S.Amdt. 2706

1. Adds TITLE IV--MINIMUM TAX RELIEF AND REPEAL OF EXTENSION OF CAPITAL GAINS AND DIVIDENDS on page 28, line 11

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   Inserted: TITLE IV--MINIMUM TAX RELIEF AND REPEAL OF EXTENSION OF CAPITAL GAINS AND DIVIDENDS

   Inserted: SEC. 401. REPEAL OF EXTENSION OF TAX TREATMENT FOR CAPITAL GAINS AND DIVIDENDS.

   Inserted: The amendment made by section 203 of this Act is repealed.

   Inserted: SEC. 402. EXTENSION AND INCREASE IN MINIMUM TAX RELIEF TO INDIVIDUALS.

   Inserted: (a) In General.--Section 55(d)(1) is amended--

   Inserted: (1) by striking "$58,000" and all that follows through "2005" in subparagraph (A) and inserting "$62,550 in the case of taxable years beginning in 2006", and

   Inserted: (2) by striking "$40,250" and all that follows through "2005" in subparagraph (B) and inserting "$42,500 in the case of taxable years beginning in 2006".

   Inserted: (b) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2005.

   Inserted: TITLE V--REVENUE OFFSET PROVISIONS

   Inserted: Subtitle A--Provisions Designed To Curtail Tax Shelters SEC. 501. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN PREPARER.

   Inserted: (a) Standards Conformed to Taxpayer Standards.--Section 6694(a) (relating to understatements due to unrealistic positions) is amended--

   Inserted: (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",

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   Inserted: (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

   Inserted: (3) by striking "Unrealistic" in the heading and inserting "Improper".

   Inserted: (b) Amount of Penalty.--Section 6694 is amended--

   Inserted: (1) by striking "$250" in subsection (a) and inserting "$1,000", and

   Inserted: (2) by striking "$1,000" in subsection (b) and inserting "$5,000".

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

   Inserted: SEC. 502. MODIFICATION OF EFFECTIVE DATE OF EXCEPTION FROM SUSPENSION RULES FOR CERTAIN LISTED AND REPORTABLE TRANSACTIONS.

   Inserted: (a) Effective Date Modification.--

   Inserted: (1) In general.--Paragraph (2) of section 903(d) of the American Jobs Creation Act of 2004 is amended to read as follows:

   Inserted: "(2) Exception for reportable or listed transactions.--

   Inserted: "(A) In general.--The amendments made by subsection (c) shall apply with respect to interest accruing after October 3, 2004.

   Inserted: "(B) Special rule for certain listed and reportable transactions.--

   Inserted: "(i) In general.--Except as provided in clause (ii), the amendments made by subsection (c) shall also apply with respect to interest accruing on or before October 3, 2004.

   Inserted: "(ii) Participants in settlement initiatives.--Clause (i) shall not apply to any transaction if, as of January 23, 2006--

   Inserted: "(I) the taxpayer is participating in a settlement initiative described in Internal Revenue Service Announcement 2005-80 with respect to such transaction, or

   Inserted: "(II) the taxpayer has entered into a settlement agreement pursuant to such an initiative.

   Inserted: "(iii) Termination of exception.--Clause (ii)(I) shall not apply to any taxpayer if, after January 23, 2006, the taxpayer withdraws from, or terminates, participation in the initiative or the Secretary of the Treasury or the Secretary's delegate determines that a settlement agreement will not be reached pursuant to the initiative within a reasonable period of time.".

   Inserted: (2) Effective date.--The amendment made by this subsection shall take effect as if included in the provisions of the American Jobs Creation Act of 2004 to which it relates.

   Inserted: (b) Treatment of Amended Returns and Other Similar Notices of Additional Tax Owed.--

   Inserted: (1) In general.--Section 6404(g)(1) (relating to suspension) is amended by adding at the end the following new sentence: "If, after the return for a taxable year is filed, the taxpayer provides to the Secretary one or more signed written documents showing that the taxpayer owes an additional amount of tax for the taxable year, clause (i) shall be applied by substituting the date the last of the documents was provided for the date on which the return is filed.".

   Inserted: (2) Effective date.--The amendment made by this subsection shall apply to documents provided on or after the date of the enactment of this Act.

   Inserted: SEC. 503. FRIVOLOUS TAX SUBMISSIONS.

   Inserted: (a) Civil Penalties.--Section 6702 is amended to read as follows:

   Inserted: "SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

   Inserted: "(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay a penalty of $5,000 if--

   Inserted: "(1) such person files what purports to be a return of a tax imposed by this title but which--

   Inserted: "(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or

   Inserted: "(B) contains information that on its face indicates that the self-assessment is substantially incorrect; and

   Inserted: "(2) the conduct referred to in paragraph (1)--

   Inserted: "(A) is based on a position which the Secretary has identified as frivolous under subsection (c), or

   Inserted: "(B) reflects a desire to delay or impede the administration of Federal tax laws.

   Inserted: "(b) Civil Penalty for Specified Frivolous Submissions.--

   Inserted: "(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.

   Inserted: "(2) Specified frivolous submission.--For purposes of this section--

   Inserted: "(A) Specified frivolous submission.--The term 'specified frivolous submission' means a specified submission if any portion of such submission--

   Inserted: "(i) is based on a position which the Secretary has identified as frivolous under subsection (c), or

   Inserted: "(ii) reflects a desire to delay or impede the administration of Federal tax laws.

   Inserted: "(B) Specified submission.--The term 'specified submission' means--

   Inserted: "(i) a request for a hearing under--

   Inserted: "(I) section 6320 (relating to notice and opportunity for hearing upon filing of notice of lien), or

   Inserted: "(II) section 6330 (relating to notice and opportunity for hearing before levy), and

   Inserted: "(ii) an application under--

   Inserted: "(I) section 6159 (relating to agreements for payment of tax liability in installments),

   Inserted: "(II) section 7122 (relating to compromises), or

   Inserted: "(III) section 7811 (relating to taxpayer assistance orders).

   Inserted: "(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.

   Inserted: "(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).

   Inserted: "(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.

   Inserted: "(e) Penalties in Addition to Other Penalties.--The penalties imposed by this section shall be in addition to any other penalty provided by law.".

   Inserted: (b) Treatment of Frivolous Requests for Hearings Before Levy.--

   Inserted: (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:

   Inserted: "(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.".

   Inserted: (2) Preclusion from raising frivolous issues at hearing.--Section 6330(c)(4) is amended--

   Inserted: (A) by striking "(A)" and inserting "(A)(i)";

   Inserted: (B) by striking "(B)" and inserting "(ii)";

   Inserted: (C) by striking the period at the end of the first sentence and inserting "; or"; and

   Inserted: (D) by inserting after subparagraph (A)(ii) (as so redesignated) the following:

   Inserted: "(B) the issue meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A).".

   Inserted: (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".

   Inserted: (c) Treatment of Frivolous Requests for Hearings Upon Filing of Notice of Lien.--Section 6320 is amended--

   Inserted: (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

   Inserted: (2) in subsection (c), by striking "and (e)" and inserting "(e), and (g)".

   Inserted: (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:

   Inserted: "(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.".

   Inserted: (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:

   Inserted: "Sec. 6702. Frivolous tax submissions".

   Inserted: (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).

   Inserted: SEC. 504. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

   Inserted: (a) Penalty for Promoting Abusive Tax Shelters.--Section 6700 (relating to promoting abusive tax shelters, etc.) is amended--

   Inserted: (1) by redesignating subsections (b) and (c) as subsections (d) and (e), respectively,

   Inserted: (2) by striking "a penalty" and all that follows through the period in the first sentence of subsection (a) and inserting "a penalty determined under subsection (b)", and

   Inserted: (3) by inserting after subsection (a) the following new subsections:

   Inserted: "(b) Amount of Penalty; Calculation of Penalty; Liability for Penalty.--

   Inserted: "(1) Amount of penalty.--The amount of the penalty imposed by subsection (a) shall be 100 percent of the gross income derived (or to be derived) from such activity by the person or persons subject to such penalty.

   Inserted: "(2) Calculation of penalty.--The penalty amount determined under paragraph (1) shall be calculated with respect to each instance of an activity described in subsection (a), each instance in which income was derived by the person or persons subject to such penalty, and each person who participated in such an activity.

   Inserted: "(3) Liability for penalty.--If more than 1 person is liable under subsection (a) with respect to such activity, all such persons shall be jointly and severally liable for the penalty under such subsection.

   Inserted: "(c) Penalty Not Deductible.--The payment of any penalty imposed under this section or the payment of any amount to settle or avoid the imposition of such penalty shall not be considered an ordinary and necessary expense in carrying on a trade or business for purposes of this title and shall not be deductible by the person who is subject to such penalty or who makes such payment.".

   Inserted: (b) Conforming Amendment.--Section 6700(a) is amended by striking the last sentence.

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to the activities described in paragraphs (1) and (2) of section 6700(a) of the Internal Revenue Code of 1986 and after the date of the enactment of this Act.

   Inserted: SEC. 505. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX LIABILITY.

   Inserted: (a) In General.--Section 6701(a) (relating to imposition of penalty) is amended--

   Inserted: (1) by inserting ", or tax liability reflected in," after "the preparation or presentation of" in paragraph (1),

   Inserted: (2) by inserting "aid, assistance, procurement, or advice with respect to such" before "portion" both places it appears in paragraphs (2) and (3), and

   Inserted: (3) by inserting "instance of aid, assistance, procurement, or advice or each such" before "document" in the matter following paragraph (3).

   Inserted: (b) Amount of Penalty.--Subsection (b) of section 6701 (relating to penalties for aiding and abetting understatement of tax liability) is amended to read as follows:

   Inserted: "(b) Amount of Penalty; Calculation of Penalty; Liability for Penalty.--

   Inserted: "(1) Amount of penalty.--The amount of the penalty imposed by subsection (a) shall be 100 percent of the gross income derived (or to be derived) from such aid, assistance, procurement, or advice provided by the person or persons subject to such penalty.

   Inserted: "(2) Calculation of penalty.--The penalty amount determined under paragraph (1) shall be calculated with respect to each instance of aid, assistance, procurement, or advice described in subsection (a), each instance in which income was derived by the person or persons subject to such penalty, and each person who made such an understatement of the liability for tax.

   Inserted: "(3) Liability for penalty.--If more than 1 person is liable under subsection (a) with respect to providing such aid, assistance, procurement, or advice, all such persons shall be jointly and severally liable for the penalty under such subsection.".

   Inserted: (c) Penalty Not Deductible.--Section 6701 is amended by adding at the end the following new subsection:

   Inserted: "(g) Penalty Not Deductible.--The payment of any penalty imposed under this section or the payment of any amount to settle or avoid the imposition of such penalty shall not be considered an ordinary and necessary expense in carrying on a trade or business for purposes of this title and shall not be deductible by the person who is subject to such penalty or who makes such payment.".

   Inserted: (d) Effective Date.--The amendments made by this section shall apply to the activities described in section 6701(a) of the Internal Revenue Code of 1986 after the date of the enactment of this Act.

   Inserted: Subtitle B--Economic Substance Doctrine SEC. 511. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

   Inserted: (a) In General.--Section 7701 is amended by redesignating subsection (o) as subsection (p) and by inserting after subsection (n) the following new subsection:

   Inserted: "(o) Clarification of Economic Substance Doctrine; Etc.--

   Inserted: "(1) General rules.--

   Inserted: "(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.

   Inserted: "(B) Definition of economic substance.--For purposes of subparagraph (A)--

   Inserted: "(i) In general.--A transaction has economic substance only if--

   Inserted: "(I) the transaction changes in a meaningful way (apart from Federal tax effects) the taxpayer's economic position, and

   Inserted: "(II) the taxpayer has a substantial nontax purpose for entering into such transaction and the transaction is a reasonable means of accomplishing such purpose.

   Inserted: 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.

   Inserted: "(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--

   Inserted: "(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

   Inserted: "(II) the reasonably expected pre-tax profit from the transaction exceeds a risk-free rate of return.

   Inserted: "(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).

   Inserted: "(2) Special rules for transactions with tax-indifferent parties.--

   Inserted: "(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.

   Inserted: "(B) Artificial income shifting and basis adjustments.--The form of a transaction with a tax-indifferent party shall not be respected if--

   Inserted: "(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

   Inserted: "(ii) it results in a basis adjustment or shifting of basis on account of overstating the income or gain of the tax-indifferent party.

   Inserted: "(3) Definitions and special rules.--For purposes of this subsection--

   Inserted: "(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.

   Inserted: "(B) Tax-indifferent party.--The term 'tax-indifferent party' means any person or

   Inserted: entity not subject to tax imposed by subtitle A. A person shall be treated as a tax-indifferent party with respect to a transaction if the items taken into account with respect to the transaction have no substantial impact on such person's liability under subtitle A.

   Inserted: "(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.

   Inserted: "(D) Treatment of lessors.--In applying paragraph (1)(B)(ii) to the lessor of tangible property subject to a lease--

   Inserted: "(i) the expected net tax benefits with respect to the leased property shall not include the benefits of--

   Inserted: "(I) depreciation,

   Inserted: "(II) any tax credit, or

   Inserted: "(III) any other deduction as provided in guidance by the Secretary, and

   Inserted: "(ii) subclause (II) of paragraph (1)(B)(ii) shall be disregarded in determining whether any of such benefits are allowable.

   Inserted: "(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.

   Inserted: "(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.".

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

   Inserted: SEC. 512. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

   Inserted: (a) In General.--Subchapter A of chapter 68 is amended by inserting after section 6662A the following new section:

   Inserted: "SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

   Inserted: "(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.

   Inserted: "(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.

   Inserted: "(c) Noneconomic Substance Transaction Understatement.--For purposes of this section--

   Inserted: "(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.

   Inserted: "(2) Noneconomic substance transaction.--The term 'noneconomic substance transaction' means any transaction if--

   Inserted: "(A) there is a lack of economic substance (within the meaning of section 7701(o)(1)) for the transaction giving rise to the claimed benefit or the transaction was not respected under section 7701(o)(2), or

   Inserted: "(B) the transaction fails to meet the requirements of any similar rule of law.

   Inserted: "(d) Rules Applicable to Compromise of Penalty.--

   Inserted: "(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.

   Inserted: "(2) Applicable rules.--The rules of paragraphs (2) and (3) of section 6707A(d) shall apply for purposes of paragraph (1).

   Inserted: "(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.

   Inserted: "(f) Cross References.--

   Inserted: "(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).".

   Inserted: (b) Coordination With Other Understatements and Penalties.--

   Inserted: (1) The second sentence of section 6662(d)(2)(A) is amended by inserting "and without regard to items with respect to which a penalty is imposed by section 6662B" before the period at the end.

   Inserted: (2) Subsection (e) of section 6662A is amended--

   Inserted: (A) in paragraph (1), by inserting "and noneconomic substance transaction understatements" after "reportable transaction understatements" both places it appears,

   Inserted: (B) in paragraph (2)(A), by inserting "and a noneconomic substance transaction understatement" after "reportable transaction understatement",

   Inserted: (C) in paragraph (2)(B), by inserting "6662B or" before "6663",

   Inserted: (D) in paragraph (2)(C)(i), by inserting "or section 6662B" before the period at the end,

   Inserted: (E) in paragraph (2)(C)(ii), by inserting "and section 6662B" after "This section",

   Inserted: (F) in paragraph (3), by inserting "or noneconomic substance transaction understatement" after "reportable transaction understatement", and

   Inserted: (G) by adding at the end the following new paragraph:

   Inserted: "(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).".

   Inserted: (3) Subsection (e) of section 6707A is amended--

   Inserted: (A) by striking "or" at the end of subparagraph (B), and

   Inserted: (B) by striking subparagraph (C) and inserting the following new subparagraphs:

   Inserted: "(C) is required to pay a penalty under section 6662B with respect to any noneconomic substance transaction, or

   Inserted: "(D) is required to pay a penalty under section 6662(h) with respect to any transaction and would (but for section 6662A(e)(2)(C)) have been subject to penalty under section 6662A at a rate prescribed under section 6662A(c) or under section 6662B,".

   Inserted: (c) 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:

   Inserted: "Sec. 6662B. Penalty for understatements attributable to transactions lacking economic substance, etc.".

   Inserted: (d) Effective Date.--The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.

   Inserted: SEC. 513. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS ATTRIBUTABLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.

   Inserted: (a) In General.--Section 163(m) (relating to interest on unpaid taxes attributable to nondisclosed reportable transactions) is amended--

   Inserted: (1) by striking "attributable" and all that follows and inserting the following: "attributable to--

   Inserted: "(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

   Inserted: "(2) any noneconomic substance transaction understatement (as defined in section 6662B(c)).", and

   Inserted: (2) by inserting "and Noneconomic Substance Transactions" in the heading thereof after "Transactions".

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

   Inserted: Subtitle C--Improvements in Efficiency and Safeguards in Internal Revenue Service Collection SEC. 521. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING AUTOMATED WITHDRAWALS.

   Inserted: (a) In General.--Section 6159 (relating to agreements for payment of tax liability in installments) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following:

   Inserted: "(e) Waiver of User Fees for Installment Agreements Using Automated Withdrawals.--In the case of a taxpayer who enters into an installment agreement in which automated installment payments are agreed to, the Secretary shall waive the fee (if any) for entering into the installment agreement.".

   Inserted: (b) Effective Date.--The amendments made by this section shall apply to agreements entered into on or after the date which is 180 days after the date of the enactment of this Act.

   Inserted: SEC. 522. TERMINATION OF INSTALLMENT AGREEMENTS.

   Inserted: (a) In General.--Section 6159(b)(4) (relating to failure to pay an installment or any other tax liability when due or to provide requested financial information) is amended by striking "or" at the end of subparagraph (B), by redesignating subparagraph (C) as subparagraph (E), and by inserting after subparagraph (B) the following:

   Inserted: "(C) to make a Federal tax deposit under section 6302 at the time such deposit is required to be made,

   Inserted: "(D) to file a return of tax imposed under this title by its due date (including extensions), or".

   Inserted: (b) Conforming Amendment.--The heading for section 6159(b)(4) is amended by striking "Failure to pay an installment or any other tax liability when due or to provide requested financial information" and inserting "Failure to make payments or deposits or file returns when due or to provide requested financial information".

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

   Inserted: SEC. 523. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF OFFERS-IN-COMPROMISE.

   Inserted: (a) In General.--Section 7122 (relating to compromises), as amended by this Act, is amended by redesignating subsections (c), (d), and (e) as subsections (d), (e), and (f), respectively, and by inserting after subsection (b) the following new subsection:

   Inserted: "(c) Rules for Submission of Offers-in-Compromise.--

   Inserted: "(1) Partial payment required with submission.--

   Inserted: "(A) Lump-sum offers.--

   Inserted: "(i) In general.--The submission of any lump-sum offer-in-compromise shall be accompanied by the payment of 20 percent of amount of such offer.

   Inserted: "(ii) Lump-sum offer-in-compromise.--For purposes of this section, the term 'lump-sum offer-in-compromise' means any offer of payments made in 5 or fewer installments.

   Inserted: "(B) Periodic payment offers.--The submission of any periodic payment offer-in-compromise shall be accompanied by the payment of the amount of the first proposed installment and each proposed installment due during the period such offer is being evaluated for acceptance and has not been rejected by the Secretary. Any failure to make a payment required under the preceding sentence shall be deemed a withdrawal of the offer-in-compromise.

   Inserted: "(2) Rules of application.--

   Inserted: "(A) Use of payment.--The application of any payment made under this subsection to the assessed tax or other amounts imposed under this title with respect to such tax may be specified by the taxpayer.

   Inserted: "(B) No user fee imposed.--Any user fee which would otherwise be imposed under this section shall not be imposed on any offer-in-compromise accompanied by a payment required under this subsection.

   Inserted: "(C) Waiver authority.--The Secretary may issue regulations waiving any payment required under paragraph (1) in a manner consistent with the practices established in accordance with the requirements under subsection (d)(3).".

   Inserted: (b) Additional Rules Relating to Treatment of Offers.--

   Inserted: (1) Unprocessable offer if payment requirements are not met.--Paragraph (3) of section 7122(d) (relating to standards for evaluation of offers), as redesignated by subsection (a), is amended by striking "; and" at the end of subparagraph (A) and inserting a comma, by striking the period at the end of subparagraph (B) and inserting ", and", and by adding at the end the following new subparagraph:

   Inserted: "(C) any offer-in-compromise which does not meet the requirements of subsection (c) shall be returned to the taxpayer as unprocessable.".

   Inserted: (2) Deemed acceptance of offer not rejected within certain period.--Section 7122, as amended by subsection (a), is amended by adding at the end the following new subsection:

   Inserted: "(g) Deemed Acceptance of Offer Not Rejected Within Certain Period.--Any offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer (12 months for offers-in-compromise submitted after the date which is 5 years after the date of the enactment of this subsection). For purposes of the preceding sentence, any period during which any tax liability which is the subject of such offer-in-compromise is in dispute in any judicial proceeding shall not be taken in to account in determining the expiration of the 24-month period (or 12-month period, if applicable).".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to offers-in-compromise submitted on and after the date which is 60 days after the date of the enactment of this Act.

   Inserted: Subtitle D--Penalties and Fines SEC. 531. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.

   Inserted: (a) In General.--Section 7206 (relating to fraud and false statements) is amended--

   Inserted: (1) by striking "Any person who--" and inserting "(a) in general.--Any person who--", and

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

   Inserted: "(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.".

   Inserted: (b) Increase in Penalties.--

   Inserted: (1) Attempt to evade or defeat tax.--Section 7201 is amended--

   Inserted: (A) by striking "$100,000" and inserting "$500,000",

   Inserted: (B) by striking "$500,000" and inserting "$1,000,000", and

   Inserted: (C) by striking "5 years" and inserting "10 years".

   Inserted: (2) Willful failure to file return, supply information, or pay tax.--Section 7203 is amended--

   Inserted: (A) in the first sentence--

   Inserted: (i) by striking "Any person" and inserting the following:

   Inserted: "(a) In General.--Any person", and

   Inserted: (ii) by striking "$25,000" and inserting "$50,000",

   Inserted: (B) in the third sentence, by striking "section" and inserting "subsection", and

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

   Inserted: "(b) Aggravated Failure to File.--

   Inserted: "(1) In general.--In the case of any failure described in paragraph (2), the first sentence of subsection (a) shall be applied by substituting--

   Inserted: "(A) 'felony' for 'misdemeanor',

   Inserted: "(B) '$500,000 ($1,000,000' for '$25,000 ($100,000', and

   Inserted: "(C) '10 years' for '1 year'.

   Inserted: "(2) Failure described.--A failure described in this paragraph is a failure to make a return described in subsection (a) for a period of 3 or more consecutive taxable years.".

   Inserted: (3) Fraud and false statements.--Section 7206(a) (as redesignated by subsection (a)) is amended--

   Inserted: (A) by striking "$100,000" and inserting "$500,000",

   Inserted: (B) by striking "$500,000" and inserting "$1,000,000", and

   Inserted: (C) by striking "3 years" and inserting "5 years".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to actions, and failures to act, occurring after the date of the enactment of this Act.

   Inserted: SEC. 532. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE FINANCIAL ARRANGEMENTS.

   Inserted: (a) Determination of Penalty.--

   Inserted: (1) In general.--Notwithstanding any other provision of law, in the case of an applicable taxpayer--

   Inserted: (A) the determination as to whether any interest or applicable penalty is to be imposed with respect to any arrangement described in paragraph (2), or to any underpayment of Federal income tax attributable to items arising in connection with any such arrangement, shall be made without regard to the rules of subsections (b), (c), and (d) of section 6664 of the Internal Revenue Code of 1986, and

   Inserted: (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.

   Inserted: (2) Applicable taxpayer.--For purposes of this subsection--

   Inserted: (A) In general.--The term "applicable taxpayer" means a taxpayer which--

   Inserted: (i) has underreported its United States income tax liability with respect to any item which directly or indirectly involves--

   Inserted: (I) any financial arrangement which in any manner relies on the use of offshore payment mechanisms (including credit, debit, or charge cards) issued by banks or other entities in foreign jurisdictions, or

   Inserted: (II) any offshore financial arrangement (including any arrangement with foreign banks, financial institutions, corporations, partnerships, trusts, or other entities), and

   Inserted: (ii) has neither signed a closing agreement pursuant to the Voluntary Offshore Compliance Initiative established by the Department of the Treasury under Revenue Procedure 2003-11 nor voluntarily disclosed its participation in such arrangement by notifying the Internal Revenue Service of such arrangement prior to the issue being raised by the Internal Revenue Service during an examination.

   Inserted: (B) Authority to waive.--The Secretary of the Treasury or the Secretary's delegate may waive the application of paragraph (1) to any taxpayer if the Secretary or the Secretary's delegate determines that the use of such offshore payment mechanisms is incidental to the transaction and, in addition, in the case of a trade or business, such use is conducted in the ordinary course of the type of trade or business of the taxpayer.

   Inserted: (C) Issues raised.--For purposes of subparagraph (A)(ii), an item shall be treated as an issue raised during an examination if the individual examining the return--

   Inserted: (i) communicates to the taxpayer knowledge about the specific item, or

   Inserted: (ii) has made a request to the taxpayer for information and the taxpayer could not make a complete response to that request without giving the examiner knowledge of the specific item.

   Inserted: (b) Applicable Penalty.--For purposes of this section, the term "applicable penalty" means any penalty, addition to tax, or fine imposed under chapter 68 of the Internal Revenue Code of 1986.

   Inserted: (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.

   Inserted: SEC. 533. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER AMOUNTS.

   Inserted: (a) In General.--Subsection (f) of section 162 (relating to trade or business expenses) is amended to read as follows:

   Inserted: "(f) Fines, Penalties, and Other Amounts.--

   Inserted: "(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.

   Inserted: "(2) Exception for amounts constituting restitution or paid to come into compliance with law.--Paragraph (1) shall not apply to any amount which--

   Inserted: "(A) the taxpayer establishes--

   Inserted: "(i) 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, or

   Inserted: "(ii) is paid to come into compliance with any law which was violated or involved in the investigation or inquiry, and

   Inserted: "(B) is identified as restitution or as an amount paid to come into compliance with the law, as the case may be, in the court order or settlement agreement.

   Inserted: Identification pursuant to subparagraph (B) alone shall not satisfy the requirement under subparagraph (A). 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.

   Inserted: "(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.

   Inserted: "(4) Certain nongovernmental regulatory entities.--An entity is described in this paragraph if it is--

   Inserted: "(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

   Inserted: "(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.

   Inserted: "(5) Exception for taxes due.--Paragraph (1) shall not apply to any amount paid or incurred as taxes due.".

   Inserted: (b) Reporting of Deductible Amounts.--

   Inserted: (1) In general.--Subpart B of part III of subchapter A of chapter 61 is amended by inserting after section 6050T the following new section:

   Inserted: "SEC. 6050U. INFORMATION WITH RESPECT TO CERTAIN FINES, PENALTIES, AND OTHER AMOUNTS.

   Inserted: "(a) Requirement of Reporting.--

   Inserted: "(1) In general.--The appropriate official of any government or entity which is described in section 162(f)(4) which is involved in a suit or agreement described in paragraph (2) shall make a return in such form as determined by the Secretary setting forth--

   Inserted: "(A) the amount required to be paid as a result of the suit or agreement to which paragraph (1) of section 162(f) applies,

   Inserted: "(B) any amount required to be paid as a result of the suit or agreement which constitutes restitution or remediation of property, and

   Inserted: "(C) any amount required to be paid as a result of the suit or agreement for the purpose of coming into compliance with any law which was violated or involved in the investigation or inquiry.

   Inserted: "(2) Suit or agreement described.--

   Inserted: "(A) In general.--A suit or agreement is described in this paragraph if--

   Inserted: "(i) it is--

   Inserted: "(I) a suit with respect to a violation of any law over which the government or entity has authority and with respect to which there has been a court order, or

   Inserted: "(II) an agreement which is entered into with respect to a violation of any law over which the government or entity has authority, or with respect to an investigation or inquiry by the government or entity into the potential violation of any law over which such government or entity has authority, and

   Inserted: "(ii) the aggregate amount involved in all court orders and agreements with respect to the violation, investigation, or inquiry is $600 or more.

   Inserted: "(B) Adjustment of reporting threshold.--The Secretary may adjust the $600 amount in subparagraph (A)(ii) as necessary in order to ensure the efficient administration of the internal revenue laws.

   Inserted: "(3) Time of filing.--The return required under this subsection shall be filed not later than--

   Inserted: "(A) 30 days after the date on which a court order is issued with respect to the suit or the date the agreement is entered into, as the case may be, or

   Inserted: "(B) the date specified Secretary.

   Inserted: "(b) Statements To Be Furnished to Individuals Involved in the Settlement.--Every person required to make a return under subsection (a) shall furnish to each person who is a party to the suit or agreement a written statement showing--

   Inserted: "(1) the name of the government or entity, and

   Inserted: "(2) the information supplied to the Secretary under subsection (a)(1).

   Inserted: The written statement required under the preceding sentence shall be furnished to the person at the same time the government or entity provides the Secretary with the information required under subsection (a).

   Inserted: "(c) Appropriate Official Defined.--For purposes of this section, the term 'appropriate official' means the officer or employee having control of the suit, investigation, or inquiry or the person appropriately designated for purposes of this section.".

   Inserted: (2) Conforming 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 6050T the following new item:

   Inserted: "Sec. 6050U. Information with respect to certain fines, penalties, and other amounts.".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to amounts paid or incurred on or after the date of the enactment of this Act, except that such amendments shall not apply to amounts paid or incurred under any binding order or agreement entered into before such date. Such exception shall not apply to an order or agreement requiring court approval unless the approval was obtained before such date.

   Inserted: SEC. 534. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.

   Inserted: (a) Disallowance of Deduction.--

   Inserted: (1) In general.--Section 162(g) (relating to treble damage payments under the antitrust laws) is amended--

   Inserted: (A) by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively,

   Inserted: (B) by striking "If" and inserting:

   Inserted: "(1) Treble damages.--If", and

   Inserted: (C) by adding at the end the following new paragraph:

   Inserted: "(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).".

   Inserted: (2) Conforming amendment.--The heading for section 162(g) is amended by inserting "or Punitive Damages" after "Laws".

   Inserted: (b) Inclusion in Income of Punitive Damages Paid by Insurer or Otherwise.--

   Inserted: (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:

   Inserted: "SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.

   Inserted: "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.".

   Inserted: (2) Reporting requirements.--Section 6041 (relating to information at source) is amended by adding at the end the following new subsection:

   Inserted: "(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.".

   Inserted: (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:

   Inserted: "Sec. 91. Punitive damages compensated by insurance or otherwise".

   Inserted: (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.

   Inserted: SEC. 535. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY ORDERS.

   Inserted: (a) In General.--Section 6657 (relating to bad checks) is amended--

   Inserted: (1) by striking "$750" and inserting "$2,000", and

   Inserted: (2) by striking "$15" and inserting "$40".

   Inserted: (b) Effective Date.--The amendments made by this section apply to checks or money orders received after the date of the enactment of this Act.

   Inserted: Subtitle E--Provisions To Discourage Expatriation SEC. 541. TAX TREATMENT OF INVERTED ENTITIES.

   Inserted: (a) In General.--Section 7874 is amended--

   Inserted: (1) by striking "March 4, 2003" in subsection (a)(2)(B)(i) and in the matter following subsection (a)(2)(B)(iii) and inserting "March 20, 2002",

   Inserted: (2) by striking "at least 60 percent" in subsection (a)(2)(B)(ii) and inserting "more than 50 percent",

   Inserted: (3) by striking "80 percent" in subsection (b) and inserting "at least 80 percent",

   Inserted: (4) by striking "60 percent" in subsection (b) and inserting "more than 50 percent",

   Inserted: (5) by adding at the end of subsection (a)(2) the following new sentence: "Except as provided in regulations, an acquisition of properties of a domestic corporation shall not be treated as described in subparagraph (B) 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.", and

   Inserted: (6) by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:

   Inserted: "(g) Special Rules Applicable to Expatriated Entities.--

   Inserted: "(1) Increases in accuracy-related penalties.--In the case of any underpayment of tax of an expatriated entity--

   Inserted: "(A) section 6662(a) shall be applied with respect to such underpayment by substituting '30 percent' for '20 percent', and

   Inserted: "(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.

   Inserted: "(2) Modifications of limitation on interest deduction.--In the case of an expatriated entity, section 163(j) shall be applied--

   Inserted: "(A) without regard to paragraph (2)(A)(ii) thereof, and

   Inserted: "(B) by substituting '25 percent' for '50 percent' each place it appears in paragraph (2)(B) thereof.".

   Inserted: (b) Effective Date.--The amendments made by this section shall apply to taxable years ending after March 20, 2002.

   Inserted: SEC. 542. REVISION OF TAX RULES ON EXPATRIATION OF INDIVIDUALS.

   Inserted: (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:

   Inserted: "SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

   Inserted: "(a) General Rules.--For purposes of this subtitle--

   Inserted: "(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.

   Inserted: "(2) Recognition of gain or loss.--In the case of any sale under paragraph (1)--

   Inserted: "(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

   Inserted: "(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.

   Inserted: "(3) Exclusion for certain gain.--

   Inserted: "(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.

   Inserted: "(B) Cost-of-living adjustment.--

   Inserted: "(i) In general.--In the case of an expatriation date occurring in any calendar year after 2005, the $600,000 amount under subparagraph (A) shall be increased by an amount equal to--

   Inserted: "(I) such dollar amount, multiplied by

   Inserted: "(II) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting 'calendar year 2004' for 'calendar year 1992' in subparagraph (B) thereof.

   Inserted: "(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.

   Inserted: "(4) Election to continue to be taxed as united states citizen.--

   Inserted: "(A) In general.--If a covered expatriate elects the application of this paragraph--

   Inserted: "(i) this section (other than this paragraph and subsection (i)) shall not apply to the expatriate, but

   Inserted: "(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.

   Inserted: "(B) Requirements.--Subparagraph (A) shall not apply to an individual unless the individual--

   Inserted: "(i) provides security for payment of tax in such form and manner, and in such amount, as the Secretary may require,

   Inserted: "(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

   Inserted: "(iii) complies with such other requirements as the Secretary may prescribe.

   Inserted: "(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.

   Inserted: "(b) Election To Defer Tax.--

   Inserted: "(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).

   Inserted: "(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.

   Inserted: "(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).

   Inserted: "(4) Security.--

   Inserted: "(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.

   Inserted: "(B) Adequate security.--For purposes of subparagraph (A), security with respect to any property shall be treated as adequate security if--

   Inserted: "(i) it is a bond in an amount equal to the deferred tax amount under paragraph (2) for the property, or

   Inserted: "(ii) the taxpayer otherwise establishes to the satisfaction of the Secretary that the security is adequate.

   Inserted: "(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.

   Inserted: "(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).

   Inserted: "(7) Interest.--For purposes of section 6601--

   Inserted: "(A) the last date for the payment of tax shall be determined without regard to the election under this subsection, and

   Inserted: "(B) section 6621(a)(2) shall be applied by substituting '5 percentage points' for '3 percentage points' in subparagraph (B) thereof.

   Inserted: "(c) Covered Expatriate.--For purposes of this section--

   Inserted: "(1) In general.--Except as provided in paragraph (2), the term 'covered expatriate' means an expatriate.

   Inserted: "(2) Exceptions.--An individual shall not be treated as a covered expatriate if--

   Inserted: "(A) the individual--

   Inserted: "(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

   Inserted: "(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

   Inserted: "(B)(i) the individual's relinquishment of United States citizenship occurs before such individual attains age 18\1/ 2\, and

   Inserted: "(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.

   Inserted: "(d) Exempt Property; Special Rules for Pension Plans.--

   Inserted: "(1) Exempt property.--This section shall not apply to the following:

   Inserted: "(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).

   Inserted: "(B) Specified property.--Any property or interest in property not described in subparagraph (A) which the Secretary specifies in regulations.

   Inserted: "(2) Special rules for certain retirement plans.--

   Inserted: "(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--

   Inserted: "(i) such interest shall not be treated as sold for purposes of subsection (a)(1), but

   Inserted: "(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.

   Inserted: "(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.

   Inserted: "(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.

   Inserted: "(D) Applicable plans.--This paragraph shall apply to--

   Inserted: "(i) any qualified retirement plan (as defined in section 4974(c)),

   Inserted: "(ii) an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A), and

   Inserted: "(iii) to the extent provided in regulations, any foreign pension plan or similar retirement arrangements or programs.

   Inserted: "(e) Definitions.--For purposes of this section--

   Inserted: "(1) Expatriate.--The term 'expatriate' means--

   Inserted: "(A) any United States citizen who relinquishes citizenship, and

   Inserted: "(B) any long-term resident of the United States who--

   Inserted: "(i) ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)), or

   Inserted: "(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.

   Inserted: "(2) Expatriation date.--The term 'expatriation date' means--

   Inserted: "(A) the date an individual relinquishes United States citizenship, or

   Inserted: "(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).

   Inserted: "(3) Relinquishment of citizenship.--A citizen shall be treated as relinquishing United States citizenship on the earliest of--

   Inserted: "(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)),

   Inserted: "(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)),

   Inserted: "(C) the date the United States Department of State issues to the individual a certificate of loss of nationality, or

   Inserted: "(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.

   Inserted: "(4) Long-term resident.--The term 'long-term resident' has the meaning given to such term by section 877(e)(2).

   Inserted: "(f) Special Rules Applicable to Beneficiaries' Interests in Trust.--

   Inserted: "(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--

   Inserted: "(A) the individual shall not be treated as having sold such interest,

   Inserted: "(B) such interest shall be treated as a separate share in the trust, and

   Inserted: "(C)(i) such separate share shall be treated as a separate trust consisting of the assets allocable to such share,

   Inserted: "(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

   Inserted: "(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.

   Inserted: "(2) Special rules for interests in qualified trusts.--

   Inserted: "(A) In general.--If the trust interest described in paragraph (1) is an interest in a qualified trust--

   Inserted: "(i) paragraph (1) and subsection (a) shall not apply, and

   Inserted: "(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).

   Inserted: "(B) Amount of tax.--The amount of tax under subparagraph (A)(ii) shall be equal to the lesser of--

   Inserted: "(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

   Inserted: "(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.

   Inserted: "(C) Deferred tax account.--For purposes of subparagraph (B)(ii)--

   Inserted: "(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).

   Inserted: "(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.

   Inserted: "(iii) Decrease for taxes previously paid.--The balance in the tax deferred account shall be reduced--

   Inserted: "(I) by the amount of taxes imposed by subparagraph (A) on any distribution to the person holding the trust interest, and

   Inserted: "(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.

   Inserted: "(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.

   Inserted: "(E) Tax deducted and withheld.--

   Inserted: "(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.

   Inserted: "(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--

   Inserted: "(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

   Inserted: "(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.

   Inserted: "(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--

   Inserted: "(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

   Inserted: "(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.

   Inserted: "(G) Definitions and special rules.--For purposes of this paragraph--

   Inserted: "(i) Qualified trust.--The term 'qualified trust' means a trust which is described in section 7701(a)(30)(E).

   Inserted: "(ii) Vested interest.--The term 'vested interest' means any interest which, as of the day before the expatriation date, is vested in the beneficiary.

   Inserted: "(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.

   Inserted: "(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.

   Inserted: "(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.

   Inserted: "(3) Determination of beneficiaries' interest in trust.--

   Inserted: "(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.

   Inserted: "(B) Other determinations.--For purposes of this section--

   Inserted: "(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.

   Inserted: "(ii) Taxpayer return position.--A taxpayer shall clearly indicate on its income tax return--

   Inserted: "(I) the methodology used to determine that taxpayer's trust interest under this section, and

   Inserted: "(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.

   Inserted: "(g) Termination of Deferrals, Etc.--In the case of any covered expatriate, notwithstanding any other provision of this title--

   Inserted: "(1) any period during which recognition of income or gain is deferred shall terminate on the day before the expatriation date, and

   Inserted: "(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.

   Inserted: "(h) Imposition of Tentative Tax.--

   Inserted: "(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.

   Inserted: "(2) Due date.--The due date for any tax imposed by paragraph (1) shall be the 90th day after the expatriation date.

   Inserted: "(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.

   Inserted: "(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.

   Inserted: "(i) Special Liens for Deferred Tax Amounts.--

   Inserted: "(1) Imposition of lien.--

   Inserted: "(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).

   Inserted: "(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.

   Inserted: "(2) Period of lien.--The lien imposed by this subsection shall arise on the expatriation date and continue until--

   Inserted: "(A) the liability for tax by reason of this section is satisfied or has become unenforceable by reason of lapse of time, or

   Inserted: "(B) it is established to the satisfaction of the Secretary that no further tax liability may arise by reason of this section.

   Inserted: "(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.

   Inserted: "(j) Regulations.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.".

   Inserted: (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:

   Inserted: "(d) Gifts and Inheritances From Covered Expatriates.--

   Inserted: "(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.

   Inserted: "(2) Exceptions for transfers otherwise subject to estate or gift tax.--Paragraph (1) shall not apply to any property if either--

   Inserted: "(A) the gift, bequest, devise, or inheritance is--

   Inserted: "(i) shown on a timely filed return of tax imposed by chapter 12 as a taxable gift by the covered expatriate, or

   Inserted: "(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

   Inserted: "(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.".

   Inserted: (c) Definition of Termination of United States Citizenship.--Section 7701(a) is amended by adding at the end the following new paragraph:

   Inserted: "(49) Termination of united states citizenship.--

   Inserted: "(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).

   Inserted: "(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.".

   Inserted: (d) Ineligibility for Visa or Admission to United States.--

   Inserted: (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:

   Inserted: "(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) is inadmissible.".

   Inserted: (2) Availability of information.--

   Inserted: (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:

   Inserted: "(21) 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).".

   Inserted: (B) Safeguards.--Section 6103(p)(4) (relating to safeguards) is amended by striking "or (20)" each place it appears and inserting "(20), or (21)".

   Inserted: (3) Effective dates.--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.

   Inserted: (e) Conforming Amendments.--

   Inserted: (1) Section 877 is amended by adding at the end the following new subsection:

   Inserted: "(h) 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 the date of the enactment of this subsection.".

   Inserted: (2) Section 2107 is amended by adding at the end the following new subsection:

   Inserted: "(f) Application.--This section shall not apply to any expatriate subject to section 877A.".

   Inserted: (3) Section 2501(a)(3) is amended by adding at the end the following new subparagraph:

   Inserted: "(C) Application.--This paragraph shall not apply to any expatriate subject to section 877A.".

   Inserted: (4) Section 6039G(a) is amended by inserting "or 877A" after "section 877(b)".

   Inserted: (5) The second sentence of section 6039G(d) is amended by inserting "or who relinquishes United States citizenship (within the meaning of section 877A(e)(3))" after "section 877(a))".

   Inserted: (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:

   Inserted: "Sec. 877A. Tax responsibilities of expatriation.".

   Inserted: (g) Effective Date.--

   Inserted: (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 the date of the enactment of this Act.

   Inserted: (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 the date of the enactment of this Act, from an individual or the estate of an individual whose expatriation date (as so defined) occurs after such date.

   Inserted: (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.

   Inserted: Subtitle F--Miscellaneous Provisions SEC. 551. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT INSTRUMENTS.

   Inserted: (a) In General.--Section 1275(d) (relating to regulation authority) is amended--

   Inserted: (1) by striking "The Secretary" and inserting the following:

   Inserted: "(1) In general.--The Secretary", and

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

   Inserted: "(2) Treatment of contingent payment convertible debt.--

   Inserted: "(A) In general.--In the case of a debt instrument which--

   Inserted: "(i) is convertible into stock of the issuing corporation, into 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

   Inserted: "(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 if the regulations require that such comparable yield be determined by reference to a noncontingent fixed-rate debt instrument which is convertible into stock.

   Inserted: "(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.".

   Inserted: (b) Cross Reference.--Section 163(e)(6) (relating to cross references) is amended by adding at the end the following:

   Inserted: "For the treatment of contingent payment convertible debt, see section 1275(d)(2).".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to debt instruments issued on or after the date of the enactment of this Act.

   Inserted: SEC. 552. GRANT OF TREASURY REGULATORY AUTHORITY TO ADDRESS FOREIGN TAX CREDIT TRANSACTIONS INVOLVING INAPPROPRIATE SEPARATION OF FOREIGN TAXES FROM RELATED FOREIGN INCOME.

   Inserted: (a) In General.--Section 901 (relating to taxes of foreign countries and of possessions of United States) is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following new subsection:

   Inserted: "(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.".

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

   Inserted: SEC. 553. REPEAL OF SPECIAL PROPERTY EXCEPTION TO LEASING PROVISIONS OF THE AMERICAN JOBS CREATION ACT OF 2004.

   Inserted: (a) In General.--Section 849(b) of the American Jobs Creation Act of 2004 is amended by striking paragraphs (1) and (2), by redesignating paragraphs (3) and (4) as paragraphs (1) and (2), respectively.

   Inserted: (b) Leases to Foreign Entities.--Section 849(b) of the American Jobs Creation Act of 2004, as amended by subsection (a), is amended by adding at the end the following new paragraph:

   Inserted: "(3) Leases to foreign entities.--In the case of tax-exempt use property leased to a tax-exempt entity which is a foreign person or entity, the amendments made by this part shall apply to taxable years beginning after December 31, 2005, with respect to leases entered into on or before March 12, 2004.".

   Inserted: (c) Effective Date.--The amendments made by this section shall take effect as if included in the enactment of the American Jobs Creation Act of 2004.

   Inserted: SEC. 554. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS WHICH ARE CORPORATIONS.

   Inserted: (a) In General.--Section 163(j) (relating to limitation on deduction for interest on certain indebtedness) is amended by redesignating paragraph (8) as paragraph (9) and by inserting after paragraph (7) the following new paragraph:

   Inserted: "(8) Treatment of corporate partners.--Except to the extent provided by regulations, in applying this subsection to a corporation which owns (directly or indirectly) an interest in a partnership--

   Inserted: "(A) such corporation's distributive share of interest income paid or accrued to such partnership shall be treated as interest income paid or accrued to such corporation,

   Inserted: "(B) such corporation's distributive share of interest paid or accrued by such partnership shall be treated as interest paid or accrued by such corporation, and

   Inserted: "(C) such corporation's share of the liabilities of such partnership shall be treated as liabilities of such corporation.".

   Inserted: (b) Additional Regulatory Authority.--Section 163(j)(9) (relating to regulations), as redesignated by subsection (a), is amended by striking "and" at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ", and", and by adding at the end the following new subparagraph:

   Inserted: "(D) regulations providing for the reallocation of shares of partnership indebtedness, or distributive shares of the partnership's interest income or interest expense, as may be appropriate to carry out the purposes of this subsection.".

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

   Inserted: SEC. 555. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN ENTERTAINMENT EXPENSES.

   Inserted: (a) In General.--Paragraph (2) of section 274(e) (relating to expenses treated as compensation) is amended to read as follows:

   Inserted: "(2) Expenses treated as compensation.--Expenses for goods, services, and facilities, to the extent that the expenses do not exceed the amount of the expenses which are treated by the taxpayer, with respect to the recipient of the entertainment, amusement, or recreation, as compensation to an employee on the taxpayer's return of tax under this chapter and as wages to such employee for purposes of chapter 24 (relating to withholding of income tax at source on wages).".

   Inserted: (b) Persons Not Employees.--Paragraph (9) of section 274(e) is amended by striking "to the extent that the expenses are includible in the gross income" and inserting "to the extent that the expenses do not exceed the amount of the expenses which are includible in the gross income".

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

   Inserted: SEC. 556. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED INCOME IS TAXED AS IF PARENT'S INCOME.

   Inserted: (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".

   Inserted: (b) Treatment of Distributions From Qualified Disability Trusts.--Section 1(g)(4) (relating to net unearned income) is amended by adding at the end the following new subparagraph:

   Inserted: "(C) Treatment of distributions from qualified disability trusts.--For purposes of this subsection, in the case of any child who is a beneficiary of a qualified disability trust (as defined in section 642(b)(2)(C)(ii)), any amount included in the income of such child under sections 652 and 662 during a taxable year shall be considered earned income of such child for such taxable year.".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2005.

   Inserted: SEC. 557. LOAN AND REDEMPTION REQUIREMENTS ON POOLED FINANCING REQUIREMENTS.

   Inserted: (a) Strengthened Reasonable Expectation Requirement.--Subparagraph (A) of section 149(f)(2) (relating to reasonable expectation requirement) is amended to read as follows:

   Inserted: "(A) In general.--The requirements of this paragraph are met with respect to an issue if the issuer reasonably expects that--

   Inserted: "(i) as of the close of the 1-year period beginning on the date of issuance of the issue, at least 50 percent of the net proceeds of the issue (as of the close of such period) will have been used directly or indirectly to make or finance loans to ultimate borrowers, and

   Inserted: "(ii) as of the close of the 3-year period beginning on such date of issuance, at least 95 percent of the net proceeds of the issue (as of the close of such period) will have been so used.".

   Inserted: (b) Written Loan Commitment and Redemption Requirements.--Section 149(f) (relating to treatment of certain pooled financing bonds) is amended by redesignating paragraphs (4) and (5) as paragraphs (6) and (7), respectively, and by inserting after paragraph (3) the following new paragraphs:

   Inserted: "(4) Written loan commitment requirement.--

   Inserted: "(A) In general.--The requirement of this paragraph is met with respect to an issue if the issuer receives prior to issuance written loan commitments identifying the ultimate potential borrowers of at least 50 percent of the net proceeds of such issue.

   Inserted: "(B) Exception.--Subparagraph (A) shall not apply with respect to any issuer which is a State (or an integral part of a State) issuing pooled financing bonds to make or finance loans to subordinate governmental units of such State or to State-created entities providing financing for water-infrastructure projects through the federally-sponsored State revolving fund program.

   Inserted: "(5) Redemption requirement.--The requirement of this paragraph is met if to the extent that less than the percentage of the proceeds of an issue required to be used under clause (i) or (ii) of paragraph (2)(A) is used by the close of the period identified in such clause, the issuer uses an amount of proceeds equal to the excess of--

   Inserted: "(A) the amount required to be used under such clause, over

   Inserted: "(B) the amount actually used by the close of such period, "to redeem outstanding bonds within 90 days after the end of such period.".

   Inserted: (c) Elimination of Disregard of Pooled Bonds in Determining Eligibility for Small Issuer Exception to Arbitrage Rebate.--Section 148(f)(4)(D)(ii) (relating to aggregation of issuers) is amended by striking subclause (II) and by redesignating subclauses (III) and (IV) as subclauses (II) and (III), respectively.

   Inserted: (d) Conforming Amendments.--

   Inserted: (1) Section 149(f)(1) is amended by striking "paragraphs (2) and (3)" and inserting "paragraphs (2), (3), (4), and (5)".

   Inserted: (2) Section 149(f)(7)(B), as redesignated by subsection (b), is amended by striking "paragraph (4)(A)" and inserting "paragraph (6)(A)".

   Inserted: (3) Section 54(l)(2) is amended by striking "section 149(f)(4)(A)" and inserting "section 149(f)(6)(A)".

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

   Inserted: SEC. 558. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.

   Inserted: (a) In General.--Section 6049(b)(2) (relating to exceptions) is amended by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively.

   Inserted: (b) Conforming Amendment.--Section 6049(b)(2)(C), as redesignated by subsection (a), is amended by striking "subparagraph (C)" and inserting "subparagraph (B)".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to interest earned after December 31, 2005.

   Inserted: SEC. 559. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE.

   Inserted: (a) Taxable Years Ending Before 2006.--

   Inserted: (1) Modification of phaseout.--

   Inserted: (A) In general.--Section 29(b)(1)(A) is amended by inserting "the calendar year preceding" before "the calendar year".

   Inserted: (B) Conforming amendments.--Section 29(b)((2) is amended--

   Inserted: (i) by striking "The" and inserting "With respect to any calendar year, the", and

   Inserted: (ii) by striking "for the calendar year in which the sale occurs" and inserting "for such calendar year".

   Inserted: (2) No inflation adjustment for the credit amount in 2005.--Section 29(b)(2), as amended by paragraph (1), is amended by adding at the end the following new sentence: "This paragraph shall not apply with respect to the $3 amount in subsection (a) for calendar year 2005 and the amount in effect under subsection (a) for sales in such calendar year shall be the amount which was in effect for sales in calendar year 2004.".

   Inserted: (b) Taxable Years Ending After 2005.--

   Inserted: (1) Modification of phaseout.--

   Inserted: (A) In general.--Section 45K(b)(1)(A) is amended by inserting "the calendar year preceding" before "the calendar year".

   Inserted: (B) Conforming amendments.--Section 45K(b)((2) is amended--

   Inserted: (i) by striking "The" and inserting "With respect to any calendar year, the", and

   Inserted: (ii) by striking "for the calendar year in which the sale occurs" and inserting "for such calendar year".

   Inserted: (2) No inflation adjustment for the credit amount in 2005, 2006, and 2007.--Section 45K(b)(2), as amended by paragraph (1), is amended by adding at the end the following new sentence: "This paragraph shall not apply with respect to the $3 amount in subsection (a) for calendar years 2005, 2006, and

   Inserted: 2007 and the amount in effect under subsection (a) for sales in each such calendar year shall be the amount which was in effect for sales in calendar year 2004.".

   Inserted: (3) Treatment of coke and coke gas.--

   Inserted: (A) Nonapplication of phaseout.--Section 45K(g)(2) is amended by adding at the end the following new subparagraph:

   Inserted: "(D) Nonapplication of phaseout.--Subsection (b)(1) shall not apply.".

   Inserted: (B) Application of inflation adjustment.--Section 45K(g)(2)(B) is amended by inserting "and the last sentence of subsection (b)(2) shall not apply.".

   Inserted: (C) Clarification of qualifying facility.--Section 45K(g)(1) is amended by inserting "(other than from petroleum based products)" after "coke or coke gas".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to fuel sold after December 31, 2004.

   Inserted: SEC. 560. MODIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE HARBOR.

   Inserted: (a) In General.--The table contained in section 6654(d)(1)(C) is amended by striking "2002 or thereafter" and inserting "2002, 2003, 2004, or 2005" and by adding at the end the following new items:

   Inserted: "2006............................................................120 2007 or thereafter.............................................110".

   Inserted: (b) Effective Date.--The amendments made by this section shall apply with respect to any installment payment for taxable years beginning after December 31, 2005.

   Inserted: SEC. 561. REVALUATION OF LIFO INVENTORIES OF LARGE INTEGRATED OIL COMPANIES.

   Inserted: (a) General Rule.--Notwithstanding any other provision of law, if a taxpayer is an applicable integrated oil company for its last taxable year ending in calendar year 2005, the taxpayer shall--

   Inserted: (1) increase, effective as of the close of such taxable year, the value of each historic LIFO layer of inventories of crude oil, natural gas, or any other petroleum product (within the meaning of section 4611) by the layer adjustment amount, and

   Inserted: (2) decrease its cost of goods sold for such taxable year by the aggregate amount of the increases under paragraph (1). If the aggregate amount of the increases under paragraph (1) exceed the taxpayer's cost of goods sold for such taxable year, the taxpayer's gross income for such taxable year shall be increased by the amount of such excess.

   Inserted: (b) Layer Adjustment Amount.--For purposes of this section--

   Inserted: (1) In general.--The term "layer adjustment amount" means, with respect to any historic LIFO layer, the product of--

   Inserted: (A) $18.75, and

   Inserted: (B) the number of barrels of crude oil (or in the case of natural gas or other petroleum products, the number of barrel-of-oil equivalents) represented by the layer.

   Inserted: (2) Barrel-of-oil equivalent.--The term "barrel-of-oil equivalent" has the meaning given such term by section 29(d)(5) (as in effect before its redesignation by the Energy Tax Incentives Act of 2005).

   Inserted: (c) Application of Requirement.--

   Inserted: (1) No change in method of accounting.--Any adjustment required by this section shall not be treated as a change in method of accounting.

   Inserted: (2) Underpayments of estimated tax.--o addition to the tax shall be made under section 6655 of the Internal Revenue Code of 1986 (relating to failure by corporation to pay estimated tax) with respect to any underpayment of an installment required to be paid with respect to the taxable year described in subsection (a) to the extent such underpayment was created or increased by this section.

   Inserted: (d) Applicable Integrated Oil Company.--For purposes of this section, the term "applicable integrated oil company" means an integrated oil company (as defined in section 291(b)(4) of the Internal Revenue Code of 1986) which has an average daily worldwide production of crude oil of at least 500,000 barels for the taxable year and which had gross receipts in excess of $1,000,000,000 for its last taxable year ending during calendar year 2005. For purposes of this subsection all persons treated as a single employer under subsections (a) and (b) of section 52 of the Internal Revenue Code of 1986 shall be treated as 1 person and, in the case of a short taxable year, the rule under section 448(c)(3)(B) shall apply.

   Inserted: SEC. 562. ELIMINATION OF AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES FOR MAJOR INTEGRATED OIL COMPANIES.

   Inserted: (a) In General.--Section 167(h) is amended by adding at the end the following new paragraph:

   Inserted: "(5) Nonapplication to major integrated oil companies.--This subsection shall not apply with respect to any expenses paid or incurred for any taxable year by any integrated oil company (as defined in section 291(b)(4)) which has an average daily worldwide production of crude oil of at least 500,000 barrels for such taxable year.".

   Inserted: (b) Effective Date.--The amendment made by this section shall take effect as if included in the amendment made by section 1329(a) of the Energy Policy Act of 2005.

   Inserted: SEC. 563. VALUATION OF EMPLOYEE PERSONAL USE OF NONCOMMERCIAL AIRCRAFT.

   Inserted: (a) In General.--For purposes of Federal income tax inclusion, the value of any employee personal use of noncommercial aircraft shall equal the excess (if any) of--

   Inserted: (1) greater of--

   Inserted: (A) the fair market value of such use, or

   Inserted: (B) the actual cost of such use (including all fixed and variable costs), over

   Inserted: (2) any amount paid by or on behalf of such employee for such use.

   Inserted: (b) Effective Date.--Subsection (a) shall apply to use after the date of the enactment of this Act.

   Inserted: SEC. 564. APPLICATION OF FIRPTA TO REGULATED INVESTMENT COMPANIES.

   Inserted: (a) In General.--Subclause (II) of section 897(h)(4)(A)(i) (defining qualified investment entity) is amended by inserting "which is a United States real property holding corporation or which would be a United States real property holding corporation if the exceptions provided in subsections (c)(3) and (h)(2) did not apply to interests in any real estate investment trust or regulated investment company" after "regulated investment company".

   Inserted: (b) Effective Date.--The amendment made by this section shall apply to distributions with respect to taxable years beginning after December 31, 2004.

   Inserted: SEC. 565. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA GAINS.

   Inserted: (a) Qualified Investment Entity.--

   Inserted: (1) In general.--Section 897(h)(1) is amended--

   Inserted: (A) by striking "a nonresident alien individual or a foreign corporation" in the first sentence and inserting "a nonresident alien individual, a foreign corporation, or other qualified investment entity",

   Inserted: (B) by striking "such nonresident alien individual or foreign corporation" in the first sentence and inserting "such nonresident alien individual, foreign corporation, or other qualified investment entity", and

   Inserted: (C) by striking the second sentence and inserting the following new sentence: "Notwithstanding the preceding sentence, any distribution by a qualified investment entity to a nonresident alien, a foreign corporation, or other qualified investment entity 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 1 year period ending on the date of such distribution.".

   Inserted: (2) Application after 2007.--Clause (ii) of section 897(h)(4)(A) is amended by adding at the end the following new sentence: "Notwithstanding the preceding sentence, an entity described in clause (i)(II) shall be treated as a qualified investment entity for purposes of applying paragraph (1) in any case in which a real estate investment trust makes a distribution to an entity described in clause (i)(II).".

   Inserted: (b) Treatment of Certain Distributions as Dividends.--

   Inserted: (1) In general.--Section 852(b)(3) (relating to capital gains) is amended by adding at the end the following new subparagraph:

   Inserted: "(E) Certain distributions.--In the case of a distribution to which section 897 does not apply by reason of the second sentence of section 897(h)(1), the amount of such distribution which would be included in computing long-term capital gains for the shareholder under subparagraph (B) or (D) (without regard to this subparagraph)--

   Inserted: "(i) shall not be included in computing such shareholder's long-term capital gains, and

   Inserted: "(ii) shall be included in such shareholder's gross income as a dividend from the regulated investment company.".

   Inserted: (2) Conforming amendment.--Section 871(k)(2) (relating to short-term capital gain dividends) is amended by adding at the end the following new subparagraph:

   Inserted: "(E) Certain distributions.--In the case of a distribution to which section 897 does not apply by reason of the second sentence of section 897(h)(1), the amount which would be treated as a short-term capital gain dividend to the shareholder (without regard to this subparagraph)--

   Inserted: "(i) shall not be treated as a short-term capital gain dividend, and

   Inserted: "(ii) shall be included in such shareholder's gross income as a dividend from the regulated investment company.".

   Inserted: (c) Effective Dates.--

   Inserted: (1) In general.--Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years of qualified investment entities beginning after the date of the enactment of this Act.

   Inserted: (2) Dividends.--The amendments made by subsection (b) shall apply to dividends with respect to taxable years of regulated investment companies beginning after December 31, 2004.

   Inserted: SEC. 566. PREVENTION OF AVOIDANCE OF TAX ON INVESTMENTS OF FOREIGN PERSONS IN UNITED STATES REAL PROPERTY THROUGH WASH SALE TRANSACTIONS.

   Inserted: (a) In General.--Section 897(h) of the Internal Revenue Code of 1986 (relating to special rules in certain investment entities) is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph:

   Inserted: "(4) Treatment of certain wash sale transactions.--

   Inserted: "(A) In general.--If an interest in a domestically controlled qualified investment entity is disposed of in an applicable wash sale transaction, the taxpayer shall, for purposes of this section, be treated as having gain from the sale or exchange of a United States real property interest in an amount equal to the portion of the distribution described in subparagraph (B) with respect to such interest which, but for the disposition, would have been treated by the taxpayer as gain from the sale or exchange of a United States real property interest under paragraph (1).

   Inserted: "(B) Applicable wash sales transaction.--For purposes of this paragraph--

   Inserted: "(i) In general.--The term 'applicable wash sales transaction' means any transaction (or series of transactions) under which a nonresident alien individual or foreign corporation--

   Inserted: "(I) disposes of an interest in a domestically controlled qualified investment entity during the 30-day period preceding a distribution which is to be made with respect to the interest and any portion of which, but for the disposition, would have been treated by the taxpayer as gain from the sale or exchange of a United States real property interest under paragraph (1), and

   Inserted: "(II) acquires an identical interest in such entity during the 60-day period beginning with the 1st day of the 30-day period described in subclause (I).

   Inserted: For purposes of subclause (II), a nonresident alien individual or foreign corporation shall be treated as having acquired any interest acquired by a person related (within the meaning of section 465(b)(3)(C)) to the individual or corporation.

   Inserted: "(ii) Exception where distribution actually received.--A transaction shall not be treated as an applicable wash sales transaction if the nonresident alien individual or foreign corporation receives the distribution described in clause (i)(I) with respect to either the interest which was disposed of, or acquired, in the transaction.

   Inserted: "(iii) Exception for certain publicly traded stock.--A transaction shall not be treated as an applicable wash sales transaction if it involves the disposition of any class of stock in a qualified investment entity which is regularly traded on an established securities market within the United States but only if the nonresident alien individual or foreign corporation did not own more than 5 percent of such class of stock at any time during the 1-year period ending on the date of the distribution described in clause (i)(I).".

   Inserted: (b) No Withholding Required.--Section 1445(b) of the Internal Revenue Code of 1986 (relating to exemptions) is amended by adding at the end the following new paragraph:

   Inserted: "(8) Applicable wash sales transactions.--No person shall be required to deduct and withhold any amount under subsection (a) with respect to a disposition which is treated as a disposition of a United States real property interest solely by reason of section 897(h)(4).".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to dispositions after December 31, 2005, in taxable years ending after such date.

   Inserted: SEC. 567. MODIFICATIONS TO RULES RELATING TO TAXATION OF DISTRIBUTIONS OF STOCK AND SECURITIES OF A CONTROLLED CORPORATION.

   Inserted: (a) Modification of Active Business Definition Under Section 355.--

   Inserted: (1) In general.--Section 355(b) (defining active conduct of a trade or business) is amended by adding at the end the following new paragraph:

   Inserted: "(3) Special rules relating to active business requirement.--

   Inserted: "(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 1 corporation. For purposes of the preceding sentence, the term 'separate affiliated group' means, with respect to any corporation, 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.

   Inserted: "(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 1 distributee corporation.".

   Inserted: (2) Conforming amendments.--

   Inserted: (A) Subparagraph (A) of section 355(b)(2) is amended to read as follows:

   Inserted: "(A) it is engaged in the active conduct of a trade or business,".

   Inserted: (B) Section 355(b)(2) of such Code is amended by striking the last sentence.

   Inserted: (3) Effective dates.--

   Inserted: (A) In general.--The amendments made by this subsection shall apply--

   Inserted: (i) to distributions after the date of the enactment of this Act, and before January 1, 2010, and

   Inserted: (ii) for purposes of determining the continued qualification under section 355(b)(2)(A) of the Internal Revenue Code of 1986 (as amended by paragraph (2)(A)) of distributions made before such date, as a result of an acquisition, disposition, or other restructuring after such date and before January 1, 2010.

   Inserted: (B) Transition rule.--The amendments made by this subsection shall not apply to any distribution pursuant to a transaction which is--

   Inserted: (i) made pursuant to an agreement which was binding on such date of enactment and at all times thereafter,

   Inserted: (ii) described in a ruling request submitted to the Internal Revenue Service on or before such date, or

   Inserted: (iii) described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission.

   Inserted: (C) Elections.--

   Inserted: (i) Out of transition relief.--Subparagraph (B) shall not apply if the distributing corporation elects not to have such subparagraph apply to distributions of such corporation. Any such election, once made, shall be irrevocable.

   Inserted: (ii) Application to prior distributions.--Subparagraph (A)(ii) shall not apply to a distributing or controlled corporation if the corporation elects not to have such subparagraph apply to such corporation. Any such election, once made, shall be irrevocable.

   Inserted: (b) Section 355 Not To Apply to Distributions if the Distributing or Controlled Corporation Is a Disqualified Investment Corporation.--

   Inserted: (1) In general.--Section 355 (relating to distributions of stock and securities of a controlled corporation) is amended by adding at the end the following new subsection:

   Inserted: "(g) Section Not To Apply to Distributions Involving Disqualified Investment Corporations.--

   Inserted: "(1) In general.--This section (and so much of section 356 as relates to this section) shall not apply to any distribution which is part of a transaction if--

   Inserted: "(A) either the distributing corporation or controlled corporation is, immediately after the transaction, a disqualified investment corporation, and

   Inserted: "(B) any person holds, immediately after the transaction, a 50-percent or greater interest in any disqualified investment corporation, but only if such person did not hold such an interest in such corporation immediately before the transaction.

   Inserted: "(2) Disqualified investment corporation.--For purposes of this subsection--

   Inserted: "(A) In general.--The term 'disqualified investment corporation' means any distributing or controlled corporation if the fair market value of the investment assets of the corporation is 75 percent or more of the fair market value of all assets of the corporation.

   Inserted: "(B) Investment assets.--

   Inserted: "(i) In general.--Except as otherwise provided in this subparagraph, the term 'investment assets' means--

   Inserted: "(I) cash,

   Inserted: "(II) any stock or securities in a corporation,

   Inserted: "(III) any interest in a partnership,

   Inserted: "(IV) any debt instrument or other evidence of indebtedness,

   Inserted: "(V) any option, forward or futures contract, notional principal contract, or derivative,

   Inserted: "(VI) foreign currency, or

   Inserted: "(VII) any similar asset.

   Inserted: "(ii) Exception for assets used in active conduct of certain financial trades or businesses.--Such term shall not include any asset which is held for use in the active and regular conduct of--

   Inserted: "(I) a lending or finance business (within the meaning of section 954(h)(4)),

   Inserted: "(II) a banking business through a bank (as defined in section 581), a domestic building and loan association (within the meaning of section 7701(a)(19)), or any similar institution specified by the Secretary, or

   Inserted: "(III) an insurance business if the conduct of the business is licensed, authorized, or regulated by an applicable insurance regulatory body.

   Inserted: This clause shall only apply with respect to any business if substantially all of the income of the business is derived from persons who are not related (within the meaning of section 267(b) or 707(b)(1)) to the person conducting the business.

   Inserted: "(iii) Exception for securities marked to market.--Such term shall not include any security (as defined in section 475(c)(2)) which is held by a dealer in securities and to which section 475(a) applies.

   Inserted: "(iv) Stock or securities in a 25-percent controlled entity.--

   Inserted: "(I) In general.--Such term shall not include any stock and securities in, or any asset described in subclause (IV) or (V) of clause (i) issued by, a corporation which is a 25-percent controlled entity with respect to the distributing or controlled corporation.

   Inserted: "(II) Look-thru rule.--The distributing or controlled corporation shall, for purposes of applying this subsection, be treated as owning its ratable share of the assets of any 25-percent controlled entity.

   Inserted: "(III) 25-percent controlled entity.--For purposes of this clause, the term '25-percent controlled entity' means, with respect to any distributing or controlled corporation, any corporation with respect to which the distributing or controlled corporation owns directly or indirectly stock meeting the requirements of section 1504(a)(2), except that such section shall be applied by substituting '25 percent' for '80 percent' and without regard to stock described in section 1504(a)(4).

   Inserted: "(v) Interests in certain partnerships.--

   Inserted: "(I) In general.--Such term shall not include any interest in a partnership, or any debt instrument or other evidence of indebtedness, issued by the partnership, if 1 or more of the trades or businesses of the partnership are (or, without regard to the 5-year requirement under subsection (b)(2)(B), would be) taken into account by the distributing or controlled corporation, as the case may be, in determining whether the requirements of subsection (b) are met with respect to the distribution.

   Inserted: "(II) Look-thru rule.--The distributing or controlled corporation shall, for purposes of applying this subsection, be treated as owning its ratable share of the assets of any partnership described in subclause (I).

   Inserted: "(3) 50-percent or greater interest.--For purposes of this subsection--

   Inserted: "(A) In general.--The term '50-percent or greater interest' has the meaning given such term by subsection (d)(4).

   Inserted: "(B) Attribution rules.--The rules of section 318 shall apply for purposes of determining ownership of stock for purposes of this paragraph.

   Inserted: "(4) Transaction.--For purposes of this subsection, the term 'transaction' includes a series of transactions.

   Inserted: "(5) Regulations.--The Secretary shall prescribe such regulations as may be necessary to carry out, or prevent the avoidance of, the purposes of this subsection, including regulations--

   Inserted: "(A) to carry out, or prevent the avoidance of, the purposes of this subsection in cases involving--

   Inserted: "(i) the use of related persons, intermediaries, pass-thru entities, options, or other arrangements, and

   Inserted: "(ii) the treatment of assets unrelated to the trade or business of a corporation as investment assets if, prior to the distribution, investment assets were used to acquire such unrelated assets,

   Inserted: "(B) which in appropriate cases exclude from the application of this subsection a distribution which does not have the character of a redemption which would be treated as a sale or exchange under section 302, and

   Inserted: "(C) which modify the application of the attribution rules applied for purposes of this subsection.".

   Inserted: (2) Effective dates.--

   Inserted: (A) In general.--The amendments made by this subsection shall apply to distributions after the date of the enactment of this Act.

   Inserted: (B) Transition rule.--The amendments made by this subsection shall not apply to any distribution pursuant to a transaction which is--

   Inserted: (i) made pursuant to an agreement which was binding on such date of enactment and at all times thereafter,

   Inserted: (ii) described in a ruling request submitted to the Internal Revenue Service on or before such date, or

   Inserted: (iii) described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission.

   Inserted: SEC. 568. AMORTIZATION OF EXPENSES INCURRED IN CREATING OR ACQUIRING MUSIC OR MUSIC COPYRIGHTS.

   Inserted: (a) In General.--Section 263A (relating to capitalization and inclusion in inventory costs of certain expenses) is amended by redesignating subsection (i) as subsection (j) and by adding after subsection (h) the following new subsection:

   Inserted: "(i) Special Rules for Certain Musical Works and Copyrights.--

   Inserted: "(1) In general.--If--

   Inserted: "(A) any expense is paid or incurred by the taxpayer in creating or acquiring any musical composition (including any accompanying words) or any copyright with respect to a musical composition, and

   Inserted: "(B) such expense is required to be capitalized under this section, then, notwithstanding section 167(g), the amount capitalized shall be amortized ratably over the 5-year period beginning with the month in which the composition or copyright was acquired (or, in the case of expenses paid or incurred in connection with the creation of a musical composition, the 5-taxable-year period beginning with the taxable year in which the expenses were paid or incurred).

   Inserted: "(2) Exceptions.--Paragraph (1) shall not apply to any expense--

   Inserted: "(A) which is a qualified creative expense under subsection (h),

   Inserted: "(B) to which a simplified procedure established under subsection (j)(2) applies,

   Inserted: "(C) which is an amortizable section 197 intangible (as defined in section 197(c)), or

   Inserted: "(D) which, without regard to this section, would not be allowable as a deduction."

   Inserted: (b) Effective Date.--The amendments made by this section shall apply to expenses paid or incurred after December 31, 2005, in taxable years ending after such date.

   Inserted: SEC. 569. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

   Inserted: (a) In General.--Subpart H of part IV of subchapter A of chapter 1 (relating to credits against tax) is amended by adding at the end the following new section:

   Inserted: "SEC. 54A. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

   Inserted: "(a) Allowance of Credit.--In the case of a taxpayer who holds a rural renaissance bond on a credit allowance date of such bond, which occurs during the taxable year, there shall be allowed as a credit against the tax imposed by this chapter for such taxable year an amount equal to the sum of the credits determined under subsection (b) with respect to credit allowance dates during such year on which the taxpayer holds such bond.

   Inserted: "(b) Amount of Credit.--

   Inserted: "(1) In general.--The amount of the credit determined under this subsection with respect to any credit allowance date for a rural renaissance bond is 25 percent of the annual credit determined with respect to such bond.

   Inserted: "(2) Annual credit.--The annual credit determined with respect to any rural renaissance bond is the product of--

   Inserted: "(A) the credit rate determined by the Secretary under paragraph (3) for the day on which such bond was sold, multiplied by

   Inserted: "(B) the outstanding face amount of the bond.

   Inserted: "(3) Determination.--For purposes of paragraph (2), with respect to any rural renaissance bond, the Secretary shall determine daily or caused to be determined daily a credit rate which shall apply to the first day on which there is a binding, written contract for the sale or exchange of the bond. The credit rate for any day is the credit rate which the Secretary or the Secretary's designee estimates will permit the issuance of rural renaissance bonds with a specified maturity or redemption date without discount and without interest cost to the qualified issuer.

   Inserted: "(4) Credit allowance date.--For purposes of this section, the term 'credit allowance date' means--

   Inserted: "(A) March 15,

   Inserted: "(B) June 15,

   Inserted: "(C) September 15, and

   Inserted: "(D) December 15. Such term also includes the last day on which the bond is outstanding.

   Inserted: "(5) Special rule for issuance and redemption.--In the case of a bond which is issued during the 3-month period ending on a credit allowance date, the amount of the credit determined under this subsection with respect to such credit allowance date shall be a ratable portion of the credit otherwise determined based on the portion of the 3-month period during which the bond is outstanding. A similar rule shall apply when the bond is redeemed or matures.

   Inserted: "(c) Limitation Based on Amount of Tax.--The credit allowed under subsection (a) for any taxable year shall not exceed the excess of--

   Inserted: "(1) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over

   Inserted: "(2) the sum of the credits allowable under this part (other than subpart C thereof, relating to refundable credits).

   Inserted: "(d) Rural Renaissance Bond.--For purposes of this section--

   Inserted: "(1) In general.--The term 'rural renaissance bond' means any bond issued as part of an issue if--

   Inserted: "(A) the bond is issued by a qualified issuer,

   Inserted: "(B) 95 percent or more of the proceeds from the sale of such issue are to be used for capital expenditures incurred for 1 or more qualified projects,

   Inserted: "(C) the qualified issuer designates such bond for purposes of this section and the bond is in registered form, and

   Inserted: "(D) the issue meets the requirements of subsections (e) and (h).

   Inserted: "(2) Qualified project; special use rules.--

   Inserted: "(A) In general.--The term 'qualified project' means 1 or more projects described in subparagraph (B) located in a rural area.

   Inserted: "(B) Projects described.--A project described in this subparagraph is--

   Inserted: "(i) a water or waste treatment project,

   Inserted: "(ii) an affordable housing project,

   Inserted: "(iii) a community facility project, including hospitals, fire and police stations, and nursing and assisted-living facilities,

   Inserted: "(iv) a value-added agriculture or renewable energy facility project for agricultural producers or farmer-owned entities, including any project to promote the production, processing, or retail sale of ethanol (including fuel at least 85 percent of the volume of which consists of ethanol), biodiesel, animal waste, biomass, raw commodities, or wind as a fuel,

   Inserted: "(v) a distance learning or telemedicine project,

   Inserted: "(vi) a rural utility infrastructure project, including any electric or telephone system,

   Inserted: "(vii) a project to expand broadband technology,

   Inserted: "(viii) a rural teleworks project, and

   Inserted: "(ix) any project described in any preceding clause carried out by the Delta Regional Authority.

   Inserted: "(C) Special rules.--For purposes of this paragraph--

   Inserted: "(i) any project described in subparagraph (B)(iv) for a farmer-owned entity may be considered a qualified project if such entity is located in a rural area, or in the case of a farmer-owned entity the headquarters of which are located in a nonrural area, if the project is located in a rural area, and

   Inserted: "(ii) any project for a farmer-owned entity which is a facility described in subparagraph (B)(iv) for agricultural producers may be considered a qualified project regardless of whether the facility is located in a rural or nonrural area.

   Inserted: "(3) Special use rules.--

   Inserted: "(A) Refinancing rules.--For purposes of paragraph (1)(B), a qualified project may be refinanced with proceeds of a rural renaissance bond only if the indebtedness being refinanced (including any obligation directly or indirectly refinanced by such indebtedness) was originally incurred after the date of the enactment of this section.

   Inserted: "(B) Reimbursement.--For purposes of paragraph (1)(B), a rural renaissance bond may be issued to reimburse a borrower for amounts paid after the date of the enactment of this section with respect to a qualified project, but only if--

   Inserted: "(i) prior to the payment of the original expenditure, the borrower declared its intent to reimburse such expenditure with the proceeds of a rural renaissance bond,

   Inserted: "(ii) not later than 60 days after payment of the original expenditure, the qualified issuer adopts an official intent to reimburse the original expenditure with such proceeds, and

   Inserted: "(iii) the reimbursement is made not later than 18 months after the date the original expenditure is paid.

   Inserted: "(C) Treatment of changes in use.--For purposes of paragraph (1)(B), the proceeds of an issue shall not be treated as used for a qualified project to the extent that a borrower takes any action within its control which causes such proceeds not to be used for a qualified project. The Secretary shall prescribe regulations specifying remedial actions that may be taken (including conditions to taking such remedial actions) to prevent an action described in the preceding sentence from causing a bond to fail to be a rural renaissance bond.

   Inserted: "(e) Maturity Limitations.--

   Inserted: "(1) Duration of term.--A bond shall not be treated as a rural renaissance bond if the maturity of such bond exceeds the maximum term determined by the Secretary under paragraph (2) with respect to such bond.

   Inserted: "(2) Maximum term.--During each calendar month, the Secretary shall determine the maximum term permitted under this paragraph for bonds issued during the following calendar month. Such maximum term shall be the term which the Secretary estimates will result in the present value of the obligation to repay the principal on the bond being equal to 50 percent of the face amount of such bond. Such present value shall be determined without regard to the requirements of subsection (f)(3) and using as a discount rate the average annual interest rate of tax-exempt obligations having a term of 10 years or more which are issued during the month. If the term as so determined is not a multiple of a whole year, such term shall be rounded to the next highest whole year.

   Inserted: "(3) Ratable principal amortization required.--A bond shall not be treated as a rural renaissance bond unless it is part of an issue which provides for an equal amount of principal to be paid by the qualified issuer during each calendar year that the issue is outstanding.

   Inserted: "(f) Limitation on Amount of Bonds Designated.--

   Inserted: "(1) National limitation.--There is a rural renaissance bond limitation of $200,000,000.

   Inserted: "(2) Allocation by secretary.--The Secretary shall allocate the amount described in paragraph (1) among qualified projects in such manner as the Secretary determines appropriate.

   Inserted: "(g) Credit Included in Gross Income.--Gross income includes the amount of the credit allowed to the taxpayer under this section (determined without regard to subsection (c)) and the amount so included shall be treated as interest income.

   Inserted: "(h) Special Rules Relating to Expenditures.--

   Inserted: "(1) In general.--An issue shall be treated as meeting the requirements of this subsection if, as of the date of issuance, the qualified issuer reasonably expects--

   Inserted: "(A) at least 95 percent of the proceeds from the sale of the issue are to be spent for 1 or more qualified projects within the 5-year period beginning on the date of issuance of the rural renaissance bond,

   Inserted: "(B) a binding commitment with a third party to spend at least 10 percent of the proceeds from the sale of the issue will be incurred within the 6-month period beginning on the date of issuance of the rural renaissance bond or, in the case of a rural renaissance bond, the proceeds of which are to be loaned to 2 or more borrowers, such binding commitment will be incurred within the 6-month period beginning on the date of the loan of such proceeds to a borrower, and

   Inserted: "(C) such projects will be completed with due diligence and the proceeds from the sale of the issue will be spent with due diligence.

   Inserted: "(2) Extension of period.--Upon submission of a request prior to the expiration of the period described in paragraph (1)(A), the Secretary may extend such period if the qualified issuer establishes that the failure to satisfy the 5-year requirement is due to reasonable cause and the related projects will continue to proceed with due diligence.

   Inserted: "(3) Failure to spend required amount of bond proceeds within 5 years.--To the extent that less than 95 percent of the proceeds of such issue are expended by the close of the 5-year period beginning on the date of issuance (or if an extension has been obtained under paragraph (2), by the close of the extended period), the qualified issuer shall redeem all of the nonqualified bonds within 90 days after the end of such period. For purposes of this paragraph, the amount of the nonqualified bonds required to be redeemed shall be determined in the same manner as under section 142.

   Inserted: "(i) Special Rules Relating to Arbitrage.--A bond which is part of an issue shall not be treated as a rural renaissance bond unless, with respect to the issue of which the bond is a part, the qualified issuer satisfies the arbitrage requirements of section 148 with respect to proceeds of the issue.

   Inserted: "(j) Qualified Issuer.--For purposes of this section--

   Inserted: "(1) In general.--The term 'qualified issuer' means any not-for-profit cooperative lender which has as of the date of the enactment of this section received a guarantee under section 306 of the Rural Electrification Act and which meets the requirement of paragraph (2).

   Inserted: "(2) User fee requirement.--The requirement of this paragraph is met if the issuer of any rural renaissance bond makes grants for qualified projects as defined under subsection (d)(2) on a semi-annual basis every year that such bond is outstanding in an annual amount equal to one-half of the rate on United States Treasury Bills of the same maturity multiplied by the outstanding principle balance of rural renaissance bonds issued by such issuer.

   Inserted: "(k) Special Rules Relating to Pool Bonds.--No portion of a pooled financing bond may be allocable to loan unless the borrower has entered into a written loan commitment for such portion prior to the issue date of such issue.

   Inserted: "(l) Other Definitions and Special Rules.--For purposes of this section--

   Inserted: "(1) Bond.--The term 'bond' includes any obligation.

   Inserted: "(2) Pooled financing bond.--The term 'pooled financing bond' shall have the meaning given such term by section 149(f)(4)(A).

   Inserted: "(3) Rural area.--The term 'rural area' means any area other than--

   Inserted: "(A) a city or town which has a population of greater than 50,000 inhabitants, or

   Inserted: "(B) the urbanized area contiguous and adjacent to such a city or town.

   Inserted: "(4) Partnership; s corporation; and other pass-thru entities.--

   Inserted: "(A) In general.--Under regulations prescribed by the Secretary, in the case of a partnership, trust, S corporation, or other pass-thru entity, rules similar to the rules of section 41(g) shall apply with respect to the credit allowable under subsection (a).

   Inserted: "(B) No basis adjustment.--In the case of a bond held by a partnership or an S corporation, rules similar to the rules under section 1397E(i) shall apply.

   Inserted: "(5) Bonds held by regulated investment companies.--If any rural renaissance bond is held by a regulated investment company, the credit determined under subsection (a) shall be allowed to shareholders of such company under procedures prescribed by the Secretary.

   Inserted: "(6) Reporting.--Issuers of rural renaissance bonds shall submit reports similar to the reports required under section 149(e).".

   Inserted: (b) Reporting.--Subsection (d) of section 6049 (relating to returns regarding payments of interest) is amended by adding at the end the following new paragraph:

   Inserted: "(9) Reporting of credit on rural renaissance bonds.--

   Inserted: "(A) In general.--For purposes of subsection (a), the term 'interest' includes amounts includible in gross income under section 54(f) and such amounts shall be treated as paid on the credit allowance date (as defined in section 54(b)(4)).

   Inserted: "(B) Reporting to corporations, etc.--Except as otherwise provided in regulations, in the case of any interest described in subparagraph (A), subsection (b)(4) shall be applied without regard to subparagraphs (A), (H), (I), (J), (K), and (L)(i) of such subsection.

   Inserted: "(C) Regulatory authority.--The Secretary may prescribe such regulations as are necessary or appropriate to carry out the purposes of this paragraph, including regulations which require more frequent or more detailed reporting.".

   Inserted: (c) Conforming Amendment.--The table of sections for subpart H of part IV of subchapter A of chapter 1 is amended by adding at the end the following new item:

   Inserted: "Sec. 54A. Credit to holders of rural renaissance bonds.".

   Inserted: (d) Issuance of Regulations.--The Secretary of Treasury shall issue regulations required under section 54A of the Internal Revenue Code of 1986 (as added by this section) not later than 120 days after the date of the enactment of this Act.

   Inserted: (e) Effective Date.--The amendments made by this section shall apply to bonds issued after the date of the enactment of this Act and before January 1, 2010.

   Inserted: SEC. 570. MODIFICATION OF TREATMENT OF LOANS TO QUALIFIED CONTINUING CARE FACILITIES.

   Inserted: (a) In General.--Subsection (g) of section 7872 is amended to read as follows:

   Inserted: "(g) Exception for Loans to Qualified Continuing Care Facilities.--

   Inserted: "(1) In general.--This section shall not apply for any calendar year to any below-market loan owed by a facility which on the last day of such year is a continuing care facility, if such loan was made pursuant to a continuing care contract and if the lender (or the lender's spouse) attains age 62 before the close of such year.

   Inserted: "(2) Continuing care contract.--For purposes of this section, the term 'continuing care contract' means a written contract between an individual and a qualified continuing care facility under which--

   Inserted: "(A) the individual or individual's spouse may use a qualified continuing care facility for their life or lives,

   Inserted: "(B) the individual or individual's spouse will be provided with housing in an independent living unit (which has additional available facilities outside such unit for the provision of meals and other personal care), an assisted living facility or a nursing facility, as is available in the continuing care facility, as appropriate for the health of such individual or individual's spouse, and

   Inserted: "(C) the individual or individual's spouse will be provided assisted living or nursing care as the health of such individual or individual's spouse requires, and as is available in the continuing care facility.

   Inserted: "(3) Qualified continuing care facility.--

   Inserted: "(A) In general.--For purposes of this section, the term 'qualified continuing care facility' means 1 or more facilities--

   Inserted: "(i) which are designed to provide services under continuing care contracts,

   Inserted: "(ii) that include an independent living unit, plus an assisted living or nursing facility, or both, and

   Inserted: "(iii) substantially all of the independent living unit residents of which are covered by continuing care contracts.

   Inserted: "(B) Nursing homes excluded.--The term 'qualified continuing care facility' shall not include any facility which is of a type which is traditionally considered a nursing home.".

   Inserted: (b) Effective Date.--The amendment made by this section shall apply to loans made after December 31, 2005.

   Inserted: SEC. 571. MODIFICATIONS OF FOREIGN TAX CREDIT RULES APPLICABLE TO LARGE INTEGRATED OIL COMPANIES WHICH ARE DUAL CAPACITY TAXPAYERS.

   Inserted: (a) In General.--Section 901 (relating to credit for taxes of foreign countries and of possessions of the United States), as amended by this Act, is amended by redesignating subsections (m) and (n) as subsections (n) and (o), respectively, and by inserting after subsection (l) the following new subsection:

   Inserted: "(m) Special Rules Relating to Large Integrated Oil Companies Which Are Dual Capacity Taxpayers.--

   Inserted: "(1) General rule.--Notwithstanding any other provision of this chapter, any amount paid or accrued by a dual capacity taxpayer which is a large integrated oil company to a foreign country or possession of the United States for any period shall not be considered a tax--

   Inserted: "(A) if, for such period, the foreign country or possession does not impose a generally applicable income tax, or

   Inserted: "(B) to the extent such amount exceeds the amount (determined in accordance with regulations) which--

   Inserted: "(i) is paid by such dual capacity taxpayer pursuant to the generally applicable income tax imposed by the country or possession, or

   Inserted: "(ii) would be paid if the generally applicable income tax imposed by the country or possession were applicable to such dual capacity taxpayer.

   Inserted: Nothing in this paragraph shall be construed to imply the proper treatment of any such amount not in excess of the amount determined under subparagraph (B).

   Inserted: "(2) Dual capacity taxpayer.--For purposes of this subsection, the term 'dual capacity taxpayer' means, with respect to any foreign country or possession of the United States, a person who--

   Inserted: "(A) is subject to a levy of such country or possession, and

   Inserted: "(B) receives (or will receive) directly or indirectly a specific economic benefit (as determined in accordance with regulations) from such country or possession.

   Inserted: "(3) Generally applicable income tax.--For purposes of this subsection--

   Inserted: "(A) In general.--The term 'generally applicable income tax' means an income tax (or a series of income taxes) which is generally imposed under the laws of a foreign country or possession on income derived from the conduct of a trade or business within such country or possession.

   Inserted: "(B) Exceptions.--Such term shall not include a tax unless it has substantial application, by its terms and in practice, to--

   Inserted: "(i) persons who are not dual capacity taxpayers, and

   Inserted: "(ii) persons who are citizens or residents of the foreign country or possession.

   Inserted: "(4) Large integrated oil company.--For purposes of this subsection, the term 'large integrated oil company' means, with respect to any taxable year, an integrated oil company (as defined in section 291(b)(4)) which--

   Inserted: "(A) had gross receipts in excess of $1,000,000,000 for such taxable year, and

   Inserted: "(B) has an average daily worldwide production of crude oil of at least 500,000 barrels for such taxable year."

   Inserted: (b) Effective Date.--

   Inserted: (1) In general.--The amendments made by this section shall apply to taxes paid or accrued in taxable years beginning after the date of the enactment of this Act.

   Inserted: (2) Contrary treaty obligations upheld.--The amendments made by this section shall not apply to the extent contrary to any treaty obligation of the United States.

   Inserted: SEC. 572. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL RESIDENCE BY CERTAIN EMPLOYEES OF THE INTELLIGENCE COMMUNITY.

   Inserted: (a) In General.--Subparagraph (A) of section 121(d)(9) (relating to exclusion of gain from sale of principal residence) is amended by striking "duty" and all that follows and inserting "duty--

   Inserted: "(i) as a member of the uniformed services,

   Inserted: "(ii) as a member of the Foreign Service of the United States, or

   Inserted: "(iii) as an employee of the intelligence community.".

   Inserted: (b) Employee of Intelligence Community Defined.--Subparagraph (C) of section 121(d)(9) is amended by redesignating clause (iv) as clause (v) and by inserting after clause (iii) the following new clause:

   Inserted: "(iv) Employee of intelligence community.--The term 'employee of the intelligence community' means an employee (as defined by section 2105 of title 5, United States Code) of--

   Inserted: "(I) the Office of the Director of National Intelligence,

   Inserted: "(II) the Central Intelligence Agency,

   Inserted: "(III) the National Security Agency,

   Inserted: "(IV) the Defense Intelligence Agency,

   Inserted: "(V) the National Geospatial-Intelligence Agency,

   Inserted: "(VI) the National Reconnaissance Office,

   Inserted: "(VII) any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs,

   Inserted: "(VIII) any of the intelligence elements of the Army, the Navy, the Air Force, the Marine Corps, the Federal Bureau of Investigation, the Department of Treasury, the Department of Energy, and the Coast Guard,

   Inserted: "(IX) the Bureau of Intelligence and Research of the Department of State, or

   Inserted: "(X) any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information.".

   Inserted: (c) Special Rule.--Subparagraph (C) of section 121(d)(9), as amended by subsection (b), is amended by adding at the end the following new clause:

   Inserted: "(vi) Special rule relating to intelligence community.--An employee of the intelligence community shall not be treated as serving on qualified extended duty unless--

   Inserted: "(I) for purposes of such duty such employee has moved from 1 duty station to another, and

   Inserted: "(II) at least 1 of such duty stations is located outside of the Washington, District of Columbia, and Baltimore metropolitan statistical areas (as defined by the Secretary of Commerce).".

   Inserted: (d) Conforming Amendment.--The heading for section 121(d)(9) is amended to read as follows: "Uniformed services, foreign service, and intelligence community".

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

   Inserted: SEC. 573. DISABILITY PREFERENCE PROGRAM FOR TAX COLLECTION CONTRACTS.

   Inserted: (a) In General.--The Secretary of the Treasury shall not enter into any qualified tax collection contract after April 1, 2006, until the Secretary implements a disability preference program that meets the requirements of subsection (b).

   Inserted: (b) Disability Preference Program Requirements.--

   Inserted: (1) In general.--A disability preference program meets the requirements of this subsection if such program requires that not less than 10 percent of the accounts of each dollar value category are awarded to persons described in paragraph (2).

   Inserted: (2) Person described.--For purposes of paragraph (1), a person is described in this paragraph if--

   Inserted: (A) as of the date any qualified tax collection contract is awarded--

   Inserted: (i) such person employs not less than 50 severely disabled individuals within the United States; or

   Inserted: (ii) not less than 30 percent of the employees of such person within the United States are severely disabled individuals;

   Inserted: (B) such person agrees as a condition of the qualified tax collection contract that not more than 90 days after the date such contract is awarded, not less than 35 percent of the employees of such person employed in connection with providing services under such contract shall--

   Inserted: (i) be hired after the date such contract is awarded; and

   Inserted: (ii) be severely disabled individuals; and

   Inserted: (C) such person is otherwise qualified to perform the services required.

   Inserted: (c) Definitions.--For purposes of this section--

   Inserted: (1) Qualified tax collection contract.--The term "qualified tax collection contract" shall have the meaning given such term under section 6306(b) of the Internal Revenue Code of 1986.

   Inserted: (2) Dollar value category.--The term "dollar value category" means the dollar ranges of accounts for collection as determined and assigned by the Secretary under section 6306(b)(1)(B) of the Internal Revenue Code of 1986 with respect to a qualified tax collection contract.

   Inserted: (3) Severely disabled individual.--The term "severely disabled individual" means--

   Inserted: (A) a veteran of the United States armed forces with a disability of 50 percent or greater--

   Inserted: (i) determined by the Secretary of Veterans Affairs to be service-connected; or

   Inserted: (ii) deemed by law to be service-connected; or

   Inserted: (B) any individual who is a disabled beneficiary (as defined in section 1148(k)(2) of the Social Security Act (42 U.S.C. 1320b-19(k)(2))) or who would be considered to be such a disabled beneficiary but for having income or resources in excess of the income or resources eligibility limits established under title XVI of the Social Security Act (42 U.S.C. 1381 et seq.), respectively.

   Original wording

   On page 28, after line 11, insert the following:

Read automatically from the Congressional Record. Check the original before relying on it.

As printed