S.Amdt. 2862Senate108th Congress (2003-2005)
S.Amdt. 2862
Sponsored by 
Sen. Rick Santorum (R-PA)
Sen. Rick Santorum (R-PA)Submitted March 22, 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 2860. Mrs. BOXER 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. __. CREDIT AGAINST FICA TAXES FOR EMPLOYERS OF FIRST
RESPONDERS WHO ARE CALLED TO ACTIVE DUTY.
(a) In General.--Subchapter C of chapter 21 is amended by
redesignating section 3128 as section 3129 and inserting
after section 3127 the following new section:
``SEC. 3128. CREDIT AGAINST TAX FOR EMPLOYERS OF FIRST
RESPONDERS.
``(a) Allowance of Credit.--There shall be allowed as a
credit against the tax imposed by this chapter an amount
equal to 50 percent of the wages paid to each qualified first
responder of the employer.
``(b) Qualified First Responder.--For purposes of this
section, the term `qualified first responder' means any
person who is--
``(1) employed as a law enforcement official, a
firefighter, or a paramedic,
``(2) a member of the Ready Reserve of a reserve component
of an Armed Force of the United States (as defined in section
10142 and 10101 of title 10, United States Code), and
``(3)(A) serving on active duty for a period of more than
30 days (within the meaning of section 101(d) of such title
10),
``(B) hospitalized for, or convalescing from, an illness or
injury incurred in, or aggravated during, the performance of
such active duty, or
``(C) not present at work during the 14-day period
beginning at the end of such active duty or the end of the
period referred to in paragraph (2).''.
(b) Transfer of Funds.--The Secretary of the Treasury shall
transfer from the general revenues of the Federal Government
an amount sufficient so as to ensure that the income and
balances of the trust funds under section 201 of the Social
Security Act are not reduced as a result of the application
of the amendment made by subsection (a).
(c) Determination of Benefits.--In making any determination
of benefits under title II of the Social Security Act and
part A of title XVIII of such Act, the Commissioner of Social
Security shall disregard the effect of the amendment made by
subsection (a) on any individual's earnings record.
(d) Conforming Amendment.--The table of sections for
subchapter C of chapter 21 is amended by striking the last 2
items and inserting the following:
``Sec. 3128. Credit against tax for employers of first responders.
``Sec. 3129. Short title.''.
(e) Effective Date.--The amendments made by this section
shall apply to wages paid after the date of the enactment of
this Act.
______
SA 2861. Mr. VOINOVICH (for himself and Mr. Baucus) 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. __. BLUE RIBBON COMMISSION ON COMPREHENSIVE TAX REFORM.
(a) Establishment.--
(1) In general.--There is established the ``Blue Ribbon
Commission on Comprehensive Tax Reform'' (in this section
referred to as the ``Commission'').
(2) Membership.--
(A) Composition.--The Commission shall be composed of 17
members of whom--
(i) 3 shall be appointed by the majority leader of the
Senate;
(ii) 3 shall be appointed by the minority leader of the
Senate;
(iii) 3 shall be appointed by the Speaker of the House of
Representatives;
(iv) 3 shall be appointed by the minority leader of the
House of Representatives; and
(v) 5 shall be appointed by the President, of which no more
than 3 shall be of the same party as the President.
(B) Federal employees.--The members of the Commission may
be employees or former employees of the Federal Government.
(C) Date.--The appointments of the members of the
Commission shall be made not later than October 30, 2004.
(3) 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.
(4) 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.
(5) Meetings.--The Commission shall meet at the call of the
Chairman.
(6) Quorum.--A majority of the members of the Commission
shall constitute a quorum, but a lesser number of members may
hold hearings.
(7) Chairman and vice chairman.--The President shall select
a Chairman and Vice Chairman from among its members.
(b) Duties of the Commission.--
(1) 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.
(2) Recommendations.--The Commission shall develop
recommendations on how to comprehensively reform the Federal
tax system in a manner that generates appropriate revenue for
the Federal Government.
(3) Report.--Not later than 18 months after the date on
which all initial members of the commission have been
appointed pursuant to subsection (a)(2), 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.
(c) Powers of the Commission.--
(1) 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.
(2) 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.
(3) 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.
(4) Gifts.--The Commission may accept, use, and dispose of
gifts or donations of services or property.
(d) Commission Personnel Matters.--
(1) 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
[[Page S2868]]
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.
(2) 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.
(3) Staff.--
(A) 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.
(B) 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.
(4) Detail of government employees.--Any Federal Government
employee may be detailed to the Commission without
reimbursement, and such detail shall be without interruption
or loss of civil service status or privilege.
(5) 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.
(e) Termination of the Commission.--The Commission shall
terminate 90 days after the date on which the Commission
submits its report under subsection (b).
(f) Authorization of Appropriations.--There are authorized
to be appropriated such sums as are necessary to the
Commission to carry out this section.
______
SA 2877. 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--NON-REVENUE PROVISIONS
SEC. 501. LCD PANEL ASSEMBLIES.
(a) In General.--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:
`` 9902.85.24 LCD panel Free No change No change On or before 12/
assemblies for 31/2006 ''
use in LCD .
projection type
televisions
(provided for in
subheading
9013.80.90)......
----------------------------------------------------------------------------------------------------------------
(b) Effective Date.--The amendment made by this section
applies with respect to goods entered, or withdrawn from
warehouse for consumption, on or after the 15th day after the
date of the enactment of this Act.
______
SA 2863. 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--NON-REVENUE PROVISIONS
SEC. 501. PLASMA DISPLAY PANELS.
(a) In General.--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:
`` 9902.85.23 Plasma display Free No change No change On or before 12/
panels for use in 31/2006 ''
plasma flat .
screen
televisions
(provided for in
subheading
8529.90.53)......
----------------------------------------------------------------------------------------------------------------
(b) Effective Date.--The amendment made by this section
applies with respect to goods entered, or withdrawn from
warehouse for consumption, on or after the 15th day after the
date of the enactment of this Act.
______
SA 2864. 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--NON-REVENUE PROVISIONS
SEC. 501. ELECTRON GUNS FOR CATHODE RAY TUBES.
(a) In General.--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:
`` 9902.85.25 Electron guns Free No change No change On or before 12/
actually used for 31/2006 ''
cathode ray tubes .
(CRT's) with a
high definition
television screen
aspect ratio of
16:9 (provided
for in subheading
8540.91.50)......
----------------------------------------------------------------------------------------------------------------
(b) Effective Date.--The amendment made by this section
applies with respect to goods entered, or withdrawn from
warehouse for consumption, on or after the 15th day after the
date of the enactment of this Act.
______
SA 2865. Mr. HATCH 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. . REVISIONS TO REIT PROVISIONS.
(a) Rules of Application for Failure To Satisfy Section
856(c)(4).--Section 856(c) (relating to definition of real
estate investment trust), as amended by section 101, is
amended by inserting after paragraph (6) the following new
paragraph:
``(7) Rules of application for failure to satisfy
paragraph (4)--
``(A) De minimus failure.--A corporation, trust, or
association that fails to meet the requirements of paragraph
(4)(B)(iii) for a particular quarter shall nevertheless be
considered to have satisfied the requirements of such
paragraph for such quarter if--
``(i) such failure is due to the ownership of assets the
total value of which does not exceed the lesser of--
``(I) 1 percent of the total value of the trust's assets
at the end of the quarter for which such measurement is done,
and
``(II) $10,000,000, and
``(ii)(I) the corporation, trust, or association,
following the identification of such failure, disposes of
assets in order to meet the requirements of such paragraph
within 6 months after the last day of the quarter in which
the corporation, trust or association's identification of the
failure to satisfy the requirements of such paragraph
occurred or such other time period prescribed by the
Secretary and in the manner prescribed by the Secretary, or
``(II) the requirements of such paragraph are otherwise
met within the time period specified in subclause (I).
[[Page S2869]]
``(B) Failures exceeding de minimis amount.--A
corporation, trust, or association that fails to meet the
requirements of paragraph (4) for a particular quarter shall
nevertheless be considered to have satisfied the requirements
of such paragraph for such quarter if--
``(i) such failure involves the ownership of assets the
total value of which exceeds the de minimis standard
described in subparagraph (A)(i) at the end of the quarter
for which such measurement is done,
``(ii) following the corporation, trust, or association's
identification of the failure to satisfy the requirements of
such paragraph for a particular quarter, a description of
each asset that causes the corporation, trust, or association
to fail to satisfy the requirements of such paragraph at the
close of such quarter of any taxable year is set forth in a
schedule for such quarter filed in accordance with
regulations prescribed by the Secretary,
``(iii) the failure to meet the requirements of such
paragraph for a particular quarter is due to reasonable cause
and not due to willful neglect,
``(iv) the corporation, trust, or association pays a tax
computed under subparagraph (C), and
``(v)(I) the corporation, trust, or association disposes of
the assets set forth on the schedule specified in clause (ii)
within 6 months after the last day of the quarter in which
the corporation, trust or association's identification of the
failure to satisfy the requirements of such paragraph
occurred or such other time period prescribed by the
Secretary and in the manner prescribed by the Secretary, or
``(II) the requirements of such paragraph are otherwise met
within the time period specified in subclause (I).
``(C) Tax.--For purposes of subparagraph (B)(iv)--
``(i) Tax imposed.--If a corporation, trust, or association
elects the application of this subparagraph, there is hereby
imposed a tax on the failure described in subparagraph (B) of
such corporation, trust, or association. Such tax shall be
paid by the corporation, trust, or association.
``(ii) Tax computed.--The amount of the tax imposed by
clause (i) shall be the greater of--
``(I) $50,000, or
``(II) the amount determined (pursuant to regulations
promulgated by the Secretary) by multiplying the net income
generated by the assets described in the schedule specified
in subparagraph (B)(ii) for the period specified in clause
(iii) by the highest rate of tax specified in section 11.
``(iii) Period.--For purposes of clause (ii)(II), the
period described in this clause is the period beginning on
the first date that the failure to satisfy the requirements
of such paragraph (4) occurs as a result of the ownership of
such assets and ending on the earlier of the date on which
the trust disposes of such assets or the end of the first
quarter when there is no longer a failure to satisfy such
paragraph (4).
``(iv) Administrative provisions.--For purposes of subtitle
F, the taxes imposed by this subparagraph shall be treated as
excise taxes with respect to which the deficiency procedures
of such subtitle apply.''.
``(b) Modification of Rules of Application for Failure To
Satisfy Sections 856(c)(2) or 856(c)(3).--Paragraph (6) of
section 856(c) (relating to definition of real estate
investment trust) is amended by striking subparagraphs (A)
and (B), by redesignating subparagraph (C) as subparagraph
(B), and by inserting before subparagraph (B) (as so
redesignated) the following new subparagraph:
``(A) following the corporation, trust, or association's
identification of the failure to meet the requirements of
paragraph (2) or (3), or of both such paragraphs, for any
taxable year, a description of each item of its gross income
described in such paragraphs is set forth in a schedule for
such taxable year filed in accordance with regulations
prescribed by the Secretary, and''.
(c) Reasonable Cause Exception to Loss of Reit Status if
Failure To Satisfy Requirements.--Subsection (g) of section
856 (relating to termination of election) is amended--
(1) in paragraph (1) by inserting before the period at the
end of the first sentence the following: ``unless paragraph
(5) applies'', and
(2) by adding at the end the following new paragraph:
``(5) Entities to which paragraph applies.--This paragraph
applies to a corporation, trust, or association--
``(A) which is not a real estate investment trust to which
the provisions of this part apply for the taxable year due to
one or more failures to comply with one or more of the
provisions of this part (other than subsection (c)(6) or
(c)(7) of section 856),
``(B) such failures are due to reasonable cause and not due
to willful neglect, and
``(C) if such corporation, trust, or association pays (as
prescribed by the Secretary in regulations and in the same
manner as tax) a penalty of $50,000 for each failure to
satisfy a provision of this part due to reasonable cause and
not willful neglect.''.
(d) Deduction of Tax Paid From Amount Required To Be
Distributed.--Subparagraph (E) of section 857(b)(2) is
amended by striking ``(7)'' and inserting ``(7) of this
subsection, section 856(c)(7)(B)(iii), and section
856(g)(1).''.
(e) Expansion of Deficiency Dividend Procedure.--Subsection
(e) of section 860 is amended by striking ``or'' at the end
of paragraph (2), by striking the period at the end of
paragraph (3) and inserting ``; or,'' and by adding at the
end the following new paragraph:
``(4) a statement by the taxpayer attached to its amendment
or supplement to a return of tax for the relevant tax
year.''.
(f) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after date of the
enactment of this Act.
______
SA 2866. Mr. BUNNING (for himself and Mr. Conrad) 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. __. CONSOLIDATION OF LIFE INSURANCE COMPANIES WITH OTHER
COMPANIES PERMITTED.
(a) In General.--Section 1504(b) (defining includible
corporation) is amended by striking paragraph (2) and by
redesignating paragraphs (3) through (8) as paragraphs (2)
through (7), respectively.
(b) Conforming Amendments.--
(1) Section 1503 is amended by striking subsection (c)
(relating to special rule for application of certain losses
against income of insurance companies taxed under section
801) and by redesignating subsections (d), (e), and (f) as
subsections (b), (c), and (d), respectively.
(2) Section 1504 is amended by striking subsection (c) and
by redesignating subsections (d), (e), and (f) as subsections
(c), (d), and (e), respectively.
(3) Section 243(b)(2)(A) is amended by striking ``sections
1504(b)(2), 1504(b)(4), and 1504(c)'' and inserting ``section
1504(b)(3)''.
(4) Section 542(b)(5) is repealed.
(5) Section 805(a)(4)(E) is amended by striking
``1504(b)(3)'' and inserting ``1504(b)(2)''.
(6) Section 806(b)(3)(C) is repealed.
(7) Section 818(e)(1) is amended to read as follows:
``(1) Items of companies other than insurance companies.--
If an affiliated group includes members which are and which
are not life insurance companies, all items of the members of
such group which are not life insurance companies shall not
be taken into account in determining the amount of the
tentative LICTI of members of such group which are life
insurance companies.''.
(8) Section 832(b)(5)(D)(ii)(II) is amended by striking
``1504(b)(3)'' and inserting ``1504(b)(2)''.
(9) Section 847(8) is amended by striking ``without regard
to the limitations'' and all that follows and inserting a
period.
(10) Section 864(e)(5)(A) is amended by striking
``paragraph (4)'' and inserting ``paragraph (3)''.
(11) Section 936(i)(5)(A) is amended by striking ``section
1504(b)(3) or (4)'' and inserting ``section 1504(b)(2) or
(3)''.
(12) Section 952(c)(1)(B)(vii)(II) is amended by striking
``1504(b)(3)'' and inserting ``1504(b)(2)''.
(13) Section 953(d)(3) is amended by striking ``1503(d)''
and inserting ``1503(c)''.
(14) Section 954(h)(4)(F)(ii) is amended by striking
``1504(b)(3)'' and inserting ``1504(b)(2)''.
(15) Section 6166(b)(10)(B)(ii)(V) is amended by striking
``1504(b)(3)'' and inserting ``1504(b)(2)''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2003.
SEC. __. PHASE-IN OF APPLICATION OF CERTAIN LOSSES AGAINST
INCOME OF INSURANCE COMPANIES.
(a) Phase-in.--
(1) In general.--For taxable years beginning after December
31, 2003, and before January 1, 2010, if--
(A) an affiliated group includes 1 or more domestic
insurance companies subject to tax under section 801 of the
Internal Revenue Code of 1986,
(B) the common parent of such group has not elected under
subsection (b) to treat all such insurance companies as
corporations which are not includible corporations, and
(C) the consolidated taxable income of the members of the
group not taxed under such section 801 results in a
consolidated net operating loss for such taxable year,
then, under regulations prescribed by the Secretary of the
Treasury or his delegate, the amount of such loss which
cannot be absorbed in the applicable carryback periods
against the taxable income of such members not taxed under
such section 801 shall be taken into account in determining
the consolidated taxable income of the affiliated group for
such taxable year to the extent of the applicable percentage
of such loss or the applicable percentage of the taxable
income of the members taxed under such section 801, whichever
is less. The unused portion of such loss shall be available
as a carryover, subject to the same limitations (applicable
to the sum of the loss for the carryover year and the loss
(or losses) carried over to such year), in applicable
carryover years.
[[Page S2870]]
(2) Applicable percentage.--For purposes of paragraph (1),
the applicable percentage shall be determined in accordance
with the following table:
The applicable
For taxable years beginning in: percentage is:
2004..............................................................40
2005..............................................................50
2006..............................................................60
2007..............................................................70
2008..............................................................80
2009..............................................................90.
(b) Election for Pre-2010 Years of Groups With Insurance
Companies.--For taxable years beginning after December 31,
2003, and before January 1, 2010, the common parent of an
affiliated group (determined without regard to section
1504(b)(2) of the Internal Revenue Code of 1986 as in effect
on the day before the date of enactment of this Act) which
includes 1 or more domestic insurance companies subject to
tax under section 801 of such Code may elect to treat all
such insurance companies as corporations which are not
includible corporations within the meaning of subsection (b)
of section 1504 of such Code, if, as of the date of enactment
of this section--
(1) such affiliated group included 1 or more insurance
companies subject to tax under section 801 of such Code, and
(2) no additional election was in effect under section
1504(c)(2) of such Code (as in effect on the day before the
date of the enactment of this Act).
(c) No Carryback Before January 1, 2004.--To the extent
that a consolidated net operating loss is allowed or
increased by reason of this section or the amendments made by
this Act, such loss may not be carried back to a taxable year
beginning before January 1, 2004.
(d) Nontermination of Group.--No affiliated group shall
terminate solely as a result of this section or the
amendments made by this Act.
(e) Subsidiary Stock Basis Adjustments.--A member
corporation's basis in the stock of a subsidiary corporation
shall be adjusted upon consolidation to reflect the
preconsolidation income, gain, deduction, loss,
distributions, and other relevant amounts during a period
when such corporations were members of an affiliated group
(determined without regard to section 1504(b)(2) of the
Internal Revenue Code of 1986 as in effect on the day before
the date of enactment of this Act) but were not included in a
consolidated return of such group by operation of section
1504(c)(2)(A) of such Code (as in effect on the day before
the date of the enactment of this Act) or by reason of the
election allowed under subsection (b).
(f) Waiver of 5-Year Waiting Period.--An automatic waiver
from the 5-year waiting period for reconsolidation provided
in section 1504(a)(3) of the Internal Revenue Code of 1986
shall be granted to any corporation which was previously an
includible corporation but was subsequently deemed a
nonincludible corporation as a result of becoming a
subsidiary of a corporation which was not an includible
corporation solely by operation of section 1504(c)(2) of such
Code (as in effect on the day before the date of enactment of
this Act), subject to such conditions as the Secretary may
prescribe.
______
SA 2867. Mr. BENNETT 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. __. MODIFICATION OF INVOLUNTARY CONVERSION RULES FOR
BUSINESSES AFFECTED BY THE SEPTEMBER 11TH
TERRORIST ATTACKS.
(a) In General.--Subsection (g) of section 1400L is amended
to read as follows:
``(g) Modification of Rules Applicable to Nonrecognition of
Gain.--In the case of property which is compulsorily or
involuntarily converted as a result of the terrorist attacks
on September 11, 2001, in the New York Liberty Zone--
``(1) which was held by a corporation which is a member of
an affiliated group filing a consolidated return, such
corporation shall be treated as satisfying the purchase
requirement of section 1033(a)(2) with respect to such
property to the extent such requirement is satisfied by
another member of the group, and
``(2) notwithstanding subsections (g) and (h) of section
1033, clause (i) of section 1033(a)(2)(B) shall be applied by
substituting `5 years' for `2 years' with respect to property
which is compulsorily or involuntarily converted as a result
of the terrorist attacks on September 11, 2001, in the New
York Liberty Zone but only if substantially all of the use of
the replacement property is in the City of New York, New
York.''.
(b) Effective Date.--The amendments made by this Act shall
apply to involuntary conversions occurring on or after
September 11, 2001.
______
SA 2868. Mrs. DOLE 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. __. TAX TREATMENT OF STATE OWNERSHIP OF RAILROAD REAL
ESTATE INVESTMENT TRUST.
(a) In General.--If a State owns all of the outstanding
stock of a corporation which is a real estate investment
trust, which is a non-operating class III railroad, and
substantially all of the activities of which consist of the
ownership, leasing, and operation by such corporation of
facilities, equipment, and other property used by the
corporation or other persons in railroad transportation,
then, for purposes of section 115 of the Internal Revenue
Code of 1986--
(1) income derived from such activities by the corporation
shall be treated as accruing to the State, and
(2) such activities shall be treated as the exercise of an
essential governmental function of the State to the extent
such activities are of a type which are an essential
government function (within the meaning of section 115 of
such Code).
(b) Gain or Loss Not Recognized on Conversion.--
Notwithstanding section 337(d) of the Internal Revenue Code
of 1986--
(1) no gain or loss shall be recognized under section 336
or 337 of such Code, and
(2) no change in basis of the property of such corporation
shall occur,
because of any change of status of the corporation to a tax-
exempt entity by reason of the application of subsection (a).
(c) Tax-Exempt Financing.--Any obligation issued by an
entity described in subsection (a) shall be treated as an
obligation of the State for purposes of applying section 103
and part IV of subchapter B of chapter 1 of the Internal
Revenue Code of 1986.
(d) Definitions.--For purposes of this section--
(1) Real estate investment trust.--The term ``real estate
investment trust'' has the meaning given such term by section
856(a) of the Internal Revenue Code of 1986.
(2) Non-operating class iii railroad.--The term ``non-
operating class III railroad'' has the meaning given such
term by part A of subtitle IV of title 49, United States Code
(49 U.S.C. 10101 et seq.) and the regulations thereunder.
(3) State.--The term ``State'' includes--
(A) the District of Columbia and any possession of the
United States, and
(B) any authority, agency, or public corporation of a
State.
(e) Applicability.--
(1) In general.--Except as provided in paragraph (2), this
section shall apply on and after the date on which a State
becomes the owner of all of the outstanding stock of a
corporation described in subsection (a).
(2) Exception.--This section shall not apply to any State
which--
(A) becomes the owner of all of the voting stock of a
corporation described in subsection (a) after December 31,
2003, or
(B) becomes the owner of all of the outstanding stock of a
corporation described in subsection (a) after December 31,
2005.
______
SA 2869. Mr. GRAHAM of Florida (for himself, Mr. Nelson of Florida,
Ms. Cantwell, 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:
At the end of subtitle C of title II add the following:
SEC. __. DELAY IN EFFECTIVE DATE OF FINAL REGULATIONS
GOVERNING EXCLUSION OF INCOME FROM
INTERNATIONAL OPERATION OF SHIPS OR AIRCRAFT.
Notwithstanding the provisions of Treasury regulation
Sec. 1.883-5, the final regulations issued by the Secretary
of the Treasury relating to income derived by foreign
corporations from the international operation of ships or
aircraft (Treasury regulations Sec. 1.883-1 through
Sec. 1.883-5) shall apply to taxable years of a foreign
corporation seeking qualified foreign corporation status
beginning after September 24, 2004.
______
SA 2870. Mr. GRAHAM 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;
[[Page S2871]]
which was ordered to lie on the table; as follows:
On page 179, after line 25, insert the following:
SEC. __. EXPANSION OF PERIOD WITHIN WHICH CONVERTED CITRUS
TREE PROPERTY MUST BE REPLACED.
(a) In General.--Section 1033 (relating to period within
which property must be replaced) is amended by redesignating
subsection (k) as subsection (l) and by inserting after
subsection (j) the following new subsection:
``(k) Commercial Trees Destroyed Because of Citrus Tree
Canker.--In the case of commercial citrus trees which are
compulsorily or involuntarily converted under a public order
as a result of the citrus tree canker, clause (i) of
subsection (a)(2)(B) shall be applied as if such clause read:
`2 years after the close of the taxable year in which a State
or Federal plant health authority determines that the land on
which such trees grew is free from the bacteria that causes
citrus tree canker and permits replanting to begin'.''.
(b) Effective Date.--The amendments made by subsection (a)
shall apply to taxable years beginning before, on, or after
the date of the enactment of this Act.
SEC. __. 10-YEAR RATABLE INCOME INCLUSION FOR CITRUS CANKER
TREE PAYMENTS.
(a) In General.--Part I of subchapter Q of chapter 1
(relating to income averaging) is amended by inserting after
section 1301 the following new section:
``SEC. 1302. 10-YEAR RATABLE INCOME INCLUSION FOR CITRUS
CANKER TREE PAYMENTS.
``(a) In General.--At the election of the taxpayer, any
amount taken into account as income or gain by reason of
receiving a citrus canker tree payment shall be included in
the income of the taxpayer ratably over the 10-year period
beginning with the taxable year in which the payment is
received or accrued by the taxpayer.
``(b) Citrus Canker Tree Payment.--For purposes of
subsection (a), the term `citrus canker tree payment' means a
payment made to an owner of a commercial citrus grove to
recover income that was lost as a result of the removal of
commercial citrus trees to control canker under the
amendments to the citrus canker regulations (7 C.F.R. 301)
made by the final rule published in the Federal Register by
the Secretary of Agriculture on June 18, 2001 (66 Fed. Reg.
32713, Docket No. 00-37-4).''.
(b) Clerical Amendment.--The table of sections for part I
of subchapter Q of chapter 1 is amended by inserting after
the item relating to section 1301 the following new item:
``Sec. 1302. 10-year ratable income inclusion for citrus canker tree
payments.''.
(c) Effective Date.--The amendments made by this section
shall apply to payments made before, on, or after the date of
the enactment of this Act.
______
SA 2871. Mr. GRAHAM 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:
At the appropriate place insert the following:
SEC. __. REPEAL OF APPLICATION OF BELOW-MARKET LOAN RULES TO
AMOUNTS PAID TO CERTAIN CONTINUING CARE
FACILITIES.
(a) In General.--Section 7872(c)(1) (relating to below-
market loans to which section applies) is amended by striking
subparagraph (F).
(b) Full Exception.--Section 7872(g) (relating to exception
for certain loans to qualified continuing care facilities) is
amended--
(1) by striking paragraphs (2) and (5),
(2) by redesignating paragraphs (3) and (4) as paragraphs
(2) and (3), respectively,
(3) by adding at the end of paragraph (2) (as so
redesignated) the following new flush sentence:
``The Secretary shall issue guidance which limits such term
to contracts which provide to an individual or individual's
spouse only facilities, care, and services described in this
paragraph which are customarily offered by continuing care
facilities.'', and
(4) by striking ``Certain'' in the heading thereof.
(c) Effective Date.--The amendments made by this section
shall apply to calendar years beginning after December 31,
2004.
______
SA 2872. Mr. GRAHAM 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, insert the following:
SEC. __. SPACEPORTS TREATED LIKE AIRPORTS UNDER EXEMPT
FACILITY BOND RULES.
(a) In General.--Paragraph (1) of section 142(a) (relating
to exempt facility bonds) is amended to read as follows:
``(1) airports and spaceports,''.
(b) Treatment of Ground Leases.--Paragraph (1) of section
142(b) (relating to certain facilities must be governmentally
owned) is amended by adding at the end the following new
subparagraph:
``(C) Special rule for spaceport ground leases.--For
purposes of subparagraph (A), spaceport property which is
located on land owned by the United States and which is used
by a governmental unit pursuant to a lease (as defined in
section 168(h)(7)) from the United States shall be treated as
owned by such unit if--
``(i) the lease term (within the meaning of section
168(i)(3)) is at least 15 years, and
``(ii) such unit would be treated as owning such property
if such lease term were equal to the useful life of such
property.''.
(c) Definition of Spaceport.--Section 142 is amended by
adding at the end the following new subsection:
``(l) Spaceport.--
``(1) In general.--For purposes of subsection (a)(1), the
term `spaceport' means--
``(A) any facility directly related and essential to
servicing spacecraft, enabling spacecraft to launch or
reenter, or transferring passengers or space cargo to or from
spacecraft, but only if such facility is located at, or in
close proximity to, the launch site or reentry site, and
``(B) any other functionally related and subordinate
facility at or adjacent to the launch site or reentry site at
which launch services or reentry services are provided,
including a launch control center, repair shop, maintenance
or overhaul facility, and rocket assembly facility.
``(2) Additional terms.--For purposes of paragraph (1)--
``(A) Space cargo.--The term `space cargo' includes
satellites, scientific experiments, other property
transported into space, and any other type of payload,
whether or not such property returns from space.
``(B) Spacecraft.--The term `spacecraft' means a launch
vehicle or a reentry vehicle.
``(C) Other terms.--The terms `launch', `launch site',
`launch services', `launch vehicle', `payload', `reenter',
`reentry services', `reentry site', and `reentry vehicle'
shall have the respective meanings given to such terms by
section 70102 of title 49, United States Code (as in effect
on the date of enactment of this subsection).''.
(d) Exception From Federally Guaranteed Bond Prohibition.--
Paragraph (3) of section 149(b) (relating to exceptions) is
amended by adding at the end the following new subparagraph:
``(E) Exception for spaceports.--Paragraph (1) shall not
apply to any exempt facility bond issued as part of an issue
described in paragraph (1) of section 142(a) to provide a
spaceport in situations where--
``(i) the guarantee of the United States (or an agency or
instrumentality thereof) is the result of payment of rent,
user fees, or other charges by the United States (or any
agency or instrumentality thereof), and
``(ii) the payment of the rent, user fees, or other charges
is for, and conditioned upon, the use of the spaceport by the
United States (or any agency or instrumentality thereof).''.
(e) Conforming Amendment.--The heading for section 142(c)
is amended by inserting ``, Spaceports,'' after ``Airports''.
(f) Effective Date.--The amendments made by this section
shall apply to bonds issued after the date of the enactment
of this Act.
______
SA 2873. Mr. THOMAS 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. __. DEFINITION OF MANUFACTURING FACILITY FOR SMALL ISSUE
BONDS.
(a) In General.--Section 144(a)(12) (relating to
termination dates) is amended by striking subparagraph (C)
and inserting the following new subparagraphs:
``(C) Manufacturing facility.--For purposes of this
paragraph, the term `manufacturing facility' means any
facility which is used in--
``(i) the manufacture of tangible personal property
(including processing which results in a change in the
condition of such property),
``(ii) the manufacture or development of any software
product or process if--
``(I) it takes more than 6 months to manufacture or develop
such product,
``(II) the manufacture or development could not with due
diligence be reasonably expected to occur in less than 6
months, and
``(III) the software product or process comprises programs,
routines, and attendant
[[Page S2872]]
documentation developed and maintained for use in computer
and telecommunications technology, or
``(iii) the manufacture or development of any biobased
product or bioenergy if--
``(I) it takes more than 6 months to manufacture or
develop, and
``(II) the manufacture or development could not with due
diligence be reasonably expected to occur in less than 6
months.
``(D) Related facilities.--For purposes of subparagraph
(C), the term `manufacturing facility' includes a facility
which is directly and functionally related to a manufacturing
facility (determined without regard to subparagraph (C)) if--
``(i) such facility, including an office facility and a
research and development facility, is located on the same
site as the manufacturing facility, and
``(ii) not more than 40 percent of the net proceeds of the
issue are used to provide such facility.
``(E) Other definitions.--For purposes of subparagraph
(C)(iii)--
``(i) Biobased product.--The term `biobased product' means
a commercial or industrial product (other than food or feed)
which utilizes biological products or renewable domestic
agricultural (plant, animal, and marine) or forestry
materials.
``(ii) Bioenergy.--The term `bioenergy' means biomass used
in the production of energy, including liquid, solid, or
gaseous fuels, electricity, and heat.''.
(b) Effective Date.--The amendment made by this section
shall apply to obligations issued after the date of the
enactment of this Act.
______
SA 2874. Mr. THOMAS 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. 3__. SODA ASH ROYALTIES.
Section 24 of the Mineral Leasing Act (30 U.S.C. 262) is
amended--
(1) by striking ``Sec. 24. That upon'' and inserting the
following:
``SEC. 24. LEASES.
``(a) In General.--Upon''; and
(2) by adding at the end the following:
``(b) Soda Ash Royalties.--Notwithstanding subsection (a),
during the 5-year period beginning on the date of enactment
of this subsection, the royalty rate applicable to any soda
ash lease entered into under subsection (a) before, on, or
after the date of enactment of this subsection shall be 2
percent.''.
______
SA 2875. Ms. COLLINS (for herself, Mr. Grassley, Mr. Bingaman, Mr.
Chafee, Mr. Daschle, and Mr. Smith) 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:
TITLE VI--CIVIL RIGHTS TAX RELIEF
SEC. 601. EXCLUSION FROM GROSS INCOME FOR AMOUNTS RECEIVED ON
ACCOUNT OF CERTAIN UNLAWFUL DISCRIMINATION.
(a) In General.--Part III of subchapter B of chapter 1
(relating to items specifically excluded from gross income)
is amended by redesignating section 140 as section 140A and
by inserting after section 139 the following new section:
``SEC. 140. AMOUNTS RECEIVED ON ACCOUNT OF CERTAIN UNLAWFUL
DISCRIMINATION.
``(a) In General.--
``(1) Exclusion.--Gross income does not include amounts
received by a claimant (whether by suit or agreement and
whether as lump sums or periodic payments) on account of a
claim of unlawful discrimination (as defined in subsection
(b)) or a claim of a violation of subchapter III of chapter
37 of title 31, United States Code.
``(2) Amounts covered.--For purposes of paragraph (1), the
term `amounts' does not include--
``(A) backpay or frontpay, as defined in section 1302(b),
or
``(B) punitive damages.
``(b) Unlawful Discrimination Defined.--For purposes of
this section, the term `unlawful discrimination' means an act
that is unlawful under any of the following:
``(1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C.
1202).
``(2) Section 201, 202, 203, 204, 205, 206, or 207 of the
Congressional Accountability Act of 1995 (2 U.S.C. 1311,
1312, 1313, 1314, 1315, 1316, or 1317).
``(3) The National Labor Relations Act (29 U.S.C. 151 et
seq.).
``(4) The Fair Labor Standards Act of 1938 (29 U.S.C. 201
et seq.).
``(5) Section 4 or 15 of the Age Discrimination in
Employment Act of 1967 (29 U.S.C. 623 or 633a).
``(6) Section 501 or 504 of the Rehabilitation Act of 1973
(29 U.S.C. 791 or 794).
``(7) Section 510 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1140).
``(8) Title IX of the Education Amendments of 1972 (29
U.S.C. 1681 et seq.).
``(9) The Employee Polygraph Protection Act of 1988 (29
U.S.C. 201 et seq.).
``(10) The Worker Adjustment and Retraining Notification
Act (29 U.S.C. 2102 et seq.).
``(11) Section 105 of the Family and Medical Leave Act of
1993 (29 U.S.C. 2615).
``(12) Chapter 43 of title 38, United States Code (relating
to employment and reemployment rights of members of the
uniformed services).
``(13) Section 1977, 1979, or 1980 of the Revised Statutes
(42 U.S.C. 1981, 1983, or 1985).
``(14) Section 703, 704, or 717 of the Civil Rights Act of
1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
``(15) Section 804, 805, 806, 808, or 818 of the Fair
Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
``(16) Section 102, 202, 302, or 503 of the Americans with
Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or
12203).
``(17) Any provision of Federal law (popularly known as
whistleblower protection provisions) prohibiting the
discharge of an employee, the discrimination against an
employee, or any other form of retaliation or reprisal
against an employee for asserting rights or taking other
actions permitted under Federal law.
``(18) Any provision of Federal, State, or local law, or
common law claims permitted under Federal, State, or local
law--
``(A) providing for the enforcement of civil rights, or
``(B) regulating any aspect of the employment relationship,
including claims for wages, compensation, or benefits, or
prohibiting the discharge of an employee, the discrimination
against an employee, or any other form of retaliation or
reprisal against an employee for asserting rights or taking
other actions permitted by law.''.
(b) Clerical Amendment.--The table of sections for part III
of subchapter B of chapter 1 is amended by striking the last
item and inserting the following:
``Sec. 140. Amounts received on account of certain unlawful
discrimination.
``Sec. 140. Cross references to other Acts.''.
(c) Effective Date.--The amendments made by this section
shall apply to damages received in taxable years beginning
after December 31, 2002.
SEC. 602. LIMITATION ON TAX BASED ON INCOME AVERAGING FOR
BACKPAY AND FRONTPAY RECEIVED ON ACCOUNT OF
CERTAIN UNLAWFUL EMPLOYMENT DISCRIMINATION.
(a) In General.--Part I of subchapter Q of chapter 1
(relating to income averaging) is amended by adding at the
end the following new section:
``SEC. 1302. INCOME FROM BACKPAY AND FRONTPAY RECEIVED ON
ACCOUNT OF CERTAIN UNLAWFUL EMPLOYMENT
DISCRIMINATION.
``(a) General Rule.--If employment discrimination backpay
or frontpay is received by a taxpayer during a taxable year,
the tax imposed by this chapter for such taxable year shall
not exceed the sum of--
``(1) the tax which would be so imposed if--
``(A) no amount of such backpay or frontpay were included
in gross income for such year, and
``(B) no deduction were allowed for such year for expenses
(otherwise allowable as a deduction to the taxpayer for such
year) in connection with making or prosecuting any claim of
unlawful employment discrimination by or on behalf of the
taxpayer, plus
``(2) the product of--
``(A) the number of years in the backpay period and
frontpay period, and
``(B) the amount by which the tax determined under
paragraph (1) would increase if the amount on which such tax
is determined were increased by the average annual net
backpay and frontpay amount.
``(b) Definitions.--For purposes of this section--
``(1) Employment discrimination backpay or frontpay.--The
term `employment discrimination backpay or frontpay' means
backpay or frontpay receivable (whether as lump sums or
periodic payments) on account of a claim of unlawful
employment discrimination.
``(2) Unlawful employment discrimination.--The term
`unlawful employment discrimination' has the meaning provided
the term `unlawful discrimination' in section 140(b).
``(3) Backpay and frontpay.--The terms `backpay' and
`frontpay' mean amounts includible in gross income in the
taxable year--
``(A) as compensation which is attributable--
``(i) in the case of backpay, to services performed, or
that would have been performed but for a claimed violation of
law, as an employee, former employee, or prospective employee
before such taxable year for the taxpayer's employer, former
employer, or prospective employer; and
``(ii) in the case of frontpay, to employment that would
have been performed but for
[[Page S2873]]
a claimed violation of law, in a taxable year or taxable
years following the taxable year; and
``(B) which are--
``(i) ordered, recommended, or approved by any governmental
entity to satisfy a claim for a violation of law, or
``(ii) received from the settlement of such a claim.
``(4) Backpay period.--The term `backpay period' means the
period during which services are performed (or would have
been performed) to which backpay is attributable. If such
period is not equal to a whole number of taxable years, such
period shall be increased to the next highest number of whole
taxable years.
``(5) Frontpay period.--The term `frontpay period' means
the period of foregone employment to which frontpay is
attributable. If such period is not equal to a whole number
of taxable years, such period shall be increased to the next
highest number of whole taxable years.
``(6) Average annual net backpay and frontpay amount.--The
term `average annual net backpay and frontpay amount' means
the amount equal to--
``(A) the excess of--
``(i) employment discrimination backpay and frontpay, over
``(ii) the amount of deductions that would have been
allowable but for subsection (a)(1)(B), divided by
``(B) the number of years in the backpay period and
frontpay period.''.
(b) Clerical Amendment.--The table of sections for part I
of subchapter Q of chapter 1 is amended by inserting after
section 1301 the following new item:
``Sec. 1302. Income from backpay or frontpay received on account of
certain unlawful employment discrimination.''.
(c) Effective Date.--The amendments made by this section
shall apply to amounts received in taxable years beginning
after December 31, 2002.
SEC. 603. INCOME AVERAGING FOR BACKPAY AND FRONTPAY RECEIVED
ON ACCOUNT OF CERTAIN UNLAWFUL EMPLOYMENT
DISCRIMINATION 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:
``(2) Coordination with income averaging for amounts
received on account of employment discrimination.--Solely for
purposes of this section, section 1302 (relating to averaging
of income from backpay or frontpay received on account of
certain unlawful employment discrimination) shall not apply
in computing the regular tax.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2002.
______
SA 2876. Mrs. HUTCHISON (for herself, Mr. Smith, and Ms. Landrieu)
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 76, strike lines 3 through 14 and insert the
following:
``(e) Domestic Production Gross Receipts.--For purposes of
this section--
``(1) In general.--
``(A) Receipts from qualifying production property.--The
term `domestic production gross receipts' means the gross
receipts of the taxpayer which are derived from--
``(i) any sale, exchange, or other disposition of, or
``(ii) 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.
``(B) Receipts from certain services.--Such term also
includes the gross receipts of the taxpayer which are derived
from any construction, engineering, or architectural services
performed in the United States for construction projects in
the United States.
______
SA 2877. Mr. BAUCUS 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 164, strike line 12 through page 165,
line 2, and insert the following:
(b) Special Rule for Mutual or Cooperative Telephone
Companies.--Section 512(b) (relating to modifications) is
amended by adding at the end the following new paragraph:
``(18) Special rule for mutual or cooperative telephone
companies.--A mutual or cooperative telephone company which
for the taxable year satisfies the requirements of section
501(c)(12)(A) may elect to reduce its unrelated business
taxable income for such year, if any, by an amount that does
not exceed the qualified broadband expenditures which would
be taken into account under section 191 for such year by such
company if such company was not exempt from taxation. Any
amount which is allowed as a deduction under this paragraph
shall not be allowed as a deduction under section 191 and the
basis of any property to which this paragraph applies shall
be reduced under section 1016(a)(29).''.
On page 168, strike lines 16 through 18 and insert the
following:
(f) Effective Dates.--The amendments made by this section
shall apply to expenditures incurred after the date of the
enactment of this Act and before the date which is 12 months
after the date of the enactment of this Act.
______
SA 2878. Mr. PRYOR 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:
Strike section 487 in amendment No. 2645, as agreed to.
______
SA 2879. Mrs. CLINTON 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. __. TRANSMISSION OF PERSONALLY IDENTIFIABLE INFORMATION
TO FOREIGN AFFILIATES OR SUBCONTRACTORS.
(a) Definitions.--As used in this section, the following
definitions shall apply:
(1) Business enterprise.--The term ``business enterprise''
means any organization, association, or venture established
to make a profit.
(2) Country with adequate privacy protection.--The term
``country with adequate privacy protection'' means a country
that has been certified by the Federal Trade Commission as
having a legal system that provides adequate privacy
protection for such information.
(3) Health care business.--The term ``health care
business'' means any business enterprise or nonprofit
organization that collects or retains personally identifiable
information about consumers in relation to medical care,
including--
(A) hospitals;
(B) health maintenance organizations;
(C) medical partnerships;
(D) emergency medical transportation companies;
(E) medical transcription companies; and
(F) subcontractors, or potential subcontractors, of the
entities described in subparagraphs (A) through (E).
(4) Personally identifiable information.--The term
``personally identifiable information'' includes name, bank
account information, social security number, address,
telephone number, passwords, mother's maiden name, and age.
(b) Transmission of Information.--
(1) In general.--A business enterprise may transmit
personally identifiable information regarding a citizen of
the United States to any foreign affiliate or subcontractor
located in a country that is a country with adequate privacy
protection.
(2) Consent required.--A business enterprise may not
transmit personally identifiable information regarding a
citizen of the United States to any foreign affiliate or
subcontractor located in a country that is not a country with
adequate privacy protection, unless--
(A) the business enterprise obtains consent from the
citizen, before a consumer relationship is established or
before the effective date of this section, to transmit such
information to such foreign affiliate or subcontractor; and
(B) the consent referred to in subparagraph (A) is renewed
by the citizen within 1 year before such information is
transmitted.
(3) Liability.--A business enterprise shall be liable for
any damages arising from the improper storage, duplication,
sharing, or other misuse of personally identifiable
information by the business enterprise or by any of its
foreign affiliates or subcontractors that received such
information from the business enterprise.
(4) Rulemaking.--The Chairman of the Federal Trade
Commission shall promulgate regulations through which the
Chairman may enforce the provisions of this subsection and
impose a fine for a violation of this subsection.
[[Page S2874]]
(c) Health Care Information.--
(1) In general.--A health care business shall be liable for
any damages arising from the improper storage, duplication,
sharing, or other misuse of personally identifiable
information by the business enterprise or by any of its
foreign affiliates or subcontractors that received such
information from the business enterprise.
(2) No opt out provision.--A health care business may not
terminate an existing relationship with a consumer of health
care services to avoid the consent requirement under
subsection (b)(2).
(3) Rulemaking.--The Secretary of Health and Human Services
shall promulgate regulations through which the Secretary may
enforce the provisions of this subsection and impose a fine
for the violation of this subsection.
(d) Effective Date.--This section shall take effect on the
date which is 90 days after the date of enactment of this
Act.
______
SA 2880. Mr. DURBIN 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, clinic, or long-term care provider,
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 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 average of such costs for
similarly situated eligible persons.
``(d) Special Rules.--
``(1) In general.--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) Application of Section.--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.--
``(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, Clinics, and Long-Term
Care Providers.--
(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, clinics, and long-term care
providers to assist such hospitals, clinics, and long-term
care providers in defraying qualified medical malpractice
insurance expenditures.
(2) Eligible non-profit hospital, clinic, or long-term care
provider.--To be eligible to receive a grant under paragraph
(1) an entity shall--
(A) be a non-profit hospital, clinic, or long-term care
provider;
(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, clinic, or long-term care provider under paragraph
(1) shall equal 15 percent of the amount of the qualified
medical malpractice insurance expenditures of the hospital,
clinic, or long-term care provider 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 which is incurred by a non-profit hospital, clinic,
or long-term care provider in a year for the sole purpose of
providing or furnishing general medical malpractice liability
insurance for such hospital, clinic, or long-term care
provider as does not exceed twice the average of such costs
for similarly situated hospitals, clinics, or long-term care
provider homes.
(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.
______
SA 2881. Mr. HARKIN (for himself, Mr. Kennedy, Mr. Sarbanes, Mr.
Kerry, and Ms. Mikulski) 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 appropriate place, insert the following:
SEC. __. PROTECTION OF OVERTIME PAY.
Section 13 of the Fair Labor Standards Act of 1938 (29
U.S.C. 213) is amended by adding at the end the following:
``(k)(1) The Secretary shall not promulgate any rule under
subsection (a)(1) that exempts from the overtime pay
provisions of section 7 any employee who would not be exempt
under regulations in effect on March 31, 2003.
``(2) Any portion of a rule promulgated under subsection
(a)(1) after March 31, 2003, that exempts from the overtime
pay provisions of section 7 any employee who would not
otherwise be exempt if the regulations in effect on March 31,
2003, remained in effect, shall have no force or effect.''.
______
SA 2882. Mr. GRASSLEY (for Mr. Bunning (for himself, Mrs. Lincoln,
[[Page S2875]]
Mr. Santorum, Mr. Conrad, and Mr. Baucus)) proposed an amendment to
amendment SA 2686 proposed by Mr. Bunning (for himself, Ms. Stabenow,
Mrs. Feinstein, Mr. Levin, Mr. Kohl, and Mr. Rockefeller) 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 matter proposed to be inserted at the end
of the bill, add the following:
SEC. __. FIVE-YEAR CARRYBACK OF NET OPERATING LOSSES.
(a) In General.--Subparagraph (H) of section 172(b)(1) is
amended--
(1) by inserting ``5-year carryback of certain losses.--''
after ``(H)'', and
(2) by striking ``or 2002'' and inserting ``, 2002, or
2003''.
(b) Rules Relating to Certain Extended Net Operating
Losses.--Section 172 is amended by redesignating subsection
(k) as subsection (l) and by inserting after subsection (j)
the following new subsection:
``(k) Rules Relating to Certain Extended Net Operating
Losses.--For purposes of this section, in the case of a
taxpayer which has a net operating loss for any taxable year
ending during 2003 and does not make an election under
subsection (j), such taxpayer shall be deemed to have made an
election under paragraphs (4)(E) and (2)(C)(iii) of section
168(k) with respect to all classes of property for such
taxable year.
(c) Temporary Suspension of 90 Percent Limit on Certain NOL
Carryovers.--Section 56(d)(1)(A)(ii)(I) (relating to general
rule defining alternative tax net operating loss deduction)
is amended--
(1) by striking ``or 2002'' and inserting ``, 2002, or
2003'', and
(2) by striking ``and 2002'' and inserting ``, 2002, and
2003''.
(d) Technical Corrections.--
(1) Subparagraph (H) of section 172(b)(1) is amended by
striking ``a taxpayer which has''.
(2) Section 102(c)(2) of the Job Creation and Worker
Assistance Act of 2002 (Public Law 107-147) is amended by
striking ``before January 1, 2003'' and inserting ``after
December 31, 1990''.
(3)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended
by striking ``attributable to carryovers''.
(B) Subclause (I) of section 56(d)(1)(A)(ii) is amended--
(i) by striking ``for taxable years'' and inserting ``from
taxable years'', and
(ii) by striking ``carryforwards'' and inserting
``carryovers''.
(e) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to net operating
losses for taxable years ending after December 31, 2002.
(2) Technical corrections.--The amendments made by
subsection (d) shall take effect as if included in the
amendments made by section 102 of the Job Creation and Worker
Assistance Act of 2002.
(3) Election.--In the case of a net operating loss for a
taxable year ending during 2003--
(A) any election made under section 172(b)(3) of such Code
may (notwithstanding such section) be revoked before April
15, 2004, and
(B) any election made under section 172(j) of such Code
shall (notwithstanding such section) be treated as timely
made if made before April 15, 2004.
(4) Special rule for taxpayers with taxable years ending
during january.--Any taxpayer which has a taxable year ending
during January may elect under this paragraph to apply
section 172(b)(1)(H) of the Internal Revenue Code of 1986 (as
amended by this section) to its taxable year ending in 2004
rather than its taxable year ending in 2003. If such election
is made, then section 172(k) of such Code (as added by this
section) shall be applied to the taxpayer's taxable year
ending in 2004. Such election shall be made in such manner
and at such time as may be prescribed by the Secretary of the
Treasury. Such election, once made, shall be irrevocable.
(c) Prior Section To Have No Effect.--Notwithstanding
section 311(e) of this Act, such section, and the amendments
made by such section, shall not take effect.
______
SA 2883. Mr. DAYTON 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 V--HOUSING BOND AND CREDIT MODERNIZATION AND FAIRNESS PROVISIONS
SEC. 501. REPEAL OF REQUIRED USE OF CERTAIN PRINCIPAL
REPAYMENTS ON MORTGAGE SUBSIDY BOND FINANCINGS
TO REDEEM BONDS.
(a) In General.--Subparagraph (A) of section 143(a)(2)
(defining qualified mortgage issue) is amended by adding
``and'' at the end of clause (ii), by striking ``, and'' at
the end of clause (iii) and inserting a period, and by
striking clause (iv) and the last sentence.
(b) Conforming Amendment.--Clause (ii) of section
143(a)(2)(D) of such Code is amended by striking ``(and
clause (iv) of subparagraph (A))''.
(c) Effective Date.--The amendments made by this section
shall apply to repayments received after the date of the
enactment of this Act.
SEC. 502. MODIFICATION OF PURCHASE PRICE LIMITATION UNDER
MORTGAGE SUBSIDY BOND RULES BASED ON MEDIAN
FAMILY INCOME.
(a) In General.--Paragraph (1) of section 143(e) (relating
to purchase price requirement) is amended to read as follows:
``(1) In general.--An issue meets the requirements of this
subsection only if the acquisition cost of each residence the
owner-financing of which is provided under the issue does not
exceed the greater of--
``(A) 90 percent of the average area purchase price
applicable to the residence, or
``(B) 3.5 times the applicable median family income (as
defined in subsection (f)).''
(b) Effective Date.--The amendment made by this section
shall apply to financing provided, and mortgage credit
certificates issued, after the date of the enactment of this
Act.
SEC. 503. DETERMINATION OF AREA MEDIAN GROSS INCOME FOR LOW-
INCOME HOUSING CREDIT PROJECTS.
(a) In General.--Paragraph (4) of section 42(g) (relating
to certain rules made applicable) is amended by striking the
period at the end and inserting ``and the term `area median
gross income' means the amount equal to the greater of--
``(A) the area median gross income determined under section
142(d)(2)(B), or
``(B) the statewide median gross income for the State in
which the project is located.''
(b) Effective Date.--The amendment made by this section
shall apply to--
(1) housing credit dollar amounts allocated after the date
of the enactment of this Act, and
(2) buildings placed in service after such date to the
extent paragraph (1) of section 42(h) of the Internal Revenue
Code of 1986 does not apply to any building by reason of
paragraph (4) thereof.
______
SA 2884. Mr. DAYTON 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. __. REPEAL OF CHECK-THE-BOX RULES.
(a) In General.--Paragraph (3) of section 7701(a) (relating
to corporation) is amended by inserting at the end the
following new sentence: ``The determination as to whether any
foreign business entity is a corporation shall be made
without regard to any election regarding the classification
of the business form of such entity and shall be made under
rules similar to the rules for determining the status of such
entity on December 31, 1996 (except that any foreign business
entity which is defined as a corporation under regulations on
the date of the enactment of this sentence shall continue to
be classified as a corporation).''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning in calendar years
beginning after the date of the enactment of this Act.
______
SA 2885. Mr. DAYTON 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, line 20, strike all through page 146,
line 23, and insert the following:
SEC. 201. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY
INCOME WITH RESPECT TO TRANSACTIONS IN
COMMODITIES.
(a) In General.--Clauses (i) and (ii) of section
954(c)(1)(C) (relating to commodity transactions) are amended
to read as follows:
``(i) arise out of commodity hedging transactions (as
defined in paragraph (4)(A)),
``(ii) are active business gains or losses from the sale of
commodities, but only if substantially all of the controlled
foreign corporation's commodities are property described in
paragraph (1), (2), or (8) of section 1221(a), or''.
[[Page S2876]]
(b) Definition and Special Rules.--Subsection (c) of
section 954 is amended by adding after paragraph (3) the
following new paragraph:
``(4) Definition and special rules relating to commodity
transactions.--
``(A) Commodity hedging transactions.--For purposes of
paragraph (1)(C)(i), the term `commodity hedging transaction'
means any transaction with respect to a commodity if such
transaction--
``(i) is a hedging transaction as defined in section
1221(b)(2), determined--
``(I) without regard to subparagraph (A)(ii) thereof,
``(II) by applying subparagraph (A)(i) thereof by
substituting `ordinary property or property described in
section 1231(b)' for `ordinary property', and
``(III) by substituting `controlled foreign corporation'
for `taxpayer' each place it appears, and
``(ii) is clearly identified as such in accordance with
section 1221(a)(7).
``(B) Treatment of dealer activities under paragraph
(1)(C).--Commodities with respect to which gains and losses
are not taken into account under paragraph (2)(C) in
computing a controlled foreign corporation's foreign personal
holding company income shall not be taken into account in
applying the substantially all test under paragraph
(1)(C)(ii) to such corporation.
``(C) Regulations.--The Secretary shall prescribe such
regulations as are appropriate to carry out the purposes of
paragraph (1)(C) in the case of transactions involving
related parties.''.
(c) Modification of Exception for Dealers.--Clause (i) of
section 954(c)(2)(C) is amended by inserting ``and
transactions involving physical settlement'' after
``(including hedging transactions''.
(d) Effective Date.--The amendments made by this section
shall apply to transactions entered into after December 31,
2004.
______
SA 2886. Mr. McCONNELL (for Mr. Frist) submitted an amendment
intended to be proposed by Mr. McConnell 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 all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF
CONTENTS.
(a) Short Title.--This Act may be cited as the ``Jumpstart
Our Business Strength (JOBS) Act''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act 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.--
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR
EXTRATERRITORIAL INCOME
Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to United States
production activities.
TITLE II--INTERNATIONAL TAX PROVISIONS
Subtitle A--International Tax Reform
Sec. 201. 20-year foreign tax credit carryover; 1-year foreign tax
credit carryback.
Sec. 202. Look-thru rules to apply to dividends from noncontrolled
section 902 corporations.
Sec. 203. Foreign tax credit under alternative minimum tax.
Sec. 204. Recharacterization of overall domestic loss.
Sec. 205. Interest expense allocation rules.
Sec. 206. Determination of foreign personal holding company income with
respect to transactions in commodities.
Subtitle B--International Tax Simplification
Sec. 211. Repeal of foreign personal holding company rules and foreign
investment company rules.
Sec. 212. Expansion of de minimis rule under subpart F.
Sec. 213. Attribution of stock ownership through partnerships to apply
in determining section 902 and 960 credits.
Sec. 214. Application of uniform capitalization rules to foreign
persons.
Sec. 215. Repeal of withholding tax on dividends from certain foreign
corporations.
Sec. 216. Repeal of special capital gains tax on aliens present in the
United States for 183 days or more.
Subtitle C--Additional International Tax Provisions
Sec. 221. Active leasing income from aircraft and vessels.
Sec. 222. Look-thru treatment of payments between related controlled
foreign corporations under foreign personal holding
company income rules.
Sec. 223. Look-thru treatment for sales of partnership interests.
Sec. 224. Election not to use average exchange rate for foreign tax
paid other than in functional currency.
Sec. 225. Treatment of income tax base differences.
Sec. 226. Modification of exceptions under subpart F for active
financing.
Sec. 227. United States property not to include certain assets of
controlled foreign corporation.
Sec. 228. Provide equal treatment for interest paid by foreign
partnerships and foreign corporations.
Sec. 229. Clarification of treatment of certain transfers of intangible
property.
Sec. 230. Modification of the treatment of certain REIT distributions
attributable to gain from sales or exchanges of United
States real property interests.
Sec. 231. Toll tax on excess qualified foreign distribution amount.
Sec. 232. Exclusion of income derived from certain wagers on horse
races and dog races from gross income of nonresident
alien individuals.
Sec. 233. Limitation of withholding tax for Puerto Rico corporations.
Sec. 234. Report on WTO dispute settlement panels and the appellate
body.
Sec. 235. Study of impact of international tax laws on taxpayers other
than large corporations.
TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS
Subtitle A--General Provisions
Sec. 301. Expansion of qualified small-issue bond program.
Sec. 302. Expensing of broadband Internet access expenditures.
Sec. 303. Exemption of natural aging process in determination of
production period for distilled spirits under section
263A.
Sec. 304. Modification of active business definition under section 355.
Sec. 305. Exclusion of certain indebtedness of small business
investment companies from acquisition indebtedness.
Sec. 306. Modified taxation of imported archery products.
Sec. 307. Modification to cooperative marketing rules to include value
added processing involving animals.
Sec. 308. Extension of declaratory judgment procedures to farmers'
cooperative organizations.
Sec. 309. Temporary suspension of personal holding company tax.
Sec. 310. Increase in section 179 expensing.
Sec. 311. Five-year carryback of net operating losses.
Sec. 312. Extension and modification of research credit.
Sec. 313. Expansion of research credit.
Subtitle B--Manufacturing Relating to Films
Sec. 321. Special rules for certain film and television productions.
Sec. 322. Modification of application of income forecast method of
depreciation.
Subtitle C--Manufacturing Relating to Timber
Sec. 331. Expensing of certain reforestation expenditures.
Sec. 332. Election to treat cutting of timber as a sale or exchange.
Sec. 333. Capital gain treatment under section 631(b) to apply to
outright sales by landowners.
Sec. 334. Modification of safe harbor rules for timber REITS.
TITLE IV--ADDITIONAL PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
Sec. 401. Clarification of economic substance doctrine.
Sec. 402. Penalty for failing to disclose reportable transaction.
Sec. 403. Accuracy-related penalty for listed transactions and other
reportable transactions having a significant tax
avoidance purpose.
Sec. 404. Penalty for understatements attributable to transactions
lacking economic substance, etc.
Sec. 405. Modifications of substantial understatement penalty for
nonreportable transactions.
Sec. 406. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 407. Disclosure of reportable transactions.
Sec. 408. Modifications to penalty for failure to register tax
shelters.
Sec. 409. Modification of penalty for failure to maintain lists of
investors.
Sec. 410. Modification of actions to enjoin certain conduct related to
tax shelters and reportable transactions.
Sec. 411. Understatement of taxpayer's liability by income tax return
preparer.
Sec. 412. Penalty on failure to report interests in foreign financial
accounts.
Sec. 413. Frivolous tax submissions.
Sec. 414. Regulation of individuals practicing before the Department of
Treasury.
[[Page S2877]]
Sec. 415. Penalty on promoters of tax shelters.
Sec. 416. Statute of limitations for taxable years for which required
listed transactions not reported.
Sec. 417. Denial of deduction for interest on underpayments
attributable to nondisclosed reportable and noneconomic
substance transactions.
Sec. 418. Authorization of appropriations for tax law enforcement.
Sec. 419. Increases in penalties for aiding and abetting
understatements.
Sec. 420. Study on information sharing among law enforcement agencies.
Subtitle B--Other Corporate Governance Provisions
Sec. 421. Affirmation of consolidated return regulation authority.
Sec. 422. Declaration by chief executive officer relating to Federal
annual income tax return of a corporation.
Sec. 423. Denial of deduction for certain fines, penalties, and other
amounts.
Sec. 424. Disallowance of deduction for punitive damages.
Sec. 425. Increase in criminal monetary penalty limitation for the
underpayment or overpayment of tax due to fraud.
Subtitle C--Enron-Related Tax Shelter Provisions
Sec. 431. Limitation on transfer or importation of built-in losses.
Sec. 432. No reduction of basis under section 734 in stock held by
partnership in corporate partner.
Sec. 433. Repeal of special rules for FASITs.
Sec. 434. Expanded disallowance of deduction for interest on
convertible debt.
Sec. 435. Expanded authority to disallow tax benefits under section
269.
Sec. 436. Modification of interaction between subpart F and passive
foreign investment company rules.
Subtitle D--Provisions To Discourage Expatriation
Sec. 441. Tax treatment of inverted corporate entities.
Sec. 442. Imposition of mark-to-market tax on individuals who
expatriate.
Sec. 443. Excise tax on stock compensation of insiders of inverted
corporations.
Sec. 444. Reinsurance of United States risks in foreign jurisdictions.
Sec. 445. Reporting of taxable mergers and acquisitions.
Subtitle E--International Tax
Sec. 451. Clarification of banking business for purposes of determining
investment of earnings in United States property.
Sec. 452. Prohibition on nonrecognition of gain through complete
liquidation of holding company.
Sec. 453. Prevention of mismatching of interest and original issue
discount deductions and income inclusions in transactions
with related foreign persons.
Sec. 454. Effectively connected income to include certain foreign
source income.
Sec. 455. Recapture of overall foreign losses on sale of controlled
foreign corporation.
Sec. 456. Minimum holding period for foreign tax credit on withholding
taxes on income other than dividends.
Subtitle F--Other Revenue Provisions
Part I--Financial Instruments
Sec. 461. Treatment of stripped interests in bond and preferred stock
funds, etc.
Sec. 462. Application of earnings stripping rules to partnerships and S
corporations.
Sec. 463. Recognition of cancellation of indebtedness income realized
on satisfaction of debt with partnership interest.
Sec. 464. Modification of straddle rules.
Sec. 465. Denial of installment sale treatment for all readily
tradeable debt.
Part II--Corporations and Partnerships
Sec. 466. Modification of treatment of transfers to creditors in
divisive reorganizations.
Sec. 467. Clarification of definition of nonqualified preferred stock.
Sec. 468. Modification of definition of controlled group of
corporations.
Sec. 469. Mandatory basis adjustments in connection with partnership
distributions and transfers of partnership interests.
Part III--Depreciation and Amortization
Sec. 471. Extension of amortization of intangibles to sports
franchises.
Sec. 472. Class lives for utility grading costs.
Sec. 473. Expansion of limitation on depreciation of certain passenger
automobiles.
Sec. 474. Consistent amortization of periods for intangibles.
Sec. 475. Reform of tax treatment of leasing operations.
Sec. 476. Limitation on deductions allocable to property used by
governments or other tax-exempt entities.
Part IV--Administrative Provisions
Sec. 481. Clarification of rules for payment of estimated tax for
certain deemed asset sales.
Sec. 482. Extension of IRS user fees.
Sec. 483. Doubling of certain penalties, fines, and interest on
underpayments related to certain offshore financial
arrangement.
Sec. 484. Partial payment of tax liability in installment agreements.
Sec. 485. Extension of customs user fees.
Sec. 486. Deposits made to suspend running of interest on potential
underpayments.
Sec. 487. Qualified tax collection contracts.
Part V--Miscellaneous Provisions
Sec. 491. Addition of vaccines against hepatitis A to list of taxable
vaccines.
Sec. 492. Recognition of gain from the sale of a principal residence
acquired in a like-kind exchange within 5 years of sale.
Sec. 493. Clarification of exemption from tax for small property and
casualty insurance companies.
Sec. 494. Definition of insurance company for section 831.
Sec. 495. Limitations on deduction for charitable contributions of
patents and similar property.
Sec. 496. Repeal of 10-percent rehabilitation tax credit.
Sec. 497. Increase in age of minor children whose unearned income is
taxed as if parent's income.
Sec. 498. Holding period for preferred stock.
TITLE V--PROTECTION OF UNITED STATES WORKERS FROM COMPETITION OF
FOREIGN WORKFORCES
Sec. 501. Limitations on off-shore performance of contracts.
Sec. 502. Repeal of superseded law.
Sec. 503. Effective date and applicability.
TITLE VI--OTHER PROVISIONS
Subtitle A--Provisions Relating to Housing
Sec. 601. Treatment of qualified mortgage bonds.
Sec. 602. Premiums for mortgage insurance.
Sec. 603. Increase in historic rehabilitation credit for certain low-
income housing for the elderly.
Subtitle B--Provisions Relating to Bonds
Sec. 611. Expansion of New York liberty zone tax benefits.
Sec. 612. Modifications of treatment of qualified zone academy bonds.
Sec. 613. Modifications of authority of Indian tribal governments to
issue tax-exempt bonds.
Sec. 614. Definition of manufacturing facility for small issue bonds.
Sec. 615. Conservation bonds.
Subtitle C--Provisions Relating to Depreciation
Sec. 621. Special placed in service rule for bonus depreciation
property.
Sec. 622. Modification of depreciation allowance for aircraft.
Sec. 623. Modification of class life for certain track facilities.
Sec. 624. Minimum tax relief for certain taxpayers.
Subtitle D--Expansion of Business Credit
Sec. 631. New markets tax credit for Native American reservations.
Sec. 632. Ready reserve-national guard employee credit added to general
business credit.
Sec. 633. Rural investment tax credit.
Sec. 634. Qualified rural small business investment credit.
Sec. 635. Credit for maintenance of railroad track.
Sec. 636. Railroad revitalization and security investment credit.
Subtitle E--Miscellaneous Provisions
Sec. 641. Exclusion of gain or loss on sale or exchange of certain
brownfield sites from unrelated business taxable income.
Sec. 642. Modification of unrelated business income limitation on
investment in certain debt-financed properties.
Sec. 643. Civil rights tax relief.
Sec. 644. Exclusion for payments to individuals under national health
service corps loan repayment program and certain State
loan repayment programs.
Sec. 645. Certain expenses of rural letter carriers.
Sec. 646. Method of accounting for naval shipbuilders.
Sec. 647. Suspension of policyholders surplus account provisions.
Sec. 648. Payment of dividends on stock of cooperatives without
reducing patronage dividends.
Sec. 649. Special rules for livestock sold on account of weather-
related conditions.
Sec. 650. Motor vehicle dealer transitional assistance.
Sec. 651. Expansion of designated renewal community area based on 2000
census data.
Sec. 652. Reduction of holding period to 12 months for purposes of
determining whether horses are section 1231 assets.
Sec. 653. Blue ribbon commission on comprehensive tax reform.
Sec. 654. Treatment of distributions by esops with respect to S
corporation stock.
[[Page S2878]]
Sec. 655. Clarification of working capital for reasonably anticipated
needs of a business for purposes of accumulated earnings
tax.
Subtitle F--Revenue Provisions
Part I--General Revenue Provisions
Sec. 661. Treasury regulations on foreign tax credit.
Sec. 662. Nonattribution of certain manufacturing by persons other than
controlled foreign corporation.
Sec. 663. Freeze of provisions regarding suspension of interest where
Secretary fails to contact taxpayer.
Part II--Pension and Deferred Compensation
Sec. 671. Treatment of nonqualified deferred compensation plans.
Sec. 672. Prohibition on deferral of gain from the exercise of stock
options and restricted stock gains through deferred
compensation arrangements.
Sec. 673. Increase in withholding from supplemental wage payments in
excess of $1,000,000.
Sec. 674. Treatment of sale of stock acquired pursuant to exercise of
stock options to comply with conflict-of-interest
requirements.
Sec. 675. Determination of basis of amounts paid from foreign pension
plans.
TITLE VII--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS
Subtitle A--Extensions
Sec. 701. Parity in the application of certain limits to mental health
benefits.
Sec. 702. Modifications to work opportunity credit and welfare-to-work
credit.
Sec. 703. Consolidation of work opportunity credit with welfare-to-work
credit.
Sec. 704. Qualified zone academy bonds.
Sec. 705. Cover over of tax on distilled spirits.
Sec. 706. Deduction for corporate donations of scientific property and
computer technology.
Sec. 707. Deduction for certain expenses of school teachers.
Sec. 708. Expensing of environmental remediation costs.
Sec. 709. Expansion of certain New York Liberty Zone benefits.
Sec. 710. Temporary special rules for taxation of life insurance
companies.
Sec. 711. Tax incentives for investment in the District of Columbia.
Sec. 712. Combined employment tax reporting program.
Sec. 713. Allowance of nonrefundable personal credits against regular
and minimum tax liability.
Sec. 714. Credit for electricity produced from certain renewable
resources.
Sec. 715. Taxable income limit on percentage depletion for oil and
natural gas produced from marginal properties.
Sec. 716. Indian employment tax credit.
Sec. 717. Accelerated depreciation for business property on Indian
reservation.
Sec. 718. Disclosure of return information relating to student loans.
Sec. 719. Extension of transfers of excess pension assets to retiree
health accounts.
Sec. 720. Elimination of phaseout of credit for qualified electric
vehicles.
Sec. 721. Elimination of phaseout for deduction for clean-fuel vehicle
property.
Subtitle B--Revenue Provisions
Sec. 731. Donations of motor vehicles, boats, and airplanes.
Sec. 732. Addition of vaccines against influenza to list of taxable
vaccines.
Sec. 733. Treatment of contingent payment convertible debt instruments.
Sec. 734. Modification of continuing levy on payments to Federal
venders.
TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR
EXTRATERRITORIAL INCOME
SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.
(a) In General.--Section 114 is hereby repealed.
(b) Conforming Amendments.--
(1)(A) Subpart E of part III of subchapter N of chapter 1
(relating to qualifying foreign trade income) is hereby
repealed.
(B) The table of subparts for such part III is amended by
striking the item relating to subpart E.
(2) The table of sections for part III of subchapter B of
chapter 1 is amended by striking the item relating to section
114.
(3) The second sentence of section 56(g)(4)(B)(i) is
amended by striking ``114 or''.
(4) Section 275(a) is amended--
(A) by inserting ``or'' at the end of paragraph (4)(A), by
striking ``or'' at the end of paragraph (4)(B) and inserting
a period, and by striking subparagraph (C), and
(B) by striking the last sentence.
(5) Paragraph (3) of section 864(e) is amended--
(A) by striking:
``(3) Tax-exempt assets not taken into account.--
``(A) In general.--For purposes of''; and inserting:
``(3) Tax-exempt assets not taken into account.--For
purposes of'', and
(B) by striking subparagraph (B).
(6) Section 903 is amended by striking ``114, 164(a),'' and
inserting ``164(a)''.
(7) Section 999(c)(1) is amended by striking
``941(a)(5),''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to transactions occurring after the date of the
enactment of this Act.
(2) Binding contracts.--The amendments made by this section
shall not apply to any transaction in the ordinary course of
a trade or business which occurs pursuant to a binding
contract--
(A) which is between the taxpayer and a person who is not a
related person (as defined in section 943(b)(3) of such Code,
as in effect on the day before the date of the enactment of
this Act), and
(B) which is in effect on September 17, 2003, and at all
times thereafter.
(d) Revocation of Section 943(e) Elections.--
(1) In general.--In the case of a corporation that elected
to be treated as a domestic corporation under section 943(e)
of the Internal Revenue Code of 1986 (as in effect on the day
before the date of the enactment of this Act)--
(A) the corporation may, during the 1-year period beginning
on the date of the enactment of this Act, revoke such
election, effective as of such date of enactment, and
(B) if the corporation does revoke such election--
(i) such corporation shall be treated as a domestic
corporation transferring (as of such date of enactment) all
of its property to a foreign corporation in connection with
an exchange described in section 354 of such Code, and
(ii) no gain or loss shall be recognized on such transfer.
(2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall
not apply to gain on any asset held by the revoking
corporation if--
(A) the basis of such asset is determined in whole or in
part by reference to the basis of such asset in the hands of
the person from whom the revoking corporation acquired such
asset,
(B) the asset was acquired by transfer (not as a result of
the election under section 943(e) of such Code) occurring on
or after the 1st day on which its election under section
943(e) of such Code was effective, and
(C) a principal purpose of the acquisition was the
reduction or avoidance of tax (other than a reduction in tax
under section 114 of such Code, as in effect on the day
before the date of the enactment of this Act).
(e) General Transition.--
(1) In general.--In the case of a taxable year ending after
the date of the enactment of this Act and beginning before
January 1, 2007, for purposes of chapter 1 of such Code, a
current FSC/ETI beneficiary shall be allowed a deduction
equal to the transition amount determined under this
subsection with respect to such beneficiary for such year.
(2) Current fsc/eti beneficiary.--The term ``current FSC/
ETI beneficiary'' means any corporation which entered into
one or more transactions during its taxable year beginning in
calendar year 2002 with respect to which FSC/ETI benefits
were allowable.
(3) Transition amount.--For purposes of this subsection--
(A) In general.--The transition amount applicable to any
current FSC/ETI beneficiary for any taxable year is the
phaseout percentage of the base period amount.
(B) Phaseout percentage.--
(i) In general.--In the case of a taxpayer using the
calendar year as its taxable year, the phaseout percentage
shall be determined under the following table:
The phaseout
percentage is:
80 ...........................................................
80 ...........................................................
60............................................................
(ii) Special rule for 2004.--The phaseout percentage for
2004 shall be the amount that bears the same ratio to 100
percent as the number of days after the date of the enactment
of this Act bears to 365.
(iii) Special rule for fiscal year taxpayers.--In the case
of a taxpayer not using the calendar year as its taxable
year, the phaseout percentage is the weighted average of the
phaseout percentages determined under the preceding
provisions of this paragraph with respect to calendar years
any portion of which is included in the taxpayer's taxable
year. The weighted average shall be determined on the basis
of the respective portions of the taxable year in each
calendar year.
(C) Short taxable year.--The Secretary shall prescribe
guidance for the computation of the transition amount in the
case of a short taxable year.
(4) Base period amount.--For purposes of this subsection,
the base period amount is the average FSC/ETI benefit for the
taxpayer's taxable years beginning in calendar years 2000,
2001, and 2002.
(5) FSC/ETI benefit.--For purposes of this subsection, the
term ``FSC/ETI benefit'' means--
(A) amounts excludable from gross income under section 114
of such Code, and
(B) the exempt foreign trade income of related foreign
sales corporations from property acquired from the taxpayer
(determined without regard to section 923(a)(5) of such Code
(relating to special rule for military property), as in
effect on the day before the date of the enactment of the FSC
Repeal and
[[Page S2879]]
Extraterritorial Income Exclusion Act of 2000).
In determining the FSC/ETI benefit there shall be excluded
any amount attributable to a transaction with respect to
which the taxpayer is the lessor unless the leased property
was manufactured or produced in whole or in significant part
by the taxpayer.
(6) Special rule for agricultural and horticultural
cooperatives.--Determinations under this subsection with
respect to an organization described in section 943(g)(1) of
such Code, as in effect on the day before the date of the
enactment of this Act, shall be made at the cooperative level
and the purposes of this subsection shall be carried out in a
manner similar to section 199(h)(2) of such Code, as added by
this Act. Such determinations shall be in accordance with
such requirements and procedures as the Secretary may
prescribe.
(7) Certain rules to apply.--Rules similar to the rules of
section 41(f) of such Code shall apply for purposes of this
subsection.
(8) Coordination with binding contract rule.--The deduction
determined under paragraph (1) for any taxable year shall be
reduced by the phaseout percentage of any FSC/ETI benefit
realized for the taxable year by reason of subsection (c)(2)
or section 5(c)(1)(B) of the FSC Repeal and Extraterritorial
Income Exclusion Act of 2000, except that for purposes of
this paragraph the phaseout percentage for 2004 shall be
treated as being equal to 100 percent.
(9) Special rule for taxable year which includes date of
enactment.--In the case of a taxable year which includes the
date of the enactment of this Act, the deduction allowed
under this subsection to any current FSC/ETI beneficiary
shall in no event exceed--
(A) 100 percent of such beneficiary's base period amount
for calendar year 2004, reduced by
(B) the FSC/ETI benefit of such beneficiary with respect to
transactions occurring during the portion of the taxable year
ending on the date of the enactment of this Act.
SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED
STATES PRODUCTION ACTIVITIES.
(a) In General.--Part VI of subchapter B of chapter 1
(relating to itemized deductions for individuals and
corporations) is amended by adding at the end the following
new section:
``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
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:
The transitions
beginning in:
percentage is:
5 , 2005, or 2006..............................................
6 .............................................................
7..............................................................
``(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. The preceding sentence shall not apply to any entity
all of the ownership interests of which are held directly or
indirectly by members of the same expanded affiliated group.
``(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 (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 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) 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:
[[Page S2880]]
``(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) 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--
``(I) in the manufacturing, production, growth, or
extraction in whole or significant part of any agricultural
or horticultural product, or
``(II) 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, but
for this paragraph, would be deductible under subsection (a)
by the organization and is 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 a deduction under
subsection (a) with respect to such amount. The taxable
income of the organization shall not be reduced under section
1382 by reason of any amount to which the preceding sentence
applies.
``(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) in the case of an organization described in
subparagraph (A)(i)(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 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.
``(9) Separate application to films and videotape.--In the
case of qualifying production property described in section
168(f)(3), this section shall be applied separately to
qualified production activities income of the taxpayer
allocable to each of the following markets with respect to
such property:
``(A) Theatrical.
``(B) Broadcast television (including cable, foreign, pay-
per-view, and syndication).
``(C) Home video.''.
(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.
TITLE II--INTERNATIONAL TAX PROVISIONS
Subtitle A--International Tax Reform
SEC. 201. 20-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-YEAR
FOREIGN TAX CREDIT CARRYBACK.
(a) General Rule.--Section 904(c) (relating to carryback
and carryover of excess tax paid) is amended--
(1) by striking ``in the second preceding taxable year,'',
and
(2) by striking ``, and in the first, second, third,
fourth, or fifth'' and inserting ``and in any of the first
20''.
(b) Excess Extraction Taxes.--Paragraph (1) of section
907(f) is amended--
(1) by striking ``in the second preceding taxable year,'',
(2) by striking ``, and in the first, second, third,
fourth, or fifth'' and inserting ``and in any of the first
20'', and
(3) by striking the last sentence.
(c) Effective Date.--
(1) Carryback.--The amendments made by subsections (a)(1)
and (b)(1) shall apply to excess foreign taxes arising in
taxable years beginning after the date of the enactment of
this Act.
(2) Carryover.--The amendments made by subsections (a)(2)
and (b)(2) shall apply to excess foreign taxes which (without
regard to the amendments made by this section) may be carried
to any taxable year ending after the date of the enactment of
this Act.
SEC. 202. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM
NONCONTROLLED SECTION 902 CORPORATIONS.
(a) In General.--Section 904(d)(4) (relating to look-thru
rules apply to dividends from noncontrolled section 902
corporations) is amended to read as follows:
``(4) Look-thru applies to dividends from noncontrolled
section 902 corporations.--
``(A) In general.--For purposes of this subsection, any
dividend from a noncontrolled section 902 corporation with
respect to the taxpayer shall be treated as income described
in a subparagraph of paragraph (1) in proportion to the ratio
of--
``(i) the portion of earnings and profits attributable to
income described in such subparagraph, to
``(ii) the total amount of earnings and profits.
``(B) Earnings and profits of controlled foreign
corporations.--In the case of any distribution from a
controlled foreign corporation to a United States
shareholder, rules similar to the rules of subparagraph (A)
shall apply in determining the extent to which earnings and
profits of the controlled foreign corporation which are
attributable to dividends received from a noncontrolled
section 902 corporation may be treated as income in a
separate category.
``(C) Special rules.--For purposes of this paragraph--
``(i) Earnings and profits.--
``(I) In general.--The rules of section 316 shall apply.
[[Page S2881]]
``(II) Regulations.--The Secretary may prescribe
regulations regarding the treatment of distributions out of
earnings and profits for periods before the taxpayer's
acquisition of the stock to which the distributions relate.
``(ii) Inadequate substantiation.--If the Secretary
determines that the proper subparagraph of paragraph (1) in
which a dividend is described has not been substantiated,
such dividend shall be treated as income described in
paragraph (1)(A).
``(iii) Coordination with high-taxed income provisions.--
Rules similar to the rules of paragraph (3)(F) shall apply
for purposes of this paragraph.
``(iv) Look-thru with respect to carryover of credit.--
Rules similar to subparagraph (A) also shall apply to any
carryforward under subsection (c) from a taxable year
beginning before January 1, 2003, of tax allocable to a
dividend from a noncontrolled section 902 corporation with
respect to the taxpayer. The Secretary may by regulations
provide for the allocation of any carryback of tax allocable
to a dividend from a noncontrolled section 902 corporation to
such a taxable year for purposes of allocating such dividend
among the separate categories in effect for such taxable
year.''.
(b) Conforming Amendments.--
(1) Subparagraph (E) of section 904(d)(1) is hereby
repealed.
(2) Section 904(d)(2)(C)(iii) is amended by adding ``and''
at the end of subclause (I), by striking subclause (II), and
by redesignating subclause (III) as subclause (II).
(3) The last sentence of section 904(d)(2)(D) is amended to
read as follows: ``Such term does not include any financial
services income.''.
(4) Section 904(d)(2)(E) is amended--
(A) by inserting ``or (4)'' after ``paragraph (3)'' in
clause (i), and
(B) by striking clauses (ii) and (iv) and by redesignating
clause (iii) as clause (ii).
(5) Section 904(d)(3)(F) is amended by striking ``(D), or
(E)'' and inserting ``or (D)''.
(6) Section 864(d)(5)(A)(i) is amended by striking
``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2002.
SEC. 203. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.
(a) In General.--
(1) Subsection (a) of section 59 is amended by striking
paragraph (2) and by redesignating paragraphs (3) and (4) as
paragraphs (2) and (3), respectively.
(2) Section 53(d)(1)(B)(i)(II) is amended by striking ``and
if section 59(a)(2) did not apply''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2004.
SEC. 204. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.
(a) General Rule.--Section 904 is amended by redesignating
subsections (g), (h), (i), (j), and (k) as subsections (h),
(i), (j), (k), and (l) respectively, and by inserting after
subsection (f) the following new subsection:
``(g) Recharacterization of Overall Domestic Loss.--
``(1) General rule.--For purposes of this subpart and
section 936, in the case of any taxpayer who sustains an
overall domestic loss for any taxable year beginning after
December 31, 2006, that portion of the taxpayer's taxable
income from sources within the United States for each
succeeding taxable year which is equal to the lesser of--
``(A) the amount of such loss (to the extent not used under
this paragraph in prior taxable years), or
``(B) 50 percent of the taxpayer's taxable income from
sources within the United States for such succeeding taxable
year,
shall be treated as income from sources without the United
States (and not as income from sources within the United
States).
``(2) Overall domestic loss defined.--For purposes of this
subsection--
``(A) In general.--The term `overall domestic loss' means
any domestic loss to the extent such loss offsets taxable
income from sources without the United States for the taxable
year or for any preceding taxable year by reason of a
carryback. For purposes of the preceding sentence, the term
`domestic loss' means the amount by which the gross income
for the taxable year from sources within the United States is
exceeded by the sum of the deductions properly apportioned or
allocated thereto (determined without regard to any carryback
from a subsequent taxable year).
``(B) Taxpayer must have elected foreign tax credit for
year of loss.--The term `overall domestic loss' shall not
include any loss for any taxable year unless the taxpayer
chose the benefits of this subpart for such taxable year.
``(3) Characterization of subsequent income.--
``(A) In general.--Any income from sources within the
United States that is treated as income from sources without
the United States under paragraph (1) shall be allocated
among and increase the income categories in proportion to the
loss from sources within the United States previously
allocated to those income categories.
``(B) Income category.--For purposes of this paragraph, the
term `income category' has the meaning given such term by
subsection (f)(5)(E)(i).
``(4) Coordination with subsection (f).--The Secretary
shall prescribe such regulations as may be necessary to
coordinate the provisions of this subsection with the
provisions of subsection (f).''.
(b) Conforming Amendments.--
(1) Section 535(d)(2) is amended by striking ``section
904(g)(6)'' and inserting ``section 904(h)(6)''.
(2) Subparagraph (A) of section 936(a)(2) is amended by
striking ``section 904(f)'' and inserting ``subsections (f)
and (g) of section 904''.
(c) Effective Date.--The amendments made by this section
shall apply to losses for taxable years beginning after
December 31, 2006.
SEC. 205. INTEREST EXPENSE ALLOCATION RULES.
(a) Election To Allocate on Worldwide Basis.--Section 864
is amended by redesignating subsection (f) as subsection (g)
and by inserting after subsection (e) the following new
subsection:
``(f) Election To Allocate Interest, etc. on Worldwide
Basis.--For purposes of this subchapter, at the election of
the worldwide affiliated group--
``(1) Allocation and apportionment of interest expense.--
``(A) In general.--The taxable income of each domestic
corporation which is a member of a worldwide affiliated group
shall be determined by allocating and apportioning interest
expense of each member as if all members of such group were a
single corporation.
``(B) Treatment of worldwide affiliated group.--The taxable
income of the domestic members of a worldwide affiliated
group from sources outside the United States shall be
determined by allocating and apportioning the interest
expense of such domestic members to such income in an amount
equal to the excess (if any) of--
``(i) the total interest expense of the worldwide
affiliated group multiplied by the ratio which the foreign
assets of the worldwide affiliated group bears to all the
assets of the worldwide affiliated group, over
``(ii) the interest expense of all foreign corporations
which are members of the worldwide affiliated group to the
extent such interest expense of such foreign corporations
would have been allocated and apportioned to foreign source
income if this subsection were applied to a group consisting
of all the foreign corporations in such worldwide affiliated
group.
``(C) Worldwide affiliated group.--For purposes of this
paragraph, the term `worldwide affiliated group' means a
group consisting of--
``(i) the includible members of an affiliated group (as
defined in section 1504(a), determined without regard to
paragraphs (2) and (4) of section 1504(b)), and
``(ii) all controlled foreign corporations in which such
members in the aggregate meet the ownership requirements of
section 1504(a)(2) either directly or indirectly through
applying paragraph (2) of section 958(a) or through applying
rules similar to the rules of such paragraph to stock owned
directly or indirectly by domestic partnerships, trusts, or
estates.
``(2) Allocation and apportionment of other expenses.--
Expenses other than interest which are not directly allocable
or apportioned to any specific income producing activity
shall be allocated and apportioned as if all members of the
affiliated group were a single corporation. For purposes of
the preceding sentence, the term `affiliated group' has the
meaning given such term by section 1504 (determined without
regard to paragraph (4) of section 1504(b)).
``(3) Treatment of tax-exempt assets; basis of stock in
nonaffiliated 10-percent owned corporations.--The rules of
paragraphs (3) and (4) of subsection (e) shall apply for
purposes of this subsection, except that paragraph (4) shall
be applied on a worldwide affiliated group basis.
``(4) Treatment of certain financial institutions.--
``(A) In general.--For purposes of paragraph (1), any
corporation described in subparagraph (B) shall be treated as
an includible corporation for purposes of section 1504 only
for purposes of applying this subsection separately to
corporations so described.
``(B) Description.--A corporation is described in this
subparagraph if--
``(i) such corporation is a financial institution described
in section 581 or 591,
``(ii) the business of such financial institution is
predominantly with persons other than related persons (within
the meaning of subsection (d)(4)) or their customers, and
``(iii) such financial institution is required by State or
Federal law to be operated separately from any other entity
which is not such an institution.
``(C) Treatment of bank and financial holding companies.--
To the extent provided in regulations--
``(i) a bank holding company (within the meaning of section
2(a) of the Bank Holding Company Act of 1956 (12 U.S.C.
1841(a)),
``(ii) a financial holding company (within the meaning of
section 2(p) of the Bank Holding Company Act of 1956 (12
U.S.C. 1841(p)), and
``(iii) any subsidiary of a financial institution described
in section 581 or 591, or of any such bank or financial
holding company, if such subsidiary is predominantly engaged
(directly or indirectly) in the active conduct of a banking,
financing, or similar business,
shall be treated as a corporation described in subparagraph
(B).
[[Page S2882]]
``(5) Election to expand financial institution group of
worldwide group.--
``(A) In general.--If a worldwide affiliated group elects
the application of this subsection, all financial
corporations which--
``(i) are members of such worldwide affiliated group, but
``(ii) are not corporations described in paragraph (4)(B),
shall be treated as described in paragraph (4)(B) for
purposes of applying paragraph (4)(A). This subsection (other
than this paragraph) shall apply to any such group in the
same manner as this subsection (other than this paragraph)
applies to the pre-election worldwide affiliated group of
which such group is a part.
``(B) Financial corporation.--For purposes of this
paragraph, the term `financial corporation' means any
corporation if at least 80 percent of its gross income is
income described in section 904(d)(2)(C)(ii) and the
regulations thereunder which is derived from transactions
with persons who are not related (within the meaning of
section 267(b) or 707(b)(1)) to the corporation. For purposes
of the preceding sentence, there shall be disregarded any
item of income or gain from a transaction or series of
transactions a principal purpose of which is the
qualification of any corporation as a financial corporation.
``(C) Antiabuse rules.--In the case of a corporation which
is a member of an electing financial institution group, to
the extent that such corporation--
``(i) distributes dividends or makes other distributions
with respect to its stock after the date of the enactment of
this paragraph to any member of the pre-election worldwide
affiliated group (other than to a member of the electing
financial institution group) in excess of the greater of--
``(I) its average annual dividend (expressed as a
percentage of current earnings and profits) during the 5-
taxable-year period ending with the taxable year preceding
the taxable year, or
``(II) 25 percent of its average annual earnings and
profits for such 5-taxable-year period, or
``(ii) deals with any person in any manner not clearly
reflecting the income of the corporation (as determined under
principles similar to the principles of section 482),
an amount of indebtedness of the electing financial
institution group equal to the excess distribution or the
understatement or overstatement of income, as the case may
be, shall be recharacterized (for the taxable year and
subsequent taxable years) for purposes of this paragraph as
indebtedness of the worldwide affiliated group (excluding the
electing financial institution group). If a corporation has
not been in existence for 5 taxable years, this subparagraph
shall be applied with respect to the period it was in
existence.
``(D) Election.--An election under this paragraph with
respect to any financial institution group may be made only
by the common parent of the pre-election worldwide affiliated
group and may be made only for the first taxable year
beginning after December 31, 2008, in which such affiliated
group includes 1 or more financial corporations. Such an
election, once made, shall apply to all financial
corporations which are members of the electing financial
institution group for such taxable year and all subsequent
years unless revoked with the consent of the Secretary.
``(E) Definitions relating to groups.--For purposes of this
paragraph--
``(i) Pre-election worldwide affiliated group.--The term
`pre-election worldwide affiliated group' means, with respect
to a corporation, the worldwide affiliated group of which
such corporation would (but for an election under this
paragraph) be a member for purposes of applying paragraph
(1).
``(ii) Electing financial institution group.--The term
`electing financial institution group' means the group of
corporations to which this subsection applies separately by
reason of the application of paragraph (4)(A) and which
includes financial corporations by reason of an election
under subparagraph (A).
``(F) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out this
subsection, including regulations--
``(i) providing for the direct allocation of interest
expense in other circumstances where such allocation would be
appropriate to carry out the purposes of this subsection,
``(ii) preventing assets or interest expense from being
taken into account more than once, and
``(iii) dealing with changes in members of any group
(through acquisitions or otherwise) treated under this
paragraph as an affiliated group for purposes of this
subsection.
``(6) Election.--An election to have this subsection apply
with respect to any worldwide affiliated group may be made
only by the common parent of the domestic affiliated group
referred to in paragraph (1)(C) and may be made only for the
first taxable year beginning after December 31, 2008, in
which a worldwide affiliated group exists which includes such
affiliated group and at least 1 foreign corporation. Such an
election, once made, shall apply to such common parent and
all other corporations which are members of such worldwide
affiliated group for such taxable year and all subsequent
years unless revoked with the consent of the Secretary.''.
(b) Expansion of Regulatory Authority.--Paragraph (7) of
section 864(e) is amended--
(1) by inserting before the comma at the end of
subparagraph (B) ``and in other circumstances where such
allocation would be appropriate to carry out the purposes of
this subsection'', and
(2) by striking ``and'' at the end of subparagraph (E), by
redesignating subparagraph (F) as subparagraph (G), and by
inserting after subparagraph (E) the following new
subparagraph:
``(F) preventing assets or interest expense from being
taken into account more than once, and''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2008.
SEC. 206. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY
INCOME WITH RESPECT TO TRANSACTIONS IN
COMMODITIES.
(a) In General.--Clauses (i) and (ii) of section
954(c)(1)(C) (relating to commodity transactions) are amended
to read as follows:
``(i) arise out of commodity hedging transactions (as
defined in paragraph (4)(A)),
``(ii) are active business gains or losses from the sale of
commodities, but only if substantially all of the controlled
foreign corporation's commodities are property described in
paragraph (1), (2), or (8) of section 1221(a), or''.
(b) Definition and Special Rules.--Subsection (c) of
section 954 is amended by adding after paragraph (3) the
following new paragraph:
``(4) Definition and special rules relating to commodity
transactions.--
``(A) Commodity hedging transactions.--For purposes of
paragraph (1)(C)(i), the term `commodity hedging transaction'
means any transaction with respect to a commodity if such
transaction--
``(i) is a hedging transaction as defined in section
1221(b)(2), determined--
``(I) without regard to subparagraph (A)(ii) thereof,
``(II) by applying subparagraph (A)(i) thereof by
substituting `ordinary property or property described in
section 1231(b)' for `ordinary property', and
``(III) by substituting `controlled foreign corporation'
for `taxpayer' each place it appears, and
``(ii) is clearly identified as such in accordance with
section 1221(a)(7).
``(B) Treatment of dealer activities under paragraph
(1)(C).--Commodities with respect to which gains and losses
are not taken into account under paragraph (2)(C) in
computing a controlled foreign corporation's foreign personal
holding company income shall not be taken into account in
applying the substantially all test under paragraph
(1)(C)(ii) to such corporation.
``(C) Regulations.--The Secretary shall prescribe such
regulations as are appropriate to carry out the purposes of
paragraph (1)(C) in the case of transactions involving
related parties.''.
(c) Modification of Exception for Dealers.--Clause (i) of
section 954(c)(2)(C) is amended by inserting ``and
transactions involving physical settlement'' after
``(including hedging transactions''.
(d) Effective Date.--The amendments made by this section
shall apply to transactions entered into after December 31,
2004.
Subtitle B--International Tax Simplification
SEC. 211. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES
AND FOREIGN INVESTMENT COMPANY RULES.
(a) General Rule.--The following provisions are hereby
repealed:
(1) Part III of subchapter G of chapter 1 (relating to
foreign personal holding companies).
(2) Section 1246 (relating to gain on foreign investment
company stock).
(3) Section 1247 (relating to election by foreign
investment companies to distribute income currently).
(b) Exemption of Foreign Corporations From Personal Holding
Company Rules.--
(1) In general.--Subsection (c) of section 542 (relating to
exceptions) is amended--
(A) by striking paragraph (5) and inserting the following:
``(5) a foreign corporation,'',
(B) by striking paragraphs (7) and (10) and by
redesignating paragraphs (8) and (9) as paragraphs (7) and
(8), respectively,
(C) by inserting ``and'' at the end of paragraph (7) (as so
redesignated), and
(D) by striking ``; and'' at the end of paragraph (8) (as
so redesignated) and inserting a period.
(2) Treatment of income from personal service contracts.--
Paragraph (1) of section 954(c) is amended by adding at the
end the following new subparagraph:
``(I) Personal service contracts.--
``(i) Amounts received under a contract under which the
corporation is to furnish personal services if--
``(I) some person other than the corporation has the right
to designate (by name or by description) the individual who
is to perform the services, or
``(II) the individual who is to perform the services is
designated (by name or by description) in the contract, and
``(ii) amounts received from the sale or other disposition
of such a contract.
This subparagraph shall apply with respect to amounts
received for services under a particular contract only if at
some time during the taxable year 25 percent or more in value
of the outstanding stock of the corporation is owned,
directly or indirectly, by or for the individual who has
performed, is to perform, or may be designated (by name or by
description) as the one to perform, such services.''.
[[Page S2883]]
(c) Conforming Amendments.--
(1) Section 1(h) is amended--
(A) in paragraph (10), by inserting ``and'' at the end of
subparagraph (F), by striking subparagraph (G), and by
redesignating subparagraph (H) as subparagraph (G), and
(B) by striking ``a foreign personal holding company (as
defined in section 552), a foreign investment company (as
defined in section 1246(b)), or'' in paragraph (11)(C)(iii).
(2) Section 163(e)(3)(B), as amended by this Act, is
amended by striking ``which is a foreign personal holding
company (as defined in section 552), a controlled foreign
corporation (as defined in section 957), or'' and inserting
``which is a controlled foreign corporation (as defined in
section 957) or''.
(3) Paragraph (2) of section 171(c) is amended--
(A) by striking ``, or by a foreign personal holding
company, as defined in section 552'', and
(B) by striking ``, or foreign personal holding company''.
(4) Paragraph (2) of section 245(a) is amended by striking
``foreign personal holding company or''.
(5) Section 267(a)(3)(B), as amended by this Act, is
amended by striking ``to a foreign personal holding company
(as defined in section 552), a controlled foreign corporation
(as defined in section 957), or'' and inserting ``to a
controlled foreign corporation (as defined in section 957)
or''.
(6) Section 312 is amended by striking subsection (j).
(7) Subsection (m) of section 312 is amended by striking
``, a foreign investment company (within the meaning of
section 1246(b)), or a foreign personal holding company
(within the meaning of section 552)''.
(8) Subsection (e) of section 443 is amended by striking
paragraph (3) and by redesignating paragraphs (4) and (5) as
paragraphs (3) and (4), respectively.
(9) Subparagraph (B) of section 465(c)(7) is amended by
adding ``or'' at the end of clause (i), by striking clause
(ii), and by redesignating clause (iii) as clause (ii).
(10) Paragraph (1) of section 543(b) is amended by
inserting ``and'' at the end of subparagraph (A), by striking
``, and'' at the end of subparagraph (B) and inserting a
period, and by striking subparagraph (C).
(11) Paragraph (1) of section 562(b) is amended by striking
``or a foreign personal holding company described in section
552''.
(12) Section 563 is amended--
(A) by striking subsection (c),
(B) by redesignating subsection (d) as subsection (c), and
(C) by striking ``subsection (a), (b), or (c)'' in
subsection (c) (as so redesignated) and inserting
``subsection (a) or (b)''.
(13) Subsection (d) of section 751 is amended by adding
``and'' at the end of paragraph (2), by striking paragraph
(3), by redesignating paragraph (4) as paragraph (3), and by
striking ``paragraph (1), (2), or (3)'' in paragraph (3) (as
so redesignated) and inserting ``paragraph (1) or (2)''.
(14) Paragraph (2) of section 864(d) is amended by striking
subparagraph (A) and by redesignating subparagraphs (B) and
(C) as subparagraphs (A) and (B), respectively.
(15)(A) Subparagraph (A) of section 898(b)(1) is amended to
read as follows:
``(A) which is treated as a controlled foreign corporation
for any purpose under subpart F of part III of this
subchapter, and''.
(B) Subparagraph (B) of section 898(b)(2) is amended by
striking ``and sections 551(f) and 554, whichever are
applicable,''.
(C) Paragraph (3) of section 898(b) is amended to read as
follows:
``(3) United states shareholder.--The term `United States
shareholder' has the meaning given to such term by section
951(b), except that, in the case of a foreign corporation
having related person insurance income (as defined in section
953(c)(2)), the Secretary may treat any person as a United
States shareholder for purposes of this section if such
person is treated as a United States shareholder under
section 953(c)(1).''.
(D) Subsection (c) of section 898 is amended to read as
follows:
``(c) Determination of Required Year.--
``(1) In general.--The required year is--
``(A) the majority U.S. shareholder year, or
``(B) if there is no majority U.S. shareholder year, the
taxable year prescribed under regulations.
``(2) 1-month deferral allowed.--A specified foreign
corporation may elect, in lieu of the taxable year under
paragraph (1)(A), a taxable year beginning 1 month earlier
than the majority U.S. shareholder year.
``(3) Majority u.s. shareholder year.--
``(A) In general.--For purposes of this subsection, the
term `majority U.S. shareholder year' means the taxable year
(if any) which, on each testing day, constituted the taxable
year of--
``(i) each United States shareholder described in
subsection (b)(2)(A), and
``(ii) each United States shareholder not described in
clause (i) whose stock was treated as owned under subsection
(b)(2)(B) by any shareholder described in such clause.
``(B) Testing day.--The testing days shall be--
``(i) the first day of the corporation's taxable year
(determined without regard to this section), or
``(ii) the days during such representative period as the
Secretary may prescribe.''.
(16) Clause (ii) of section 904(d)(2)(A) is amended to read
as follows:
``(ii) Certain amounts included.--Except as provided in
clause (iii), the term `passive income' includes, except as
provided in subparagraph (E)(iii) or paragraph (3)(I), any
amount includible in gross income under section 1293
(relating to certain passive foreign investment
companies).''.
(17)(A) Subparagraph (A) of section 904(g)(1), as
redesignated by section 204, is amended by adding ``or'' at
the end of clause (i), by striking clause (ii), and by
redesignating clause (iii) as clause (ii).
(B) The paragraph heading of paragraph (2) of section
904(g), as so redesignated, is amended by striking ``foreign
personal holding or''.
(18) Section 951 is amended by striking subsections (c) and
(d) and by redesignating subsections (e) and (f) as
subsections (c) and (d), respectively.
(19) Paragraph (3) of section 989(b) is amended by striking
``, 551(a),''.
(20) Paragraph (5) of section 1014(b) is amended by
inserting ``and before January 1, 2005,'' after ``August 26,
1937,''.
(21) Subsection (a) of section 1016 is amended by striking
paragraph (13).
(22)(A) Paragraph (3) of section 1212(a) is amended to read
as follows:
``(3) Special rules on carrybacks.--A net capital loss of a
corporation shall not be carried back under paragraph (1)(A)
to a taxable year--
``(A) for which it is a regulated investment company (as
defined in section 851), or
``(B) for which it is a real estate investment trust (as
defined in section 856).''.
(B) The amendment made by subparagraph (A) shall apply to
taxable years beginning after December 31, 2004.
(23) Section 1223 is amended by striking paragraph (10) and
by redesignating the following paragraphs accordingly.
(24) Subsection (d) of section 1248 is amended by striking
paragraph (5) and by redesignating paragraphs (6) and (7) as
paragraphs (5) and (6), respectively.
(25) Paragraph (2) of section 1260(c) is amended by
striking subparagraphs (H) and (I) and by redesignating
subparagraph (J) as subparagraph (H).
(26)(A) Subparagraph (F) of section 1291(b)(3) is amended
by striking ``551(d), 959(a),'' and inserting ``959(a)''.
(B) Subsection (e) of section 1291 is amended by inserting
``(as in effect on the day before the date of the enactment
of the Jumpstart Our Business Strength (JOBS) Act)'' after
``section 1246''.
(27) Paragraph (2) of section 1294(a) is amended to read as
follows:
``(2) Election not permitted where amounts otherwise
includible under section 951.--The taxpayer may not make an
election under paragraph (1) with respect to the
undistributed PFIC earnings tax liability attributable to a
qualified electing fund for the taxable year if any amount is
includible in the gross income of the taxpayer under section
951 with respect to such fund for such taxable year.''.
(28) Section 6035 is hereby repealed.
(29) Subparagraph (D) of section 6103(e)(1) is amended by
striking clause (iv) and redesignating clauses (v) and (vi)
as clauses (iv) and (v), respectively.
(30) Subparagraph (B) of section 6501(e)(1) is amended to
read as follows:
``(B) Constructive dividends.--If the taxpayer omits from
gross income an amount properly includible therein under
section 951(a), the tax may be assessed, or a proceeding in
court for the collection of such tax may be done without
assessing, at any time within 6 years after the return was
filed.''.
(31) Subsection (a) of section 6679 is amended--
(A) by striking ``6035, 6046, and 6046A'' in paragraph (1)
and inserting ``6046 and 6046A'', and
(B) by striking paragraph (3).
(32) Sections 170(f)(10)(A), 508(d), 4947, and 4948(c)(4)
are each amended by striking ``556(b)(2),'' each place it
appears.
(33) The table of parts for subchapter G of chapter 1 is
amended by striking the item relating to part III.
(34) The table of sections for part IV of subchapter P of
chapter 1 is amended by striking the items relating to
sections 1246 and 1247.
(35) The table of sections for subpart A of part III of
subchapter A of chapter 61 is amended by striking the item
relating to section 6035.
(d) Effective Date.--The amendments made by this section
shall apply to taxable years of foreign corporations
beginning after December 31, 2004, and to taxable years of
United States shareholders with or within which such taxable
years of foreign corporations end.
SEC. 212. EXPANSION OF DE MINIMIS RULE UNDER SUBPART F.
(a) In General.--Clause (ii) of section 954(b)(3)(A)
(relating to de minimis, etc., rules) is amended by striking
``$1,000,000'' and inserting ``$5,000,000''.
(b) Technical Amendments.--
(1) Clause (ii) of section 864(d)(5)(A) is amended by
striking ``$1,000,000'' and inserting ``$5,000,000''.
(2) Clause (i) of section 881(c)(5)(A) is amended by
striking ``$1,000,000'' and inserting ``$5,000,000''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years of foreign corporations
beginning after December 31, 2004, and to taxable years of
United States shareholders with or within which such taxable
years of foreign corporations end.
[[Page S2884]]
SEC. 213. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS
TO APPLY IN DETERMINING SECTION 902 AND 960
CREDITS.
(a) In General.--Subsection (c) of section 902 is amended
by redesignating paragraph (7) as paragraph (8) and by
inserting after paragraph (6) the following new paragraph:
``(7) Constructive ownership through partnerships.--Stock
owned, directly or indirectly, by or for a partnership shall
be considered as being owned proportionately by its partners.
Stock considered to be owned by a person by reason of the
preceding sentence shall, for purposes of applying such
sentence, be treated as actually owned by such person. The
Secretary may prescribe such regulations as may be necessary
to carry out the purposes of this paragraph, including rules
to account for special partnership allocations of dividends,
credits, and other incidents of ownership of stock in
determining proportionate ownership.''.
(b) Clarification of Comparable Attribution Under Section
901(b)(5).--Paragraph (5) of section 901(b) is amended by
striking ``any individual'' and inserting ``any person''.
(c) Effective Date.--The amendments made by this section
shall apply to taxes of foreign corporations for taxable
years of such corporations beginning after the date of the
enactment of this Act.
SEC. 214. APPLICATION OF UNIFORM CAPITALIZATION RULES TO
FOREIGN PERSONS.
(a) In General.--Section 263A(c) (relating to exceptions)
is amended by adding at the end the following new paragraph:
``(7) Foreign persons.--Except for purposes of applying
sections 871(b)(1) and 882(a)(1), this section shall not
apply to any taxpayer who is not a United States person if
such taxpayer capitalizes costs of produced property or
property acquired for resale by applying the method used to
ascertain the income, profit, or loss for purposes of reports
or statements to shareholders, partners, other proprietors,
or beneficiaries, or for credit purposes.''.
(b) Effective Date.--
(1) In general.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2004.
(2) Change in method of accounting.--In the case of any
taxpayer required by the amendment made by this section to
change its method of accounting for its first taxable year
beginning after December 31, 2004--
(A) such change shall be treated as initiated by the
taxpayer,
(B) such change shall be treated as made with the consent
of the Secretary of the Treasury, and
(C) the net amount of the adjustments required to be taken
into account by the taxpayer under section 481 of the
Internal Revenue Code of 1986 shall be taken into account in
such first year.
SEC. 215. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN
FOREIGN CORPORATIONS.
(a) In General.--Paragraph (2) of section 871(i) (relating
to tax not to apply to certain interest and dividends) is
amended by adding at the end the following new subparagraph:
``(D) Dividends paid by a foreign corporation which are
treated under section 861(a)(2)(B) as income from sources
within the United States.''.
(b) Effective Date.--The amendment made by this section
shall apply to payments made after December 31, 2004.
SEC. 216. REPEAL OF SPECIAL CAPITAL GAINS TAX ON ALIENS
PRESENT IN THE UNITED STATES FOR 183 DAYS OR
MORE.
(a) In General.--Subsection (a) of section 871 is amended
by striking paragraph (2) and by redesignating paragraph (3)
as paragraph (2).
(b) Conforming Amendment.--Section 1441(g) is amended is
amended by striking ``section 871(a)(3)'' and inserting
``section 871(a)(2)''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2003.
Subtitle C--Additional International Tax Provisions
SEC. 221. ACTIVE LEASING INCOME FROM AIRCRAFT AND VESSELS.
(a) In General.--Section 954(c)(2) is amended by adding at
the end the following new subparagraph:
``(D) Certain rents, etc.--
``(i) In general.--Foreign personal holding company income
shall not include qualified leasing income derived from or in
connection with the leasing or rental of any aircraft or
vessel.
``(ii) Qualified leasing income.--For purposes of this
subparagraph, the term `qualified leasing income' means rents
and gains derived in the active conduct of a trade or
business of leasing with respect to which the controlled
foreign corporation conducts substantial activity, but only
if--
``(I) the leased property is used by the lessee or other
end-user in foreign commerce and predominantly outside the
United States, and
``(II) the lessee or other end-user is not a related person
(as defined in subsection (d)(3)).
Any amount not treated as foreign personal holding income
under this subparagraph shall not be treated as foreign base
company shipping income.''.
(b) Conforming Amendment.--Section 954(c)(1)(B) is amended
by inserting ``or (2)(D)'' after ``paragraph (2)(A)''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years of foreign corporations
beginning after December 31, 2006, and to taxable years of
United States shareholders with or within which such taxable
years of foreign corporations end.
SEC. 222. LOOK-THRU TREATMENT OF PAYMENTS BETWEEN RELATED
CONTROLLED FOREIGN CORPORATIONS UNDER FOREIGN
PERSONAL HOLDING COMPANY INCOME RULES.
(a) In General.--Subsection (c) of section 954, as amended
by this Act, is amended by adding after paragraph (4) the
following new paragraph:
``(5) Look-thru in the case of related controlled foreign
corporations.--For purposes of this subsection, dividends,
interest, rents, and royalties received or accrued from a
controlled foreign corporation which is a related person (as
defined in subsection (b)(9)) shall not be treated as foreign
personal holding company income to the extent attributable or
properly allocable (determined under rules similar to the
rules of subparagraphs (C) and (D) of section 904(d)(3)) to
income of the related person which is not subpart F income
(as defined in section 952). For purposes of this paragraph,
interest shall include factoring income which is treated as
income equivalent to interest for purposes of paragraph
(1)(E). The Secretary shall prescribe such regulations as may
be appropriate to prevent the abuse of the purposes of this
paragraph.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years of foreign corporations
beginning after December 31, 2004, and to taxable years of
United States shareholders with or within which such taxable
years of foreign corporations end.
SEC. 223. LOOK-THRU TREATMENT FOR SALES OF PARTNERSHIP
INTERESTS.
(a) In General.--Section 954(c) (defining foreign personal
holding company income), as amended by this Act, is amended
by adding after paragraph (5) the following new paragraph:
``(6) Look-thru rule for certain partnership sales.--
``(A) In general.--In the case of any sale by a controlled
foreign corporation of an interest in a partnership with
respect to which such corporation is a 25-percent owner, such
corporation shall be treated for purposes of this subsection
as selling the proportionate share of the assets of the
partnership attributable to such interest. The Secretary
shall prescribe such regulations as may be appropriate to
prevent abuse of the purposes of this paragraph, including
regulations providing for coordination of this paragraph with
the provisions of subchapter K.
``(B) 25-percent owner.--For purposes of this paragraph,
the term `25-percent owner' means a controlled foreign
corporation which owns directly 25 percent or more of the
capital or profits interest in a partnership. For purposes of
the preceding sentence, if a controlled foreign corporation
is a shareholder or partner of a corporation or partnership,
the controlled foreign corporation shall be treated as owning
directly its proportionate share of any such capital or
profits interest held directly or indirectly by such
corporation or partnership''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years of foreign corporations
beginning after December 31, 2004, and to taxable years of
United States shareholders with or within which such taxable
years of foreign corporations end.
SEC. 224. ELECTION NOT TO USE AVERAGE EXCHANGE RATE FOR
FOREIGN TAX PAID OTHER THAN IN FUNCTIONAL
CURRENCY.
(a) In General.--Paragraph (1) of section 986(a) (relating
to determination of foreign taxes and foreign corporation's
earnings and profits) is amended by redesignating
subparagraph (D) as subparagraph (E) and by inserting after
subparagraph (C) the following new subparagraph:
``(D) Elective exception for taxes paid other than in
functional currency.--
``(i) In general.--At the election of the taxpayer,
subparagraph (A) shall not apply to any foreign income taxes
the liability for which is denominated in any currency other
than in the taxpayer's functional currency.
``(ii) Application to qualified business units.--An
election under this subparagraph may apply to foreign income
taxes attributable to a qualified business unit in accordance
with regulations prescribed by the Secretary.
``(iii) Election.--Any such election shall apply to the
taxable year for which made and all subsequent taxable years
unless revoked with the consent of the Secretary.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2004.
SEC. 225. TREATMENT OF INCOME TAX BASE DIFFERENCES.
(a) In General.--Paragraph (2) of section 904(d) is amended
by redesignating subparagraphs (H) and (I) as subparagraphs
(I) and (J), respectively, and by inserting after
subparagraph (G) the following new subparagraph:
``(H) Treatment of income tax base differences.--
``(i) In general.--A taxpayer may elect to treat tax
imposed under the law of a foreign country or possession of
the United States on an amount which does not constitute
income under United States tax principles as
[[Page S2885]]
tax imposed on income described in subparagraph (C) or (I) of
paragraph (1).
``(ii) Election irrevocable.--Any such election shall apply
to the taxable year for which made and all subsequent taxable
years unless revoked with the consent of the Secretary.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years ending after the date of the
enactment of this Act.
SEC. 226. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR
ACTIVE FINANCING.
(a) In General.--Section 954(h)(3) is amended by adding at
the end the following:
``(E) Direct conduct of activities.--For purposes of
subparagraph (A)(ii)(II), an activity shall be treated as
conducted directly by an eligible controlled foreign
corporation or qualified business unit in its home country if
the activity is performed by employees of a related person
and--
``(i) the related person is an eligible controlled foreign
corporation the home country of which is the same as the home
country of the corporation or unit to which subparagraph
(A)(ii)(II) is being applied,
``(ii) the activity is performed in the home country of the
related person, and
``(iii) the related person is compensated on an arm's-
length basis for the performance of the activity by its
employees and such compensation is treated as earned by such
person in its home country for purposes of the home country's
tax laws.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years of such foreign corporations
beginning after December 31, 2004, and to taxable years of
United States shareholders with or within which such taxable
years of such foreign corporations end.
SEC. 227. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN
ASSETS OF CONTROLLED FOREIGN CORPORATION.
(a) In General.--Section 956(c)(2) (relating to exceptions
from property treated as United States property) is amended
by striking ``and'' at the end of subparagraph (J), by
striking the period at the end of subparagraph (K) and
inserting a semicolon, and by adding at the end the following
new subparagraphs:
``(L) securities acquired and held by a controlled foreign
corporation in the ordinary course of its business as a
dealer in securities if--
``(i) the dealer accounts for the securities as securities
held primarily for sale to customers in the ordinary course
of business, and
``(ii) the dealer disposes of the securities (or such
securities mature while held by the dealer) within a period
consistent with the holding of securities for sale to
customers in the ordinary course of business; and
``(M) an obligation of a United States person which--
``(i) is not a domestic corporation, and
``(ii) is not--
``(I) a United States shareholder (as defined in section
951(b)) of the controlled foreign corporation, or
``(II) a partnership, estate, or trust in which the
controlled foreign corporation, or any related person (as
defined in section 954(d)(3)), is a partner, beneficiary, or
trustee immediately after the acquisition of any obligation
of such partnership, estate, or trust by the controlled
foreign corporation.''.
(b) Conforming Amendment.--Section 956(c)(2) is amended by
striking ``and (K)'' in the last sentence and inserting ``,
(K), and (L)''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years of foreign corporations
beginning after December 31, 2004, and to taxable years of
United States shareholders with or within which such taxable
years of foreign corporations end.
SEC. 228. PROVIDE EQUAL TREATMENT FOR INTEREST PAID BY
FOREIGN PARTNERSHIPS AND FOREIGN CORPORATIONS.
(a) In General.--Paragraph (1) of section 861(a) is amended
by striking ``and'' at the end of subparagraph (A), by
striking the period at the end of subparagraph (B) and
inserting ``, and'', and by adding at the end the following
new subparagraph:
``(C) in the case of a foreign partnership, which is
predominantly engaged in the active conduct of a trade or
business outside the United States, any interest not paid by
a trade or business engaged in by the partnership in the
United States and not allocable to income which is
effectively connected (or treated as effectively connected)
with the conduct of a trade or business in the United
States.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2003.
SEC. 229. CLARIFICATION OF TREATMENT OF CERTAIN TRANSFERS OF
INTANGIBLE PROPERTY.
(a) In General.--Subparagraph (C) of section 367(d)(2) is
amended by adding at the end the following new sentence:
``For purposes of applying section 904(d), any such amount
shall be treated in the same manner as if such amount were a
royalty.''.
(b) Effective Date.--The amendment made by this section
shall apply to amounts treated as received pursuant to
section 367(d)(2) of the Internal Revenue Code of 1986 on or
after August 5, 1997.
SEC. 230. MODIFICATION OF THE TREATMENT OF CERTAIN REIT
DISTRIBUTIONS ATTRIBUTABLE TO GAIN FROM SALES
OR EXCHANGES OF UNITED STATES REAL PROPERTY
INTERESTS.
(a) In General.--Paragraph (1) of section 897(h) (relating
to look-through of distributions) is amended by adding at the
end the following new sentence: ``Notwithstanding the
preceding sentence, any distribution by a REIT with respect
to any class of stock which is regularly traded on an
established securities market located in the United States
shall not be treated as gain recognized from the sale or
exchange of a United States real property interest if the
shareholder did not own more than 5 percent of such class of
stock at any time during the taxable year.''.
(b) Conforming Amendment.--Paragraph (3) of section 857(b)
(relating to capital gains) is amended by adding at the end
the following new subparagraph:
``(F) Certain distributions.--In the case of a shareholder
of a real estate investment trust to whom section 897 does
not apply by reason of the second sentence of section
897(h)(1), the amount which would be included in computing
long-term capital gains for such shareholder under
subparagraph (B) or (D) (without regard to this
subparagraph)--
``(i) shall not be included in computing such shareholder's
long-term capital gains, and
``(ii) shall be included in such shareholder's gross income
as a dividend from the real estate investment trust.''.
(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. 231. TOLL TAX ON EXCESS QUALIFIED FOREIGN DISTRIBUTION
AMOUNT.
(a) In General.--Subpart F of part III of subchapter N of
chapter 1 is amended by adding at the end the following new
section:
``SEC. 965. TOLL TAX IMPOSED ON EXCESS QUALIFIED FOREIGN
DISTRIBUTION AMOUNT.
``(a) Toll Tax Imposed on Excess Qualified Foreign
Distribution Amount.--If a corporation elects the application
of this section, a tax shall be imposed on the taxpayer in an
amount equal to 5.25 percent of--
``(1) the taxpayer's excess qualified foreign distribution
amount, and
``(2) the amount determined under section 78 which is
attributable to such excess qualified foreign distribution
amount.
Such tax shall be imposed in lieu of the tax imposed under
section 11 or 55 on the amounts described in paragraphs (1)
and (2) for such taxable year.
``(b) Excess Qualified Foreign Distribution Amount.--For
purposes of this section--
``(1) In general.--The term `excess qualified foreign
distribution amount' means the excess (if any) of--
``(A) the aggregate dividends received by the taxpayer
during the taxable year which are--
``(i) from 1 or more corporations which are controlled
foreign corporations in which the taxpayer is a United States
shareholder on the date such dividends are paid, and
``(ii) described in a domestic reinvestment plan which--
``(I) is approved by the taxpayer's president, chief
executive officer, or comparable official before the payment
of such dividends and subsequently approved by the taxpayer's
board of directors, management committee, executive
committee, or similar body, and
``(II) provides for the reinvestment of such dividends in
the United States (other than as payment for executive
compensation), including as a source for the funding of
worker hiring and training, infrastructure, research and
development, capital investments, or the financial
stabilization of the corporation for the purposes of job
retention or creation, over
``(B) the base dividend amount.
``(2) Base dividend amount.--The term `base dividend
amount' means an amount designated under subsection (c)(7),
but not less than the average amount of dividends received
during the fixed base period from 1 or more corporations
which are controlled foreign corporations in which the
taxpayer is a United States shareholder on the date such
dividends are paid.
``(3) Fixed base period.--
``(A) In general.--The term `fixed base period' means each
of 3 taxable years which are among the 5 most recent taxable
years of the taxpayer ending on or before December 31, 2002,
determined by disregarding--
``(i) the 1 taxable year for which the taxpayer had the
highest amount of dividends from 1 or more corporations which
are controlled foreign corporations relative to the other 4
taxable years, and
``(ii) the 1 taxable year for which the taxpayer had the
lowest amount of dividends from such corporations relative to
the other 4 taxable years.
``(B) Shorter period.--If the taxpayer has fewer than 5
taxable years ending on or before December 31, 2002, then in
lieu of applying subparagraph (A), the fixed base period
shall include all the taxable years of the taxpayer ending on
or before December 31, 2002.
``(c) Definitions and Special Rules.--For purposes of this
section--
``(1) Dividends.--The term `dividend' has the meaning given
such term by section 316, except that the term shall include
amounts described in section 951(a)(1)(B), but shall not
include amounts described in sections 78 and 959.
``(2) Controlled foreign corporations and united states
shareholders.--The term `controlled foreign corporation' has
the
[[Page S2886]]
meaning given such term by section 957(a) and the term
`United States shareholder' has the meaning given such term
by section 951(b).
``(3) Foreign tax credits.--The amount of any income, war,
profits, or excess profit taxes paid (or deemed paid under
sections 902 and 960) or accrued by the taxpayer with respect
to the excess qualified foreign distribution amount for which
a credit would be allowable under section 901 in the absence
of this section, shall be reduced by 85 percent. No deduction
shall be allowed under this chapter for the portion of any
tax for which credit is not allowable by reason of the
preceding sentence.
``(4) Foreign tax credit limitation.--For purposes of
section 904, there shall be disregarded 85 percent of--
``(A) the excess qualified foreign distribution amount,
``(B) the amount determined under section 78 which is
attributable to such excess qualified foreign distribution
amount, and
``(C) the amounts (including assets, gross income, and
other relevant bases of apportionment) which are attributable
to the excess qualified foreign distribution amount which
would, determined without regard to this section, be used to
apportion the expenses, losses, and deductions of the
taxpayer under section 861 and 864 in determining its taxable
income from sources without the United States.
For purposes of applying subparagraph (C), the principles of
section 864(e)(3)(A) shall apply.
``(5) Treatment of acquisitions and dispositions.--Rules
similar to the rules of section 41(f)(3) shall apply in the
case of acquisitions or dispositions of controlled foreign
corporations occurring on or after the first day of the
earliest taxable year taken into account in determining the
fixed base period.
``(6) Treatment of consolidated groups.--Members of an
affiliated group of corporations filing a consolidated return
under section 1501 shall be treated as a single taxpayer for
purposes of this section.
``(7) Designation of dividends.--Subject to subsection
(b)(2), the taxpayer shall designate the particular dividends
received during the taxable year from 1 or more corporations
which are controlled foreign corporations in which it is a
United States shareholder which are dividends excluded from
the excess qualified foreign distribution amount. The total
amount of such designated dividends shall equal the base
dividend amount.
``(8) Treatment of expenses, losses, and deductions.--Any
expenses, losses, or deductions of the taxpayer allowable
under subchapter B--
``(A) shall not be applied to reduce the amounts described
in subsection (a)(1), and
``(B) shall be applied to reduce other income of the
taxpayer (determined without regard to the amounts described
in subsection (a)(1)).
``(d) Election.--
``(1) In general.--An election under this section shall be
made on the taxpayer's timely filed income tax return for the
first taxable year (determined by taking extensions into
account) ending 120 days or more after the date of the
enactment of this section, and, once made, may be revoked
only with the consent of the Secretary.
``(2) All controlled foreign corporations.--The election
shall apply to all corporations which are controlled foreign
corporations in which the taxpayer is a United States
shareholder during the taxable year.
``(3) Consolidated groups.--If a taxpayer is a member of an
affiliated group of corporations filing a consolidated return
under section 1501 for the taxable year, an election under
this section shall be made by the common parent of the
affiliated group which includes the taxpayer and shall apply
to all members of the affiliated group.
``(e) Regulations.--The Secretary shall prescribe such
regulations as may be necessary and appropriate to carry out
the purposes of this section, including regulations under
section 55 and regulations addressing corporations which,
during the fixed base period or thereafter, join or leave an
affiliated group of corporations filing a consolidated
return.''.
(b) Conforming Amendment.--The table of sections for
subpart F of part III of subchapter N of chapter 1 is amended
by adding at the end the following new item:
``Sec. 965. Toll tax imposed on excess qualified foreign distribution
amount.''.
(c) Effective Date.--The amendments made by this section
shall apply only to the first taxable year of the electing
taxpayer ending 120 days or more after the date of the
enactment of this Act.
SEC. 232. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON
HORSE RACES AND DOG RACES FROM GROSS INCOME OF
NONRESIDENT ALIEN INDIVIDUALS.
(a) In General.--Subsection (b) of section 872 (relating to
exclusions) is amended by redesignating paragraphs (5), (6),
and (7) as paragraphs (6), (7), and (8), respectively, and
inserting after paragraph (4) the following new paragraph:
``(5) Income derived from wagering transactions in certain
parimutuel pools.--Gross income derived by a nonresident
alien individual from a legal wagering transaction initiated
outside the United States in a parimutuel pool with respect
to a live horse race or dog race in the United States.''.
(b) Conforming Amendment.--Section 883(a)(4) is amended by
striking ``(5), (6), and (7)'' and inserting ``(6), (7), and
(8)''.
(c) Effective Date.--The amendments made by this section
shall apply to wagers made after the date of the enactment of
this Act.
SEC. 233. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO
CORPORATIONS.
(a) In General.--Subsection (b) of section 881 is amended
by redesignating paragraph (2) as paragraph (3) and by
inserting after paragraph (1) the following new paragraph:
``(2) Commonwealth of puerto rico.--If dividends are
received during a taxable year by a corporation--
``(A) created or organized in, or under the law of, the
Commonwealth of Puerto Rico, and
``(B) with respect to which the requirements of
subparagraphs (A), (B), and (C) of paragraph (1) are met for
the taxable year,
subsection (a) shall be applied for such taxable year by
substituting `10 percent' for `30 percent'.''.
(b) Withholding.--Subsection (c) of section 1442 (relating
to withholding of tax on foreign corporations) is amended--
(1) by striking ``For purposes'' and inserting the
following:
``(1) Guam, american samoa, the northern mariana islands,
and the virgin islands.--For purposes'', and
(2) by adding at the end the following new paragraph:
``(2) Commonwealth of puerto rico.--If dividends are
received during a taxable year by a corporation--
``(A) created or organized in, or under the law of, the
Commonwealth of Puerto Rico, and
``(B) with respect to which the requirements of
subparagraphs (A), (B), and (C) of section 881(b)(1) are met
for the taxable year,
subsection (a) shall be applied for such taxable year by
substituting `10 percent' for `30 percent'.''.
(b) Conforming Amendments.--
(1) Subsection (b) of section 881 is amended by striking
``Guam and Virgin Islands Corporations'' in the heading and
inserting ``Possessions''.
(2) Paragraph (1) of section 881(b) is amended by striking
``In general'' in the heading and inserting ``Guam, american
samoa, the northern mariana islands, and the virgin
islands''.
(c) Effective Date.--The amendments made by this section
shall apply to dividends paid after the date of the enactment
of this Act.
SEC. 234. REPORT ON WTO DISPUTE SETTLEMENT PANELS AND THE
APPELLATE BODY.
Not later than March 31, 2004, the Secretary of Commerce,
in consultation with the United States Trade Representative,
shall transmit a report to the Committee on Finance of the
Senate and the Committee on Ways and Means of the House of
Representatives, regarding whether dispute settlement panels
and the Appellate Body of the World Trade Organization have--
(1) added to or diminished the rights of the United States
by imposing obligations or restrictions on the use of
antidumping, countervailing, and safeguard measures not
agreed to under the Agreement on Implementation of Article VI
of the General Agreement on Tariffs and Trade of 1994, the
Agreement on Subsidies and Countervailing Measures, and the
Agreement on Safeguards;
(2) appropriately applied the standard of review contained
in Article 17.6 of the Agreement on Implementation of Article
VI of the General Agreement on Tariffs and Trade of 1994; or
(3) exceeded their authority or terms of reference under
the Agreements referred to in paragraph (1).
SEC. 235. STUDY OF IMPACT OF INTERNATIONAL TAX LAWS ON
TAXPAYERS OTHER THAN LARGE CORPORATIONS.
(a) Study.--The Secretary of the Treasury or the
Secretary's delegate shall conduct a study of the impact of
Federal international tax rules on taxpayers other than large
corporations, including the burdens placed on such taxpayers
in complying with such rules.
(b) Report.--Not later than 180 days after the date of the
enactment of this Act, the Secretary shall report to the
Committee on Finance of the Senate and the Committee on Ways
and Means of the House of Representatives the results of the
study conducted under subsection (a), including any
recommendations for legislative or administrative changes to
reduce the compliance burden on taxpayers other than large
corporations and for such other purposes as the Secretary
determines appropriate.
TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS
Subtitle A--General Provisions
SEC. 301. EXPANSION OF QUALIFIED SMALL-ISSUE BOND PROGRAM.
(a) In General.--Subparagraph (F) of section 144(a)(4)
(relating to $10,000,000 limit in certain cases) is amended
to read as follows:
``(F) Additional capital expenditures not taken into
account.--With respect to any issue, in addition to any
capital expenditure described in subparagraph (C), capital
expenditures of not to exceed $10,000,000 shall not be taken
into account for purposes of applying subparagraph
(A)(ii).''.
(b) Effective Date.--The amendment made by this section
shall apply to bonds issued after the date of the enactment
of this Act.
[[Page S2887]]
SEC. 302. EXPENSING OF BROADBAND INTERNET ACCESS
EXPENDITURES.
(a) In General.--Part VI of subchapter B of chapter 1
(relating to itemized deductions for individuals and
corporations) is amended by inserting after section 190 the
following new section:
``SEC. 191. BROADBAND EXPENDITURES.
``(a) Treatment of Expenditures.--
``(1) In general.--A taxpayer may elect to treat any
qualified broadband expenditure which is paid or incurred by
the taxpayer as an expense which is not chargeable to capital
account. Any expenditure which is so treated shall be allowed
as a deduction.
``(2) Election.--An election under paragraph (1) shall be
made at such time and in such manner as the Secretary may
prescribe by regulation.
``(b) Qualified Broadband Expenditures.--For purposes of
this section--
``(1) In general.--The term `qualified broadband
expenditure' means, with respect to any taxable year, any
direct or indirect costs incurred during 2004 and properly
taken into account for such taxable year with respect to--
``(A) the purchase or installation of qualified equipment
(including any upgrades thereto), and
``(B) the connection of such qualified equipment to any
qualified subscriber.
``(2) Certain satellite expenditures excluded.--Such term
shall not include any costs incurred with respect to the
launching of any satellite equipment.
``(3) Leased equipment.--Such term shall include so much of
the purchase price paid by the lessor of qualified equipment
subject to a lease described in subsection (c)(2)(B) as is
attributable to expenditures incurred by the lessee which
would otherwise be described in paragraph (1).
``(c) When Expenditures Taken Into Account.--For purposes
of this section--
``(1) In general.--Qualified broadband expenditures with
respect to qualified equipment shall be taken into account
with respect to the first taxable year in which--
``(A) current generation broadband services are provided
through such equipment to qualified subscribers, or
``(B) next generation broadband services are provided
through such equipment to qualified subscribers.
``(2) Limitation.--
``(A) In general.--Qualified expenditures shall be taken
into account under paragraph (1) only with respect to
qualified equipment--
``(i) the original use of which commences with the
taxpayer, and
``(ii) which is placed in service, after December 31, 2003.
``(B) Sale-leasebacks.--For purposes of subparagraph (A),
if property--
``(i) is originally placed in service after December 31,
2003, by any person, and
``(ii) sold and leased back by such person within 3 months
after the date such property was originally placed in
service,
such property shall be treated as originally placed in
service not earlier than the date on which such property is
used under the leaseback referred to in clause (ii).
``(d) Special Allocation Rules.--
``(1) Current generation broadband services.--For purposes
of determining the amount of qualified broadband expenditures
under subsection (a)(1) with respect to qualified equipment
through which current generation broadband services are
provided, if the qualified equipment is capable of serving
both qualified subscribers and other subscribers, the
qualified broadband expenditures shall be multiplied by a
fraction--
``(A) the numerator of which is the sum of the number of
potential qualified subscribers within the rural areas and
the underserved areas which the equipment is capable of
serving with current generation broadband services, and
``(B) the denominator of which is the total potential
subscriber population of the area which the equipment is
capable of serving with current generation broadband
services.
``(2) Next generation broadband services.--For purposes of
determining the amount of qualified broadband expenditures
under subsection (a)(1) with respect to qualified equipment
through which next generation broadband services are
provided, if the qualified equipment is capable of serving
both qualified subscribers and other subscribers, the
qualified expenditures shall be multiplied by a fraction--
``(A) the numerator of which is the sum of--
``(i) the number of potential qualified subscribers within
the rural areas and underserved areas, plus
``(ii) the number of potential qualified subscribers within
the area consisting only of residential subscribers not
described in clause (i),
which the equipment is capable of serving with next
generation broadband services, and
``(B) the denominator of which is the total potential
subscriber population of the area which the equipment is
capable of serving with next generation broadband services.
``(e) Definitions.--For purposes of this section--
``(1) Antenna.--The term `antenna' means any device used to
transmit or receive signals through the electromagnetic
spectrum, including satellite equipment.
``(2) Cable operator.--The term `cable operator' has the
meaning given such term by section 602(5) of the
Communications Act of 1934 (47 U.S.C. 522(5)).
``(3) Commercial mobile service carrier.--The term
`commercial mobile service carrier' means any person
authorized to provide commercial mobile radio service as
defined in section 20.3 of title 47, Code of Federal
Regulations.
``(4) Current generation broadband service.--The term
`current generation broadband service' means the transmission
of signals at a rate of at least 1,000,000 bits per second to
the subscriber and at least 128,000 bits per second from the
subscriber.
``(5) Multiplexing or demultiplexing.--The term
`multiplexing' means the transmission of 2 or more signals
over a single channel, and the term `demultiplexing' means
the separation of 2 or more signals previously combined by
compatible multiplexing equipment.
``(6) Next generation broadband service.--The term `next
generation broadband service' means the transmission of
signals at a rate of at least 22,000,000 bits per second to
the subscriber and at least 5,000,000 bits per second from
the subscriber.
``(7) Nonresidential subscriber.--The term `nonresidential
subscriber' means any person who purchases broadband services
which are delivered to the permanent place of business of
such person.
``(8) Open video system operator.--The term `open video
system operator' means any person authorized to provide
service under section 653 of the Communications Act of 1934
(47 U.S.C. 573).
``(9) Other wireless carrier.--The term `other wireless
carrier' means any person (other than a telecommunications
carrier, commercial mobile service carrier, cable operator,
open video system operator, or satellite carrier) providing
current generation broadband services or next generation
broadband service to subscribers through the radio
transmission of energy.
``(10) Packet switching.--The term `packet switching' means
controlling or routing the path of any digitized transmission
signal which is assembled into packets or cells.
``(11) Provider.--The term `provider' means, with respect
to any qualified equipment--
``(A) a cable operator,
``(B) a commercial mobile service carrier,
``(C) an open video system operator,
``(D) a satellite carrier,
``(E) a telecommunications carrier, or
``(F) any other wireless carrier,
providing current generation broadband services or next
generation broadband services to subscribers through such
qualified equipment.
``(12) Provision of services.--A provider shall be treated
as providing services to 1 or more subscribers if--
``(A) such a subscriber has been passed by the provider's
equipment and can be connected to such equipment for a
standard connection fee,
``(B) the provider is physically able to deliver current
generation broadband services or next generation broadband
services, as applicable, to such a subscriber without making
more than an insignificant investment with respect to such
subscriber,
``(C) the provider has made reasonable efforts to make such
subscribers aware of the availability of such services,
``(D) such services have been purchased by 1 or more such
subscribers, and
``(E) such services are made available to such subscribers
at average prices comparable to those at which the provider
makes available similar services in any areas in which the
provider makes available such services.
``(13) Qualified equipment.--
``(A) In general.--The term `qualified equipment' means
equipment which provides current generation broadband
services or next generation broadband services--
``(i) at least a majority of the time during periods of
maximum demand to each subscriber who is utilizing such
services, and
``(ii) in a manner substantially the same as such services
are provided by the provider to subscribers through equipment
with respect to which no deduction is allowed under
subsection (a)(1).
``(B) Only certain investment taken into account.--Except
as provided in subparagraph (C) or (D), equipment shall be
taken into account under subparagraph (A) only to the extent
it--
``(i) extends from the last point of switching to the
outside of the unit, building, dwelling, or office owned or
leased by a subscriber in the case of a telecommunications
carrier,
``(ii) extends from the customer side of the mobile
telephone switching office to a transmission/receive antenna
(including such antenna) owned or leased by a subscriber in
the case of a commercial mobile service carrier,
``(iii) extends from the customer side of the headend to
the outside of the unit, building, dwelling, or office owned
or leased by a subscriber in the case of a cable operator or
open video system operator, or
``(iv) extends from a transmission/receive antenna
(including such antenna) which transmits and receives signals
to or from multiple subscribers, to a transmission/receive
antenna (including such antenna) on the outside of the unit,
building, dwelling, or office owned or leased by a subscriber
in the case of a satellite carrier or other wireless carrier,
unless such other wireless carrier is also a
telecommunications carrier.
[[Page S2888]]
``(C) Packet switching equipment.--Packet switching
equipment, regardless of location, shall be taken into
account under subparagraph (A) only if it is deployed in
connection with equipment described in subparagraph (B) and
is uniquely designed to perform the function of packet
switching for current generation broadband services or next
generation broadband services, but only if such packet
switching is the last in a series of such functions performed
in the transmission of a signal to a subscriber or the first
in a series of such functions performed in the transmission
of a signal from a subscriber.
``(D) Multiplexing and demultiplexing equipment.--
Multiplexing and demultiplexing equipment shall be taken into
account under subparagraph (A) only to the extent it is
deployed in connection with equipment described in
subparagraph (B) and is uniquely designed to perform the
function of multiplexing and demultiplexing packets or cells
of data and making associated application adaptions, but only
if such multiplexing or demultiplexing equipment is located
between packet switching equipment described in subparagraph
(C) and the subscriber's premises.
``(14) Qualified subscriber.--The term `qualified
subscriber' means--
``(A) with respect to the provision of current generation
broadband services--
``(i) any nonresidential subscriber maintaining a permanent
place of business in a rural area or underserved area, or
``(ii) any residential subscriber residing in a dwelling
located in a rural area or underserved area which is not a
saturated market, and
``(B) with respect to the provision of next generation
broadband services--
``(i) any nonresidential subscriber maintaining a permanent
place of business in a rural area or underserved area, or
``(ii) any residential subscriber.
``(15) Residential subscriber.--The term `residential
subscriber' means any individual who purchases broadband
services which are delivered to such individual's dwelling.
``(16) Rural area.--The term `rural area' means any census
tract which--
``(A) is not within 10 miles of any incorporated or census
designated place containing more than 25,000 people, and
``(B) is not within a county or county equivalent which has
an overall population density of more than 500 people per
square mile of land.
``(17) Rural subscriber.--The term `rural subscriber' means
any residential subscriber residing in a dwelling located in
a rural area or nonresidential subscriber maintaining a
permanent place of business located in a rural area.
``(18) Satellite carrier.--The term `satellite carrier'
means any person using the facilities of a satellite or
satellite service licensed by the Federal Communications
Commission and operating in the Fixed-Satellite Service under
part 25 of title 47 of the Code of Federal Regulations or the
Direct Broadcast Satellite Service under part 100 of title 47
of such Code to establish and operate a channel of
communications for distribution of signals, and owning or
leasing a capacity or service on a satellite in order to
provide such point-to-multipoint distribution.
``(19) Saturated market.--The term `saturated market' means
any census tract in which, as of the date of the enactment of
this section--
``(A) current generation broadband services have been
provided by a single provider to 85 percent or more of the
total number of potential residential subscribers residing in
dwellings located within such census tract, and
``(B) such services can be utilized--
``(i) at least a majority of the time during periods of
maximum demand by each such subscriber who is utilizing such
services, and
``(ii) in a manner substantially the same as such services
are provided by the provider to subscribers through equipment
with respect to which no deduction is allowed under
subsection (a)(1).
``(20) Subscriber.--The term `subscriber' means any person
who purchases current generation broadband services or next
generation broadband services.
``(21) Telecommunications carrier.--The term
`telecommunications carrier' has the meaning given such term
by section 3(44) of the Communications Act of 1934 (47 U.S.C.
153(44)), but--
``(A) includes all members of an affiliated group of which
a telecommunications carrier is a member, and
``(B) does not include a commercial mobile service carrier.
``(22) Total potential subscriber population.--The term
`total potential subscriber population' means, with respect
to any area and based on the most recent census data, the
total number of potential residential subscribers residing in
dwellings located in such area and potential nonresidential
subscribers maintaining permanent places of business located
in such area.
``(23) Underserved area.--The term `underserved area'
means--
``(A) any census tract which is located in--
``(i) an empowerment zone or enterprise community
designated under section 1391, or
``(ii) the District of Columbia Enterprise Zone established
under section 1400, or
``(B) any census tract--
``(i) the poverty level of which is at least 30 percent
(based on the most recent census data), and
``(ii) the median family income of which does not exceed--
``(I) in the case of a census tract located in a
metropolitan statistical area, 70 percent of the greater of
the metropolitan area median family income or the statewide
median family income, and
``(II) in the case of a census tract located in a
nonmetropolitan statistical area, 70 percent of the
nonmetropolitan statewide median family income.
``(24) Underserved subscriber.--The term `underserved
subscriber' means any residential subscriber residing in a
dwelling located in an underserved area or nonresidential
subscriber maintaining a permanent place of business located
in an underserved area.
``(f) Special Rules.--
``(1) Property used outside the united states, etc., not
qualified.--No expenditures shall be taken into account under
subsection (a)(1) with respect to the portion of the cost of
any property referred to in section 50(b) or with respect to
the portion of the cost of any property specified in an
election under section 179.
``(2) Basis reduction.--
``(A) In general.--For purposes of this title, the basis of
any property shall be reduced by the portion of the cost of
such property taken into account under subsection (a)(1).
``(B) Ordinary income recapture.--For purposes of section
1245, the amount of the deduction allowable under subsection
(a)(1) with respect to any property which is of a character
subject to the allowance for depreciation shall be treated as
a deduction allowed for depreciation under section 167.
``(3) Coordination with section 38.--No credit shall be
allowed under section 38 with respect to any amount for which
a deduction is allowed under subsection (a)(1).''.
(b) Special Rule for Mutual or Cooperative Telephone
Companies.--Section 512(b) (relating to modifications) is
amended by adding at the end the following new paragraph:
``(18) Special rule for mutual or cooperative telephone
companies.--A mutual or cooperative telephone company which
for the taxable year satisfies the requirements of section
501(c)(12)(A) may elect to reduce its unrelated business
taxable income for such year, if any, by an amount that does
not exceed the qualified broadband expenditures which would
be taken into account under section 191 for such year by such
company if such company was not exempt from taxation. Any
amount which is allowed as a deduction under this paragraph
shall not be allowed as a deduction under section 191 and the
basis of any property to which this paragraph applies shall
be reduced under section 1016(a)(29).''.
(c) Conforming Amendments.--
(1) Section 263(a)(1) (relating to capital expenditures) 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) expenditures for which a deduction is allowed under
section 191.''.
(2) Section 1016(a) of such Code is amended by striking
``and'' at the end of paragraph (27), by striking the period
at the end of paragraph (28) and inserting ``, and'', and by
adding at the end the following new paragraph:
``(29) to the extent provided in section 191(f)(2).''.
(3) The table of sections for part VI of subchapter A of
chapter 1 of such Code is amended by inserting after the item
relating to section 190 the following new item:
``Sec. 191. Broadband expenditures.''.
(d) Designation of Census Tracts.--
(1) In general.--The Secretary of the Treasury shall, not
later than 90 days after the date of the enactment of this
Act, designate and publish those census tracts meeting the
criteria described in paragraphs (16), (22), and (23) of
section 191(e) of the Internal Revenue Code of 1986 (as added
by this section). In making such designations, the Secretary
of the Treasury shall consult with such other departments and
agencies as the Secretary determines appropriate.
(2) Saturated market.--
(A) In general.--For purposes of designating and publishing
those census tracts meeting the criteria described in
subsection (e)(19) of such section 191--
(i) the Secretary of the Treasury shall prescribe not later
than 30 days after the date of the enactment of this Act the
form upon which any provider which takes the position that it
meets such criteria with respect to any census tract shall
submit a list of such census tracts (and any other
information required by the Secretary) not later than 60 days
after the date of the publication of such form, and
(ii) the Secretary of the Treasury shall publish an
aggregate list of such census tracts and the applicable
providers not later than 30 days after the last date such
submissions are allowed under clause (i).
(B) No subsequent lists required.--The Secretary of the
Treasury shall not be required to publish any list of census
tracts meeting such criteria subsequent to the list described
in subparagraph (A)(ii).
(e) Other Regulatory Matters.--
(1) Prohibition.--No Federal or State agency or
instrumentality shall adopt regulations or ratemaking
procedures that would have the effect of eliminating or
reducing any deduction or portion thereof allowed under
section 191 of the Internal Revenue Code of 1986 (as added by
this section) or otherwise subverting the purpose of this
section.
[[Page S2889]]
(2) Treasury regulatory authority.--It is the intent of
Congress in providing the election to deduct qualified
broadband expenditures under section 191 of the Internal
Revenue Code of 1986 (as added by this section) to provide
incentives for the purchase, installation, and connection of
equipment and facilities offering expanded broadband access
to the Internet for users in certain low income and rural
areas of the United States, as well as to residential users
nationwide, in a manner that maintains competitive neutrality
among the various classes of providers of broadband services.
Accordingly, the Secretary of the Treasury shall prescribe
such regulations as may be necessary or appropriate to carry
out the purposes of section 191 of such Code, including--
(A) regulations to determine how and when a taxpayer that
incurs qualified broadband expenditures satisfies the
requirements of section 191 of such Code to provide broadband
services, and
(B) regulations describing the information, records, and
data taxpayers are required to provide the Secretary to
substantiate compliance with the requirements of section 191
of such Code.
(f) Effective Date.--The amendments made by this section
shall apply to expenditures incurred after the date of the
enactment of this Act and before the date which is 12 months
after the date of the enactment of this Act.
SEC. 303. EXEMPTION OF NATURAL AGING PROCESS IN DETERMINATION
OF PRODUCTION PERIOD FOR DISTILLED SPIRITS
UNDER SECTION 263A.
(a) In General.--Section 263A(f) of the Internal Revenue
Code of 1986 (relating to general exceptions) is amended by
adding at the end the following new paragraph:
``(5) Exemption of natural aging process in determination
of production period for distilled spirits.--For purposes of
this subsection, the production period for distilled spirits
shall be determined without regard to any period allocated to
the natural aging process.''.
(b) Effective Date.--The amendment made by this section
shall apply to production periods beginning after the date of
the enactment of this Act.
SEC. 304. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER
SECTION 355.
(a) In General.--Section 355(b) (defining active conduct of
a trade or business) is amended by adding at the end the
following new paragraph:
``(3) Special rules relating to active business
requirement.--
``(A) In general.--For purposes of determining whether a
corporation meets the requirement of paragraph (2)(A), all
members of such corporation's separate affiliated group shall
be treated as one corporation. For purposes of the preceding
sentence, a corporation's separate affiliated group is the
affiliated group which would be determined under section
1504(a) if such corporation were the common parent and
section 1504(b) did not apply.
``(B) Control.--For purposes of paragraph (2)(D), all
distributee corporations which are members of the same
affiliated group (as defined in section 1504(a) without
regard to section 1504(b)) shall be treated as one
distributee corporation.''.
(b) Conforming Amendments.--
(1) Subparagraph (A) of section 355(b)(2) is amended to
read as follows:
``(A) it is engaged in the active conduct of a trade or
business,''.
(2) Section 355(b)(2) is amended by striking the last
sentence.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply--
(A) to distributions after the date of the enactment of
this Act, and
(B) for purposes of determining the continued qualification
under section 355(b)(2)(A) of the Internal Revenue Code of
1986 (as amended by subsection (b)(1)) of distributions made
before such date, as a result of an acquisition, disposition,
or other restructuring after such date.
(2) Transition rule.--The amendments made by this section
shall not apply to any distribution pursuant to a transaction
which is--
(A) made pursuant to an agreement which was binding on such
date of enactment and at all times thereafter,
(B) described in a ruling request submitted to the Internal
Revenue Service on or before such date, or
(C) described on or before such date in a public
announcement or in a filing with the Securities and Exchange
Commission.
(3) Election to have amendments apply.--Paragraph (2) shall
not apply if the distributing corporation elects not to have
such paragraph apply to distributions of such corporation.
Any such election, once made, shall be irrevocable.
SEC. 305. EXCLUSION OF CERTAIN INDEBTEDNESS OF SMALL BUSINESS
INVESTMENT COMPANIES FROM ACQUISITION
INDEBTEDNESS.
(a) In General.--Section 514(c) (relating to acquisition
indebtedness) is amended by adding at the end the following
new paragraph:
``(10) Certain indebtedness of small business investment
companies.--For purposes of this section, the term
`acquisition indebtedness' does not include any indebtedness
incurred by a small business investment company licensed
under the Small Business Investment Act of 1958 which is
evidenced by a debenture--
``(A) issued by such company under section 303(a) of such
Act, and
``(B) held or guaranteed by the Small Business
Administration.''.
(b) Effective Date.--The amendment made by this section
shall apply to any indebtedness incurred after December 31,
2003, by a small business investment company described in
section 514(c)(10) of the Internal Revenue Code of 1986 (as
added by this section) with respect to property acquired by
such company after such date.
SEC. 306. MODIFIED TAXATION OF IMPORTED ARCHERY PRODUCTS.
(a) Bows.--Paragraph (1) of section 4161(b) (relating to
bows) is amended to read as follows:
``(1) Bows.--
``(A) In general.--There is hereby imposed on the sale by
the manufacturer, producer, or importer of any bow which has
a peak draw weight of 30 pounds or more, a tax equal to 11
percent of the price for which so sold.
``(B) Archery equipment.--There is hereby imposed on the
sale by the manufacturer, producer, or importer--
``(i) of any part or accessory suitable for inclusion in or
attachment to a bow described in subparagraph (A), and
``(ii) of any quiver or broadhead suitable for use with an
arrow described in paragraph (2),
a tax equal to 11 percent of the price for which so sold.''.
(b) Arrows.--Subsection (b) of section 4161 (relating to
bows and arrows, etc.) is amended by redesignating paragraph
(3) as paragraph (4) and inserting after paragraph (2) the
following:
``(3) Arrows.--
``(A) In general.--There is hereby imposed on the sale by
the manufacturer, producer, or importer of any arrow, a tax
equal to 12 percent of the price for which so sold.
``(B) Exception.--In the case of any arrow of which the
shaft or any other component has been previously taxed under
paragraph (1) or (2)--
``(i) section 6416(b)(3) shall not apply, and
``(ii) the tax imposed by subparagraph (A) shall be an
amount equal to the excess (if any) of--
``(I) the amount of tax imposed by this paragraph
(determined without regard to this subparagraph), over
``(II) the amount of tax paid with respect to the tax
imposed under paragraph (1) or (2) on such shaft or
component.
``(C) Arrow.--For purposes of this paragraph, the term
`arrow' means any shaft described in paragraph (2) to which
additional components are attached.''.
(c) Conforming Amendments.--Section 4161(b)(2) is amended--
(1) by inserting ``(other than broadheads)'' after
``point'', and
(2) by striking ``Arrows.--'' in the heading and inserting
``Arrow components.--''.
(d) Effective Date.--The amendments made by this section
shall apply to articles sold by the manufacturer, producer,
or importer after December 31, 2003.
SEC. 307. MODIFICATION TO COOPERATIVE MARKETING RULES TO
INCLUDE VALUE ADDED PROCESSING INVOLVING
ANIMALS.
(a) In General.--Section 1388 (relating to definitions and
special rules) is amended by adding at the end the following
new subsection:
``(k) Cooperative Marketing Includes Value-Added Processing
Involving Animals.--For purposes of section 521 and this
subchapter, the marketing of the products of members or other
producers shall include the feeding of such products to
cattle, hogs, fish, chickens, or other animals and the sale
of the resulting animals or animal products.''.
(b) Conforming Amendment.--Section 521(b) is amended by
adding at the end the following new paragraph:
``(7) Cross Reference.--
``For treatment of value-added processing involving animals, see
section 1388(k).''.
(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. 308. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO
FARMERS' COOPERATIVE ORGANIZATIONS.
(a) In General.--Section 7428(a)(1) (relating to
declaratory judgments of tax exempt organizations) is amended
by striking ``or'' at the end of subparagraph (B) and by
adding at the end the following new subparagraph:
``(D) with respect to the initial classification or
continuing classification of a cooperative as an organization
described in section 521(b) which is exempt from tax under
section 521(a), or''.
(b) Effective Date.--The amendments made by this section
shall apply with respect to pleadings filed after the date of
the enactment of this Act.
SEC. 309. TEMPORARY SUSPENSION OF PERSONAL HOLDING COMPANY
TAX.
(a) In General.--Section 541 (relating to imposition of
personal holding company tax) is amended by adding at the end
the following new sentence: ``The preceding sentence shall
not apply with respect to any taxable year to which section
1(h)(11) (as in effect on the date of the enactment of this
sentence) applies.''.
(b) Coordination With Accumulated Earnings Tax.--Section
532(b) is amended by adding at the end the following flush
sentence:
``Paragraph (1) shall not apply to any taxable year to which
section 541 does not apply.''
[[Page S2890]]
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2003.
SEC. 310. INCREASE IN SECTION 179 EXPENSING.
(a) In General.--Section 179(b)(2) (relating to reduction
in limitation) is amended by inserting ``50 percent of''
before ``the amount''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2002.
SEC. 311. FIVE-YEAR CARRYBACK OF NET OPERATING LOSSES.
(a) In General.--Subparagraph (H) of section 172(b)(1) is
amended--
(1) by inserting ``5-year carryback of certain losses.--''
after ``(H)'', and
(2) by striking ``or 2002'' and inserting ``, 2002, or
2003''.
(b) Rules Relating to Certain Extended Net Operating
Losses.--Section 172 is amended by redesignating subsection
(k) as subsection (l) and by inserting after subsection (j)
the following new subsection:
``(k) Rules Relating to Certain Extended Net Operating
Losses.--For purposes of this section, in the case of a
taxpayer which has a net operating loss for any taxable year
ending during 2003 and does not make an election under
subsection (j), such taxpayer shall be deemed to have made an
election under paragraphs (4)(E) and (2)(C)(iii) of section
168(k) with respect to all classes of property for such
taxable year.
(c) Temporary Suspension of 90 Percent Limit on Certain NOL
Carryovers.--Section 56(d)(1)(A)(ii)(I) (relating to general
rule defining alternative tax net operating loss deduction)
is amended--
(1) by striking ``or 2002'' and inserting ``, 2002, or
2003'', and
(2) by striking ``and 2002'' and inserting ``, 2002, and
2003''.
(d) Technical Corrections.--
(1) Subparagraph (H) of section 172(b)(1) is amended by
striking ``a taxpayer which has''.
(2) Section 102(c)(2) of the Job Creation and Worker
Assistance Act of 2002 (Public Law 107-147) is amended by
striking ``before January 1, 2003'' and inserting ``after
December 31, 1990''.
(3)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended
by striking ``attributable to carryovers''.
(B) Subclause (I) of section 56(d)(1)(A)(ii) is amended--
(i) by striking ``for taxable years'' and inserting ``from
taxable years'', and
(ii) by striking ``carryforwards'' and inserting
``carryovers''.
(e) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to net operating
losses for taxable years ending after December 31, 2002.
(2) Technical corrections.--The amendments made by
subsection (d) shall take effect as if included in the
amendments made by section 102 of the Job Creation and Worker
Assistance Act of 2002.
(3) Election.--In the case of a net operating loss for a
taxable year ending during 2003--
(A) any election made under section 172(b)(3) of such Code
may (notwithstanding such section) be revoked before April
15, 2004, and
(B) any election made under section 172(j) of such Code
shall (notwithstanding such section) be treated as timely
made if made before April 15, 2004.
(4) Special rule for taxpayers with taxable years ending
during january.--Any taxpayer which has a taxable year ending
during January may elect under this paragraph to apply
section 172(b)(1)(H) of the Internal Revenue Code of 1986 (as
amended by this section) to its taxable year ending in 2004
rather than its taxable year ending in 2003. If such election
is made, then section 172(k) of such Code (as added by this
section) shall be applied to the taxpayer's taxable year
ending in 2004. Such election shall be made in such manner
and at such time as may be prescribed by the Secretary of the
Treasury. Such election, once made, shall be irrevocable.
SEC. 312. 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.
SEC. 313. 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 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
[[Page S2891]]
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.
Subtitle B--Manufacturing Relating to Films
SEC. 321. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION
PRODUCTIONS.
(a) In General.--Part VI of subchapter B of chapter 1 is
amended by inserting after section 180 the following new
section:
``SEC. 181. TREATMENT OF QUALIFIED FILM AND TELEVISION
PRODUCTIONS.
``(a) Election To Treat Certain Costs of Qualified Film and
Television Productions as Expenses.--
``(1) In general.--A taxpayer may elect to treat the cost
of any qualified film or television production as an expense
which is not chargeable to capital account. Any cost so
treated shall be allowed as a deduction.
``(2) Dollar limitation.--
``(A) In general.--The aggregate cost which may be taken
into account under paragraph (1) with respect to each
qualified film or television production shall not exceed
$15,000,000.
``(B) Higher dollar limitation for productions in certain
areas.--In the case of any qualified film or television
production the aggregate cost of which is significantly
incurred in an area eligible for designation as--
``(i) a low-income community under section 45D, or
``(ii) a distressed county or isolated area of distress by
the Delta Regional Authority established under section
2009aa-1 of title 7, United States Code,
subparagraph (A) shall be applied by substituting
`$20,000,000' for `$15,000,000'.
``(b) Amortization of Remaining Costs.--
``(1) In general.--If an election is made under subsection
(a) with respect to any qualified film or television
production, that portion of the basis of such production in
excess of the amount taken into account under subsection (a)
shall be allowed as a deduction ratably over the 36-month
period beginning with the month in which such production is
placed in service.
``(2) No other deduction or amortization deduction
allowable.--With respect to the basis of any qualified film
or television production described in paragraph (1), no other
depreciation or amortization deduction shall be allowable.
``(c) Election.--
``(1) In general.--An election under subsection (a) with
respect to any qualified film or television production shall
be made in such manner as prescribed by the Secretary and by
the due date (including extensions) for filing the taxpayer's
return of tax under this chapter for the taxable year in
which costs of the production are first incurred.
``(2) Revocation of election.--Any election made under
subsection (a) may not be revoked without the consent of the
Secretary.
``(d) Qualified Film or Television Production.--For
purposes of this section--
``(1) In general.--The term `qualified film or television
production' means any production described in paragraph (2)
if 75 percent of the total compensation of the production is
qualified compensation.
``(2) Production.--
``(A) In general.--A production is described in this
paragraph if such production is property described in section
168(f)(3). For purposes of a television series, only the
first 44 episodes of such series may be taken into account.
``(B) Exception.--A production is not described in this
paragraph if records are required under section 2257 of title
18, United States Code, to be maintained with respect to any
performer in such production.
``(3) Qualified compensation.--For purposes of paragraph
(1)--
``(A) In general.--The term `qualified compensation' means
compensation for services performed in the United States by
actors, directors, producers, and other relevant production
personnel.
``(B) Participations and residuals excluded.--The term
`compensation' does not include participations and residuals
(as defined in section 167(g)(7)(B)).
``(e) Application of Certain Other Rules.--For purposes of
this section, rules similar to the rules of subsections
(b)(2) and (c)(4) of section 194 shall apply.
``(f) Termination.--This section shall not apply to
qualified film and television productions commencing after
December 31, 2008.''.
(b) Conforming Amendment.--The table of sections for part
VI of subchapter B of chapter 1 is amended by inserting after
the item relating to section 180 the following new item:
``Sec. 181. Treatment of qualified film and television productions.''.
(c) Effective Date.--The amendments made by this section
shall apply to qualified film and television productions (as
defined in section 181(d)(1) of the Internal Revenue Code of
1986, as added by this section) commencing after the date of
the enactment of this Act.
SEC. 322. MODIFICATION OF APPLICATION OF INCOME FORECAST
METHOD OF DEPRECIATION.
(a) In General.--Section 167(g) (relating to depreciation
under income forecast method) is amended by adding at the end
the following new paragraph:
``(7) Treatment of participations and residuals.--
``(A) In general.--For purposes of determining the
depreciation deduction allowable with respect to a property
under this subsection, the taxpayer may include
participations and residuals with respect to such property in
the adjusted basis of such property for the taxable year in
which the property is placed in service, but only to the
extent that such participations and residuals relate to
income estimated (for purposes of this subsection) to be
earned in connection with the property before the close of
the 10th taxable year referred to in paragraph (1)(A).
``(B) Participations and residuals.--For purposes of this
paragraph, the term `participations and residuals' means,
with respect to any property, costs the amount of which by
contract varies with the amount of income earned in
connection with such property.
``(C) Special rules relating to recomputation years.--If
the adjusted basis of any property is determined under this
paragraph, paragraph (4) shall be applied by substituting
`for each taxable year in such period' for `for such period'.
``(D) Other special rules.--
``(i) Participations and residuals.--Notwithstanding
subparagraph (A), the taxpayer may exclude participations and
residuals from the adjusted basis of such property and deduct
such participations and residuals in the taxable year that
such participations and residuals are paid.
``(ii) Coordination with other rules.--Deductions computed
in accordance with this paragraph shall be allowable
notwithstanding paragraph (1)(B) or sections 263, 263A, 404,
419, or 461(h).
``(E) Authority to make adjustments.--The Secretary shall
prescribe appropriate adjustments to the basis of property
and to the look-back method for the additional amounts
allowable as a deduction solely by reason of this
paragraph.''.
(b) Determination of Income.--Section 167(g)(5) (relating
to special rules) is amended by redesignating subparagraphs
(E) and (F) as subparagraphs (F) and (G), respectively, and
inserting after subparagraph (D) the following new
subparagraph:
``(E) Treatment of distribution costs.--For purposes of
this subsection, the income with respect to any property
shall be the taxpayer's gross income from such property.''.
(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.
Subtitle C--Manufacturing Relating to Timber
SEC. 331. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.
(a) In General.--So much of subsection (b) of section 194
(relating to amortization of reforestation expenditures) as
precedes paragraph (2) is amended to read as follows:
``(b) Treatment as Expenses.--
``(1) Election to treat certain reforestation expenditures
as expenses.--
``(A) In general.--In the case of any qualified timber
property with respect to which the taxpayer has made (in
accordance with regulations prescribed by the Secretary) an
election under this subsection, the taxpayer shall treat
reforestation expenditures which are paid or incurred during
the taxable year with respect to such property as an expense
which is not chargeable to capital account. The reforestation
expenditures so treated shall be allowed as a deduction.
``(B) Dollar limitation.--The aggregate amount of
reforestation expenditures which may be taken into account
under subparagraph (A) with respect to each qualified timber
property for any taxable year shall not exceed $10,000
($5,000 in the case of a separate return by a married
individual (as defined in section 7703)).''.
(b) Net Amortizable Basis.--Section 194(c)(2) (defining
amortizable basis) is amended by inserting ``which have not
been taken into account under subsection (b)'' after
``expenditures''.
(c) Conforming Amendments.--
(1) Section 194(b) is amended by striking paragraphs (3)
and (4).
(2) Section 194(b)(2) is amended by striking ``paragraph
(1)'' both places it appears and inserting ``paragraph
(1)(B)''.
(3) Section 194(c) is amended by striking paragraph (4) and
inserting the following new paragraphs:
[[Page S2892]]
``(4) Treatment of trusts and estates.--
``(A) In general.--Except as provided in subparagraph (B),
this section shall not apply to trusts and estates.
``(B) Amortization deduction allowed to estates.--The
benefit of the deduction for amortization provided by
subsection (a) shall be allowed to estates in the same manner
as in the case of an individual. The allowable deduction
shall be apportioned between the income beneficiary and the
fiduciary under regulations prescribed by the Secretary. Any
amount so apportioned to a beneficiary shall be taken into
account for purposes of determining the amount allowable as a
deduction under subsection (a) to such beneficiary.
``(5) Application with other deductions.--No deduction
shall be allowed under any other provision of this chapter
with respect to any expenditure with respect to which a
deduction is allowed or allowable under this section to the
taxpayer .''.
(4) The heading for section 194 is amended by striking
``AMORTIZATION'' and inserting ``TREATMENT''.
(5) The item relating to section 194 in the table of
sections for part VI of subchapter B of chapter 1 is amended
by striking ``Amortization'' and inserting ``Treatment''.
(d) Repeal of Reforestation Credit.--
(1) In general.--Section 46 (relating to amount of credit)
is amended--
(A) by adding ``and'' at the end of paragraph (1),
(B) by striking ``, and'' at the end of paragraph (2) and
inserting a period, and
(C) by striking paragraph (3).
(2) Conforming amendments.--
(A) Section 48 is amended--
(i) by striking subsection (b),
(ii) by striking ``this subsection'' in paragraph (5) of
subsection (a) and inserting ``subsection (a)'', and
(iii) by redesignating such paragraph (5) as subsection
(b).
(B) The heading for section 48 is amended by striking ``;
REFORESTATION CREDIT''.
(C) The item relating to section 48 in the table of
sections for subpart E of part IV of subchapter A of chapter
1 is amended by striking ``, reforestation credit''.
(D) Section 50(c)(3) is amended by striking ``or
reforestation credit''.
(e) Effective Date.--The amendments made by this section
shall apply with respect to expenditures paid or incurred
after the date of the enactment of this Act.
SEC. 332. ELECTION TO TREAT CUTTING OF TIMBER AS A SALE OR
EXCHANGE.
Any election under section 631(a) of the Internal Revenue
Code of 1986 made for a taxable year ending on or before the
date of the enactment of this Act may be revoked by the
taxpayer for any taxable year ending after such date. For
purposes of determining whether the taxpayer may make a
further election under such section, such election (and any
revocation under this section) shall not be taken into
account.
SEC. 333. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO
APPLY TO OUTRIGHT SALES BY LANDOWNERS.
(a) In General.--The first sentence of section 631(b)
(relating to disposal of timber with a retained economic
interest) is amended by striking ``retains an economic
interest in such timber'' and inserting ``either retains an
economic interest in such timber or makes an outright sale of
such timber''.
(b) Conforming Amendments.--
(1) The third sentence of section 631(b) is amended by
striking ``The date of disposal'' and inserting ``In the case
of disposal of timber with a retained economic interest, the
date of disposal''.
(2) The heading for section 631(b) is amended by striking
``With a Retained Economic Interest''.
(c) Effective Date.--The amendments made by this section
shall apply to sales after the date of the enactment of this
Act.
SEC. 334. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITS.
(a) Expansion of Prohibited Transaction Safe Harbor.--
Section 857(b)(6) (relating to income from prohibited
transactions) is amended by redesignating subparagraphs (D)
and (E) as subparagraphs (E) and (F), respectively, and by
inserting after subparagraph (C) the following new
subparagraph:
``(D) Certain sales not to constitute prohibited
transactions.--For purposes of this part, the term
`prohibited transaction' does not include a sale of property
which is a real estate asset (as defined in section
856(c)(5)(B)) if--
``(i) the trust held the property for not less than 4 years
in connection with the trade or business of producing timber,
``(ii) the aggregate expenditures made by the trust, or a
partner of the trust, during the 4-year period preceding the
date of sale which--
``(I) are includible in the basis of the property (other
than timberland acquisition expenditures), and
``(II) are directly related to operation of the property
for the production of timber or for the preservation of the
property for use as timberland,
do not exceed 30 percent of the net selling price of the
property,
``(iii) the aggregate expenditures made by the trust, or a
partner of the trust, during the 4-year period preceding the
date of sale which--
``(I) are includible in the basis of the property (other
than timberland acquisition expenditures), and
``(II) are not directly related to operation of the
property for the production of timber, or for the
preservation of the property for use as timberland,
do not exceed 5 percent of the net selling price of the
property,
``(iv)(I) during the taxable year the trust does not make
more than 7 sales of property (other than sales of
foreclosure property or sales to which section 1033 applies),
or
``(II) the aggregate adjusted bases (as determined for
purposes of computing earnings and profits) of property
(other than sales of foreclosure property or sales to which
section 1033 applies) sold during the taxable year does not
exceed 10 percent of the aggregate bases (as so determined)
of all of the assets of the trust as of the beginning of the
taxable year,
``(v) in the case that the requirement of clause (iv)(I) is
not satisfied, substantially all of the marketing
expenditures with respect to the property were made through
an independent contractor (as defined in section 856(d)(3))
from whom the trust itself does not derive or receive any
income, and
``(vi) the sales price of the property sold by the trust is
not based in whole or in part on income or profits, including
income or profits derived from the sale or operation of such
property.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
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.
``(B) Tax-indifferent party.--The term `tax-indifferent
party' means any person or entity not subject to tax imposed
by subtitle
[[Page S2893]]
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) Disclosure by Secretary.--
(1) In general.--Section 6103 is amended by redesignating
subsection (q) as subsection (r) and by inserting after
subsection (p) the following new subsection:
``(q) Disclosure Relating to Payments of Certain
Penalties.--Notwithstanding any other provision of this
section, the Secretary shall make public the name of any
person required to pay a penalty described in section
6707A(e)(2) and the amount of the penalty.''.
(2) Records.--Section 6103(p)(3)(A) is amended by striking
``or (n)'' and inserting ``(n), or (q)''.
(c) 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.''.
(d) 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,
[[Page S2894]]
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 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,
``(IV) has an arrangement with respect to the transaction
which provides that contractual disputes between the taxpayer
and the advisor are to be settled by arbitration or which
limits damages by reference to fees paid to the advisor for
such transaction, or
``(V) 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,
``(IV) is not signed by all individuals who are principal
authors of the opinion, or
``(V) 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:
[[Page S2895]]
``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 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
[[Page S2896]]
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.
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, which is--
``(1) subject to penalty under section 6700, 6701, 6707, or
6708, or
``(2) in violation of any requirement under regulations
issued under section 320 of title 31, United States Code.''.
(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 $10,000.
``(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) $100,000, or
``(II) 50 percent of the amount 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.--
[[Page S2897]]
``(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. 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.
SEC. 419. INCREASES IN PENALTIES FOR AIDING AND ABETTING
UNDERSTATEMENTS.
(a) In General.--Section 6701(b) is amended to read as
follows:
``(b) Amount of Penalty.--
``(1) In general.--The amount of the penalty imposed by
subsection (a) shall be the greater of--
``(A) $2,000, or
``(B) 50 percent of the gross income derived (or to be
derived) from the activity giving rise to the penalty.
[[Page S2898]]
``(2) Corporations.--If the return, affidavit, claim, or
other document relates to the tax liability of a corporation,
paragraph (1)(A) shall be applied by substituting `$20,000'
for `$2,000'.''
(b) Effective Date.--The amendment made by this section
shall apply to activities after the date of the enactment of
this Act.
SEC. 420. STUDY ON INFORMATION SHARING AMONG LAW ENFORCEMENT
AGENCIES.
(a) Study.--The Secretary of the Treasury shall, jointly
with the Attorney General, the Securities and Exchange
Commission, and the Commissioner of Internal Revenue, study
the effectiveness of, and ways to improve, the sharing of
information related to the promotion of prohibited tax
shelters or tax avoidance schemes and other potential
violations of Federal laws.
(b) Report.--The Secretary shall, not later than 1 year
after the date of the enactment of this Act, report to the
appropriate committees of the Congress the results of the
study under subsection (a), including any recommendations for
legislation.
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. DECLARATION BY CHIEF EXECUTIVE OFFICER RELATING TO
FEDERAL ANNUAL INCOME TAX RETURN OF A
CORPORATION.
(a) In General.--The Federal annual tax return of a
corporation with respect to income shall also include a
declaration signed by the chief executive officer of such
corporation (or other such officer of the corporation as the
Secretary of the Treasury may designate if the corporation
does not have a chief executive officer), under penalties of
perjury, that the corporation has in place processes and
procedures to ensure that such return complies with the
Internal Revenue Code of 1986 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 of such Code).
(b) Effective Date.--This section shall apply to the
Federal annual tax return of a corporation with respect to
income for taxable years ending 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.
``(5) Exception for taxes due.--Paragraph (1) shall not
apply to any amount paid or incurred as taxes due.''.
(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
[[Page S2899]]
(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 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 Dates.--
(1) In general.--The amendment made by subsection (a) shall
apply to transactions after February 13, 2003.
(2) Liquidations.--The amendment made by subsection (b)
shall apply to liquidations 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 inserting ``or equity
[[Page S2900]]
held by the issuer (or any related party) in any other
person'' after ``or a related party''.
(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 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).
[[Page S2901]]
``(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
``(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.
(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
[[Page S2902]]
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, described in subsection
(a) or (b) of section 7874 of the Internal Revenue Code of
1986.
``(A) 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.
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 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)),
[[Page S2903]]
``(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).
``(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
[[Page S2904]]
``(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:
``(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)--
[[Page S2905]]
``(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.
``(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:
[[Page S2906]]
``(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)
0f 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
(reduced by properly allowable deductions and qualified
deficits under section 952(c)(1)(B)) is includible 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.''.
(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 item 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 that an amount attributable to such item
(reduced by properly allowable deductions and qualified
deficits under section 952(c)(1)(B)) is includible 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 certain dispositions of stock in
controlled foreign corporation.--
``(i) In general.--This paragraph shall apply to an
applicable 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.
``(ii) Applicable disposition.--For purposes of clause (i),
the term `applicable disposition' means any disposition of
any share of stock in a controlled foreign corporation in a
transaction or series of transactions if, immediately before
such transaction or series of transactions, the taxpayer
owned more than 50 percent (by vote or value) of the stock of
the controlled foreign corporation.
``(iii) Exception.--A disposition shall not be treated as
an applicable disposition under clause (ii) if it is part of
a transaction or series of transactions--
``(I) to which section 351 or 721 applies, or under which
the transferor receives stock in a foreign corporation in
exchange for the stock in the controlled foreign corporation
and the stock received is exchanged basis property (as
defined in section 7701(a)(44)), and
``(II) immediately after which, the transferor owns (by
vote or value) at least the same percentage of stock in the
controlled foreign corporation (or, if the controlled foreign
corporation is not in existence after such transaction or
series of transactions, in another foreign corporation stock
in which was received by the transferor in exchange for stock
in the controlled foreign corporation) as the percentage of
stock in the controlled foreign corporation which the
taxpayer owned immediately before such transaction or series
of transactions.
Clause (i) shall apply to any gain recognized on any
disposition to which this clause applies.
``(iv) Controlled foreign corporation.--For purposes of
this subparagraph, the term `controlled foreign corporation'
has the meaning given such term by section 957.
``(v) Stock ownership.--For purposes of this subparagraph,
ownership of stock shall be determined under the rules of
subsections (a) and (b) of section 958.
(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:
[[Page S2907]]
``(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 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.--
[[Page S2908]]
(1) In general.--Paragraph (3) of section 1092(d) (relating
to definitions and special rules) is amended to read as
follows:
``(3) Special rules for stock.--For purposes of paragraph
(1)--
``(A) In general.--The term `personal property' includes--
``(i) any stock which is a part of a straddle at least 1 of
the offsetting positions of which is a position with respect
to such stock or substantially similar or related property,
or
``(ii) any stock of a corporation formed or availed of to
take positions in personal property which offset positions
taken by any shareholder.
``(B) Rule for application.--For purposes of determining
whether subsection (e) applies to any transaction with
respect to stock described in subparagraph (A)(ii), all
includible corporations of an affiliated group (within the
meaning of section 1504(a)) shall be treated as 1
taxpayer.''.
(2) Conforming amendment.--Section 1258(d)(1) is amended by
striking ``; except that the term `personal property' shall
include stock''.
(d) Modifications of Qualified Covered Call Exception.--
(1) Markets on which options may be traded.--
(A) In general.--Section 1092(c)(4)(B)(i) is amended by
striking ``or other market which the Secretary determines has
rules adequate to carry out the purposes of this paragraph''.
(B) Regulations.--Section 1092(c)(4)(H) is amended by
adding at the end the following new sentence: ``Such
regulations shall not add any exchange or market not
described in subparagraph (B)(i) to the exchanges or markets
on which qualified covered call options may be traded.''
(2) Holding period for dividend exclusion.--The last
sentence of section 246(c) is amended by inserting: ``, other
than a qualified covered call option to which section 1092(f)
applies'' before the period at the end.
(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.--
(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.
[[Page S2909]]
(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. 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. 473. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN
PASSENGER AUTOMOBILES.
(a) In General.--Section 179(b) of the Internal Revenue
Code of 1986 (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--
``(I) which is primarily designed or which can be used to
carry passengers over public streets, roads, or highways
(except any vehicle operated exclusively on a rail or rails),
``(II) which is not subject to section 280F, and
``(III) which 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) is designed to have a seating capacity of more than 9
persons behind the driver's seat,
``(II) is equipped with a cargo area of at least 6 feet in
interior length which is an open area or is designed for use
as an open area but is enclosed by a cap and is not readily
accessible directly from the passenger compartment, or
``(III) 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.''.
(b) Effective Date.--The amendment 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--
[[Page S2910]]
``(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) thereof and
determined as if property described in section 167(f)(1)(B)
were tangible property). Such term shall not include property
with respect to which the credit under section 42 is allowed
and which, but for this sentence, would be tax-exempt
property solely by reason of section 168(h)(6).
``(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 or
federal funds.--A lease of property meets the requirements of
this paragraph if no part of the property was financed
(directly or indirectly) from--
``(A) 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, or
``(B) Federal funds.
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) set aside or expected to be set aside,
to or for the benefit of the lessor or a lender, or to or for
the benefit of the lessee to satisfy the lessee's obligations
or options under the lease. Funds shall be treated as
described in clause (ii) only if a reasonable person would
conclude, based on the facts and circumstances, that such
funds are so described.
``(B) Arrangements.--The arrangements referred to in this
subparagraph are--
``(i) a defeasance arrangement, a loan by the lessee to the
lessor or a 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 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 a fixed price or
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.
``(iv) No allowable amount for certain arrangements.--The
allowable amount shall be zero in the case of any arrangement
which involves--
``(I) a loan from the lessee to the lessor or a lender,
``(II) any deposit, letter of credit, or payment
undertaking agreement involving a lender, or
``(III) any credit support made available to the lessor in
which a lender (if any) does not have a claim which is senior
to the lessor.
For purposes of subclause (I), the term `loan' shall not
include any amount treated as a loan under section 467 with
respect to a section 467 rental agreement.
``(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.
Subparagraphs (A)(ii) and (B) shall not apply if the lease
term is described in section 168(h)(1)(C)(ii), or in the case
of qualified technological equipment, is described in section
168(h)(3). For purposes of subparagraph (B), the fair market
value at the end of the lease term shall be reduced to the
extent that a person other than the lessor bears a risk of
loss in the value of the property.
``(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 were 25 percent less than
its reasonably expected 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) Property with more than 7-year class life.--In the
case of a lease--
``(A) of property with a class life (as defined in section
168(i)(1)) of more than 7 years, and
``(B) under which the lessee has the option to purchase the
property,
the lease meets the requirements of this paragraph only if
the purchase price under the option equals the fair market
value of the property (determined at the time of exercise).
``(6) 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 allowable under
subsection (b) with respect 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 November 18, 2003.
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.
[[Page S2911]]
SEC. 483. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST
ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE
FINANCIAL ARRANGEMENT.
(a) Determination of Penalty.--
(1) In general.--Notwithstanding any other provision of
law, in the case of an applicable taxpayer--
(A) the determination as to whether any interest or
applicable penalty is to be imposed with respect to any
arrangement to which any initiative described in paragraph
(2) applied, or to any underpayment of Federal income tax
attributable to items arising in connection with any
arrangement described in paragraph (2), shall be made without
regard to section 6664 of the Internal Revenue Code of 1986,
and
(B) if any such interest or applicable penalty is imposed,
the amount of such interest or penalty shall be equal to
twice that determined without regard to this section.
(2) Applicable taxpayer.--For purposes of this subsection,
the term ``applicable taxpayer'' means 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).
(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. 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
[[Page S2912]]
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.
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.
[[Page S2913]]
``(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.
SEC. 498. HOLDING PERIOD FOR PREFERRED STOCK.
(a) In General.--Section 1(h)(11)(B)(iii)(I) is amended to
read as follows:
``(I) with respect to which the holding period requirements
of section 246(c) are not met, determined by substituting `60
days' for `45' days each place it appears, by substituting
`120-day' for `90-day' each place it appears, and by
substituting `120 days' for `90 days' and `240-day' for `180-
day' in paragraph (2).''
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
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) Subsections (b) and (c) shall not apply to
procurement covered by the World Trade Organization
Government Procurement Agreement.
``(e) National Security Exemption.--Subsection (b) shall
not apply to any procurement for national security purposes
entered into by--
``(1) the Department of Defense or any agency or entity
thereof;
``(2) the Department of the Army, the Department of the
Navy, the Department of the Air Force, or any agency or
entity of any of the military departments;
``(3) the Department of Homeland Security;
``(4) the Department of Energy or any agency or entity
thereof, with respect to the national security programs of
that Department; or
``(5) any element of the intelligence community.
``(f) 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.
``(g) 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 exceptions
in subsections (c)(2) and (e); and
[[Page S2914]]
``(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 to the
maximum extent feasible outside the United States.''.
(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.
(a) In General.--This title and the amendments made by this
title shall take effect 30 days after the Secretary of
Commerce certifies that the amendments made by this title
will not result in the loss of more jobs than it will protect
and will not cause harm to the United States economy. The
initial certification shall be made by the Secretary of
Commerce no later than 90 days after the enactment of this
Act. Such certification must be renewed on or before January
1 of each year in order for the amendments made by this title
to be in effect for that year.
(b) Consistency With International Agreements.--The
provisions of this title shall not apply to the extent that
they may be inconsistent with obligations under international
agreements. Within 90 days of this legislation, the Office of
Management and Budget, in consultation with the Office of the
United States Trade Representative, shall develop guidelines
for the implementation of this provision.
TITLE VI--OTHER PROVISIONS
Subtitle A--Provisions Relating to Housing
SEC. 601. TREATMENT OF QUALIFIED MORTGAGE BONDS.
(a) Year Holiday.--Section 143(a)(2)(iv) of the Internal
Revenue Code of 1986 shall not apply to amounts received
during the 1-year period beginning on the date of the
enactment of this Act with respect to any bond outstanding on
such date.
(b) Repeal of Required Use of Certain Principal Repayments
on Mortgage Subsidy Bond Financings To Redeem Bonds.--
(1) In general.--Subparagraph (A) of section 143(a)(2)
(defining qualified mortgage issue) is amended by adding
``and'' at the end of clause (ii), by striking ``, and'' at
the end of clause (iii) and inserting a period, and by
striking clause (iv) and the last sentence.
(2) Conforming amendment.--Clause (ii) of section
143(a)(2)(D) is amended by striking ``(and clause (iv) of
subparagraph (A))''.
(3) Effective date.--The amendments made by this subsection
shall apply to bonds issued after the date of the enactment
of this Act.
SEC. 602. PREMIUMS FOR MORTGAGE INSURANCE.
(a) In General.--Paragraph (3) of section 163(h) (relating
to qualified residence interest) is amended by adding after
subparagraph (D) the following new subparagraph:
``(E) Mortgage insurance premiums treated as interest.--
``(i) In general.--Premiums paid or accrued for qualified
mortgage insurance by a taxpayer during the taxable year in
connection with acquisition indebtedness with respect to a
qualified residence of the taxpayer shall be treated for
purposes of this subsection as qualified residence interest.
``(ii) Phaseout.--The amount otherwise allowable as a
deduction under clause (i) shall be reduced (but not below
zero) by 10 percent of such amount for each $1,000 ($500 in
the case of a married individual filing a separate return)
(or fraction thereof) that the taxpayer's adjusted gross
income for the taxable year exceeds $100,000 ($50,000 in the
case of a married individual filing a separate return).''.
(b) Definition and Special Rules.--Paragraph (4) of section
163(h) (relating to other definitions and special rules) is
amended by adding at the end the following new subparagraphs:
``(E) Qualified mortgage insurance.--The term `qualified
mortgage insurance' means--
``(i) mortgage insurance provided by the Home Loan Guaranty
Program of the Department of Veterans Affairs, the Federal
Housing Administration, or the Rural Housing Administration,
and
``(ii) private mortgage insurance (as defined by section 2
of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as
in effect on the date of the enactment of this subparagraph).
``(F) Special rules for prepaid qualified mortgage
insurance.--Any amount paid by the taxpayer for qualified
mortgage insurance that is properly allocable to any mortgage
the payment of which extends to periods that are after the
close of the taxable year in which such amount is paid shall
be chargeable to capital account and shall be treated as paid
in such periods to which so allocated. No deduction shall be
allowed for the unamortized balance of such account if such
mortgage is satisfied before the end of its term. The
preceding sentences shall not apply to amounts paid for
qualified mortgage insurance provided by the Department of
Veterans Affairs or the Rural Housing Administration.''.
(c) Information Returns Relating to Mortgage Insurance.--
Section 6050H (relating to returns relating to mortgage
interest received in trade or business from individuals) is
amended by adding at the end the following new subsection:
``(h) Returns Relating to Mortgage Insurance Premiums.--
``(1) In general.--The Secretary may prescribe, by
regulations, that any person who, in the course of a trade or
business, receives from any individual premiums for mortgage
insurance aggregating $600 or more for any calendar year,
shall make a return with respect to each such individual.
Such return shall be in such form, shall be made at such
time, and shall contain such information as the Secretary may
prescribe.
``(2) Statement to be furnished to individuals with respect
to whom information is required.--Every person required to
make a return under paragraph (1) shall furnish to each
individual with respect to whom a return is made a written
statement showing such information as the Secretary may
prescribe. Such written statement shall be furnished on or
before January 31 of the year following the calendar year for
which the return under paragraph (1) was required to be made.
``(3) Special rules.--For purposes of this subsection--
``(A) rules similar to the rules of subsection (c) shall
apply, and
``(B) the term `mortgage insurance' means--
``(i) the Home Loan Guaranty Program of the Department of
Veterans Affairs, and mortgage insurance provided by the
Federal Housing Administration or the Rural Housing
Administration, and
``(ii) private mortgage insurance (as defined by section 2
of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as
in effect on the date of the enactment of this
subparagraph).''.
(d) Effective Date.--The amendments made by this section
shall apply to amounts paid or accrued in taxable years
beginning after December 31, 2004, and ending before January
1, 2006.
SEC. 603. INCREASE IN HISTORIC REHABILITATION CREDIT FOR
CERTAIN LOW-INCOME HOUSING FOR THE ELDERLY.
(a) In General.--Section 47 (relating to rehabilitation
credit) is amended by adding at the end the following new
subsection:
``(e) Special Rule Regarding Certain Historic Structures.--
In the case of any qualified rehabilitation expenditure with
respect to any certified historic structure--
``(1) which is placed in service after the date of the
enactment of this subsection,
``(2) which is part of a qualified low-income building with
respect to which a credit under section 42 is allowed, and
``(3) substantially all of the residential rental units of
which are used for tenants who have attained the age of 65,
subsection (a)(2) shall be applied by substituting `25
percent' for `20 percent'.''.
(b) Application of MACRS.--The Internal Revenue Code of
1986 shall be applied and administered as if paragraph (4)(X)
of section 251(d) of the Tax Reform Act of 1986 as applied to
the amendments made by section 201 of such Act had not been
enacted with respect to any property described in such
paragraph and placed in service after the date of the
enactment of this Act.
(c) Effective Date.--The amendment made by subsection (a)
shall apply to property placed in service after the date of
the enactment of this Act.
Subtitle B--Provisions Relating to Bonds
SEC. 611. EXPANSION OF NEW YORK LIBERTY ZONE TAX BENEFITS.
(a) Additional Extension of Tax-Exempt Bond Financing.--
Section 1400L(d)(2)(D), as amended by this Act, is amended by
striking ``2006'' and inserting ``2010''.
(b) Extension of Advance Refundings.--Section 1400L(e)(1)
is amended by striking ``2005'' and inserting ``2006''.
SEC. 612. MODIFICATIONS OF TREATMENT OF QUALIFIED ZONE
ACADEMY BONDS.
(a) Proceeds of Bonds May Be Used for Construction and Land
Acquisition.--Paragraph (5) of section 1397E(d) (defining
qualified purpose) is amended--
(1) by striking ``rehabilitating or repairing'' in
subparagraph (A) and inserting ``constructing,
rehabilitating, or repairing'', and
(2) by redesignating subparagraphs (B), (C), and (D) as
subparagraphs (C), (D), and (E), respectively, and by
inserting after subparagraph (A) the following:
``(B) acquiring the land on which the facility is to be
constructed,''.
(b) Effective Date.--The amendments made by this section
shall apply to obligations issued after December 31, 2003.
SEC. 613. MODIFICATIONS OF AUTHORITY OF INDIAN TRIBAL
GOVERNMENTS TO ISSUE TAX-EXEMPT BONDS.
(a) In General.--Paragraph (1) of section 7871(c) (relating
to Indian tribal governments treated as States for certain
purposes) is amended to read as follows:
``(1) In general.--Subsection (a) of section 103 shall
apply to any obligation issued by an Indian tribal government
(or subdivision thereof) only if--
``(A) such obligation--
``(i) is part of an issue 95 percent or more of the net
proceeds of which are to be used to
[[Page S2915]]
finance any facility located on an Indian reservation, and
``(ii) is issued before January 1, 2006, or
``(B) such obligation is part of an issue substantially all
of the proceeds of which are to be used in the exercise of
any essential governmental function.''.
(b) Special Rules and Definitions.--Subsection (c) of
section 7871 is amended by inserting at the end the following
new paragraph:
``(4) Special rules and definitions.--
``(A) Exclusion of gaming.--An obligation described in
subparagraph (A) or (B) of paragraph (1) may not be used to
finance any portion of a building in which class II or III
gaming (as defined in section 4 of the Indian Gaming
Regulatory Act (25 U.S.C. 2702)) is conducted or housed.
``(B) Indian reservation.--For purposes of paragraph (1),
the term `Indian reservation' means--
``(i) a reservation, as defined in section 4(10) of the
Indian Child Welfare Act of 1978 (25 U.S.C. 1903(10)), and
``(ii) lands held under the provisions of the Alaska Native
Claims Settlement Act (43 U.S.C. 1601 et seq.) by a Native
corporation as defined in section 3(m) of such Act (43 U.S.C.
1602(m)).''.
(c) Effective Date.--The amendments made by this section
shall apply to obligations issued after the date of the
enactment of this Act.
SEC. 614. DEFINITION OF MANUFACTURING FACILITY FOR SMALL
ISSUE BONDS.
(a) In General.--Section 144(a)(12) (relating to
termination dates) is amended by striking subparagraph (C)
and inserting the following new subparagraphs:
``(C) Manufacturing facility.--For purposes of this
paragraph, the term `manufacturing facility' means any
facility which is used in--
``(i) the manufacture of tangible personal property
(including processing which results in a change in the
condition of such property),
``(ii) the manufacture or development of any software
product or process if--
``(I) it takes more than 6 months to manufacture or develop
such product,
``(II) the manufacture or development could not with due
diligence be reasonably expected to occur in less than 6
months, and
``(III) the software product or process comprises programs,
routines, and attendant documentation developed and
maintained for use in computer and telecommunications
technology, or
``(iii) the manufacture or development of any biobased
product or bioenergy if--
``(I) it takes more than 6 months to manufacture or
develop, and
``(II) the manufacture or development could not with due
diligence be reasonably expected to occur in less than 6
months.
``(D) Related facilities.--For purposes of subparagraph
(C), the term `manufacturing facility' includes a facility
which is directly and functionally related to a manufacturing
facility (determined without regard to subparagraph (C)) if--
``(i) such facility, including an office facility and a
research and development facility, is located on the same
site as the manufacturing facility, and
``(ii) not more than 40 percent of the net proceeds of the
issue are used to provide such facility.
``(E) Other definitions.--For purposes of subparagraph
(C)(iii)--
``(i) Biobased product.--The term `biobased product' means
a commercial or industrial product (other than food or feed)
which utilizes biological products or renewable domestic
agricultural (plant, animal, and marine) or forestry
materials.
``(ii) Bioenergy.--The term `bioenergy' means biomass used
in the production of energy, including liquid, solid, or
gaseous fuels, electricity, and heat.''.
(b) Effective Date.--The amendment made by this section
shall apply to obligations issued after the date of the
enactment of this Act.
SEC. 615. CONSERVATION BONDS.
(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
$1,500,000,000 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
[[Page S2916]]
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 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.
Subtitle C--Provisions Relating to Depreciation
SEC. 621. SPECIAL PLACED IN SERVICE RULE FOR BONUS
DEPRECIATION PROPERTY.
(a) In General.--Section 168(k)(2)(D) (relating to special
rules) is amended by adding at the end the following new
clause:
``(iii) Syndication.--For purposes of subparagraph (A)(ii),
if--
``(I) property is originally placed in service after
September 10, 2001, by the lessor of such property,
``(II) such property is sold by such lessor or any
subsequent purchaser within 3 months after the date so placed
in service (or, in the case of multiple units of property
subject to the same lease, within 3 months after the date the
final unit is placed in service, so long as the period
between the time the first unit is placed in service and the
time the last unit is placed in service does not exceed 12
months), and
``(III) the user of such property after the last sale
during such 3-month period remains the same as when such
property was originally placed in service,
such property shall be treated as originally placed in
service not earlier than the date of such last sale, so long
as no previous owner of such property elects the application
of this subsection with respect to such property.''.
(b) Effective Date.--The amendment made by this section
shall apply to sales after the date of the enactment of this
Act.
SEC. 622. 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.--The term `qualified property'
includes property--
``(i) which meets the requirements of clauses (ii) and
(iii) of subparagraph (A),
``(ii) which is an aircraft which is not a transportation
property (as defined in subparagraph (B)(iii)) other than for
agricultural or firefighting purposes,
``(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--
``(I) 10 percent of the cost, or
``(II) $100,000, and
``(iv) which has--
``(I) an estimated production period exceeding 4 months,
and
``(II) a cost exceeding $200,000.''.
(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) is amended by adding at the end
the following new clause:
``(iv) Application of subparagraph.--This subparagraph
shall not apply to any property which is described in
subparagraph (C).''.
(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.
SEC. 623. MODIFICATION OF CLASS LIFE FOR CERTAIN TRACK
FACILITIES.
(a) 7-Year Property.--Subparagraph (C) of section 168(e)(3)
(relating to classification of certain property) is amended
by redesignating clause (ii) as clause (iii) and by inserting
after clause (i) the following new clause:
``(ii) any motorsports entertainment complex, and''.
(b) Definition.--Section 168(i) (relating to definitions
and special rules) is amended by adding at the end the
following new paragraph:
``(15) Motorsports entertainment complex.--
``(A) In general.--The term `motorsports entertainment
complex' means a racing track facility that is permanently
situated on land and which during the applicable period is
scheduled to host one or more racing events for automobiles
(of any type), trucks, or motorcycles that are open to the
public for the price of admission.
``(B) Ancillary and support facilities.--Such term shall
include, if owned by the complex and provided for the benefit
of patrons of the complex--
``(i) ancillary grounds and facilities and land
improvements in support of the complex's activities
(including parking lots, sidewalks, waterways, bridges,
fences, and landscaping),
``(ii) support facilities (including food and beverage
retailing, souvenir vending, and other nonlodging
accommodations), and
``(iii) appurtenances associated with such facilities and
related attractions and amusements (including ticket booths,
race track surfaces, suites and hospitality facilities,
grandstands and viewing structures, props, walls, facilities
that support the delivery of entertainment services, other
special purpose structures, facades, shop interiors, and
buildings).
``(C) Exception.--Such term shall not include any
transportation equipment, administrative services assets,
warehouses, administrative buildings, hotels, or motels.
``(D) Applicable period.--For purposes of subparagraph (A),
the term `applicable period' means the period ending the
later of the last day of--
[[Page S2917]]
``(i) the 24 month period following the first day of the
month in which the asset is or was placed in service, or
``(ii) the 24 month period ending December 31, 2003, to the
extent that the asset remains in service during such
period.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to any property placed in service after the date of the
enactment of this Act.
(2) No inference.--Nothing in the amendments made by this
section shall be construed to affect the treatment of
expenses incurred on or before the date of the enactment of
this Act.
SEC. 624. MINIMUM TAX RELIEF FOR CERTAIN TAXPAYERS.
(a) Election to Increase Minimum Tax Credit Limitation in
Lieu of Bonus Depreciation.--
(1) In general.--Section 53 (relating to credit for prior
year minimum tax liability) is amended by adding at the end
the following new subsection:
``(e) Additional Credit in Lieu of Bonus Depreciation.--
``(1) In general.--In the case of a corporation making an
election under this subsection for a taxable year, the
limitation under subsection (c) shall be increased by an
amount equal to 50 percent of the bonus depreciation amount.
``(2) Bonus depreciation amount.--For purposes of paragraph
(1), the bonus depreciation amount for any taxable year is an
amount (not in excess of $10,000,000) equal to the product
of--
``(A) 30 percent, and
``(B) the excess (if any) of--
``(i) the aggregate amount of depreciation which would be
determined under section 168 for property placed in service
during such taxable year if no election under this subsection
were made, over
``(ii) the aggregate allowance for depreciation allowable
with respect to such property placed in service for such
taxable year.
``(3) Aggregation rule.--All members of the same controlled
group of corporations shall be treated as 1 corporation for
purposes of this subsection.
``(4) Election.--Sections 168(k) (other than paragraph
(2)(F) thereof) shall not apply to any property placed in
service during a taxable year by a corporation making an
election under this subsection for such taxable year. An
election under this subsection may only be revoked with the
consent of the Secretary.
``(5) Credit refundable.--The aggregate increase in the
credit allowed by this section for any taxable year by reason
of this subsection shall for purposes of this title (other
than subsection (b)(2) of this section) be treated as a
credit allowed to the taxpayer under subpart C.''.
(2) Conforming amendments.--Subsection (k) of section 168
is amended by adding at the end the following new paragraph:
``(5) Cross reference.--For an election to claim certain
minimum tax credits in lieu of the allowance determined under
this subsection, see section 53(e).''.
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years ending after December 31, 2003.
(b) Use of General Business Credits Against Alternative
Minimum Tax.--
(1) In general.--Section 38(c) (relating to limitations
based on amount of tax) is amended by redesignating paragraph
(4) as paragraph (5) and by inserting after paragraph (3) the
following new paragraph:
``(4) Special rule for 2004.--Notwithstanding the preceding
provisions of this paragraph, in the case of any taxable year
beginning in 2004, the credit allowed under subsection (a)
shall not exceed the greater of--
``(A) the amount determined under this subsection without
regard to this paragraph, or
``(B) 50 percent of the lesser of--
``(i) the amount which would be determined under this
subsection if the tentative minimum tax were treated as being
zero in applying paragraph (1) to such credit, or
``(ii) the amount of the current year business credit.''.
(2) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning in 2004.
Subtitle D--Expansion of Business Credit
SEC. 631. NEW MARKETS TAX CREDIT FOR NATIVE AMERICAN
RESERVATIONS.
(a) In General.--Subpart D of part IV of subchapter A of
chapter 1 (relating to business related credits) is amended
by redesignating sections 45E and 45F as sections 45F and
45G, respectively, and by inserting after section 45E the
following new section:
``SEC. 45D. NEW MARKETS TAX CREDIT FOR NATIVE AMERICAN
RESERVATIONS.
``(a) Allowance of Credit.--
``(1) In general.--For purposes of section 38, in the case
of a taxpayer who holds a qualified equity investment on a
credit allowance date of such investment which occurs during
the taxable year, the Native American new markets tax credit
determined under this section for such taxable year is an
amount equal to the applicable percentage of the amount paid
to the reservation development entity for such investment at
its original issue.
``(2) Applicable percentage.--For purposes of paragraph
(1), the applicable percentage is--
``(A) 5 percent with respect to the first 3 credit
allowance dates, and
``(B) 6 percent with respect to the remainder of the credit
allowance dates.
``(3) Credit allowance date.--For purposes of paragraph
(1), the term `credit allowance date' means, with respect to
any qualified equity investment--
``(A) the date on which such investment is initially made,
and
``(B) each of the 6 anniversary dates of such date
thereafter.
``(b) Qualified Equity Investment.--For purposes of this
section--
``(1) In general.--The term `qualified equity investment'
means any equity investment in a reservation development
entity if--
``(A) such investment is acquired by the taxpayer at its
original issue (directly or through an underwriter) solely in
exchange for cash,
``(B) substantially all of such cash is used by the
reservation development entity to make qualified low-income
reservation investments, and
``(C) such investment is designated for purposes of this
section by the reservation development entity.
Such term shall not include any equity investment issued by a
reservation development entity more than 5 years after the
date that such entity receives an allocation under subsection
(f ). Any allocation not used within such 5-year period may
be reallocated by the Secretary under subsection (f ).
``(2) Limitation.--The maximum amount of equity investments
issued by a reservation development entity which may be
designated under paragraph (1)(C) by such entity shall not
exceed the portion of the limitation amount allocated under
subsection (f ) to such entity.
``(3) Safe harbor for determining use of cash.--The
requirement of paragraph (1)(B) shall be treated as met if at
least 85 percent of the aggregate gross assets of the
reservation development entity are invested in qualified low-
income reservation investments.
``(4) Treatment of subsequent purchasers.--The term
`qualified equity investment' includes any equity investment
which would (but for paragraph (1)(A)) be a qualified equity
investment in the hands of the taxpayer if such investment
was a qualified equity investment in the hands of a prior
holder.
``(5) Redemptions.--A rule similar to the rule of section
1202(c)(3) shall apply for purposes of this subsection.
``(6) Equity investment.--The term `equity investment'
means--
``(A) any stock (other than nonqualified preferred stock as
defined in section 351(g)(2)) in an entity which is a
corporation, and
``(B) any capital interest in an entity which is a
partnership.
``(c) Reservation Development Entity.--For purposes of this
section--
``(1) In general.--The term `reservation development
entity' means any domestic corporation or partnership if--
``(A) the primary mission of the entity is serving, or
providing investment capital for, low-income reservations,
``(B) the entity maintains accountability to residents of
low-income reservations through their representation on any
governing board of the entity or on any advisory board to the
entity, and
``(C) the entity is certified by the Secretary for purposes
of this section as being a reservation development entity.
``(2) Exception.--For purposes of subparagraph (C) of
paragraph (1), the Secretary shall not certify an entity as a
reservation development entity if such entity is also
certified as a qualified community development entity under
section 45D(c).
``(d) Qualified Low-Income Reservation Investments.--For
purposes of this section--
``(1) In general.--The term `qualified low-income
reservation investment' means--
``(A) any capital or equity investment in, or loan to, any
qualified active low-income reservation business,
``(B) the purchase from another reservation development
entity of any loan made by such entity which is a qualified
low-income reservation investment,
``(C) financial counseling and other services specified in
regulations prescribed by the Secretary to businesses located
in, and residents of, low-income reservations, and
``(D) any equity investment in, or loan to, any reservation
development entity.
``(2) Qualified active low-income reservation business.--
``(A) In general.--For purposes of paragraph (1), the term
`qualified active low-income reservation business' means,
with respect to any taxable year, any corporation (including
a nonprofit corporation) or partnership if for such year--
``(i) at least 50 percent of the total gross income of such
entity is derived from the active conduct of a qualified
business within any low-income reservation,
``(ii) a substantial portion of the use of the tangible
property of such entity (whether owned or leased) is within
any low-income reservation,
``(iii) a substantial portion of the services performed for
such entity by its employees are performed in any low-income
reservation,
``(iv) less than 5 percent of the average of the aggregate
unadjusted bases of the property of such entity is
attributable to collectibles (as defined in section
408(m)(2)) other than collectibles that are held primarily
for
[[Page S2918]]
sale to customers in the ordinary course of such business,
and
``(v) less than 5 percent of the average of the aggregate
unadjusted bases of the property of such entity is
attributable to nonqualified financial property (as defined
in section 1397C(e)).
``(B) Proprietorship.--Such term shall include any business
carried on by an individual as a proprietor if such business
would meet the requirements of subparagraph (A) were it
incorporated.
``(C) Portions of business may be qualified active low-
income reservation business.--The term `qualified active low-
income reservation business' includes any trades or
businesses which would qualify as a qualified active low-
income reservation business if such trades or businesses were
separately incorporated.
``(3) Qualified business.--For purposes of this subsection,
the term `qualified business' has the meaning given to such
term by section 45D(d)(3).
``(e) Low-Income Reservation.--For purposes of this
section, the term `low-income reservation' means any Indian
reservation (as defined in section 168(j)(6)) which has a
poverty rate of at least 40 percent.
``(f ) National Limitation on Amount of Investments
Designated.--
``(1) In general.--There is a Native American new markets
tax credit limitation of $50,000,000 for each of calendar
years 2004 through 2007.
``(2) Allocation of limitation.--The limitation under
paragraph (1) shall be allocated by the Secretary among
reservation development entities selected by the Secretary.
In making allocations under the preceding sentence, the
Secretary shall give priority to any entity--
``(A) with a record of having successfully provided capital
or technical assistance to disadvantaged businesses or
communities, or
``(B) which intends to satisfy the requirement under
subsection (b)(1)(B) by making qualified low-income
reservation investments in 1 or more businesses in which
persons unrelated to such entity (within the meaning of
section 267(b) or 707(b)(1)) hold the majority equity
interest.
``(3) Carryover of unused limitation.--If the Native
American new markets tax credit limitation for any calendar
year exceeds the aggregate amount allocated under paragraph
(2) for such year, such limitation for the succeeding
calendar year shall be increased by the amount of such
excess. No amount may be carried under the preceding sentence
to any calendar year after 2014.
``(g) Recapture of Credit in Certain Cases.--
``(1) In general.--If, at any time during the 7-year period
beginning on the date of the original issue of a qualified
equity investment in a reservation development entity, there
is a recapture event with respect to such investment, then
the tax imposed by this chapter for the taxable year in which
such event occurs shall be increased by the credit recapture
amount.
``(2) Credit recapture amount.--For purposes of paragraph
(1), the credit recapture amount is an amount equal to the
sum of--
``(A) the aggregate decrease in the credits allowed to the
taxpayer under section 38 for all prior taxable years which
would have resulted if no credit had been determined under
this section with respect to such investment, plus
``(B) interest at the underpayment rate established under
section 6621 on the amount determined under subparagraph (A)
for each prior taxable year for the period beginning on the
due date for filing the return for the prior taxable year
involved.
No deduction shall be allowed under this chapter for interest
described in subparagraph (B).
``(3) Recapture event.--For purposes of paragraph (1),
there is a recapture event with respect to an equity
investment in a reservation development entity if--
``(A) such entity ceases to be a reservation development
entity,
``(B) the proceeds of the investment cease to be used as
required of subsection (b)(1)(B), or
``(C) such investment is redeemed by such entity.
``(4) Special rules.--
``(A) Tax benefit rule.--The tax for the taxable year shall
be increased under paragraph (1) only with respect to credits
allowed by reason of this section which were used to reduce
tax liability. In the case of credits not so used to reduce
tax liability, the carryforwards and carrybacks under section
39 shall be appropriately adjusted.
``(B) No credits against tax.--Any increase in tax under
this subsection shall not be treated as a tax imposed by this
chapter for purposes of determining the amount of any credit
under this chapter or for purposes of section 55.
``(h) Basis Reduction.--The basis of any qualified equity
investment shall be reduced by the amount of any credit
determined under this section with respect to such
investment. This subsection shall not apply for purposes of
sections 1202, 1400B, and 1400F.
``(i) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out this section,
including regulations--
``(1) which limit the credit for investments which are
directly or indirectly subsidized by other Federal tax
benefits (including the credit under section 42 and the
exclusion from gross income under section 103),
``(2) which prevent the abuse of the purposes of this
section,
``(3) which provide rules for determining whether the
requirement of subsection (b)(1)(B) is treated as met,
``(4) which impose appropriate reporting requirements, and
``(5) which apply the provisions of this section to newly
formed entities.''.
(b) Credit Made Part of General Business Credit.--
(1) In general.--Subsection (b) of section 38 is amended by
redesignating paragraphs (14) and (15) as paragraphs (15) and
(16), respectively, and by inserting after paragraph (13) the
following new paragraph:
``(14) the Native American new markets tax credit
determined under section 45E(a),''.
(2) Limitation on carryback.--Subsection (d) of section 39
is amended by redesignating paragraph (10) as paragraph (11)
and by inserting after paragraph (9) the following new
paragraph:
``(10) No carryback of native american new markets tax
credit before january 1, 2004.--No portion of the unused
business credit for any taxable year which is attributable to
the credit under section 45E may be carried back to a taxable
year ending before January 1, 2004.''.
(c) Deduction for Unused Credit.--Subsection (c) of section
196 is amended by redesignating paragraph (10) as paragraph
(11), by striking ``and'' at the end of paragraph (9), and by
inserting after paragraph (9) the following new paragraph:
``(10) the Native American new markets tax credit
determined under section 45E(a), and''.
(d) Conforming Amendments.--
(1) Section 38(b)(15), as redesignated by subsection
(b)(1), is amended--
(A) by striking ``45E(c)'' and inserting ``45F(c)'', and
(B) by striking ``45E(a)'' and inserting ``45F(a)''.
(2) Section 38(b)(16), as redesignated by subsection
(b)(1), is amended by striking ``45F(a)'' and inserting
``45G(a)''.
(3) Section 39(d)(11), as redesignated by subsection
(b)(2), is amended by striking ``section 45E'' and inserting
``section 45F''.
(4) Section 196(c)(11), as redesignated by subsection (c),
is amended by striking ``45E(a)'' and inserting ``45F(a)''.
(5) Section 1016(a)(28) is amended--
(A) by striking ``under section 45F'' and inserting ``under
section 45G'', and
(B) by striking ``section 45F(f)(1)'' and inserting
``section 45G(f)(1)''.
(e) Clerical Amendment.--The table of sections for subpart
D of part IV of subchapter A of chapter 1 is amended by
striking the items relating to sections 45E and 45F and
inserting the following:
``Sec. 45E. Native American new markets tax credit.
``Sec. 45F. Small employer pension plan startup costs.
``Sec. 45G. Employer-provided child care credit.''.
(e) Effective Date.--The amendments made by this section
shall apply to investments made after December 31, 2003.
(f ) Guidance on Allocation of National Limitation.--Not
later than 120 days after the date of the enactment of this
Act, the Secretary of the Treasury or the Secretary's
delegate shall issue guidance which specifies--
(1) how entities shall apply for an allocation under
section 45E(f )(2) of the Internal Revenue Code of 1986, as
added by this section;
(2) the competitive procedure through which such
allocations are made; and
(3) the actions that such Secretary or delegate shall take
to ensure that such allocations are properly made to
appropriate entities.
(g) Audit and Report.--Not later than January 31 of 2007
and 2010, the Comptroller General of the United States shall,
pursuant to an audit of the Native American new markets tax
credit program established under section 45E of the Internal
Revenue Code of 1986 (as added by subsection (a)), report to
Congress on such program, including all reservation
development entities that receive an allocation under the
Native American new markets credit under such section.
(f) Grants in Coordination With Credit.--
(1) In general.--The Secretary of the Treasury is
authorized to award a grant of not more than $1,000,000 to
the First Nations Oweesta Corporation.
(2) Use of funds.--The grant awarded under paragraph (1)
may be used--
(A) to enhance the capacity of people living on low-income
reservations (within the meaning of section 45E(e) of the
Internal Revenue Code of 1986, as added by this section) to
access, apply, control, create, leverage, utilize, and retain
the financial benefits to such low-income reservations which
are attributable to qualified low-income reservation
investments (within the meaning of section 45E(d) of such
Code), and
(B) to provide access to appropriate financial capital for
the development of such low-income reservations.
(3) Authorization of appropriations.--There are authorized
to be appropriated $1,000,000 for fiscal years 2004 through
2014 to carry out the provisions of this subsection.
SEC. 632. 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
[[Page S2919]]
chapter 1 (relating to business-related credits), as amended
by this Act, is amended by adding at the end the following:
``SEC. 45H. 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 with respect to each Ready
Reserve-National Guard employee of an employer is an amount
equal to 50 percent of the lesser of--
``(1) the actual compensation amount with respect to such
employee for such taxable year, or
``(2) $15,000.
``(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 any day that a Ready Reserve-National
Guard employee who performs qualified active duty 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 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 of a reserve component of an
Armed Force of the United States as described in sections
10142 and 10101 of title 10, United States Code.
``(4) 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), as amended by 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:
``(17) the Ready Reserve-National Guard employee credit
determined under section 45H(a).''.
(c) Denial of Double Benefit.--Section 280C(a) (relating to
rule for employment credits) is amended by inserting
``45H(a),'' after ``45A(a),''.
(d) Conforming Amendment.--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 45G the following:
``Sec. 45H. Ready Reserve-National Guard employee credit.''.
(e) Effective Date.--The amendments made by this section
shall apply to amounts paid or incurred after the date of the
enactment of this Act, in taxable years ending after such
date.
SEC. 633. RURAL INVESTMENT TAX CREDIT.
(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:
``SEC. 42A. RURAL INVESTMENT CREDIT.
``(a) In General.--For purposes of section 38, the amount
of the rural investment credit determined under this section
for any taxable year in the credit period shall be an amount
equal to the applicable percentage of the eligible basis of
each qualified rural investment building.
``(b) Applicable Percentage: 70 Percent Present Value
Credit for New Buildings; 30 Percent Present Value Credit for
Existing Buildings.--For purposes of this section--
``(1) In general.--The term `applicable percentage' means
the appropriate percentage prescribed by the Secretary for
the earlier of--
``(A) the first month of the credit period with respect to
a rural investment building, or
``(B) at the election of the taxpayer, the month in which
the taxpayer and the rural investment credit agency enter
into an agreement with respect to such building (which is
binding on such agency, the taxpayer, and all successors in
interest) as to the rural investment credit dollar amount to
be allocated to such building.
A month may be elected under subparagraph (B) only if the
election is made not later than the 5th day after the close
of such month. Such an election, once made, shall be
irrevocable.
``(2) Method of prescribing percentages.--The percentages
prescribed by the Secretary for any month shall be
percentages which will yield over a 10-year period amounts of
credit under subsection (a) which have a present value equal
to--
``(A) 70 percent of the eligible basis of a new building,
and
``(B) 30 percent of the eligible basis of an existing
building.
``(3) Method of discounting.--The present value under
paragraph (2) shall be determined--
``(A) as of the last day of the 1st year of the 10-year
period referred to in paragraph (2),
``(B) by using a discount rate equal to 72 percent of the
average of the annual Federal mid-term rate and the annual
Federal long-term rate applicable under section 1274(d)(1) to
the month applicable under subparagraph (A) or (B) of
paragraph (1) and compounded annually, and
``(C) by assuming that the credit allowable under this
section for any year is received on the last day of such
year.
``(c) Eligible Basis; Qualified Rural Investment
Building.--For purposes of this section--
``(1) Eligible basis.--
``(A) In general.--The eligible basis of any qualified
rural investment building for any taxable year shall be
determined under rules similar to the rules under section
42(d), except that--
``(i) the determination of the adjusted basis of any
building shall be made as of the beginning of the credit
period, and
``(ii) such basis shall include development costs properly
attributable to such building.
``(B) Development costs.--For purposes of subparagraph
(A)(ii), the term `development costs' includes--
``(i) site preparation costs,
``(ii) State and local impact fees,
``(iii) reasonable development costs,
``(iv) professional fees related to basis items,
``(v) construction financing costs related to basis items
other than land, and
``(vi) on-site and adjacent improvements required by State
and local governments.
``(2) Qualified rural investment building.--The term
`qualified rural investment building' means any building
which is part of a qualified rural investment project at all
times during the period--
``(A) beginning on the 1st day in the compliance period on
which such building is part of such an investment project,
and
``(B) ending on the last day of the compliance period with
respect to such building.
``(d) Rehabilitation Expenditures Treated as Separate New
Building.--Rehabilitation expenditures paid or incurred by
the taxpayer with respect to any building shall be treated
for purposes of this section as a separate new building under
the rules of section 42(e).
``(e) Definition and Special Rules Relating to Credit
Period.--
``(1) Credit period defined.--For purposes of this section,
the term `credit period' means, with respect to any building,
the period of 10 taxable years beginning with the taxable
year in which the building is first placed in service.
``(2) Special rule for 1st year of credit period.--
``(A) In general.--The credit allowable under subsection
(a) with respect to any building for the 1st taxable year of
the credit period shall be determined by multiplying such
credit by the fraction--
``(i) the numerator of which is the number of full months
of such year during which such building was in service, and
``(ii) the denominator of which is 12.
``(B) Disallowed 1st year credit allowed in 11th year.--Any
reduction by reason of subparagraph (A) in the credit
allowable (without regard to subparagraph (A)) for the 1st
taxable year of the credit period shall be allowable under
subsection (a) for the 1st taxable year following the credit
period.
``(3) Credit period for existing buildings not to begin
before rehabilitation credit allowed.--The credit period for
an existing building shall not begin before the 1st taxable
year of the credit period for rehabilitation expenditures
with respect to the building.
``(f) Qualified Rural Investment Project; Qualifying
County.--For purposes of this section--
``(1) Qualified rural investment project.--The term
`qualified rural investment project' means any investment
project of 1 or more qualified rural investment buildings
located in a qualifying county (and, if necessary to the
project, any contiguous county) and selected by the State
according to its qualified rural investment plan.
``(2) Qualifying county.--The term `qualifying county'
means any county which--
``(A) is outside a metropolitan statistical area (defined
as such by the Office of Management and Budget), and
``(B) during the 20-year period ending with the calendar
year preceding the date of the enactment of this section, has
a net out-migration of inhabitants from the county of at
least 10 percent of the population of the county at the
beginning of such period.
``(g) Limitation on Aggregate Credit Allowable With Respect
to Investment Projects Located in a State.--
[[Page S2920]]
``(1) Credit may not exceed credit amount allocated to
building.--The amount of the credit determined under this
section for any taxable year with respect to any building
shall not exceed the rural investment credit dollar amount
allocated to such building under rules similar to the rules
of section 42(h)(1).
``(2) Allocated credit amount to apply to all taxable years
ending during or after credit allocation year.--Any rural
investment credit dollar amount allocated to any building for
any calendar year--
``(A) shall apply to such building for all taxable years in
the credit period ending during or after such calendar year,
and
``(B) shall reduce the aggregate rural investment credit
dollar amount of the allocating agency only for such calendar
year.
``(3) Rural investment credit dollar amount for agencies.--
``(A) In general.--The aggregate rural investment credit
dollar amount which a rural investment credit agency may
allocate for any calendar year is the portion of the State
rural investment credit ceiling allocated under this
paragraph for such calendar year to such agency.
``(B) State ceiling initially allocated to state rural
investment credit agencies.--Except as provided in
subparagraphs (D) and (E), the State rural investment credit
ceiling for each calendar year shall be allocated to the
rural investment credit agency of such State. If there is
more than 1 rural investment credit agency of a State, all
such agencies shall be treated as a single agency.
``(C) State rural investment credit ceiling.--The State
rural investment credit ceiling applicable to any State and
any calendar year shall be an amount equal to the sum of--
``(i) the unused State rural investment credit ceiling (if
any) of such State for the preceding calendar year,
``(ii) $185,000 for each qualifying county in the State,
``(iii) the amount of State rural investment credit ceiling
returned in the calendar year, plus
``(iv) the amount (if any) allocated under subparagraph (D)
to such State by the Secretary.
For purposes of clause (i), the unused State rural investment
credit ceiling for any calendar year is the excess (if any)
of the sum of the amounts described in clauses (ii) through
(iv) over the aggregate rural investment credit dollar amount
allocated for such year. For purposes of clause (iii), the
amount of State rural investment credit ceiling returned in
the calendar year equals the rural investment credit dollar
amount previously allocated within the State to any
investment project which fails to meet the 10 percent test
under section 42(h)(1)(E)(ii) on a date after the close of
the calendar year in which the allocation was made or which
does not become a qualified rural investment project within
the period required by this section or the terms of the
allocation or to any investment project with respect to which
an allocation is canceled by mutual consent of the rural
investment credit agency and the allocation recipient.
``(D) Unused rural investment credit carryovers allocated
among certain states.--
``(i) In general.--The unused rural investment credit
carryover of a State for any calendar year shall be assigned
to the Secretary for allocation among qualified States for
the succeeding calendar year.
``(ii) Unused rural investment credit carryover.--For
purposes of this subparagraph, the unused rural investment
credit carryover of a State for any calendar year is the
excess (if any) of the unused State rural investment credit
ceiling for such year (as defined in subparagraph (C)(i))
over the excess (if any) of--
``(I) the unused State rural investment credit ceiling for
the year preceding such year, over
``(II) the aggregate rural investment credit dollar amount
allocated for such year.
``(iii) Formula for allocation of unused rural investment
credit carryovers among qualified states.--The amount
allocated under this subparagraph to a qualified State for
any calendar year shall be the amount determined by the
Secretary to bear the same ratio to the aggregate unused
rural investment credit carryovers of all States for the
preceding calendar year as such State's population for the
calendar year bears to the population of all qualified States
for the calendar year. For purposes of the preceding
sentence, population shall be determined in accordance with
section 146(j).
``(iv) Qualified state.--For purposes of this subparagraph,
the term `qualified State' means, with respect to a calendar
year, any State--
``(I) which allocated its entire State rural investment
credit ceiling for the preceding calendar year, and
``(II) for which a request is made (not later than May 1 of
the calendar year) to receive an allocation under clause
(iii).
``(E) State may provide for different allocation.--Rules
similar to the rules of section 146(e) (other than paragraph
(2)(B) thereof) shall apply for purposes of this paragraph.
``(F) Population.--For purposes of this paragraph,
population shall be determined in accordance with section
146(j).
``(G) Cost-of-living adjustment.--
``(i) In general.--In the case of a calendar year after
2005, the $185,000 amount in subparagraph (C) 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 by substituting
`calendar year 2004' for `calendar year 1992' in subparagraph
(B) thereof.
``(ii) Rounding.--Any increase under clause (i) which is
not a multiple of $5,000 shall be rounded to the next lowest
multiple of $5,000.
``(4) Portion of state ceiling set-aside for certain
investment projects involving qualified nonprofit
organizations.--
``(A) In general.--At least 10 percent of the State rural
investment credit ceiling for any State for any calendar year
shall be allocated to qualified rural investment projects
described in subparagraph (B).
``(B) Investment projects involving qualified nonprofit
organizations.--For purposes of subparagraph (A), a qualified
rural investment project is described in this subparagraph if
a qualified nonprofit organization is to materially
participate (within the meaning of section 469(h)) in the
development and operation of the investment project
throughout the compliance period.
``(C) Qualified nonprofit organization.--For purposes of
this paragraph, the term `qualified nonprofit organization'
means any organization if--
``(i) such organization is described in any paragraph of
section 501(c) and is exempt from tax under section 501(a),
``(ii) such organization is determined by the State rural
investment credit agency not to be affiliated with or
controlled by a for-profit organization; and
``(iii) 1 of the exempt purposes of such organization
includes the fostering of rural investment.
``(D) Treatment of certain subsidiaries.--
``(i) In general.--For purposes of this paragraph, a
qualified nonprofit organization shall be treated as
satisfying the ownership and material participation test of
subparagraph (B) if any qualified corporation in which such
organization holds stock satisfies such test.
``(ii) Qualified corporation.--For purposes of clause (i),
the term `qualified corporation' means any corporation if 100
percent of the stock of such corporation is held by 1 or more
qualified nonprofit organizations at all times during the
period such corporation is in existence.
``(E) State may not override set-aside.--Nothing in
subparagraph (F) of paragraph (3) shall be construed to
permit a State not to comply with subparagraph (A) of this
paragraph.
``(F) Credits for qualified nonprofit organizations.--
``(i) Allowance of credit.--Any credit which would be
allowable under subsection (a) with respect to a qualified
rural investment building of a qualified nonprofit
organization if such organization were not exempt from tax
under this chapter shall be treated as a credit allowable
under subpart C to such organization.
``(ii) Use of credit.--A qualified nonprofit organization
may assign, trade, sell, or otherwise transfer any credit
allowable to such organization under subparagraph (A) to any
taxpayer.
``(iii) Credit not income.--A transfer under subparagraph
(B) of any credit allowable under subparagraph (A) shall not
result in income for purposes of section 511.
``(5) Special rules.--
``(A) Building must be located within jurisdiction of
credit agency.--A rural investment credit agency may allocate
its aggregate rural investment credit dollar amount only to
buildings located in the jurisdiction of the governmental
unit of which such agency is a part.
``(B) Agency allocations in excess of limit.--If the
aggregate rural investment credit dollar amounts allocated by
a rural investment credit agency for any calendar year exceed
the portion of the State rural investment credit ceiling
allocated to such agency for such calendar year, the rural
investment credit dollar amounts so allocated shall be
reduced (to the extent of such excess) for buildings in the
reverse of the order in which the allocations of such amounts
were made.
``(C) Credit reduced if allocated credit dollar amount is
less than credit which would be allowable without regard to
sales convention, etc.--
``(i) In general.--The amount of the credit determined
under this section with respect to any building shall not
exceed the clause (ii) percentage of the amount of the credit
which would (but for this subparagraph) be determined under
this section with respect to such building.
``(ii) Determination of percentage.--For purposes of clause
(i), the clause (ii) percentage with respect to any building
is the percentage which--
``(I) the rural investment credit dollar amount allocated
to such building bears to
``(II) the credit amount determined in accordance with
clause (iii).
``(iii) Determination of credit amount.--The credit amount
determined in accordance with this clause is the amount of
the credit which would (but for this subparagraph) be
determined under this section with respect to the building if
this section were applied without regard to paragraph (2)(A)
of subsection (e).
``(D) Rural investment credit agency to specify applicable
percentage and maximum eligible basis.--In allocating a rural
[[Page S2921]]
investment credit dollar amount to any building, the rural
investment credit agency shall specify the applicable
percentage and the maximum eligible basis which may be taken
into account under this section with respect to such
building. The applicable percentage and maximum eligible
basis so specified shall not exceed the applicable percentage
and eligible basis determined under this section without
regard to this subsection.
``(6) Other definitions.--For purposes of this subsection--
``(A) Rural investment credit agency.--The term `rural
investment credit agency' means any agency authorized to
carry out this subsection.
``(B) Possessions treated as states.--The term `State'
includes a possession of the United States.
``(7) Portion of state ceiling set-aside for qualified
rural small business investment credits.--Not more than 10
percent of the State rural investment credit ceiling for any
State for any calendar year may be allocated to qualified
rural small business investment credits under section 42B.
``(h) Definitions and Special Rules.--For purposes of this
section--
``(1) Compliance period.--The term `compliance period'
means, with respect to any building, the period of 10 taxable
years beginning with the 1st taxable year of the credit
period with respect thereto.
``(2) New building.--The term `new building' means a
building the original use of which begins with the taxpayer.
``(3) Existing building.--The term `existing building'
means any building which is not a new building.
``(4) Application to estates and trusts.--In the case of an
estate or trust, the amount of the credit determined under
subsection (a) and any increase in tax under subsection (i)
shall be apportioned between the estate or trust and the
beneficiaries on the basis of the income of the estate or
trust allocable to each.
``(i) Recapture of Credit.--If--
``(1) as of the close of any taxable year in the compliance
period, the amount of the eligible basis of any building with
respect to the taxpayer is less than
``(2) the amount of such basis as of the close of the
preceding taxable year,
then the taxpayer's tax under this chapter for the taxable
year shall be increased by the credit recapture amount
determined under rules similar to the rules of section 42(j).
``(j) Certifications and Other Reports to Secretary.--
``(1) Certification with respect to 1st year of credit
period.--Following the close of the 1st taxable year in the
credit period with respect to any qualified rural investment
building, the taxpayer shall certify to the Secretary (at
such time and in such form and in such manner as the
Secretary prescribes)--
``(A) the taxable year, and calendar year, in which such
building was first placed in service,
``(B) the eligible basis of such building as of the
beginning of the credit period,
``(C) the maximum applicable percentage and eligible basis
permitted to be taken into account by the appropriate rural
investment credit agency under subsection (g),
``(D) the election made under subsection (f) with respect
to the qualified rural investment project of which such
building is a part, and
``(E) such other information as the Secretary may require.
In the case of a failure to make the certification required
by the preceding sentence on the date prescribed therefor,
unless it is shown that such failure is due to reasonable
cause and not to willful neglect, no credit shall be
allowable by reason of subsection (a) with respect to such
building for any taxable year ending before such
certification is made.
``(2) Annual reports to the secretary.--The Secretary may
require taxpayers to submit an information return (at such
time and in such form and manner as the Secretary prescribes)
for each taxable year setting forth--
``(A) the eligible basis for the taxable year of each
qualified rural investment building of the taxpayer,
``(B) the information described in paragraph (1)(C) for the
taxable year, and
``(C) such other information as the Secretary may require.
The penalty under section 6652(j) shall apply to any failure
to submit the return required by the Secretary under the
preceding sentence on the date prescribed therefor.
``(3) Annual reports from rural investment credit
agencies.--Each agency which allocates any rural investment
credit amount to any building for any calendar year shall
submit to the Secretary (at such time and in such manner as
the Secretary shall prescribe) an annual report specifying--
``(A) the amount of rural investment credit amount
allocated to each building for such year,
``(B) sufficient information to identify each such building
and the taxpayer with respect thereto, and
``(C) such other information as the Secretary may require.
The penalty under section 6652(j) shall apply to any failure
to submit the report required by the preceding sentence on
the date prescribed therefor.
``(k) Responsibilities of Rural Investment Credit
Agencies.--
``(1) Plans for allocation of credit among investment
projects.--
``(A) In general.--Notwithstanding any other provision of
this section, the rural investment credit dollar amount with
respect to any building shall be zero unless--
``(i) such amount was allocated pursuant to a qualified
rural investment plan of the agency which is approved by the
governmental unit (in accordance with rules similar to the
rules of section 147(f)(2) (other than subparagraph (B)(ii)
thereof)) of which such agency is a part,
``(ii) such agency notifies the chief executive officer (or
the equivalent) of the local jurisdiction within which the
building is located of such investment project and provides
such individual a reasonable opportunity to comment on the
investment project,
``(iii) a comprehensive market study of the development
needs of individuals in the qualifying county to be served by
the investment project is conducted before the credit
allocation is made and at the developer's expense by a
disinterested party who is approved by such agency, and
``(iv) a written explanation is available to the general
public for any allocation of a rural investment credit dollar
amount which is not made in accordance with established
priorities and selection criteria of the rural investment
credit agency.
``(B) Qualified rural investment plan.--For purposes of
this section, the term `qualified rural investment plan'
means any plan--
``(i) which sets forth selection criteria to be used to
determine priorities of the rural investment credit agency
which are appropriate to qualifying counties,
``(ii) which also gives preference in allocating rural
investment credit dollar amounts among selected investment
projects to--
``(I) investment projects that target those small rural
counties with consistently high rates of net out-migration,
``(II) investment projects that link the economic
development and job creation efforts of 2 or more small rural
counties with high rates of net out-migration, and
``(III) investment projects that link the economic
development and job creation efforts of 1 or more small rural
counties in the State with high rates of net out-migration to
related efforts in regions of such State experiencing
economic growth, and
``(iii) which provides a procedure that the agency (or an
agent or other private contractor of such agency) will follow
in monitoring for noncompliance with the provisions of this
section and in notifying the Internal Revenue Service of such
noncompliance which such agency becomes aware of and in
monitoring for noncompliance through regular site visits.
``(C) Certain selection criteria must be used.--The
selection criteria set forth in a qualified rural investment
plan must include--
``(i) investment project location,
``(ii) technology and transportation infrastructure needs,
and
``(iii) private development trends.
``(2) Credit allocated to building not to exceed amount
necessary to assure investment project feasibility.--
``(A) In general.--The rural investment credit dollar
amount allocated to an investment project shall not exceed
the amount the rural investment credit agency determines is
necessary for the financial feasibility of the investment
project and its viability as a qualified rural investment
project throughout the compliance period.
``(B) Agency evaluation.--In making the determination under
subparagraph (A), the rural investment credit agency shall
consider--
``(i) the sources and uses of funds and the total financing
planned for the investment project,
``(ii) any proceeds or receipts expected to be generated by
reason of tax benefits,
``(iii) the percentage of the rural investment credit
dollar amount used for investment project costs other than
the cost of intermediaries, and
``(iv) the reasonableness of the developmental and
operational costs of the investment project.
Clause (iii) shall not be applied so as to impede the
development of investment projects in hard-to-develop areas.
``(C) Determination made when credit amount applied for and
when building placed in service.--
``(i) In general.--A determination under subparagraph (A)
shall be made as of each of the following times:
``(I) The application for the rural investment credit
dollar amount.
``(II) The allocation of the rural investment credit dollar
amount.
``(III) The date the building is first placed in service.
``(ii) Certification as to amount of other subsidies.--
Prior to each determination under clause (i), the taxpayer
shall certify to the rural investment credit agency the full
extent of all Federal, State, and local subsidies which apply
(or which the taxpayer expects to apply) with respect to
the building.
``(l) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this section, including regulations--
``(1) dealing with--
``(A) investment projects which include more than 1
building or only a portion of a building,
[[Page S2922]]
``(B) buildings which are sold in portions,
``(2) providing for the application of this section to
short taxable years,
``(3) preventing the avoidance of the rules of this
section, and
``(4) providing the opportunity for rural investment credit
agencies to correct administrative errors and omissions with
respect to allocations and record keeping within a reasonable
period after their discovery, taking into account the
availability of regulations and other administrative guidance
from the Secretary.''.
(b) Current Year Business Credit Calculation.--Section
38(b) (relating to current year business credit), as amended
by this Act, is amended by striking ``plus'' at the end of
paragraph (16), by striking the period at the end of
paragraph (17) and inserting ``, plus'', and by adding at the
end the following:
``(18) the rural investment credit determined under section
42A(a).''.
(c) Limitation on Carryback.--Subsection (d) of section 39
(relating to carryback and carryforward of unused credits),
as amended by this Act, is amended by adding at the end the
following:
``(12) No carryback of rural investment credit before
effective date.--No portion of the unused business credit for
any taxable year which is attributable to the rural
investment credit determined under section 42A may be carried
back to a taxable year beginning before the date of the
enactment of the Jumpstart Our Business Strength (JOBS)
Act.''.
(d) Conforming Amendments.--
(1) Section 55(c)(1) is amended by inserting ``or
subsection (i) or (j) of section 42A'' after ``section 42''.
(2) Subsections (i)(c)(3), (i)(c)(6)(B)(i), and (k)(1) of
section 469 are each amended by inserting ``or 42A'' after
``section 42''.
(3) Section 772(a) is amended by striking ``and'' at the
end of paragraph (10), by redesignating paragraph (11) as
paragraph (12), and by inserting after paragraph (10) the
following:
``(11) the rural investment credit determined under section
42A, and''.
(4) Section 774(b)(4) is amended by inserting ``, 42A(i),''
after ``section 42(j)''.
(e) Clerical 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 42 the
following:
``Sec. 42A. Rural investment credit.''.
(f) Effective Date.--The amendments made by this section
shall apply to expenditures made in taxable years beginning
after the date of the enactment of this Act.
SEC. 634. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of
chapter 1 (relating to business related credits), as amended
by this Act, is amended by adding at the end the following:
``SEC. 42B. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.
``(a) In General.--For purposes of section 38, in the case
of a qualified rural small business, the amount of the
qualified rural small business investment credit determined
under this section for any taxable year is equal to 30
percent of the qualified expenditures for the taxable year of
such business.
``(b) Dollar Limitation.--
``(1) In general.--The credit allowable under subsection
(a) for any taxable year shall not exceed the lesser of--
``(A) $5,000, or
``(B) the amount when added to the aggregate credits
allowable to the taxpayer under subsection (a) for all
preceding taxable years does not exceed $25,000.
``(2) No double credit allowed.--In the case of any
qualified rural small business which places in service a
qualified rural investment building with respect to which a
rural investment credit is allowed under section 42A for any
taxable year, paragraph (1)(A) shall be applied with respect
to such taxable year by substituting `zero' for `$5,000'.
``(c) Qualified Rural Small Business.--For purposes of this
section, the term `qualified rural small business' means any
person if such person--
``(1) employed not more than 5 full-time employees during
the taxable year,
``(2) materially and substantially participates in
management,
``(3) is located is a qualifying county, and
``(4) submitted a qualified business plan with respect to
which the rural investment credit agency with jurisdiction
over such qualifying county has allocated a portion of the
State rural investment ceiling for such taxable year under
section 42A(g)(7).
For purposes of paragraph (1), an employee shall be
considered full-time if such employee is employed at least 30
hours per week for 20 or more calendar weeks in the taxable
year.
``(d) Qualified Expenditures.--For purposes of this
section--
``(1) In general.--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 wages, but not including interest costs.
``(2) Only certain expenditures included for existing
businesses.--In the case of a qualified rural small business
with respect to which a credit under subsection (a) was
allowed for a preceding taxable year, such term shall include
only so much of the expenditures described in paragraph (1)
for the taxable year as exceed the aggregate of such
expenditures for the preceding taxable year.
``(e) Qualified Business Plan.--For purposes of this
section, the term `qualified business plan' means a business
plan which--
``(1) has been approved by the rural investment credit
agency with jurisdiction over the qualifying county in which
the qualified rural small business is located pursuant to
such agency's rural investment plan, and
``(2) meets such requirements as the agency may specify.
``(f) Denial of Double Benefit.--In the case of the amount
of the credit determined under this section--
``(1) no deduction or credit shall be allowed for such
amount under any other provision of this chapter, and
``(2) no increase in the adjusted basis of any property
shall result from such amount.
``(g) Definitions and Special Rules.--For purposes of this
section--
``(1) any term which is used in this section which is used
in section 42A shall have the meaning given such term by
section 42A, and
``(2) rules similar to the rules under subsections (j)(2),
(j)(3), and (k) of section 42A shall apply.''.
(b) Current Year Business Credit Calculation.--Section
38(b) (relating to current year business credit), as amended
by this Act, is amended by striking ``plus'' at the end of
paragraph (17), by striking the period at the end of
paragraph (18) and inserting ``, plus'', and by adding at the
end the following:
``(19) the qualified rural small business investment credit
determined under section 42B(a).''.
(c) Limitation on Carryback.--Subsection (d) of section 39
(relating to carryback and carryforward of unused credits),
as amended by this Act, is amended by adding at the end the
following:
``(13) No carryback of qualified rural small business
investment credit before effective date.--No portion of the
unused business credit for any taxable year which is
attributable to the qualified rural small business investment
credit determined under section 42B may be carried back to a
taxable year beginning before the date of the enactment of
the Jumpstart Our Business Strength (JOBS) Act.''.
(d) Clerical Amendment.--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 42A the following:
``Sec. 42B. Qualified rural small business investment credit.''.
(e) Effective Date.--The amendments made by this section
shall apply to expenditures made in taxable years beginning
after the date of the enactment of this Act.
SEC. 635. CREDIT FOR MAINTENANCE OF RAILROAD TRACK.
(a) In General.--Subpart D of part IV of subchapter A of
chapter 1 (relating to business-related credits), as amended
by this Act, is amended by adding at the end the following
new section:
``SEC. 45I. RAILROAD TRACK MAINTENANCE CREDIT.
``(a) General Rule.--For purposes of section 38, the
railroad track maintenance credit determined under this
section for the taxable year is an amount equal to 15 percent
of the qualified railroad track maintenance expenditures paid
or incurred by an eligible taxpayer during the taxable year.
``(b) Limitation.--The credit allowed under subsection (a)
for any taxable year shall not exceed the product of--
``(1) $10,000, and
``(2) the number of miles of railroad track owned or leased
by the eligible taxpayer as of the close of the taxable year.
``(c) Eligible taxpayer.--For purposes of this section, the
term `eligible taxpayer' means--
``(1) any Class II or Class III railroad, and
``(2) any person who transports property using the rail
facilities of a person described in paragraph (1) or who
furnishes railroad-related property or services to such a
person.
``(d) Qualified Railroad Track Maintenance Expenditures.--
For purposes of this section, the term `qualified railroad
track maintenance expenditures' means expenditures (whether
or not otherwise chargeable to capital account) for
maintaining railroad track (including roadbed, bridges, and
related track structures) owned or leased as of January 1,
2005, by a Class II or Class III railroad.
``(e) Other Definitions and Special Rules.--
``(1) Class ii or Class iii railroad.--For purposes of this
section, the terms `Class II railroad' and `Class III
railroad' have the meanings given such terms by the Surface
Transportation Board.
``(2) Controlled groups.--Rules similar to the rules of
paragraph (1) of section 41(f) shall apply for purposes of
this section.
``(3) Basis adjustment.--For purposes of this subtitle, if
a credit is allowed under this section with respect to any
railroad track, the basis of such track shall be reduced by
the amount of the credit so allowed.
``(f) Application of Section.--This section shall apply to
qualified railroad track maintenance expenditures paid or
incurred during taxable years beginning after December 31,
2004, and before January 1, 2008.''.
(b) Limitation on Carryback.--Section 39(d) (relating to
transition rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
[[Page S2923]]
``(14) No carryback of railroad track maintenance credit
before effective date.--No portion of the unused business
credit for any taxable year which is attributable to the
railroad track maintenance credit determined under section
45I may be carried to a taxable year beginning before January
1, 2005.''.
(c) Conforming Amendments.--
(1) Section 38(b) (relating to general business credit), as
amended by this Act, is amended by striking ``plus'' at the
end of paragraph (18), by striking the period at the end of
paragraph (19) and inserting ``, plus'', and by adding at the
end the following new paragraph:
``(20) the railroad track maintenance credit determined
under section 45I(a).''.
(2) Subsection (a) of section 1016, as amended by this Act,
is amended by striking ``and'' at the end of paragraph (28),
by striking the period at the end of paragraph (29) and
inserting ``, and'', and by adding at the end the following
new paragraph:
``(30) in the case of railroad track with respect to which
a credit was allowed under section 45I, to the extent
provided in section 45I(e)(3).''.
(d) Clerical Amendment.--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. 45I. Railroad track maintenance credit.''.
(e) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2004.
SEC. 636. RAILROAD REVITALIZATION AND SECURITY INVESTMENT
CREDIT.
(a) Railroad Revitalization and Security Investment
Credit.--
(1) In general.--Subpart D of part IV of subchapter A of
chapter 1 (relating to business-related credits), as amended
by this Act, is amended by adding at the end the following
new section:
``SEC. 45J. RAILROAD REVITALIZATION AND SECURITY INVESTMENT
CREDIT.
``(a) General Rule.--For purposes of section 38, the
railroad revitalization and security investment credit
determined under this section for the taxable year is the
amount equal to 50 percent of the qualified project
expenditures paid or incurred by the taxpayer during the
taxable year.
``(b) Qualified Project Expenditures.--
``(1) In general.--For purposes of this section, the term
`qualified project expenditures' means, with respect to any
project for intercity passenger rail transportation (as
defined under section 24102 of title 49, United States Code)
which is included in a State rail plan, expenditures (whether
or not otherwise chargeable to capital account) for--
``(A) planning,
``(B) environmental review and environmental impact
mitigation,
``(C) track and track structure rehabilitation, relocation,
improvement, and development,
``(D) railroad safety and security improvements,
``(E) communications and signaling improvements,
``(F) intercity passenger rail equipment acquisition, and
``(G) rail station and intermodal facilities development.
``(2) Exceptions.--An expenditure shall not be treated as a
qualified project expenditure unless all persons which
conduct rail operations over the infrastructure with respect
to which such an expenditure is made--
``(A) are employers for purposes of the Railroad Retirement
Act of 1974 and are carriers for purposes of the Railway
Labor Act (unless such a person is an operator with respect
to commuter rail passenger transportation (as defined in
section 24102(4) of title 49, United States Code) of a State
or local government authority (as such terms are defined in
section 5302 of such title) eligible to receive financial
assistance under section 5307 of such title, a contractor
performing services in connection with the operations with
respect to commuter rail passenger transportation (as so
defined), or the Alaska Railroad or its contractors),
``(B) provide assurances to the State that any collective
bargaining agreements with such a person's employees
(including terms regulating the contracting of work) will
remain in full force and effect according to the terms of the
agreements for work performed for such a person on the
railroad transportation corridor, and
``(C) comply with the protective agreements established
under section 504 of the Railroad Revitalization and
Regulatory Reform Act of 1976 with respect to employees
affected by actions taken in connection with the project.
``(c) Limitation.--
``(1) In general.--The amount of the credit allowed under
subsection (a) for any taxable year with respect to any
project for which qualified project expenditures are made
shall not exceed the limitation allocated to such project
under this subsection for the calendar year in which the
taxable year begins.
``(2) State limitation.--
``(A) In general.--There is a State railroad revitalization
and security investment credit limitation for each calendar
year. Such limitation is the amount which bears the same
ratio to $165,000,000 as the allocation number for such State
bears to the allocation number for all States.
``(B) Allocation number.--For purposes of subparagraph (A),
the allocation number is, with respect to any State, the sum
of the following:
``(i) The number of railroad and public road grade
crossings on intercity passenger rail routes within the
State.
``(ii) The number of intercity passenger rail miles within
the State.
``(iii) The number of intercity embarkations and
disembarkations for each passenger within the State.
``(3) Unused credit carryovers allocated among certain
states.--
``(A) In general.--The unused credit carryover for all
States for any calendar year shall be reallocated to each
qualified State in an amount which bears the same ratio to
the unused credit carryover for all States for the calendar
as the allocation number for such qualified State bears to
the allocation number for all qualified States.
``(B) Unused credit carryover.--For purposes of this
paragraph, the term `unused credit carryover' means, with
respect to any State, the excess of the State limitation
(determined under paragraph (2)) for the calendar year over
the amount allocated by the State under paragraph (4) for
such calendar year.
``(C) Qualified states.--For purposes of this paragraph,
the term `qualified State' means any State--
``(i) which allocated its entire State limitation amount
under paragraph (4) for the calendar year, and
``(ii) for which a request is made to receive an allocation
under this paragraph.
``(4) Allocation within states.--Each State shall allocate
the limitation amount allocated to such State under
paragraphs (2) and (3) to projects for intercity passenger
rail transportation which are included in the State rail plan
of such State.
``(5) New york city rail projects.--In addition to the
amounts allocated under paragraph (2), the Secretary shall
allocate a limitation of $100,000,000 for each calendar year
to New York City for qualified project expenditures within
such city.
``(d) State rail plan.--For purposes of this section, the
term `State rail plan' means a plan prepared and maintained
in accordance with chapter 225 of title 49, United States
Code.
``(e) Basis Adjustment.--For purposes of this subtitle, if
a credit is allowed under this section with respect to any
property, the basis of such property shall be reduced by the
amount of the credit so allowed.
``(f) No Double Benefit.--No credit shall be allowed under
this section with respect to any expenditures for which a
credit is allowed under section 45I.
``(g) Credit Transferability.--Any credit allowable under
this section may be transferred (but not more than once) if--
``(1) the credit exceeds the tax liability of the taxpayer
for the taxable year, or
``(2) the taxpayer is not subject to any tax imposed by
this chapter by reason of having a tax-exempt status.
``(h) Application of Section.--This section shall apply to
qualified project expenditures paid or incurred during
taxable years beginning after December 31, 2004, and before
January 1, 2008.''.
(2) Limitation on carryback.--Section 39(d) (relating to
transition rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
``(15) No carryback of section 45j credit before effective
date.--No portion of the unused business credit for any
taxable year which is attributable to the credit determined
under section 45J(a) may be carried back to any taxable year
beginning before January 1, 2005.''.
(3) Conforming amendments.--
(A) Section 38(b) (relating to general business credit), as
amended by this Act, is amended by striking ``plus'' at the
end of paragraph (19), by striking the period at the end of
paragraph (20) and inserting ``, plus'', and by adding at the
end the following new paragraph:
``(21) the railroad revitalization and security investment
credit determined under section 45J(a).''.
(B) Subsection (a) of section 1016, as amended by this Act,
is amended by striking ``and'' at the end of paragraph (29),
by striking the period at the end of paragraph (30) and
inserting ``, and'', and by adding at the end the following
new paragraph:
``(31) in the case of property with respect to which a
credit was allowed under section 45J, to the extent provided
in section 45J(e).''.
(4) Clerical amendment.--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 45I the following new item:
``Sec. 45J. Railroad revitalization and security investment credit.''.
(5) Effective date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2004.
(b) State Rail Plans.--
(1) In general.--Part B of subtitle V of title 49, United
States Code, is amended by adding at the end the following:
``CHAPTER 225--STATE RAIL PLANS
``Sec.
``22501. Authority.
``22502. Purposes.
``22503. Transparency; coordination.
``22504. Content.
[[Page S2924]]
``22505. Approval.
``22506. Definitions.
``Sec. 22501. Authority
``(a) In General.--Each State may prepare and maintain a
State rail plan in accordance with the provisions of this
chapter.
``(b) Requirements.--For the preparation and periodic
revision of a State rail plan, a State shall--
``(1) establish or designate a State rail transportation
authority to prepare, maintain, coordinate, and administer
the plan;
``(2) establish or designate a State rail plan approval
authority to approve the plan;
``(3) make the State's approved plan available to the
public and transmit a copy to the Secretary of
Transportation; and
``(4) revise the plan no less frequently than once every 5
years.
``Sec. 22502. Purposes
``(a) Purposes.--The purposes of a State rail plan are as
follows:
``(1) To set forth State policy involving freight and
passenger rail transportation, including commuter rail
operations, in the State.
``(2) To present priorities and strategies to enhance rail
service in the State that benefits the public.
``(3) To serve as the basis for Federal and State rail
investments within the State.
``(b) Content.--The State rail plan shall establish the
period covered by such plan.
``(c) Consistency With State Transportation Efforts.--A
State rail plan shall be consistent with the State
transportation planning goals and programs and shall set
forth rail transportation's role within the State
transportation system.
``Sec. 22503. Transparency; coordination
``(a) Preparation.--A State shall provide adequate and
reasonable notice and opportunity for comment and other input
on a proposed State rail plan under this chapter to the
following:
``(1) The public.
``(2) Rail carriers.
``(3) Commuter and transit authorities operating in, or
affected by rail operations within, the State.
``(4) Units of local government.
``(5) Other parties interested in the preparation and
review of the State rail plan.
``(b) Intergovernmental Coordination.--A State shall review
the freight and passenger rail service activities and
initiatives of regional planning agencies, regional
transportation authorities, and municipalities within the
State, or in the region in which the State is located, while
preparing the plan, and shall include any recommendations
made by such agencies, authorities, and municipalities as
deemed appropriate by the State.
``Sec. 22504. Content
``(a) In General.--Each State rail plan shall contain the
following:
``(1) An inventory of the existing overall rail
transportation system and rail services and facilities within
the State and an analysis of the role of rail transportation
within the State's surface transportation system.
``(2) A comprehensive review of all rail lines within the
State, including proposed high speed rail corridors and
significant rail line segments not currently in service.
``(3) A statement of the State's passenger rail service
objectives, including minimum service levels, for intercity
passenger rail transportation routes in the State.
``(4) A general analysis of rail's transportation,
economic, and environmental impacts in the State, including
congestion mitigation, trade and economic development, air
quality, land-use, energy-use, and community impacts.
``(5) A long-range rail investment program for current and
future freight and passenger infrastructure in the State that
meets the requirements of subsection (b).
``(6) A statement of public financing issues for rail
projects and service in the State, including a list of
current and prospective public capital and operating funding
resources, public subsidies, State taxation, and other
financial policies relating to rail infrastructure
development.
``(7) An identification of rail infrastructure issues
within the State that reflects consultation with all relevant
stake holders.
``(8) A review of major passenger and freight intermodal
rail connections and facilities within the State, including
seaports, and prioritized options to maximize service
integration and efficiency between rail and other modes of
transportation within the State.
``(9) A review of publicly funded projects within the State
to improve rail transportation safety and security, including
all major projects funded under section 130 of title 23.
``(10) A performance evaluation of passenger rail services
operating in the State, including possible improvements in
those services, and a description of strategies to achieve
those improvements.
``(11) A compilation of studies and reports on high-speed
rail corridor development within the State not included in a
previous plan under this chapter, and a plan for funding any
recommended development of such corridors in the State.
``(12) A statement that the State satisfies the conditions
set forth in section 22102.
``(b) Long-Range Service and Investment Program.--
``(1) Program content.--A long-range rail investment
program included in a State rail plan under subsection (a)(5)
shall include the following matters:
``(A) Two lists for rail capital projects, 1 list for
freight rail capital projects and 1 list for intercity
passenger rail capital projects.
``(B) A detailed funding plan for the projects.
``(2) Project list content.--The lists of freight and
intercity passenger rail capital projects shall contain--
``(A) a description of the anticipated public and private
benefits of each such project; and
``(B) a statement of the correlation between--
``(i) public funding contributions for the projects; and
``(ii) the public benefits.
``(3) Considerations for project list.--In preparing the
list of freight and intercity passenger rail capital
projects, a State rail transportation authority shall take
into consideration the following matters:
``(A) Contributions made by non-Federal and non-State
sources through user fees, matching funds, or other private
capital involvement.
``(B) Rail capacity and congestion effects.
``(C) Effects to highway, aviation, and maritime capacity,
congestion, or safety.
``(D) Regional balance.
``(E) Environmental impact.
``(F) Economic and employment impacts.
``(G) Projected ridership and other service measures for
passenger rail projects.
``Sec. 22505. Approval
``The State rail plan approval authority established or
designated under section 22501(b)(2) may approve a State rail
plan for the purposes of this chapter if--
``(1) the plan meets all of the requirements applicable to
State plans under this chapter;
``(2) for each ready-to-commence project listed on the
ranked list of freight and intercity passenger rail capital
improvement projects under the plan--
``(A) the project meets all safety and environmental
requirements, including those prescribed under the National
Environmental Policy Act of 1969 (42 U.S.C. 4331 et seq.)
that are applicable to the project under law; and
``(B) the State has entered into an agreement with any
owner of rail infrastructure or right-of-way directly
affected by the project that provides for the State to
proceed with the project and includes assurances regarding
capacity and compensation for use of such infrastructure or
right-of-way, if applicable; and
``(3) the content of the plan is coordinated with State
transportation plans developed pursuant to section 135 of
title 23.
``Sec. 22506. Definitions
``In this chapter:
``(1) Private benefit.--The term `private benefit'--
``(A) means a benefit accrued to a person or private
entity, other than the National Railroad Passenger
Corporation, that directly improves the economic and
competitive condition of that person or entity through
improved assets, cost reductions, service improvements, or
other means; and
``(B) shall be determined on a project-by-project basis,
based upon an agreement between the State and the affected
persons or private entities.
``(2) Public benefit.--The term `public benefit'--
``(A) means a benefit accrued to the public in the form of
enhanced mobility of people or goods, environmental
protection or enhancement, congestion mitigation, enhanced
trade and economic development, improved air quality or land
use, more efficient energy use, enhanced public safety or
security, reduction of public expenditures due to improved
transportation efficiency or infrastructure preservation, and
other positive community effects; and
``(B) shall be determined on a project-by-project basis,
based upon an agreement between the State and the persons or
private entities involved in the project.
``(3) State.--The term `State' means any of the 50 States
and the District of Columbia.
``(4) State rail transportation authority.--The term `State
rail transportation authority' means the State agency or
official responsible under the direction of the Chief
Executive of the State or a State law for preparation,
maintenance, coordination, and administration of the State
rail plan under this chapter.''.
(2) Clerical amendment.--The table of chapters at the
beginning of subtitle V of title 49, United States Code, is
amended by inserting after the item relating to chapter 223
the following:
``225. STATE RAIL PLANS.......................................22501.''.
Subtitle E--Miscellaneous Provisions
SEC. 641. EXCLUSION OF GAIN OR LOSS ON SALE OR EXCHANGE OF
CERTAIN BROWNFIELD SITES FROM UNRELATED
BUSINESS TAXABLE INCOME.
(a) In General.--Subsection (b) of section 512 (relating to
unrelated business taxable income) is amended by adding at
the end the following new paragraph:
``(18) Treatment of gain or loss on sale or exchange of
certain brownfield sites.--
``(A) In general.--Notwithstanding paragraph (5)(B), there
shall be excluded any gain or loss from the qualified sale,
exchange, or other disposition of any qualifying brownfield
property by an eligible taxpayer.
``(B) Eligible taxpayer.--For purposes of this paragraph--
``(i) In general.--The term `eligible taxpayer' means, with
respect to a property, any organization exempt from tax under
section 501(a) which--
[[Page S2925]]
``(I) acquires from an unrelated person a qualifying
brownfield property, and
``(II) pays or incurs eligible remediation expenditures
with respect to such property in an amount which exceeds the
greater of $550,000 or 12 percent of the fair market value of
the property at the time such property was acquired by the
eligible taxpayer, determined as if there was not a presence
of a hazardous substance, pollutant, or contaminant on the
property which is complicating the expansion, redevelopment,
or reuse of the property.
``(ii) Exception.--Such term shall not include any
organization which is--
``(I) potentially liable under section 107 of the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 with respect to the qualifying
brownfield property,
``(II) affiliated with any other person which is so
potentially liable through any direct or indirect familial
relationship or any contractual, corporate, or financial
relationship (other than a contractual, corporate, or
financial relationship which is created by the instruments by
which title to any qualifying brownfield property is conveyed
or financed or by a contract of sale of goods or services),
or
``(III) the result of a reorganization of a business entity
which was so potentially liable.
``(C) Qualifying brownfield property.--For purposes of this
paragraph--
``(i) In general.--The term `qualifying brownfield
property' means any real property which is certified, before
the taxpayer incurs any eligible remediation expenditures
(other than to obtain a Phase I environmental site
assessment), by an appropriate State agency (within the
meaning of section 198(c)(4)) in the State in which such
property is located as a brownfield site within the meaning
of section 101(39) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 (as in
effect on the date of the enactment of this paragraph).
``(ii) Request for certification.--Any request by an
eligible taxpayer for a certification described in clause (i)
shall include a sworn statement by the eligible taxpayer and
supporting documentation of the presence of a hazardous
substance, pollutant, or contaminant on the property which is
complicating the expansion, redevelopment, or reuse of the
property given the property's reasonably anticipated future
land uses or capacity for uses of the property (including a
Phase I environmental site assessment and, if applicable,
evidence of the property's presence on a local, State, or
Federal list of brownfields or contaminated property) and
other environmental assessments prepared or obtained by the
taxpayer.
``(D) Qualified sale, exchange, or other disposition.--For
purposes of this paragraph--
``(i) In general.--A sale, exchange, or other disposition
of property shall be considered as qualified if--
``(I) such property is transferred by the eligible taxpayer
to an unrelated person, and
``(II) within 1 year of such transfer the eligible taxpayer
has received a certification from the Environmental
Protection Agency or an appropriate State agency (within the
meaning of section 198(c)(4)) in the State in which such
property is located that, as a result of the eligible
taxpayer's remediation actions, such property would not be
treated as a qualifying brownfield property in the hands of
the transferee.
For purposes of subclause (II), before issuing such
certification, the Environmental Protection Agency or
appropriate State agency shall respond to comments received
pursuant to clause (ii)(V) in the same form and manner as
required under section 117(b) of the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980 (as in effect on the date of the enactment of this
paragraph).
``(ii) Request for certification.--Any request by an
eligible taxpayer for a certification described in clause (i)
shall be made not later than the date of the transfer and
shall include a sworn statement by the eligible taxpayer
certifying the following:
``(I) Remedial actions which comply with all applicable or
relevant and appropriate requirements (consistent with
section 121(d) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980) have been
substantially completed, such that there are no hazardous
substances, pollutants, or contaminants which complicate the
expansion, redevelopment, or reuse of the property given the
property's reasonably anticipated future land uses or
capacity for uses of the property.
``(II) The reasonably anticipated future land uses or
capacity for uses of the property are more economically
productive or environmentally beneficial than the uses of the
property in existence on the date of the certification
described in subparagraph (C)(i). For purposes of the
preceding sentence, use of property as a landfill or other
hazardous waste facility shall not be considered more
economically productive or environmentally beneficial.
``(III) A remediation plan has been implemented to bring
the property into compliance with all applicable local,
State, and Federal environmental laws, regulations, and
standards and to ensure that the remediation protects human
health and the environment.
``(IV) The remediation plan described in subclause (III),
including any physical improvements required to remediate the
property, is either complete or substantially complete, and,
if substantially complete, sufficient monitoring, funding,
institutional controls, and financial assurances have been
put in place to ensure the complete remediation of the
property in accordance with the remediation plan as soon as
is reasonably practicable after the sale, exchange, or other
disposition of such property.
``(V) Public notice and the opportunity for comment on the
request for certification was completed before the date of
such request. Such notice and opportunity for comment shall
be in the same form and manner as required for public
participation required under section 117(a) of the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (as in effect on the date of the
enactment of this paragraph). For purposes of this subclause,
public notice shall include, at a minimum, publication in a
major local newspaper of general circulation.
``(iii) Attachment to tax returns.--A copy of each of the
requests for certification described in clause (ii) of
subparagraph (C) and this subparagraph shall be included in
the tax return of the eligible taxpayer (and, where
applicable, of the qualifying partnership) for the taxable
year during which the transfer occurs.
``(iv) Substantial completion.--For purposes of this
subparagraph, a remedial action is substantially complete
when any necessary physical construction is complete, all
immediate threats have been eliminated, and all long-term
threats are under control.
``(E) Eligible remediation expenditures.--For purposes of
this paragraph--
``(i) In general.--The term `eligible remediation
expenditures' means, with respect to any qualifying
brownfield property, any amount paid or incurred by the
eligible taxpayer to an unrelated third person to obtain a
Phase I environmental site assessment of the property, and
any amount so paid or incurred after the date of the
certification described in subparagraph (C)(i) for goods and
services necessary to obtain a certification described in
subparagraph (D)(i) with respect to such property, including
expenditures--
``(I) to manage, remove, control, contain, abate, or
otherwise remediate a hazardous substance, pollutant, or
contaminant on the property,
``(II) to obtain a Phase II environmental site assessment
of the property, including any expenditure to monitor,
sample, study, assess, or otherwise evaluate the release,
threat of release, or presence of a hazardous substance,
pollutant, or contaminant on the property,
``(III) to obtain environmental regulatory certifications
and approvals required to manage the remediation and
monitoring of the hazardous substance, pollutant, or
contaminant on the property, and
``(IV) regardless of whether it is necessary to obtain a
certification described in subparagraph (D)(i)(II), to obtain
remediation cost-cap or stop-loss coverage, re-opener or
regulatory action coverage, or similar coverage under
environmental insurance policies, or financial guarantees
required to manage such remediation and monitoring.
``(ii) Exceptions.--Such term shall not include--
``(I) any portion of the purchase price paid or incurred by
the eligible taxpayer to acquire the qualifying brownfield
property,
``(II) environmental insurance costs paid or incurred to
obtain legal defense coverage, owner/operator liability
coverage, lender liability coverage, professional liability
coverage, or similar types of coverage,
``(III) any amount paid or incurred to the extent such
amount is reimbursed, funded, or otherwise subsidized by
grants provided by the United States, a State, or a political
subdivision of a State for use in connection with the
property, proceeds of an issue of State or local government
obligations used to provide financing for the property the
interest of which is exempt from tax under section 103, or
subsidized financing provided (directly or indirectly) under
a Federal, State, or local program provided in connection
with the property, or
``(IV) any expenditure paid or incurred before the date of
the enactment of this paragraph.
For purposes of subclause (III), the Secretary may issue
guidance regarding the treatment of government-provided funds
for purposes of determining eligible remediation
expenditures.
``(F) Determination of gain or loss.--For purposes of this
paragraph, the determination of gain or loss shall not
include an amount treated as gain which is ordinary income
with respect to section 1245 or section 1250 property,
including amounts deducted as section 198 expenses which are
subject to the recapture rules of section 198(e), if the
taxpayer had deducted such amounts in the computation of its
unrelated business taxable income.
``(G) Special rules for partnerships.--
``(i) In general.--In the case of an eligible taxpayer
which is a partner of a qualifying partnership which
acquires, remediates, and sells, exchanges, or otherwise
disposes of a qualifying brownfield property, this paragraph
shall apply to the eligible taxpayer's distributive share of
the qualifying partnership's gain or loss from the sale,
exchange, or other disposition of such property.
``(ii) Qualifying partnership.--The term `qualifying
partnership' means a partnership which--
``(I) has a partnership agreement which satisfies the
requirements of section
[[Page S2926]]
514(c)(9)(B)(vi) at all times beginning on the date of the
first certification received by the partnership under
subparagraph (C)(i),
``(II) satisfies the requirements of subparagraphs (B)(i),
(C), (D), and (E), if `qualified partnership' is substituted
for `eligible taxpayer' each place it appears therein (except
subparagraph (D)(iii)), and
``(III) is not an organization which would be prevented
from constituting an eligible taxpayer by reason of
subparagraph (B)(ii).
``(iii) Requirement that tax-exempt partner be a partner
since first certification.--This paragraph shall apply with
respect to any eligible taxpayer which is a partner of a
partnership which acquires, remediates, and sells, exchanges,
or otherwise disposes of a qualifying brownfield property
only if such eligible taxpayer was a partner of the
qualifying partnership at all times beginning on the date of
the first certification received by the partnership under
subparagraph (C)(i) and ending on the date of the sale,
exchange, or other disposition of the property by the
partnership.
``(iv) Regulations.--The Secretary shall prescribe such
regulations as are necessary to prevent abuse of the
requirements of this subparagraph, including abuse through--
``(I) the use of special allocations of gains or losses, or
``(II) changes in ownership of partnership interests held
by eligible taxpayers.
``(H) Special rules for multiple properties.--
``(i) In general.--An eligible taxpayer or a qualifying
partnership of which the eligible taxpayer is a partner may
make a 1-time election to apply this paragraph to more than 1
qualifying brownfield property by averaging the eligible
remediation expenditures for all such properties acquired
during the election period. If the eligible taxpayer or
qualifying partnership makes such an election, the election
shall apply to all qualified sales, exchanges, or other
dispositions of qualifying brownfield properties the
acquisition and transfer of which occur during the period for
which the election remains in effect.
``(ii) Election.--An election under clause (i) shall be
made with the eligible taxpayer's or qualifying partnership's
timely filed tax return (including extensions) for the first
taxable year for which the taxpayer or qualifying partnership
intends to have the election apply. An election under clause
(i) is effective for the period--
``(I) beginning on the date which is the first day of the
taxable year of the return in which the election is included
or a later day in such taxable year selected by the eligible
taxpayer or qualifying partnership, and
``(II) ending on the date which is the earliest of a date
of revocation selected by the eligible taxpayer or qualifying
partnership, the date which is 8 years after the date
described in subclause (I), or, in the case of an election by
a qualifying partnership of which the eligible taxpayer is a
partner, the date of the termination of the qualifying
partnership.
``(iii) Revocation.--An eligible taxpayer or qualifying
partnership may revoke an election under clause (i)(II) by
filing a statement of revocation with a timely filed tax
return (including extensions). A revocation is effective as
of the first day of the taxable year of the return in which
the revocation is included or a later day in such taxable
year selected by the eligible taxpayer or qualifying
partnership. Once an eligible taxpayer or qualifying
partnership revokes the election, the eligible taxpayer or
qualifying partnership is ineligible to make another election
under clause (i) with respect to any qualifying brownfield
property subject to the revoked election.
``(I) Recapture.--If an eligible taxpayer excludes gain or
loss from a sale, exchange, or other disposition of property
to which an election under subparagraph (H) applies, and such
property fails to satisfy the requirements of this paragraph,
the unrelated business taxable income of the eligible
taxpayer for the taxable year in which such failure occurs
shall be determined by including any previously excluded gain
or loss from such sale, exchange, or other disposition
allocable to such taxpayer, and interest shall be determined
at the overpayment rate established under section 6621 on any
resulting tax for the period beginning with the due date of
the return for the taxable year during which such sale,
exchange, or other disposition occurred, and ending on the
date of payment of the tax.
``(J) Related persons.--For purposes of this paragraph, a
person shall be treated as related to another person if--
``(i) such person bears a relationship to such other person
described in section 267(b) (determined without regard to
paragraph (9) thereof), or section 707(b)(1), determined by
substituting `25 percent' for `50 percent' each place it
appears therein, and
``(ii) in the case such other person is a nonprofit
organization, if such person controls directly or indirectly
more than 25 percent of the governing body of such
organization.''
(b) Exclusion From Definition of Debt-Financed Property.--
Section 514(b)(1) (defining debt-financed property) is
amended by striking ``or'' at the end of subparagraph (C), by
striking the period at the end of subparagraph (D) and
inserting ``; or'', and by inserting after subparagraph (D)
the following new subparagraph:
``(E) any property the gain or loss from the sale,
exchange, or other disposition of which would be excluded by
reason of the provisions of section 512(b)(18) in computing
the gross income of any unrelated trade or business.''.
(c) Savings Clause.--Nothing in the amendments made by this
section shall affect any duty, liability, or other
requirement imposed under any other Federal or State law.
Notwithstanding section 128(b) of the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980, a certification provided by the Environmental
Protection Agency or an appropriate State agency (within the
meaning of section 198(c)(4) of the Internal Revenue Code of
1986) shall not affect the liability of any person under
section 107(a) of such Act.
(d) Effective Date.--The amendments made by this section
shall apply to any gain or loss on the sale, exchange, or
other disposition of any property acquired by the taxpayer
after December 31, 2004.
SEC. 642. MODIFICATION OF UNRELATED BUSINESS INCOME
LIMITATION ON INVESTMENT IN CERTAIN DEBT-
FINANCED PROPERTIES.
(a) In General.--Section 514(c)(6) (relating to acquisition
indebtedness) is amended--
(1) by striking ``include an obligation'' and inserting
``include--
``(A) an obligation'',
(2) by striking the period at the end and inserting ``,
or'', and
(3) by adding at the end the following:
``(B) indebtedness incurred by a small business investment
company licensed under the Small Business Investment Act of
1958 which is evidenced by a debenture--
``(i) issued by such company under section 303(a) of such
Act, and
``(ii) held or guaranteed by the Small Business
Administration.''.
(b) Effective Date.--The amendments made by this section
shall apply to acquisitions made on or after the date of the
enactment of this Act.
SEC. 643. CIVIL RIGHTS TAX RELIEF.
(a) Deduction Allowed Whether or Not Taxpayer Itemizes
Other Deductions.--Subsection (a) of section 62 (defining
adjusted gross income) is amended by inserting after
paragraph (18) the following new item:
``(19) Costs involving discrimination suits, etc.--Any
deduction allowable under this chapter for attorney fees and
court costs paid by, or on behalf of, the taxpayer in
connection with any action involving a claim of unlawful
discrimination (as defined in subsection (e)) or a claim of a
violation of subchapter III of chapter 37 of title 31, United
States Code. The preceding sentence shall not apply to any
deduction in excess of the amount includible in the
taxpayer's gross income for the taxable year on account of a
judgment or settlement (whether by suit or agreement and
whether as lump sum or periodic payments) resulting from such
claim.''.
(b) Unlawful Discrimination Defined.--Section 62 is amended
by adding at the end the following new subsection:
``(e) Unlawful Discrimination Defined.--For purposes of
subsection (a)(19), the term `unlawful discrimination' means
an act that is unlawful under any of the following:
``(1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C.
1202).
``(2) Section 201, 202, 203, 204, 205, 206, or 207 of the
Congressional Accountability Act of 1995 (2 U.S.C. 1311,
1312, 1313, 1314, 1315, 1316, or 1317).
``(3) The National Labor Relations Act (29 U.S.C. 151 et
seq.).
``(4) The Fair Labor Standards Act of 1938 (29 U.S.C. 201
et seq.).
``(5) Section 4 or 15 of the Age Discrimination in
Employment Act of 1967 (29 U.S.C. 623 or 633a).
``(6) Section 501 or 504 of the Rehabilitation Act of 1973
(29 U.S.C. 791 or 794).
``(7) Section 510 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1140).
``(8) Title IX of the Education Amendments of 1972 (29
U.S.C. 1681 et seq.).
``(9) The Employee Polygraph Protection Act of 1988 (29
U.S.C. 201 et seq.).
``(10) The Worker Adjustment and Retraining Notification
Act (29 U.S.C. 2102 et seq.).
``(11) Section 105 of the Family and Medical Leave Act of
1993 (29 U.S.C. 2615).
``(12) Chapter 43 of title 38, United States Code (relating
to employment and reemployment rights of members of the
uniformed services).
``(13) Section 1977, 1979, or 1980 of the Revised Statutes
(42 U.S.C. 1981, 1983, or 1985).
``(14) Section 703, 704, or 717 of the Civil Rights Act of
1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
``(15) Section 804, 805, 806, 808, or 818 of the Fair
Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
``(16) Section 102, 202, 302, or 503 of the Americans with
Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or
12203).
``(17) Any provision of Federal law (popularly known as
whistleblower protection provisions) prohibiting the
discharge of an employee, the discrimination against an
employee, or any other form of retaliation or reprisal
against an employee for asserting rights or taking other
actions permitted under Federal law.
``(18) Any provision of State or local law, or common law
claims permitted under Federal, State, or local law--
``(i) providing for the enforcement of civil rights, or
``(ii) regulating any aspect of the employment
relationship, including claims for wages, compensation, or
benefits, or prohibiting the discharge of an employee, the
discrimination against an employee, or any other form of
retaliation or reprisal against
[[Page S2927]]
an employee for asserting rights or taking other actions
permitted by law.''.
(c) Effective Date.--The amendments made by this section
shall apply to fees and costs paid after December 31, 2002,
with respect to any judgment or settlement occurring after
such date.
SEC. 644. 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) (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 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.
SEC. 645. CERTAIN EXPENSES OF RURAL LETTER CARRIERS.
(a) In General.--Section 162(o) (relating to treatment of
certain reimbursed expenses of rural mail carriers) is
amended by redesignating paragraph (2) as paragraph (3) and
by inserting after paragraph (1) the following:
``(2) Special rule where expenses exceed reimbursements.--
Notwithstanding paragraph (1)(A), if the expenses incurred by
an employee for the use of a vehicle in performing services
described in paragraph (1) exceed the qualified
reimbursements for such expenses, such excess shall be taken
into account in computing the miscellaneous itemized
deductions of the employee under section 67.''.
(b) Conforming Amendment.--The heading for section 162(o)
is amended by striking ``Reimbursed''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2003.
SEC. 646. METHOD OF ACCOUNTING FOR NAVAL SHIPBUILDERS.
(a) In General.--In the case of a qualified naval ship
contract, the taxable income of such contract during the 5-
taxable year period beginning with the taxable year in which
the contract commencement date occurs shall be determined
under a method identical to the method used in the case of a
qualified ship contract (as defined in section 10203(b)(2)(B)
of the Revenue Act of 1987).
(b) Recapture of Tax Benefit.--In the case of a qualified
naval ship contract to which subsection (a) applies, the
taxpayer's tax imposed by chapter 1 of the Internal Revenue
Code of 1986 for the first taxable year following the 5-
taxable year period described in subsection (a) shall be
increased by the excess (if any) of--
(1) the amount of tax which would have been imposed during
such period if this section had not been enacted, over
(2) the amount of tax so imposed during such period.
(c) Qualified Naval Ship Contract.--For purposes of this
section--
(1) In general.--The term ``qualified naval ship contract''
means any contract or portion thereof that is for the
construction in the United States of 1 ship or submarine for
the Federal Government if the taxpayer reasonably expects the
acceptance date will occur no later than 9 years after the
construction commencement date.
(2) Acceptance date.--The term ``acceptance date'' means
the date 1 year after the date on which the Federal
Government issues a letter of acceptance or other similar
document for the ship or submarine.
(3) Construction commencement date.--The term
``construction commencement date'' means the date on which
the physical fabrication of any section or component of the
ship or submarine begins.
(d) Effective Date.--This section shall apply to contracts
for ships or submarines with respect to which the
construction commencement date occurs after the date of the
enactment of this Act.
SEC. 647. SUSPENSION OF POLICYHOLDERS SURPLUS ACCOUNT
PROVISIONS.
(a) In General.--Section 815 (relating to distributions to
shareholders from pre-1984 policyholders surplus account) is
amended by adding at the end the following new subsection:
``(g) Application of Section.--This section shall not apply
to stock life insurance companies for taxable years beginning
after December 31, 2003, and beginning before January 1,
2006.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2003.
SEC. 648. 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.
SEC. 649. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF
WEATHER-RELATED CONDITIONS.
(a) Replacement of Livestock With Other Farm Property.--
Subsection (f) of section 1033 (relating to involuntary
conversions) is amended--
(1) by inserting ``drought, flood, or other weather-related
conditions, or'' after ``because of'',
(2) by inserting ``in the case of soil contamination or
other environmental contamination'' after ``including real
property'', and
(3) by striking ``Where There Has Been Environmental
Contamination'' in the heading and inserting ``in Certain
Cases''.
(b) Extension of Replacement Period of Involuntarily
Converted Livestock.--Subsection (e) of section 1033
(relating to involuntary conversions) is amended--
(1) by striking ``Conditions.--For purposes'' and inserting
``Conditions.--
``(1) In general.--For purposes'', and
(2) by adding at the end the following new paragraph:
``(2) Extension of replacement period.--
``(A) In general.--In the case of drought, flood, or other
weather-related conditions described in paragraph (1) which
result in the area being designated as eligible for
assistance by the Federal Government, subsection (a)(2)(B)
shall be applied with respect to any converted property by
substituting `4 years' for `2 years'.
``(B) Further extension by secretary.--The Secretary may
extend on a regional basis the period for replacement under
this section (after the application of subparagraph (A)) for
such additional time as the Secretary determines appropriate
if the weather-related conditions which resulted in such
application continue for more than 3 years.''.
(c) Income Inclusion Rules.--Section 451(e) (relating to
special rule for proceeds from livestock sold on account of
drought, flood, or other weather-related conditions) is
amended by adding at the end the following new paragraph:
``(3) Special election rules.--If section 1033(e)(2)
applies to a sale or exchange of livestock described in
paragraph (1), the election under paragraph (1) shall be
deemed valid if made during the replacement period described
in such section.''.
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2003.
SEC. 650. MOTOR VEHICLE DEALER TRANSITIONAL ASSISTANCE.
(a) In General.--For purposes of subtitle A of the Internal
Revenue Code of 1986, in the case of a taxpayer who elects
the application of this section and who was a party to a
motor vehicle sales and service agreement with a motor
vehicle manufacturer who announced in December 2000 that it
would phase-out the motor vehicle brand to which such
agreement relates--
(1) amounts received by such taxpayer from such
manufacturer on account of the termination of such agreement
(hereafter in this section referred to as ``termination
payment'') are considered to be received for property used in
the trade or business of a motor vehicle retail sales and
service dealership, and
(2) to the extent such termination payment is reinvested in
property used in a motor vehicle retail sales and service
dealership located within the United States, such property
shall qualify as like-kind replacement property to which
section 1031 of the Internal Revenue Code of 1986 shall apply
with the following modifications:
(A) Such section shall be applied without regard to
subparagraphs (A) and (B)(ii) of subsection (a)(3).
(B) The period described in section 1031(a)(3)(B) of such
Code shall be applied by substituting ``2 years'' for ``180
days''.
(b) Rules for Election.--
(1) Form of election.--The taxpayer shall make an election
under this section in such form and manner as the Secretary
of the Treasury may prescribe and shall include in such
election the amount of the termination payment received, the
identification of the replacement property purchased, and
such other information as the Secretary may prescribe.
(2) Election on amended return.--The Secretary of the
Treasury shall permit an election under this section on an
amended tax return for taxable years beginning before the
date of the enactment of this Act.
(c) Statute of Limitations.--Notwithstanding the provisions
of any other law or rule of law, the statutory period for the
assessment for any deficiency attributable to any termination
payment gain shall be extended until 3 years after the date
the Secretary of the Treasury is notified by the taxpayer of
the like-kind replacement property or an intention not to
replace.
(d) Effective Date.--This section shall apply to amounts
received after December 12, 2000, in taxable years ending
after such date.
[[Page S2928]]
SEC. 651. 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. 652. 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.
SEC. 653. BLUE RIBBON COMMISSION ON COMPREHENSIVE TAX REFORM.
(a) Establishment.--
(1) In general.--There is established the ``Blue Ribbon
Commission on Comprehensive Tax Reform'' (in this section
referred to as the ``Commission'').
(2) Membership.--
(A) Composition.--The Commission shall be composed of 17
members of whom--
(i) 3 shall be appointed by the majority leader of the
Senate;
(ii) 3 shall be appointed by the minority leader of the
Senate;
(iii) 3 shall be appointed by the Speaker of the House of
Representatives;
(iv) 3 shall be appointed by the minority leader of the
House of Representatives; and
(v) 5 shall be appointed by the President, of which no more
than 3 shall be of the same party as the President.
(B) Federal employees.--The members of the Commission may
be employees or former employees of the Federal Government.
(C) Date.--The appointments of the members of the
Commission shall be made not later than October 30, 2004.
(3) 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.
(4) 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.
(5) Meetings.--The Commission shall meet at the call of the
Chairman.
(6) Quorum.--A majority of the members of the Commission
shall constitute a quorum, but a lesser number of members may
hold hearings.
(7) Chairman and vice chairman.--The President shall select
a Chairman and Vice Chairman from among its members.
(b) Duties of the Commission.--
(1) 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.
(2) Recommendations.--The Commission shall develop
recommendations on how to comprehensively reform the Federal
tax system in a manner that generates appropriate revenue for
the Federal Government.
(3) Report.--Not later than 18 months after the date on
which all initial members of the commission have been
appointed pursuant to subsection (a)(2), 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.
(c) Powers of the Commission.--
(1) 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.
(2) 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.
(3) 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.
(4) Gifts.--The Commission may accept, use, and dispose of
gifts or donations of services or property.
(d) Commission Personnel Matters.--
(1) 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.
(2) 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.
(3) Staff.--
(A) 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.
(B) 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.
(4) Detail of government employees.--Any Federal Government
employee may be detailed to the Commission without
reimbursement, and such detail shall be without interruption
or loss of civil service status or privilege.
(5) 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.
(e) Termination of the Commission.--The Commission shall
terminate 90 days after the date on which the Commission
submits its report under subsection (b).
(f) Authorization of Appropriations.--There are authorized
to be appropriated such sums as are necessary to the
Commission to carry out this section.
SEC. 654. TREATMENT OF DISTRIBUTIONS BY ESOPS WITH RESPECT TO
S CORPORATION STOCK.
(a) In General.--Section 4975(d) of the Internal Revenue
Code of 1986 is amended by adding at the end the following
new flush sentences:
``A plan shall not be treated as violating the requirements
of section 401, 409, or subsection (e)(7), or as engaging in
a prohibited transaction for purposes of paragraph (3),
merely by reason of any distribution described in section
1368(a) with respect to S corporation stock which constitutes
qualifying employer securities if the distribution is, in
accordance with the plan provisions, used to make payments on
a loan described in paragraph (3) the proceeds of which were
used to acquire the qualifying employer securities (whether
or not allocated to participants). The preceding sentence
shall not apply in the case of a distribution which is paid
with respect to any employer security which is allocated to a
participant unless the plan provides that employer securities
with a fair market value of not less than the amount of such
distribution are allocated to such participant for the year
which (but for the preceding sentence) such distribution
would have been allocated to such participant.''
(b) Effective Date.--The amendment made by this section
shall take effect on January 1, 1998.
[[Page S2929]]
SEC. 655. CLARIFICATION OF WORKING CAPITAL FOR REASONABLY
ANTICIPATED NEEDS OF A BUSINESS FOR PURPOSES OF
ACCUMULATED EARNINGS TAX.
(a) In General.--Section 537(b) (relating to special rules)
is amended by adding at the end the following new paragraph:
``(6) Working capital.--The reasonably anticipated needs of
a business for any taxable year shall include working capital
for the business in an amount which is not less than the sum
of the cost of goods, operating expenses, taxes, and interest
expense which the business incurred during the preceding
taxable year. Any amounts incurred as part of a plan a
principal purpose of which is to increase the limitation
under this subsection shall not be taken into account.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2003, and before January 1, 2009.
Subtitle F--Revenue Provisions
PART I--GENERAL REVENUE PROVISIONS
SEC. 661. TREASURY REGULATIONS ON FOREIGN TAX CREDIT.
Section 901, as amended by this Act, is amended by
redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following new subsection:
``(m) Regulations.--The Secretary may prescribe regulations
disallowing a credit under subsection (a) for all or a
portion of any foreign tax, or allocating a foreign tax among
2 or more persons, in cases where the foreign tax is imposed
on any person in respect of income of another person or in
other cases involving the inappropriate separation of the
foreign tax from the related foreign income.''.
SEC. 662. NONATTRIBUTION OF CERTAIN MANUFACTURING BY PERSONS
OTHER THAN CONTROLLED FOREIGN CORPORATION.
(a) In General.--Section 954(d) (defining foreign base
company sales income) is amended by adding at the end the
following new paragraph:
``(5) Nonattribution of certain manufacturing activities.--
For purposes of this subsection, in determining whether
income of a controlled foreign corporation is foreign base
company sales income, any manufacturing, production, or
construction by a person other than an individual who is an
employee of the corporation shall not be attributed to the
corporation.''
(b) Effective Date.--
(1) In general.--The amendment made by this section shall
apply to taxable years of controlled foreign corporations
beginning on or after the date of the enactment of this Act,
and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
(2) No inference.--Nothing in the amendment made by this
section shall be construed to infer the proper treatment of
manufacturing, production, or construction for taxable years
beginning before the date of the enactment of this Act.
SEC. 663. FREEZE OF PROVISIONS REGARDING SUSPENSION OF
INTEREST WHERE SECRETARY FAILS TO CONTACT
TAXPAYER.
(a) In General.--Section 6404(g) (relating to suspension of
interest and certain penalties where secretary fails to
contact taxpayer) is amended by striking ``1-year period (18-
month period in the case of taxable years beginning before
January 1, 2004)'' both places it appears and inserting ``18-
month period''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2003.
PART II--PENSION AND DEFERRED COMPENSATION
SEC. 671. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION
PLANS.
(a) In General.--Subpart A of part I of subchapter D of
chapter 1 is amended by adding at the end the following new
section:
``SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED
COMPENSATION UNDER NONQUALIFIED DEFERRED
COMPENSATION PLANS.
``(a) Rules Relating to Constructive Receipt.--
``(1) In general.--
``(A) Gross income inclusion.--If at any time during a
taxable year a nonqualified deferred compensation plan--
``(i) fails to meet the requirements of paragraphs (2),
(3), (4), and (5), or
``(ii) is not operated in accordance with such
requirements,
all compensation deferred under the plan for the taxable year
and all preceding taxable years shall be includible in gross
income for the taxable year to the extent not subject to a
substantial risk of forfeiture and not previously included in
gross income.
``(B) Interest and additional tax payable with respect to
previously deferred compensation.--
``(i) In general.--If compensation is required to be
included in gross income under subparagraph (A) for a taxable
year, the tax imposed by this chapter for the taxable year of
inclusion shall be increased by the sum of--
``(I) the amount of interest determined under clause (ii),
and
``(II) an amount equal to 10 percent of the compensation
which is required to be included in gross income.
``(ii) Interest.--For purposes of clause (i), the interest
determined under this clause for any taxable year is
the amount of interest at the underpayment rate on the
underpayments that would have occurred had the deferred
compensation been includible in gross income for the
taxable year in which first deferred or, if later, the
first taxable in which such deferred compensation is not
subject to a substantial risk of forfeiture.
``(2) Distributions.--
``(A) In general.--The requirements of this paragraph are
met if the plan provides that compensation deferred under the
plan may not be distributed earlier than--
``(i) except as provided in subparagraph (B)(i), separation
from service (as determined by the Secretary),
``(ii) the date the participant becomes disabled (within
the meaning of subparagraph (C)),
``(iii) death,
``(iv) a specified time (or pursuant to a fixed schedule)
specified under the plan as of the date of the deferral of
such compensation,
``(v) to the extent provided by the Secretary, a change in
the ownership or effective control of the corporation, or in
the ownership of a substantial portion of the assets of the
corporation, or
``(vi) the occurrence of an unforeseeable emergency.
``(B) Special rules.--
``(i) Separation from service of specified employees.--In
the case of specified employees, the requirement of
subparagraph (A)(i) is met only if distributions may not be
made earlier than 6 months after the date of separation from
service. For purposes of the preceding sentence, a specified
employee is a key employee (as defined in section 416(i)) of
a corporation the stock in which is publicly traded on an
established securities market or otherwise.
``(ii) Changes in ownership or control.--In the case of a
participant who is subject to the requirements of section
16(a) of the Securities Exchange Act of 1934, the requirement
of subparagraph (A)(v) is met only if distributions may not
be made earlier than 1 year after the date of the change in
ownership or effective control.
``(iii) Unforeseeable emergency.--For purposes of
subparagraph (A)(vi)--
``(I) In general.--The term `unforeseeable emergency' means
a severe financial hardship to the participant or beneficiary
resulting from a sudden and unexpected illness or accident of
the participant or beneficiary, the participant's or
beneficiary's spouse, or the participant's or beneficiary's
dependent (as defined in section 152(a)), loss of the
participant's or beneficiary's property due to casualty, or
other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the
participant or beneficiary.
``(II) Limitation on distributions.--The requirement of
subparagraph (A)(vi) is met only if, as determined under
regulations of the Secretary, the amounts distributed with
respect to an emergency do not exceed the amounts necessary
to satisfy such emergency plus amounts necessary to pay taxes
reasonably anticipated as a result of the distribution, after
taking into account the extent to which such hardship is or
may be relieved through reimbursement or compensation by
insurance or otherwise or by liquidation of the participant's
or beneficiary's assets (to the extent the liquidation of
such assets would not itself cause severe financial
hardship).
``(C) Disabled.--For purposes of subparagraph (A)(ii), a
participant shall be considered disabled if the participant--
``(i) is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or
can be expected to last for a continuous period of not less
than 12 months, or
``(ii) is, by reason of any medically determinable physical
or mental impairment which can be expected to result in death
or can be expected to last for a continuous period of not
less than 12 months, receiving income replacement benefits
for a period of not less than 3 months under an accident and
health plan covering employees of the participant's employer
.
``(3) Investment options.--The requirements of this
paragraph are met if the plan provides that the investment
options a participant may elect under the plan--
``(A) are comparable to the investment options which a
participant may elect under the qualified employer plan of
the employer which has the fewest investment options, or
``(B) if there is no such qualified employer plan, meet
such requirements as the Secretary may prescribe (including
requirements limiting such options to permissible investment
options specified by the Secretary).
``(4) Acceleration of benefits.--The requirements of this
paragraph are met if the plan does not permit the
acceleration of the time or schedule of any payment under the
plan, except as provided by the Secretary.
``(5) Elections.--
``(A) In general.--The requirements of this paragraph are
met if the requirements of subparagraphs (B) and (C) are met.
``(B) Initial deferral decision.--The requirements of this
subparagraph are met if the plan provides that compensation
earned during a taxable year may be deferred at the
participant's election only if the election to defer such
compensation is made during the preceding taxable year or at
such other time as provided in regulations. In the case of
the first year in which a participant becomes eligible to
participate in the plan, such election
[[Page S2930]]
may be made with respect to services to be performed
subsequent to the election within 30 days after the date the
participant becomes eligible to participate in such plan.
``(C) Changes in time and form of distribution.--The
requirements of this subparagraph are met if, in the case of
a plan which permits under a subsequent election a delay in a
payment or a change in the form of payment--
``(i) the plan requires that such election may not take
effect until at least 12 months after the date on which the
election is made,
``(ii) in the case an election related to a payment not
described in clause (ii), (iii), or (vi) of paragraph (2)(A),
the plan requires that the first payment with respect to
which such election is made be deferred for a period of not
less than 5 years from the date such payment would otherwise
have been made, and
``(iii) the plan requires that any election related to a
payment described in paragraph (2)(A)(iv) may not be made
less than 12 months prior to the date of the first scheduled
payment under such paragraph.
A plan shall be treated as failing to meet the requirements
of this subparagraph if the plan permits more than 1
subsequent election to delay any payment.
``(b) Rules Relating to Funding.--
``(1) Offshore property in a trust.--In the case of assets
set aside (directly or indirectly) in a trust (or other
arrangement determined by the Secretary) for purposes of
paying deferred compensation under a nonqualified deferred
compensation plan, such assets shall be treated for purposes
of section 83 as property transferred in connection with the
performance of services whether or not such assets are
available to satisfy claims of general creditors--
``(A) at the time set aside if such assets are located
outside of the United States, or
``(B) at the time transferred if such assets are
subsequently transferred outside of the United States.
This paragraph shall not apply to assets located in a foreign
jurisdiction if substantially all of the services to which
the nonqualified deferred compensation relates are performed
in such jurisdiction.
``(2) Employer's financial health.--In the case of a
nonqualified deferred compensation plan, there is a transfer
of property within the meaning of section 83 as of the
earlier of--
``(A) the date on which the plan first provides that assets
will become restricted to the provision of benefits under the
plan in connection with a change in the employer's financial
health, or
``(B) the date on which assets are so restricted.
``(3) Income inclusion for offshore trusts and employer's
financial health.--For each taxable year that assets treated
as transferred under this subsection remain set aside in a
trust or other arrangement subject to paragraph (1) or (2),
any increase in value in, or earnings with respect to, such
assets shall be treated as an additional transfer of property
under this subsection (to the extent not previously included
in income).
``(4) Interest on tax liability payable with respect to
transferred property.--
``(A) In general.--If amounts are required to be included
in gross income by reason of paragraph (1) or (2) for a
taxable year, the tax imposed by this chapter for such
taxable year shall be increased by the sum of--
``(i) the amount of interest determined under subparagraph
(B), and
``(ii) an amount equal to 10 percent of the amounts
required to be included in gross income.
``(B) Interest.--For purposes of subparagraph (A), the
interest determined under this subparagraph for any taxable
year is the amount of interest at the underpayment rate on
the underpayments that would have occurred had the amounts
been includible in gross income for the taxable year in which
first deferred or, if later, the first taxable in which such
amounts is not subject to a substantial risk of forfeiture.
``(c) No Inference on Earlier Income Inclusion.--Nothing in
this section shall be construed to prevent the inclusion of
amounts in gross income under any other provision of this
chapter or any other rule of law earlier than the time
provided in this section. Any amount included in gross income
under this section shall not be required to be included in
gross income under any other provision of this chapter or any
other rule of law later than the time provided in this
section.
``(d) Other Definitions and Special Rules.--For purposes of
this section--
``(1) Nonqualified deferred compensation plan.--The term
`nonqualified deferred compensation plan' means any plan that
provides for the deferral of compensation, other than--
``(A) a qualified employer plan, and
``(B) any bona fide vacation leave, sick leave,
compensatory time, disability pay, or death benefit plan.
``(2) Qualified employer plan.--The term `qualified
employer plan' means--
``(A) any plan, contract, pension, account, or trust
described in subparagraph (A) or (B) of section 219(g)(5),
and
``(B) any eligible deferred compensation plan (within the
meaning of section 457(b)) of an employer described in
section 457(e)(1)(A).
``(3) Plan includes arrangements, etc.--The term `plan'
includes any agreement or arrangement, including an agreement
or arrangement that includes one person.
``(4) Substantial risk of forfeiture.--The rights of a
person to compensation are subject to a substantial risk of
forfeiture if such person's rights to such compensation are
conditioned upon the future performance of substantial
services by any individual.
``(5) Treatment of earnings.--References to deferred
compensation shall be treated as including references to
income (whether actual or notional) attributable to such
compensation or such income.
``(e) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this section, including regulations--
``(1) providing for the determination of amounts of
deferral in the case of a nonqualified deferred compensation
plan which is a defined benefit plan,
``(2) relating to changes in the ownership and control of a
corporation or assets of a corporation for purposes of
subsection (a)(2)(A)(v),
``(3) exempting arrangements from the application of
subsection (b) if such arrangements will not result in an
improper deferral of United States tax and will not result in
assets being effectively beyond the reach of creditors,
``(4) defining financial health for purposes of subsection
(b)(2), and
``(5) disregarding a substantial risk of forfeiture in
cases where necessary to carry out the purposes of this
section.''
(b) Application of Golden Parachute Payment Provisions.--
Section 280G(b) of such Code (defining excess parachute
payment) is amended by adding at the end the following new
paragraph:
``(7) Special rules for certain payments from nonqualified
deferred compensation plans.--
``(A) In general.--In the case of any applicable payment--
``(i) such payment shall be treated as a parachute payment
without regard to any exception otherwise applicable under
this subsection, and
``(ii) notwithstanding paragraph (1), the entire amount of
the payment shall be treated as an excess parachute payment.
``(B) Coordination with other payments.--An applicable
payment shall be taken into account in determining whether
any payment other than an applicable payment is a parachute
payment under paragraph (2) or an excess parachute payment
under paragraph (1).
``(C) Applicable payment.--For purposes of this paragraph,
the term `applicable payment' means any distribution from a
nonqualified deferred compensation plan (as defined in
section 409A(d)) which is made--
``(i) to a participant who is subject to the requirements
of section 16(a) of the Securities Exchange Act of 1934, and
``(ii) during the 1-year period following a change in the
ownership or effective control of the corporation or in the
ownership of a substantial portion of the assets of the
corporation.''
(c) W-2 Forms.--
(1) In general.--Subsection (a) of section 6051 (relating
to receipts for employees) is amended by striking ``and'', by
striking the period at the end of paragraph (12) and
inserting ``, and'', and by inserting after paragraph (12)
the following new paragraph:
``(13) the total amount of deferrals under a nonqualified
deferred compensation plan (within the meaning of section
409A(d)).''
(2) Threshold.--Subsection (a) of section 6051 is amended
by adding at the end the following: ``In the case of the
amounts required to be shown by paragraph (13), the Secretary
may (by regulation) establish a minimum amount of deferrals
below which paragraph (13) does not apply.''
(d) Conforming and Clerical Amendments.--
(1) Section 414(b) is amended by inserting ``409A,'' after
``408(p),''.
(2) Section 414(c) is amended by inserting ``409A,'' after
``408(p),''.
(3) The table of sections for such subpart A is amended by
adding at the end the following new item:
``Sec. 409A. Inclusion in gross income of deferred compensation under
nonqualified deferred compensation plans.''
(e) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to amounts deferred in taxable years beginning after
December 31, 2004.
(2) Earnings attributable to amount previously deferred.--
The amendments made by this section shall apply to earnings
on deferred compensation only to the extent that such
amendments apply to such compensation.
(f) Guidance Relating to Change of Ownership or Control.--
Not later than 90 days after the date of the enactment of
this Act, the Secretary of the Treasury shall issue guidance
on what constitutes a change in ownership or effective
control for purposes of section 409A of the Internal Revenue
Code of 1986, as added by this section.
(g) Guidance Relating to Termination of Certain Existing
Arrangements.--Not later than 90 days after the date of the
enactment of this Act, the Secretary of the Treasury shall
issue guidance providing a limited period during which an
individual participating in a nonqualified deferred
compensation plan adopted on or before December 31, 2004,
may, without violating the requirements of paragraphs (2),
(3), (4), and (5) of
[[Page S2931]]
section 409A(a)(2) of the Internal Revenue Code of 1986 (as
added by this section), terminate participation or cancel an
outstanding deferral election with regard to amounts earned
after December 31, 2004, if such amounts are includible in
income as earned.
SEC. 672. PROHIBITION ON DEFERRAL OF GAIN FROM THE EXERCISE
OF STOCK OPTIONS AND RESTRICTED STOCK GAINS
THROUGH DEFERRED COMPENSATION ARRANGEMENTS.
(a) In General.--Section 83 (relating to property
transferred in connection with performance of services) is
amending by adding at the end the following new subsection:
``(i) Prohibition on Additional Deferral Through Deferred
Compensation Arrangements.--If a taxpayer elects to exchange
an option to purchase employer securities--
``(1) to which subsection (a) applies, or
``(2) which is described in subsection (e)(3),
or any other property based on employer securities
transferred to the taxpayer, for a right to receive future
payments, then, notwithstanding any other provision of this
title, there shall be included in gross income for the
taxable year of the exchange an amount equal to the present
value of such right (or such other amount as the Secretary
may by regulations specify). For purposes of this subsection,
the term `employer securities' includes any security issued
by the employer.''
(b) Controlled Group Rules.--Section 414(t)(2) is amended
by inserting ``83(i),'' after ``79,''.
(c) Effective Date.--The amendments made by this section
shall apply to any exchange after December 31, 2004.
SEC. 673. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE
PAYMENTS IN EXCESS OF $1,000,000.
(a) In General.--If an employer elects under Treasury
Regulation 31.3402(g)-1 to determine the amount to be
deducted and withheld from any supplemental wage payment by
using a flat percentage rate, the rate to be used in
determining the amount to be so deducted and withheld shall
not be less than 28 percent (or the corresponding rate in
effect under section 1(i)(2) of the Internal Revenue Code of
1986 for taxable years beginning in the calendar year in
which the payment is made).
(b) Special Rule for Large Payments.--
(1) In general.--Notwithstanding subsection (a), if the
supplemental wage payment, when added to all such payments
previously made by the employer to the employee during the
calendar year, exceeds $1,000,000, the rate used with respect
to such excess shall be equal to the maximum rate of tax in
effect under section 1 of such Code for taxable years
beginning in such calendar year.
(2) Aggregation.--All persons treated as a single employer
under subsection (a) or (b) of section 52 of the Internal
Revenue Code of 1986 shall be treated as a single employer
for purposes of this subsection.
(c) Conforming Amendment.--Section 13273 of the Revenue
Reconciliation Act of 1993 (Public Law 103-66) is repealed.
(d) Effective Date.--The provisions of, and the amendment
made by, this section shall apply to payments made after
December 31, 2003.
SEC. 674. TREATMENT OF SALE OF STOCK ACQUIRED PURSUANT TO
EXERCISE OF STOCK OPTIONS TO COMPLY WITH
CONFLICT-OF-INTEREST REQUIREMENTS.
(a) In General.--Section 421 of the Internal Revenue Code
of 1986 (relating to general rules for certain stock options)
is amended by adding at the end the following new subsection:
``(d) Certain Sales To Comply With Conflict-of-Interest
Requirements.--If--
``(1) a share of stock is transferred to an eligible person
(as defined in section 1043(b)(1)) pursuant to such person's
exercise of an option to which this part applies, and
``(2) such share is disposed of by such person pursuant to
a certificate of divestiture (as defined in section
1043(b)(2)),
such disposition shall be treated as meeting the requirements
of section 422(a)(1) or 423(a)(1), whichever is applicable.''
(b) Effective Date.--The amendment made by this section
shall apply to sales after the date of the enactment of this
Act.
SEC. 675. DETERMINATION OF BASIS OF AMOUNTS PAID FROM FOREIGN
PENSION PLANS.
(a) In General.--Section 72 of the Internal Revenue Code of
1986 (relating to annuities and certain proceeds of endowment
and life insurance contracts) is amended by redesignating
subsection (w) as subsection (x) by inserting subsection (v)
the following new subsection:
``(w) Determination of Basis of Foreign Pension Plans.--
Notwithstanding any other provision of this section, for
purposes of determining the portion of any distribution from
a foreign pension plan which is includible in gross income of
the distributee, the investment in the contract with respect
to the plan shall not include employer or employee
contributions to the plan (or any earnings on such
contributions) unless such contributions or earnings were
subject to taxation by the United States or any foreign
government.''
(b) Effective Date.--The amendments made by this section
shall apply to distributions on or after the date of the
enactment of this Act.
TITLE VII--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS
Subtitle A--Extensions
SEC. 701. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO
MENTAL HEALTH BENEFITS.
(a) In General.--Section 9812(f) is amended--
(1) by striking ``and'' at the end of paragraph (1), and
(2) by striking paragraph (2) and inserting the following
new paragraphs:
``(2) on or after January 1, 2004, and before the date of
the enactment of the Jumpstart Our Business Strength (JOBS)
Act, and
``(3) after December 31, 2005.''.
(b) ERISA.--Section 712(f) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1185a(f)) is amended
by striking ``on or after December 31, 2004'' and inserting
``after December 31, 2005''.
(c) PHSA.--Section 2705(f) of the Public Health Service Act
(42 U.S.C. 300gg-5(f)) is amended by striking ``on or after
December 31, 2004'' and inserting ``after December 31,
2005''.
(d) Effective Dates.--
(1) Subsection (a).--The amendments made by subsection (a)
shall apply to benefits for services furnished on or after
December 31, 2003.
(2) Subsections (b) and (c).--The amendments made by
subsections (b) and (c) shall apply to benefits for services
furnished on or after December 31, 2004.
SEC. 702. 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. 703. 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
[[Page S2932]]
``(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.--Section 51 is amended by inserting
after subsection (d) the following new subsection:
``(e) Credit for Employment of Long-Term Family Assistance
Recipients.--
``(1) In general.--With respect to the employment of a
long-term family assistance recipient--
``(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, 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.
SEC. 704. QUALIFIED ZONE ACADEMY BONDS.
(a) In General.--Paragraph (1) of section 1397E(e) is
amended by striking ``and 2003'' and inserting ``2003, 2004,
and 2005''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to obligations issued after December 31, 2003.
SEC. 705. COVER OVER OF TAX ON DISTILLED SPIRITS.
(a) In General.--Paragraph (1) of section 7652(f) is
amended by striking ``January 1, 2004'' and inserting
``January 1, 2006''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to articles brought into the United States after
December 31, 2003.
SEC. 706. DEDUCTION FOR CORPORATE DONATIONS OF SCIENTIFIC
PROPERTY AND COMPUTER TECHNOLOGY.
(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 contributions made in taxable years beginning
after December 31, 2003.
SEC. 707. DEDUCTION FOR CERTAIN EXPENSES OF SCHOOL TEACHERS.
(a) In General.--Subparagraph (D) of section 62(a)(2) is
amended by striking ``or 2003'' and inserting ``, 2003, 2004,
or 2005''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to expenses paid or incurred in taxable years
beginning after December 31, 2003.
SEC. 708. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.
(a) Extension of Termination Date.--Subsection (h) of
section 198 is amended by striking ``December 31, 2003'' and
inserting ``December 31, 2005''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to expenditures paid or incurred after December
31, 2003.
SEC. 709. EXPANSION OF CERTAIN NEW YORK LIBERTY ZONE
BENEFITS.
(a) Extension of Tax-Exempt Bond Financing.--Subparagraph
(D) of section 1400L(d)(2) is amended by striking ``2005''
and inserting ``2006''.
(b) Clarification of Bonds Eligible for Advance
Refunding.--Section 1400L(e)(2)(B) (relating to bonds
described) is amended by striking ``, or'' and inserting ``or
the Municipal Assistance Corporation, or''.
(c) Election Out Technical Amendment.--Subsection (c) of
section 1400L is amended by adding at the end the following
new paragraph:
``(5) Election out.--For purposes of this subsection, rules
similar to the rules of section 168(k)(2)(C)(iii) shall
apply.''.
(d) Effective date.--The amendments made by subsections (b)
and (c) shall take effect as if included in the amendments
made by section 301 of the Job Creation and Worker Assistance
Act of 2002.
SEC. 710. TEMPORARY SPECIAL RULES FOR TAXATION OF LIFE
INSURANCE COMPANIES.
(a) In General.--Subsection (j) of section 809 is amended
by striking ``or 2003'' and inserting ``2003, 2004, or
2005''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31,
2003.
SEC. 711. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF
COLUMBIA.
(a) Designation of Zone.--Subsection (f) of section 1400 is
amended by striking ``December 31, 2003'' both places it
appears and inserting ``December 31, 2005''.
(b) Tax-Exempt Economic Development Bonds.--Subsection (b)
of section 1400A is amended by striking ``December 31, 2003''
and inserting ``December 31, 2005''.
(c) Zero Percent Capital Gains Rate.--
(1) In general.--Subsection (b) of section 1400B is amended
by striking ``January 1, 2004'' each place it appears and
inserting ``January 1, 2006''.
(2) Conforming amendments.--
(A) Section 1400B(e)(2) is amended--
(i) by striking ``December 31, 2008'' and inserting
``December 31, 2010'', and
(ii) by striking ``2008'' in the heading and inserting
``2010''.
(B) Section 1400B(g)(2) is amended by striking ``December
31, 2008'' and inserting ``December 31, 2010''.
(C) Section 1400F(d) is amended by striking ``December 31,
2008'' and inserting ``December 31, 2010''.
(d) First-Time Homebuyer Credit.--Subsection (i) of section
1400C is amended by striking ``January 1, 2004'' and
inserting ``January 1, 2006''.
(e) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall take effect on January
1, 2004.
(2) Tax-exempt economic development bonds.--The amendment
made by subsection (b) shall apply to obligations issued
after the date of the enactment of this Act.
SEC. 712. DISCLOSURE OF TAX INFORMATION TO FACILITATE
COMBINED EMPLOYMENT TAX REPORTING.
(a) In General.--Paragraph (5) of section 6103(d) (relating
to disclosure to State tax officials and State and local law
enforcement agencies) is amended to read as follows:
``(5) Disclosure for combined employment tax reporting.--
The Secretary may disclose taxpayer identity information and
signatures to any agency, body, or commission of any State
for the purpose of carrying out with such agency, body, or
commission a combined Federal and State employment tax
reporting program approved by the Secretary. Subsections
(a)(2) and (p)(4) and sections 7213 and 7213A shall not apply
with respect to disclosures or inspections made pursuant to
this paragraph.''.
(b) Effective Date.--The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 713. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST
REGULAR AND MINIMUM TAX LIABILITY.
(a) In General.--Paragraph (2) of section 26(a) is
amended--
(1) by striking ``rule for 2000, 2001, 2002, and 2003.--''
and inserting ``rule for taxable years 2000 through 2004.--
'', and
(2) by striking ``or 2003'' and inserting ``2003, or
2004''.
(b) Conforming Provisions.--
(1) Section 904(h) is amended by striking ``or 2003'' and
inserting ``2003, or 2004''.
(2) The amendments made by sections 201(b), 202(f), and
618(b) of the Economic Growth and Tax Relief Reconciliation
Act of 2001 shall not apply to taxable years beginning during
2004.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2003.
SEC. 714. CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN
RENEWABLE RESOURCES.
(a) In General.--Subparagraphs (A), (B), and (C) of section
45(c)(3) are each amended by striking ``January 1, 2004'' and
inserting ``January 1, 2005''.
(b) Effective Date.--The amendments made by subsection (a)
shall apply to facilities placed in service after December
31, 2003.
SEC. 715. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR
OIL AND NATURAL GAS PRODUCED FROM MARGINAL
PROPERTIES.
(a) In General.--Subparagraph (H) of section 613A(c)(6) is
amended by striking ``January 1, 2004'' and inserting
``January 1, 2005''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31,
2003.
[[Page S2933]]
SEC. 716. INDIAN EMPLOYMENT TAX CREDIT.
Section 45A(f) (relating to termination) is amended by
striking ``December 31, 2004'' and inserting ``December 31,
2005''.
SEC. 717. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON
INDIAN RESERVATION.
Section 168(j)(8) (relating to termination) is amended by
striking ``December 31, 2004'' and inserting ``December 31,
2005''.
SEC. 718. DISCLOSURE OF RETURN INFORMATION RELATING TO
STUDENT LOANS.
Section 6103(l)(13)(D) (relating to termination) is amended
by striking ``December 31, 2004'' and inserting ``December
31, 2005''.
SEC. 719. EXTENSION OF TRANSFERS OF EXCESS PENSION ASSETS TO
RETIREE HEALTH ACCOUNTS.
(a) Amendment of Internal Revenue Code of 1986.--Paragraph
(5) of section 420(b) (relating to expiration) is amended by
striking ``December 31, 2005'' and inserting ``December 31,
2013''.
(b) Amendments of ERISA.--
(1) Section 101(e)(3) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by
striking ``Tax Relief Extension Act of 1999'' and inserting
``Jumpstart Our Business Strength (JOBS) Act''.
(2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is
amended by striking ``Tax Relief Extension Act of 1999'' and
inserting ``Jumpstart Our Business Strength (JOBS) Act''.
(3) Paragraph (13) of section 408(b) of such Act (29 U.S.C.
1108(b)(3)) is amended--
(A) by striking ``January 1, 2006'' and inserting ``January
1, 2014'', and
(B) by striking ``Tax Relief Extension Act of 1999'' and
inserting ``Jumpstart Our Business Strength (JOBS) Act''.
(c) Minimum Cost Requirements.--
(1) In general.--Section 420(c)(3)(E) is amended by adding
at the end the following new clause:
``(ii) Insignificant cost reductions permitted.--
``(I) In general.--An eligible employer shall not be
treated as failing to meet the requirements of this paragraph
for any taxable year if, in lieu of any reduction of retiree
health coverage permitted under the regulations prescribed
under clause (i), the employer reduces applicable employer
cost by an amount not in excess of the reduction in costs
which would have occurred if the employer had made the
maximum permissible reduction in retiree health coverage
under such regulations. In applying such regulations to any
subsequent taxable year, any reduction in applicable employer
cost under this clause shall be treated as if it were an
equivalent reduction in retiree health coverage.
``(II) Eligible employer.--For purposes of subclause (I),
an employer shall be treated as an eligible employer for any
taxable year if, for the preceding taxable year, the
qualified current retiree health liabilities of the employer
were at least 5 percent of the gross receipts of the
employer. For purposes of this subclause, the rules of
paragraphs (2), (3)(B), and (3)(C) of section 448(c) shall
apply in determining the amount of an employer's gross
receipts.''
(2) Conforming amendment.--Section 420(c)(3)(E) is amended
by striking ``The Secretary'' and inserting:
``(i) In general.--The Secretary''.
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years ending after the date of the
enactment of this Act.
SEC. 720. ELIMINATION OF PHASEOUT OF CREDIT FOR QUALIFIED
ELECTRIC VEHICLES.
(a) In General.--Section 30(b) is amended by striking
paragraph (2) and by redesignating paragraph (3) as paragraph
(2).
(b) Conforming Amendments.--
(1) Section 53(d)(1)(B)(iii) is amended by striking
``section 30(b)(3)(B)'' and inserting ``section
30(b)(2)(B)''.
(2) Section 55(c)(2) is amended by striking ``30(b)(3)''
and inserting ``30(b)(2)''.
(c) Effective Date.--The amendments made by this section
shall apply to property placed in service after December 31,
2003.
SEC. 721. ELIMINATION OF PHASEOUT FOR DEDUCTION FOR CLEAN-
FUEL VEHICLE PROPERTY.
(a) In General.--Paragraph (1) of section 179A(b) is
amended to read as follows:
``(1) Qualified clean-fuel vehicle property.--The cost
which may be taken into account under subsection (a)(1)(A)
with respect to any motor vehicle shall not exceed--
``(A) in the case of a motor vehicle not described in
subparagraph (B) or (C), $2,000,
``(B) in the case of any truck or van with a gross vehicle
weight rating greater than 10,000 pounds but not greater than
26,000 pounds, $5,000, or
``(C) $50,000 in the case of--
``(i) a truck or van with a gross vehicle weight rating
greater than 26,000 pounds, or
``(ii) any bus which has a seating capacity of at least 20
adults (not including the driver).''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to property placed in service after December 31,
2003.
Subtitle B--Revenue Provisions
SEC. 731. DONATIONS OF MOTOR VEHICLES, BOATS, AND AIRPLANES.
(a) In General.--Subsection (f) of section 170 (relating to
disallowance of deduction in certain cases and special rules)
is amended by adding at the end the following new paragraph:
``(11) Contributions of used motor vehicles, boats, and
airplanes.--
``(A) In general.--In the case of a contribution of a
qualified vehicle in excess of $500--
``(i) paragraph (8) shall not apply and no deduction shall
be allowed under subsection (a) for such contribution unless
the taxpayer substantiates the contribution by a
contemporaneous written acknowledgement of the contribution
by the donee organization that meets the requirements of
subparagraph (B) and includes the acknowledgement with the
taxpayer's return of tax which includes the deduction, and
``(ii) if the organization sells the vehicle without any
significant intervening use or material improvement of such
vehicle by the organization, the amount of the deduction
allowed under subsection (a) shall not exceed the gross
proceeds received from such sale.
``(B) Content of acknowledgement.--An acknowledgement meets
the requirements of this subparagraph if it includes the
following information:
``(i) The name and taxpayer identification number of the
donor.
``(ii) The vehicle identification number or similar number.
``(iii) In the case of a qualified vehicle to which
subparagraph (A)(ii) does not apply and which is sold by the
donee organization--
``(I) a certification that the vehicle was sold in an arm's
length transaction between unrelated parties,
``(II) the gross proceeds from the sale, and
``(III) the amount of such gross proceeds is the deductible
amount.
``(iv) In the case of a qualified vehicle to which
subparagraph (A)(ii) does not apply--
``(I) a certification of the intended use or material
improvement of the vehicle and the intended duration of such
use, and
``(II) a certification that the vehicle would not be
transferred in exchange for money, other property, or
services before completion of such use or improvement.
``(C) Contemporaneous.--For purposes of subparagraph (A),
an acknowledgement shall be considered to be contemporaneous
if the donee organization provides it within 30 days of--
``(i) the sale of the qualified vehicle, or
``(ii) in the case of an acknowledgement including a
certification described in subparagraph (B)(iv), the
contribution of the qualified vehicle.
``(D) Information to secretary.--A donee organization
required to provide an acknowledgement under this paragraph
shall provide to the Secretary the information contained in
the acknowledgement. Such information shall be provided at
such time and in such manner as the Secretary may prescribe.
``(E) Qualified vehicle.--For purposes of this paragraph,
the term `qualified vehicle' means any--
``(i) self-propelled vehicle manufactured primarily for use
on public streets, roads, and highways,
``(ii) boat, or
``(iii) airplane.
Such term shall not include any property which is described
in section 1221(a)(1).
``(F) Regulations or other guidance.--The Secretary shall
prescribe such regulations or other guidance as may be
necessary to carry out the purposes of this paragraph.''.
(b) Penalty for Fraudulent Acknowledgments.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended adding at the
end the following new section:
``SEC. 6717. FRAUDULENT ACKNOWLEDGMENTS WITH RESPECT TO
DONATIONS OF MOTOR VEHICLES, BOATS, AND
AIRPLANES.
``Any donee organization required under section
170(f)(11)(A) to furnish a contemporaneous written
acknowledgment to a donor which knowingly furnishes a false
or fraudulent acknowledgment, or which knowingly fails to
furnish such acknowledgment in the manner, at the time, and
showing the information required under section 170(f)(11), or
regulations prescribed thereunder, shall for each such act,
or for each such failure, be subject to a penalty equal to--
``(1) in the case of an acknowledgment with respect to a
qualified vehicle to which section 170(f)(11)(A)(ii) applies,
the greater of the value of the tax benefit to the donor or
the gross proceeds from the sale of such vehicle, and
``(2) in the case of an acknowledgment with respect to any
other qualified vehicle to which section 170(f)(11) applies,
the greater of the value of the tax benefit to the donor or
$5,000.''.
(2) Conforming amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by adding at the end
the following new item:
``Sec. 6717. Fraudulent acknowledgments with respect to donations of
motor vehicles, boats, and airplanes.''.
(c) Effective Date.--The amendments made by this section
shall apply to contributions after June 30, 2004.
[[Page S2934]]
SEC. 732. ADDITION OF VACCINES AGAINST INFLUENZA TO LIST OF
TAXABLE VACCINES.
(a) In General.--Section 4132(a)(1) (defining taxable
vaccine) is amended adding at the end the following new
subparagraph:
``(M) Any trivalent vaccine against influenza.''.
(b) Conforming Amendment.--Section 9510(c)(1)(A) is amended
by striking ``October 18, 2000'' and inserting ``the date of
the enactment of the Jumpstart Our Business Strength (JOBS)
Act''.
(b) Effective Date.--
(1) Sales, etc.--The amendment made by this section shall
apply to sales and uses on or after the later of--
(A) the first day of the first month which begins more than
4 weeks after the date of the enactment of this Act, or
(B) the date on which the Secretary of Health and Human
Services lists any vaccine against influenza for purposes of
compensation for any vaccine-related injury or death through
the Vaccine Injury Compensation Trust Fund.
(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.
SEC. 733. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT
INSTRUMENTS.
(a) In General.--Section 1275(d) (relating to regulation
authority) is amended--
(1) by striking ``The Secretary'' and inserting the
following:
``(1) In general.--The Secretary'', and
(2) by adding at the end the following new paragraph:
``(2) Treatment of contingent payment convertible debt.--
``(A) In general.--In the case of a debt instrument which--
``(i) is convertible into stock of the issuing corporation,
or in stock or debt of a related party (within the meaning of
section 267(b) or 707(b)(1), or into cash or other property
in an amount equal to the approximate value of such stock or
debt, and
``(ii) provides for contingent payments,
any regulations which require original issue discount to be
determined by reference to the comparable yield of a
noncontingent fixed rate debt instrument shall be applied as
requiring that such comparable yield be determined by
reference to a noncontingent fixed rate debt instrument which
is convertible into stock.
``(B) Special rule.--For purposes of subparagraph (A), the
comparable yield shall be determined without taking into
account the yield resulting from the conversion of a debt
instrument into stock.''.
(b) Cross Reference.--Section 163(e)(6) (relating to cross
references) is amended by adding at the end the following:
``For the treatment of contingent payment convertible debt,
see section 175(d)(2).''.
(c) Effective Date.--The amendments made by this section
shall apply to debt instruments issued after the date of the
enactment of this Act.
SEC. 734. MODIFICATION OF CONTINUING LEVY ON PAYMENTS TO
FEDERAL VENDERS.
(a) In General.--Section 6331(h) (relating to continuing
levy on certain payments) is amended by adding at the end the
following new paragraph:
``(3) Increase in levy for certain payments.--Paragraph (1)
shall be applied by substituting `100 percent' for `15
percent' in the case of any specified payment due to a vendor
of goods or services sold or leased to the Federal
Government.''.
(b) Effective Date.--The amendment made by this section
shall take effect on the date of the enactment of this Act.
______
SA 2887. Ms. COLLINS 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 of title I, insert:
SEC. __. MANUFACTURER'S JOBS CREDIT.
(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:
``SEC. 45G. MANUFACTURER'S JOBS CREDIT.
``(a) General Rule.--For purposes of section 38, in the
case of an eligible taxpayer, the manufacturer's jobs credit
determined under this section is an amount equal to the
lesser of the following:
``(1) The excess of the W-2 wages paid by the taxpayer
during the taxable year over the W-2 wages paid by the
taxpayer during the preceding taxable year.
``(2) The W-2 wages paid by the taxpayer during the taxable
year to any employee who is an eligible TAA recipient (as
defined in section 35(c)(2)) for any month during such
taxable year.
``(3) 22.4 percent of the W-2 wages paid by the taxpayer
during the taxable year.
``(b) Limitation.--
``(1) In general.--If there is an excess described in
paragraph (2)(A) for any taxable year, the amount of credit
determined under subsection (a) (without regard to this
subsection)--
``(A) if the value of domestic production determined under
subsection (g)(2) for the taxable year does not exceed such
value for the preceding taxable year, shall be zero, and
``(B) if subparagraph (A) does not apply, shall be reduced
(but not below zero) by the applicable percentage of such
amount.
``(2) Applicable percentage.--For purposes of paragraph
(1), the term `applicable percentage' means, with respect to
any taxable year, the percentage equal to a fraction--
``(A) the numerator of which is the excess (if any) of the
modified value of worldwide production of the taxpayer for
the taxable year over such modified value for the preceding
taxable year, and
``(B) the denominator of which is the excess (if any) of
the value of worldwide production of the taxpayer for the
taxable year over such value for the preceding taxable year.
``(3) Definitions.--For purposes of this subsection--
``(A) Value of worldwide production.--The value of
worldwide production for any taxable year shall be determined
under subsection (g)(4).
``(B) Modified value.--The term `modified value of
worldwide production' means the value of worldwide production
determined by not taking into account any item taken into
account in determining the value of domestic production under
subsection (g)(2).
``(c) Eligible Taxpayer.--For purposes of this section, the
term `eligible taxpayer' means any taxpayer--
``(1) which has domestic production gross receipts for the
taxable year and the preceding taxable year, and
``(2) which is not treated at any time during the taxable
year as an inverted domestic corporation under section 7874.
``(d) Definitions.--For purposes of this section--
``(1) In general.--Any term used in this section which is
also used in section 199 shall have the meaning given such
term by section 199.
``(2) Special rule for w-2 wages.--Notwithstanding
paragraph (1), the amount of W-2 wages taken into account
with respect to any employee for any taxable year shall not
exceed $50,000.
``(e) Certain Rules Made Applicable.--For purposes of this
section, rules similar to the rules of section 52 shall
apply.
``(f) Termination.--This section shall not apply to any
taxable year beginning after December 31, 2005.''
(b) Credit To Be 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:
``(16) the manufacturer's jobs credit determined under
section 45G.''
(c) 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:
``Sec. 45G. Manufacturer's jobs credit.''
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2003.
______
SA 2888. Mrs. HUTCHISON (for herself, Mr. Frist, Ms. Cantwell, and
Mr. Alexander) 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. __. DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES IN
LIEU OF STATE AND LOCAL INCOME TAXES.
(a) In General.--Subsection (b) of section 164 (relating to
definitions and special rules) is amended by adding at the
end the following new paragraph:
``(5) General sales taxes.--For purposes of subsection
(a)--
``(A) Election to deduct state and local sales taxes in
lieu of state and local income taxes.--
``(i) In general.--At the election of the taxpayer for the
taxable year, subsection (a) shall be applied--
``(I) without regard to the reference to State and local
income taxes,
``(II) as if State and local general sales taxes were
referred to in a paragraph thereof, and
``(III) without regard to the last sentence.
``(B) Definition of general sales tax.--The term `general
sales tax' means a tax imposed at one rate with respect to
the sale at retail of a broad range of classes of items.
``(C) Special rules for food, etc.--In the case of items of
food, clothing, medical supplies, and motor vehicles--
``(i) the fact that the tax does not apply with respect to
some or all of such items
[[Page S2935]]
shall not be taken into account in determining whether the
tax applies with respect to a broad range of classes of
items, and
``(ii) the fact that the rate of tax applicable with
respect to some or all of such items is lower than the
general rate of tax shall not be taken into account in
determining whether the tax is imposed at one rate.
``(D) Items taxed at different rates.--Except in the case
of a lower rate of tax applicable with respect to an item
described in subparagraph (C), no deduction shall be allowed
under this paragraph for any general sales tax imposed with
respect to an item at a rate other than the general rate of
tax.
``(E) Compensating use taxes.--A compensating use tax with
respect to an item shall be treated as a general sales tax.
For purposes of the preceding sentence, the term
`compensating use tax' means, with respect to any item, a tax
which--
``(i) is imposed on the use, storage, or consumption of
such item, and
``(ii) is complementary to a general sales tax, but only if
a deduction is allowable under this paragraph with respect to
items sold at retail in the taxing jurisdiction which are
similar to such item.
``(F) Special rule for motor vehicles.--In the case of
motor vehicles, if the rate of tax exceeds the general rate,
such excess shall be disregarded and the general rate shall
be treated as the rate of tax.
``(G) Separately stated general sales taxes.--If the amount
of any general sales tax is separately stated, then, to the
extent that the amount so stated is paid by the consumer
(other than in connection with the consumer's trade or
business) to the seller, such amount shall be treated as a
tax imposed on, and paid by, such consumer.
``(H) Amount of deduction to be determined under tables.--
``(i) In general.--The amount of the deduction allowed
under this paragraph shall be determined under tables
prescribed by the Secretary.
``(ii) Requirements for tables.--The tables prescribed
under clause (i) shall reflect the provisions of this
paragraph and shall be based on the average consumption by
taxpayers on a State-by-State basis, as determined by the
Secretary, taking into account filing status, number of
dependents, adjusted gross income, and rates of State and
local general sales taxation.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.
______
SA 2889. 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:
On page 179, after line 25, add the following:
SEC. __. EXTENSION OF CREDIT FOR PRODUCING FUEL FROM A
NONCONVENTIONAL SOURCE.
(a) In General.--Section 29 (relating to credit for
producing fuel from a nonconventional source) is amended by
adding at the end the following new subsection:
``(h) Extension for Other Facilities.--Notwithstanding
subsection (f), in the case of a facility for producing coke
or coke gas which was placed in service before January 1,
1993, or after June 30, 1998, and before January 1, 2007,
this section shall apply with respect to coke and coke gas
produced in such facility and sold during the during the
period--
``(1) beginning on the later of January 1, 2004, or the
date that such facility is placed in service, and
``(2) ending on the earlier of the date which is 4 years
after the date such period began or December 31, 2009.
______
SA 2890. 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. __. TAXATION OF CERTAIN SETTLEMENT FUNDS.
(a) In General.--Subsection (g) of section 468B (relating
to clarification of taxation of certain funds) is amended to
read as follows:
``(g) Clarification of Taxation of Certain Funds.--
``(1) In general.--Except as provided in paragraph (2),
nothing in any provision of law shall be construed as
providing that an escrow account, settlement fund, or similar
fund is not subject to current income tax. The Secretary
shall prescribe regulations providing for the taxation of any
such account or fund whether as a grantor trust or otherwise.
``(2) Exemption from tax for certain settlement funds.--An
escrow account, settlement fund, or similar fund shall be
treated as beneficially owned by the United States and shall
be exempt from taxation under this subtitle if--
``(A) it is established pursuant to a consent decree
entered by a judge of a United States District Court,
``(B) it is created for the receipt of settlement payments
as directed by a government entity for the sole purpose of
resolving or satisfying one or more claims asserting
liability under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980,
``(C) the authority and control over the expenditure of
funds therein (including the expenditure of contributions
thereto and any net earnings thereon) is with such government
entity, and
``(D) upon termination, any remaining funds will be
disbursed upon instructions by such government entity in
accordance with applicable law.
For purposes of this paragraph, the term `government entity'
means the United States, any State or political subdivision
thereof, the District of Columbia, any possession of the
United States, and any agency or instrumentality of any of
the foregoing.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2003.
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Senate amendment submitted
March 22, 2004