(3) the direct charitable deduction.''.
(c) Study.--
(1) In general.--The Secretary of the Treasury shall study
the effect of the amendments made by this section on
increased charitable giving and taxpayer compliance,
including a comparison of taxpayer compliance between
taxpayers who itemize their charitable contributions and
taxpayers who claim a direct charitable deduction.
(2) Report.--By not later than December 31, 2004, the
Secretary of the Treasury shall report on the study required
under paragraph (1) to the Committee on Finance of the Senate
and the Committee on Ways and Means of the House of
Representatives.
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2002, and before January 1, 2005.
SEC. 102. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT
ACCOUNTS FOR CHARITABLE PURPOSES.
(a) In General.--Subsection (d) of section 408 (relating to
individual retirement accounts) is amended by adding at the
end the following new paragraph:
``(8) Distributions for charitable purposes.--
``(A) In general.--No amount shall be includible in gross
income by reason of a qualified charitable distribution.
``(B) Qualified charitable distribution.--For purposes of
this paragraph, the term `qualified charitable distribution'
means any distribution from an individual retirement
account--
``(i) which is made directly by the trustee--
``(I) to an organization described in section 170(c), or
``(II) to a split-interest entity, and
``(ii) which is made on or after--
``(I) in the case of any distribution described in clause
(i)(I), the date that the individual for whose benefit the
account is maintained has attained age 70\1/2\, and
``(II) in the case of any distribution described in clause
(i)(II), the the date that such individual has attained age
59\1/2\.
A distribution shall be treated as a qualified charitable
distribution only to the extent that the distribution would
be includible in gross income without regard to subparagraph
(A) and, in the case of a distribution to a split-interest
entity, only if no person holds an income interest in the
amounts in the split-interest entity attributable to such
distribution other than one or more of the following: the
individual for whose benefit such account is maintained, the
spouse of such individual, or any organization described in
section 170(c).
``(C) Contributions must be otherwise deductible.--For
purposes of this paragraph--
``(i) Direct contributions.--A distribution to an
organization described in section 170(c) shall be treated as
a qualified charitable distribution only if a deduction for
the entire distribution would be allowable under section 170
(determined without regard to subsection (b) thereof and this
paragraph).
``(ii) Split-interest gifts.--A distribution to a split-
interest entity shall be treated as a qualified charitable
distribution only if a deduction for the entire value of the
interest in the distribution for the use of an organization
described in section 170(c) would be allowable under section
170 (determined without regard to subsection (b) thereof and
this paragraph).
``(D) Application of section 72.--Notwithstanding section
72, in determining the extent to which a distribution is a
qualified charitable distribution, the entire amount of the
distribution shall be treated as includible in gross income
without regard to subparagraph (A) to the extent that such
amount does not exceed the aggregate amount which would have
been so includible if all amounts were distributed from all
individual retirement accounts treated as 1 contract under
paragraph (2)(A) for purposes of determining the inclusion on
such distribution under section 72. Proper adjustments shall
be made in applying section 72 to other distributions in such
taxable year and subsequent taxable years.
``(E) Special rules for split-interest entities.--
``(i) Charitable remainder trusts.--Notwithstanding section
664(b), distributions made from a trust described in
subparagraph (G)(i) shall be treated as ordinary income in
the hands of the beneficiary to whom is paid the annuity
described in section 664(d)(1)(A) or the payment described in
section 664(d)(2)(A).
``(ii) Pooled income funds.--No amount shall be includible
in the gross income of a pooled income fund (as defined in
subparagraph (G)(ii)) by reason of a qualified charitable
distribution to such fund, and all distributions from the
fund which are attributable to qualified charitable
distributions shall be treated as ordinary income to the
beneficiary.
``(iii) Charitable gift annuities.--Qualified charitable
distributions made for a charitable gift annuity shall not be
treated as an investment in the contract.
``(F) Denial of deduction.--Qualified charitable
distributions shall not be taken into account in determining
the deduction under section 170.
``(G) Split-interest entity defined.--For purposes of this
paragraph, the term `split-interest entity' means--
``(i) a charitable remainder annuity trust or a charitable
remainder unitrust (as such terms are defined in section
664(d)) which must be funded exclusively by qualified
charitable distributions,
``(ii) a pooled income fund (as defined in section
642(c)(5)), but only if the fund accounts separately for
amounts attributable to qualified charitable distributions,
and
``(iii) a charitable gift annuity (as defined in section
501(m)(5)).''.
(b) Modifications Relating to Information Returns by
Certain Trusts.--
(1) Returns.--Section 6034 (relating to returns by trusts
described in section 4947(a)(2) or claiming charitable
deductions under section 642(c)) is amended to read as
follows:
``SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION
4947(A)(2) OR CLAIMING CHARITABLE DEDUCTIONS
UNDER SECTION 642(C).
``(a) Trusts Described in Section 4947(a)(2).--Every trust
described in section 4947(a)(2) shall furnish such
information with respect to the taxable year as the Secretary
may by forms or regulations require.
``(b) Trusts Claiming a Charitable Deduction Under Section
642(c).--
``(1) In general.--Every trust not required to file a
return under subsection (a) but claiming a deduction under
section 642(c) for the taxable year shall furnish such
information with respect to such taxable year as the
Secretary may by forms or regulations prescribe, including--
``(A) the amount of the deduction taken under section
642(c) within such year,
``(B) the amount paid out within such year which represents
amounts for which deductions under section 642(c) have been
taken in prior years,
``(C) the amount for which such deductions have been taken
in prior years but which has not been paid out at the
beginning of such year,
``(D) the amount paid out of principal in the current and
prior years for the purposes described in section 642(c),
``(E) the total income of the trust within such year and
the expenses attributable thereto, and
``(F) a balance sheet showing the assets, liabilities, and
net worth of the trust as of the beginning of such year.
``(2) Exceptions.--Paragraph (1) shall not apply to a trust
for any taxable year if--
``(A) all the net income for such year, determined under
the applicable principles of the law of trusts, is required
to be distributed currently to the beneficiaries, or
``(B) the trust is described in section 4947(a)(1).''.
(2) Increase in penalty relating to filing of information
return by split-interest trusts.--Paragraph (2) of section
6652(c) (relating to returns by exempt organizations and by
certain trusts) is amended by adding at the end the following
new subparagraph:
``(C) Split-interest trusts.--In the case of a trust which
is required to file a return under section 6034(a),
subparagraphs (A) and (B) of this paragraph shall not apply
and paragraph (1) shall apply in the same manner as if such
return were required under section 6033, except that--
``(i) the 5 percent limitation in the second sentence of
paragraph (1)(A) shall not apply,
``(ii) in the case of any trust with gross income in excess
of $250,000, the first sentence of paragraph (1)(A) shall be
applied by substituting `$100' for `$20', and the second
sentence thereof shall be applied by substituting `$50,000'
for `$10,000', and
``(iii) the third sentence of paragraph (1)(A) shall be
disregarded.
In addition to any penalty imposed on the trust pursuant to
this subparagraph, if the person required to file such return
knowingly fails to file the return, such penalty shall also
be imposed on such person who shall be personally liable for
such penalty.''.
(3) Confidentiality of noncharitable beneficiaries.--
Subsection (b) of section 6104 (relating to inspection of
annual information returns) is amended by adding at the end
the following new sentence: ``In the case of a trust which is
required to file a return under section 6034(a), this
subsection shall not apply to information regarding
beneficiaries which are not organizations described in
section 170(c).''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to distributions--
(A) described in section 408(d)(8)(B)(i)(I) of the Internal
Revenue Code of 1986, as added by this section, made after
the date of the enactment of this Act, and
(B) described in section 408(d)(8)(B)(i)(II) of such Code,
as so added, made after December 31, 2003.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to returns for taxable years beginning after
December 31, 2003.
SEC. 103. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF FOOD
INVENTORIES.
(a) In General.--Subsection (e) of section 170 (relating to
certain contributions of ordinary income and capital gain
property) is amended by adding at the end the following new
paragraph:
[[Page S2146]]
``(7) Application of paragraph (3) to certain contributions
of food inventory.--For purposes of this section--
``(A) Extension to individuals.--In the case of a
charitable contribution of apparently wholesome food--
``(i) paragraph (3)(A) shall be applied without regard to
whether the contribution is made by a C corporation, and
``(ii) in the case of a taxpayer other than a C
corporation, the aggregate amount of such contributions from
any trade or business (or interest therein) of the taxpayer
for any taxable year which may be taken into account under
this section shall not exceed 10 percent of the taxpayer's
net income from any such trade or business, computed without
regard to this section, for such taxable year.
``(B) Limitation on reduction.--In the case of a charitable
contribution of apparently wholesome food, notwithstanding
paragraph (3)(B), the amount of the reduction determined
under paragraph (1)(A) shall not exceed the amount by which
the fair market value of such property exceeds twice the
basis of such property.
``(C) Determination of basis.--If a taxpayer--
``(i) does not account for inventories under section 471,
and
``(ii) is not required to capitalize indirect costs under
section 263A,
the taxpayer may elect, solely for purposes of paragraph
(3)(B), to treat the basis of any apparently wholesome food
as being equal to 25 percent of the fair market value of such
food.
``(D) Determination of fair market value.--In the case of a
charitable contribution of apparently wholesome food which is
a qualified contribution (within the meaning of paragraph
(3), as modified by subparagraph (A) of this paragraph) and
which, solely by reason of internal standards of the taxpayer
or lack of market, cannot or will not be sold, the fair
market value of such contribution shall be determined--
``(i) without regard to such internal standards or such
lack of market and
``(ii) by taking into account the price at which the same
or substantially the same food items (as to both type and
quality) are sold by the taxpayer at the time of the
contribution (or, if not so sold at such time, in the recent
past).
``(E) Apparently wholesome food.--For purposes of this
paragraph, the term `apparently wholesome food' has the
meaning given such term by section 22(b)(2) of the Bill
Emerson Good Samaritan Food Donation Act (42 U.S.C.
1791(b)(2)), as in effect on the date of the enactment of
this paragraph.''.
(b) Effective Date.--The amendment made by this section
shall apply to contributions made after the date of the
enactment of this Act.
SEC. 104. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF BOOK
INVENTORIES.
(a) In General.--Section 170(e)(3) (relating to certain
contributions of ordinary income and capital gain property)
is amended by redesignating subparagraph (C) as subparagraph
(D) and by inserting after subparagraph (B) the following new
subparagraph:
``(C) Special rule for contributions of book inventory for
educational purposes.--
``(i) Contributions of book inventory.--In determining
whether a qualified book contribution is a qualified
contribution, subparagraph (A) shall be applied without
regard to whether--
``(I) the donee is an organization described in the matter
preceding clause (i) of subparagraph (A), and
``(II) the property is to be used by the donee solely for
the care of the ill, the needy, or infants.
``(ii) Amount of reduction.--Notwithstanding subparagraph
(B), the amount of the reduction determined under paragraph
(1)(A) shall not exceed the amount by which the fair market
value of the contributed property (as determined by the
taxpayer using a bona fide published market price for such
book) exceeds twice the basis of such property.
``(iii) Qualified book contribution.--For purposes of this
paragraph, the term `qualified book contribution' means a
charitable contribution of books, but only if the
requirements of clauses (iv) and (v) are met.
``(iv) Identity of donee.--The requirement of this clause
is met if the contribution is to an organization--
``(I) described in subclause (I) or (III) of paragraph
(6)(B)(i), or
``(II) described in section 501(c)(3) and exempt from tax
under section 501(a) (other than a private foundation, as
defined in section 509(a), which is not an operating
foundation, as defined in section 4942(j)(3)), which is
organized primarily to make books available to the general
public at no cost or to operate a literacy program.
``(v) Certification by donee.--The requirement of this
clause is met if, in addition to the certifications required
by subparagraph (A) (as modified by this subparagraph), the
donee certifies in writing that--
``(I) the books are suitable, in terms of currency,
content, and quantity, for use in the donee's educational
programs, and
``(II) the donee will use the books in its educational
programs.
``(vi) Bona fide published market price.--For purposes of
this subparagraph, the term `bona fide published market
price' means, with respect to any book, a price--
``(I) determined using the same printing and edition,
``(II) determined in the usual market in which such a book
has been customarily sold by the taxpayer, and
``(III) for which the taxpayer can demonstrate to the
satisfaction of the Secretary that the taxpayer customarily
sold such books in arm's length transactions within 7 years
preceding the contribution of such a book.''.
(b) Effective Date.--The amendments made by this section
shall apply to contributions made after the date of the
enactment of this Act
SEC. 105. EXPANSION OF CHARITABLE CONTRIBUTION ALLOWED FOR
SCIENTIFIC PROPERTY USED FOR RESEARCH AND FOR
COMPUTER TECHNOLOGY AND EQUIPMENT USED FOR
EDUCATIONAL PURPOSES.
(a) Scientific Property Used for Research.--
(1) In general.--Clause (ii) of section 170(e)(4)(B)
(defining qualified research contributions) is amended by
inserting ``or assembled'' after ``constructed''.
(2) Conforming amendment.--Clause (iii) of section
170(e)(4)(B) is amended by inserting ``or assembling'' after
``construction''.
(b) Computer Technology and Equipment for Educational
Purposes.--
(1) In general.--Clause (ii) of section 170(e)(6)(B) is
amended by inserting ``or assembled'' after ``constructed''
and ``or assembling'' after ``construction''.
(2) Special rule extended.--Section 170(e)(6)(G) is amended
by striking ``2003'' and inserting ``2005''.
(3) Conforming amendments.--Subparagraph (D) of section
170(e)(6) is amended by inserting ``or assembled'' after
``constructed'' and ``or assembling'' after ``construction''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2002.
SEC. 106. MODIFICATIONS TO ENCOURAGE CONTRIBUTIONS OF CAPITAL
GAIN REAL PROPERTY MADE FOR CONSERVATION
PURPOSES.
(a) In General.--Section 170(h) (relating to qualified
conservation contribution) is amended by adding at the end
the following new paragraph:
``(7) Additional incentives for qualified conservation
contributions.--
``(A) In general.--In the case of any qualified
conservation contribution (as defined in paragraph (1)) made
by an individual--
``(i) subparagraph (C) of subsection (b)(1) shall not
apply,
``(ii) except as provided in subparagraph (B)(i),
subsections (b)(1)(A) and (d)(1) shall be applied separately
with respect to such contributions by treating references to
50 percent of the taxpayer's contribution base as references
to the amount of such base reduced by the amount of other
contributions allowable under subsection (b)(1)(A), and
``(iii) subparagraph (A) of subsection (d)(1) shall be
applied--
``(I) by substituting `15 succeeding taxable years' for `5
succeeding taxable years', and
``(II) by applying clause (ii) to each of the 15 succeeding
taxable years.
``(B) Special rules for eligible farmers and ranchers.--
``(i) In general.--In the case of any such contributions by
a taxpayer who is an eligible farmer or rancher for the
taxable year in which such contributions are made--
``(I) if the taxpayer is an individual, subsections
(b)(1)(A) and (d)(1) shall be applied separately with respect
to such contributions by substituting `the taxpayer's
contribution base reduced by the amount of other
contributions allowable under subsection (b)(1)(A)' for `50
percent of the taxpayer's contribution base' each place it
appears, and
``(II) if the taxpayer is a corporation, subsections (b)(2)
and (d)(2) shall be applied separately with respect to such
contributions, subsection (b)(2) shall be applied with
respect to such contributions as if such subsection did not
contain the words `10 percent of' and as if subparagraph (A)
thereof read `the deduction under this section for qualified
conservation contributions', and rules similar to the rules
of subparagraph (A)(iii) shall apply for purposes of
subsection (d)(2).
``(ii) Definition.--For purposes of clause (i), the term
`eligible farmer or rancher' means a taxpayer whose gross
income from the trade or business of farming (within the
meaning of section 2032A(e)(5)) is at least 51 percent of the
taxpayer's gross income for the taxable year, and, in the
case of a C corporation, the stock of which is not publicly
traded on a recognized exchange.''.
(b) Effective Date.--The amendment made by this section
shall apply to contributions made after the date of the
enactment of this Act.
SEC. 107. EXCLUSION OF 25 PERCENT OF GAIN ON SALES OR
EXCHANGES OF LAND OR WATER INTERESTS TO
ELIGIBLE ENTITIES FOR CONSERVATION PURPOSES.
(a) In General.--Part III of subchapter B of chapter 1
(relating to items specifically excluded from gross income)
is amended by inserting after section 121 the following new
section:
``SEC. 121A. 25-PERCENT EXCLUSION OF GAIN ON SALES OR
EXCHANGES OF LAND OR WATER INTERESTS TO
ELIGIBLE ENTITIES FOR CONSERVATION PURPOSES.
``(a) Exclusion.--Gross income shall not include 25 percent
of the qualifying gain
[[Page S2147]]
from a conservation sale of a long-held qualifying land or
water interest.
``(b) Qualifying Gain.--For purposes of this section--
``(1) In general.--The term `qualifying gain' means any
gain which would be recognized as long-term capital gain,
reduced by the amount of any long-term capital gain
attributable to disqualified improvements.
``(2) Disqualified improvement.--For purposes of paragraph
(1), the term `disqualified improvement' means any building,
structure, or other improvement, other than--
``(A) any improvement which is described in section
175(c)(1), determined--
``(i) without regard to the requirements that the taxpayer
be engaged in farming, and
``(ii) without taking into account subparagraphs (A) and
(B) thereof, or
``(B) any improvement which the Secretary determines
directly furthers conservation purposes.
``(3) Special rule for sales of stock.--If the long-held
qualifying land or water interest is 1 or more shares of
stock in a qualifying land or water corporation, the
qualifying gain is equal to the lesser of--
``(A) the qualifying gain determined under paragraph (1),
or
``(B) the product of--
``(i) the percentage of such corporation's stock which is
transferred by the taxpayer, times
``(ii) the amount which would have been the qualifying gain
(determined under paragraph (1)) if there had been a
conservation sale by such corporation of all of its interests
in the land and water for a price equal to the product of the
fair market value of such interests times the ratio of--
``(I) the proceeds of the conservation sale of the stock,
to
``(II) the fair market value of the stock which was the
subject of the conservation sale.
``(c) Conservation Sale.--For purposes of this section, the
term `conservation sale' means a sale or exchange which meets
the following requirements:
``(1) Transferee is an eligible entity.--The transferee of
the long-held qualifying land or water interest is an
eligible entity.
``(2) Qualifying letter of intent required.--At the time of
the sale or exchange, such transferee provides the taxpayer
with a qualifying letter of intent.
``(3) Nonapplication to certain sales.--The sale or
exchange is not made pursuant to an order of condemnation or
eminent domain.
``(4) Controlling interest in stock sale required.--In the
case of the sale or exchange of stock in a qualifying land or
water corporation, at the end of the taxpayer's taxable year
in which such sale or exchange occurs, the transferee's
ownership of stock in such corporation meets the requirements
of section 1504(a)(2) (determined by substituting `90
percent' for `80 percent' each place it appears).
``(d) Long-Held Qualifying Land or Water Interest.--For
purposes of this section--
``(1) In general.--The term `long-held qualifying land or
water interest' means any qualifying land or water interest
owned by the taxpayer or a member of the taxpayer's family
(as defined in section 2032A(e)(2)) at all times during the
5-year period ending on the date of the sale.
``(2) Qualifying land or water interest.--
``(A) In general.--The term `qualifying land or water
interest' means a real property interest which constitutes--
``(i) a taxpayer's entire interest in land,
``(ii) a taxpayer's entire interest in water rights,
``(iii) a qualified real property interest (as defined in
section 170(h)(2)), or
``(iv) stock in a qualifying land or water corporation.
``(B) Entire interest.--For purposes of clause (i) or (ii)
of subparagraph (A)--
``(i) a partial interest in land or water is not a
taxpayer's entire interest if an interest in land or water
was divided in order to create such partial interest in order
to avoid the requirements of such clause or section
170(f)(3)(A), and
``(ii) a taxpayer's entire interest in certain land does
not fail to satisfy subparagraph (A)(i) solely because the
taxpayer has retained an interest in other land, even if the
other land is contiguous with such certain land and was
acquired by the taxpayer along with such certain land in a
single conveyance.
``(e) Other Definitions.--For purposes of this section--
``(1) Eligible entity.--The term `eligible entity' means--
``(A) a governmental unit referred to in section 170(c)(1),
or an agency or department thereof operated primarily for 1
or more of the conservation purposes specified in clause (i),
(ii), or (iii) of section 170(h)(4)(A), or
``(B) an entity which is--
``(i) described in section 170(b)(1)(A)(vi) or section
170(h)(3)(B), and
``(ii) organized and at all times operated primarily for 1
or more of the conservation purposes specified in clause (i),
(ii), or (iii) of section 170(h)(4)(A).
``(2) Qualifying letter of intent.--The term `qualifying
letter of intent' means a written letter of intent which
includes the following statement: `The transferee's intent is
that this acquisition will serve 1 or more of the
conservation purposes specified in clause (i), (ii), or (iii)
of section 170(h)(4)(A) of the Internal Revenue Code of 1986,
that the transferee's use of the property so acquired will be
consistent with section 170(h)(5) of such Code, and that the
use of the property will continue to be consistent with such
section, even if ownership or possession of such property is
subsequently transferred to another person.'
``(3) Qualifying land or water corporation.--The term
`qualifying land or water corporation' means a C corporation
(as defined in section 1361(a)(2)) if, as of the date of the
conservation sale--
``(A) the fair market value of the corporation's interests
in land or water held by the corporation at all times during
the preceding 5 years equals or exceeds 90 percent of the
fair market value of all of such corporation's assets, and
``(B) not more than 50 percent of the total fair market
value of such corporation's assets consists of water rights
or infrastructure related to the delivery of water, or both.
``(f) Tax on Subsequent Transfers or Removals of
Conservation Restrictions.--
``(1) In general.--A tax is hereby imposed on any
subsequent--
``(A) transfer by an eligible entity of ownership or
possession, whether by sale, exchange, or lease, of property
acquired directly or indirectly in--
``(i) a conservation sale described in subsection (a), or
``(ii) a transfer described in clause (i), (ii), or (iii)
of paragraph (4)(A), or
``(B) removal of a conservation restriction contained in an
instrument of conveyance of such property.
``(2) Amount of tax.--The amount of tax imposed by
paragraph (1) on any transfer or removal shall be equal to
the sum of--
``(A) either--
``(i) 20 percent of the fair market value (determined at
the time of the transfer) of the property the ownership or
possession of which is transferred, or
``(ii) 20 percent of the fair market value (determined at
the time immediately after the removal) of the property upon
which the conservation restriction was removed, plus
``(B) the product of--
``(i) the highest rate of tax specified in section 11,
times
``(ii) any gain or income realized by the transferor or
person removing such restriction as a result of the transfer
or removal.
``(3) Liability.--The tax imposed by paragraph (1) shall be
paid--
``(A) on any transfer, by the transferor, and
``(B) on any removal of a conservation restriction
contained in an instrument of conveyance, by the person
removing such restriction.
``(4) Relief from liability.--The person (otherwise liable
for any tax imposed by paragraph (1)) shall be relieved of
liability for the tax imposed by paragraph (1)--
``(A) with respect to any transfer if--
``(i) the transferee is an eligible entity which provides
such person, at the time of transfer, a qualifying letter of
intent,
``(ii) in any case where the transferee is not an eligible
entity, it is established to the satisfaction of the
Secretary, that the transfer of ownership or possession, as
the case may be, will be consistent with section 170(h)(5),
and the transferee provides such person, at the time of
transfer, a qualifying letter of intent, or
``(iii) tax has previously been paid under this subsection
as a result of a prior transfer of ownership or possession of
the same property, or
``(B) with respect to any removal of a conservation
restriction contained in an instrument of conveyance, if it
is established to the satisfaction of the Secretary that the
retention of the restriction was impracticable or impossible
and the proceeds continue to be used in a manner consistent
with 1 or more of the conservation purposes specified in
clause (i), (ii), or (iii) of section 170(h)(4)(A).
``(5) Administrative provisions.--For purposes of subtitle
F, the taxes imposed by this subsection shall be treated as
excise taxes with respect to which the deficiency procedures
of such subtitle apply.
``(6) Reporting.--The Secretary may require such reporting
as may be necessary or appropriate to further the purpose
under this section that any conservation use be in
perpetuity.''.
(b) Clerical Amendment.--The table of sections for part III
of subchapter B of chapter 1 is amended by inserting after
the item relating to section 121 the following new item:
``Sec. 121A. 25-percent exclusion of gain on sales or exchanges of land
or water interests to eligible entities for conservation
purposes.''.
(c) Effective Date.--The amendments made by this section
shall apply to sales or exchanges occurring after the date of
the enactment of this Act.
SEC. 108. TAX EXCLUSION FOR COST-SHARING PAYMENTS UNDER
PARTNERS FOR FISH AND WILDLIFE PROGRAM.
(a) In General.--Section 126(a) (relating to certain cost-
sharing payments) is amended by redesignating paragraph (10)
as paragraph (11) and by inserting after paragraph (9) the
following:
``(10) The Partners for Fish and Wildlife Program
authorized by the Fish and Wildlife Act of 1956 (16 U.S.C.
742a et seq.).''.
(b) Effective Date.--The amendments made by this section
shall apply to payments received after the date of the
enactment of this Act.
[[Page S2148]]
SEC. 109. ADJUSTMENT TO BASIS OF S CORPORATION STOCK FOR
CERTAIN CHARITABLE CONTRIBUTIONS.
(a) In General.--Paragraph (2) of section 1367(a) (relating
to adjustments to basis of stock of shareholders, etc.) is
amended by adding at the end the following new flush
sentence:
``The decrease under subparagraph (B) by reason of a
charitable contribution (as defined in section 170(c)) of
property shall be the amount equal to the shareholder's pro
rata share of the adjusted basis of such property.''.
(b) Effective Date.--The amendment made by this section
shall apply to contributions made after the date of the
enactment of this Act.
SEC. 110. ENHANCED DEDUCTION FOR CHARITABLE CONTRIBUTION OF
LITERARY, MUSICAL, ARTISTIC, AND SCHOLARLY
COMPOSITIONS.
(a) In General.--Subsection (e) of section 170 (relating to
certain contributions of ordinary income and capital gain
property), as amended by this Act, is amended by adding at
the end the following new paragraph:
``(8) Special rule for certain contributions of literary,
musical, artistic, or scholarly compositions.--
``(A) In general.--In the case of a qualified artistic
charitable contribution--
``(i) the amount of such contribution taken into account
under this section shall be the fair market value of the
property contributed (determined at the time of such
contribution), and
``(ii) no reduction in the amount of such contribution
shall be made under paragraph (1).
``(B) Qualified artistic charitable contribution.--For
purposes of this paragraph, the term `qualified artistic
charitable contribution' means a charitable contribution of
any literary, musical, artistic, or scholarly composition, or
similar property, or the copyright thereon (or both), but
only if--
``(i) such property was created by the personal efforts of
the taxpayer making such contribution no less than 18 months
prior to such contribution,
``(ii) the taxpayer--
``(I) has received a qualified appraisal of the fair market
value of such property in accordance with the regulations
under this section, and
``(II) attaches to the taxpayer's income tax return for the
taxable year in which such contribution was made a copy of
such appraisal,
``(iii) the donee is an organization described in
subsection (b)(1)(A),
``(iv) the use of such property by the donee is related to
the purpose or function constituting the basis for the
donee's exemption under section 501 (or, in the case of a
governmental unit, to any purpose or function described under
section 501(c)),
``(v) the taxpayer receives from the donee a written
statement representing that the donee's use of the property
will be in accordance with the provisions of clause (iv), and
``(vi) the written appraisal referred to in clause (ii)
includes evidence of the extent (if any) to which property
created by the personal efforts of the taxpayer and of the
same type as the donated property is or has been--
``(I) owned, maintained, and displayed by organizations
described in subsection (b)(1)(A), and
``(II) sold to or exchanged by persons other than the
taxpayer, donee, or any related person (as defined in section
465(b)(3)(C)).
``(C) Maximum dollar limitation; no carryover of increased
deduction.--The increase in the deduction under this section
by reason of this paragraph for any taxable year--
``(i) shall not exceed the artistic adjusted gross income
of the taxpayer for such taxable year, and
``(ii) shall not be taken into account in determining the
amount which may be carried from such taxable year under
subsection (d).
``(D) Artistic adjusted gross income.--For purposes of this
paragraph, the term `artistic adjusted gross income' means
that portion of the adjusted gross income of the taxpayer for
the taxable year attributable to--
``(i) income from the sale or use of property created by
the personal efforts of the taxpayer which is of the same
type as the donated property, and
``(ii) income from teaching, lecturing, performing, or
similar activity with respect to property described in clause
(i).
``(E) Paragraph not to apply to certain contributions.--
Subparagraph (A) shall not apply to any charitable
contribution of any letter, memorandum, or similar property
which was written, prepared, or produced by or for an
individual while the individual is an officer or employee of
any person (including any government agency or
instrumentality) unless such letter, memorandum, or similar
property is entirely personal.
``(F) Copyright treated as separate property for partial
interest rule.--In the case of a qualified artistic
charitable contribution, the tangible literary, musical,
artistic, or scholarly composition, or similar property and
the copyright on such work shall be treated as separate
properties for purposes of this paragraph and subsection
(f)(3).''.
(b) Effective Date.--The amendment made by this section
shall apply to contributions made after the date of the
enactment of this Act.
SEC. 111. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS
EXCLUDED FROM GROSS INCOME.
(a) In General.--Part III of subchapter B of chapter 1 is
amended by inserting after section 139 the following new
section:
``SEC. 139A. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS.
``(a) In General.--Gross income of an individual does not
include amounts received, from an organization described in
section 170(c), as reimbursement of operating expenses with
respect to use of a passenger automobile for the benefit of
such organization. The preceding sentence shall apply only to
the extent that the expenses which are reimbursed would be
deductible under this chapter if section 274(d) were
applied--
``(1) by using the standard business mileage rate
established under such section, and
``(2) as if the individual were an employee of an
organization not described in section 170(c).
``(b) Application to Volunteer Services Only.--Subsection
(a) shall not apply with respect to any expenses relating to
the performance of services for compensation.
``(c) No Double Benefit.--A taxpayer may not claim a
deduction or credit under any other provision of this title
with respect to the expenses under subsection (a).
``(d) Exemption From Reporting Requirements.--Section 6041
shall not apply with respect to reimbursements excluded from
income under subsection (a).''.
(b) Clerical Amendment.--The table of sections for part III
of subchapter B of chapter 1 is amended by inserting after
the item relating to section 139 the following new item:
``Sec. 139A. Mileage reimbursements to charitable volunteers.''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 112. EXTENSION OF ENHANCED DEDUCTION FOR INVENTORY TO
INCLUDE PUBLIC SCHOOLS.
(a) In General.--Subparagraph (A) of section 170(e)(3)
(relating to special rule for certain contributions of
inventory and other property) is amended by striking ``to an
organization which is described in'' and all that follows
through the end of clause (i) and inserting ``to a qualified
organization, but only if--
``(i) the property is to be used by the donee solely for
the care of the ill, the needy, or infants and, in the case
of--
``(I) an organization described in section 501(c)(3) (other
than an organization described in subclause (II)), the use of
the property by the donee is related to the purpose or
function constituting the basis for its exemption under
section 501, and
``(II) an organization described in subsection
(b)(1)(A)(ii), the use of the property by the donee is
related to educational purposes and such property is not
computer technology or equipment (as defined in paragraph
(6)(F)(i));''.
(b) Qualified Organization.--Paragraph (3) of section
170(e) of such Code is amended by redesignating subparagraph
(C) as subparagraph (D) and by inserting after subparagraph
(B) the following new subparagraph:
``(C) Qualified organization.--For purposes of this
paragraph, the term `qualified organization' means--
``(i) an organization which is described in section
501(c)(3) and is exempt under section 501(a) (other than a
private foundation, as defined in section 509(a), which is
not an operating foundation, as defined in section
4942(j)(3)), and
``(ii) an educational organization described in subsection
(b)(1)(A)(ii).''.
(c) Effective Date.--The amendments made by this section
shall apply to contributions made after December 31, 2003.
SEC. 113. 10-YEAR DIVESTITURE PERIOD FOR CERTAIN EXCESS
BUSINESS HOLDINGS OF PRIVATE FOUNDATIONS.
(a) In General.--Section 4943(c) (relating to excess
business holdings) is amended by redesignating paragraph (7)
as paragraph (8) and by inserting after paragraph (6) the
following new paragraph:
``(7) 10-year period to dispose of certain large gifts and
bequests.--
``(A) In General.--Paragraph (6) shall be applied by
substituting `10-year period' for `5-year period' if--
``(i) upon the election of a private foundation, it is
established to the satisfaction of the Secretary that--
``(I) the excess business holdings (or increase in excess
business holdings) in a business enterprise by the private
foundation in an amount which is not less than $1,000,000,000
is the result of a gift or bequest the fair market value of
which is not less than $1,000,000,000, and
``(II) after such gift or bequest, the private foundation
does not have effective control of such business enterprise
to which such gift or bequest relates,
``(ii) subject to subparagraph (C), the private foundation
submits to the Secretary with such election a reasonable plan
for disposing of all of the excess business holdings related
to such gift or bequest, and
``(iii) the private foundation certifies annually to the
Secretary that the private foundation is complying with the
plan submitted under this paragraph, the requirement under
clause (i)(II), and the rules under subparagraph (D).
``(B) Election.--Any election under subparagraph (A)(i)
shall be made not later than 6 months after the date of such
gift or bequest and shall--
[[Page S2149]]
``(i) establish the fair market value of such gift or
bequest, and
``(ii) include a certification that the requirement of
subparagraph (A)(i)(II) is met.
``(C) Reasonableness of plan.--
``(i) In general.--Any plan submitted under subparagraph
(A)(ii) shall be presumed reasonable unless the Secretary
notifies the private foundation to the contrary not later
than 6 months after the submission of such plan.
``(ii) Resubmission.--Upon notice by the Secretary under
clause (i), the private foundation may resubmit a plan and
shall have the burden of establishing the reasonableness of
such plan to the Secretary.
``(D) Special rules.--During any period in which an
election under this paragraph is in effect--
``(i) section 4941(d)(2) (other than subparagraph (A)
thereof) shall apply only with respect to any disqualified
person described in section 4941(a)(1)(B),
``(ii) section 4942(a) shall be applied by substituting
`third' for `second' both places it appears,
``(iii) section 4942(e)(1) shall be applied by substituting
`12 percent' for `5 percent', and
``(iv) section 4942(g)(1)(A) shall be applied without
regard to any portion of reasonable and necessary
administrative expenses.
``(E) Inflation adjustment.--In the case of any taxable
year beginning in a calendar year after 2003, the
$1,000,000,000 amount under subparagraph (A)(i)(I) shall be
increased by an amount equal to such dollar amount,
multiplied by the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year, determined by
substituting `2002' for `1992' in subparagraph (B) thereof.
If the $1,000,000,000 amount as increased under this
subparagraph is not a multiple of $100,000,000, such amount
shall be rounded to the next lowest multiple of
$100,000,000.''.
(b) Effective Date.--The amendments made by this section
shall apply to gifts and bequests made after the date of the
enactment of this Act.
TITLE II--PROPOSALS IMPROVING THE OVERSIGHT OF TAX-EXEMPT ORGANIZATIONS
SEC. 201. DISCLOSURE OF WRITTEN DETERMINATIONS.
(a) In General.--Section 6110(l) (relating to section not
to apply) is amended by striking all matter before
subparagraph (A) of paragraph (2) and inserting the
following:
``(l) Section Not To Apply.--
``(1) In general.--This section shall not apply to any
matter to which section 6104 or 6105 applies, except that
this section shall apply to any written determination and
related background file document relating to an organization
described under subsection (c) or (d) of section 501
(including any written determination denying an organization
tax-exempt status under such subsection) or a political
organization described in section 527 which is not required
to be disclosed by section 6104(a)(1)(A).
``(2) Additional matters.--This section shall not apply to
any--''.
(b) Effective Date.--The amendment made by this section
shall apply to written determinations issued after the date
of the enactment of this Act.
SEC. 202. DISCLOSURE OF INTERNET WEB SITE AND NAME UNDER
WHICH ORGANIZATION DOES BUSINESS.
(a) In General.--Section 6033 (relating to returns by
exempt organizations) is amended by redesignating subsection
(h) as subsection (i) and by inserting after subsection (g)
the following new subsection:
``(h) Disclosure of Name Under Which Organization Does
Business and Its Internet Web Site.--Any organization which
is subject to the requirements of subsection (a) shall
include on the return required under subsection (a)--
``(1) any name under which such organization operates or
does business, and
``(2) the Internet web site address (if any) of such
organization.''.
(b) Effective Date.--The amendments made by this section
shall apply to returns filed after December 31, 2003.
SEC. 203. MODIFICATION TO REPORTING CAPITAL TRANSACTIONS.
(a) Requirement of Summary Report.--Section 6033(c)
(relating to additional provisions relating to private
foundations) is amended by adding at the end the following
new sentence: ``Any information included in an annual return
regarding the gain or loss from the sale or other disposition
of stock or securities which are listed on an established
securities market which is required to be furnished in order
to calculate the tax on net investment income shall also be
reported in summary form with a notice that detailed
information is available upon request by the public.''.
(b) Disclosure Requirement.--Section 6104(b) (relating to
inspection of annual information returns), as amended by this
Act, is amended by adding at the end the following new
sentence: ``With respect to any private foundation (as
defined in section 509(a)), any information regarding the
gain or loss from the sale or other disposition of stock or
securities which are listed on an established securities
market which is required to be furnished in order to
calculate the tax on net investment income but which is not
in summary form is not required to be made available to the
public under this subsection except upon the explicit request
by a member of the public to the Secretary.''.
(c) Public Inspection Requirement.--Section 6104(d)
(relating to public inspection of certain annual returns,
applications for exemptions, and notices of status) is
amended by adding at the end the following new paragraph:
``(9) Application to private foundation capital transaction
information.--With respect to any private foundation (as
defined in section 509(a)), any information regarding the
gain or loss from the sale or other disposition of stock or
securities which are listed on an established securities
market which is required to be furnished in order to
calculate the tax on net investment income but which is not
in summary form is not required to be made available to the
public under this subsection except upon the explicit request
by a member of the public to the private foundation in the
form and manner of a request described in paragraph
(1)(B).''.
(d) Effective Date.--The amendments made by this section
shall apply to returns filed after December 31, 2003.
SEC. 204. DISCLOSURE THAT FORM 990 IS PUBLICLY AVAILABLE.
(a) In General.--The Commissioner of the Internal Revenue
shall notify the public in appropriate publications or other
materials of the extent to which an exempt organization's
Form 990, Form 990-EZ, or Form 990-PF is publicly available.
(b) Effective Date.--The amendments made by this section
shall apply to publications or other materials issued or
revised after the date of the enactment of this Act.
SEC. 205. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS
RELATED TO SECTION 501(C) ORGANIZATIONS.
(a) In General.--Subsection (c) of section 6104 is amended
by striking paragraph (2) and inserting the following new
paragraphs:
``(2) Disclosure of proposed actions related to charitable
organizations.--
``(A) Specific notifications.--In the case of an
organization to which paragraph (1) applies, the Secretary
may disclose to the appropriate State officer--
``(i) a notice of proposed refusal to recognize such
organization as an organization described in section
501(c)(3) or a notice of proposed revocation of such
organization's recognition as an organization exempt from
taxation,
``(ii) the issuance of a letter of proposed deficiency of
tax imposed under section 507 or chapter 41 or 42, and
``(iii) the names, addresses, and taxpayer identification
numbers of organizations which have applied for recognition
as organizations described in section 501(c)(3).
``(B) Additional disclosures.--Returns and return
information of organizations with respect to which
information is disclosed under subparagraph (A) may be made
available for inspection by or disclosed to an appropriate
State officer.
``(C) Procedures for disclosure.--Information may be
inspected or disclosed under subparagraph (A) or (B) only--
``(i) upon written request by an appropriate State officer,
and
``(ii) for the purpose of, and only to the extent necessary
in, the administration of State laws regulating such
organizations.
Such information may only be inspected by or disclosed to
representatives of the appropriate State officer designated
as the individuals who are to inspect or to receive the
returns or return information under this paragraph on behalf
of such officer. Such representatives shall not include any
contractor or agent.
``(D) Disclosures other than by request.--The Secretary may
make available for inspection or disclose returns and return
information of an organization to which paragraph (1) applies
to an appropriate State officer of any State if the Secretary
determines that such inspection or disclosure may facilitate
the resolution of Federal or State issues relating to the
tax-exempt status of such organization.
``(3) Disclosure with respect to certain other exempt
organizations.--Upon written request by an appropriate State
officer, the Secretary may make available for inspection or
disclosure returns and return information of an organization
described in paragraph (2), (4), (6), (7), (8), (10), or (13)
of section 501(c) for the purpose of, and to the extent
necessary in, the administration of State laws regulating the
solicitation or administration of the charitable funds or
charitable assets of such organizations. Such information may
be inspected only by or disclosed only to representatives of
the appropriate State officer designated as the individuals
who are to inspect or to receive the returns or return
information under this paragraph on behalf of such officer.
Such representatives shall not include any contractor or
agent.
``(4) Use in civil judicial and administrative
proceedings.--Returns and return information disclosed
pursuant to this subsection may be disclosed in civil
administrative and civil judicial proceedings pertaining to
the enforcement of State laws regulating such organizations
in a manner prescribed by the Secretary similar to that for
tax administration proceedings under section 6103(h)(4).
``(5) No disclosure if impairment.--Returns and return
information shall not be disclosed under this subsection, or
in any proceeding described in paragraph (4), to the extent
that the Secretary determines that such disclosure would
seriously impair Federal tax administration.
``(6) Definitions.--For purposes of this subsection--
[[Page S2150]]
``(A) Return and return information.--The terms `return'
and `return information' have the respective meanings given
to such terms by section 6103(b).
``(B) Appropriate state officer.--The term `appropriate
State officer' means--
``(i) the State attorney general,
``(ii) in the case of an organization to which paragraph
(1) applies, any other State official charged with overseeing
organizations of the type described in section 501(c)(3), and
``(iii) in the case of an organization to which paragraph
(3) applies, the head of an agency designated by the State
attorney general as having primary responsibility for
overseeing the solicitation of funds for charitable
purposes.''.
(b) Conforming Amendments.--
(1) Subsection (a) of section 6103 is amended--
(A) by inserting ``or any appropriate State officer who has
or had access to returns or return information under section
6104(c)'' after ``this section'' in paragraph (2), and
(B) by striking ``or subsection (n)'' in paragraph (3) and
inserting ``subsection (n), or section 6104(c)''.
(2) Subparagraph (A) of section 6103(p)(3) is amended by
inserting ``and section 6104(c)'' after ``section'' in the
first sentence.
(3) Paragraph (4) of section 6103(p), as amended by section
202(b)(2)(B) of the Trade Act of 2002 (Public Law 107-210;
116 Stat. 961), is amended by striking ``or (17)'' after
``any other person described in subsection (l)(16)'' each
place it appears and inserting ``or (18) or any appropriate
State officer (as defined in section 6104(c))''.
(4) The heading for paragraph (1) of section 6104(c) is
amended by inserting ``for charitable organizations''.
(5) Paragraph (2) of section 7213(a) is amended by
inserting ``or under section 6104(c)'' after ``6103''.
(6) Paragraph (2) of section 7213A(a) is amended by
inserting ``or 6104(c)'' after ``6103''.
(7) Paragraph (2) of section 7431(a) is amended by
inserting ``(including any disclosure in violation of section
6104(c))'' after ``6103''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act
but shall not apply to requests made before such date.
SEC. 206. EXPANSION OF PENALTIES TO PREPARERS OF FORM 990.
(a) In General.--Section 6695 (relating to other assessable
penalties with respect to the preparation of income tax
returns for other persons) is amended by adding at the end
the following new subsections:
``(h) Certain Omissions and Misrepresentations.--
``(1) In general.--Any person who prepares for compensation
any return under section 6033 who omits or misrepresents any
information with respect to such return which was known or
should have been known by such person shall pay a penalty of
$250 with respect to such return.
``(2) Exception for minor, inadvertent omissions.--
Paragraph (1) shall not apply to minor, inadvertent
omissions.
``(3) Rules for determining return preparer.--For purposes
of this subsection and subsection (i), any reference to a
person who prepares for compensation a return under section
6033--
``(A) shall include any person who employs 1 or more
persons to prepare for compensation a return under section
6033, and
``(B) shall not include any person who would be described
in clause (i), (ii), (iii), or (iv) of section 7701(a)(36)(B)
if such section referred to a return under section 6033.
``(i) Willful or Reckless Conduct.--
``(1) In general.--Any person who prepares for compensation
any return under section 6033 who recklessly or intentionally
misrepresents any information or recklessly or intentionally
disregards any rule or regulation with respect to such return
shall pay a penalty of $1,000 with respect to such return.
``(2) Coordination with other penalties.--With respect to
any return, the amount of the penalty payable by any person
by reason of paragraph (1) shall be reduced by the amount of
the penalty paid by such person by reason of subsection (h)
or section 6694.''.
(b) Conforming Amendments.--
(1) The heading for section 6695 is amended by inserting
``AND OTHER'' after ``INCOME TAX''.
(2) The item relating to section 6695 in the table of
sections for part I of subchapter B of chapter 68 is amended
by inserting ``and other'' after ``income tax''.
(c) Effective Date.--The amendments made by this section
shall apply with respect to documents prepared after the date
of the enactment of this Act.
SEC. 207. NOTIFICATION REQUIREMENT FOR ENTITIES NOT CURRENTLY
REQUIRED TO FILE.
(a) In General.--Section 6033 (relating to returns by
exempt organizations), as amended by this Act, is amended by
redesignating subsection (i) as subsection (j) and by
inserting after subsection (h) the following new subsection:
``(i) Additional Notification Requirements.--Any
organization the gross receipts of which in any taxable year
result in such organization being referred to in subsection
(a)(2)(A)(ii) or (a)(2)(B)--
``(1) shall furnish annually, at such time and in such
manner as the Secretary may by forms or regulations
prescribe, information setting forth--
``(A) the legal name of the organization,
``(B) any name under which such organization operates or
does business,
``(C) the organization's mailing address and Internet web
site address (if any),
``(D) the organization's taxpayer identification number,
``(E) the name and address of a principal officer, and
``(F) evidence of the continuing basis for the
organization's exemption from the filing requirements under
subsection (a)(1), and
``(2) upon the termination of the existence of the
organization, shall furnish notice of such termination.''.
(b) Loss of Exempt Status for Failure To File Return or
Notice.--Section 6033 (relating to returns by exempt
organizations), as amended by subsection (a), is amended by
redesignating subsection (j) as subsection (k) and by
inserting after subsection (i) the following new subsection:
``(j) Loss of Exempt Status for Failure To File Return or
Notice.--
``(1) In general.--If an organization described in
subsection (a)(1) or (i) fails to file an annual return or
notice required under either subsection for 3 consecutive
years, such organization's status as an organization exempt
from tax under section 501(a) shall be considered revoked on
and after the date set by the Secretary for the filing of the
third annual return or notice. The Secretary shall publish
and maintain a list of any organization the status of which
is so revoked.
``(2) Application necessary for reinstatement.--Any
organization the tax-exempt status of which is revoked under
paragraph (1) must apply in order to obtain reinstatement of
such status regardless of whether such organization was
originally required to make such an application.
``(3) Retroactive reinstatement if reasonable cause shown
for failure.--If upon application for reinstatement of status
as an organization exempt from tax under section 501(a), an
organization described in paragraph (1) can show to the
satisfaction of the Secretary evidence of reasonable cause
for the failure described in such paragraph, the
organization's exempt status may, in the discretion of the
Secretary, be reinstated effective from the date of the
revocation under such paragraph.''.
(c) No Declaratory Judgment Relief.--Section 7428(b)
(relating to limitations) is amended by adding at the end the
following new paragraph:
``(4) Nonapplication for certain revocations.--No action
may be brought under this section with respect to any
revocation of status described in section 6033(j)(1).''.
(d) No Inspection Requirement.--Section 6104(b) (relating
to inspection of annual information returns) is amended by
inserting ``(other than subsection (i) thereof)'' after
``6033''.
(e) No Disclosure Requirement.--Section 6104(d)(3)
(relating to exceptions from disclosure requirements) is
amended by redesignating subparagraph (B) as subparagraph (C)
and by inserting after subparagraph (A) the following new
subparagraph:
``(B) Nondisclosure of annual notices.--Paragraph (1) shall
not require the disclosure of any notice required under
section 6033(i).''.
(f) No Monetary Penalty for Failure To Notify.--Section
6652(c)(1) (relating to annual returns under section 6033 or
6012(a)(6)) is amended by adding at the end the following new
subparagraph:
``(E) No penalty for certain annual notices.--This
paragraph shall not apply with respect to any notice required
under section 6033(i).''.
(g) Secretarial Outreach Requirements.--
(1) Notice requirement.--The Secretary of the Treasury
shall notify in a timely manner every organization described
in section 6033(i) of the Internal Revenue Code of 1986 (as
added by this section) of the requirement under such section
6033(i) and of the penalty established under section
6033(j)--
(A) by mail, in the case of any organization the identity
and address of which is included in the list of exempt
organizations maintained by the Secretary, and
(B) by Internet or other means of outreach, in the case of
any other organization.
(2) Loss of status penalty for failure to file return.--The
Secretary of the Treasury shall publicize in a timely manner
in appropriate forms and instructions and through other
appropriate means, the penalty established under section
6033(j) of such Code for the failure to file a return under
section 6033(a)(1) of such Code.
(h) Effective Date.--The amendments made by this section
shall apply to notices and returns with respect to annual
periods beginning after 2003.
SEC. 208. SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST
ORGANIZATIONS.
(a) In General.--Section 501 of the Internal Revenue Code
of 1986 (relating to exemption from tax on corporations,
certain trusts, etc.) is amended by redesignating subsection
(p) as subsection (q) and by inserting after subsection (o)
the following new subsection:
``(p) Suspension of Tax-Exempt Status of Terrorist
Organizations.--
``(1) In general.--The exemption from tax under subsection
(a) with respect to any organization described in paragraph
(2), and the eligibility of any organization described in
paragraph (2) to apply for recognition of exemption under
subsection (a), shall be suspended during the period
described in paragraph (3).
``(2) Terrorist organizations.--An organization is
described in this paragraph if such
[[Page S2151]]
organization is designated or otherwise individually
identified--
``(A) under section 212(a)(3)(B)(vi)(II) or 219 of the
Immigration and Nationality Act as a terrorist organization
or foreign terrorist organization,
``(B) in or pursuant to an Executive order which is related
to terrorism and issued under the authority of the
International Emergency Economic Powers Act or section 5 of
the United Nations Participation Act of 1945 for the purpose
of imposing on such organization an economic or other
sanction, or
``(C) in or pursuant to an Executive order issued under the
authority of any Federal law if--
``(i) the organization is designated or otherwise
individually identified in or pursuant to such Executive
order as supporting or engaging in terrorist activity (as
defined in section 212(a)(3)(B) of the Immigration and
Nationality Act) or supporting terrorism (as defined in
section 140(d)(2) of the Foreign Relations Authorization Act,
Fiscal Years 1988 and 1989); and
``(ii) such Executive order refers to this subsection.
``(3) Period of suspension.--With respect to any
organization described in paragraph (2), the period of
suspension--
``(A) begins on the later of--
``(i) the date of the first publication of a designation or
identification described in paragraph (2) with respect to
such organization, or
``(ii) the date of the enactment of this subsection, and
``(B) ends on the first date that all designations and
identifications described in paragraph (2) with respect to
such organization are rescinded pursuant to the law or
Executive order under which such designation or
identification was made.
``(4) Denial of deduction.--No deduction shall be allowed
under any provision of this title, including sections 170,
545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), and 2522,
with respect to any contribution to an organization described
in paragraph (2) during the period described in paragraph
(3).
``(5) Denial of administrative or judicial challenge of
suspension or denial of deduction.--Notwithstanding section
7428 or any other provision of law, no organization or other
person may challenge a suspension under paragraph (1), a
designation or identification described in paragraph (2), the
period of suspension described in paragraph (3), or a denial
of a deduction under paragraph (4) in any administrative or
judicial proceeding relating to the Federal tax liability of
such organization or other person.
``(6) Erroneous designation.--
``(A) In general.--If--
``(i) the tax exemption of any organization described in
paragraph (2) is suspended under paragraph (1),
``(ii) each designation and identification described in
paragraph (2) which has been made with respect to such
organization is determined to be erroneous pursuant to the
law or Executive order under which such designation or
identification was made, and
``(iii) the erroneous designations and identifications
result in an overpayment of income tax for any taxable year
by such organization,
credit or refund (with interest) with respect to such
overpayment shall be made.
``(B) Waiver of limitations.--If the credit or refund of
any overpayment of tax described in subparagraph (A)(iii) is
prevented at any time by the operation of any law or rule of
law (including res judicata), such credit or refund may
nevertheless be allowed or made if the claim therefor is
filed before the close of the 1-year period beginning on the
date of the last determination described in subparagraph
(A)(ii).
``(7) Notice of suspensions.--If the tax exemption of any
organization is suspended under this subsection, the Internal
Revenue Service shall update the listings of tax-exempt
organizations and shall publish appropriate notice to
taxpayers of such suspension and of the fact that
contributions to such organization are not deductible during
the period of such suspension.''.
(b) Effective Date.--The amendments made by this section
shall apply to designations made before, on, or after the
date of the enactment of this Act.
TITLE III--OTHER CHARITABLE AND EXEMPT ORGANIZATION PROVISIONS
SEC. 301. MODIFICATION OF EXCISE TAX ON UNRELATED BUSINESS
TAXABLE INCOME OF CHARITABLE REMAINDER TRUSTS.
(a) In General.--Subsection (c) of section 664 (relating to
exemption from income taxes) is amended to read as follows:
``(c) Taxation of Trusts.--
``(1) Income tax.--A charitable remainder annuity trust and
a charitable remainder unitrust shall, for any taxable year,
not be subject to any tax imposed by this subtitle.
``(2) Excise tax.--
``(A) In general.--In the case of a charitable remainder
annuity trust or a charitable remainder unitrust which has
unrelated business taxable income (within the meaning of
section 512, determined as if part III of subchapter F
applied to such trust) for a taxable year, there is hereby
imposed on such trust or unitrust an excise tax equal to the
amount of such unrelated business taxable income.
``(B) Certain rules to apply.--The tax imposed by
subparagraph (A) shall be treated as imposed by chapter 42
for purposes of this title other than subchapter E of chapter
42.
``(C) Tax court proceedings.--For purposes of this
paragraph, the references in section 6212(c)(1) to section
4940 shall be deemed to include references to this
paragraph.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2002.
SEC. 302. MODIFICATIONS TO SECTION 512(B)(13).
(a) In General.--Paragraph (13) of section 512(b) (relating
to special rules for certain amounts received from controlled
entities) is amended by redesignating subparagraph (E) as
subparagraph (F) and by inserting after subparagraph (D) the
following new subparagraph:
``(E) Paragraph to apply only to excess payments.--
``(i) In general.--Subparagraph (A) shall apply only to the
portion of a specified payment received or accrued by the
controlling organization that exceeds the amount which would
have been paid or accrued if such payment met the
requirements prescribed under section 482.
``(ii) Addition to tax for valuation misstatements.--The
tax imposed by this chapter on the controlling organization
shall be increased by an amount equal to 20 percent of the
larger of--
``(I) such excess determined without regard to any
amendment or supplement to a return of tax, or
``(II) such excess determined with regard to all such
amendments and supplements.''.
(b) Effective Date.--
(1) In general.--The amendment made by this section shall
apply to payments received or accrued after December 31,
2000.
(2) Payments subject to binding contract transition rule.--
If the amendments made by section 1041 of the Taxpayer Relief
Act of 1997 did not apply to any amount received or accrued
in the first 2 taxable years beginning on or after the date
of the enactment of the Taxpayer Relief Act of 1997 under any
contract described in subsection (b)(2) of such section, such
amendments also shall not apply to amounts received or
accrued under such contract before January 1, 2001.
SEC. 303. SIMPLIFICATION OF LOBBYING EXPENDITURE LIMITATION.
(a) Repeal of Grassroots Expenditure Limit.--Paragraph (1)
of section 501(h) (relating to expenditures by public
charities to influence legislation) is amended to read as
follows:
``(1) General rule.--In the case of an organization to
which this subsection applies, exemption from taxation under
subsection (a) shall be denied because a substantial part of
the activities of such organization consists of carrying on
propaganda, or otherwise attempting, to influence
legislation, but only if such organization normally makes
lobbying expenditures in excess of the lobbying ceiling
amount for such organization for each taxable year.''.
(b) Excess Lobbying Expenditures.--Section 4911(b) is
amended to read as follows:
``(b) Excess Lobbying Expenditures.--For purposes of this
section, the term `excess lobbying expenditures' means, for a
taxable year, the amount by which the lobbying expenditures
made by the organization during the taxable year exceed the
lobbying nontaxable amount for such organization for such
taxable year.''.
(c) Conforming Amendments.--
(1) Section 501(h)(2) is amended by striking subparagraphs
(C) and (D).
(2) Section 4911(c) is amended by striking paragraphs (3)
and (4).
(3) Paragraph (1)(A) of section 4911(f) is amended by
striking ``limits of section 501(h)(1) have'' and inserting
``limit of section 501(h)(1) has''.
(4) Paragraph (1)(C) of section 4911(f) is amended by
striking ``limits of section 501(h)(1) are'' and inserting
``limit of section 501(h)(1) is''.
(5) Paragraphs (4)(A) and (4)(B) of section 4911(f) are
each amended by striking ``limits of section 501(h)(1)'' and
inserting ``limit of section 501(h)(1)''.
(6) Paragraph (8) of section 6033(b) (relating to certain
organizations described in section 501(c)(3)) is amended by
inserting ``and'' at the end of subparagraph (A) and by
striking subparagraphs (C) and (D).
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2002.
SEC. 304. EXPEDITED REVIEW PROCESS FOR CERTAIN TAX-EXEMPTION
APPLICATIONS.
(a) In General.--The Secretary of the Treasury or the
Secretary's delegate (in this section, referred to as the
``Secretary'') shall adopt procedures to expedite the
consideration of applications for exempt status under section
501(c)(3) of the Internal Revenue Code of 1986 filed after
December 31, 2003, by any organization that--
(1) is organized and operated for the primary purpose of
providing social services;
(2) is seeking a contract or grant under a Federal, State,
or local program that provides funding for social services
programs;
(3) establishes that, under the terms and conditions of the
contract or grant program, an organization is required to
obtain such exempt status before the organization is eligible
to apply for a contract or grant;
(4) includes with its exemption application a copy of its
completed Federal, State, or local contract or grant
application; and
(5) meets such other criteria as the Secretary deems
appropriate for expedited consideration.
[[Page S2152]]
The Secretary may prescribe other similar circumstances in
which such organizations may be entitled to expedited
consideration.
(b) Waiver of Application Fee for Exempt Status.--Any
organization that meets the conditions described in
subsection (a) (without regard to paragraph (3) of that
subsection) is entitled to a waiver of any fee for an
application for exempt status under section 501(c)(3) of the
Internal Revenue Code of 1986 if the organization certifies
that the organization has had (or expects to have) average
annual gross receipts of not more than $50,000 during the
preceding 4 years (or, in the case of an organization not in
existence throughout the preceding 4 years, during such
organization's first 4 years).
(c) Social Services Defined.--For purposes of this
section--
(1) In general.--The term ``social services'' means
services directed at helping people in need, reducing
poverty, improving outcomes of low-income children,
revitalizing low-income communities, and empowering low-
income families and low-income individuals to become self-
sufficient, including--
(A) child care services, protective services for children
and adults, services for children and adults in foster care,
adoption services, services related to the management and
maintenance of the home, day care services for adults, and
services to meet the special needs of children, older
individuals, and individuals with disabilities (including
physical, mental, or emotional disabilities);
(B) transportation services;
(C) job training and related services, and employment
services;
(D) information, referral, and counseling services;
(E) the preparation and delivery of meals, and services
related to soup kitchens or food banks;
(F) health support services;
(G) literacy and mentoring programs;
(H) services for the prevention and treatment of juvenile
delinquency and substance abuse, services for the prevention
of crime and the provision of assistance to the victims and
the families of criminal offenders, and services related to
the intervention in, and prevention of, domestic violence;
and
(I) services related to the provision of assistance for
housing under Federal law.
(2) Exclusions.--The term does not include a program having
the purpose of delivering educational assistance under the
Elementary and Secondary Education Act of 1965 (20 U.S.C.
6301 et seq.) or under the Higher Education Act of 1965 (20
U.S.C. 1001 et seq.).
SEC. 305. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.
Subsection (i) of section 7611 (relating to section not to
apply to criminal investigations, etc.) is amended by
striking ``or'' at the end of paragraph (4), by striking the
period at the end of paragraph (5) and inserting ``, or'',
and by inserting after paragraph (5) the following:
``(6) information provided by the Secretary related to the
standards for exemption from tax under this title and the
requirements under this title relating to unrelated business
taxable income.''.
SEC. 306. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-
EXEMPT ORGANIZATIONS.
(a) In General.--Paragraph (1) of section 7428(a) (relating
to creation of remedy) is amended--
(1) in subparagraph (B) by inserting after ``509(a))'' the
following: ``or as a private operating foundation (as defined
in section 4942(j)(3))''; and
(2) by amending subparagraph (C) to read as follows:
``(C) with respect to the initial qualification or
continuing qualification of an organization as an
organization described in section 501(c) (other than
paragraph (3)) or 501(d) which is exempt from tax under
section 501(a), or''.
(b) Court Jurisdiction.--Subsection (a) of section 7428 is
amended in the material following paragraph (2) by striking
``United States Tax Court, the United States Claims Court, or
the district court of the United States for the District of
Columbia'' and inserting the following: ``United States Tax
Court (in the case of any such determination or failure) or
the United States Claims Court or the district court of the
United States for the District of Columbia (in the case of a
determination or failure with respect to an issue referred to
in subparagraph (A) or (B) of paragraph (1)),''.
(c) Effective Date.--The amendments made by this section
shall apply to pleadings filed with respect to determinations
(or requests for determinations) made after December 31,
2002.
SEC. 307. DEFINITION OF CONVENTION OR ASSOCIATION OF
CHURCHES.
Section 7701 (relating to definitions) is amended by
redesignating subsection (n) as subsection (o) and by
inserting after subsection (m) the following new subsection:
``(n) Convention or association of churches.--For purposes
of this title, any organization which is otherwise a
convention or association of churches shall not fail to so
qualify merely because the membership of such organization
includes individuals as well as churches or because
individuals have voting rights in such organization.''.
SEC. 308. PAYMENTS BY CHARITABLE ORGANIZATIONS TO VICTIMS OF
WAR ON TERRORISM AND FAMILIES OF ASTRONAUTS
KILLED IN THE LINE OF DUTY.
(a) In General.--For purposes of the Internal Revenue Code
of 1986--
(1) any payment made by an organization described in
section 501(c)(3) of such Code to--
(A) a member of the Armed Forces of the United States, or
to an individual of such member's immediate family, by reason
of the death, injury, wounding, or illness of such member
incurred as the result of the military response of the United
States to the terrorist attacks against the United States on
September 11, 2001, or
(B) an individual of an astronaut's immediate family by
reason of the death of such astronaut occurring in the line
of duty after December 31, 2002,
shall be treated as related to the purpose or function
constituting the basis for such organization's exemption
under section 501 of such Code if such payment is made using
an objective formula which is consistently applied, and
(2) in the case of a private foundation (as defined in
section 509 of such Code), any payment described in paragraph
(1) shall not be treated as made to a disqualified person for
purposes of section 4941 of such Code.
(b) Effective Dates.--This section shall apply to--
(1) payments described in subsection (a)(1)(A) made after
the date of the enactment of this Act and before September
11, 2004, and
(2) payments described in subsection (a)(1)(B) made after
December 31, 2002.
SEC. 309. MODIFICATION OF SCHOLARSHIP FOUNDATION RULES.
In applying the limitations on the percentage of
scholarship grants which may be awarded after the date of the
enactment of this Act, to children of current or former
employees under Revenue Procedure 76-47, such percentage
shall be increased to 35 percent of the eligible applicants
to be considered by the selection committee and to 20 percent
of individuals eligible for the grants, but only if the
foundation awarding the grants demonstrates that, in addition
to meeting the other requirements of Revenue Procedure 76-47,
it provides a comparable number and aggregate amount of
grants during the same program year to individuals who are
not such employees, children or dependents of such employees,
or affiliated with the employer of such employees.
SEC. 310. TREATMENT OF CERTAIN HOSPITAL SUPPORT ORGANIZATIONS
AS QUALIFIED ORGANIZATIONS FOR PURPOSES OF
DETERMINING ACQUISITION INDEBTEDNESS.
(a) In General.--Subparagraph (C) of section 514(c)(9)
(relating to real property acquired by a qualified
organization) is amended by striking ``or'' at the end of
clause (ii), by striking the period at the end of clause
(iii) and inserting ``; or'', and by adding at the end the
following new clause:
``(iv) a qualified hospital support organization (as
defined in subparagraph (I)).''.
(b) Qualified Hospital Support Organizations.--Paragraph
(9) of section 514(c) is amended by adding at the end the
following new subparagraph:
``(I) Qualified hospital support organizations.--For
purposes of subparagraph (C)(iv), the term `qualified
hospital support organization' means, with respect to any
eligible indebtedness (including any qualified refinancing of
such eligible indebtedness), a support organization (as
defined in section 509(a)(3)) which supports a hospital
described in section 119(d)(4)(B) and with respect to which--
``(i) more than half of the organization's assets (by
value) at any time since its organization--
``(I) were acquired, directly or indirectly, by
testamentary gift or devise, and
``(II) consisted of real property, and
``(ii) the fair market value of the organization's real
estate acquired, directly or indirectly, by gift or devise,
exceeded 25 percent of the fair market value of all
investment assets held by the organization immediately prior
to the time that the eligible indebtedness was incurred.
For purposes of this subparagraph, the term `eligible
indebtedness' means indebtedness secured by real property
acquired by the organization, directly or indirectly, by gift
or devise, the proceeds of which are used exclusively to
acquire any leasehold interest in such real property or for
improvements on, or repairs to, such real property. A
determination under clauses (i) and (ii) of this subparagraph
shall be made each time such an eligible indebtedness (or the
qualified refinancing of such an eligible indebtedness) is
incurred. For purposes of this subparagraph, a refinancing of
such an eligible indebtedness shall be considered qualified
if such refinancing does not exceed the amount of the
refinanced eligible indebtedness immediately before the
refinancing.''.
(c) Effective Date.--The amendments made by this section
shall apply to indebtedness incurred after December 31, 2003.
SEC. 311. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN
EXPENSES INCURRED IN SUPPORT OF NATIVE ALASKAN
SUBSISTENCE WHALING.
(a) In General.--Section 170 (relating to charitable, etc.,
contributions and gifts), as amended by this Act, is amended
by redesignating subsection (n) as subsection (o) and by
inserting after subsection (m) the following new subsection:
``(n) Expenses Paid by Certain Whaling Captains in Support
of Native Alaskan Subsistence Whaling.--
[[Page S2153]]
``(1) In general.--In the case of an individual who is
recognized by the Alaska Eskimo Whaling Commission as a
whaling captain charged with the responsibility of
maintaining and carrying out sanctioned whaling activities
and who engages in such activities during the taxable year,
the amount described in paragraph (2) (to the extent such
amount does not exceed $10,000 for the taxable year) shall be
treated for purposes of this section as a charitable
contribution.
``(2) Amount described.--
``(A) In general.--The amount described in this paragraph
is the aggregate of the reasonable and necessary whaling
expenses paid by the taxpayer during the taxable year in
carrying out sanctioned whaling activities.
``(B) Whaling expenses.--For purposes of subparagraph (A),
the term `whaling expenses' includes expenses for--
``(i) the acquisition and maintenance of whaling boats,
weapons, and gear used in sanctioned whaling activities,
``(ii) the supplying of food for the crew and other
provisions for carrying out such activities, and
``(iii) storage and distribution of the catch from such
activities.
``(3) Sanctioned whaling activities.--For purposes of this
subsection, the term `sanctioned whaling activities' means
subsistence bowhead whale hunting activities conducted
pursuant to the management plan of the Alaska Eskimo Whaling
Commission.''.
(b) Effective Date.--The amendments made by subsection (a)
shall apply to contributions made after December 31, 2003.
SEC. 312. MATCHING GRANTS TO LOW-INCOME TAXPAYER CLINICS FOR
RETURN PREPARATION.
(a) In General.--Chapter 77 (relating to miscellaneous
provisions) is amended by inserting after section 7526 the
following new section:
``SEC. 7526A. RETURN PREPARATION CLINICS FOR LOW-INCOME
TAXPAYERS.
``(a) In General.--The Secretary may, subject to the
availability of appropriated funds, make grants to provide
matching funds for the development, expansion, or
continuation of qualified return preparation clinics.
``(b) Definitions.--For purposes of this section--
``(1) Qualified return preparation clinic.--
``(A) In general.--The term `qualified return preparation
clinic' means a clinic which--
``(i) does not charge more than a nominal fee for its
services (except for reimbursement of actual costs incurred),
and
``(ii) operates programs which assist low-income taxpayers
in preparing and filing their Federal income tax returns,
including schedules reporting sole proprietorship or farm
income.
``(B) Assistance to low-income taxpayers.--A clinic is
treated as assisting low-income taxpayers under subparagraph
(A)(ii) if at least 90 percent of the taxpayers assisted by
the clinic have incomes which do not exceed 250 percent of
the poverty level, as determined in accordance with criteria
established by the Director of the Office of Management and
Budget.
``(2) Clinic.--The term `clinic' includes--
``(A) a clinical program at an eligible educational
institution (as defined in section 529(e)(5)) which satisfies
the requirements of paragraph (1) through student assistance
of taxpayers in return preparation and filing, and
``(B) an organization described in section 501(c) and
exempt from tax under section 501(a) which satisfies the
requirements of paragraph (1).
``(c) Special Rules and Limitations.--
``(1) Aggregate limitation.--Unless otherwise provided by
specific appropriation, the Secretary shall not allocate more
than $10,000,000 per year (exclusive of costs of
administering the program) to grants under this section.
``(2) Other applicable rules.--Rules similar to the rules
under paragraphs (2) through (5) of section 7526(c) shall
apply with respect to the awarding of grants to qualified
return preparation clinics.''.
(b) Clerical Amendment.--The table of sections for chapter
77 is amended by inserting after the item relating to section
7526 the following new item:
``Sec. 7526A. Return preparation clinics for low-income taxpayers.''.
(c) Effective Date.--The amendments made by this section
shall apply to grants made after the date of the enactment of
this Act.
SEC. 313. EXEMPTION OF QUALIFIED 501(C)(3) BONDS FOR NURSING
HOMES FROM FEDERAL GUARANTEE PROHIBITIONS.
(a) In General.--Section 149(b)(3) (relating to exceptions)
is amended by adding at the end the following new
subparagraph:
``(E) Exception for qualified 501(c)(3) bonds for nursing
homes.--
``(i) In general.--Paragraph (1) shall not apply to any
qualified 501(c)(3) bond issued before the date which is 1
year after the date of the enactment of this subparagraph for
the benefit of an organization described in section
501(c)(3), if such bond is part of an issue the proceeds of
which are used to finance 1 or more of the following
facilities primarily for the benefit of the elderly:
``(I) Licensed nursing home facility.
``(II) Licensed or certified assisted living facility.
``(III) Licensed personal care facility.
``(IV) Continuing care retirement community.
``(ii) Limitation.--With respect to any calendar year,
clause (i) shall not apply to any bond described in such
clause if the aggregate authorized face amount of the issue
of which such bond is a part when increased by the
outstanding amount of such bonds issued by the issuer for
such calendar year exceeds $15,000,000.
``(iii) Continuing care retirement community.--For purposes
of this subparagraph, the term `continuing care retirement
community' means a community which provides, on the same
campus, a continuum of residential living options and support
services to persons at least 60 years of age under a written
agreement. For purposes of the preceding sentence, the
residential living options shall include independent living
units, nursing home beds, and either assisted living units or
personal care beds.''.
(b) Effective Date.--The amendment made by this section
shall apply to bonds issued after the date of the enactment
of this Act.
SEC. 314. EXCISE TAXES EXEMPTION FOR BLOOD COLLECTOR
ORGANIZATIONS.
(a) Exemption from Imposition of Special Fuels Tax.--
Section 4041(g) (relating to other exemptions) is amended by
striking ``and'' at the end of paragraph (3), by striking the
period in paragraph (4) and inserting ``; and'', and by
inserting after paragraph (4) the following new paragraph:
``(5) with respect to the sale of any liquid to a qualified
blood collector organization (as defined in section
7701(a)(48)) for such organization's exclusive use, or with
respect to the use by a qualified blood collector
organization of any liquid as a fuel.''.
(b) Exemption from Manufacturers Excise Tax.--
(1) In general.--Section 4221(a) (relating to certain tax-
free sales) is amended by striking ``or'' at the end of
paragraph (4), by adding ``or'' at the end of paragraph (5),
and by inserting after paragraph (5) the following new
paragraph:
``(6) to a qualified blood collector organization (as
defined in section 7701(a)(48)) for such organization's
exclusive use,''.
(2) Conforming amendments.--
(A) The second sentence of section 4221(a) is amended by
striking ``Paragraphs (4) and (5)'' and inserting
``Paragraphs (4), (5), and (6)''.
(B) Section 6421(c) is amended by striking ``or (5)'' and
inserting ``(5), or (6)''.
(c) Exemption from Communication Excise Tax.--
(1) In general.--Section 4253 (relating to exemptions) is
amended by redesignating subsection (k) as subsection (l) and
inserting after subsection (j) the following new subsection:
``(k) Exemption for Qualified Blood Collector
Organizations.--Under regulations provided by the Secretary,
no tax shall be imposed under section 4251 on any amount paid
by a qualified blood collector organization (as defined in
section 7701(a)) for services or facilities furnished to such
organization.''.
(2) Conforming amendment.--Section 4253(l), as redesignated
by paragraph (1), is amended by striking ``or (j)'' and
inserting ``(j), or (k)''.
(d) Credit for Refund for Certain Taxes on Sales and
Services.--
(1) Deemed overpayment.--
(A) In general.--Section 6416(b)(2) is amended by
redesignating subparagraphs (E) and (F) as subparagraphs (F)
and (G), respectively, and by inserting after subparagraph
(D) the following new subparagraph:
``(E) sold to a qualified blood collector organization's
(as defined in section 7701(a)(48)) for such organization's
exclusive use;''.
(B) Conforming amendments.--Section 6416(b)(2) is amended--
(i) by striking ``Subparagraphs (C) and (D)'' and inserting
``Subparagraphs (C), (D), and (E)'', and
(ii) by striking ``(C), and (D)'' and inserting ``(C), (D),
and (E)''.
(2) Sales of tires.--Clause (ii) of section 6416(b)(4)(B)
is amended by inserting ``sold to a qualified blood collector
organization (as defined in section 7701(a)(48)),'' after
``for its exclusive use,''.
(e) Definition of Qualified Blood Collector Organization.--
Section 7701(a) is amended by inserting at the end the
following new paragraph:
``(48) Qualified blood collector organization.--For
purposes of this title, the term `qualified blood collector
organization' means an organization which is--
``(A) described in section 501(c)(3) and exempt from tax
under section 501(a),
``(B) registered by the Food and Drug Administration to
collect blood, and
``(C) primarily engaged in the activity of the collection
of blood.''.
(f) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply with respect to
excise taxes imposed on sales or uses occurring on or after
October 1, 2003.
(2) Refund of gasoline tax.--For purposes of section
6421(c) of the Internal Revenue Code of 1986 and any other
provision that allows for a refund or a payment in respect of
an excise tax payable at a level before the sale to a
qualified blood collector organization, the amendments made
by this section shall apply with respect to sales to a
qualified collector organization on or after October 1, 2003.
[[Page S2154]]
SEC. 315. PILOT PROJECT FOR FOREST CONSERVATION ACTIVITIES.
(a) Tax-Exempt Bond Financing.--
(1) In general.--For purposes of the Internal Revenue Code
of 1986, any qualified forest conservation bond shall be
treated as an exempt facility bond under section 142 of such
Code.
(2) Qualified forest conservation bond.--For purposes of
this section, the term ``qualified forest conservation bond''
means any bond issued as part of an issue if--
(A) 95 percent or more of the net proceeds (as defined in
section 150(a)(3) of such Code) of such issue are to be used
for qualified project costs,
(B) such bond is issued for a qualified organization, and
(C) such bond is issued before December 31, 2006.
(3) Limitation on aggregate amount issued.--
(A) In general.--The maximum aggregate face amount of bonds
which may be issued under this subsection shall not exceed
$2,000,000,000 for all projects (excluding refunding bonds).
(B) Allocation of limitation.--The limitation described in
subparagraph (A) shall be allocated by the Secretary of the
Treasury among qualified organizations based on criteria
established by the Secretary not later than 180 days after
the date of the enactment of this section, after consultation
with the Chief of the Forest Service.
(4) Qualified project costs.--For purposes of this
subsection, the term ``qualified project costs'' means the
sum of--
(A) the cost of acquisition by the qualified organization
from an unrelated person of forests and forest land which at
the time of acquisition or immediately thereafter are subject
to a conservation restriction described in subsection (c)(2),
(B) capitalized interest on the qualified forest
conservation bonds for the 3-year period beginning on the
date of issuance of such bonds, and
(C) credit enhancement fees which constitute qualified
guarantee fees (within the meaning of section 148 of such
Code).
(5) Special rules.--In applying the Internal Revenue Code
of 1986 to any qualified forest conservation bond, the
following modifications shall apply:
(A) Section 146 of such Code (relating to volume cap) shall
not apply.
(B) For purposes of section 147(b) of such Code (relating
to maturity may not exceed 120 percent of economic life), the
land and standing timber acquired with proceeds of qualified
forest conservation bonds shall have an economic life of 35
years.
(C) Subsections (c) and (d) of section 147 of such Code
(relating to limitations on acquisition of land and existing
property) shall not apply.
(D) Section 57(a)(5) of such Code (relating to tax-exempt
interest) shall not apply to interest on qualified forest
conservation bonds.
(6) Treatment of current refunding bonds.--Paragraphs
(2)(C) and (3) shall not apply to any bond (or series of
bonds) issued to refund a qualified forest conservation bond
issued before December 31, 2006, if--
(A) the average maturity date of the issue of which the
refunding bond is a part is not later than the average
maturity date of the bonds to be refunded by such issue,
(B) the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond, and
(C) the net proceeds of the refunding bond are used to
redeem the refunded bond not later than 90 days after the
date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be
determined in accordance with section 147(b)(2)(A) of such
Code.
(7) Effective date.--This subsection shall apply to
obligations issued on or after the date which is 180 days
after the enactment of this Act.
(b) Items From Qualified Harvesting Activities Not Subject
to Tax or Taken Into Account.--
(1) In general.--Income, gains, deductions, losses, or
credits from a qualified harvesting activity conducted by a
qualified organization shall not be subject to tax or taken
into account under subtitle A of the Internal Revenue Code of
1986.
(2) Limitation.--The amount of income excluded from gross
income under paragraph (1) for any taxable year shall not
exceed the amount used by the qualified organization to make
debt service payments during such taxable year for qualified
forest conservation bonds.
(3) Qualified harvesting activity.--For purposes of
paragraph (1)--
(A) In general.--The term ``qualified harvesting activity''
means the sale, lease, or harvesting, of standing timber--
(i) on land owned by a qualified organization which was
acquired with proceeds of qualified forest conservation
bonds,
(ii) with respect to which a written acknowledgement has
been obtained by the qualified organization from the State or
local governments with jurisdiction over such land that the
acquisition lessens the burdens of such government with
respect to such land, and
(iii) pursuant to a qualified conservation plan adopted by
the qualified organization.
(B) Exceptions.--
(i) Cessation as qualified organization.--The term
``qualified harvesting activity'' shall not include any sale,
lease, or harvesting for any period during which the
organization ceases to qualify as a qualified organization.
(ii) Exceeding limits on harvesting.--The term ``qualified
harvesting activity'' shall not include any sale, lease, or
harvesting of standing timber on land acquired with proceeds
of qualified forest conservation bonds to the extent that--
(I) the average annual area of timber harvested from such
land exceeds 2.5 percent of the total area of such land or,
(II) the quantity of timber removed from such land exceeds
the quantity which can be removed from such land annually in
perpetuity on a sustained-yield basis with respect to such
land.
The limitations under subclauses (I) and (II) shall not apply
to post-fire restoration and rehabilitation or sanitation
harvesting of timber stands which are substantially damaged
by fire, windthrow, or other catastrophes, or which are in
imminent danger from insect or disease attack.
(4) Termination.--This subsection shall not apply to any
qualified harvesting activity of a qualified organization
occurring after the date on which there is no outstanding
qualified forest conservation bond with respect to such
qualified organization or any such bond ceases to be a tax-
exempt bond.
(5) Partial recapture of benefits if harvesting limit
exceeded.--If, as of the date that this subsection ceases to
apply under paragraph (3), the average annual area of timber
harvested from the land exceeds the requirement of paragraph
(3)(B)(ii)(I), the tax imposed by chapter 1 of the Internal
Revenue Code of 1986 shall be increased, under rules
prescribed by the Secretary of the Treasury, by the sum of
the tax benefits attributable to such excess and interest at
the underpayment rate under section 6621 of such Code for the
period of the underpayment.
(c) Definitions.--For purposes of this section--
(1) Qualified conservation plan.--The term ``qualified
conservation plan'' means a multiple land use program or plan
which--
(A) is designed and administered primarily for the purposes
of protecting and enhancing wildlife and fish, timber, scenic
attributes, recreation, and soil and water quality of the
forest and forest land,
(B) mandates that conservation of forest and forest land is
the single-most significant use of the forest and forest
land, and
(C) requires that timber harvesting be consistent with--
(i) restoring and maintaining reference conditions for the
region's ecotype,
(ii) restoring and maintaining a representative sample of
young, mid, and late successional forest age classes,
(iii) maintaining or restoring the resources' ecological
health for purposes of preventing damage from fire, insect,
or disease,
(iv) maintaining or enhancing wildlife or fish habitat, or
(v) enhancing research opportunities in sustainable
renewable resource uses.
(2) Conservation restriction.--The conservation restriction
described in this paragraph is a restriction which--
(A) is granted in perpetuity to an unrelated person which
is described in section 170(h)(3) of such Code and which, in
the case of a nongovernmental unit, is organized and operated
for conservation purposes,
(B) meets the requirements of clause (ii) or (iii)(II) of
section 170(h)(4)(A) of such Code,
(C) obligates the qualified organization to pay the costs
incurred by the holder of the conservation restriction in
monitoring compliance with such restriction, and
(D) requires an increasing level of conservation benefits
to be provided whenever circumstances allow it.
(3) Qualified organization.--The term ``qualified
organization'' means an organization--
(A) which is a nonprofit organization substantially all the
activities of which are charitable, scientific, or
educational, including acquiring, protecting, restoring,
managing, and developing forest lands and other renewable
resources for the long-term charitable, educational,
scientific and public benefit,
(B) more than half of the value of the property of which
consists of forests and forest land acquired with the
proceeds from qualified forest conservation bonds,
(C) which periodically conducts educational programs
designed to inform the public of environmentally sensitive
forestry management and conservation techniques,
(D) which has at all times a board of directors--
(i) at least 20 percent of the members of which represent
the holders of the conservation restriction described in
paragraph (2),
(ii) at least 20 percent of the members of which are public
officials, and
(iii) not more than one-third of the members of which are
individuals who are or were at any time within 5 years before
the beginning of a term of membership on the board, an
employee of, independent contractor with respect to, officer
of, director of, or held a material financial interest in, a
commercial forest products enterprise with which the
qualified organization has a contractual or other financial
arrangement,
(E) the bylaws of which require at least two-thirds of the
members of the board of directors to vote affirmatively to
approve the
[[Page S2155]]
qualified conservation plan and any change thereto, and
(F) upon dissolution, is required to dedicate its assets
to--
(i) an organization described in section 501(c)(3) of such
Code which is organized and operated for conservation
purposes, or
(ii) a governmental unit described in section 170(c)(1) of
such Code.
(4) Unrelated person.--The term ``unrelated person'' means
a person who is not a related person.
(5) Related person.--A person shall be treated as related
to another person if--
(A) such person bears a relationship to such other person
described in section 267(b) (determined without regard to
paragraph (9) thereof), or 707(b)(1), of such Code,
determined by substituting ``25 percent'' for ``50 percent''
each place it appears therein, and
(B) in the case such other person is a non-profit
organization, if such person controls directly or indirectly
more than 25 percent of the governing body of such
organization.
SEC. 316. CLARIFICATION OF TREATMENT OF JOHNNY MICHEAL SPANN
PATRIOT TRUSTS.
(a) Clarification of Tax-Exempt Status of Trusts.--
(1) In general.--Subsection (b) of section 601 of the
Homeland Security Act of 2002 is amended to read as follows:
``(b) Designation of Johnny Micheal Spann Patriot Trusts.--
Any charitable corporation, fund, foundation, or trust (or
separate fund or account thereof) which is described in
section 501(c)(3) of the Internal Revenue Code of 1986 and
exempt from tax under section 501(a) of such Code and meets
the requirements described in subsection (c) shall be
eligible to designate itself as a `Johnny Micheal Spann
Patriot trust'.''.
(2) Conforming amendment.--Section 601(c)(3) of such Act is
amended by striking ``based'' and all that follows through
``Trust''.
(b) Publicly Available Audits.--Section 601(c)(7) of the
Homeland Security Act of 2002 is amended by striking ``shall
be filed with the Internal Revenue Service, and shall be open
to public inspection'' and inserting ``shall be open to
public inspection consistent with section 6104(d)(1) of the
Internal Revenue Code of 1986''.
(c) Clarification of Required Distributions to Private
Foundation.--
(1) In general.--Section 601(c)(8) of the Homeland Security
Act of 2002 is amended by striking ``not placed'' and all
that follows and inserting ``not so distributed shall be
contributed to a private foundation which is described in
section 509(a) of the Internal Revenue Code of 1986 and
exempt from tax under section 501(a) of such Code and which
is dedicated to such beneficiaries not later than 36 months
after the end of the fiscal year in which such funds,
donations, or earnings are received.''.
(2) Conforming amendments.--Section 601(c) of such Act is
amended--
(A) by striking ``(or, if placed in a private foundation,
held in trust for)'' in paragraph (1) and inserting ``(or
contributed to a private foundation described in paragraph
(8) for the benefit of)'', and
(B) by striking ``invested in a private foundation'' in
paragraph (2) and inserting ``contributed to a private
foundation described in paragraph (8)''.
(d) Requirements for Distributions From Trusts.--Section
601(c)(9)(A) of the Homeland Security Act of 2002 is amended
by striking ``should'' and inserting ``shall''.
(e) Regulations Regarding Notification of Trust
Beneficiaries.--Section 601(f) of the Homeland Security Act
of 2002 is amended by striking ``this section'' and inserting
``subsection (e)''.
(f) Effective Date.--The amendments made by this section
shall take effect as if included in the enactment of section
601 of the Homeland Security Act of 2002.
TITLE IV--SOCIAL SERVICES BLOCK GRANT
SEC. 401. RESTORATION OF FUNDS FOR THE SOCIAL SERVICES BLOCK
GRANT.
(a) Findings.--Congress makes the following findings:
(1) On August 22, 1996, the Personal Responsibility and
Work Opportunity Reconciliation Act of 1996 (Public Law 104-
193; 110 Stat. 2105) was signed into law.
(2) In enacting that law, Congress authorized
$2,800,000,000 for fiscal year 2003 and each fiscal year
thereafter to carry out the Social Services Block Grant
program established under title XX of the Social Security Act
(42 U.S.C. 1397 et seq.).
(b) Restoration of Funds.--Section 2003(c)(11) of the
Social Security Act (42 U.S.C. 1397b(c)(11)) is amended by
inserting ``, except that, with respect to fiscal year 2004,
the amount shall be $1,975,000,000, and with respect to
fiscal year 2005, the amount shall be $2,800,000,000'' after
``thereafter.''.
SEC. 402. RESTORATION OF AUTHORITY TO TRANSFER UP TO 10
PERCENT OF TANF FUNDS TO THE SOCIAL SERVICES
BLOCK GRANT.
(a) In General.--Section 404(d)(2) of the Social Security
Act (42 U.S.C. 604(d)(2)) is amended to read as follows:
``(2) Limitation on amount transferable to title xx
programs.--A State may use not more than 10 percent of the
amount of any grant made to the State under section 403(a)
for a fiscal year to carry out State programs pursuant to
title XX.''.
(b) Effective Date.--The amendment made by subsection (a)
applies to amounts made available for fiscal year 2004 and
each fiscal year thereafter.
SEC. 403. REQUIREMENT TO SUBMIT ANNUAL REPORT ON STATE
ACTIVITIES.
(a) In General.--Section 2006(c) of the Social Security Act
(42 U.S.C. 1397e(c)) is amended by adding at the end the
following: ``The Secretary shall compile the information
submitted by the States and submit that information to
Congress on an annual basis.''.
(b) Effective Date.--The amendment made by subsection (a)
applies to information submitted by States under section 2006
of the Social Security Act (42 U.S.C. 1397e) with respect to
fiscal year 2003 and each fiscal year thereafter.
TITLE V--INDIVIDUAL DEVELOPMENT ACCOUNTS
SEC. 501. SHORT TITLE.
This title may be cited as the ``Savings for Working
Families Act of 2004''.
SEC. 502. PURPOSES.
The purposes of this title are to provide for the
establishment of individual development account programs that
will--
(1) provide individuals and families with limited means an
opportunity to accumulate assets and to enter the financial
mainstream,
(2) promote education, homeownership, and the development
of small businesses,
(3) stabilize families and build communities, and
(4) support continued United States economic expansion.
SEC. 503. DEFINITIONS.
As used in this title:
(1) Eligible individual.--
(A) In general.--The term ``eligible individual'' means,
with respect to any taxable year, an individual who--
(i) has attained the age of 18 but not the age of 61 as of
the last day of such taxable year,
(ii) is a citizen or lawful permanent resident (within the
meaning of section 7701(b)(6) of the Internal Revenue Code of
1986) of the United States as of the last day of such taxable
year,
(iii) was not a student (as defined in section 151(c)(4) of
such Code) for the immediately preceding taxable year,
(iv) is not an individual with respect to whom a deduction
under section 151 of such Code is allowable to another
taxpayer for a taxable year of the other taxpayer ending
during the immediately preceding taxable year of the
individual,
(v) is not a taxpayer described in subsection (c), (d), or
(e) of section 6402 of such Code for the immediately
preceding taxable year,
(vi) is not a taxpayer described in section 1(d) of such
Code for the immediately preceding taxable year, and
(vii) is a taxpayer the modified adjusted gross income of
whom for the immediately preceding taxable year does not
exceed--
(I) $18,000, in the case of a taxpayer described in section
1(c) of such Code,
(II) $30,000, in the case of a taxpayer described in
section 1(b) of such Code, and
(III) $38,000, in the case of a taxpayer described in
section 1(a) of such Code.
(B) Inflation adjustment.--
(i) In general.--In the case of any taxable year beginning
after 2004, each dollar amount referred to in subparagraph
(A)(vii) shall be increased by an amount equal to--
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under section
(1)(f)(3) of the Internal Revenue Code of 1986 for the
calendar year in which the taxable year begins, by
substituting ``2003'' for ``1992''.
(ii) Rounding.--If any amount as adjusted under clause (i)
is not a multiple of $50, such amount shall be rounded to the
nearest multiple of $50.
(C) Modified adjusted gross income.--For purposes of
subparagraph (A)(v), the term ``modified adjusted gross
income'' means adjusted gross income--
(i) determined without regard to sections 86, 893, 911,
931, and 933 of the Internal Revenue Code of 1986, and
(ii) increased by the amount of interest received or
accrued by the taxpayer during the taxable year which is
exempt from tax.
(2) Individual development account.--The term ``Individual
Development Account'' means an account established for an
eligible individual as part of a qualified individual
development account program, but only if the written
governing instrument creating the account meets the following
requirements:
(A) The owner of the account is the individual for whom the
account was established.
(B) No contribution will be accepted unless it is in cash,
and, except in the case of any qualified rollover,
contributions will not be accepted for the taxable year in
excess of $1,500 on behalf of any individual.
(C) The trustee of the account is a qualified financial
institution.
(D) The assets of the account will not be commingled with
other property except in a common trust fund or common
investment fund.
(E) Except as provided in section 507(b), any amount in the
account may be paid out only for the purpose of paying the
qualified expenses of the account owner.
(3) Parallel account.--The term ``parallel account'' means
a separate, parallel individual or pooled account for all
matching funds and earnings dedicated to an Individual
Development Account owner as part
[[Page S2156]]
of a qualified individual development account program, the
trustee of which is a qualified financial institution.
(4) Qualified financial institution.--The term ``qualified
financial institution'' means any person authorized to be a
trustee of any individual retirement account under section
408(a)(2) of the Internal Revenue Code of 1986.
(5) Qualified individual development account program.--The
term ``qualified individual development account program''
means a program established upon approval of the Secretary
under section 504 after December 31, 2002, under which--
(A) Individual Development Accounts and parallel accounts
are held in trust by a qualified financial institution, and
(B) additional activities determined by the Secretary, in
consultation with the Secretary of Health and Human Services,
as necessary to responsibly develop and administer accounts,
including recruiting, providing financial education and other
training to Account owners, and regular program monitoring,
are carried out by the qualified financial institution.
(6) Qualified expense distribution.--
(A) In general.--The term ``qualified expense
distribution'' means any amount paid (including through
electronic payments) or distributed out of an Individual
Development Account or a parallel account established for an
eligible individual if such amount--
(i) is used exclusively to pay the qualified expenses of
the Individual Development Account owner or such owner's
spouse or dependents,
(ii) is paid by the qualified financial institution--
(I) except as otherwise provided in this clause, directly
to the unrelated third party to whom the amount is due,
(II) in the case of any qualified rollover, directly to
another Individual Development Account and parallel account,
or
(III) in the case of a qualified final distribution,
directly to the spouse, dependent, or other named beneficiary
of the deceased Account owner, and
(iii) is paid after the Account owner has completed a
financial education course if required under section 505(b).
(B) Qualified expenses.--
(i) In general.--The term ``qualified expenses'' means any
of the following expenses approved by the qualified financial
institution:
(I) Qualified higher education expenses.
(II) Qualified first-time homebuyer costs.
(III) Qualified business capitalization or expansion costs.
(IV) Qualified rollovers.
(V) Qualified final distribution.
(ii) Qualified higher education expenses.--
(I) In general.--The term ``qualified higher education
expenses'' has the meaning given such term by section
529(e)(3) of the Internal Revenue Code of 1986, determined by
treating the Account owner, the owner's spouse, or one or
more of the owner's dependents as a designated beneficiary,
and reduced as provided in section 25A(g)(2) of such Code.
(II) Coordination with other benefits.--The amount of
expenses which may be taken into account for purposes of
section 135, 529, or 530 of such Code for any taxable year
shall be reduced by the amount of any qualified higher
education expenses taken into account as qualified expense
distributions during such taxable year.
(iii) Qualified first-time homebuyer costs.--The term
``qualified first-time homebuyer costs'' means qualified
acquisition costs (as defined in section 72(t)(8)(C) of the
Internal Revenue Code of 1986) with respect to a principal
residence (within the meaning of section 121 of such Code)
for a qualified first-time homebuyer (as defined in section
72(t)(8)(D)(i) of such Code).
(iv) Qualified business capitalization or expansion
costs.--
(I) In general.--The term ``qualified business
capitalization or expansion costs'' means qualified
expenditures for the capitalization or expansion of a
qualified business pursuant to a qualified business plan.
(II) Qualified expenditures.--The term ``qualified
expenditures'' means expenditures normally associated with
starting or expanding a business and included in a qualified
business plan, including costs for capital, plant, and
equipment, inventory expenses, and attorney and accounting
fees.
(III) Qualified business.--The term ``qualified business''
means any business that does not contravene any law.
(IV) Qualified business plan.--The term ``qualified
business plan'' means a business plan which has been approved
by the qualified financial institution and which meets such
requirements as the Secretary may specify.
(v) Qualified rollovers.--The term ``qualified rollover''
means the complete distribution of the amounts in an
Individual Development Account and parallel account to
another Individual Development Account and parallel account
established in another qualified financial institution for
the benefit of the Account owner.
(vi) Qualified final distribution.--The term ``qualified
final distribution'' means, in the case of a deceased Account
owner, the complete distribution of the amounts in the
Individual Development Account and parallel account directly
to the spouse, any dependent, or other named beneficiary of
the deceased.
(7) Secretary.--The term ``Secretary'' means the Secretary
of the Treasury.
SEC. 504. STRUCTURE AND ADMINISTRATION OF QUALIFIED
INDIVIDUAL DEVELOPMENT ACCOUNT PROGRAMS.
(a) Establishment of Qualified Individual Development
Account Programs.--Any qualified financial institution may
apply to the Secretary for approval to establish 1 or more
qualified individual development account programs which meet
the requirements of this title and for an allocation of the
Individual Development Account limitation under section
45G(i)(3) of the Internal Revenue Code of 1986 with respect
to such programs.
(b) Basic Program Structure.--
(1) In general.--All qualified individual development
account programs shall consist of the following 2 components
for each participant:
(A) An Individual Development Account to which an eligible
individual may contribute cash in accordance with section
505.
(B) A parallel account to which all matching funds shall be
deposited in accordance with section 506.
(2) Tailored ida programs.--A qualified financial
institution may tailor its qualified individual development
account program to allow matching funds to be spent on 1 or
more of the categories of qualified expenses.
(3) No fees may be charged to idas.--A qualified financial
institution may not charge any fees to any Individual
Development Account or parallel account under a qualified
individual development account program.
(c) Coordination With Public Housing Agency Individual
Savings Accounts.--Section 3(e)(2) of the United States
Housing Act of 1937 (42 U.S.C. 1437a(e)(2)) is amended by
inserting ``or in any Individual Development Account
established under the Savings for Working Families Act of
2004'' after ``subsection''.
(d) Tax Treatment of Parallel Accounts.--
(1) In general.--Chapter 77 (relating to miscellaneous
provisions) is amended by adding at the end the following new
section:
``SEC. 7528. TAX INCENTIVES FOR INDIVIDUAL DEVELOPMENT
PARALLEL ACCOUNTS.
``For purposes of this title--
``(1) any account described in section 504(b)(1)(B) of the
Savings for Working Families Act of 2004 shall be exempt from
taxation,
``(2) except as provided in section 45G, no item of income,
expense, basis, gain, or loss with respect to such an account
may be taken into account, and
``(3) any amount withdrawn from such an account shall not
be includible in gross income.''.
(2) Conforming amendment.--The table of sections for
chapter 77 is amended by adding at the end the following new
item:
``Sec. 7528. Tax incentives for individual development parallel
accounts.''.
(e) Coordination of certain expenses.--Section 25A(g)(2) is
amended by striking ``and'' at the end of subparagraph (C),
by striking the period at the end of subparagraph (D) and
inserting ``, and'', and by adding at the end the following
new subparagraph:
``(D) a qualified expense distribution with respect to
qualified higher education expenses from an Individual
Development Account or a parallel account under section
507(a) of the Savings for Working Families Act of 2004.''.
SEC. 505. PROCEDURES FOR OPENING AND MAINTAINING AN
INDIVIDUAL DEVELOPMENT ACCOUNT AND QUALIFYING
FOR MATCHING FUNDS.
(a) Opening an Account.--An eligible individual may open an
Individual Development Account with a qualified financial
institution upon certification that such individual has never
maintained any other Individual Development Account (other
than an Individual Development Account to be terminated by a
qualified rollover).
(b) Required Completion of Financial Education Course.--
(1) In general.--Before becoming eligible to withdraw funds
to pay for qualified expenses, owners of Individual
Development Accounts must complete 1 or more financial
education courses specified in the qualified individual
development account program.
(2) Standard and applicability of course.--The Secretary,
in consultation with representatives of qualified individual
development account programs and financial educators, shall
not later than January 1, 2004, establish minimum quality
standards for the contents of financial education courses and
providers of such courses described in paragraph (1) and a
protocol to exempt individuals from the requirement under
paragraph (1) in the case of hardship, lack of need, the
attainment of age 65, or a qualified final distribution.
(c) Proof of Status as an Eligible Individual.--Federal
income tax forms for the immediately preceding taxable year
and any other evidence of eligibility which may be required
by a qualified financial institution shall be presented to
such institution at the time of the establishment of the
Individual Development Account and in any taxable year in
which contributions are made to the Account to qualify for
matching funds under section 506(b)(1)(A).
(d) Special Rule in the Case of Married Individuals.--For
purposes of this title, if, with respect to any taxable year,
2 married individuals file a Federal joint income tax return,
then not more than 1 of such individuals may be treated as an
eligible individual with respect to the succeeding taxable
year.
[[Page S2157]]
SEC. 506. DEPOSITS BY QUALIFIED INDIVIDUAL DEVELOPMENT
ACCOUNT PROGRAMS.
(a) Parallel Accounts.--The qualified financial institution
shall deposit all matching funds for each Individual
Development Account into a parallel account at a qualified
financial institution.
(b) Regular Deposits of Matching Funds.--
(1) In general.--Subject to paragraph (2), the qualified
financial institution shall deposit into the parallel account
with respect to each eligible individual the following
amounts:
(A) A dollar-for-dollar match for the first $500
contributed by the eligible individual into an Individual
Development Account with respect to any taxable year of such
individual.
(B) Any matching funds provided by State, local, or private
sources in accordance with the matching ratio set by those
sources.
(2) Timing of deposits.--A deposit of the amounts described
in paragraph (1) shall be made into a parallel account--
(A) in the case of amounts described in paragraph (1)(A),
not later than 30 days after the end of the calendar quarter
during which the contribution described in such paragraph was
made, and
(B) in the case of amounts described in paragraph (1)(B),
not later than 2 business days after such amounts were
provided.
(3) Cross reference.--
For allowance of tax credit for Individual Development Account
subsidies, including matching funds, see section 45G of the Internal
Revenue Code of 1986.
(c) Deposit of Matching Funds Into Individual Development
Account of Individual Who Has Attained Age 65.--In the case
of an Individual Development Account owner who attains the
age of 65, the qualified financial institution shall deposit
the funds in the parallel account with respect to such
individual into the Individual Development Account of such
individual on the later of--
(1) the day which is the 1-year anniversary of the deposit
of such funds in the parallel account, or
(2) the first business day of the taxable year of such
individual following the taxable year in which such
individual attained age 65.
(d) Uniform Accounting Regulations.--To ensure proper
recordkeeping and determination of the tax credit under
section 45G of the Internal Revenue Code of 1986, the
Secretary shall prescribe regulations with respect to
accounting for matching funds in the parallel accounts.
(e) Regular Reporting of Accounts.--Any qualified financial
institution shall report the balances in any Individual
Development Account and parallel account of an individual on
not less than an annual basis to such individual.
SEC. 507. WITHDRAWAL PROCEDURES.
(a) Withdrawals for Qualified Expenses.--
(1) In general.--An Individual Development Account owner
may withdraw funds in order to pay qualified expense
distributions from such individual's--
(A) Individual Development Account, but only from funds
which have been on deposit in such Account for at least 1
year, and
(B) parallel account, but only--
(i) from matching funds which have been on deposit in such
parallel account for at least 1 year,
(ii) from earnings in such parallel account, after all
matching funds described in clause (i) have been withdrawn,
and
(iii) to the extent such withdrawal does not result in a
remaining balance in such parallel account which is less than
the remaining balance in the Individual Development Account
after such withdrawal.
(2) Procedure.--Upon receipt of a withdrawal request which
meets the requirements of paragraph (1), the qualified
financial institution shall directly transfer the funds
electronically to the distributees described in section
503(6)(A)(ii). If a distributee is not equipped to receive
funds electronically, the qualified financial institution may
issue such funds by paper check to the distributee.
(b) Withdrawals for Nonqualified Expenses.--An Individual
Development Account owner may withdraw any amount of funds
from the Individual Development Account for purposes other
than to pay qualified expense distributions, but if, after
such withdrawal, the amount in the parallel account of such
owner (excluding earnings on matching funds) exceeds the
amount remaining in such Individual Development Account, then
such owner shall forfeit from the parallel account the lesser
of such excess or the amount withdrawn.
(c) Withdrawals From Accounts of Noneligible Individuals.--
If the individual for whose benefit an Individual Development
Account is established ceases to be an eligible individual,
such account shall remain an Individual Development Account,
but such individual shall not be eligible for any further
matching funds under section 506(b)(1)(A) for contributions
which are made to the Account during any taxable year when
such individual is not an eligible individual.
(d) Effect of Pledging Account as Security.--If, during any
taxable year of the individual for whose benefit an
Individual Development Account is established, that
individual uses the Account, the individual's parallel
account, or any portion thereof as security for a loan, the
portion so used shall be treated as a withdrawal of such
portion from the Individual Development Account for purposes
other than to pay qualified expenses.
SEC. 508. CERTIFICATION AND TERMINATION OF QUALIFIED
INDIVIDUAL DEVELOPMENT ACCOUNT PROGRAMS.
(a) Certification Procedures.--Upon establishing a
qualified individual development account program under
section 504, a qualified financial institution shall certify
to the Secretary at such time and in such manner as may be
prescribed by the Secretary and accompanied by any
documentation required by the Secretary, that--
(1) the accounts described in subparagraphs (A) and (B) of
section 504(b)(1) are operating pursuant to all the
provisions of this title, and
(2) the qualified financial institution agrees to implement
an information system necessary to monitor the cost and
outcomes of the qualified individual development account
program.
(b) Authority To Terminate Qualified IDA Program.--If the
Secretary determines that a qualified financial institution
under this title is not operating a qualified individual
development account program in accordance with the
requirements of this title (and has not implemented any
corrective recommendations directed by the Secretary), the
Secretary shall terminate such institution's authority to
conduct the program. If the Secretary is unable to identify a
qualified financial institution to assume the authority to
conduct such program, then any funds in a parallel account
established for the benefit of any individual under such
program shall be deposited into the Individual Development
Account of such individual as of the first day of such
termination.
SEC. 509. REPORTING, MONITORING, AND EVALUATION.
(a) Responsibilities of Qualified Financial Institutions.--
(1) In general.--Each qualified financial institution that
operates a qualified individual development account program
under section 504 shall report annually to the Secretary
within 90 days after the end of each calendar year on--
(A) the number of individuals making contributions into
Individual Development Accounts and the amounts contributed,
(B) the amounts contributed into Individual Development
Accounts by eligible individuals and the amounts deposited
into parallel accounts for matching funds,
(C) the amounts withdrawn from Individual Development
Accounts and parallel accounts, and the purposes for which
such amounts were withdrawn,
(D) the balances remaining in Individual Development
Accounts and parallel accounts, and
(E) such other information needed to help the Secretary
monitor the effectiveness of the qualified individual
development account program (provided in a non-individually-
identifiable manner).
(2) Additional reporting requirements.--Each qualified
financial institution that operates a qualified individual
development account program under section 504 shall report at
such time and in such manner as the Secretary may prescribe
any additional information that the Secretary requires to be
provided for purposes of administering and supervising the
qualified individual development account program. This
additional data may include, without limitation, identifying
information about Individual Development Account owners,
their Accounts, additions to the Accounts, and withdrawals
from the Accounts.
(b) Responsibilities of the Secretary.--
(1) Monitoring protocol.--Not later than 12 months after
the date of the enactment of this Act, the Secretary, in
consultation with the Secretary of Health and Human Services,
shall develop and implement a protocol and process to monitor
the cost and outcomes of the qualified individual development
account programs established under section 504.
(2) Annual reports.--For each year after 2004, the
Secretary shall submit a progress report to Congress on the
status of such qualified individual development account
programs. Such report shall, to the extent data are
available, include from a representative sample of qualified
individual development account programs information on--
(A) the characteristics of participants, including age,
gender, race or ethnicity, marital status, number of
children, employment status, and monthly income,
(B) deposits, withdrawals, balances, uses of Individual
Development Accounts, and participant characteristics,
(C) the characteristics of qualified individual development
account programs, including match rate, economic education
requirements, permissible uses of accounts, staffing of
programs in full time employees, and the total costs of
programs, and
(D) process information on program implementation and
administration, especially on problems encountered and how
problems were solved.
(3) Reauthorization report on cost and outcomes of idas.--
(A) In general.--Not later than July 1, 2008, the Secretary
of the Treasury shall submit a report to Congress and the
chairmen and ranking members of the Committee on Finance, the
Committee on Banking, Housing, and Urban Affairs, and the
Committee on Health, Education, Labor, and Pensions of the
Senate and the Committee on Ways and
[[Page S2158]]
Means, the Committee on Banking and Financial Services, and
the Committee on Education and the Workforce of the House of
Representatives, in which the Secretary shall--
(i) summarize the previously submitted annual reports
required under paragraph (2),
(ii) from a representative sample of qualified individual
development account programs, include an analysis of--
(I) the economic, social, and behavioral outcomes,
(II) the changes in savings rates, asset holdings, and
household debt, and overall changes in economic stability,
(III) the changes in outlooks, attitudes, and behavior
regarding savings strategies, investment, education, and
family,
(IV) the integration into the financial mainstream,
including decreased reliance on alternative financial
services, and increase in acquisition of mainstream financial
products, and
(V) the involvement in civic affairs, including
neighborhood schools and associations,
associated with participation in qualified individual
development account programs,
(iii) from a representative sample of qualified individual
development account programs, include a comparison of
outcomes associated with such programs with outcomes
associated with other Federal Government social and economic
development programs, including asset building programs, and
(iv) make recommendations regarding the reauthorization of
the qualified individual development account programs,
including--
(I) recommendations regarding reforms that will improve the
cost and outcomes of the such programs, including the ability
to help low income families save and accumulate productive
assets,
(II) recommendations regarding the appropriate levels of
subsidies to provide effective incentives to financial
institutions and Account owners under such programs, and
(III) recommendations regarding how such programs should be
integrated into other Federal poverty reduction, asset
building, and community development policies and programs.
(B) Authorization.--There is authorized to be appropriated
$2,500,000, for carrying out the purposes of this paragraph.
(4) Use of accounts in rural areas encouraged.--The
Secretary shall develop methods to encourage the use of
Individual Development Accounts in rural areas.
SEC. 510. AUTHORIZATION OF APPROPRIATIONS.
There is authorized to be appropriated to the Secretary
$1,000,000 for fiscal year 2004 and for each fiscal year
through 2012, for the purposes of implementing this title,
including the reporting, monitoring, and evaluation required
under section 509, to remain available until expended.
SEC. 511. MATCHING FUNDS FOR INDIVIDUAL DEVELOPMENT ACCOUNTS
PROVIDED THROUGH A TAX CREDIT FOR QUALIFIED
FINANCIAL INSTITUTIONS.
(a) In General.--Subpart D of part IV of subchapter A of
chapter 1 (relating to business related credits) is amended
by adding at the end the following new section:
``SEC. 45G. INDIVIDUAL DEVELOPMENT ACCOUNT INVESTMENT CREDIT.
``(a) Determination of Amount.--For purposes of section 38,
the individual development account investment credit
determined under this section with respect to any eligible
entity for any taxable year is an amount equal to the
individual development account investment provided by such
eligible entity during the taxable year under an individual
development account program established under section 504 of
the Savings for Working Families Act of 2004.
``(b) Applicable Tax.--For the purposes of this section,
the term `applicable tax' means the excess (if any) of--
``(1) the tax imposed under this chapter (other than the
taxes imposed under the provisions described in subparagraphs
(C) through (Q) of section 26(b)(2)), over
``(2) the credits allowable under subpart B (other than
this section) and subpart D of this part.
``(c) Individual Development Account Investment.--For
purposes of this section, the term `individual development
account investment' means, with respect to an individual
development account program in any taxable year, an amount
equal to the sum of--
``(1) the aggregate amount of dollar-for-dollar matches
under such program under section 506(b)(1)(A) of the Savings
for Working Families Act of 2004 for such taxable year, plus
``(2) $50 with respect to each Individual Development
Account maintained--
``(A) as of the end of such taxable year, but only if such
taxable year is within the 7-taxable-year period beginning
with the taxable year in which such Account is opened, and
``(B) with a balance of not less than $100 (other than the
taxable year in which such Account is opened).
``(d) Eligible Entity.--For purposes of this section,
except as provided in regulations, the term `eligible entity'
means a qualified financial institution.
``(e) Other Definitions.--For purposes of this section, any
term used in this section and also in the Savings for Working
Families Act of 2004 shall have the meaning given such term
by such Act.
``(f) Denial of Double Benefit.--
``(1) In general.--No deduction or credit (other than under
this section) shall be allowed under this chapter with
respect to any expense which--
``(A) is taken into account under subsection (c)(1)(A) in
determining the credit under this section, or
``(B) is attributable to the maintenance of an Individual
Development Account.
``(2) Determination of amount.--Solely for purposes of
paragraph (1)(B), the amount attributable to the maintenance
of an Individual Development Account shall be deemed to be
the dollar amount of the credit allowed under subsection
(c)(l)(B) for each taxable year such Individual Development
Account is maintained.
``(g) Credit May Be Transferred.--
``(1) In general.--An eligible entity may transfer any
credit allowable to the eligible entity under subsection (a)
to any person other than to another eligible entity which is
exempt from tax under this title. The determination as to
whether a credit is allowable shall be made without regard to
the tax-exempt status of the eligible entity.
``(2) Consent required for revocation.--Any transfer under
paragraph (1) may be revoked only with the consent of the
Secretary.
``(h) Regulations.--The Secretary may prescribe such
regulations as may be necessary or appropriate to carry out
this section, including
``(1) such regulations as necessary to insure that any
credit described in subsection (g)(1) is claimed once and not
retransferred by a transferee, and
``(2) regulations providing for a recapture of the credit
allowed under this section (notwithstanding any termination
date described in subsection (i)) in cases where there is a
forfeiture under section 507(b) of the Savings for Working
Families Act of 2004 in a subsequent taxable year of any
amount which was taken into account in determining the amount
of such credit.
``(i) Application of Section.--
``(1) In general.--This section shall apply to any
expenditure made in any taxable year ending after December
31, 2004, and beginning on or before January 1, 2012, with
respect to any Individual Development Account which--
``(A) is opened before January 1, 2012, and
``(B) as determined by the Secretary, when added to all of
the previously opened Individual Development Accounts, does
not exceed--
``(i) 100,000 Accounts if opened after December 31, 2004,
and before January 1, 2007,
``(ii) an additional 100,000 Accounts if opened after
December 31, 2006, and before January 1, 2009, but only if,
except as provided in paragraph (4), the total number of
Accounts described in clause (i) are opened and the Secretary
determines that such Accounts are being reasonably and
responsibly administered, and
``(iii) an additional 100,000 Accounts if opened after
December 31, 2008, and before January 1, 2012, but only if
the total number of Accounts described in clauses (i) and
(ii) are opened and the Secretary makes a determination
described in paragraph (2).
Notwithstanding the preceding sentence, this section shall
apply to amounts which are described in subsection (c)(1)(A)
and which are timely deposited into a parallel account during
the 30-day period following the end of last taxable year
beginning before January 1, 2012.
``(2) Determination with respect to third group of
accounts.--A determination is described in this paragraph if
the Secretary determines that--
``(A) substantially all of the previously opened Accounts
have been reasonably and responsibly administered prior to
the date of the determination,
``(B) the individual development account programs have
increased net savings of participants in the programs,
``(C) participants in the individual development account
programs have increased Federal income tax liability and
decreased utilization of Federal assistance programs relative
to similarly situated individuals that did not participate in
the individual development account programs, and
``(D) the sum of the estimated increased Federal tax
liability and reduction of Federal assistance program
benefits to participants in the individual development
account programs is greater than the cost of the individual
development account programs to the Federal government.
``(3) Determination of limitation.--The limitation on the
number of Individual Development Accounts under paragraph
(1)(B) shall be allocated by the Secretary among qualified
individual development account programs selected by the
Secretary and, in the case of the limitation under clause
(iii) of such paragraph, shall be equally divided among the
States.
``(4) Special rule if smaller number of accounts are
opened.--For purposes of paragraph (1)(B)(ii)--
``(i) In general.--If less than 100,000 Accounts are opened
before January 1, 2007, such paragraph shall be applied by
substituting ``applicable number of Accounts' for `100,000
Accounts'.
``(ii) Applicable number.--For purposes of clause (i), the
applicable number equals the lesser of--
``(I) 75,000, or
``(II) 3 times the number of Accounts opened before January
1, 2007.''.
(b) Credit Treated as Business Credit.--Section 38(b)
(relating to current year business credit) is amended by
striking ``plus'' at
[[Page S2159]]
the end of paragraph (14), by striking the period at the end
of paragraph (15) and inserting ``, plus'', and by adding at
the end the following new paragraph:
``(16) the individual development account investment credit
determined under section 45G(a).''.
(c) No Carrybacks.--Subsection (d) of section 39 (relating
to carryback and carryforward of unused credits) is amended
by adding at the end the following:
``(11) No carryback of section 45g credit before effective
date.--No portion of the unused business credit for any
taxable year which is attributable to the individual
development account investment credit determined under
section 45G may be carried back to a taxable year ending
before January 1, 2004.''.
(d) Conforming Amendment.--The table of sections for
subpart C of part IV of subchapter A of chapter 1 is amended
by adding at the end the following new item:
``Sec. 45G. Individual development account investment credit.''.
(e) Report Regarding Account Maintenance Fees.--The
Secretary of the Treasury shall study the adequacy of the
amount specified in section 45G(c)(2) of the Internal Revenue
Code of 1986 (as added by this section). Not later than
December 31, 2009, the Secretary of the Treasury shall report
the findings of the study described in the preceding sentence
to Congress.
(f) Effective Date.--The amendments made by this section
shall apply to taxable years ending after December 31, 2004.
SEC. 512. ACCOUNT FUNDS DISREGARDED FOR PURPOSES OF CERTAIN
MEANS-TESTED FEDERAL PROGRAMS.
Notwithstanding any other provision of Federal law (other
than the Internal Revenue Code of 1986) that requires
consideration of 1 or more financial circumstances of an
individual, for the purpose of determining eligibility to
receive, or the amount of, any assistance or benefit
authorized by such provision to be provided to or for the
benefit of such individual, any amount (including earnings
thereon) in any Individual Development Account of such
individual and any matching deposit made on behalf of such
individual (including earnings thereon) in any parallel
account shall be disregarded for such purpose with respect to
any period during which such individual maintains or makes
contributions into such Individual Development Account.
TITLE VI--MANAGEMENT OF EXEMPT ORGANIZATIONS
SEC. 601. AUTHORIZATION OF APPROPRIATIONS.
(a) In General.--There is authorized to be appropriated to
the Secretary of the Treasury $80,000,000 for each fiscal
year to carry out the administration of exempt organizations
by the Internal Revenue Service.
(b) Implementation of Section 527.--There is authorized to
be appropriated to the Secretary of the Treasury $3,000,000
to carry out the provisions of Public Laws 106-230 and 107-
276 relating to section 527 of the Internal Revenue Code of
1986.
TITLE VII--REVENUE PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
SEC. 701. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.
(a) In General.--Section 7701, as amended by this Act, 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; Etc.--
``(1) General rules.--
``(A) In general.--In applying the economic substance
doctrine, the determination of whether a transaction has
economic substance shall be made as provided in this
paragraph.
``(B) Definition of economic substance.--For purposes of
subparagraph (A)--
``(i) In general.--A transaction has economic substance
only if--
``(I) the transaction changes in a meaningful way (apart
from Federal tax effects and, if there is any Federal tax
effects, also apart from any foreign, State, or local tax
effects) the taxpayer's economic position, and
``(II) the taxpayer has a substantial nontax purpose for
entering into such transaction and the transaction is a
reasonable means of accomplishing such purpose.
``(ii) Special rule where taxpayer relies on profit
potential.--A transaction shall not be treated as having
economic substance by reason of having a potential for profit
unless--
``(I) 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, and
``(II) the reasonably expected pre-tax profit from the
transaction exceeds a risk-free rate of return.
``(C) 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 (B)(ii).
``(2) Special rules for transactions with tax-indifferent
parties.--
``(A) Special rules for financing transactions.--The form
of a transaction which is in substance the borrowing of money
or the acquisition of financial capital directly or
indirectly from a tax-indifferent party shall not be
respected if the present value of the deductions to be
claimed with respect to the transaction is substantially in
excess of the present value of the anticipated economic
returns of the person lending the money or providing the
financial capital. A public offering shall be treated as a
borrowing, or an acquisition of financial capital, from a
tax-indifferent party if it is reasonably expected that at
least 50 percent of the offering will be placed with tax-
indifferent parties.
``(B) Artificial income shifting and basis adjustments.--
The form of a transaction with a tax-indifferent party shall
not be respected if--
``(i) it results in an allocation of income or gain to the
tax-indifferent party in excess of such party's economic
income or gain, or
``(ii) it results in a basis adjustment or shifting of
basis on account of overstating the income or gain of the
tax-indifferent party.
``(3) 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) Tax-indifferent party.--The term `tax-indifferent
party' means any person or entity not subject to tax imposed
by subtitle A. A person shall be treated as a tax-indifferent
party with respect to a transaction if the items taken into
account with respect to the transaction have no substantial
impact on such person's liability under subtitle A.
``(C) Exception for personal transactions of individuals.--
In the case of an individual, this subsection shall apply
only to transactions entered into in connection with a trade
or business or an activity engaged in for the production of
income.
``(D) Treatment of lessors.--In applying subclause (I) of
paragraph (1)(B)(ii) to the lessor of tangible property
subject to a lease, the expected net tax benefits shall not
include the benefits of depreciation, or any tax credit, with
respect to the leased property and subclause (II) of
paragraph (1)(B)(ii) shall be disregarded in determining
whether any of such benefits are allowable.
``(4) 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.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this subsection. Such regulations may include
exemptions from the application of this subsection.''.
(b) Effective Date.--The amendments made by this section
shall apply to transactions entered into after February 15,
2004.
SEC. 702. PENALTY FOR FAILING TO DISCLOSE REPORTABLE
TRANSACTION.
(a) In General.--Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by inserting
after section 6707 the following new section:
``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE
TRANSACTION INFORMATION WITH RETURN OR
STATEMENT.
``(a) Imposition of Penalty.--Any person who fails to
include on any return or statement any information with
respect to a reportable transaction which is required under
section 6011 to be included with such return or statement
shall pay a penalty in the amount determined under subsection
(b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraphs (2) and
(3), the amount of the penalty under subsection (a) shall be
$50,000.
``(2) Listed transaction.--The amount of the penalty under
subsection (a) with respect to a listed transaction shall be
$100,000.
``(3) Increase in penalty for large entities and high net
worth individuals.--
``(A) In general.--In the case of a failure under
subsection (a) by--
``(i) a large entity, or
``(ii) a high net worth individual,
the penalty under paragraph (1) or (2) shall be twice the
amount determined without regard to this paragraph.
``(B) Large entity.--For purposes of subparagraph (A), the
term `large entity' means, with respect to any taxable year,
a person (other than a natural person) with gross receipts in
excess of $10,000,000 for the taxable year in which the
reportable transaction occurs or the preceding taxable year.
Rules similar to the rules of paragraph (2) and subparagraphs
(B), (C), and (D) of paragraph (3) of section 448(c) shall
apply for purposes of this subparagraph.
``(C) High net worth individual.--The term `high net worth
individual' means, with respect to a transaction, a natural
person whose net worth exceeds $2,000,000 immediately before
the transaction.
``(c) Definitions.--For purposes of this section--
``(1) Reportable transaction.--The term `reportable
transaction' means any transaction with respect to which
information is required to be included with a return or
statement because, as determined under regulations prescribed
under section 6011, such transaction is of a type which the
Secretary determines as having a potential for tax avoidance
or evasion.
[[Page S2160]]
``(2) Listed transaction.--Except as provided in
regulations, the term `listed transaction' means a reportable
transaction which is the same as, or substantially similar
to, a transaction specifically identified by the Secretary as
a tax avoidance transaction for purposes of section 6011.
``(d) Authority To Rescind Penalty.--
``(1) In general.--The Commissioner of Internal Revenue may
rescind all or any portion of any penalty imposed by this
section with respect to any violation if--
``(A) the violation is with respect to a reportable
transaction other than a listed transaction,
``(B) the person on whom the penalty is imposed has a
history of complying with the requirements of this title,
``(C) it is shown that the violation is due to an
unintentional mistake of fact;
``(D) imposing the penalty would be against equity and good
conscience, and
``(E) rescinding the penalty would promote compliance with
the requirements of this title and effective tax
administration.
``(2) Discretion.--The exercise of authority under
paragraph (1) shall be at the sole discretion of the
Commissioner and may be delegated only to the head of the
Office of Tax Shelter Analysis. The Commissioner, in the
Commissioner's sole discretion, may establish a procedure to
determine if a penalty should be referred to the Commissioner
or the head of such Office for a determination under
paragraph (1).
``(3) No appeal.--Notwithstanding any other provision of
law, any determination under this subsection may not be
reviewed in any administrative or judicial proceeding.
``(4) Records.--If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the Office
of the Commissioner the opinion of the Commissioner or the
head of the Office of Tax Shelter Analysis with respect to
the determination, including--
``(A) the facts and circumstances of the transaction,
``(B) the reasons for the rescission, and
``(C) the amount of the penalty rescinded.
``(5) Report.--The Commissioner shall each year report to
the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate--
``(A) a summary of the total number and aggregate amount of
penalties imposed, and rescinded, under this section, and
``(B) a description of each penalty rescinded under this
subsection and the reasons therefor.
``(e) Penalty Reported to SEC.--In the case of a person--
``(1) which is required to file periodic reports under
section 13 or 15(d) of the Securities Exchange Act of 1934 or
is required to be consolidated with another person for
purposes of such reports, and
``(2) which--
``(A) is required to pay a penalty under this section with
respect to a listed transaction,
``(B) is required to pay a penalty under section 6662A with
respect to any reportable transaction at a rate prescribed
under section 6662A(c), or
``(C) is required to pay a penalty under section 6662B with
respect to any noneconomic substance transaction,
the requirement to pay such penalty shall be disclosed in
such reports filed by such person for such periods as the
Secretary shall specify. Failure to make a disclosure in
accordance with the preceding sentence shall be treated as a
failure to which the penalty under subsection (b)(2) applies.
``(f) Coordination With Other Penalties.--The penalty
imposed by this section is in addition to any penalty imposed
under this title.''.
(b) Conforming Amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by inserting after
the item relating to section 6707 the following:
``Sec. 6707A. Penalty for failure to include reportable transaction
information with return or statement.''.
(c) Effective Date.--The amendments made by this section
shall apply to returns and statements the due date for which
is after the date of the enactment of this Act.
SEC. 703. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS
AND OTHER REPORTABLE TRANSACTIONS HAVING A
SIGNIFICANT TAX AVOIDANCE PURPOSE.
(a) In General.--Subchapter A of chapter 68 is amended by
inserting after section 6662 the following new section:
``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERSTATEMENTS WITH RESPECT TO REPORTABLE
TRANSACTIONS.
``(a) Imposition of Penalty.--If a taxpayer has a
reportable transaction understatement for any taxable year,
there shall be added to the tax an amount equal to 20 percent
of the amount of such understatement.
``(b) Reportable Transaction Understatement.--For purposes
of this section--
``(1) In general.--The term `reportable transaction
understatement' means the sum of--
``(A) the product of--
``(i) the amount of the increase (if any) in taxable income
which results from a difference between the proper tax
treatment of an item to which this section applies and the
taxpayer's treatment of such item (as shown on the taxpayer's
return of tax), and
``(ii) the highest rate of tax imposed by section 1
(section 11 in the case of a taxpayer which is a
corporation), and
``(B) the amount of the decrease (if any) in the aggregate
amount of credits determined under subtitle A which results
from a difference between the taxpayer's treatment of an item
to which this section applies (as shown on the taxpayer's
return of tax) and the proper tax treatment of such item.
For purposes of subparagraph (A), any reduction of the excess
of deductions allowed for the taxable year over gross income
for such year, and any reduction in the amount of capital
losses which would (without regard to section 1211) be
allowed for such year, shall be treated as an increase in
taxable income.
``(2) Items to which section applies.--This section shall
apply to any item which is attributable to--
``(A) any listed transaction, and
``(B) any reportable transaction (other than a listed
transaction) if a significant purpose of such transaction is
the avoidance or evasion of Federal income tax.
``(c) Higher Penalty for Nondisclosed Listed and Other
Avoidance Transactions.--
``(1) In general.--Subsection (a) shall be applied by
substituting `30 percent' for `20 percent' with respect to
the portion of any reportable transaction understatement with
respect to which the requirement of section 6664(d)(2)(A) is
not met.
``(2) Rules applicable to compromise of penalty.--
``(A) In general.--If the 1st letter of proposed deficiency
which allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of Appeals has
been sent with respect to a penalty to which paragraph (1)
applies, only the Commissioner of Internal Revenue may
compromise all or any portion of such penalty.
``(B) Applicable rules.--The rules of paragraphs (2), (3),
(4), and (5) of section 6707A(d) shall apply for purposes of
subparagraph (A).
``(d) Definitions of Reportable and Listed Transactions.--
For purposes of this section, the terms `reportable
transaction' and `listed transaction' have the respective
meanings given to such terms by section 6707A(c).
``(e) Special Rules.--
``(1) Coordination with penalties, etc., on other
understatements.--In the case of an understatement (as
defined in section 6662(d)(2))--
``(A) the amount of such understatement (determined without
regard to this paragraph) shall be increased by the aggregate
amount of reportable transaction understatements and
noneconomic substance transaction understatements for
purposes of determining whether such understatement is a
substantial understatement under section 6662(d)(1), and
``(B) the addition to tax under section 6662(a) shall apply
only to the excess of the amount of the substantial
understatement (if any) after the application of subparagraph
(A) over the aggregate amount of reportable transaction
understatements and noneconomic substance transaction
understatements.
``(2) Coordination with other penalties.--
``(A) Application of fraud penalty.--References to an
underpayment in section 6663 shall be treated as including
references to a reportable transaction understatement and a
noneconomic substance transaction understatement.
``(B) No double penalty.--This section shall not apply to
any portion of an understatement on which a penalty is
imposed under section 6662B or 6663.
``(3) Special rule for amended returns.--Except as provided
in regulations, in no event shall any tax treatment included
with an amendment or supplement to a return of tax be taken
into account in determining the amount of any reportable
transaction understatement or noneconomic substance
transaction understatement 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.
``(4) Noneconomic substance transaction understatement.--
For purposes of this subsection, the term `noneconomic
substance transaction understatement' has the meaning given
such term by section 6662B(c).
``(5) Cross reference.--
``For reporting of section 6662A(c) penalty to the Securities and
Exchange Commission, see section 6707A(e).''.
(b) Determination of Other Understatements.--Subparagraph
(A) of section 6662(d)(2) is amended by adding at the end the
following flush sentence:
``The excess under the preceding sentence shall be determined
without regard to items to which section 6662A applies and
without regard to items with respect to which a penalty is
imposed by section 6662B.''.
(c) Reasonable Cause Exception.--
(1) In general.--Section 6664 is amended by adding at the
end the following new subsection:
``(d) Reasonable Cause Exception for Reportable Transaction
Understatements.--
``(1) In general.--No penalty shall be imposed under
section 6662A with respect to any portion of a reportable
transaction understatement if it is shown that there was a
reasonable cause for such portion and that the taxpayer acted
in good faith with respect to such portion.
[[Page S2161]]
``(2) Special rules.--Paragraph (1) shall not apply to any
reportable transaction understatement unless--
``(A) the relevant facts affecting the tax treatment of the
item are adequately disclosed in accordance with the
regulations prescribed under section 6011,
``(B) there is or was substantial authority for such
treatment, and
``(C) the taxpayer reasonably believed that such treatment
was more likely than not the proper treatment.
A taxpayer failing to adequately disclose in accordance with
section 6011 shall be treated as meeting the requirements of
subparagraph (A) if the penalty for such failure was
rescinded under section 6707A(d).
``(3) Rules relating to reasonable belief.--For purposes of
paragraph (2)(C)--
``(A) In general.--A taxpayer shall be treated as having a
reasonable belief with respect to the tax treatment of an
item only if such belief--
``(i) is based on the facts and law that exist at the time
the return of tax which includes such tax treatment is filed,
and
``(ii) relates solely to the taxpayer's chances of success
on the merits of such treatment and does not take into
account the possibility that a return will not be audited,
such treatment will not be raised on audit, or such treatment
will be resolved through settlement if it is raised.
``(B) Certain opinions may not be relied upon.--
``(i) In general.--An opinion of a tax advisor may not be
relied upon to establish the reasonable belief of a taxpayer
if--
``(I) the tax advisor is described in clause (ii), or
``(II) the opinion is described in clause (iii).
``(ii) Disqualified tax advisors.--A tax advisor is
described in this clause if the tax advisor--
``(I) is a material advisor (within the meaning of section
6111(b)(1)) who participates in the organization, management,
promotion, or sale of the transaction or who is related
(within the meaning of section 267(b) or 707(b)(1)) to any
person who so participates,
``(II) is compensated directly or indirectly by a material
advisor with respect to the transaction,
``(III) has a fee arrangement with respect to the
transaction which is contingent on all or part of the
intended tax benefits from the transaction being sustained,
or
``(IV) as determined under regulations prescribed by the
Secretary, has a continuing financial interest with respect
to the transaction.
``(iii) Disqualified opinions.--For purposes of clause (i),
an opinion is disqualified if the opinion--
``(I) is based on unreasonable factual or legal assumptions
(including assumptions as to future events),
``(II) unreasonably relies on representations, statements,
findings, or agreements of the taxpayer or any other person,
``(III) does not identify and consider all relevant facts,
or
``(IV) fails to meet any other requirement as the Secretary
may prescribe.''.
(2) Conforming amendment.--The heading for subsection (c)
of section 6664 is amended by inserting ``for Underpayments''
after ``Exception''.
(d) Conforming Amendments.--
(1) Subparagraph (C) of section 461(i)(3) is amended by
striking ``section 6662(d)(2)(C)(iii)'' and inserting
``section 1274(b)(3)(C)''.
(2) Paragraph (3) of section 1274(b) is amended--
(A) by striking ``(as defined in section
6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
(B) by adding at the end the following new subparagraph:
``(C) Tax shelter.--For purposes of subparagraph (B), the
term `tax shelter' means--
``(i) a partnership or other entity,
``(ii) any investment plan or arrangement, or
``(iii) any other plan or arrangement,
if a significant purpose of such partnership, entity, plan,
or arrangement is the avoidance or evasion of Federal income
tax.''.
(3) Section 6662(d)(2) is amended by striking subparagraphs
(C) and (D).
(4) Section 6664(c)(1) is amended by striking ``this part''
and inserting ``section 6662 or 6663''.
(5) Subsection (b) of section 7525 is amended by striking
``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(6)(A) The heading for section 6662 is amended to read as
follows:
``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERPAYMENTS.''.
(B) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to
section 6662 and inserting the following new items:
``Sec. 6662. Imposition of accuracy-related penalty on underpayments.
``Sec. 6662A. Imposition of accuracy-related penalty on understatements
with respect to reportable transactions.''.
(e) Effective Date.--The amendments made by this section
shall apply to taxable years ending after the date of the
enactment of this Act.
SEC. 704. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO
TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.
(a) In General.--Subchapter A of chapter 68 is amended by
inserting after section 6662A the following new section:
``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO
TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.
``(a) Imposition of Penalty.--If a taxpayer has an
noneconomic substance transaction understatement for any
taxable year, there shall be added to the tax an amount equal
to 40 percent of the amount of such understatement.
``(b) Reduction of Penalty for Disclosed Transactions.--
Subsection (a) shall be applied by substituting `20 percent'
for `40 percent' with respect to the portion of any
noneconomic substance transaction understatement with respect
to which the relevant facts affecting the tax treatment of
the item are adequately disclosed in the return or a
statement attached to the return.
``(c) Noneconomic Substance Transaction Understatement.--
For purposes of this section--
``(1) In general.--The term `noneconomic substance
transaction understatement' means any amount which would be
an understatement under section 6662A(b)(1) if section 6662A
were applied by taking into account items attributable to
noneconomic substance transactions rather than items to which
section 6662A applies.
``(2) Noneconomic substance transaction.--The term
`noneconomic substance transaction' means any transaction
if--
``(A) there is a lack of economic substance (within the
meaning of section 7701(o)(1)) for the transaction giving
rise to the claimed benefit or the transaction was not
respected under section 7701(o)(2), or
``(B) the transaction fails to meet the requirements of any
similar rule of law.
``(d) Rules Applicable To Compromise of Penalty.--
``(1) In general.--If the 1st letter of proposed deficiency
which allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of Appeals has
been sent with respect to a penalty to which this section
applies, only the Commissioner of Internal Revenue may
compromise all or any portion of such penalty.
``(2) Applicable rules.--The rules of paragraphs (2), (3),
(4), and (5) of section 6707A(d) shall apply for purposes of
paragraph (1).
``(e) Coordination With Other Penalties.--Except as
otherwise provided in this part, the penalty imposed by this
section shall be in addition to any other penalty imposed by
this title.
``(f) Cross References.--
``(1) For coordination of penalty with understatements under section
6662 and other special rules, see section 6662A(e).
``(2) For reporting of penalty imposed under this section to the
Securities and Exchange Commission, see section 6707A(e).''.
(b) Clerical Amendment.--The table of sections for part II
of subchapter A of chapter 68 is amended by inserting after
the item relating to section 6662A the following new item:
``Sec. 6662B. Penalty for understatements attributable to transactions
lacking economic substance, etc.''.
(c) Effective Date.--The amendments made by this section
shall apply to transactions entered into after February 15,
2004.
SEC. 705. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY
FOR NONREPORTABLE TRANSACTIONS.
(a) Substantial Understatement of Corporations.--Section
6662(d)(1)(B) (relating to special rule for corporations) is
amended to read as follows:
``(B) Special rule for corporations.--In the case of a
corporation other than an S corporation or a personal holding
company (as defined in section 542), there is a substantial
understatement of income tax for any taxable year if the
amount of the understatement for the taxable year exceeds the
lesser of--
``(i) 10 percent of the tax required to be shown on the
return for the taxable year (or, if greater, $10,000), or
``(ii) $10,000,000.''.
(b) Reduction for Understatement of Taxpayer Due to
Position of Taxpayer or Disclosed Item.--
(1) In general.--Section 6662(d)(2)(B)(i) (relating to
substantial authority) is amended to read as follows:
``(i) the tax treatment of any item by the taxpayer if the
taxpayer had reasonable belief that the tax treatment was
more likely than not the proper treatment, or''.
(2) Conforming amendment.--Section 6662(d) is amended by
adding at the end the following new paragraph:
``(3) Secretarial list.--For purposes of this subsection,
section 6664(d)(2), and section 6694(a)(1), the Secretary may
prescribe a list of positions for which the Secretary
believes there is not substantial authority or there is no
reasonable belief that the tax treatment is more likely than
not the proper tax treatment. Such list (and any revisions
thereof) shall be published in the Federal Register or the
Internal Revenue Bulletin.''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 706. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES
RELATING TO TAXPAYER COMMUNICATIONS.
(a) In General.--Section 7525(b) (relating to section not
to apply to communications
[[Page S2162]]
regarding corporate tax shelters) is amended to read as
follows:
``(b) Section Not To Apply to Communications Regarding Tax
Shelters.--The privilege under subsection (a) shall not apply
to any written communication which is--
``(1) between a federally authorized tax practitioner and--
``(A) any person,
``(B) any director, officer, employee, agent, or
representative of the person, or
``(C) any other person holding a capital or profits
interest in the person, and
``(2) in connection with the promotion of the direct or
indirect participation of the person in any tax shelter (as
defined in section 1274(b)(3)(C)).''.
(b) Effective Date.--The amendment made by this section
shall apply to communications made on or after the date of
the enactment of this Act.
SEC. 707. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) In General.--Section 6111 (relating to registration of
tax shelters) is amended to read as follows:
``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
``(a) In General.--Each material advisor with respect to
any reportable transaction shall make a return (in such form
as the Secretary may prescribe) setting forth--
``(1) information identifying and describing the
transaction,
``(2) information describing any potential tax benefits
expected to result from the transaction, and
``(3) such other information as the Secretary may
prescribe.
Such return shall be filed not later than the date specified
by the Secretary.
``(b) Definitions.--For purposes of this section--
``(1) Material advisor.--
``(A) In general.--The term `material advisor' means any
person--
``(i) who provides any material aid, assistance, or advice
with respect to organizing, promoting, selling, implementing,
or carrying out any reportable transaction, and
``(ii) who directly or indirectly derives gross income in
excess of the threshold amount for such aid, assistance, or
advice.
``(B) Threshold amount.--For purposes of subparagraph (A),
the threshold amount is--
``(i) $50,000 in the case of a reportable transaction
substantially all of the tax benefits from which are provided
to natural persons, and
``(ii) $250,000 in any other case.
``(2) Reportable transaction.--The term `reportable
transaction' has the meaning given to such term by section
6707A(c).
``(c) Regulations.--The Secretary may prescribe regulations
which provide--
``(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2 or more
persons would otherwise be required to meet such
requirements,
``(2) exemptions from the requirements of this section, and
``(3) such rules as may be necessary or appropriate to
carry out the purposes of this section.''.
(b) Conforming Amendments.--
(1) The item relating to section 6111 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6111. Disclosure of reportable transactions.''.
(2)(A) So much of section 6112 as precedes subsection (c)
thereof is amended to read as follows:
``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS
MUST KEEP LISTS OF ADVISEES.
``(a) In General.--Each material advisor (as defined in
section 6111) with respect to any reportable transaction (as
defined in section 6707A(c)) shall maintain, in such manner
as the Secretary may by regulations prescribe, a list--
``(1) identifying each person with respect to whom such
advisor acted as such a material advisor with respect to such
transaction, and
``(2) containing such other information as the Secretary
may by regulations require.
This section shall apply without regard to whether a material
advisor is required to file a return under section 6111 with
respect to such transaction.''.
(B) Section 6112 is amended by redesignating subsection (c)
as subsection (b).
(C) Section 6112(b), as redesignated by subparagraph (B),
is amended--
(i) by inserting ``written'' before ``request'' in
paragraph (1)(A), and
(ii) by striking ``shall prescribe'' in paragraph (2) and
inserting ``may prescribe''.
(D) The item relating to section 6112 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6112. Material advisors of reportable transactions must keep
lists of advisees.''.
(3)(A) The heading for section 6708 is amended to read as
follows:
``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH
RESPECT TO REPORTABLE TRANSACTIONS.''.
(B) The item relating to section 6708 in the table of
sections for part I of subchapter B of chapter 68 is amended
to read as follows:
``Sec. 6708. Failure to maintain lists of advisees with respect to
reportable transactions.''.
(c) Effective Date.--The amendments made by this section
shall apply to transactions with respect to which material
aid, assistance, or advice referred to in section
6111(b)(1)(A)(i) of the Internal Revenue Code of 1986 (as
added by this section) is provided after the date of the
enactment of this Act.
SEC. 708. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER
TAX SHELTERS.
(a) In General.--Section 6707 (relating to failure to
furnish information regarding tax shelters) is amended to
read as follows:
``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING
REPORTABLE TRANSACTIONS.
``(a) In General.--If a person who is required to file a
return under section 6111(a) with respect to any reportable
transaction--
``(1) fails to file such return on or before the date
prescribed therefor, or
``(2) files false or incomplete information with the
Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return
in the amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
penalty imposed under subsection (a) with respect to any
failure shall be $50,000.
``(2) Listed transactions.--The penalty imposed under
subsection (a) with respect to any listed transaction shall
be an amount equal to the greater of--
``(A) $200,000, or
``(B) 50 percent of the gross income derived by such person
with respect to aid, assistance, or advice which is provided
with respect to the reportable transaction before the date
the return including the transaction is filed under section
6111.
Subparagraph (B) shall be applied by substituting `75
percent' for `50 percent' in the case of an intentional
failure or act described in subsection (a).
``(c) Rescission Authority.--The provisions of section
6707A(d) (relating to authority of Commissioner to rescind
penalty) shall apply to any penalty imposed under this
section.
``(d) Reportable and Listed Transactions.--The terms
`reportable transaction' and `listed transaction' have the
respective meanings given to such terms by section
6707A(c).''.
(b) Clerical Amendment.--The item relating to section 6707
in the table of sections for part I of subchapter B of
chapter 68 is amended by striking ``tax shelters'' and
inserting ``reportable transactions''.
(c) Effective Date.--The amendments made by this section
shall apply to returns the due date for which is after the
date of the enactment of this Act.
SEC. 709. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN
LISTS OF INVESTORS.
(a) In General.--Subsection (a) of section 6708 is amended
to read as follows:
``(a) Imposition of Penalty.--
``(1) In general.--If any person who is required to
maintain a list under section 6112(a) fails to make such list
available upon written request to the Secretary in accordance
with section 6112(b)(1)(A) within 20 business days after the
date of the Secretary's request, such person shall pay a
penalty of $10,000 for each day of such failure after such
20th day.
``(2) Reasonable cause exception.--No penalty shall be
imposed by paragraph (1) with respect to the failure on any
day if such failure is due to reasonable cause.''.
(b) Effective Date.--The amendment made by this section
shall apply to requests made after the date of the enactment
of this Act.
SEC. 710. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT
RELATED TO TAX SHELTERS AND REPORTABLE
TRANSACTIONS.
(a) In General.--Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by
redesignating subsection (c) as subsection (d) and by
striking subsections (a) and (b) and inserting the following
new subsections:
``(a) Authority To Seek Injunction.--A civil action in the
name of the United States to enjoin any person from further
engaging in specified conduct may be commenced at the request
of the Secretary. Any action under this section shall be
brought in the district court of the United States for the
district in which such person resides, has his principal
place of business, or has engaged in specified conduct. The
court may exercise its jurisdiction over such action (as
provided in section 7402(a)) separate and apart from any
other action brought by the United States against such
person.
``(b) Adjudication and Decree.--In any action under
subsection (a), if the court finds--
``(1) that the person has engaged in any specified conduct,
and
``(2) that injunctive relief is appropriate to prevent
recurrence of such conduct,
the court may enjoin such person from engaging in such
conduct or in any other activity subject to penalty under
this title.
``(c) Specified Conduct.--For purposes of this section, the
term `specified conduct' means any action, or failure to take
action, subject to penalty under section 6700, 6701, 6707, or
6708.''.
(b) Conforming Amendments.--
(1) The heading for section 7408 is amended to read as
follows:
``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.''.
(2) The table of sections for subchapter A of chapter 67 is
amended by striking the item
[[Page S2163]]
relating to section 7408 and inserting the following new
item:
``Sec. 7408. Actions to enjoin specified conduct related to tax
shelters and reportable transactions.''.
(c) Effective Date.--The amendment made by this section
shall take effect on the day after the date of the enactment
of this Act.
SEC. 711. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME
TAX RETURN PREPARER.
(a) Standards Conformed to Taxpayer Standards.--Section
6694(a) (relating to understatements due to unrealistic
positions) is amended--
(1) by striking ``realistic possibility of being sustained
on its merits'' in paragraph (1) and inserting ``reasonable
belief that the tax treatment in such position was more
likely than not the proper treatment'',
(2) by striking ``or was frivolous'' in paragraph (3) and
inserting ``or there was no reasonable basis for the tax
treatment of such position'', and
(3) by striking ``Unrealistic'' in the heading and
inserting ``Improper''.
(b) Amount of Penalty.--Section 6694 is amended--
(1) by striking ``$250'' in subsection (a) and inserting
``$1,000'', and
(2) by striking ``$1,000'' in subsection (b) and inserting
``$5,000''.
(c) Effective Date.--The amendments made by this section
shall apply to documents prepared after the date of the
enactment of this Act.
SEC. 712. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN
FINANCIAL ACCOUNTS.
(a) In General.--Section 5321(a)(5) of title 31, United
States Code, is amended to read as follows:
``(5) Foreign financial agency transaction violation.--
``(A) Penalty authorized.--The Secretary of the Treasury
may impose a civil money penalty on any person who violates,
or causes any violation of, any provision of section 5314.
``(B) Amount of penalty.--
``(i) In general.--Except as provided in subparagraph (C),
the amount of any civil penalty imposed under subparagraph
(A) shall not exceed $5,000.
``(ii) Reasonable cause exception.--No penalty shall be
imposed under subparagraph (A) with respect to any violation
if--
``(I) such violation was due to reasonable cause, and
``(II) the amount of the transaction or the balance in the
account at the time of the transaction was properly reported.
``(C) Willful violations.--In the case of any person
willfully violating, or willfully causing any violation of,
any provision of section 5314--
``(i) the maximum penalty under subparagraph (B)(i) shall
be increased to the greater of--
``(I) $25,000, or
``(II) the amount (not exceeding $100,000) determined under
subparagraph (D), and
``(ii) subparagraph (B)(ii) shall not apply.
``(D) Amount.--The amount determined under this
subparagraph is--
``(i) in the case of a violation involving a transaction,
the amount of the transaction, or
``(ii) in the case of a violation involving a failure to
report the existence of an account or any identifying
information required to be provided with respect to an
account, the balance in the account at the time of the
violation.''.
(b) Effective Date.--The amendment made by this section
shall apply to violations occurring after the date of the
enactment of this Act.
SEC. 713. FRIVOLOUS TAX SUBMISSIONS.
(a) Civil Penalties.--Section 6702 is amended to read as
follows:
``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.
``(a) Civil Penalty for Frivolous Tax Returns.--A person
shall pay a penalty of $5,000 if--
``(1) such person files what purports to be a return of a
tax imposed by this title but which--
``(A) does not contain information on which the substantial
correctness of the self-assessment may be judged, or
``(B) contains information that on its face indicates that
the self-assessment is substantially incorrect; and
``(2) the conduct referred to in paragraph (1)--
``(A) is based on a position which the Secretary has
identified as frivolous under subsection (c), or
``(B) reflects a desire to delay or impede the
administration of Federal tax laws.
``(b) Civil Penalty for Specified Frivolous Submissions.--
``(1) Imposition of penalty.--Except as provided in
paragraph (3), any person who submits a specified frivolous
submission shall pay a penalty of $5,000.
``(2) Specified frivolous submission.--For purposes of this
section--
``(A) Specified frivolous submission.--The term `specified
frivolous submission' means a specified submission if any
portion of such submission--
``(i) is based on a position which the Secretary has
identified as frivolous under subsection (c), or
``(ii) reflects a desire to delay or impede the
administration of Federal tax laws.
``(B) Specified submission.--The term `specified
submission' means--
``(i) a request for a hearing under--
``(I) section 6320 (relating to notice and opportunity for
hearing upon filing of notice of lien), or
``(II) section 6330 (relating to notice and opportunity for
hearing before levy), and
``(ii) an application under--
``(I) section 6159 (relating to agreements for payment of
tax liability in installments),
``(II) section 7122 (relating to compromises), or
``(III) section 7811 (relating to taxpayer assistance
orders).
``(3) Opportunity to withdraw submission.--If the Secretary
provides a person with notice that a submission is a
specified frivolous submission and such person withdraws such
submission within 30 days after such notice, the penalty
imposed under paragraph (1) shall not apply with respect to
such submission.
``(c) Listing of Frivolous Positions.--The Secretary shall
prescribe (and periodically revise) a list of positions which
the Secretary has identified as being frivolous for purposes
of this subsection. The Secretary shall not include in such
list any position that the Secretary determines meets the
requirement of section 6662(d)(2)(B)(ii)(II).
``(d) Reduction of Penalty.--The Secretary may reduce the
amount of any penalty imposed under this section if the
Secretary determines that such reduction would promote
compliance with and administration of the Federal tax laws.
``(e) Penalties in Addition to Other Penalties.--The
penalties imposed by this section shall be in addition to any
other penalty provided by law.''.
(b) Treatment of Frivolous Requests for Hearings Before
Levy.--
(1) Frivolous requests disregarded.--Section 6330 (relating
to notice and opportunity for hearing before levy) is amended
by adding at the end the following new subsection:
``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding
any other provision of this section, if the Secretary
determines that any portion of a request for a hearing under
this section or section 6320 meets the requirement of clause
(i) or (ii) of section 6702(b)(2)(A), then the Secretary may
treat such portion as if it were never submitted and such
portion shall not be subject to any further administrative or
judicial review.''.
(2) Preclusion from raising frivolous issues at hearing.--
Section 6330(c)(4) is amended--
(A) by striking ``(A)'' and inserting ``(A)(i)'';
(B) by striking ``(B)'' and inserting ``(ii)'';
(C) by striking the period at the end of the first sentence
and inserting ``; or''; and
(D) by inserting after subparagraph (A)(ii) (as so
redesignated) the following:
``(B) the issue meets the requirement of clause (i) or (ii)
of section 6702(b)(2)(A).''.
(3) Statement of grounds.--Section 6330(b)(1) is amended by
striking ``under subsection (a)(3)(B)'' and inserting ``in
writing under subsection (a)(3)(B) and states the grounds for
the requested hearing''.
(c) Treatment of Frivolous Requests for Hearings Upon
Filing of Notice of Lien.--Section 6320 is amended--
(1) in subsection (b)(1), by striking ``under subsection
(a)(3)(B)'' and inserting ``in writing under subsection
(a)(3)(B) and states the grounds for the requested hearing'',
and
(2) in subsection (c), by striking ``and (e)'' and
inserting ``(e), and (g)''.
(d) Treatment of Frivolous Applications for Offers-in-
Compromise and Installment Agreements.--Section 7122 is
amended by adding at the end the following new subsection:
``(e) Frivolous Submissions, Etc.--Notwithstanding any
other provision of this section, if the Secretary determines
that any portion of an application for an offer-in-compromise
or installment agreement submitted under this section or
section 6159 meets the requirement of clause (i) or (ii) of
section 6702(b)(2)(A), then the Secretary may treat such
portion as if it were never submitted and such portion shall
not be subject to any further administrative or judicial
review.''.
(e) Clerical Amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by striking the item
relating to section 6702 and inserting the following new
item:
``Sec. 6702. Frivolous tax submissions.''.
(f) Effective Date.--The amendments made by this section
shall apply to submissions made and issues raised after the
date on which the Secretary first prescribes a list under
section 6702(c) of the Internal Revenue Code of 1986, as
amended by subsection (a).
SEC. 714. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE
DEPARTMENT OF TREASURY.
(a) Censure; Imposition of Penalty.--
(1) In general.--Section 330(b) of title 31, United States
Code, is amended--
(A) by inserting ``, or censure,'' after ``Department'',
and
(B) by adding at the end the following new flush sentence:
``The Secretary may impose a monetary penalty on any
representative described in the preceding sentence. If the
representative was acting on behalf of an employer or any
firm or other entity in connection with the conduct giving
rise to such penalty, the Secretary may impose a monetary
penalty on such employer, firm, or entity if it knew, or
reasonably should have known, of such conduct. Such penalty
shall not exceed the gross
[[Page S2164]]
income derived (or to be derived) from the conduct giving
rise to the penalty and may be in addition to, or in lieu of,
any suspension, disbarment, or censure.''.
(2) Effective date.--The amendments made by this subsection
shall apply to actions taken after the date of the enactment
of this Act.
(b) Tax Shelter Opinions, Etc.--Section 330 of such title
31 is amended by adding at the end the following new
subsection:
``(d) Nothing in this section or in any other provision of
law shall be construed to limit the authority of the
Secretary of the Treasury to impose standards applicable to
the rendering of written advice with respect to any entity,
transaction plan or arrangement, or other plan or
arrangement, which is of a type which the Secretary
determines as having a potential for tax avoidance or
evasion.''.
SEC. 715. PENALTY ON PROMOTERS OF TAX SHELTERS.
(a) Penalty on Promoting Abusive Tax Shelters.--Section
6700(a) is amended by adding at the end the following new
sentence: ``Notwithstanding the first sentence, if an
activity with respect to which a penalty imposed under this
subsection involves a statement described in paragraph
(2)(A), the amount of the penalty shall be equal to 50
percent of the gross income derived (or to be derived) from
such activity by the person on which the penalty is
imposed.''.
(b) Effective Date.--The amendment made by this section
shall apply to activities after the date of the enactment of
this Act.
SEC. 716. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH
LISTED TRANSACTIONS NOT REPORTED.
(a) In General.--Section 6501(e)(1) (relating to
substantial omission of items for income taxes) is amended by
adding at the end the following new subparagraph:
``(C) Listed transactions.--If a taxpayer fails to include
on any return or statement for any taxable year any
information with respect to a listed transaction (as defined
in section 6707A(c)(2)) which is required under section 6011
to be included with such return or statement, the tax for
such taxable year may be assessed, or a proceeding in court
for collection of such tax may be begun without assessment,
at any time within 6 years after the time the return is
filed. This subparagraph shall not apply to any taxable year
if the time for assessment or beginning the proceeding in
court has expired before the time a transaction is treated as
a listed transaction under section 6011.''.
(b) Effective Date.--The amendment made by this section
shall apply to transactions in taxable years beginning after
the date of the enactment of this Act.
SEC. 717. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND
NONECONOMIC SUBSTANCE TRANSACTIONS.
(a) In General.--Section 163 (relating to deduction for
interest) is amended by redesignating subsection (m) as
subsection (n) and by inserting after subsection (l) the
following new subsection:
``(m) Interest on Unpaid Taxes Attributable To Nondisclosed
Reportable Transactions and Noneconomic Substance
Transactions.--No deduction shall be allowed under this
chapter for any interest paid or accrued under section 6601
on any underpayment of tax which is attributable to--
``(1) the portion of any reportable transaction
understatement (as defined in section 6662A(b)) with respect
to which the requirement of section 6664(d)(2)(A) is not met,
or
``(2) any noneconomic substance transaction understatement
(as defined in section 6662B(c)).''.
(b) Effective Date.--The amendments made by this section
shall apply to transactions in taxable years beginning after
the date of the enactment of this Act.
SEC. 718. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW
ENFORCEMENT.
There is authorized to be appropriated $300,000,000 for
each fiscal year beginning after September 30, 2002, for the
purpose of carrying out tax law enforcement to combat tax
avoidance transactions and other tax shelters, including the
use of offshore financial accounts to conceal taxable income.
Subtitle B--Other Provisions
SEC. 721. AFFIRMATION OF CONSOLIDATED RETURN REGULATION
AUTHORITY.
(a) In General.--Section 1502 (relating to consolidated
return regulations) is amended by adding at the end the
following new sentence: ``In prescribing such regulations,
the Secretary may prescribe rules applicable to corporations
filing consolidated returns under section 1501 that are
different from other provisions of this title that would
apply if such corporations filed separate returns.''.
(b) Result Not Overturned.--Notwithstanding subsection (a),
the Internal Revenue Code of 1986 shall be construed by
treating Treasury regulation Sec. 1.1502-20(c)(1)(iii) (as in
effect on January 1, 2001) as being inapplicable to the type
of factual situation in 255 F.3d 1357 (Fed. Cir. 2001).
(c) Effective Date.--The provisions of this section shall
apply to taxable years beginning before, on, or after the
date of the enactment of this Act.
SEC. 722. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE
OFFICER.
(a) In General.--Section 6062 (relating to signing of
corporation returns) is amended by striking the first
sentence and inserting the following new sentence: ``The
return of a corporation with respect to income shall be
signed by the chief executive officer of such corporation (or
other such officer of the corporation as the Secretary may
designate if the corporation does not have a chief executive
officer). The preceding sentence shall not apply to any
return of a regulated investment company (within the meaning
of section 851).''.
(b) Effective Date.--The amendment made by this section
shall apply to returns filed after the date of the enactment
of this Act.
SEC. 723. SECURITIES CIVIL ENFORCEMENT PROVISIONS.
(a) Authority To Assess Civil Money Penalties.--
(1) Securities act of 1933.--Section 8A of the Securities
Act of 1933 (15 U.S.C. 77h-1) is amended by adding at the end
the following new subsection:
``(g) Authority of the Commission To Assess Money
Penalty.--
``(1) In general.--In any cease-and-desist proceeding under
subsection (a), the Commission may impose a civil monetary
penalty if it finds, on the record after notice and
opportunity for hearing, that a person is violating, has
violated, or is or was a cause of the violation of, any
provision of this title or any rule or regulation thereunder,
and that such penalty is in the public interest.
``(2) Maximum amount of penalty.--
``(A) First tier.--The maximum amount of penalty for each
act or omission described in paragraph (1) shall be $100,000
for a natural person or $250,000 for any other person.
``(B) Second tier.--Notwithstanding subparagraph (A), the
maximum amount of penalty for such act or omission described
in paragraph (1) shall be $500,000 for a natural person or
$1,000,000 for any other person, if the act or omission
involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a statutory or regulatory requirement.
``(C) Third tier.--Notwithstanding subparagraphs (A) and
(B), the maximum amount of penalty for each act or omission
described in paragraph (1) shall be $1,000,000 for a natural
person or $2,000,000 for any other person, if--
``(i) the act or omission involved fraud, deceit,
manipulation, or deliberate or reckless disregard of a
statutory or regulatory requirement; and
``(ii) such act or omission directly or indirectly resulted
in substantial losses or created a significant risk of
substantial losses to other persons or resulted in
substantial pecuniary gain to the person who committed the
act or omission.
``(3) Evidence concerning ability to pay.--In any
proceeding in which the Commission or the appropriate
regulatory agency may impose a penalty under this section, a
respondent may present evidence of the ability of the
respondent to pay such penalty. The Commission or the
appropriate regulatory agency may, in its discretion,
consider such evidence in determining whether the penalty is
in the public interest. Such evidence may relate to the
extent of the person's ability to continue in business and
the collectability of a penalty, taking into account any
other claims of the United States or third parties upon the
assets of that person and the amount of the assets of that
person.''.
(2) Securities exchange act of 1934.--Section 21B(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u-2(a)) is
amended--
(A) in paragraph (4), by striking ``supervision;'' and all
that follows through the end of the subsection and inserting
``supervision.'';
(B) by redesignating paragraphs (1) through (4) as
subparagraphs (A) through (D), respectively, and moving the
margins 2 ems to the right;
(C) by inserting ``that such penalty is in the public
interest and'' after ``hearing,'';
(D) by striking ``In any proceeding'' and inserting the
following:
``(1) In general.--In any proceeding''; and
(E) by adding at the end the following:
``(2) Other money penalties.--In any proceeding under
section 21C against any person, the Commission may impose a
civil monetary penalty if it finds, on the record after
notice and opportunity for hearing, that such person is
violating, has violated, or is or was a cause of the
violation of, any provision of this title or any rule or
regulation thereunder, and that such penalty is in the public
interest.''.
(3) Investment company act of 1940.--Section 9(d)(1) of the
Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(1)) is
amended--
(A) in subparagraph (C), by striking ``therein;'' and all
that follows through the end of the paragraph and inserting
``supervision.'';
(B) by redesignating subparagraphs (A) through (C) as
clauses (i) through (iii), respectively, and moving the
margins 2 ems to the right;
(C) by inserting ``that such penalty is in the public
interest and'' after ``hearing,'';
(D) by striking ``In any proceeding'' and inserting the
following:
``(A) In general.--In any proceeding''; and
(E) by adding at the end the following:
``(B) Other money penalties.--In any proceeding under
subsection (f) against any person, the Commission may impose
a civil monetary penalty if it finds, on the record after
notice and opportunity for hearing, that such person is
violating, has violated, or is or was a cause of the
violation of, any
[[Page S2165]]
provision of this title or any rule or regulation thereunder,
and that such penalty is in the public interest.''.
(4) Investment advisers act of 1940.--Section 203(i)(1) of
the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(i)(1))
is amended--
(A) in subparagraph (D), by striking ``supervision;'' and
all that follows through the end of the paragraph and
inserting ``supervision.'';
(B) by redesignating subparagraphs (A) through (D) as
clauses (i) through (iv), respectively, and moving the
margins 2 ems to the right;
(C) by inserting ``that such penalty is in the public
interest and'' after ``hearing,'';
(D) by striking ``In any proceeding'' and inserting the
following:
``(A) In general.--In any proceeding''; and
(E) by adding at the end the following:
``(B) Other money penalties.--In any proceeding under
subsection (k) against any person, the Commission may impose
a civil monetary penalty if it finds, on the record after
notice and opportunity for hearing, that such person is
violating, has violated, or is or was a cause of the
violation of, any provision of this title or any rule or
regulation thereunder, and that such penalty is in the public
interest.''.
(b) Increased Maximum Civil Money Penalties.--
(1) Securities act of 1933.--Section 20(d)(2) of the
Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended--
(A) in subparagraph (A)(i)--
(i) by striking ``$5,000'' and inserting ``$100,000''; and
(ii) by striking ``$50,000'' and inserting ``$250,000'';
(B) in subparagraph (B)(i)--
(i) by striking ``$50,000'' and inserting ``$500,000''; and
(ii) by striking ``$250,000'' and inserting ``$1,000,000'';
and
(C) in subparagraph (C)(i)--
(i) by striking ``$100,000'' and inserting ``$1,000,000'';
and
(ii) by striking ``$500,000'' and inserting ``$2,000,000''.
(2) Securities exchange act of 1934.--
(A) Penalties.--Section 32 of the Securities Exchange Act
of 1934 (15 U.S.C. 78ff) is amended--
(i) in subsection (b), by striking ``$100'' and inserting
``$10,000''; and
(ii) in subsection (c)--
(I) in paragraph (1)(B), by striking ``$10,000'' and
inserting ``$500,000''; and
(II) in paragraph (2)(B), by striking ``$10,000'' and
inserting ``$500,000''.
(B) Insider trading.--Section 21A(a)(3) of the Securities
Exchange Act of 1934 (15 U.S.C. 78u-1(a)(3)) is amended by
striking ``$1,000,000'' and inserting ``$2,000,000''.
(C) Administrative proceedings.--Section 21B(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u-2(b)) is
amended--
(i) in paragraph (1)--
(I) by striking ``$5,000'' and inserting ``$100,000''; and
(II) by striking ``$50,000'' and inserting ``$250,000'';
(ii) in paragraph (2)--
(I) by striking ``$50,000'' and inserting ``$500,000''; and
(II) by striking ``$250,000'' and inserting ``$1,000,000'';
and
(iii) in paragraph (3)--
(I) by striking ``$100,000'' and inserting ``$1,000,000'';
and
(II) by striking ``$500,000'' and inserting ``$2,000,000''.
(D) Civil actions.--Section 21(d)(3)(B) of the Securities
Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended--
(i) in clause (i)--
(I) by striking ``$5,000'' and inserting ``$100,000''; and
(II) by striking ``$50,000'' and inserting ``$250,000'';
(ii) in clause (ii)--
(I) by striking ``$50,000'' and inserting ``$500,000''; and
(II) by striking ``$250,000'' and inserting ``$1,000,000'';
and
(iii) in clause (iii)--
(I) by striking ``$100,000'' and inserting ``$1,000,000'';
and
(II) by striking ``$500,000'' and inserting ``$2,000,000''.
(3) Investment company act of 1940.--
(A) Ineligibility.--Section 9(d)(2) of the Investment
Company Act of 1940 (15 U.S.C. 80a-9(d)(2)) is amended--
(i) in subparagraph (A)--
(I) by striking ``$5,000'' and inserting ``$100,000''; and
(II) by striking ``$50,000'' and inserting ``$250,000'';
(ii) in subparagraph (B)--
(I) by striking ``$50,000'' and inserting ``$500,000''; and
(II) by striking ``$250,000'' and inserting ``$1,000,000'';
and
(iii) in subparagraph (C)--
(I) by striking ``$100,000'' and inserting ``$1,000,000'';
and
(II) by striking ``$500,000'' and inserting ``$2,000,000''.
(B) Enforcement of investment company act.--Section
42(e)(2) of the Investment Company Act of 1940 (15 U.S.C.
80a-41(e)(2)) is amended--
(i) in subparagraph (A)--
(I) by striking ``$5,000'' and inserting ``$100,000''; and
(II) by striking ``$50,000'' and inserting ``$250,000'';
(ii) in subparagraph (B)--
(I) by striking ``$50,000'' and inserting ``$500,000''; and
(II) by striking ``$250,000'' and inserting ``$1,000,000'';
and
(iii) in subparagraph (C)--
(I) by striking ``$100,000'' and inserting ``$1,000,000'';
and
(II) by striking ``$500,000'' and inserting ``$2,000,000''.
(4) Investment advisers act of 1940.--
(A) Registration.--Section 203(i)(2) of the Investment
advisers Act of 1940 (15 U.S.C. 80b-3(i)(2)) is amended--
(i) in subparagraph (A)--
(I) by striking ``$5,000'' and inserting ``$100,000''; and
(II) by striking ``$50,000'' and inserting ``$250,000'';
(ii) in subparagraph (B)--
(I) by striking ``$50,000'' and inserting ``$500,000''; and
(II) by striking ``$250,000'' and inserting ``$1,000,000'';
and
(iii) in subparagraph (C)--
(I) by striking ``$100,000'' and inserting ``$1,000,000'';
and
(II) by striking ``$500,000'' and inserting ``$2,000,000''.
(B) Enforcement of investment advisers act.--Section
209(e)(2) of the Investment advisers Act of 1940 (15 U.S.C.
80b-9(e)(2)) is amended--
(i) in subparagraph (A)--
(I) by striking ``$5,000'' and inserting ``$100,000''; and
(II) by striking ``$50,000'' and inserting ``$250,000'';
(ii) in subparagraph (B)--
(I) by striking ``$50,000'' and inserting ``$500,000''; and
(II) by striking ``$250,000'' and inserting ``$1,000,000'';
and
(iii) in subparagraph (C)--
(I) by striking ``$100,000'' and inserting ``$1,000,000'';
and
(II) by striking ``$500,000'' and inserting ``$2,000,000''.
(c) Authority To Obtain Financial Records.--Section 21(h)
of the Securities Exchange Act of 1934 (15 U.S.C. 78u(h)) is
amended--
(1) by striking paragraphs (2) through (8);
(2) in paragraph (9), by striking ``(9)(A)'' and all that
follows through ``(B) The'' and inserting ``(3) The'';
(3) by inserting after paragraph (1), the following:
``(2) Access to financial records.--
``(A) In general.--Notwithstanding section 1105 or 1107 of
the Right to Financial Privacy Act of 1978, the Commission
may obtain access to and copies of, or the information
contained in, financial records of any person held by a
financial institution, including the financial records of a
customer, without notice to that person, when it acts
pursuant to a subpoena authorized by a formal order of
investigation of the Commission and issued under the
securities laws or pursuant to an administrative or judicial
subpoena issued in a proceeding or action to enforce the
securities laws.
``(B) Nondisclosure of requests.--If the Commission so
directs in its subpoena, no financial institution, or
officer, director, partner, employee, shareholder,
representative or agent of such financial institution, shall,
directly or indirectly, disclose that records have been
requested or provided in accordance with subparagraph (A), if
the Commission finds reason to believe that such disclosure
may--
``(i) result in the transfer of assets or records outside
the territorial limits of the United States;
``(ii) result in improper conversion of investor assets;
``(iii) impede the ability of the Commission to identify,
trace, or freeze funds involved in any securities
transaction;
``(iv) endanger the life or physical safety of an
individual;
``(v) result in flight from prosecution;
``(vi) result in destruction of or tampering with evidence;
``(vii) result in intimidation of potential witnesses; or
``(viii) otherwise seriously jeopardize an investigation or
unduly delay a trial.
``(C) Transfer of records to government authorities.--The
Commission may transfer financial records or the information
contained therein to any government authority, if the
Commission proceeds as a transferring agency in accordance
with section 1112 of the Right to Financial Privacy Act of
1978 (12 U.S.C. 3412), except that a customer notice shall
not be required under subsection (b) or (c) of that section
1112, if the Commission determines that there is reason to
believe that such notification may result in or lead to any
of the factors identified under clauses (i) through (viii) of
subparagraph (B) of this paragraph.'';
(4) by striking paragraph (10); and
(5) by redesignating paragraphs (11), (12), and (13) as
paragraphs (4), (5), and (6), respectively.
SEC. 724. REVIEW OF STATE AGENCY BLINDNESS AND DISABILITY
DETERMINATIONS.
Section 1633 of the Social Security Act (42 U.S.C. 1383b)
is amended by adding at the end the following:
``(e)(1) The Commissioner of Social Security shall review
determinations, made by State agencies pursuant to subsection
(a) in connection with applications for benefits under this
title on the basis of blindness or disability, that
individuals who have attained 18 years of age are blind or
disabled as of a specified onset date. The Commissioner
[[Page S2166]]
of Social Security shall review such a determination before
any action is taken to implement the determination.
``(2)(A) In carrying out paragraph (1), the Commissioner of
Social Security shall review--
``(i) at least 25 percent of all determinations referred to
in paragraph (1) that are made in fiscal year 2004; and
``(ii) at least 50 percent of all such determinations that
are made in fiscal year 2005 or thereafter.
``(B) In carrying out subparagraph (A), the Commissioner of
Social Security shall, to the extent feasible, select for
review the determinations which the Commissioner of Social
Security identifies as being the most likely to be
incorrect.''.
TITLE VIII--COMPASSION CAPITAL FUND
SEC. 801. SUPPORT FOR NONPROFIT COMMUNITY-BASED
ORGANIZATIONS; DEPARTMENT OF HEALTH AND HUMAN
SERVICES.
(a) Support for Nongovernmental Organizations.--The
Secretary of Health and Human Services (referred to in this
section as ``the Secretary'') may award grants to and enter
into cooperative agreements with nongovernmental
organizations, to--
(1) provide technical assistance for community-based
organizations, which may include--
(A) grant writing and grant management assistance, which
may include assistance provided through workshops and other
guidance;
(B) legal assistance with incorporation;
(C) legal assistance to obtain tax-exempt status; and
(D) information on, and referrals to, other nongovernmental
organizations that provide expertise in accounting, on legal
issues, on tax issues, in program development, and on a
variety of other organizational topics;
(2) provide information and assistance for community-based
organizations on capacity building;
(3) provide for community-based organizations information
on and assistance in identifying and using best practices for
delivering assistance to persons, families, and communities
in need;
(4) provide information on and assistance in utilizing
regional intermediary organizations to increase and
strengthen the capabilities of nonprofit community-based
organizations;
(5) assist community-based organizations in replicating
social service programs of demonstrated effectiveness; and
(6) encourage research on the best practices of social
service organizations.
(b) Support for States.--The Secretary--
(1) may award grants to and enter into cooperative
agreements with States and political subdivisions of States
to provide seed money to establish State and local offices of
faith-based and community initiatives; and
(2) shall provide technical assistance to States and
political subdivisions of States in administering the
provisions of this Act.
(c) Applications.--To be eligible to receive a grant or
enter into a cooperative agreement under this section, a
nongovernmental organization, State, or political subdivision
shall submit an application to the Secretary at such time, in
such manner, and containing such information as the Secretary
may require.
(d) Limitation.--In order to widely disburse limited
resources, no community-based organization (other than a
direct recipient of a grant or cooperative agreement from the
Secretary) may receive more than 1 grant or cooperative
agreement under this section for the same purpose.
(e) Authorization of Appropriations.--There are authorized
to be appropriated to carry out this section $85,000,000 for
fiscal year 2003, and such sums as may be necessary for each
of fiscal years 2004 through 2007.
(f) Definition.--In this section, the term ``community-
based organization'' means a nonprofit corporation or
association that has--
(1) not more than 6 full-time equivalent employees who are
engaged in the provision of social services; or
(2) a current annual budget (current as of the date the
entity seeks assistance under this section) for the provision
of social services, compiled and adopted in good faith, of
less than $450,000.
SEC. 802. SUPPORT FOR NONPROFIT COMMUNITY-BASED
ORGANIZATIONS; CORPORATION FOR NATIONAL AND
COMMUNITY SERVICE.
(a) Support for Nongovernmental Organizations.--The
Corporation for National and Community Service (referred to
in this section as ``the Corporation'') may award grants to
and enter into cooperative agreements with nongovernmental
organizations and State Commissions on National and Community
Service established under section 178 of the National and
Community Service Act of 1990 (42 U.S.C. 12638), to--
(1) provide technical assistance for community-based
organizations, which may include--
(A) grant writing and grant management assistance, which
may include assistance provided through workshops and other
guidance;
(B) legal assistance with incorporation;
(C) legal assistance to obtain tax-exempt status; and
(D) information on, and referrals to, other nongovernmental
organizations that provide expertise in accounting, on legal
issues, on tax issues, in program development, and on a
variety of other organizational topics;
(2) provide information and assistance for community-based
organizations on capacity building;
(3) provide for community-based organizations information
on and assistance in identifying and using best practices for
delivering assistance to persons, families, and communities
in need;
(4) provide information on and assistance in utilizing
regional intermediary organizations to increase and
strengthen the capabilities of community-based organizations;
(5) assist community-based organizations in replicating
social service programs of demonstrated effectiveness; and
(6) encourage research on the best practices of social
service organizations.
(b) Applications.--To be eligible to receive a grant or
enter into a cooperative agreement under this section, a
nongovernmental organization, State Commission, State, or
political subdivision shall submit an application to the
Corporation at such time, in such manner, and containing such
information as the Corporation may require.
(c) Limitation.--In order to widely disburse limited
resources, no community-based organization (other than a
direct recipient of a grant or cooperative agreement from the
Secretary) may receive more than 1 grant or cooperative
agreement under this section for the same purpose.
(d) Authorization of Appropriations.--There are authorized
to be appropriated to carry out this section $15,000,000 for
fiscal year 2003, and such sums as may be necessary for each
of fiscal years 2004 through 2007.
(e) Definition.--In this section, the term ``community-
based organization'' means a nonprofit corporation or
association that has--
(1) not more than 6 full-time equivalent employees who are
engaged in the provision of social services; or
(2) a current annual budget (current as of the date the
entity seeks assistance under this section) for the provision
of social services, compiled and adopted in good faith, of
less than $450,000.
SEC. 803. SUPPORT FOR NONPROFIT COMMUNITY-BASED
ORGANIZATIONS; DEPARTMENT OF JUSTICE.
(a) Support for Nongovernmental Organizations.--The
Attorney General may award grants to and enter into
cooperative agreements with nongovernmental organizations,
to--
(1) provide technical assistance for community-based
organizations, which may include--
(A) grant writing and grant management assistance, which
may include assistance provided through workshops and other
guidance;
(B) legal assistance with incorporation;
(C) legal assistance to obtain tax-exempt status; and
(D) information on, and referrals to, other nongovernmental
organizations that provide expertise in accounting, on legal
issues, on tax issues, in program development, and on a
variety of other organizational topics;
(2) provide information and assistance for community-based
organizations on capacity building;
(3) provide for community-based organizations information
on and assistance in identifying and using best practices for
delivering assistance to persons, families, and communities
in need;
(4) provide information on and assistance in utilizing
regional intermediary organizations to increase and
strengthen the capabilities of nonprofit community-based
organizations;
(5) assist community-based organizations in replicating
social service programs of demonstrated effectiveness; and
(6) encourage research on the best practices of social
service organizations.
(b) Applications.--To be eligible to receive a grant or
enter into a cooperative agreement under this section, a
nongovernmental organization, State, or political subdivision
shall submit an application to the Attorney General at such
time, in such manner, and containing such information as the
Attorney General may require.
(c) Limitation.--In order to widely disburse limited
resources, no community-based organization (other than a
direct recipient of a grant or cooperative agreement from the
Attorney General) may receive more than 1 grant or
cooperative agreement under this section for the same
purpose.
(d) Authorization of Appropriations.--There are authorized
to be appropriated to carry out this section $35,000,000 for
fiscal year 2003, and such sums as may be necessary for each
of fiscal years 2004 through 2007.
(e) Definition.--In this section, the term ``community-
based organization'' means a nonprofit corporation or
association that has--
(1) not more than 6 full-time equivalent employees who are
engaged in the provision of social services; or
(2) a current annual budget (current as of the date the
entity seeks assistance under this section) for the provision
of social services, compiled and adopted in good faith, of
less than $450,000.
SEC. 804. SUPPORT FOR NONPROFIT COMMUNITY-BASED
ORGANIZATIONS; DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT.
(a) Support for Nongovernmental Organizations.--The
Secretary of Housing and Urban Development (referred to in
this section ``the Secretary'') may award grants to and enter
into cooperative agreements with nongovernmental
organizations, to--
[[Page S2167]]
(1) provide technical assistance for community-based
organizations, which may include--
(A) grant writing and grant management assistance, which
may include assistance provided through workshops and other
guidance;
(B) legal assistance with incorporation;
(C) legal assistance to obtain tax-exempt status; and
(D) information on, and referrals to, other nongovernmental
organizations that provide expertise in accounting, on legal
issues, on tax issues, in program development, and on a
variety of other organizational topics;
(2) provide information and assistance for community-based
organizations on capacity building;
(3) provide for community-based organizations information
on and assistance in identifying and using best practices for
delivering assistance to persons, families, and communities
in need;
(4) provide information on and assistance in utilizing
regional intermediary organizations to increase and
strengthen the capabilities of community-based organizations;
(5) assist community-based organizations in replicating
social service programs of demonstrated effectiveness; and
(6) encourage research on the best practices of social
service organizations.
(b) Applications.--To be eligible to receive a grant or
enter into a cooperative agreement under this section, a
nongovernmental organization, State, or political subdivision
shall submit an application to the Secretary at such time, in
such manner, and containing such information as the Secretary
may require.
(c) Limitation.--In order to widely disburse limited
resources, no community-based organization (other than a
direct recipient of a grant or cooperative agreement from the
Secretary) may receive more than 1 grant or cooperative
agreement under this section for the same purpose.
(d) Authorization of Appropriations.--There are authorized
to be appropriated to carry out this section $15,000,000 for
fiscal year 2003, and such sums as may be necessary for each
of fiscal years 2004 through 2007.
(e) Definition.--In this section, the term ``community-
based organization'' means a nonprofit corporation or
association that has--
(1) not more than 6 full-time equivalent employees who are
engaged in the provision of social services; or
(2) a current annual budget (current as of the date the
entity seeks assistance under this section) for the provision
of social services, compiled and adopted in good faith, of
less than $450,000.
SEC. 805. COORDINATION.
The Secretary of Health and Human Services, the Corporation
for National and Community Service, the Attorney General, and
the Secretary of Housing and Urban Development shall
coordinate their activities under this title to ensure--
(1) nonduplication of activities under this title; and
(2) an equitable distribution of resources under this
title.
TITLE IX--MATERNITY GROUP HOMES
SEC. 901. MATERNITY GROUP HOMES.
(a) Permissible Use of Funds.--Section 322 of the Runaway
and Homeless Youth Act (42 U.S.C. 5714-2) is amended--
(1) in subsection (a)(1), by inserting ``(including
maternity group homes)'' after ``group homes''; and
(2) by adding at the end the following:
``(c) Maternity Group Home.--In this part, the term
`maternity group home' means a community-based, adult-
supervised group home that provides young mothers and their
children with a supportive and supervised living arrangement
in which such mothers are required to learn parenting skills,
including child development, family budgeting, health and
nutrition, and other skills to promote their long-term
economic independence and the well-being of their
children.''.
(b) Contract for Evaluation.--Part B of the Runaway and
Homeless Youth Act (42 U.S.C. 5701 et seq.) is amended by
adding at the end the following:
``SEC. 323. CONTRACT FOR EVALUATION.
``(a) In General.--The Secretary shall enter into a
contract with a public or private entity for an evaluation of
the maternity group homes that are supported by grant funds
under this Act.
``(b) Information.--The evaluation described in subsection
(a) shall include the collection of information about the
relevant characteristics of individuals who benefit from
maternity group homes such as those that are supported by
grant funds under this Act and what services provided by
those maternity group homes are most beneficial to such
individuals.
``(c) Report.--Not later than 2 years after the date on
which the Secretary enters into a contract for an evaluation
under subsection (a), and biennially thereafter, the entity
conducting the evaluation under this section shall submit to
Congress a report on the status, activities, and
accomplishments of maternity group homes that are supported
by grant funds under this Act.''.
(c) Authorization of Appropriations.--Section 388 of the
Runaway and Homeless Youth Act (42 U.S.C. 5751) is amended--
(1) in subsection (a)(1)--
(A) by striking ``There'' and inserting the following:
``(A) In general.--There'';
(B) in subparagraph (A), as redesignated, by inserting
``and the purpose described in subparagraph (B)'' after
``other than part E''; and
(C) by adding at the end the following:
``(B) Maternity group homes.--There is authorized to be
appropriated, for maternity group homes eligible for
assistance under section 322(a)(1)--
``(i) $33,000,000 for fiscal year 2003; and
``(ii) such sums as may be necessary for fiscal year
2004.''; and
(2) in subsection (a)(2)(A), by striking ``paragraph (1)''
and inserting ``paragraph (1)(A)''.
______
SA 2671. Mr. SMITH (for himself and Mr. Breaux) submitted an
amendment intended to be proposed by him to the bill S. 1637, to amend
the Internal Revenue Code of 1986 to comply with the World Trade
Organization rulings on the FSC/ETI benefit in a manner that preserves
jobs and production activities in the United States, to reform and
simplify the international taxation rules of the United States, and for
other purposes; which was ordered to lie on the table; as follows:
Beginning on page 71, strike line 10 through page 84, line
22, and insert the following:
``SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION
ACTIVITIES.
``(a) Allowance of Deduction.--
``(1) In general.--There shall be allowed as a deduction an
amount equal to 9 percent of the qualified production
activities income of the taxpayer for the taxable year.
``(2) Phasein.--In the case of taxable years beginning in
2003, 2004, 2005, 2006, 2007, or 2008, paragraph (1) shall be
applied by substituting for the percentage contained therein
the transition percentage determined under the following
table:
``Taxable years beginning in: The transition percentage is:
2003 or 2004........................................................ 1
2005................................................................ 2
2006................................................................ 3
2007 or 2008........................................................ 6.
``(b) Deduction Limited to Wages Paid.--
``(1) In general.--The amount of the deduction allowable
under subsection (a) for any taxable year shall not exceed 50
percent of the W-2 wages of the employer for the taxable
year.
``(2) W-2 wages.--For purposes of paragraph (1), the term
`W-2 wages' means the sum of the aggregate amounts the
taxpayer is required to include on statements under
paragraphs (3) and (8) of section 6051(a) with respect to
employment of employees of the taxpayer during the taxpayer's
taxable year.
``(3) Special rules.--
``(A) Pass-thru entities.--In the case of an S corporation,
partnership, estate or trust, or other pass-thru entity, the
limitation under this subsection shall apply at the entity
level.
``(B) Acquisitions and dispositions.--The Secretary shall
provide for the application of this subsection in cases where
the taxpayer acquires, or disposes of, the major portion of a
trade or business or the major portion of a separate unit of
a trade or business during the taxable year.
``(c) Qualified Production Activities Income.--For purposes
of this section, the term `qualified production activities
income' means an amount equal to the portion of the modified
taxable income of the taxpayer which is attributable to
domestic production activities.
``(d) Determination of Income Attributable to Domestic
Production Activities.--For purposes of this section--
``(1) In general.--The portion of the modified taxable
income which is attributable to domestic production
activities is so much of the modified taxable income for the
taxable year as does not exceed--
``(A) the taxpayer's domestic production gross receipts for
such taxable year, reduced by
``(B) the sum of--
``(i) the costs of goods sold that are allocable to such
receipts,
``(ii) other deductions, expenses, or losses directly
allocable to such receipts, and
``(iii) a proper share of other deductions, expenses, and
losses that are not directly allocable to such receipts or
another class of income.
``(2) Allocation method.--The Secretary shall prescribe
rules for the proper allocation of items of income,
deduction, expense, and loss for purposes of determining
income attributable to domestic production activities.
``(3) Special rules for determining costs.--
``(A) In general.--For purposes of determining costs under
clause (i) of paragraph (1)(B), any item or service brought
into the United States shall be treated as acquired by
purchase, and its cost shall be treated as not less than its
fair market value immediately after it entered the United
States. A similar rule shall apply in determining the
adjusted basis of leased or rented property where the lease
or rental gives rise to domestic production gross receipts.
``(B) Exports for further manufacture.--In the case of any
property described in subparagraph (A) that had been exported
by the taxpayer for further manufacture, the increase in cost
or adjusted basis under subparagraph (A) shall not exceed the
difference between the value of the property when exported
and the value of the property when
[[Page S2168]]
brought back into the United States after the further
manufacture.
``(4) Modified taxable income.--The term `modified taxable
income' means taxable income computed without regard to the
deduction allowable under this section.
``(e) Domestic Production Gross Receipts.--For purposes of
this section--
``(1) In general.--The term `domestic production gross
receipts' means the gross receipts of the taxpayer which are
derived from--
``(A) any sale, exchange, or other disposition of, or
``(B) any lease, rental, or license of,
qualifying production property which was manufactured,
produced, grown, or extracted in whole or in significant part
by the taxpayer within the United States.
``(2) Special rules for certain property.--In the case of
any qualifying production property described in subsection
(f)(1)(C)--
``(A) such property shall be treated for purposes of
paragraph (1) as produced in significant part by the taxpayer
within the United States if more than 50 percent of the
aggregate development and production costs are incurred by
the taxpayer within the United States, and
``(B) if a taxpayer acquires such property before such
property begins to generate substantial gross receipts, any
development or production costs incurred before the
acquisition shall be treated as incurred by the taxpayer for
purposes of subparagraph (A) and paragraph (1).
``(f) Qualifying Production Property.--For purposes of this
section--
``(1) In general.--Except as otherwise provided in this
paragraph, the term `qualifying production property' means--
``(A) any tangible personal property,
``(B) any computer software, and
``(C) any property described in section 168(f) (3) or (4),
including any underlying copyright or trademark.
``(2) Exclusions from qualifying production property.--The
term `qualifying production property' shall not include--
``(A) consumable property that is sold, leased, or licensed
by the taxpayer as an integral part of the provision of
services,
``(B) oil or gas,
``(C) electricity,
``(D) water supplied by pipeline to the consumer,
``(E) utility services, or
``(F) any film, tape, recording, book, magazine, newspaper,
or similar property the market for which is primarily topical
or otherwise essentially transitory in nature.
``(g) Definitions and Special Rules.--
``(1) Application of section to pass-thru entities.--In the
case of an S corporation, partnership, estate or trust, or
other pass-thru entity--
``(A) subject to the provisions of paragraph (2) and
subsection (b)(3)(A), this section shall be applied at the
shareholder, partner, or similar level, and
``(B) the Secretary shall prescribe rules for the
application of this section, including rules relating to--
``(i) restrictions on the allocation of the deduction to
taxpayers at the partner or similar level, and
``(ii) additional reporting requirements.
``(2) Exclusion for patrons of agricultural and
horticultural cooperatives.--
``(A) In general.--If any amount described in paragraph (1)
or (3) of section 1385(a)--
``(i) is received by a person from an organization to which
part I of subchapter T applies which is engaged in the
marketing of agricultural or horticultural products, and
``(ii) is allocable to the portion of the qualified
production activities income of the organization which is
deductible under subsection (a) and designated as such by the
organization in a written notice mailed to its patrons during
the payment period described in section 1382(d),
then such person shall be allowed an exclusion from gross
income with respect to such amount. The taxable income of the
organization shall not be reduced under section 1382 by the
portion of any such amount with respect to which an exclusion
is allowable to a person by reason of this paragraph.
``(B) Special rules.--For purposes of applying subparagraph
(A), in determining the qualified production activities
income of the organization under this section--
``(i) there shall not be taken into account in computing
the organization's modified taxable income any deduction
allowable under subsection (b) or (c) of section 1382
(relating to patronage dividends, per-unit retain
allocations, and nonpatronage distributions), and
``(ii) the organization shall be treated as having
manufactured, produced, grown, or extracted in whole or
significant part any qualifying production property marketed
by the organization which its patrons have so manufactured,
produced, grown, or extracted.
``(3) Special rule for affiliated groups.--
``(A) In general.--All members of an expanded affiliated
group shall be treated as a single corporation for purposes
of this section.
``(B) Expanded affiliated group.--The term `expanded
affiliated group' means an affiliated group as defined in
section 1504(a), determined--
``(i) by substituting `50 percent' for `80 percent' each
place it appears, and
``(ii) without regard to paragraphs (2) and (4) of section
1504(b).
``(4) Coordination with minimum tax.--The deduction under
this section shall be allowed for purposes of the tax imposed
by section 55; except that for purposes of section 55,
alternative minimum taxable income shall be taken into
account in determining the deduction under this section.
``(5) Ordering rule.--The amount of any other deduction
allowable under this chapter shall be determined as if this
section had not been enacted.
``(6) Trade or business requirement.--This section shall be
applied by only taking into account items which are
attributable to the actual conduct of a trade or business.
``(7) Possessions, etc.--
``(A) In general.--For purposes of subsections (d) and (e),
the term `United States' includes the Commonwealth of Puerto
Rico, Guam, American Samoa, the Commonwealth of the Northern
Mariana Islands, and the Virgin Islands of the United States.
``(B) Special rules for applying wage limitation.--For
purposes of applying the limitation under subsection (b) for
any taxable year--
``(i) the determination of W-2 wages of a taxpayer shall be
made without regard to any exclusion under section 3401(a)(8)
for remuneration paid for services performed in a
jurisdiction described in subparagraph (A), and
``(ii) in determining the amount of any credit allowable
under section 30A or 936 for the taxable year, there shall
not be taken into account any wages which are taken into
account in applying such limitation.
``(8) Coordination with transition rules.--For purposes of
this section--
``(A) domestic production gross receipts shall not include
gross receipts from any transaction if the binding contract
transition relief of section 101(c)(2) of the Jumpstart Our
Business Strength (JOBS) Act applies to such transaction, and
``(B) any deduction allowed under section 101(e) of such
Act shall be disregarded in determining the portion of the
taxable income which is attributable to domestic production
gross receipts.''.
______
SA 2649. Mr. SANTORUM submitted an amendment intended to be proposed
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
At the appropriate place insert the following:
SEC. __. WAIVER OF 10 PERCENT EARLY WITHDRAWAL PENALTY TAX ON
CERTAIN DISTRIBUTIONS OF PENSION PLANS FOR
PUBLIC SAFETY EMPLOYEES.
(a) In General.--Section 72(t) (relating to subsection not
to apply to certain distributions) is amended by adding at
the end the following new paragraph:
``(10) Distributions to qualified public safety employees
in governmental plans.--
``(A) In general.--In the case of a distribution to a
qualified public safety employee from a governmental plan
(within the meaning of section 414(d)) which is a defined
benefit plan, paragraph (2)(A)(v) shall be applied by
substituting `age 50' for `age 55'.
``(B) Qualified public safety employee.--For purposes of
this paragraph, the term `qualified public safety employee'
means any employee of any police department or fire
department organized and operated by a State or political
subdivision of a State who provides police protection,
firefighting services, or emergency medical services for any
area within the jurisdiction of such State or political
subdivision.''.
(b) Effective Date.--The amendments made by this section
shall apply to distributions after the date of the enactment
of this Act.
______
SA 2673. Mr. BINGAMAN submitted an amendment intended to be proposed
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
On page 378, after line 12, add the following:
SEC. __. DEDUCTION FOR HEALTH INSURANCE COSTS IN COMPUTING
SELF-EMPLOYMENT TAXES.
(a) In General.--Section 162(l) of the Internal Revenue
Code of 1986 (relating to special rules for health insurance
costs of self-employed individuals) is amended by striking
paragraph (4) and by redesignating paragraph (5) as paragraph
(4).
(b) Maintenance of Trust Funds.--There are hereby
appropriated to the Federal Old-Age and Survivors Insurance
Trust Fund and the Federal Disability Insurance Trust Fund
established under section 201 of the Social Security Act (42
U.S.C. 401) and the Federal Hospital Insurance Trust Fund
established under section 1817 of such Act (42 U.S.C.
[[Page S2169]]
1395i) amounts equal to the reduction in revenues to the
Treasury by reason of the enactment of this Act. Amounts
appropriated by the preceding sentence shall be transferred
from the general fund at such times and in such manner as to
replicate to the extent possible the transfers which would
have occurred to such Trust Funds had this Act not been
enacted.
(c) Effective date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
______
SA 2674. Mr. BINGAMAN (for himself and Mr. Allen) submitted an
amendment intended to be proposed by him to the bill S. 1637, to amend
the Internal Revenue Code of 1986 to comply with the World Trade
Organization rulings on the FSC/ETI benefit in a manner that preserves
jobs and production activities in the United States, to reform and
simplify the international taxation rules of the United States, and for
other purposes; which was ordered to lie on the table; as follows:
On page 146, after line 23, insert the following:
SECTION __. INTEREST PAYMENTS DEDUCTIBLE WHERE DISQUALIFIED
GUARANTEE HAS NO ECONOMIC EFFECT.
(a) In General.--Section 163(j)(6)(D)(ii) (relating to
exceptions to disqualified guarantee) is amended--
(1) by striking ``or'' at the end of subclause (I),
(2) by striking the period at the end of subclause (II) and
inserting ``, or'',
(3) by inserting after subclause (II) the following new
subclause:
``(III) in the case of a guarantee by a foreign person, to
the extent of the amount that the taxpayer establishes to the
satisfaction of the Secretary that the taxpayer could have
borrowed from an unrelated person without the guarantee.''.
(b) Effective Date.--The amendments made by this section
shall apply to guarantees issued on and after the date of the
enactment of this Act.
SEC. __. INTEREST PAID TO CERTAIN LENDERS NOT DISQUALIFIED
INTEREST.
(a) In General.--Section 163(j)(3)(B) (defining
disqualified interest) is amended by striking ``and'' at the
end of clause (i) and by inserting after clause (ii) the
following new clause:
``(iii) the interest is not paid or accrued to a qualified
lender, and''.
(b) Qualified Lender.--Section 163(j)(6) (relating to other
definitions and special rules) is amended by adding at the
end the following new subparagraphs:
``(F) Qualified lender.--A holder of debt shall be a
qualified lender with respect to such debt if such person
is--
``(i) a United States person subject to the income tax
imposed by this chapter (determined without regard to section
511) and--
``(I) such person is a financial institution, or
``(II) such debt is publicly issued debt, or
``(ii) a foreign person which is subject to either net
basis or gross basis taxation and--
``(I) such person is a financial institution required to
include the interest on such debt in taxable income under
section 882, or
``(II) such debt is publicly issued debt.
``(G) Financial institution.--The term `financial
institution' means a person which is--
``(i) predominantly engaged in the active conduct of a
banking, financing, or similar business within the meaning of
section 954(h),
``(ii) a corporation described in section 581 or 591
(relating to banks and other savings institutions), or
``(iii) an insurance company subject to tax under
subchapter L or which would be subject to tax under
subchapter L if it were a domestic corporation.
``(H) Publicly issued debt.--The term `publicly issued
debt' means--
``(i) commercial paper described in section 3(a)(3) or 4(2)
of the Securities Act of 1933,
``(ii) a debt instrument which is--
``(I) part of an issue of debt instruments meeting the
requirements of section 871(h) or 881(c) (relating to the
exemptions from withholding tax for certain portfolio debt
investments) without regard to section 871(h)(2)(B)(ii) and
section 881(c)(2)(B)(ii), and
``(II) readily tradable on an established securities
market, or
``(iii) a debt instrument which is part of an issue of debt
instruments the initial offering of which is registered with
the Securities and Exchange Commission or would be required
to be registered under the Securities Act of 1933 but for an
exemption from registration--
``(I) under section 3 of the Securities Act of 1933,
``(II) under any law (other than the Securities Act of
1933) because of the identity of the issuer or the nature of
the security,
``(III) because the issue is intended for distribution to
persons who are not United States persons, or
``(IV) pursuant to section 230.144A of title 17, Code of
Federal Regulations (relating to securities placed with
qualified institutional buyers) or any successor rule or
regulation.''.
(c) Effective Date.--The amendments made by this section
shall apply to debt issued on or after the date of the
enactment of this Act.
______
SA 2675. Mr. DURBIN (for himself, Mr. Graham of South Carolina, Mr.
Reid, and Mrs. Murray) submitted an amendment intended to be proposed
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986
to comply with the World Trade Organization rulings on the FSC/ETI
benefit in a manner that preserves jobs and production activities in
the United States, to reform and simplify the international taxation
rules of the United States, and for other purposes; which was ordered
to lie on the table; as follows:
On page 179, after line 25, insert the following:
SEC. __. CREDIT FOR QUALIFIED EXPENDITURES FOR MEDICAL
PROFESSIONAL MALPRACTICE INSURANCE.
(a) In General.--Subpart D of part IV of subchapter A of
chapter 1 (relating to business tax credits) is amended by
adding at the end the following:
``SEC. 45G. CREDIT FOR EXPENDITURES FOR MEDICAL PROFESSIONAL
MALPRACTICE INSURANCE.
``(a) General Rule.--For purposes of section 38, in the
case of a taxpayer which is an eligible person, the medical
malpractice insurance expenditure tax credit determined under
this section for a covered year shall equal the applicable
percentage of the qualified medical malpractice insurance
expenditures incurred by an eligible person during the
covered year.
``(b) Applicable Percentage.--For purposes of subsection
(a), the applicable percentage is--
``(1) in the case of an eligible person described in
subsection (c)(2)(A), 20 percent,
``(2) in the case of an eligible person described in
subsection (c)(2)(B), 10 percent, and
``(3) in the case of an eligible person described in
subsection (c)(2)(C), 15 percent.
``(c) Definitions.--In this section:
``(1) Covered year.--The term `covered year' means taxable
years beginning in 2004 and 2005.
``(2) Eligible person.--The term `eligible person' means--
``(A) any physician (as defined in section 213(d)(4)) who
practices in any surgical specialty or subspecialty,
emergency medicine, obstetrics, anesthesiology or who does
intervention work which is reflected in medical malpractice
insurance expenditures,
``(B) any physician (as so defined) who practices in
general medicine, allergy, dermatology, pathology, or any
other specialty not otherwise described in this section, and
``(C) any hospital or clinic,
which meets applicable legal requirements to provide the
health care services involved.
``(3) Qualified medical malpractice insurance
expenditure.--The term `qualified medical malpractice
insurance expenditure' means so much of any professional
insurance premium, surcharge, payment or other cost or
expense required as a condition of State licensure which is
incurred by an eligible person in a covered year for the sole
purpose of providing or furnishing general medical
malpractice liability insurance for such eligible person as
does not exceed twice the Statewide average of such costs for
similarly situated eligible persons.
``(d) Special Rules.--
``(1) In general.--Except as provided in paragraph (2), the
credit determined under this section shall be claimed by the
eligible person incurring the qualified medical malpractice
insurance expenditure.
``(2) Certification.--Each State, through its board of
medical licensure and State board (or agency) regulating
insurance, annually shall provide such information to the
Secretary of Health and Human Services as is necessary to
permit the Secretary to calculate average costs for purposes
of subsection (c)(3) and to certify such average costs
(rounded to the nearest whole dollar) to the Secretary of the
Treasury on or before the 15th day of November of each year.
``(e) Effective Date.--This section shall apply to
qualified medical malpractice expenditures incurred after
December 31, 2003.''.
(b) Credit Made Part of General Business Credit.--Section
38(b) (relating to current year business credit) is amended
by striking ``plus'' at the end of paragraph (14), by
striking the period at the end of paragraph (15) and
inserting ``, plus'', and by adding at the end the following
new paragraph:
``(16) the medical malpractice insurance expenditure tax
credit determined under section 45G(a).''.
(c) Limitation on Carryback.--Section 39(d) (relating to
transition rules) is amended by adding at the end the
following new paragraph:
``(11) No carryback of medical malpractice insurance
expenditure tax credit before effective date.--No portion of
the unused business credit for any taxable year which is
attributable to the credit determined under section 45G may
be carried back to any taxable year beginning before 2004.''.
(d) Denial of Double Benefit.--Section 280C (relating to
certain expenses for which credits are allowable) is amended
by adding at the end the following new subsection:
``(d) Credit for Medical Malpractice Liability Insurance
Premiums.--
[[Page S2170]]
``(1) In general.--No deduction shall be allowed for that
portion of the qualified medical malpractice insurance
expenditures otherwise allowable as a deduction for the
taxable year which is equal to the amount of the credit
allowable for the taxable year under section 45G (determined
without regard to section 38(c)).
``(2) Controlled groups.--In the case of a corporation
which is a member of a controlled group of corporations
(within the meaning of section 41(f)(5)) or a trade or
business which is treated as being under common control with
other trades or business (within the meaning of section
41(f)(1)(B)), this subsection shall be applied under rules
prescribed by the Secretary similar to the rules applicable
under subparagraphs (A) and (B) of section 41(f)(1).''.
(e) Grants to Non-Profit Hospitals and Clinics.--
(1) In general.--The Secretary of Health and Human
Services, acting through the Administrator of the Health
Resources and Services Administration, shall award grants to
eligible non-profit hospitals and clinics to assist such
hospitals and clinics in defraying qualified medical
malpractice insurance expenditures.
(2) Eligible non-profit hospital or clinic.--To be eligible
to receive a grant under paragraph (1) an entity shall--
(A) be a non-profit hospital or clinic;
(B) be unable to claim the tax credit described in section
45G for the year for which an application is submitted under
subparagraph (C); and
(C) prepare and submit to the Secretary of Health and Human
Services an application at such time, in such manner, and
containing such information as the Secretary may require.
(3) Amount of grant.--The amount of a grant to a non-profit
hospital or clinic under paragraph (1) shall equal 15 percent
of the amount of the qualified medical malpractice insurance
expenditures of the hospital or clinic for the year involved.
(4) Qualified medical malpractice insurance expenditure.--
In this subsection, the term ``qualified medical malpractice
insurance expenditure'' means so much of any professional
insurance premium, surcharge, payment or other cost or
expense required as a condition of State licensure which is
incurred by a non-profit hospital or clinic in a year for the
sole purpose of providing or furnishing general medical
malpractice liability insurance for such hospital or clinic
as does not exceed twice the Statewide average of such costs
for similarly situated hospitals or clinics.
(5) Authorization of appropriations.--There are authorized
to be appropriated to carry out this subsection, such sums as
may be necessary for each of fiscal years 2005 and 2006.
(f) Clerical Amendment.--The table of sections for subpart
D of part IV of subchapter A of chapter 1 is amended by
adding at the end the following new item:
``Sec. 45G. Credit for expenditures for medical professional
malpractice insurance.''.
(g) Effective Date.--The amendments made by this section
shall apply to expenditures incurred after December 31, 2003.
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Senate amendment submitted
March 3, 2004