In the nature of a substitute.

SA 2707. Mr. FRIST (for Mr. Grassley (for himself and Mr. Baucus))
proposed an amendment to the bill H.R. 4297, to provide for
reconciliation pursuant to section 201(b) of the concurrent resolution
on the budget for fiscal year 2006; as follows:

Strike all after the enacting clause and insert the
following:

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF
CONTENTS.

(a) Short Title.--This Act may be cited as the ``Tax Relief
Act of 2005''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered
to be made to a section or other provision of the Internal
Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act
is as follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.

TITLE I--TAX BENEFITS FOR AREAS AFFECTED BY HURRICANES KATRINA, RITA,
AND WILMA

Subtitle A--Gulf Opportunity Zone Benefits

Sec. 101. Gulf Opportunity Zone benefits.

[[Page S531]]

Sec. 102. Expansion of Hope Scholarship and Lifetime Learning Credit
for students in the Gulf Opportunity Zone.
Sec. 103. Extension of special rules for mortgage revenue bonds.
Sec. 104. Housing relief for individuals affected by Hurricane Katrina.

Subtitle B--Tax Benefits Related to Hurricanes Rita and Wilma

Sec. 111. Extension of certain emergency tax relief for Hurricane
Katrina to Hurricanes Rita and Wilma.

TITLE II--EXTENSION OF EXPIRING PROVISIONS

Subtitle A--Multi-Year Extensions

Sec. 201. Extension of increased expensing for small business.
Sec. 202. Credit for elective deferrals and IRA contributions.
Sec. 203. Above-the-line deduction for higher education.
Sec. 204. Extension and modification of new markets tax credit.

Subtitle B--One-Year Extensions

Sec. 211. Election to deduct State and local general sales taxes.
Sec. 212. Extension and increase in minimum tax relief to individuals.
Sec. 213. Allowance of nonrefundable personal credits against regular
and alternative minimum tax liability.
Sec. 214. Extension and modification of research credit.
Sec. 215. Work opportunity tax credit and welfare-to-work credit.
Sec. 216. Qualified zone academy bonds.
Sec. 217. Deduction for corporate donations of computer technology and
equipment.
Sec. 218. Above-the-line deduction for certain expenses of elementary
and secondary school teachers.
Sec. 219. Expensing of brownfields remediation costs.
Sec. 220. Tax incentives for investment in the District of Columbia.
Sec. 221. Indian employment tax credit.
Sec. 222. Accelerated depreciation for business property on Indian
reservation.
Sec. 223. Fifteen-year straight-line cost recovery for qualified
leasehold improvements and qualified restaurant
improvements.
Sec. 224. Extension of full credit for qualified electric vehicles.

Subtitle C--Application of EGTRRA Sunset

Sec. 231. Application of EGTRRA sunset to this title.

TITLE III--PROVISIONS RELATING TO CHARITABLE DONATIONS

Subtitle A--Charitable Giving Incentives

Sec. 301. Charitable deduction for nonitemizers.
Sec. 302. Tax-free distributions from individual retirement plans for
charitable purposes.
Sec. 303. Modification of charitable deduction for contributions of
food inventory.
Sec. 304. Basis adjustment to stock of S corporation contributing
property.
Sec. 305. Modification of charitable deduction for contributions of
book inventory.
Sec. 306. Modification of tax treatment of certain payments to
controlling exempt organizations and public disclosure of
information relating to unrelated business income.
Sec. 307. Encouragement of contributions of capital gain real property
made for conservation purposes.
Sec. 308. Enhanced deduction for charitable contribution of literary,
musical, artistic, and scholarly compositions.
Sec. 309. Mileage reimbursements to charitable volunteers excluded from
gross income.
Sec. 310. Alternative percentage limitation for corporate charitable
contributions to the mathematics and science partnership
program.

Subtitle B--Reforming Charitable Organizations

PART I--GENERAL REFORMS

Sec. 311. Tax involvement by exempt organizations in tax shelter
transactions.
Sec. 312. Excise tax on certain acquisitions of interests in insurance
contracts in which certain exempt organizations hold an
interest.
Sec. 313. Increase in penalty excise taxes on public charities, social
welfare organizations, and private foundations.
Sec. 314. Reform of charitable contributions of certain easements on
buildings in registered historic districts.
Sec. 315. Charitable contributions of taxidermy property.
Sec. 316. Recapture of tax benefit for charitable contributions of
exempt use property not used for an exempt use.
Sec. 317. Limitation of deduction for charitable contributions of
clothing and household items.
Sec. 318. Modification of recordkeeping requirements for certain
charitable contributions.
Sec. 319. Contributions of fractional interests in tangible personal
property.
Sec. 320. Provisions relating to substantial and gross overstatements
of valuations of charitable deduction property.
Sec. 321. Additional standards for credit counseling organizations.
Sec. 322. Expansion of the base of tax on private foundation net
investment income.
Sec. 323. Definition of convention or association of churches.
Sec. 324. Notification requirement for entities not currently required
to file.
Sec. 325. Disclosure to State officials of proposed actions related to
exempt organizations.

PART II--IMPROVED ACCOUNTABILITY OF DONOR ADVISED FUNDS

Sec. 331. Excise tax on sponsoring organizations of donor advised funds
for failure to meet distribution requirements.
Sec. 332. Prohibited transactions.
Sec. 333. Treatment of charitable contribution deductions to donor
advised funds.
Sec. 334. Returns of, and applications for recognition by, sponsoring
organizations.

PART III--IMPROVED ACCOUNTABILITY OF SUPPORTING ORGANIZATIONS

Sec. 341. Requirements for supporting organizations.
Sec. 342. Excise tax on supporting organizations for failure to meet
distribution requirements.
Sec. 343. Excess benefit transactions.
Sec. 344. Excess business holdings of supporting organizations.
Sec. 345. Treatment of amounts paid to supporting organizations by
private foundations.
Sec. 346. Returns of supporting organizations.

TITLE IV--MISCELLANEOUS PROVISIONS

Sec. 401. Restructuring of New York Liberty Zone tax credits.
Sec. 402. Modification to S corporation passive investment income
rules.
Sec. 403. Modification of effective date of disregard of certain
capital expenditures for purposes of qualified small
issue bonds.
Sec. 404. Premiums for mortgage insurance.
Sec. 405. Sense of the Senate on use of no-bid contracting by Federal
Emergency Management Agency.
Sec. 406. Disability preference program for tax collection contracts.
Sec. 407. Sense of Congress regarding Doha Round.
Sec. 408. Modification of bond rule.
Sec. 409. Treatment of certain stock option plans under nonqualified
deferred compensation rules.
Sec. 410. Sense of the Senate regarding the dedication of excess funds.

TITLE V--REVENUE OFFSET PROVISIONS

Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 501. Understatement of taxpayer's liability by income tax return
preparer.
Sec. 502. Modification of effective date of exception from suspension
rules for certain listed and reportable transactions.
Sec. 503. Frivolous tax submissions.
Sec. 504. Penalty for promoting abusive tax shelters.
Sec. 505. Penalty for aiding and abetting the understatement of tax
liability.

Subtitle B--Economic Substance Doctrine

Sec. 511. Clarification of economic substance doctrine.
Sec. 512. Penalty for understatements attributable to transactions
lacking economic substance, etc.
Sec. 513. Denial of deduction for interest on underpayments
attributable to noneconomic substance transactions.

Subtitle C--Improvements in Efficiency and Safeguards in Internal
Revenue Service Collection

Sec. 521. Waiver of user fee for installment agreements using automated
withdrawals.
Sec. 522. Termination of installment agreements.
Sec. 523. Partial payments required with submission of offers-in-
compromise.

Subtitle D--Penalties and Fines

Sec. 531. Increase in criminal monetary penalty limitation for the
underpayment or overpayment of tax due to fraud.
Sec. 532. Doubling of certain penalties, fines, and interest on
underpayments related to certain offshore financial
arrangements.
Sec. 533. Denial of deduction for certain fines, penalties, and other
amounts.
Sec. 534. Denial of deduction for punitive damages.
Sec. 535. Increase in penalty for bad checks and money orders.

Subtitle E--Provisions To Discourage Expatriation

Sec. 541. Tax treatment of inverted entities.
Sec. 542. Revision of tax rules on expatriation of individuals.

Subtitle F--Miscellaneous Provisions

Sec. 551. Treatment of contingent payment convertible debt instruments.

[[Page S532]]

Sec. 552. Grant of Treasury regulatory authority to address foreign tax
credit transactions involving inappropriate separation of
foreign taxes from related foreign income.
Sec. 553. Repeal of special property exception to leasing provisions of
the American Jobs Creation Act of 2004.
Sec. 554. Application of earnings stripping rules to partners which are
corporations.
Sec. 555. Limitation of employer deduction for certain entertainment
expenses.
Sec. 556. Increase in age of minor children whose unearned income is
taxed as if parent's income.
Sec. 557. Loan and redemption requirements on pooled financing
requirements.
Sec. 558. Reporting of interest on tax-exempt bonds.
Sec. 559. Modification of credit for producing fuel from a
nonconventional source.
Sec. 560. Modification of individual estimated tax safe harbor.
Sec. 561. Revaluation of LIFO inventories of large integrated oil
companies.
Sec. 562. Elimination of amortization of geological and geophysical
expenditures for major integrated oil companies.
Sec. 563. Valuation of employee personal use of noncommercial aircraft.
Sec. 564. Application of FIRPTA to regulated investment companies.
Sec. 565. Treatment of distributions attributable to FIRPTA gains.
Sec. 566. Prevention of avoidance of tax on investments of foreign
persons in United States real property through wash sale
transactions.
Sec. 567. Modifications to rules relating to taxation of distributions
of stock and securities of a controlled corporation.
Sec. 568. Amortization of expenses incurred in creating or acquiring
music or music copyrights.
Sec. 569. Credit to holders of rural renaissance bonds.
Sec. 570. Modification of treatment of loans to qualified continuing
care facilities.
Sec. 571. Modifications of foreign tax credit rules applicable to large
integrated oil companies which are dual capacity
taxpayers.
Sec. 572. Exclusion of gain from sale of a principal residence by
certain employees of the intelligence community.
Sec. 573. Disability preference program for tax collection contracts.

TITLE VI--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

Sec. 601. Sunset of certain provisions and amendments.

TITLE I--TAX BENEFITS FOR AREAS AFFECTED BY HURRICANES KATRINA, RITA,
AND WILMA

Subtitle A--Gulf Opportunity Zone Benefits

SEC. 101. GULF OPPORTUNITY ZONE BENEFITS.

(a) In General.--Chapter 1 is amended by adding at the end
the following new subchapter:

``Subchapter Z--Hurricane Relief Benefits

``Sec. 1400N. Definitions
``Sec. 1400O. Tax benefits for Gulf Opportunity Zone

``SEC. 1400N. DEFINITIONS.

``For purposes of this subchapter--
``(1) Gulf opportunity zone.--The term `Gulf Opportunity
Zone' or `GO Zone' means that portion of the Hurricane
Katrina disaster area determined by the President to warrant
individual or individual and public assistance from the
Federal Government under the Robert T. Stafford Disaster
Relief and Emergency Assistance Act by reason of Hurricane
Katrina.
``(2) Hurricane katrina disaster area.--The term `Hurricane
Katrina disaster area' means an area with respect to which a
major disaster has been declared by the President before
September 14, 2005, under section 401 of such Act by reason
of Hurricane Katrina.
``(3) Rita go zone.--The term `Rita GO Zone' means that
portion of the Hurricane Rita disaster area determined by the
President to warrant individual or individual and public
assistance from the Federal Government under such Act by
reason of Hurricane Rita.
``(4) Hurricane rita disaster area.--The term `Hurricane
Rita disaster area' means an area with respect to which a
major disaster has been declared by the President before
October 6, 2005, under section 401 of such Act by reason of
Hurricane Rita.
``(5) Wilma go zone.--The term `Wilma GO Zone' means that
portion of the Hurricane Wilma disaster area determined by
the President to warrant individual or individual and public
assistance from the Federal Government under such Act by
reason of Hurricane Wilma.
``(6) Hurricane wilma disaster area.--The term `Hurricane
Wilma disaster area' means an area with respect to which a
major disaster has been declared by the President before
October 25, 2005, under section 401 of such Act by reason of
Hurricane Wilma.

``SEC. 1400O. TAX BENEFITS FOR GULF OPPORTUNITY ZONE.

``(a) Special Allowance for Certain Property Acquired After
August 27, 2005.--
``(1) Additional allowance.--In the case of any qualified
Gulf Opportunity Zone property--
``(A) the depreciation deduction provided by section 167(a)
for the taxable year in which such property is placed in
service shall include an allowance equal to 50 percent of the
adjusted basis of such property, and
``(B) the adjusted basis of the qualified Gulf Opportunity
Zone property shall be reduced by the amount of such
deduction before computing the amount otherwise allowable as
a depreciation deduction under this chapter for such taxable
year and any subsequent taxable year.
``(2) Qualified gulf opportunity zone property.--For
purposes of this subsection--
``(A) In general.--The term `qualified Gulf Opportunity
Zone property' means property--
``(i)(I) which is described in section 168(k)(2)(A)(i), or
``(II) which is nonresidential real property or residential
rental property,
``(ii) substantially all of the use of which is in the Gulf
Opportunity Zone and is in the active conduct of a trade or
business by the taxpayer in such Zone,
``(iii) the original use of which in the Gulf Opportunity
Zone commences with the taxpayer after August 27, 2005,
``(iv) which is acquired by the taxpayer by purchase (as
defined in section 179(d)) after August 27, 2005, but only if
no written binding contract for the acquisition was in effect
before August 28, 2005, and
``(v) which is placed in service by the taxpayer on or
before the termination date.

The term `termination date' means December 31, 2007 (December
31, 2008, in the case of nonresidential real property and
residential rental property).
``(B) Exceptions.--
``(i) Alternative depreciation property.--The term
`qualified Gulf Opportunity Zone property' shall not include
any property described in section 168(k)(2)(D)(i).
``(ii) Tax-exempt bond-financed property.--Such term shall
not include any property any portion of which is financed
with the proceeds of any obligation the interest on which is
exempt from tax under section 103.
``(iii) Qualified revitalization buildings.--Such term
shall not include any qualified revitalization building with
respect to which the taxpayer has elected the application of
paragraph (1) or (2) of section 1400I(a).
``(iv) Election out.--For purposes of this subsection,
rules similar to the rules of section 168(k)(2)(D)(iii) shall
apply.
``(C) Special rules.--For purposes of this subsection,
rules similar to the rules of section 168(k)(2)(E) shall
apply, except that--
``(i) clause (i) thereof shall be applied by substituting
`after August 27, 2005, and before the termination date (as
defined in section 1400O(a)(2))' for `after September 10,
2001, and before January 1, 2005',
``(ii) clauses (ii), (iii), and (iv) thereof shall be
applied by substituting `August 27, 2005' for `September 10,
2001' each place it appears, and
``(iii) clause (iv) thereof shall be applied by
substituting `qualified Gulf Opportunity Zone property' for
`qualified property'.
``(D) Allowance against alternative minimum tax.--For
purposes of this subsection, rules similar to the rules of
section 168(k)(2)(G) shall apply.
``(3) Recapture.--For purposes of this subsection, rules
similar to the rules under section 179(d)(10) shall apply
with respect to any qualified Gulf Opportunity Zone property
which ceases to be qualified Gulf Opportunity Zone property.
``(b) Increase in Expensing Under Section 179.--
``(1) In general.--For purposes of section 179--
``(A) the $100,000 amount in section 179(b)(1) for the
taxable year shall be increased by the lesser of--
``(i) $100,000, or
``(ii) the cost of section 179 property (as defined in
section 179(d)) which is qualified Gulf Opportunity Zone
property placed in service during the taxable year, and
``(B) the $400,000 amount in section 179(b)(2) for the
taxable year shall be increased by the lesser of--
``(i) $600,000, or
``(ii) the cost of section 179 property (as so defined)
which is qualified Gulf Opportunity Zone property placed in
service during the taxable year.
``(2) Qualified gulf opportunity zone property.--For
purposes of this subsection, the term `qualified Gulf
Opportunity Zone property' has the meaning given such term by
subsection (a)(2).
``(3) Coordination with empowerment zones and renewal
communities.--For purposes of sections 1397A and 1400J,
qualified Gulf Opportunity Zone property shall not be treated
as qualified zone property or qualified renewal property for
any taxable year, unless the taxpayer elects not to have this
subsection apply to all such qualified Gulf Opportunity Zone
property placed in service by the taxpayer during the taxable
year.
``(4) Recapture.--Rules similar to the rules under section
179(d)(10) shall apply with respect to any qualified Gulf
Opportunity Zone property which ceases to be Gulf Opportunity
Zone property.
``(c) Tax-Exempt Bond Financing.--
``(1) In general.--For purposes of this title, any
qualified Gulf Opportunity Zone Bond shall be treated as a
qualified bond.

[[Page S533]]

``(2) Qualified gulf opportunity zone bond.--For purposes
of this subsection, the term `qualified Gulf Opportunity Zone
Bond' means any bond issued as part of an issue if--
``(A) except as provided in paragraph (4), such bond meets
the applicable requirements of part IV of subchapter B of
this chapter,
``(B) such bond is issued by the State of Alabama,
Louisiana, or Mississippi (or any political subdivision
thereof),
``(C) the Governor of such State designates such bond for
purposes of this section, and
``(D) such bond is issued after the date of the enactment
of this section and before January 1, 2011.
``(3) Limitation on aggregate amount of bonds designated.--
The maximum aggregate face amount of bonds which may be
designated under this subsection shall not exceed the product
of $2,500 multiplied by the portion of the State population
which is in the Gulf Opportunity Zone (as determined on the
basis of the most recent census estimate of resident
population released by the Bureau of Census before August 28,
2005).
``(4) Special rules.--In applying this title to any
qualified Gulf Opportunity Zone Bond, the following
modifications shall apply:
``(A) Section 143 (relating to mortgage revenue bonds:
qualified mortgage bond and qualified veterans' mortgage
bond) shall be applied--
``(i) by treating any residence in the Gulf Opportunity
Zone as a targeted area residence,
``(ii) by applying subsection (f)(3) without regard to
subparagraph (A) thereof, and
``(iii) by substituting `$150,000' for `$15,000' in
subsection (k)(4) thereof.
``(B) Section 146 (relating to volume cap) shall not apply.
``(C) Section 57(a)(5) shall not apply.
``(5) Separate issue treatment of portions of an issue.--
This subsection shall not apply to the portion of an issue
which (if issued as a separate issue) would be treated as a
qualified bond or as a bond that is not a private activity
bond (determined without regard to paragraph (1)), if the
issuer elects to so treat such portion.
``(d) Advance Refundings of Certain Tax-Exempt Bonds.--
``(1) In general.--With respect to a bond described in
paragraph (2) issued as part of an issue 90 percent (95
percent in the case of a bond described in paragraph (2)(B))
or more of the net proceeds (as defined in section 150(a)(3))
of which were used to finance facilities located within the
Gulf Opportunity Zone (or property which is functionally
related and subordinate to facilities located within the Gulf
Opportunity Zone), one additional advanced refunding after
the date of the enactment of this section and before January
1, 2007, shall be allowed under the applicable rules of
section 149(d) if--
``(A) the chief executive officer of the issuer of the bond
designates the advance refunding bond for purposes of this
subsection, and
``(B) the requirements of paragraph (3) are met.
``(2) Bonds described.--A bond is described in this
paragraph if such bond was outstanding on August 27, 2005,
and is--
``(A) a State or local bond (as defined in section
103(c)(1)) other than a private activity bond (as defined in
section 141(a)) issued by the State of Alabama, Louisiana, or
Mississippi (or any political subdivision thereof), or
``(B) a qualified 501(c)(3) bond (as defined in section
145(a)) issued by or on behalf of any such State or political
subdivision.
``(3) Additional requirements.--The requirements of this
paragraph are met with respect to any advance refunding of a
bond described in paragraph (2) if--
``(A) no advance refundings of such bond would be allowed
under any provision of law after August 27, 2005,
``(B) the advance refunding bond is the only other
outstanding bond with respect to the refunded bond, and
``(C) the requirements of section 148 are met with respect
to all bonds issued under this subsection.
``(e) Low-Income Housing Credit.--
``(1) Increase in state housing credit ceiling.--
``(A) In general.--In the case of the State of Alabama,
Louisiana, or Mississippi--
``(i) the amount otherwise determined under subclause (I)
of section 42(h)(3)(C)(ii) for each calendar year beginning
after 2005 and before 2010 shall be increased by an amount
equal to 3 times the dollar amount otherwise specified for
such calendar year under such subclause multiplied by the
State population located in the Gulf Opportunity Zone (as
determined on the basis of the most recent census estimate of
resident population released by the Bureau of Census before
August 28, 2005), and
``(ii) the unused State housing credit ceiling for such
State for any calendar year under section 42(h)(3)(C)(i)
shall be determined without regard to the amount of the
increase determined under clause (i).
``(B) Elective carryforward of unused increased ceiling.--
``(i) In general.--If the amount determined under section
42(h)(3)(C)(ii)(I), as increased under subparagraph (A)(i),
for any calendar year for any State described in subparagraph
(A) exceeds the aggregate housing credit dollar amount
allocated during such calendar year by such State, such State
may elect to treat as a carryforward to the following
calendar year an amount equal to lesser of--

``(I) the amount of such excess, or
``(II) the amount by which the amount determined under
section 42(h)(3)(C)(ii)(I) for such calendar year was
increased under subparagraph (A)(i)).

``(ii) Use of carryforward.--If any State elects a
carryforward under clause (i), any housing credit dollar
amount allocated by such State during the calendar year
following the calendar year in which the carryforward arose
shall not be considered so allocated for purposes of section
42(h)(3)(C) and section 42(h)(3)(D) to the extent such
housing credit dollar amount does not exceed the amount of
the carryforward elected.
``(2) Difficult development area.--
``(A) In general.--For purposes of section 42--
``(i) in the case of property placed in service during
2006, 2007, or 2008, the Gulf Opportunity Zone--

``(I) shall be treated as a difficult development area
designated under subclause (I) of section 42(d)(5)(C)(iii),
and
``(II) shall not be taken into account for purposes of
applying the limitation under subclause (II) of such section,
and

``(ii) subsection (b)(2)(B) thereof shall be applied with
respect to any such property placed in service in the Gulf
Opportunity Zone by substituting `91 percent' and `39
percent' for `70 percent' and `30 percent', respectively.
``(B) Application.--Subparagraph (A) shall apply only to--
``(i) housing credit dollar amounts allocated during the
period beginning on January 1, 2006, and ending on December
31, 2008, and
``(ii) buildings placed in service during such period to
the extent that paragraph (1) of section 42(h) does not apply
to any building by reason of paragraph (4) thereof, but only
with respect to bonds issued after December 31, 2005.
``(f) Treatment of Representations Regarding Income
Eligibility for Purposes of Qualified Residential Rental
Project Requirements.--For purposes of determining if any
residential rental project meets the requirements of section
142(d)(1) and if any certification with respect to such
project meets the requirements under section 142(d)(7), the
operator of the project may rely on the representations of
any individual applying for tenancy in such project that such
individual's income will not exceed the applicable income
limits of section 142(d)(1) upon commencement of the
individual's tenancy if such tenancy begins during the 6-
month period beginning on and after the date such individual
was displaced by reason of Hurricane Katrina.
``(g) Application of New Markets Tax Credit to Investments
in Community Development Entities Serving Gulf Opportunity
Zone.--For purposes of section 45D--
``(1) a qualified community development entity shall be
eligible for an allocation under subsection (f)(2) thereof of
the increase in the new markets tax credit limitation
described in paragraph (2) only if a significant mission of
such entity is the recovery and redevelopment of the Gulf
Opportunity Zone,
``(2) the new markets tax credit limitation otherwise
determined under subsection (f)(1) thereof shall be increased
by an amount equal to--
``(A) $300,000,000 for 2005 and 2006, to be allocated among
qualified community development entities to make qualified
low-income community investments within the Gulf Opportunity
Zone, and
``(B) $400,000,000 for 2007, to be so allocated, and
``(3) subsection (f)(3) thereof shall be applied separately
with respect to the amount of the increase under paragraph
(2).
``(h) Treatment of Net Operating Losses Attributable to
Gulf Opportunity Zone Losses.--
``(1) In general.--If a portion of any net operating loss
of the taxpayer for any taxable year is a qualified Gulf
Opportunity Zone loss, the following rules shall apply:
``(A) Extension of carryback period.--Section 172(b)(1)
shall be applied with respect to such portion--
``(i) by substituting `5 taxable years' for `2 taxable
years' in subparagraph (A)(i), and
``(ii) by not taking such portion into account in
determining any eligible loss of the taxpayer under
subparagraph (F) for the taxable year.
``(B) Suspension of 90 percent amt limitation.--Section
56(d)(1) shall be applied by increasing the amount determined
under subparagraph (A)(ii)(I) thereof by the sum of the
carrybacks and carryovers of any net operating loss
attributable to such portion.
``(2) Qualified gulf opportunity zone loss.--For purposes
of paragraph (1), the term `qualified Gulf Opportunity Zone
loss' means the lesser of--
``(A) the amount of the net operating loss for the taxable
year, or
``(B) the aggregate amount of the following deductions for
such taxable year:
``(i) Any deduction for any qualified Gulf Opportunity Zone
casualty loss.
``(ii) Any deduction for moving expenses paid or incurred
after August 27, 2005, and before January 1, 2008, and
allowable under this chapter to any taxpayer in connection
with the employment of any individual--

``(I) whose principal place of abode was located in the
Gulf Opportunity Zone before August 28, 2005,
``(II) who was unable to remain in such abode as the result
of Hurricane Katrina, and

[[Page S534]]

``(III) whose principal place of employment with the
taxpayer after such expense is located in the Gulf
Opportunity Zone.

For purposes of this clause, the term `moving expenses' has
the meaning given such term by section 217(b), except that
the taxpayer's former residence and new residence may be the
same residence if the initial vacating of the residence was
as the result of Hurricane Katrina.
``(iii) Any deduction for expenses paid or incurred after
August 27, 2005, and before January 1, 2008, and allowable
under this chapter to temporarily house any employee of the
taxpayer whose principal place of employment is in the Gulf
Opportunity Zone.
``(iv) Any deduction for depreciation (or amortization in
lieu of depreciation) allowable under this chapter with
respect to any qualified Gulf Opportunity Zone property (as
defined in subsection (a)(2)) for the taxable year such
property is placed in service.
``(v) Any deduction for repair expenses (including expenses
for removal of debris) allowable under this chapter paid or
incurred after August 27, 2005, and before January 1, 2008,
with respect to any damage attributable to Hurricane Katrina
and in connection with property which is located in the Gulf
Opportunity Zone.
``(3) Qualified gulf opportunity zone casualty loss.--
``(A) In general.--For purposes of paragraph (2)(B)(i), the
term `qualified Gulf Opportunity Zone casualty loss' means
any uncompensated section 1231 loss (as defined in section
1231(a)(3)(B)) of property located in the Gulf Opportunity
Zone if--
``(i) such loss is allowed as a deduction under section 165
for the taxable year, and
``(ii) such loss is attributable to Hurricane Katrina.
``(B) Reduction for gains from involuntary conversion.--The
amount of qualified Gulf Opportunity Zone casualty loss which
would (but for this subparagraph) be taken into account under
subparagraph (A) for any taxable year shall be reduced by the
amount of any gain recognized by the taxpayer for such year
from the involuntary conversion by reason of Hurricane
Katrina of property located in the Gulf Opportunity Zone.
``(C) Coordination with general disaster loss rules.--
Subsection (j) and section 165(i) shall not apply to any
qualified Gulf Opportunity Zone casualty loss to the extent
such loss is taken into account under this subsection.
``(4) Special rules.--For purposes of paragraph (1), rules
similar to the rules of paragraphs (2) and (3) of section
172(i) shall apply with respect to such portion.
``(i) Treatment of Public Utility Property Disaster
Losses.--
``(1) In general.--Upon the election of the taxpayer, in
the case of any eligible public utility property loss--
``(A) section 165(i) shall be applied by substituting `the
fifth taxable year immediately preceding' for `the taxable
year immediately preceding',
``(B) an application for a tentative carryback adjustment
of the tax for any prior taxable year affected by the
application of subparagraph (A) may be made under section
6411, and
``(C) section 6611 shall not apply to any overpayment
attributable to such loss.
``(2) Eligible public utility property loss.--For purposes
of this subsection--
``(A) In general.--The term `eligible public utility
property loss' means any loss with respect to public utility
property located in the Gulf Opportunity Zone and
attributable to Hurricane Katrina.
``(B) Public utility property.--The term `public utility
property' has the meaning given such term by section
168(i)(10) without regard to the matter following
subparagraph (D) thereof.
``(3) Waiver of limitations.--If refund or credit of any
overpayment of tax resulting from the application of
paragraph (1) is prevented at any time before the close of
the 1-year period beginning on the date of the enactment of
this section by the operation of any law or rule of law
(including res judicata), such refund or credit may
nevertheless be made or allowed if claim therefor is filed
before the close of such period.
``(j) Special Rule for Gulf Opportunity Zone Public Utility
Casualty Losses.--
``(1) In general.--The amount described in section
172(f)(1)(A) for any taxable year shall be increased by the
amount of the Gulf Opportunity Zone public utility casualty
loss for such year.
``(2) Gulf opportunity zone public utility casualty loss.--
For purposes of this subsection, the term `Gulf Opportunity
Zone public utility casualty loss' means any casualty loss of
public utility property (as defined in section 168(i)(10))
located in the Gulf Opportunity Zone if--
``(A) such loss is allowed as a deduction under section 165
for the taxable year,
``(B) such loss is attributable to Hurricane Katrina, and
``(C) the taxpayer elects the application of this
subsection with respect to such loss.
``(3) Reduction for gains from involuntary conversion.--The
amount of Gulf Opportunity Zone public utility casualty loss
which would (but for this paragraph) be taken into account
under paragraph (1) for any taxable year shall be reduced by
the amount of any gain recognized by the taxpayer for such
year from the involuntary conversion by reason of Hurricane
Katrina of public utility property (as so defined) located in
the Gulf Opportunity Zone.
``(4) Coordination with general disaster loss rules.--
Subsection (h) and section 165(i) shall not apply to any Gulf
Opportunity Zone public utility casualty loss to the extent
such loss is taken into account under paragraph (1).
``(5) Election.--Any election under paragraph (2)(C) shall
be made in such manner as may be prescribed by the Secretary
and shall be made by the due date (including extensions of
time) for filing the taxpayer's return for the taxable year
of the loss. Such election, once made for any taxable year,
shall be irrevocable for such taxable year.
``(k) Special Rules for Small Timber Producers.--
``(1) Increased expensing for qualified timber property.--
In the case of qualified timber property any portion of which
is located in the Gulf Opportunity Zone, in that portion of
the Rita GO Zone which is not part of the Gulf Opportunity
Zone, or in the Wilma GO Zone, the limitation under
subparagraph (B) of section 194(b)(1) shall be increased by
the lesser of--
``(A) the limitation which would (but for this subsection)
apply under such subparagraph, or
``(B) the amount of reforestation expenditures (as defined
in section 194(c)(3)) paid or incurred by the taxpayer with
respect to such qualified timber property during the
specified portion of the taxable year.
``(2) 5 year nol carryback of certain timber losses.--For
purposes of determining farming loss under section 172(i),
income and deductions which are allocable to the specified
portion of the taxable year and which are attributable to
qualified timber property any portion of which is located in
the Gulf Opportunity Zone, in that portion of the Rita GO
Zone which is not part of the Gulf Opportunity Zone, or in
the Wilma GO Zone shall be treated as attributable to farming
businesses.
``(3) Rules not applicable to certain entities.--Paragraphs
(1) and (2) shall not apply to any taxpayer which--
``(A) is a corporation the stock of which is publicly
traded on an established securities market, or
``(B) is a real estate investment trust.
``(4) Rules not applicable to large timber producers.--
Paragraphs (1) and (2) shall not apply with respect to any
qualified timber property unless--
``(A) such property was held by the taxpayer--
``(i) on August 28, 2005, in the case of qualified timber
property any portion of which is located in the Gulf
Opportunity Zone,
``(ii) on September 23, 2005, in the case of qualified
timber property (other than property described in subclause
(I)) any portion of which is located in that portion of the
Rita GO Zone which is not part of the Gulf Opportunity Zone,
or
``(iii) on October 23, 2005, in the case of qualified
timber property (other than property described in subclause
(I) or (II)) any portion of which is located in the Wilma GO
Zone, and
``(B) such taxpayer held not more than 500 acres of
qualified timber property on such date.
``(5) Definitions.--For purposes of this subsection--
``(A) Specified portion.--The term `specified portion'
means--
``(i) in the case of qualified timber property located in
the Gulf Opportunity Zone, that portion of the taxable year
which is on or after August 28, 2005, and before January 1,
2007,
``(ii) in the case of qualified timber property located in
the Rita GO Zone and no part of which is located in the Gulf
Opportunity Zone, that portion of the taxable year which is
on or after September 23, 2005, and before January 1, 2007,
and
``(iii) in the case of qualified timber property located in
the Wilma GO Zone, that portion of the taxable year which is
on or after October 23, 2005, and before January 1, 2007.
``(B) Qualified timber property.--The term `qualified
timber property' has the meaning given such term in section
194(c)(1).
``(l) Expensing for Certain Demolition and Clean-Up
Costs.--
``(1) In general.--A taxpayer may elect to treat 50 percent
of any qualified Gulf Opportunity Zone clean-up cost as an
expense which is not chargeable to capital account. Any cost
so treated shall be allowed as a deduction for the taxable
year in which such cost is paid or incurred.
``(2) Gulf opportunity zone clean-up cost.--For purposes of
this subsection, the term `Gulf Opportunity Zone clean-up
cost' means any amount paid or incurred during the period
beginning on August 28, 2005, and ending on December 31,
2007, for the removal of debris from, or the demolition of
structures on, real property which is located in the Gulf
Opportunity Zone and which is--
``(A) held by the taxpayer for use in a trade or business
or for the production of income, or
``(B) property described in section 1221(a)(1) in the hands
of the taxpayer.

For purposes of the preceding sentence, amounts paid or
incurred shall be taken into account only to the extent that
such amount would (but for paragraph (1)) be chargeable to
capital account.
``(m) Extension of Expensing for Environmental Remediation
Costs.--With respect to any qualified environmental
remediation expenditure (as defined in section 198(b)) paid
or incurred on or after August 28,

[[Page S535]]

2005, in connection with a qualified contaminated site
located in the Gulf Opportunity Zone, section 198 (relating
to expensing of environmental remediation costs) shall be
applied--
``(1) by substituting `December 31, 2007' for `December 31,
2006' in subsection (h) thereof, and
``(2) except as provided in section 198(d)(2), by treating
petroleum products (as defined in section 4612(a)(3)) as a
hazardous substance.
``(n) Gulf Opportunity Zone.--For purposes of this section,
the term `Gulf Opportunity Zone' means an area--
``(1) with respect to which a major disaster has been
declared by the President under section 401 of the Robert T.
Stafford Disaster Relief and Emergency Assistance Act as a
result of Hurricane Katrina, and
``(2) which is determined by the President to warrant
individual assistance, or individual and public assistance,
from the Federal Government under such Act.''
(b) Clerical Amendments.--The table of subchapters for
chapter 1 is amended by adding at the end the following new
item:

``Subchapter Z--Hurricane Relief Benefits.''.

SEC. 102. EXPANSION OF HOPE SCHOLARSHIP AND LIFETIME LEARNING
CREDIT FOR STUDENTS IN THE GULF OPPORTUNITY
ZONE.

In the case of an individual who attends an eligible
educational institution (as defined in section 25A(f)(2) of
the Internal Revenue Code of 1986) located in the Gulf
Opportunity Zone (as defined in section 1400N(1) of such
Code) for any taxable year beginning during 2005 or 2006--
(1) in applying section 25A of the Internal Revenue Code of
1986, the term ``qualified tuition and related expenses''
shall include any costs which are qualified higher education
expenses (as defined in section 529(e)(3) of such Code),
(2) each of the dollar amounts in effect under of
subparagraphs (A) and (B) of section 25A(b)(1) of such Code
shall be twice the amount otherwise in effect before the
application of this subsection, and
(3) section 25A(c)(1) of such Code shall be applied by
substituting ``40 percent'' for ``20 percent''.

SEC. 103. EXTENSION OF SPECIAL RULES FOR MORTGAGE REVENUE
BONDS.

Section 404(d) of the Katrina Emergency Tax Relief Act of
2005 is amended by striking ``December 31, 2007'' and
inserting ``December 31, 2010''.

SEC. 104. HOUSING RELIEF FOR INDIVIDUALS AFFECTED BY
HURRICANE KATRINA.

(a) Exclusion of Employer Provided Housing for Individual
Affected by Hurricane Katrina.--
(1) In general.--For purposes of the Internal Revenue Code
of 1986, gross income of a qualified employee shall not
include the value of any lodging furnished to such employee,
such employee's spouse, or any of such employee's dependents
by or on behalf of a qualified employer for any month during
the taxable year.
(2) Limitation.--The amount which may be excluded under
subsection (a) for any month for which lodging is furnished
during the taxable year shall not exceed $600.
(3) Treatment of exclusion.--For purposes of the Internal
Revenue Code of 1986 (other than sections 3121(a)(19) and
3306(b)(14), an exclusion under subsection (a) shall be
treated as an exclusion under section 119 of such Code.
(b) Employer Credit for Housing Employees Affected by
Hurricane Katrina.--
(1) In general.--In the case of a qualified employer, there
shall be allowed as a credit against the tax imposed by
chapter 1 of the Internal Revenue Code of 1986 for any month
during the taxable year an amount equal to 30 percent of any
amount which is excludable from the gross income of a
qualified employee of such employer under subsection (a).
(2) Certain rules to apply.--For purposes of this section,
rules similar to the rules of section 280C(a) of such Code
shall apply.
(3) Credit to be part of general business credit.--The
credit allowed under this section shall be added to the
current year business credit under section 38(b) of such Code
and shall be treated as a credit allowed under subpart D of
part IV of subchapter A of such Code.
(c) Qualified Employee.--For purposes of this section, the
term ``qualified employee'' means, with respect to any month,
an individual--
(1) who had a principal residence (as defined in section
121 of the Internal Revenue Code of 1986) in the GO Zone (as
defined in section 1400N(1) of such Code) on August 28, 2005,
and
(2) who performs not less than 80 percent of the employment
services for a qualified employer in the Hurricane Katrina
disaster area (as so defined).
(d) Qualified Employer.--For purposes of this section, the
term ``qualified employer'' means any employer with a trade
or business located in the Hurricane Katrina disaster area
(as so defined).
(e) Application of Section.--This section shall apply to
lodging provided--
(1) after the date of the enactment of this Act,
(2) before the date which is 6 months after the date of the
enactment of this Act, and
(3) no credit with respect to such lodging shall be claimed
before October 1, 2006.

Subtitle B--Tax Benefits Related to Hurricanes Rita and Wilma

SEC. 111. EXTENSION OF CERTAIN EMERGENCY TAX RELIEF FOR
HURRICANE KATRINA TO HURRICANES RITA AND WILMA.

(a) In General.--Subchapter Z of chapter 1, as added by
this Act, is amended by adding at the end the following new
sections:

``SEC. 1400P. SPECIAL RULES FOR MORTGAGE REVENUE BONDS.

``(a) In General.--In the case of financing provided with
respect to residences in the GO Zone, the Rita GO Zone, or
the Wilma GO Zone, section 143 shall be applied--
``(1) by treating any residence in the GO Zone, the Rita GO
Zone, or the Wilma GO Zone as a targeted area residence,
``(2) by applying subsection (f)(3) without regard to
subparagraph (A) thereof, and
``(3) by substituting `$150,000' for `$15,000' in
subsection (k)(4) thereof.
``(b) Application.--Subsection (a) shall not apply to
financing provided after December 31, 2010.

``SEC. 1400Q. SPECIAL RULES FOR USE OF RETIREMENT FUNDS.

``(a) Tax-Favored Withdrawals From Retirement Plans.--
``(1) In general.--Section 72(t) shall not apply to any
qualified hurricane distribution.
``(2) Aggregate dollar limitation.--
``(A) In general.--For purposes of this subsection, the
aggregate amount of distributions received by an individual
which may be treated as qualified hurricane distributions for
any taxable year shall not exceed the excess (if any) of--
``(i) $100,000, over
``(ii) the aggregate amounts treated as qualified hurricane
distributions received by such individual for all prior
taxable years.
``(B) Treatment of plan distributions.--If a distribution
to an individual would (without regard to subparagraph (A))
be a qualified hurricane distribution, a plan shall not be
treated as violating any requirement of this title merely
because the plan treats such distribution as a qualified
hurricane distribution, unless the aggregate amount of such
distributions from all plans maintained by the employer (and
any member of any controlled group which includes the
employer) to such individual exceeds $100,000.
``(C) Controlled group.--For purposes of subparagraph (B),
the term `controlled group' means any group treated as a
single employer under subsection (b), (c), (m), or (o) of
section 414.
``(3) Amount distributed may be repaid.--
``(A) In general.--Any individual who receives a qualified
hurricane distribution may, at any time during the 3-year
period beginning on the day after the date on which such
distribution was received, make one or more contributions in
an aggregate amount not to exceed the amount of such
distribution to an eligible retirement plan of which such
individual is a beneficiary and to which a rollover
contribution of such distribution could be made under section
402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), as
the case may be.
``(B) Treatment of repayments of distributions from
eligible retirement plans other than iras.--For purposes of
this title, if a contribution is made pursuant to
subparagraph (A) with respect to a qualified hurricane
distribution from an eligible retirement plan other than an
individual retirement plan, then the taxpayer shall, to the
extent of the amount of the contribution, be treated as
having received the qualified hurricane distribution in an
eligible rollover distribution (as defined in section
402(c)(4)) and as having transferred the amount to the
eligible retirement plan in a direct trustee to trustee
transfer within 60 days of the distribution.
``(C) Treatment of repayments for distributions from
iras.--For purposes of this title, if a contribution is made
pursuant to subparagraph (A) with respect to a qualified
hurricane distribution from an individual retirement plan (as
defined by section 7701(a)(37)), then, to the extent of the
amount of the contribution, the qualified hurricane
distribution shall be treated as a distribution described in
section 408(d)(3) and as having been transferred to the
eligible retirement plan in a direct trustee to trustee
transfer within 60 days of the distribution.
``(4) Definitions.--For purposes of this subsection--
``(A) Qualified hurricane distribution.--Except as provided
in paragraph (2), the term `qualified hurricane distribution'
means--
``(i) any distribution from an eligible retirement plan
made on or after August 25, 2005, and before January 1, 2007,
to an individual whose principal place of abode on August 28,
2005, is located in the Hurricane Katrina disaster area and
who has sustained an economic loss by reason of Hurricane
Katrina,
``(ii) any distribution (which is not described in clause
(i)) from an eligible retirement plan made on or after
September 23, 2005, and before January 1, 2007, to an
individual whose principal place of abode on September 23,
2005, is located in the Hurricane Rita disaster area and who
has sustained an economic loss by reason of Hurricane Rita,
and
``(iii) any distribution (which is not described in clause
(i) or (ii)) from an eligible retirement plan made on or
after October 23, 2005, and before January 1, 2007, to an
individual whose principal place of abode on October 23,
2005, is located in the Hurricane Wilma disaster area and who
has sustained

[[Page S536]]

an economic loss by reason of Hurricane Wilma.
``(B) Eligible retirement plan.--The term `eligible
retirement plan' shall have the meaning given such term by
section 402(c)(8)(B).
``(5) Income inclusion spread over 3-year period.--
``(A) In general.--In the case of any qualified hurricane
distribution, unless the taxpayer elects not to have this
paragraph apply for any taxable year, any amount required to
be included in gross income for such taxable year shall be so
included ratably over the 3-taxable year period beginning
with such taxable year.
``(B) Special rule.--For purposes of subparagraph (A),
rules similar to the rules of subparagraph (E) of section
408A(d)(3) shall apply.
``(6) Special rules.--
``(A) Exemption of distributions from trustee to trustee
transfer and withholding rules.--For purposes of sections
401(a)(31), 402(f), and 3405, qualified hurricane
distributions shall not be treated as eligible rollover
distributions.
``(B) Qualified hurricane distributions treated as meeting
plan distribution requirements.--For purposes this title, a
qualified hurricane distribution shall be treated as meeting
the requirements of sections 401(k)(2)(B)(i),
403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A).
``(b) Recontributions of Withdrawals for Home Purchases.--
``(1) Recontributions.--
``(A) In general.--Any individual who received a qualified
distribution may, during the applicable period, make one or
more contributions in an aggregate amount not to exceed the
amount of such qualified distribution to an eligible
retirement plan (as defined in section 402(c)(8)(B)) of which
such individual is a beneficiary and to which a rollover
contribution of such distribution could be made under section
402(c), 403(a)(4), 403(b)(8), or 408(d)(3), as the case may
be.
``(B) Treatment of repayments.--Rules similar to the rules
of subparagraphs (B) and (C) of subsection (a)(3) shall apply
for purposes of this subsection.
``(2) Qualified distribution.--For purposes of this
subsection--
``(A) In general.--The term `qualified distribution' means
any qualified Katrina distribution, any qualified Rita
distribution, and any qualified Wilma distribution.
``(B) Qualified katrina distribution.--The term `qualified
Katrina distribution' means any distribution--
``(i) described in section 401(k)(2)(B)(i)(IV),
403(b)(7)(A)(ii) (but only to the extent such distribution
relates to financial hardship), 403(b)(11)(B), or
72(t)(2)(F),
``(ii) received after February 28, 2005, and before August
29, 2005, and
``(iii) which was to be used to purchase or construct a
principal residence in the Hurricane Katrina disaster area,
but which was not so purchased or constructed on account of
Hurricane Katrina.
``(C) Qualified rita distribution.--The term `qualified
Rita distribution' means any distribution (other than a
qualified Katrina distribution)--
``(i) described in section 401(k)(2)(B)(i)(IV),
403(b)(7)(A)(ii) (but only to the extent such distribution
relates to financial hardship), 403(b)(11)(B), or
72(t)(2)(F),
``(ii) received after February 28, 2005, and before
September 24, 2005, and
``(iii) which was to be used to purchase or construct a
principal residence in the Hurricane Rita disaster area, but
which was not so purchased or constructed on account of
Hurricane Rita.
``(D) Qualified wilma distribution.--The term `qualified
Wilma distribution' means any distribution (other than a
qualified Katrina distribution or a qualified Rita
distribution)--
``(i) described in section 401(k)(2)(B)(i)(IV),
403(b)(7)(A)(ii) (but only to the extent such distribution
relates to financial hardship), 403(b)(11)(B), or
72(t)(2)(F),
``(ii) received after February 28, 2005, and before October
24, 2005, and
``(iii) which was to be used to purchase or construct a
principal residence in the Hurricane Wilma disaster area, but
which was not so purchased or constructed on account of
Hurricane Wilma.
``(3) Applicable period.--For purposes of this subsection,
the term `applicable period' means--
``(A) with respect to any qualified Katrina distribution,
the period beginning on August 25, 2005, and ending on
February 28, 2006,
``(B) with respect to any qualified Rita distribution, the
period beginning on September 23, 2005, and ending on
February 28, 2006, and
``(C) with respect to any qualified Wilma distribution, the
period beginning on October 23, 2005, and ending on February
28, 2006.
``(c) Loans From Qualified Plans.--
``(1) Increase in limit on loans not treated as
distributions.--In the case of any loan from a qualified
employer plan (as defined under section 72(p)(4)) to a
qualified individual made during the applicable period--
``(A) clause (i) of section 72(p)(2)(A) shall be applied by
substituting `$100,000' for `$50,000', and
``(B) clause (ii) of such section shall be applied by
substituting `the present value of the nonforfeitable accrued
benefit of the employee under the plan' for `one-half of the
present value of the nonforfeitable accrued benefit of the
employee under the plan'.
``(2) Delay of repayment.--In the case of a qualified
individual with an outstanding loan on or after the qualified
beginning date from a qualified employer plan (as defined in
section 72(p)(4))--
``(A) if the due date pursuant to subparagraph (B) or (C)
of section 72(p)(2) for any repayment with respect to such
loan occurs during the period beginning on the qualified
beginning date and ending on December 31, 2006, such due date
shall be delayed for 1 year,
``(B) any subsequent repayments with respect to any such
loan shall be appropriately adjusted to reflect the delay in
the due date under paragraph (1) and any interest accruing
during such delay, and
``(C) in determining the 5-year period and the term of a
loan under subparagraph (B) or (C) of section 72(p)(2), the
period described in subparagraph (A) shall be disregarded.
``(3) Qualified individual.--For purposes of this
subsection--
``(A) In general.--The term `qualified individual' means
any qualified Hurricane Katrina individual, any qualified
Hurricane Rita individual, and any qualified Hurricane Wilma
individual.
``(B) Qualified hurricane katrina individual.--The term
`qualified Hurricane Katrina individual' means an individual
whose principal place of abode on August 28, 2005, is located
in the Hurricane Katrina disaster area and who has sustained
an economic loss by reason of Hurricane Katrina.
``(C) Qualified hurricane rita individual.--The term
`qualified Hurricane Rita individual' means an individual
(other than a qualified Hurricane Katrina individual) whose
principal place of abode on September 23, 2005, is located in
the Hurricane Rita disaster area and who has sustained an
economic loss by reason of Hurricane Rita.
``(D) Qualified hurricane wilma individual.--The term
`qualified Hurricane Wilma individual' means an individual
(other than a qualified Hurricane Katrina individual or a
qualified Hurricane Rita individual) whose principal place of
abode on October 23, 2005, is located in the Hurricane Wilma
disaster area and who has sustained an economic loss by
reason of Hurricane Wilma.
``(4) Applicable period; qualified beginning date.--For
purposes of this subsection--
``(A) Hurricane katrina.--In the case of any qualified
Hurricane Katrina individual--
``(i) the applicable period is the period beginning on
September 24, 2005, and ending on December 31, 2006, and
``(ii) the qualified beginning date is August 25, 2005.
``(B) Hurricane rita.--In the case of any qualified
Hurricane Rita individual--
``(i) the applicable period is the period beginning on the
date of the enactment of this subsection and ending on
December 31, 2006, and
``(ii) the qualified beginning date is September 23, 2005.
``(C) Hurricane wilma.--In the case of any qualified
Hurricane Wilma individual--
``(i) the applicable period is the period beginning on the
date of the enactment of this subsection and ending on
December 31, 2006, and
``(ii) the qualified beginning date is October 23, 2005.

``SEC. 1400R. EMPLOYMENT RELIEF.

``(a) Employee Retention Credit for Employers Affected by
Hurricane Katrina.--
``(1) In general.--For purposes of section 38, in the case
of an eligible employer, the Hurricane Katrina employee
retention credit for any taxable year is an amount equal to
40 percent of the qualified wages with respect to each
eligible employee of such employer for such taxable year. For
purposes of the preceding sentence, the amount of qualified
wages which may be taken into account with respect to any
individual shall not exceed $6,000.
``(2) Definitions.--For purposes of this subsection--
``(A) Eligible employer.--The term `eligible employer'
means any employer--
``(i) which conducted an active trade or business on August
28, 2005, in the Gulf Opportunity Zone, and
``(ii) with respect to whom the trade or business described
in clause (i) is inoperable on any day after August 28, 2005,
and before January 1, 2006, as a result of damage sustained
by reason of Hurricane Katrina.
``(B) Eligible employee.--The term `eligible employee'
means with respect to an eligible employer an employee whose
principal place of employment on August 28, 2005, with such
eligible employer was in the Gulf Opportunity Zone.
``(C) Qualified wages.--The term `qualified wages' means
wages (as defined in section 51(c)(1), but without regard to
section 3306(b)(2)(B)) paid or incurred by an eligible
employer with respect to an eligible employee on any day
after August 28, 2005, and before January 1, 2006, which
occurs during the period--
``(i) beginning on the date on which the trade or business
described in subparagraph (A) first became inoperable at the
principal place of employment of the employee immediately
before Hurricane Katrina, and
``(ii) ending on the date on which such trade or business
has resumed significant operations at such principal place of
employment.

Such term shall include wages paid without regard to whether
the employee performs no services, performs services at a
different place of employment than such principal

[[Page S537]]

place of employment, or performs services at such principal
place of employment before significant operations have
resumed.
``(3) Certain rules to apply.--For purposes of this
subsection, rules similar to the rules of sections 51(i)(1),
52, and 280C(a) shall apply.
``(4) Employee not taken into account more than once.--An
employee shall not be treated as an eligible employee for
purposes of this subsection for any period with respect to
any employer if such employer is allowed a credit under
section 51 with respect to such employee for such period.
``(b) Employee Retention Credit for Employers Affected by
Hurricane Rita.--
``(1) In general.--For purposes of section 38, in the case
of an eligible employer, the Hurricane Rita employee
retention credit for any taxable year is an amount equal to
40 percent of the qualified wages with respect to each
eligible employee of such employer for such taxable year. For
purposes of the preceding sentence, the amount of qualified
wages which may be taken into account with respect to any
individual shall not exceed $6,000.
``(2) Definitions.--For purposes of this subsection--
``(A) Eligible employer.--The term `eligible employer'
means any employer--
``(i) which conducted an active trade or business on
September 23, 2005, in the Rita GO Zone, and
``(ii) with respect to whom the trade or business described
in clause (i) is inoperable on any day after September 23,
2005, and before January 1, 2006, as a result of damage
sustained by reason of Hurricane Rita.
``(B) Eligible employee.--The term `eligible employee'
means with respect to an eligible employer an employee whose
principal place of employment on September 23, 2005, with
such eligible employer was in the Rita GO Zone.
``(C) Qualified wages.--The term `qualified wages' means
wages (as defined in section 51(c)(1), but without regard to
section 3306(b)(2)(B)) paid or incurred by an eligible
employer with respect to an eligible employee on any day
after September 23, 2005, and before January 1, 2006, which
occurs during the period--
``(i) beginning on the date on which the trade or business
described in subparagraph (A) first became inoperable at the
principal place of employment of the employee immediately
before Hurricane Rita, and
``(ii) ending on the date on which such trade or business
has resumed significant operations at such principal place of
employment.

Such term shall include wages paid without regard to whether
the employee performs no services, performs services at a
different place of employment than such principal place of
employment, or performs services at such principal place of
employment before significant operations have resumed.
``(3) Certain rules to apply.--For purposes of this
subsection, rules similar to the rules of sections 51(i)(1),
52, and 280C(a) shall apply.
``(4) Employee not taken into account more than once.--An
employee shall not be treated as an eligible employee for
purposes of this subsection for any period with respect to
any employer if such employer is allowed a credit under
subsection (a) or section 51 with respect to such employee
for such period.
``(c) Employee Retention Credit for Employers Affected by
Hurricane Wilma.--
``(1) In general.--For purposes of section 38, in the case
of an eligible employer, the Hurricane Wilma employee
retention credit for any taxable year is an amount equal to
40 percent of the qualified wages with respect to each
eligible employee of such employer for such taxable year. For
purposes of the preceding sentence, the amount of qualified
wages which may be taken into account with respect to any
individual shall not exceed $6,000.
``(2) Definitions.--For purposes of this subsection--
``(A) Eligible employer.--The term `eligible employer'
means any employer--
``(i) which conducted an active trade or business on
October 23, 2005, in the Wilma GO Zone, and
``(ii) with respect to whom the trade or business described
in clause (i) is inoperable on any day after October 23,
2005, and before January 1, 2006, as a result of damage
sustained by reason of Hurricane Wilma.
``(B) Eligible employee.--The term `eligible employee'
means with respect to an eligible employer an employee whose
principal place of employment on October 23, 2005, with such
eligible employer was in the Wilma GO Zone.
``(C) Qualified wages.--The term `qualified wages' means
wages (as defined in section 51(c)(1), but without regard to
section 3306(b)(2)(B)) paid or incurred by an eligible
employer with respect to an eligible employee on any day
after October 23, 2005, and before January 1, 2006, which
occurs during the period--
``(i) beginning on the date on which the trade or business
described in subparagraph (A) first became inoperable at the
principal place of employment of the employee immediately
before Hurricane Wilma, and
``(ii) ending on the date on which such trade or business
has resumed significant operations at such principal place of
employment.

Such term shall include wages paid without regard to whether
the employee performs no services, performs services at a
different place of employment than such principal place of
employment, or performs services at such principal place of
employment before significant operations have resumed.
``(3) Certain rules to apply.--For purposes of this
subsection, rules similar to the rules of sections 51(i)(1),
52, and 280C(a) shall apply.
``(4) Employee not taken into account more than once.--An
employee shall not be treated as an eligible employee for
purposes of this subsection for any period with respect to
any employer if such employer is allowed a credit under
subsection (a) or section 51 with respect to such employee
for such period.

``SEC. 1400S. ADDITIONAL TAX RELIEF PROVISIONS.

``(a) Temporary Suspension of Limitations on Charitable
Contributions.--
``(1) In general.--Except as otherwise provided in
paragraph (2), section 170(b) shall not apply to qualified
contributions and such contributions shall not be taken into
account for purposes of applying subsections (b) and (d) of
section 170 to other contributions.
``(2) Treatment of excess contributions.--For purposes of
section 170--
``(A) Individuals.--In the case of an individual--
``(i) Limitation.--Any qualified contribution shall be
allowed only to the extent that the aggregate of such
contributions does not exceed the excess of the taxpayer's
contribution base (as defined in subparagraph (F) of section
170(b)(1)) over the amount of all other charitable
contributions allowed under section 170(b)(1).
``(ii) Carryover.--If the aggregate amount of qualified
contributions made in the contribution year (within the
meaning of section 170(d)(1)) exceeds the limitation of
clause (i), such excess shall be added to the excess
described in the portion of subparagraph (A) of such section
which precedes clause (i) thereof for purposes of applying
such section.
``(B) Corporations.--In the case of a corporation--
``(i) Limitation.--Any qualified contribution shall be
allowed only to the extent that the aggregate of such
contributions does not exceed the excess of the taxpayer's
taxable income (as determined under paragraph (2) of section
170(b)) over the amount of all other charitable contributions
allowed under such paragraph.
``(ii) Carryover.--Rules similar to the rules of
subparagraph (A)(ii) shall apply for purposes of this
subparagraph.
``(3) Exception to overall limitation on itemized
deductions.--So much of any deduction allowed under section
170 as does not exceed the qualified contributions paid
during the taxable year shall not be treated as an itemized
deduction for purposes of section 68.
``(4) Qualified contributions.--
``(A) In general.--For purposes of this subsection, the
term `qualified contribution' means any charitable
contribution (as defined in section 170(c)) if--
``(i) such contribution is paid during the period beginning
on August 28, 2005, and ending on December 31, 2005, in cash
to an organization described in section 170(b)(1)(A) (other
than an organization described in section 509(a)(3)),
``(ii) in the case of a contribution paid by a corporation,
such contribution is for relief efforts related to Hurricane
Katrina, Hurricane Rita, or Hurricane Wilma, and
``(iii) the taxpayer has elected the application of this
subsection with respect to such contribution.
``(B) Exception.--Such term shall not include a
contribution if the contribution is for establishment of a
new, or maintenance in an existing, segregated fund or
account with respect to which the donor (or any person
appointed or designated by such donor) has, or reasonably
expects to have, advisory privileges with respect to
distributions or investments by reason of the donor's status
as a donor.
``(C) Application of election to partnerships and s
corporations.--In the case of a partnership or S corporation,
the election under subparagraph (A)(iii) shall be made
separately by each partner or shareholder.
``(b) Suspension of Certain Limitations on Personal
Casualty Losses.--Paragraphs (1) and (2)(A) of section 165(h)
shall not apply to losses described in section 165(c)(3)--
``(1) which arise in the Hurricane Katrina disaster area on
or after August 25, 2005, and which are attributable to
Hurricane Katrina,
``(2) which arise in the Hurricane Rita disaster area on or
after September 23, 2005, and which are attributable to
Hurricane Rita, or
``(3) which arise in the Hurricane Wilma disaster area on
or after October 23, 2005, and which are attributable to
Hurricane Wilma.

In the case of any other losses, section 165(h)(2)(A) shall
be applied without regard to the losses referred to in the
preceding sentence.''.
(b) Conforming Amendments.--
(1) Subsection (b) of section 38 is amended by striking
``and'' at the end of paragraph (25), by striking the period
at the end of paragraph (26) and inserting a comma, and by
adding at the end the following new paragraphs:
``(27) the Hurricane Katrina employee retention credit
determined under section 1400R(a),

[[Page S538]]

``(28) the Hurricane Rita employee retention credit
determined under section 1400R(b), and
``(29) the Hurricane Wilma employee retention credit
determined under section 1400R(c).''.
(2) The table of sections for subchapter Z of chapter 1 is
amended by adding at the end the following new items:

``Sec. 1400P. Special rules for mortgage revenue bonds.
``Sec. 1400Q. Special rules for use of retirement funds.
``Sec. 1400R. Employment relief.
``Sec. 1400S. Additional tax relief provisions.''.
(3) The following provisions of the Katrina Emergency Tax
Relief Act of 2005 are hereby repealed:
(A) Title I.
(B) Sections 202, 301, and 402.

TITLE II--EXTENSION OF EXPIRING PROVISIONS

Subtitle A--Multi-Year Extensions

SEC. 201. EXTENSION OF INCREASED EXPENSING FOR SMALL
BUSINESS.

Section 179 is amended by striking ``2008'' each place it
appears and inserting ``2010''.

SEC. 202. CREDIT FOR ELECTIVE DEFERRALS AND IRA
CONTRIBUTIONS.

Section 25B(h) is amended by striking ``2006'' and
inserting ``2009''.

SEC. 203. ABOVE-THE-LINE DEDUCTION FOR HIGHER EDUCATION.

(a) In General.--Section 222(e) is amended by striking
``2005''and inserting ``2009''.
(b) Conforming Amendments.--Section 222(b)(2)(B) is
amended--
(1) by striking ``a taxable year beginning in 2004 or
2005'' and inserting ``any taxable year beginning after
2003'', and
(2) by striking ``2004 AND 2005'' and inserting ``AFTER
2003''.

SEC. 204. EXTENSION AND MODIFICATION OF NEW MARKETS TAX
CREDIT.

(a) Extension.--Section 45D(f)(1)(D) is amended by striking
``and 2007'' and inserting ``, 2007, and 2008''.
(b) Regulations Regarding Non-Metropolitan Counties.--
Section 45D(i) is amended by striking ``and'' at the end of
paragraph (4), by striking the period at the end of paragraph
(5) and inserting ``, and'', and by adding at the end by the
following new paragraph:
``(6) which ensure that non-metropolitan counties receive a
proportional allocation of qualified equity investments.''.

Subtitle B--One-Year Extensions

SEC. 211. ELECTION TO DEDUCT STATE AND LOCAL GENERAL SALES
TAXES.

Section 164(b)(5)(I) is amended by striking ``2006'' and
inserting ``2007''.

SEC. 212. EXTENSION AND INCREASE IN MINIMUM TAX RELIEF TO
INDIVIDUALS.

(a) In General.--Section 55(d)(1) is amended--
(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
(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''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2005.

SEC. 213. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST
REGULAR AND ALTERNATIVE MINIMUM TAX LIABILITY.

(a) In General.--Paragraph (2) of section 26(a) is
amended--
(1) by striking ``2005'' in the heading and inserting
``2006'', and
(2) by striking ``or 2005'' and inserting ``2005, or
2006''.
(b) Conforming Provisions.--
(1) Section 30B(g) is amended by adding at the end the
following new paragraph:
``(3) Special rule for 2006.--For purposes of any taxable
year beginning during 2006, the credit allowed under
subsection (a) (after the application of paragraph (1)) shall
not exceed the excess of--
``(A) the sum of the regular tax liability (as defined in
section 26(b)) plus the tax imposed by section 55, over
``(B) the sum of the credits allowable under subpart A and
this subpart (other than this section and section 30C).''.
(2) Section 30C(d) is amended by adding at the end the
following new paragraph:
``(3) Special rule for 2006.--For purposes of any taxable
year beginning during 2006, the credit allowed under
subsection (a) (after the application of paragraph (1)) shall
not exceed the excess of--
``(A) the sum of the regular tax liability (as defined in
section 26(b)) plus the tax imposed by section 55, over
``(B) the sum of the credits allowable under subpart A and
this subpart (other than this section).''.
(3) Section 904(h) is amended by striking ``or 2005'' and
inserting ``2005, or 2006''.
(4) The amendments made by sections 201(b), 202(f), and
618(b) of the Economic Growth and Tax Relief Reconciliation
Act of 2001 shall not apply to taxable years beginning during
2006.

SEC. 214. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.

(a) Extension.--
(1) In general.--Section 41(h)(1)(B) is amended by striking
``2005'' and inserting ``2006''.
(2) Conforming amendment.--Section 45C(b)(1)(D) is amended
by striking ``2005'' and inserting ``2006''.
(b) Increase in Rates of Alternative Incremental Credit.--
Subparagraph (A) of section 41(c)(4) (relating to election of
alternative incremental credit) is amended--
(1) by striking ``2.65 percent'' and inserting ``3
percent'',
(2) by striking ``3.2 percent'' and inserting ``4
percent'', and
(3) by striking ``3.75 percent'' and inserting ``5
percent''.
(c) Alternative Simplified Credit for Qualified Research
Expenses.--
(1) In general.--Subsection (c) of section 41 (relating to
base amount) is amended by redesignating paragraphs (5) and
(6) as paragraphs (6) and (7), respectively, and by inserting
after paragraph (4) the following new paragraph:
``(5) Election of alternative simplified credit.--
``(A) In general.--At the election of the taxpayer, the
credit determined under subsection (a)(1) shall be equal to
12 percent of so much of the qualified research expenses for
the taxable year as exceeds 50 percent of the average
qualified research expenses for the 3 taxable years preceding
the taxable year for which the credit is being determined.
``(B) Special rule in case of no qualified research
expenses in any of 3 preceding taxable years.--
``(i) Taxpayers to which subparagraph applies.--The credit
under this paragraph shall be determined under this
subparagraph if the taxpayer has no qualified research
expenses in any 1 of the 3 taxable years preceding the
taxable year for which the credit is being determined.
``(ii) Credit rate.--The credit determined under this
subparagraph shall be equal to 6 percent of the qualified
research expenses for the taxable year.
``(C) Election.--An election under this paragraph shall
apply to the taxable year for which made and all succeeding
taxable years unless revoked with the consent of the
Secretary. An election under this paragraph may not be made
for any taxable year to which an election under paragraph (4)
applies.''.
(2) Coordination with election of alternative incremental
credit.--
(A) In general.--Section 41(c)(4)(B) (relating to election)
is amended by adding at the end the following: ``An election
under this paragraph may not be made for any taxable year to
which an election under paragraph (5) applies.''.
(B) Transition rule.--In the case of an election under
section 41(c)(4) of the Internal Revenue Code of 1986 which
applies to the taxable year which includes the date of the
enactment of this Act, such election shall be treated as
revoked with the consent of the Secretary of the Treasury if
the taxpayer makes an election under section 41(c)(5) of such
Code (as added by subsection (a)) for such year.
(d) Expansion of Credit to Expenses of General
Collaborative Research Consortia.--Section 41 is amended--
(1) by striking ``an energy research consortium'' in
subsections (a)(3) and (b)(3)(C)(i) and inserting ``a
research consortium'',
(2) by striking ``energy'' each place it appears in
subsection (f)(6)(A),
(3) by inserting ``or 501(c)(6)'' after ``section
501(c)(3)'' in subsection (f)(6)(A)(i)(I), and
(4) by striking ``Energy research'' in the heading for
subsection (f)(6)(A) and inserting ``Research''.
(e) Effective Date.--The amendments made by this section
shall apply to taxable years ending after December 31, 2005.

SEC. 215. WORK OPPORTUNITY TAX CREDIT AND WELFARE-TO-WORK
CREDIT.

(a) In General.--Section 51(c)(4)(B) is amended by striking
``2005'' and inserting ``2006''.
(b) Eligibility of Ex-Felons Determined Without Regard to
Family Income.--Paragraph (4) of section 51(d) is amended by
adding ``and'' at the end of subparagraph (A), by striking
``, and'' at the end of subparagraph (B) and inserting a
period, and by striking all that follows subparagraph (B).
(c) Increase in Maximum Age for Eligibility of Food Stamp
Recipients.--Clause (i) of section 51(d)(8)(A) is amended by
striking ``25'' and inserting ``40''.
(d) Increase in Maximum Age for Designated Community
Residents.--
(1) In general.--Paragraph (5) of section 51(d) is amended
to read as follows:
``(5) Designated community residents.--
``(A) In general.--The term `designated community resident'
means any individual who is certified by the designated local
agency--
``(i) as having attained age 18 but not age 40 on the
hiring date, and
``(ii) as having his principal place of abode within an
empowerment zone, enterprise community, or renewal community.
``(B) Individual must continue to reside in zone or
community.--In the case of a designated community resident,
the term `qualified wages' shall not include wages paid or
incurred for services performed while the individual's
principal place of abode is outside an empowerment zone,
enterprise community, or renewal community.''
(2) Conforming amendment.--Subparagraph (D) of section
51(d)(1) is amended to read as follows:
``(D) a designated community resident,''.
(e) Consolidation of Work Opportunity Credit With Welfare-
To-Work Credit.--
(1) In general.--Paragraph (1) of section 51(d) is amended
by striking ``or'' at the end

[[Page S539]]

of subparagraph (G), by striking the period at the end of
subparagraph (H) and inserting ``, or'', and by adding at the
end the following new subparagraph:
``(I) a long-term family assistance recipient.''
(2) Long-term family assistance recipient.--Subsection (d)
of section 51 is amended by redesignating paragraphs (10)
through (12) as paragraphs (11) through (13), respectively,
and by inserting after paragraph (9) the following new
paragraph:
``(10) Long-term family assistance recipient.--The term
`long-term family assistance recipient' means any individual
who is certified by the designated local agency--
``(A) as being a member of a family receiving assistance
under a IV-A program (as defined in paragraph (2)(B)) for at
least the 18-month period ending on the hiring date,
``(B)(i) as being a member of a family receiving such
assistance for 18 months beginning after August 5, 1997, and
``(ii) as having a hiring date which is not more than 2
years after the end of the earliest such 18-month period, or
``(C)(i) as being a member of a family which ceased to be
eligible for such assistance by reason of any limitation
imposed by Federal or State law on the maximum period such
assistance is payable to a family, and
``(ii) as having a hiring date which is not more than 2
years after the date of such cessation.''
(3) Increased credit for employment of long-term family
assistance recipients.--Section 51 is amended by inserting
after subsection (d) the following new subsection:
``(e) Credit for Second-Year Wages for Employment of Long-
Term Family Assistance Recipients.--
``(1) In general.--With respect to the employment of a
long-term family assistance recipient--
``(A) the amount of the work opportunity credit determined
under this section for the taxable year shall include 50
percent of the qualified second-year wages for such year, and
``(B) in lieu of applying subsection (b)(3), the amount of
the qualified first-year wages, and the amount of qualified
second-year wages, which may be taken into account with
respect to such a recipient shall not exceed $10,000 per
year.
``(2) Qualified second-year wages.--For purposes of this
subsection, the term `qualified second-year wages' means
qualified wages--
``(A) which are paid to a long-term family assistance
recipient, and
``(B) which are attributable to service rendered during the
1-year period beginning on the day after the last day of the
1-year period with respect to such recipient determined under
subsection (b)(2).
``(3) Special rules for agricultural and railway labor.--If
such recipient is an employee to whom subparagraph (A) or (B)
of subsection (h)(1) applies, rules similar to the rules of
such subparagraphs shall apply except that--
``(A) such subparagraph (A) shall be applied by
substituting `$10,000' for `$6,000', and
``(B) such subparagraph (B) shall be applied by
substituting `$833.33' for `$500'.''
(4) Repeal of separate welfare-to-work credit.--
(A) In general.--Section 51A is hereby repealed.
(B) Clerical amendment.--The table of sections for subpart
F of part IV of subchapter A of chapter 1 is amended by
striking the item relating to section 51A.
(f) Effective Date.--The amendments made by this section
shall apply to individuals who begin work for the employer
after December 31, 2005.

SEC. 216. QUALIFIED ZONE ACADEMY BONDS.

(a) In General.--Paragraph (1) of section 1397E(e) is
amended by striking ``and 2005'' and inserting ``2005, and
2006''.
(b) Form of Private Business Contributions.--Section
1397E(d)(2)(B) is amended by striking ``any contribution''
and all that follows and inserting ``any cash or cash
equivalent contribution''.
(c) Special Rules Relating to Amortization, Expenditures,
Arbitrage, and Reporting.--
(1) In general.--Section 1397E is amended--
(A) in subsection (d)(1), by striking ``and'' at the end of
subparagraph (C)(iii), by striking the period at the end of
subparagraph (D) and inserting ``, and'', and by adding at
the end the following new subparagraph:
``(E) the issue meets the requirements of subsections (f),
(g), (h), and (i).'', and
(B) by redesignating subsections (f), (g), (h), and (i) as
subsection (j), (k), (l), and (m), respectively, and by
inserting after subsection (e) the following new subsections:
``(f) Ratable Principal Amortization Required.--An issue
shall be treated as meeting the requirements of this
subsection if such issue provides for an equal amount of
principal to be paid by the issuer during each calendar year
that the issue is outstanding.
``(g) Special Rules Relating to Expenditures.--
``(1) In general.--An issue shall be treated as meeting the
requirements of this subsection if, as of the date of
issuance, the issuer reasonably expects--
``(A) at least 95 percent of the proceeds from the sale of
the issue are to be spent for 1 or more qualified purposes
with respect to qualified zone academies within the 5-year
period beginning on the date of issuance of the qualified
zone academy bond,
``(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 qualified zone academy bond, and
``(C) such purposes will be completed with due diligence
and the proceeds from the sale of the issue will be spent
with due diligence.
``(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 issuer
establishes that the failure to satisfy the 5-year
requirement is due to reasonable cause and the related
purposes will continue to proceed with due diligence.
``(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 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.
``(h) Special Rules Relating to Arbitrage.--An issue shall
be treated as meeting the requirements of this subsection if
the issuer satisfies the arbitrage requirements of section
148 with respect to proceeds of the issue.
``(i) Reporting.--Issuers of qualified academy zone bonds
shall submit reports similar to the reports required under
section 149(e).''.
(2) Conforming amendments.--
(A) Section 1397E(d)(3) is amended by inserting ``without
regard to the requirements of subsection (f) and'' after
``Such present value shall be determined''.
(B) Section 54(l)(3)(B) is amended by striking ``section
1397E(i)'' and inserting ``section 1397E(l)''.
(d) Effective Date.--The amendments made by this section
shall apply to obligations issued after December 31, 2005.

SEC. 217. DEDUCTION FOR CORPORATE DONATIONS OF COMPUTER
TECHNOLOGY AND EQUIPMENT.

Section 170(e)(6)(G) is amended by striking ``2005'' and
inserting ``2006''.

SEC. 218. ABOVE-THE-LINE DEDUCTION FOR CERTAIN EXPENSES OF
ELEMENTARY AND SECONDARY SCHOOL TEACHERS.

Subparagraph (D) of section 62(a)(2) is amended by striking
``or 2005'' and inserting ``2005, or 2006''.

SEC. 219. EXPENSING OF BROWNFIELDS REMEDIATION COSTS.

(a) Extension.--Subsection (h) of section 198 is amended by
striking ``2005'' and inserting ``2006''.
(b) Expansion.--
(1) In general.--Section 198(d)(1) (defining hazardous
substance) is amended by striking ``and'' at the end of
subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by adding at
the end the following new subparagraph:
``(C) any petroleum product (as defined in section
4612(a)(3)).''.
(2) Effective date.--The amendments made by this subsection
shall apply to expenditures paid or incurred after December
31, 2005.

SEC. 220. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF
COLUMBIA.

(a) Designation of Zone.--Subsection (f) of section 1400 is
amended by striking ``2005'' both places it appears and
inserting ``2006''.
(b) Tax-Exempt Economic Development Bonds.--Subsection (b)
of section 1400A is amended by striking ``2005'' and
inserting ``2006''.
(c) Zero Percent Capital Gains Rate.--
(1) In general.--Subsection (b) of section 1400B is amended
by striking ``2006'' each place it appears and inserting
``2007''.
(2) Conforming amendments.--
(A) Section 1400B(e)(2) is amended--
(i) by striking ``2010'' and inserting ``2011'', and
(ii) by striking ``2010'' in the heading and inserting
``2011''.
(B) Section 1400B(g)(2) is amended by striking ``2010'' and
inserting ``2011''.
(C) Section 1400F(d) is amended by striking ``2010'' and
inserting ``2011''.
(d) First-Time Homebuyer Credit.--Subsection (i) of section
1400C is amended by striking ``2006'' and inserting ``2007''.

SEC. 221. INDIAN EMPLOYMENT TAX CREDIT.

Section 45A(f) is amended by striking ``2005'' and
inserting ``2006''.

SEC. 222. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON
INDIAN RESERVATION.

Section 168(j)(8) is amended by striking ``2005'' and
inserting ``2006''.

SEC. 223. FIFTEEN-YEAR STRAIGHT-LINE COST RECOVERY FOR
QUALIFIED LEASEHOLD IMPROVEMENTS AND QUALIFIED
RESTAURANT IMPROVEMENTS.

Clauses (iv) and (v) of section 168(e)(3)(E) are each
amended by striking ``2006'' and inserting ``2007''.

SEC. 224. EXTENSION OF FULL CREDIT FOR QUALIFIED ELECTRIC
VEHICLES.

(a) In General.--Section 30(b) (relating to limitations) is
amended by striking paragraph (2) and by redesignating
paragraph (3) as paragraph (2).
(b) Effective Date.--The amendments made by subsection (a)
shall apply to taxable years beginning after December 31,
2005.

[[Page S540]]

Subtitle C--Application of EGTRRA Sunset

SEC. 231. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.

Each amendment made by this title shall be subject to title
IX of the Economic Growth and Tax Relief Reconciliation Act
of 2001 to the same extent and in the same manner as the
provision of such Act to which such amendment relates.

TITLE III--PROVISIONS RELATING TO CHARITABLE DONATIONS

Subtitle A--Charitable Giving Incentives

SEC. 301. CHARITABLE DEDUCTION FOR NONITEMIZERS.

(a) In General.--Section 170 (relating to charitable, etc.,
contributions and gifts) is amended by redesignating
subsection (o) as subsection (p) and by inserting after
subsection (n) the following new subsection:
``(o) Deduction for Individuals Not Itemizing Deductions.--
In the case of an individual who does not itemize deductions
for any taxable year beginning after December 31, 2005, and
before January 1, 2008, there shall be taken into account as
a direct charitable deduction under section 63 an amount
equal to the amount allowable under subsection (a) for the
taxable year for cash contributions (determined without
regard to any carryover).''.
(b) Direct Charitable Deduction.--
(1) In general.--Subsection (b) of section 63 (defining
taxable income) is amended by striking ``and'' at the end of
paragraph (1), by striking the period at the end of paragraph
(2) and inserting ``, and'', and by adding at the end the
following new paragraph:
``(3) the direct charitable deduction.''.
(2) Definition.--Section 63 is amended by redesignating
subsection (g) as subsection (h) and by inserting after
subsection (f) the following new subsection:
``(g) Direct Charitable Deduction.--For purposes of this
section, the term `direct charitable deduction' means that
portion of the amount allowable under section 170(a) which is
taken as a direct charitable deduction for the taxable year
under section 170(o).''.
(3) Conforming amendment.--Subsection (d) of section 63 is
amended by striking ``and'' at the end of paragraph (1), by
striking the period at the end of paragraph (2) and inserting
``, and'', and by adding at the end the following new
paragraph:
``(3) the direct charitable deduction.''.
(c) Floor on Charitable Contributions by Individuals.--
Section 170(a) is amended by adding at the end the following
new paragraph:
``(4) Dollar floor on charitable contributions by
individuals.--In the case of an individual, the charitable
contributions of the taxpayer for any taxable year shall be
taken into account for purposes of determining the deduction
under paragraph (1) only to the extent that the aggregate of
such contributions exceeds $210 ($420 in the case of a joint
return).''.
(d) Effective Date.--The amendments made by this section
shall apply to contributions made in taxable years beginning
after December 31, 2005.

SEC. 302. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT
PLANS FOR CHARITABLE PURPOSES.

(a) In General.--Subsection (d) of section 408 (relating to
individual retirement accounts) is amended by adding at the
end the following new paragraph:
``(8) Distributions for charitable purposes.--
``(A) In general.--No amount shall be includible in gross
income by reason of a qualified charitable distribution.
``(B) Qualified charitable distribution.--For purposes of
this paragraph, the term `qualified charitable distribution'
means any distribution from an individual retirement plan
(other than a plan described in subsection (k) or (p) of
section 408)--
``(i) which is made on or after the date that the
individual for whose benefit the plan is maintained has
attained age 70\1/2\, and
``(ii) which is made directly by the trustee--

``(I) to an organization described in section 170(c), or
``(II) to a split-interest entity.

A distribution shall be treated as a qualified charitable
distribution only to the extent that the distribution would
be includible in gross income without regard to subparagraph
(A) and, in the case of a distribution to a split-interest
entity, only if no person holds an income interest in the
amounts in the split-interest entity attributable to such
distribution other than one or more of the following: the
individual for whose benefit such plan is maintained, the
spouse of such individual, or any organization described in
section 170(c).
``(C) Contributions must be otherwise deductible.--For
purposes of this paragraph--
``(i) Direct contributions.--A distribution to an
organization described in section 170(c) shall be treated as
a qualified charitable distribution only if a deduction for
the entire distribution would be allowable under section 170
(determined without regard to subsections (a)(4) and (b)
thereof and this paragraph).
``(ii) Split-interest gifts.--A distribution to a split-
interest entity shall be treated as a qualified charitable
distribution only if a deduction for the entire value of the
interest in the distribution for the use of an organization
described in section 170(c) would be allowable under section
170 (determined without regard to subsections (a)(4) and (b)
thereof and this paragraph).
``(D) Application of section 72.--Notwithstanding section
72, in determining the extent to which a distribution is a
qualified charitable distribution, the entire amount of the
distribution shall be treated as includible in gross income
without regard to subparagraph (A) to the extent that such
amount does not exceed the aggregate amount which would have
been so includible if all amounts distributed from all
individual retirement plans were treated as 1 contract under
paragraph (2)(A) for purposes of determining the inclusion of
such distribution under section 72. Proper adjustments shall
be made in applying section 72 to other distributions in such
taxable year and subsequent taxable years.
``(E) Special rules for split-interest entities.--
``(i) Charitable remainder trusts.--Notwithstanding section
664(b), distributions made from a trust described in
subparagraph (G)(i) shall be treated as ordinary income in
the hands of the beneficiary to whom is paid the annuity
described in section 664(d)(1)(A) or the payment described in
section 664(d)(2)(A).
``(ii) Pooled income funds.--No amount shall be includible
in the gross income of a pooled income fund (as defined in
subparagraph (G)(ii)) by reason of a qualified charitable
distribution to such fund, and all distributions from the
fund which are attributable to qualified charitable
distributions shall be treated as ordinary income to the
beneficiary.
``(iii) Charitable gift annuities.--Qualified charitable
distributions made for a charitable gift annuity shall not be
treated as an investment in the contract.
``(F) Denial of deduction.--Qualified charitable
distributions shall not be taken into account in determining
the deduction under section 170.
``(G) Split-interest entity defined.--For purposes of this
paragraph, the term `split-interest entity' means--
``(i) a charitable remainder annuity trust or a charitable
remainder unitrust (as such terms are defined in section
664(d)) which must be funded exclusively by qualified
charitable distributions,
``(ii) a pooled income fund (as defined in section
642(c)(5)), but only if the fund accounts separately for
amounts attributable to qualified charitable distributions,
and
``(iii) a charitable gift annuity (as defined in section
501(m)(5)).''.
(b) Modifications Relating to Information Returns by
Certain Trusts.--
(1) Returns.--Section 6034 (relating to returns by trusts
described in section 4947(a)(2) or claiming charitable
deductions under section 642(c)) is amended to read as
follows:

``SEC. 6034. RETURNS BY CERTAIN TRUSTS.

``(a) Split-Interest Trusts.--Every trust described in
section 4947(a)(2) shall furnish such information with
respect to the taxable year as the Secretary may by forms or
regulations require.
``(b) Trusts Claiming Certain Charitable Deductions.--
``(1) In general.--Every trust not required to file a
return under subsection (a) but claiming a deduction under
section 642(c) for the taxable year shall furnish such
information with respect to such taxable year as the
Secretary may by forms or regulations prescribe, including--
``(A) the amount of the deduction taken under section
642(c) within such year,
``(B) the amount paid out within such year which represents
amounts for which deductions under section 642(c) have been
taken in prior years,
``(C) the amount for which such deductions have been taken
in prior years but which has not been paid out at the
beginning of such year,
``(D) the amount paid out of principal in the current and
prior years for the purposes described in section 642(c),
``(E) the total income of the trust within such year and
the expenses attributable thereto, and
``(F) a balance sheet showing the assets, liabilities, and
net worth of the trust as of the beginning of such year.
``(2) Exceptions.--Paragraph (1) shall not apply to a trust
for any taxable year if--
``(A) all the net income for such year, determined under
the applicable principles of the law of trusts, is required
to be distributed currently to the beneficiaries, or
``(B) the trust is described in section 4947(a)(1).''.
(2) Increase in penalty relating to filing of information
return by split-interest trusts.--Paragraph (2) of section
6652(c) (relating to returns by exempt organizations and by
certain trusts) is amended by adding at the end the following
new subparagraph:
``(C) Split-interest trusts.--In the case of a trust which
is required to file a return under section 6034(a),
subparagraphs (A) and (B) of this paragraph shall not apply
and paragraph (1) shall apply in the same manner as if such
return were required under section 6033, except that--
``(i) the 5 percent limitation in the second sentence of
paragraph (1)(A) shall not apply,
``(ii) in the case of any trust with gross income in excess
of $250,000, the first sentence of paragraph (1)(A) shall be
applied by substituting `$100' for `$20', and the second
sentence thereof shall be applied by substituting `$50,000'
for `$10,000', and
``(iii) the third sentence of paragraph (1)(A) shall be
disregarded.

In addition to any penalty imposed on the trust pursuant to
this subparagraph, if the

[[Page S541]]

person required to file such return knowingly fails to file
the return, such penalty shall also be imposed on such person
who shall be personally liable for such penalty.''.
(3) Confidentiality of noncharitable beneficiaries.--
Subsection (b) of section 6104 (relating to inspection of
annual information returns) is amended by adding at the end
the following new sentence: ``In the case of a trust which is
required to file a return under section 6034(a), this
subsection shall not apply to information regarding
beneficiaries which are not organizations described in
section 170(c).''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to distributions made in taxable years beginning
after December 31, 2005, and before January 1, 2008.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to returns for taxable years beginning after
December 31, 2005.

SEC. 303. MODIFICATION OF CHARITABLE DEDUCTION FOR
CONTRIBUTIONS OF FOOD INVENTORY.

(a) In General.--Subparagraph (C) of section 170(e)(3)
(relating to special rule for certain contributions of
inventory and other property), as added by section 305 of the
Katrina Emergency Tax Relief Act of 2005, is amended to read
as follows:
``(C) Special rule for contributions of food inventory.--
``(i) General rule.--In the case of a charitable
contribution of food from any trade or business of the
taxpayer, this paragraph shall be applied--

``(I) without regard to whether the contribution is made by
a C corporation, and
``(II) only to food that is apparently wholesome food.

``(ii) Limitation.--In the case of a taxpayer other than a
C corporation, the aggregate amount of such contributions for
any taxable year which may be taken into account under this
section shall not exceed 10 percent of the taxpayer's
aggregate net income for such taxable year from all trades or
businesses from which such contributions were made for such
year, computed without regard to this section.
``(iii) Limitation on reduction.--In the case of any such
contribution, notwithstanding subparagraph (B), the amount of
the reduction determined under paragraph (1)(A) shall not
exceed the amount by which the fair market value of the
apparently wholesome food exceeds twice the basis of such
food.
``(iv) Determination of basis.--If a taxpayer--

``(I) does not account for inventories under section 471,
and
``(II) is not required to capitalize indirect costs under
section 263A,

the taxpayer may elect, solely for purposes of subparagraph
(B), to treat the basis of any apparently wholesome food as
being equal to 25 percent of the fair market value of such
food.
``(v) Determination of fair market value.--In the case of
any such contribution of apparently wholesome food which,
solely by reason of internal standards of the taxpayer or
lack of market, cannot or will not be sold, the fair market
value of such contribution shall be determined--

``(I) without regard to such internal standards or such
lack of market and
``(II) by taking into account the price at which the same
or substantially the same food items (as to both type and
quality) are sold by the taxpayer at the time of the
contribution (or, if not so sold at such time, in the recent
past).

``(vi) Apparently wholesome food.--For purposes of this
subparagraph, the term `apparently wholesome food' has the
meaning given to such term by section 22(b)(2) of the Bill
Emerson Good Samaritan Food Donation Act (42 U.S.C.
1791(b)(2)), as in effect on the date of the enactment of
this subparagraph.''.
(b) Effective Date.--The amendment made by this section
shall apply to contributions made in taxable years beginning
after December 31, 2005, and before January 1, 2008.

SEC. 304. BASIS ADJUSTMENT TO STOCK OF S CORPORATION
CONTRIBUTING PROPERTY.

(a) In General.--Paragraph (2) of section 1367(a) (relating
to adjustments to basis of stock of shareholders, etc.) is
amended by adding at the end the following new flush
sentence:
``The decrease under subparagraph (B) by reason of a
charitable contribution (as defined in section 170(c)) of
property shall be the amount equal to the shareholder's pro
rata share of the adjusted basis of such property.''.
(b) Effective Date.--The amendment made by this section
shall apply to contributions made in taxable years beginning
after December 31, 2005, and before January 1, 2008.

SEC. 305. MODIFICATION OF CHARITABLE DEDUCTION FOR
CONTRIBUTIONS OF BOOK INVENTORY.

(a) In General.--Subparagraph (D) of section 170(e)(3)
(relating to special rule for certain contributions of
inventory and other property), as added by section 305 of the
Katrina Emergency Tax Relief Act of 2005, is amended to read
as follows:
``(D) Special rule for contributions of book inventory for
educational purposes.--
``(i) Contributions of book inventory.--In determining
whether a qualified book contribution is a qualified
contribution, subparagraph (A) shall be applied without
regard to whether--

``(I) the donee is an organization described in the matter
preceding clause (i) of subparagraph (A), and
``(II) the property is to be used by the donee solely for
the care of the ill, the needy, or infants.

``(ii) Amount of reduction.--Notwithstanding subparagraph
(B), the amount of the reduction determined under paragraph
(1)(A) shall not exceed the amount by which the fair market
value of the contributed property (as determined by the
taxpayer using a bona fide published market price for such
book) exceeds twice the basis of such property.
``(iii) Qualified book contribution.--For purposes of this
paragraph, the term `qualified book contribution' means a
charitable contribution of books, but only if the
requirements of clauses (iv) and (v) are met.
``(iv) Identity of donee.--The requirement of this clause
is met if the contribution is to an organization--

``(I) described in subclause (I) or (III) of paragraph
(6)(B)(i), or
``(II) described in section 501(c)(3) and exempt from tax
under section 501(a) (other than a private foundation, as
defined in section 509(a), which is not an operating
foundation, as defined in section 4942(j)(3)), which is
organized primarily to make books available to the general
public at no cost or to operate a literacy program.

``(v) Certification by donee.--The requirement of this
clause is met if, in addition to the certifications required
by subparagraph (A) (as modified by this subparagraph), the
donee certifies in writing that--

``(I) the books are suitable, in terms of currency,
content, and quantity, for use in the donee's educational
programs, and
``(II) the donee will use the books in its educational
programs.

``(vi) Bona fide published market price.--For purposes of
this subparagraph, the term `bona fide published market
price' means, with respect to any book, a price--

``(I) determined using the same printing and edition,
``(II) determined in the usual market in which such a book
has been customarily sold by the taxpayer, and
``(III) for which the taxpayer can demonstrate to the
satisfaction of the Secretary that the taxpayer customarily
sold such books in arm's length transactions within 7 years
preceding the contribution of such a book.''.

(b) Effective Date.--The amendment made by this section
shall apply to contributions made in taxable years beginning
after December 31, 2005, and before January 1, 2008.

SEC. 306. MODIFICATION OF TAX TREATMENT OF CERTAIN PAYMENTS
TO CONTROLLING EXEMPT ORGANIZATIONS AND PUBLIC
DISCLOSURE OF INFORMATION RELATING TO UNRELATED
BUSINESS INCOME.

(a) Modification of Section 512(B)(13).--
(1) In general.--Paragraph (13) of section 512(b) (relating
to special rules for certain amounts received from controlled
entities) is amended by redesignating subparagraph (E) as
subparagraph (F) and by inserting after subparagraph (D) the
following new subparagraph:
``(E) Paragraph to apply only to excess payments.--
``(i) In general.--Subparagraph (A) shall apply only to the
portion of a specified payment received or accrued by the
controlling organization that exceeds the amount which would
have been paid or accrued if such payment met the
requirements prescribed under section 482.
``(ii) Addition to tax for valuation misstatements.--The
tax imposed by this chapter on the controlling organization
shall be increased by an amount equal to 20 percent of the
larger of--

``(I) such excess determined without regard to any
amendment or supplement to a return of tax, or
``(II) such excess determined with regard to all such
amendments and supplements.''.

(2) Effective date.--
(A) In general.--The amendment made by this subsection
shall apply to payments received or accrued after December
31, 2000.
(B) Payments subject to binding contract transition rule.--
If the amendments made by section 1041 of the Taxpayer Relief
Act of 1997 did not apply to any amount received or accrued
in the first 2 taxable years beginning on or after the date
of the enactment of the Taxpayer Relief Act of 1997 under any
contract described in subsection (b)(2) of such section, such
amendments also shall not apply to amounts received or
accrued under such contract before January 1, 2001.
(b) Public Availability of Unrelated Business Income Tax
Returns.--
(1) In general.--Subparagraph (A) of section 6104(d)(1) is
amended by redesignating clauses (ii) and (iii) as clauses
(iii) and (iv), respectively, and by inserting after clause
(i) the following new clause:
``(ii) any annual return filed under section 6011 which
relates to any tax imposed by section 511 (relating to
imposition of tax on unrelated business income of charitable,
etc., organizations) by such organization,''.
(2) Effective date.--The amendments made by this subsection
shall apply to returns filed after the date of the enactment
of this Act.
(c) Certification of Unrelated Business Taxable Income for
Certain Organizations.--

[[Page S542]]

(1) In general.--Section 6011, as amended by section 311 of
this Act, is amended by redesignating subsection (h) as
subsection (i) and by inserting after subsection (g) the
following new subsection:
``(h) Returns of Certain Organizations Relating to
Unrelated Business Taxable Income.--
``(1) In general.--Every applicable exempt organization
shall include with the return under subsection (a) for the
taxable year a statement by an independent auditor or an
independent counsel which meets the requirements of paragraph
(2).
``(2) Statement.--A statement meets the requirement of this
paragraph if the statement--
``(A) contains a certification that--
``(i) the information contained in the return--

``(I) has been reviewed by the auditor or counsel, and
``(II) to the best of the auditor's or counsel's knowledge,
is accurate, and

``(ii) to the best of the auditor's or counsel's knowledge,
the allocation of expenses between the unrelated trades and
business of the organization and the activities related to
the purpose or function constituting the basis of the
organization's exemption under section 501 complies with the
requirements set forth by the Secretary under section 512,
and
``(B) indicates--
``(i) whether the auditor or counsel has provided a tax
opinion to the organization regarding--

``(I) the classification of any trade or business of the
organization as an unrelated trade or business, or
``(II) the treatment of any income as unrelated business
taxable income, and

``(ii) a description of any material facts with respect to
any such opinion.
``(3) Applicable exempt organization.--For purposes of this
subsection, the term `applicable exempt organization' means
any organization which--
``(A) is described in section 501(c)(3),
``(B) has--
``(i) gross income and receipts of not less than
$10,000,000 for the taxable year, or
``(ii) gross assets of not less than $10,000,000 on the
last day of the taxable year, and
``(C) is subject to the tax imposed under section 511 for
the taxable year.''.
(2) Penalty.--
(A) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by section 316
of this Act, is amended by adding at the end the following
new section:

``SEC. 6720C. UNRELATED BUSINESS INCOME REQUIREMENTS.

``(a) In General.--Any applicable exempt organization (as
defined in section 6011(h)(3)) which fails to file a
statement required under section 6011(h) shall pay a penalty
in an amount equal to \1/2\ percent of the gross revenue
amount of such organization for the taxable year to which
such statement relates.
``(b) Gross Revenue Amount.--For purposes of subsection
(a), the term `gross revenue amount' means, with respect to
any taxable year, the gross income and receipts of the
organization determined without regard to any contributions
or grants received by the organization.
``(c) Reasonable Cause.--No penalty shall be imposed under
this section with respect to any failure if it is shown that
such failure is due to reasonable cause.''.
(B) Conforming amendment.--The table of sections of part I
of subchapter B of chapter 68, as amended by section 316 of
this Act, is amended by adding after the item relating to
section 6720B the following new item:

``Sec. 6720C. Unrelated business income requirements.''.

(3) Effective date.--The amendments made by this subsection
shall apply to returns for taxable years beginning after the
date of the enactment of this Act.

SEC. 307. ENCOURAGEMENT OF CONTRIBUTIONS OF CAPITAL GAIN REAL
PROPERTY MADE FOR CONSERVATION PURPOSES.

(a) In General.--
(1) Individuals.--Paragraph (1) of subsection 170(b)
(relating to percentage limitations) is amended by
redesignating subparagraphs (E) and (F) as subparagraphs (F)
and (G), respectively, and by inserting after subparagraph
(D) the following new subparagraph:
``(E) Contributions of qualified conservation
contributions.--
``(i) In general.--Any qualified conservation contribution
(as defined in subsection (h)(1)) to an organization
described in subparagraph (A) shall be allowed to the extent
the aggregate of such contributions does not exceed the
excess of 50 percent of the taxpayer's contribution base over
the amount of all other charitable contributions allowable
under this paragraph.
``(ii) Carryover.--If the aggregate amount of contributions
described in clause (i) exceeds the limitation of clause (i),
such excess shall be treated (in a manner consistent with the
rules of subsection (d)(1)) as a charitable contribution to
which clause (i) applies in each of the 15 succeeding years
in order of time.
``(iii) Coordination with other subparagraphs.--For
purposes of applying this subsection and subsection (d)(1),
contributions described in clause (i) shall not be treated as
described in subparagraph (A), (B), (C), or (D).
``(iv) Qualified farmer or rancher.--

``(I) In general.--If the individual is a qualified farmer
or rancher for the taxable year in which the contribution is
made, clause (i) shall be applied by substituting `100
percent' for `50 percent'.
``(II) Definition.--For purposes of subclause (I), the term
`qualified farmer or rancher' means a taxpayer whose gross
income from the trade or business of farming (within the
meaning of section 2032A(e)(5)) is greater than 50 percent of
the taxpayer's gross income for the taxable year.''.

(2) Corporations.--Paragraph (2) of section 170(b) is
amended to read as follows:
``(2) Corporations.--In the case of a corporation--
``(A) In general.--The total deductions under subsection
(a) for any taxable year (other than for contributions to
which subparagraph (B) applies) shall not exceed 10 percent
of the taxpayer's taxable income.
``(B) Qualified conservation contributions by certain
corporate farmers and ranchers.--
``(i) In general.--Any qualified conservation contribution
(as defined in subsection (h)(1)) made--

``(I) by a corporation which, for the taxable year during
which the contribution is made, is a qualified farmer or
rancher (as defined in paragraph (1)(E)(iv)(II)) and the
stock of which is not readily tradable on an established
securities market at any time during such year, and
``(II) to an organization described in paragraph (1)(A),

shall be allowed to the extent the aggregate of such
contributions does not exceed the excess of the taxpayer's
taxable income over the amount of charitable contributions
allowable under subparagraph (A).
``(ii) Carryover.--If the aggregate amount of contributions
described in clause (i) exceeds the limitation of clause (i),
such excess shall be treated (in a manner consistent with the
rules of subsection (d)(2)) as a charitable contribution to
which clause (i) applies in each of the 15 succeeding years
in order of time.
``(C) Taxable income.--For purposes of this paragraph,
taxable income shall be computed without regard to--
``(i) this section,
``(ii) part VIII (except section 248),
``(iii) any net operating loss carrryback to the taxable
year under section 172,
``(iv) section 199, and
``(v) any capital loss carryback to the taxable year under
section 1212(a)(1).''.
(b) Conforming Amendments.--
(1) The second sentence of clause (i) of section
170(b)(1)(C) is amended by striking ``subparagraph (D)'' and
inserting ``subparagraph (D) or (E)''.
(2) Clause (i) of section 170(b)(1)(D) is amended by
striking ``subparagraph (A)'' and inserting ``subparagraphs
(A) or (E)''.
(3) Paragraph (2) of section 170(d) is amended by striking
``subsection (b)(2)'' each place it appears and inserting
``subsection (b)(2)(A)''.
(4) Section 545(b)(2) is amended by striking ``and (D)''
and inserting ``(D), and (E)''.
(c) Effective Date.--The amendments made by this section
shall apply to contributions made in taxable years beginning
after December 31, 2005, and before January 1, 2008.

SEC. 308. ENHANCED DEDUCTION FOR CHARITABLE CONTRIBUTION OF
LITERARY, MUSICAL, ARTISTIC, AND SCHOLARLY
COMPOSITIONS.

(a) In General.--Subsection (e) of section 170 (relating to
certain contributions of ordinary income and capital gain
property), as amended by this section 33 of this Act, is
amended by adding at the end the following new paragraph:
``(18) Special rule for certain contributions of literary,
musical, artistic, or scholarly compositions.--
``(A) In general.--In the case of a qualified artistic
charitable contribution--
``(i) the amount of such contribution taken into account
under this section shall be the fair market value of the
property contributed (determined at the time of such
contribution), and
``(ii) no reduction in the amount of such contribution
shall be made under paragraph (1).
``(B) Qualified artistic charitable contribution.--For
purposes of this paragraph, the term `qualified artistic
charitable contribution' means a charitable contribution of
any literary, musical, artistic, or scholarly composition, or
similar property, or the copyright thereon (or both), but
only if--
``(i) such property was created by the personal efforts of
the taxpayer making such contribution no less than 18 months
prior to such contribution,
``(ii) the taxpayer--

``(I) has received a qualified appraisal of the fair market
value of such property in accordance with the regulations
under this section, and
``(II) attaches to the taxpayer's income tax return for the
taxable year in which such contribution was made a copy of
such appraisal,

``(iii) the donee is an organization described in
subsection (b)(1)(A),
``(iv) the use of such property by the donee is related to
the purpose or function constituting the basis for the
donee's exemption under section 501 (or, in the case of a
governmental unit, to any purpose or function described under
section 501(c)),
``(v) the taxpayer receives from the donee a written
statement representing that the

[[Page S543]]

donee's use of the property will be in accordance with the
provisions of clause (iv), and
``(vi) the written appraisal referred to in clause (ii)
includes evidence of the extent (if any) to which property
created by the personal efforts of the taxpayer and of the
same type as the donated property is or has been--

``(I) owned, maintained, and displayed by organizations
described in subsection (b)(1)(A), and
``(II) sold to or exchanged by persons other than the
taxpayer, donee, or any related person (as defined in section
465(b)(3)(C)).

``(C) Maximum dollar limitation; no carryover of increased
deduction.--The increase in the deduction under this section
by reason of this paragraph for any taxable year--
``(i) shall not exceed the artistic adjusted gross income
of the taxpayer for such taxable year, and
``(ii) shall not be taken into account in determining the
amount which may be carried from such taxable year under
subsection (d).
``(D) Artistic adjusted gross income.--For purposes of this
paragraph, the term `artistic adjusted gross income' means
that portion of the adjusted gross income of the taxpayer for
the taxable year attributable to--
``(i) income from the sale or use of property created by
the personal efforts of the taxpayer which is of the same
type as the donated property, and
``(ii) income from teaching, lecturing, performing, or
similar activity with respect to property described in clause
(i).
``(E) Paragraph not to apply to certain contributions.--
Subparagraph (A) shall not apply to any charitable
contribution of any letter, memorandum, or similar property
which was written, prepared, or produced by or for an
individual while the individual is an officer or employee of
any person (including any government agency or
instrumentality) unless such letter, memorandum, or similar
property is entirely personal.
``(F) Copyright treated as separate property for partial
interest rule.--In the case of a qualified artistic
charitable contribution, the tangible literary, musical,
artistic, or scholarly composition, or similar property and
the copyright on such work shall be treated as separate
properties for purposes of this paragraph and subsection
(f)(3).
``(G) Termination.--This paragraph shall not apply to
contributions made after December 31, 2007.''.
(b) Effective Date.--The amendment made by this section
shall apply to contributions made after December 31, 2005.

SEC. 309. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS
EXCLUDED FROM GROSS INCOME.

(a) In General.--Part III of subchapter B of chapter 1 is
amended by inserting after section 139A the following new
section:

``SEC. 139B. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS.

``(a) In General.--Gross income of an individual does not
include amounts received, from an organization described in
section 170(c), as reimbursement of operating expenses with
respect to use of a passenger automobile for the benefit of
such organization. The preceding sentence shall apply only to
the extent that the expenses which are reimbursed would be
deductible under this chapter if section 274(d) were
applied--
``(1) by using the standard business mileage rate
established under such section, and
``(2) as if the individual were an employee of an
organization not described in section 170(c).
``(b) Application to Volunteer Services Only.--Subsection
(a) shall not apply with respect to any expenses relating to
the performance of services for compensation.
``(c) No Double Benefit.--A taxpayer may not claim a
deduction or credit under any other provision of this title
with respect to the expenses under subsection (a).
``(d) Exemption From Reporting Requirements.--Section 6041
shall not apply with respect to reimbursements excluded from
income under subsection (a).
``(e) Termination.--This section shall not apply to taxable
years beginning after December 31, 2007.''.
(b) Clerical Amendment.--The table of sections for part III
of subchapter B of chapter 1 is amended by inserting after
the item relating to section 139 the following new item:

``Sec. 139A. Mileage reimbursements to charitable volunteers.''.

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

SEC. 310. ALTERNATIVE PERCENTAGE LIMITATION FOR CORPORATE
CHARITABLE CONTRIBUTIONS TO THE MATHEMATICS AND
SCIENCE PARTNERSHIP PROGRAM.

(a) In General.--Section 170(b) (related to percentage
limitations) is amended by adding at the end the following
new paragraph:
``(3) Special rule for corporate contributions to the
mathematics and science partnership program.--
``(A) In general.--In the case of a corporation which makes
an eligible mathematics and science contribution--
``(i) the limitation under paragraph (2) shall apply
separately with respect to all such contributions and all
other charitable contributions, and
``(ii) paragraph (2) shall be applied with respect to all
eligible mathematics and science contributions by
substituting `15 percent' for `10 percent'.
``(B) Eligible mathematics and science contribution.--
``(i) In general.--For purposes of this paragraph, the term
`eligible mathematics and science contribution' means a
charitable contribution (other than a contribution of used
equipment) to a qualified partnership for the purpose of an
activity described in section 2202(c) of the Elementary and
Secondary Education Act of 1965.
``(ii) Qualified partnership.--The term `qualified
partnership' means an eligible partnership (within the
meaning of section 2201(b)(1) of the Elementary and Secondary
Education Act of 1965), but only to the extent that such
partnership does not include a person other than a person
described in paragraph (1)(A).
``(C) Termination.--This paragraph shall not apply to any
contributions made in taxable years beginning after December
31, 2006.''.
(b) Effective Date.--The amendment made by this section
shall apply to contributions made in taxable years beginning
after December 31, 2005.

Subtitle B--Reforming Charitable Organizations

PART I--GENERAL REFORMS

SEC. 311. TAX INVOLVEMENT BY EXEMPT ORGANIZATIONS IN TAX
SHELTER TRANSACTIONS.

(a) Imposition of Excise Tax.--
(1) In general.--Chapter 42 (relating to private
foundations and certain other tax-exempt organizations) is
amended by adding at the end the following new subchapter:

``Subchapter F--Tax Shelter Transactions

``Sec. 4965. Excise tax on certain tax-exempt entities entering into
prohibited tax shelter transactions

``SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES
ENTERING INTO PROHIBITED TAX SHELTER
TRANSACTIONS.

``(a) Participation in and Approval of Prohibited
Transactions.--
``(1) Tax-exempt entity.--
``(A) In general.--If any tax-exempt entity (other than a
tax-exempt entity described in paragraph (4), (5), (6), or
(7) of subsection (c)) is a party to a prohibited tax shelter
transaction at any time during the taxable year and knows or
has reason to know such transaction is a prohibited tax
shelter transaction, such entity shall pay a tax for such
taxable year in the amount determined under subsection
(b)(1)(A).
``(B) Post-transaction determination.--If any tax-exempt
entity (other than a tax-exempt entity described in paragraph
(4), (5), (6), or (7) of subsection (c)) is a party to a
subsequently listed transaction at any time during the
taxable year, such entity shall pay a tax in the amount
determined under subsection (b)(1)(B).
``(2) Entity manager.--If any entity manager of a tax-
exempt entity approves such entity as (or otherwise causes
such entity to be) a party to a prohibited tax shelter
transaction at any time during the taxable year and knows or
has reason to know that the transaction is a prohibited tax
shelter transaction, such manager shall pay a tax for such
taxable year in the amount determined under subsection
(b)(2).
``(3) Reasonable cause exception.--No tax shall be imposed
under paragraph (1)(A) or (2) if it is shown that the
participation of the tax-exempt entity in the transaction was
not willful and was due to reasonable cause.
``(b) Amount of Tax.--
``(1) Entity.--In the case of a tax-exempt entity--
``(A) In general.--The amount of the tax imposed under
subsection (a)(1)(A) on the entity with respect to a taxable
year shall be the greater of--
``(i) 100 percent of the entity's net income (after taking
into account any tax imposed by this subtitle with respect to
the prohibited tax shelter transaction) for such taxable year
which is attributable to the prohibited tax shelter
transaction, or
``(ii) 75 percent of the proceeds received by the entity
which are attributable to the prohibited tax shelter
transaction.
``(B) Post-transaction determination.--The amount of the
tax imposed under subsection (a)(1)(B) on the entity with
respect to any taxable year shall be an amount equal to the
product of--
``(i) the highest rate of tax under section 11, and
``(ii) the greater of--

``(I) the entity's net income (after taking into account
any tax imposed by this subtitle with respect to the
subsequently listed transaction) for such taxable year which
is attributable to the subsequently listed transaction and
which is properly allocable to the period beginning on the
later of the date such transaction is identified by guidance
as a listed transaction by the Secretary or the first day of
the taxable year, or
``(II) 75 percent of the proceeds received by the entity
which are attributable to the subsequently listed transaction
and which are properly allocable to the period beginning on
the later of the date such transaction is identified by
guidance as a listed transaction by the Secretary or the
first day of the taxable year.

``(2) Entity manager.--In the case of each entity manager
to whom subsection (a)(2) applies, the amount of the tax
under such subsection shall be $20,000 for each approval.
``(c) Tax-Exempt Entity.--For purposes of this section, the
term `tax-exempt entity' means an entity which is--

[[Page S544]]

``(1) described in section 501(c) or 501(d),
``(2) described in section 170(c) (other than an agency or
instrumentality of the United States) to which paragraph (1)
of this subsection does not apply,
``(3) an Indian tribal government (within the meaning of
section 7701(a)(40)),
``(4) described in paragraph (1), (2), or (3) of section
4979(e),
``(5) a program described in section 529,
``(6) an eligible deferred compensation plan described in
section 457(b) which is maintained by an employer described
in section 4457(e)(1)(A), or
``(7) an arrangement described in section 4973(a).
``(d) Entity Manager.--For purposes of this section, the
term `entity manager' means--
``(1) with respect to a tax-exempt entity described in
paragraph (3) or (4) of section 501(c)--
``(A) in the case of an entity other than a private
foundation, an organization manager (as defined in section
4958(f)(2)), and
``(B) in the case of a private foundation, a foundation
manager (as defined in section 4946(b)), and
``(2) in all other cases, the person with authority or
responsibility similar to that exercised by an officer,
director, or trustee of an organization.
``(e) Prohibited Tax Shelter Transaction; Subsequently
Listed Transaction.--For purposes of this section--
``(1) Prohibited tax shelter transaction.--
``(A) In general.--The term `prohibited tax shelter
transaction' means--
``(i) any listed transaction, or
``(ii) any prohibited reportable transaction if the tax-
exempt entity knows or has reason to know that such
transaction is a reportable transaction.
``(B) Listed transaction.--The term `listed transaction'
has the meaning given such term by section 6707A(c)(2).
``(C) Prohibited reportable transaction.--The term
`prohibited reportable transaction' means any confidential
transaction or any transaction with contractual protection
(as defined under regulations prescribed by the Secretary)
which is a reportable transaction (as defined in section
6707A(c)(1)).
``(2) Subsequently listed transaction.--The term
`subsequently listed transaction' means any transaction to
which a tax-exempt entity is a party and which is determined
by the Secretary to be a listed transaction at any time after
the entity has entered into the transaction.
``(f) Regulatory Authority.--The Secretary is authorized to
promulgate regulations which provide guidance regarding the
determination of the allocation of net income of a tax-exempt
entity attributable to a transaction to various periods,
including before and after the listing of the transaction or
the date which is 90 days after the date of the enactment of
this section.
``(g) Coordination With Other Taxes and Penalties.--The tax
imposed by this section is in addition to any other tax,
addition to tax, or penalty imposed under this title.''.
(2) Conforming amendment.--The table of subchapters of
chapter 42 is amended by adding at the end the following new
item:

``Subchapter F. Tax Shelter Transactions.''.

(b) Disclosure Requirements.--
(1) Disclosure by organization to the internal revenue
service.--
(A) In general.--Section 6033(a) (relating to organizations
required to file) is amended by redesignating paragraph (2)
as paragraph (3), and by inserting after paragraph (1) the
following new paragraph:
``(2) Participation in certain reportable transactions.--
Every tax-exempt entity described in section 4965(c) shall
file (in such form and manner and at such time as determined
by the Secretary) a disclosure of--
``(A) such entity's participation in any prohibited tax
shelter transaction (as defined in section 4965(e)), and
``(B) the identity of any other party participating in such
transaction which is known by such tax-exempt entity.''.
(B) Conforming amendment.--Section 6033(a)(1) is amended by
striking ``paragraph (2)'' and inserting ``paragraph (3)''.
(2) Disclosure by other taxpayers to the tax-exempt
entity.--Section 6011 (relating to general requirement of
return, statement, or list) is amended by redesignating
subsection (g) as subsection (h) and by inserting after
subsection (f) the following new subsection:
``(g) Disclosure of Reportable Transaction to Tax-Exempt
Entity.--Any taxable party to a prohibited tax shelter
transaction (as defined in section 4965(e)(1)) shall by
statement disclose to any tax-exempt entity (as defined in
section 4965(c)) which is a party to such transaction that
such transaction is such a prohibited tax shelter
transaction.''.
(c) Penalty for Nondisclosure.--
(1) In general.--Section 6652(c) (relating to returns by
exempt organizations and by certain trusts), as amended by
section 302, is amended by redesignating paragraphs (2), (3),
and (4) as paragraphs (3), (4), and (5), respectively, and by
inserting after paragraph (1) the following new paragraph:
``(2) Disclosure under section 6033.--
``(A) Penalty on organizations.--In the case of a failure
to file a disclosure required under section 6033(a)(2), there
shall be paid by the tax-exempt entity (the entity manager in
the case of a tax-exempt entity described in paragraph (4),
(5), (6), or (7) of section 4965(c)) $100 for each day during
which such failure continues. The maximum penalty under this
subparagraph on failures with respect to any 1 disclosure
shall not exceed $50,000.
``(B) Persons.--
``(i) In general.--The Secretary may make a written demand
on any tax-exempt entity subject to penalty under
subparagraph (A) specifying therein a reasonable future date
by which the disclosure shall be filed for purposes of this
subparagraph.
``(ii) Failure to comply with demand.--If any person fails
to comply with any demand under clause (i) on or before the
date specified in such demand, there shall be paid by such
person failing to so comply $100 for each day after the
expiration of the time specified in such demand during which
such failure continues. The maximum penalty imposed under
this subparagraph on all tax-exempt entities for failures
with respect to any 1 disclosure shall not exceed $10,000.
``(C) Definitions.--Any term used in this section which is
also used in section 4965 shall have the meaning given such
term under section 4965.''.
(2) Conforming amendment.--Subparagraph (A) of section
6652(c)(1) of such Code is amended by striking ``6033'' each
place it appears in the text and heading thereof and
inserting ``6033(a)(1)''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to transactions
after the date of the enactment of this Act, except that no
tax under section 4965(a) of the Internal Revenue Code of
1986 (as added by this section) shall apply with respect to
income that is properly allocable to any period on or before
the date which is 90 days after such date of enactment.
(2) Disclosure.--The amendments made by subsections (b) and
(c) shall apply to disclosures the due date for which are
after the date of the enactment of this Act.

SEC. 312. EXCISE TAX ON CERTAIN ACQUISITIONS OF INTERESTS IN
INSURANCE CONTRACTS IN WHICH CERTAIN EXEMPT
ORGANIZATIONS HOLD AN INTEREST.

(a) Imposition of Tax.--
(1) In general.--Subchapter F of chapter 42 (relating to
tax shelter transactions), as added by this Act, is amended
by adding at the end the following new section:

``SEC. 4966. EXCISE TAX ON ACQUISITION OF INTERESTS IN
INSURANCE CONTRACTS IN WHICH CERTAIN EXEMPT
ORGANIZATIONS HOLD AN INTEREST.

``(a) Imposition of Tax.--If there is a taxable acquisition
of any interest in an applicable insurance contract, there is
hereby imposed on the person acquiring the interest a tax
equal to 100 percent of the acquisition costs of the
interest.
``(b) Taxable Acquisition.--For purposes of this section--
``(1) In general.--The term `taxable acquisition' means the
acquisition of any direct or indirect interest in an
applicable insurance contract by--
``(A) an applicable exempt organization, or
``(B) a person other than an applicable exempt organization
if such interest in the hands of such person is not an
interest described in clause (i), (ii), (iii), or (iv) of
paragraph (2)(B).
``(2) Applicable insurance contract.--
``(A) In general.--The term `applicable insurance contract'
means any life insurance, annuity, or endowment contract with
respect to which both an applicable exempt organization and a
person other than an applicable exempt organization have
directly or indirectly held an interest in the contract
(whether or not at the same time).
``(B) Exceptions.--Such term shall not include a life
insurance, annuity, or endowment contract if--
``(i) all persons directly or indirectly holding any
interest in the contract (other than applicable exempt
organizations) have an insurable interest in the insured
under the contract independent of any interest of an
applicable exempt organization in the contract,
``(ii) the sole interest in the contract of each person
other than an applicable exempt organization is as a named
beneficiary,
``(iii) the sole interest in the contract of each person
other than an applicable exempt organization is--

``(I) as a beneficiary of a trust holding an interest in
the contract, but only if the person's designation as such
beneficiary was made without consideration and solely on a
purely gratuitous basis, or
``(II) as a trustee who holds an interest in the contract
in a fiduciary capacity solely for the benefit of applicable
exempt organizations or persons otherwise described in
clauses (i), (ii), and (iv) or subclause (I) of this clause,
or

``(iv) except as provided in subparagraph (C), the sole
interest in the contract of each person other than an
applicable exempt organization is as a lender with respect to
the contract and the contract covers only 1 individual and
such individual is an officer, director, or employee of the
applicable exempt organization with an interest in the
contract.
``(C) Restrictions on exception for lenders.--
``(i) Numerical limit.--The number of contracts that may be
taken into account under subparagraph (B)(iv) with respect to
officers,

[[Page S545]]

directors, or employees of the applicable exempt organization
with interests in the contracts shall not exceed the greater
of--

``(I) the lesser of 5 percent of the total officers,
directors, and employees of the organization or 20, or
``(II) 5.

``(ii) Aggregate indebtedness.--The exception under
subparagraph (B)(iv) shall apply only to the extent that the
aggregate amount of the indebtedness with respect to 1 or
more contracts covering a single individual does not exceed
$50,000.
``(D) Secretarial authority.--The Secretary may exempt a
contract from treatment as an applicable insurance contract
based on specific factors, including factors such as whether
the transaction is at arms length, whether economic benefits
to the applicable exempt organization substantially exceed
the economic benefits to all other persons with an interest
in the contract (determined without regard to whether, or the
extent to which, such organization has paid or contributed
with respect to the contract), and the likelihood of abuse.
``(3) Definition and rule relating to acquisition costs.--
``(A) Acquisition costs defined.--The term `acquisition
costs' means the direct or indirect costs of acquiring an
interest in an applicable insurance contract. Such term shall
include any fees, commissions, charges, or other amounts paid
in connection with the acquisition, whether or not paid to
the issuer of the contract.
``(B) Timing of payments.--Except as provided in
regulations, if acquisition costs of any acquisition are paid
or incurred in more than 1 calendar year, the tax imposed by
subsection (a) with respect to the acquisition shall be
imposed each time the costs are so paid or incurred.
``(4) Rules relating to interests.--
``(A) In general.--An interest in the contract includes any
right with respect to the contract, whether as an owner,
beneficiary, or otherwise.
``(B) Indirect interests.--
``(i) In general.--Except as provided in clause (ii), an
indirect interest in a contract includes an interest in an
entity which directly or indirectly holds an interest in the
contract.
``(ii) Portfolio investments.--If an applicable exempt
organization holds an interest in a contract solely because
the organization holds, as part of a diversified investment
strategy, a de minimis interest in an entity which directly
or indirectly holds the interest in the contract, such
indirect interest in the contract shall not be taken into
account for purposes of this section.
``(C) Exchanged contracts.--In the case of an exchange of
an applicable insurance contract on which no gain or loss is
recognized under section 1035, any interest in any of the
contracts involved in the exchange shall be treated as an
interest in all such contracts.
``(5) Increase in interest.--If a person increases an
interest in an applicable insurance contract, the increase
shall be treated as a separate acquisition for purposes of
this section.
``(6) Prior acquisitions.--Except as provided in
regulations, if a person acquires an interest in a contract
before the contract is treated as an applicable insurance
contract, the acquisition shall be treated as a taxable
acquisition of an interest in an applicable insurance
contract as of the date the contract becomes an applicable
insurance contract.
``(c) Applicable Exempt Organization.--For purposes of this
section, the term `applicable exempt organization' means--
``(1) an organization described in section 170(c),
``(2) an organization described in section
168(h)(2)(A)(iv), or
``(3) an organization not described in paragraph (1) or (2)
which is described in section 2055(a) or section 2522(a).
``(d) Tax Not Treated as Investment in the Contract.--For
purposes of section 72, the tax imposed by this section shall
not be included in investment in the contract.
``(e) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions
of this section. Such regulations may include regulations
which--
``(1) provide, for purposes of subsection (b)(6),
appropriate rules for the application of this section in any
case where an interest is acquired before a contract becomes
an applicable insurance contract,
``(2) prevent, in cases the Secretary determines
appropriate, the imposition of more than one tax under this
section if the same interest is acquired more than once, and
``(3) are designed to prevent avoidance of the purposes of
this section, including through the use of intermediaries.''.
(2) Conforming amendment.--The table of sections for
subchapter F of chapter 42, as added by this Act, is amended
by adding at the end the following new item:

``Sec. 4966. Excise tax on acquisition of interests in insurance
contracts in which certain exempt organizations hold an
interest.''.

(b) Reporting Requirements.--
(1) In general.--Subpart B of part III of subchapter A of
chapter 61 (relating to information concerning transactions
with other persons), as amended by this Act, is amended by
adding at the end the following new section:

``SEC. 6050V. RETURNS RELATING TO APPLICABLE INSURANCE
CONTRACTS IN WHICH CERTAIN EXEMPT ORGANIZATIONS
HOLD INTERESTS.

``(a) Requirements of Reporting.--
``(1) Exempt organizations.--Each--
``(A) applicable exempt organization which acquires (within
the meaning of section 4966) an interest in any applicable
insurance contract, and
``(B) other person which makes an acquisition of such an
interest if such acquisition is taxable under section 4966,

shall make the return described in subsection (c).
``(2) Transfers.--If a person (including an applicable
exempt organization) acquires an interest in an applicable
insurance contract in an acquisition which is taxable under
section 4966 and then transfers such interest to 1 or more
other persons, each person acquiring all or a portion of such
interest shall make the return described in subsection (c).
``(b) Time for Making Return.--Any organization or person
required to make a return under subsection (a) shall file
such return at such time as may be established by the
Secretary with respect to--
``(1) in the case of a person described in subsection
(a)(1), the calendar year in which the acquisition occurs,
any calendar year in which acquisition costs are paid or
incurred, and any other calendar years specified by the
Secretary, and
``(2) in the case of a person described in subsection
(a)(2), the calendar year in which the transfer occurs.
``(c) Form and Manner of Returns.--A return is described in
this subsection if such return--
``(1) is in such form as the Secretary prescribes,
``(2) in the case of--
``(A) a return required under subsection (a)(1)(A),
contains the name, address, and taxpayer identification
number of the applicable exempt organization, the issuer of
the applicable insurance contract, and any person acquiring
an interest in the contract if the acquisition is taxable
under section 4966,
``(B) a return required under subsection (a)(1)(B),
contains the name, address, and taxpayer identification
number of the person acquiring an interest in the applicable
insurance contract if the acquisition is taxable under
section 4966, any applicable exempt organization holding an
interest in the contract, and the issuer of the contract, and
``(C) a return required under subsection (a)(2), contains
the name, address, and taxpayer identification number of the
transferor and transferee, and
``(3) contains such other information as the Secretary may
prescribe.
``(d) Statements To Be Furnished to Persons With Respect to
Whom Information Is Required.--Every person required to make
a return under subsection (a) shall furnish to each person
whose taxpayer identification information is required to be
included in such return under subsection (c) a written
statement showing--
``(1) the name and address of the person required to make
such return and the telephone number of the information
contact for such person, and
``(2) the taxpayer identity and other information required
to be shown on the return with respect to such person.

The written statement required under the preceding sentence
shall be furnished on or before the date specified by the
Secretary.
``(e) Definitions.--For purposes of this section, any term
used in this section which is also used in section 4966 shall
have the meaning given such term by section 4966.''.
(2) Penalties.--
(A) In general.--Section 6724(d) is amended--
(i) in paragraph (1)(B), by redesignating clauses (xiii)
through (xviii) as clauses (xiv) through (xix) and by
inserting after clause (xii) the following new clause:
``(xiii) section 6050V (relating to returns relating to
applicable insurance contracts in which certain exempt
organizations hold interests),'', and
(ii) in paragraph (3), by striking ``and'' at the end of
subparagraph (C), by striking the period at the end of
subparagraph (D) and inserting ``, and'', and by adding at
the end the following new subparagraph:
``(E) the statement required by subsection (d) of section
6050V (relating to returns relating to applicable insurance
contracts in which certain exempt organizations hold
interests).''.
(B) Intentional disregard.--Section 6721(e)(2) is amended
by striking ``or'' at the end of subparagraph (B), by
striking ``and'' at the end of subparagraph (C) and inserting
``or'', and by adding at the end the following new
subparagraph:
``(D) in the case of a return required to be filed under
section 6050V, the amount of tax imposed under section 4966
which has not been paid with respect to items required to be
included on the return, and''.
(3) Conforming amendment.--The table of sections for
subpart B of part III of subchapter A of chapter 61, as
amended by this Act, is amended by adding at the end the
following new item:

``Sec. 6050V. Returns relating to applicable insurance contracts in
which certain exempt organizations hold interests.''.

(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to contracts issued after May 3, 2005.
(2) Reporting of existing contracts.--In the case of any
life insurance, annuity, or endowment contract--

[[Page S546]]

(A) which was issued on or before May 3, 2005,
(B) with respect to which an applicable exempt organization
(as defined in section 4966 of the Internal Revenue Code of
1986, as added by this section) holds an interest on May 3,
2005, and
(C) which would be treated as an applicable insurance
contract (as so defined) if issued after May 3, 2005,
such organization shall, not later than the date which is 1
year after the date of the enactment of this Act, report to
the Secretary of the Treasury with respect to such contract.
Such report shall be in such form and manner, and contain
such information, as the Secretary may prescribe. The
Secretary shall submit such reports, along with any
recommendations for legislation as the Secretary considers
appropriate, to the Committee on Ways and Means of the House
of Representatives and to the Committee on Finance of the
Senate within 6 months of the date such reports are required
to be filed.

SEC. 313. INCREASE IN PENALTY EXCISE TAXES ON PUBLIC
CHARITIES, SOCIAL WELFARE ORGANIZATIONS, AND
PRIVATE FOUNDATIONS.

(a) Taxes on Self-Dealing and Excess Benefit
Transactions.--
(1) In general.--Section 4941(a) (relating to initial
taxes) is amended--
(A) in paragraph (1), by striking ``5 percent'' and
inserting ``10 percent'', and
(B) in paragraph (2), by striking ``2\1/2\ percent'' and
inserting ``5 percent''.
(2) Increase in tax if self-dealing includes compensation
to disqualified person.--Section 4941(a)(1) is amended by
adding at the end the following new sentence: ``If the act of
self-dealing includes acts described in subsection (d)(1)(D),
`25 percent' shall be substituted for `10 percent', except
that the Secretary may abate under section 4962 (determined
without regard to the exception under subsection (b) thereof)
not more than 15 percentage points of such tax.''.
(3) Increased limitation for managers on self-dealing.--
Section 4941(c)(2) is amended by striking ``$10,000'' each
place it appears in the text and in the heading and inserting
``$20,000''.
(4) Increased limitation for managers on excess benefit
transactions.--Section 4958(d)(2) is amended by striking
``$10,000'' and inserting ``$20,000''.
(b) Taxes on Failure To Distribute Income.--Section 4942(a)
(relating to initial tax) is amended by striking ``15
percent'' and inserting ``30 percent''.
(c) Taxes on Excess Business Holdings.--Section 4943(a)(1)
(relating to imposition) is amended by striking ``5 percent''
and inserting ``10 percent''.
(d) Taxes on Investments Which Jeopardize Charitable
Purpose.--
(1) In general.--Section 4944(a) (relating to initial
taxes) is amended by striking ``5 percent'' both places it
appears and inserting ``10 percent''.
(2) Increased limitation for managers.--Section 4944(d)(2)
is amended--
(A) by striking ``$5,000,'' and inserting ``$10,000,'', and
(B) by striking ``$10,000.'' and inserting ``$20,000.''.
(e) Taxes on Taxable Expenditures.--
(1) In general.--Section 4945(a) (relating to initial
taxes) is amended--
(A) in paragraph (1), by striking ``10 percent'' and
inserting ``20 percent'', and
(B) in paragraph (2), by striking ``2\1/2\ percent'' and
inserting ``5 percent''.
(2) Increased limitation for managers.--Section 4945(c)(2)
is amended--
(A) by striking ``$5,000,'' and inserting ``$10,000,'', and
(B) by striking ``$10,000.'' and inserting ``$20,000.''.
(f) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.

SEC. 314. REFORM OF CHARITABLE CONTRIBUTIONS OF CERTAIN
EASEMENTS ON BUILDINGS IN REGISTERED HISTORIC
DISTRICTS.

(a) Special Rules With Respect to Buildings in Registered
Historic Districts.--
(1) In general.--Paragraph (4) of section 170(h) (relating
to definition of conservation purpose) is amended by
redesignating subparagraph (B) as subparagraph (C) and by
inserting after subparagraph (A) the following new
subparagraph:
``(B) Special rules with respect to buildings in registered
historic districts.--In the case of any contribution of a
qualified real property interest which is a restriction with
respect to the exterior of a building described in
subparagraph (C)(ii), such contribution shall not be
considered to be exclusively for conservation purposes
unless--
``(i) such interest--

``(I) includes a restriction which preserves the entire
exterior of the building (including the front, sides, rear,
and height of the building), and
``(II) prohibits any change in the exterior of the building
which is inconsistent with the historical character of such
exterior,

``(ii) the donor and donee enter into a written agreement
certifying, under penalty of perjury, that the donee--

``(I) is a qualified organization (as defined in paragraph
(3)) with a purpose of environmental protection, land
conservation, open space preservation, or historic
preservation, and
``(II) has the resources to manage and enforce the
restriction and a commitment to do so, and

``(iii) in the case of any contribution made in a taxable
year beginning after the date of the enactment of this
subparagraph, the taxpayer includes with the taxpayer's
return for the taxable year of the contribution--

``(I) a qualified appraisal (within the meaning of
subsection (f)(11)(E)) of the qualified property interest,
``(II) photographs of the entire exterior of the building,
and
``(III) a description of all restrictions on the
development of the building.''.

(b) Disallowance of Deduction for Structures and Land in
Registered Historic Districts.--Subparagraph (C) of section
170(h)(4), as redesignated by subsection (a), is amended--
(1) by striking ``any building, structure, or land area
which'',
(2) by inserting ``any building, structure, or land area
which'' before ``is listed'' in clause (i), and
(3) by inserting ``any building which'' before ``is
located'' in clause (ii).
(c) Filing Fee for Certain Contributions.--Subsection (f)
of section 170 (relating to disallowance of deduction in
certain cases and special rules) is amended by inserting at
the end the following new paragraph:
``(13) Contributions of certain interests in buildings
located in registered historic districts.--
``(A) In general.--No deduction shall be allowed with
respect to any contribution described in subparagraph (B)
unless the taxpayer includes with the return for the taxable
year of the contribution a $500 filing fee.
``(B) Contribution described.--A contribution is described
in this subparagraph if such contribution is a qualified
conservation contribution (as defined in subsection (h))
which is a restriction with respect to the exterior of a
building described in subsection (h)(4)(C)(ii) and for which
a deduction is claimed in excess of the greater of--
``(i) 3 percent of the fair market value of the building
(determined immediately before such contribution), or
``(ii) $10,000.
``(C) Dedication of fee.--Any fee collected under this
paragraph shall be used for the enforcement of the provisions
of subsection (h).''.
(d) Effective Date.--
(1) Special rules for buildings in registered historic
districts.--The amendments made by subsection (a) shall apply
to contributions made after November 15, 2005.
(2) Disallowance of deduction for structures and land.--The
amendments made by subsection (b) shall apply to
contributions made after the date of the enactment of this
Act.
(3) Filing fee.--The amendment made by subsection (c) shall
apply to contributions made 180 days after the date of the
enactment of this Act.

SEC. 315. CHARITABLE CONTRIBUTIONS OF TAXIDERMY PROPERTY.

(a) In General.--Subsection (f) of section 170, as amended
by section 314 of this Act, is amended by adding at the end
the following new paragraph:
``(14) Contributions of taxidermy property.--
``(A) Contributions of more than $500.--In the case of any
contribution of taxidermy property for which a deduction of
more than $500 is claimed, no deduction shall be allowed
under subsection (a) unless the donor includes with the
return for the taxable year in which the contribution is made
a photograph of the taxidermy property and data with respect
to the sales prices of similar taxidermy property.
``(B) Contributions of more than $5,000.--In the case of
any contribution of taxidermy property for which a deduction
of more than $5,000 is claimed, no deduction shall be allowed
under subsection (a) unless the donor--
``(i) notifies the Internal Revenue Service of such
deduction, and
``(ii) includes with the return for the taxable year in
which the contribution is made--

``(I) a statement of value from the Internal Revenue
Service, or
``(II) a request for a statement of value from the Internal
Revenue Service and a $500 fee.

``(C) Taxidermy property.--For purposes of this section,
the term `taxidermy property' means a mounted work of art
which contains any part of a dead animal.''.
(b) Effective Date.--The amendment made by this section
shall apply to contributions made after November 15, 2005.

SEC. 316. RECAPTURE OF TAX BENEFIT FOR CHARITABLE
CONTRIBUTIONS OF EXEMPT USE PROPERTY NOT USED
FOR AN EXEMPT USE.

(a) Recapture of Deduction on Certain Sales of Exempt Use
Property.--
(1) In general.--Clause (i) of section 170(e)(1)(B)
(related to certain contributions of ordinary income and
capital gain property) is amended to read as follows:
``(i) of tangible personal property--

``(I) if the use by the donee is unrelated to the purpose
or function constituting the basis for its exemption under
section 501 (or, in the case of a governmental unit, to any
purpose or function described in subsection (c)), or
``(II) which is applicable property (as defined in
paragraph (7)(C)) which is sold, exchanged, or otherwise
disposed of by the donee before the last day of the taxable
year in which the contribution was made and with respect to
which the donee has not made a certification in accordance
with paragraph (7)(D),''.

[[Page S547]]

(2) Dispositions after close of taxable year.--Section
170(e) is amended by adding at the end the following new
paragraph:
``(7) Recapture of deduction on certain dispositions of
exempt use property.--
``(A) In general.--In the case of an applicable disposition
of applicable property, there shall be included in the income
of the donor of such property for the taxable year of such
donor in which the applicable disposition occurs an amount
equal to the excess (if any) of--
``(i) the amount of the deduction allowed to the donor
under this section with respect to such property, over
``(ii) the donor's basis in such property at the time such
property was contributed.
``(B) Applicable disposition.--For purposes of this
paragraph, the term `applicable disposition' means any sale,
exchange, or other disposition by the donee of applicable
property--
``(i) after the last day of the taxable year of the donor
in which such property was contributed, and
``(ii) before the last day of the 3-year period beginning
on the date of the contribution of such property,
unless the donee makes a certification in accordance with
subparagraph (D).
``(C) Applicable property.--For purposes of this paragraph,
the term `applicable property' means charitable deduction
property (as defined in section 6050L(a)(2)(A))--
``(i) which is tangible personal property the use of which
is identified by the donee as related to the purpose or
function constituting the basis of the donee's exemption
under section 501, and
``(ii) for which a deduction in excess of the donor's basis
is allowed.
``(D) Certification.--A certification meets the
requirements of this subparagraph if it is a written
statement which is signed under penalty of perjury by an
officer of the donee organization and--
``(i) which--

``(I) certifies that the use of the property by the donee
was related to the purpose or function constituting the basis
for the donee's exemption under section 501, and
``(II) describes how the property was used and how such use
furthered such purpose or function, or

``(ii) which--

``(I) states the intended use of the property by the donee
at the time of the contribution, and
``(II) certifies that such intended use has become
impossible or infeasible to implement.''.

(b) Reporting Requirements.--Paragraph (1) of section
6050L(a) (relating to returns relating to certain
dispositions of donated property) is amended--
(1) by striking ``2 years'' and inserting ``3 years'', and
(2) by striking ``and'' at the end of subparagraph (D), by
striking the period at the end of subparagraph (E) and
inserting a comma, and by inserting at the end the following:
``(F) a description of the donee's use of the property, and
``(G) a statement indicating whether the use of the
property was related to the purpose or function constituting
the basis for the donee's exemption under section 501.
``In any case in which the donee indicates that the use of
applicable property (as defined in section 170(e)(1)(C)) was
related to the purpose or function constituting the basis for
the exemption of the donee under section 501 under
subparagraph (G), the donee shall include with the return the
certification described in section 170(e)(7)(D) if such
certification is required under section 170(e)(7).''.
(c) Penalty.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by inserting
after section 6720A the following new section:

``SEC. 6720B. FRAUDULENT IDENTIFICATION OF EXEMPT USE
PROPERTY.

``In addition to any criminal penalty provided by law, any
person who identifies applicable property (as defined in
section 170(e)(7)(C)) as having a use which is related to a
purpose or function constituting the basis for the donee's
exemption under section 501 and who knows that such property
is not intended for such a use shall pay a penalty of
$10,000.''.
(2) Clerical amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by adding after the
item relating to section 6720A the following new item:

``Sec. 6720B. Fraudulent identification of exempt use property.''.

(d) Effective Date.--
(1) Recapture.--The amendments made by subsection (a) shall
apply to contributions after June 1, 2006.
(2) Reporting.--The amendments made by subsection (b) shall
apply to returns filed after June 1, 2006.
(3) Penalty.--The amendments made by subsection (c) shall
apply to identifications made after the date of the enactment
of this Act.

SEC. 317. LIMITATION OF DEDUCTION FOR CHARITABLE
CONTRIBUTIONS OF CLOTHING AND HOUSEHOLD ITEMS.

(a) In General.--Subsection (f) of section 170, as amended
by section 315 of this Act, is amended by adding at the end
the following new paragraph:
``(15) Contributions of clothing and household items.--
``(A) In general.--In the case of an individual,
partnership, or S corporation, the deduction allowed under
subsection (a) for any contribution of clothing or household
items with respect to which the donor has obtained a
qualified appraisal shall be--
``(i) in the case of an item which is in good used
condition or better, no more than the amount assigned to such
item under subparagraph (B) for such year,
``(ii) except as provided by clause (iii), in the case of
an item which is not in good used condition or better, no
more than 20 percent of the amount assigned to such item
under subparagraph (B) for such year, and
``(iii) in the case of an item which is not functional with
respect to the use for which it was designed, zero.
``(B) Assigned values.--Each year the Secretary shall
publish an itemized list of clothing and household items and
shall assign an amount with respect to each item on the list
which represents the fair market value of such item in good
used condition.
``(C) Exception for items sold by the donee.--Subparagraph
(A) shall not apply to any contribution of clothing or
household items for which a deduction of more than $500 is
claimed if--
``(i) the donee sells the clothing or household items
before the earlier of--

``(I) the due date (including extensions) for filing the
return of tax for the taxable year of the donor in which the
contribution was made, or
``(II) the date on which such return was filed,

``(ii) the donee reports the sales price of the clothing or
household items to the donor, and
``(iii) the amount claimed as a deduction with respect to
such clothing or household items does not exceed the amount
of the sales price reported to the donor.
``(D) Household items.--For purposes of this paragraph--
``(i) In general.--The term `household items' includes
furniture, furnishings, electronics, appliances, linens, and
other similar items.
``(ii) Excluded items.--Such term does not include--

``(I) food,
``(II) paintings, antiques, and other objects of art,
``(III) jewelry and gems, and
``(IV) collections.

``(E) Special rule for pass-thru entities.--In the case of
a partnership or S corporation, this paragraph shall be
applied at the entity level, except that the deduction shall
be denied at the partner or shareholder level.''.
(b) Substantiation.--
(1) Items of $250 or more.--Subparagraph (B) of section
170(f)(8) is amended by inserting after clause (iii) the
following new clause:
``(iv) In the case of a contribution consisting of clothing
or household items, the number of items contributed, an
indication of the condition of each item, a description of
the type of item contributed, and a copy of the list
published under paragraph (15)(B) or an instruction on how to
obtain such list.''.
(2) Items of $500 or more.--Subparagraph (B) of section
170(f)(11) is amended by inserting ``, the information
contained in the acknowledgment required under paragraph (8)
in the case of any contribution of clothing or household
items,'' after ``a description of such property''.
(c) Effective Date.--The amendments made by this section
shall apply to contributions made after December 31, 2006.

SEC. 318. MODIFICATION OF RECORDKEEPING REQUIREMENTS FOR
CERTAIN CHARITABLE CONTRIBUTIONS.

(a) Recordkeeping Requirement.--Subsection (f) of section
170, as amended by section 317 of this Act, is amended by
adding at the end the following new paragraph:
``(16) Recordkeeping.--No deduction shall be allowed under
subsection (a) for any contribution of a cash, check, or
other monetary gift unless the donor maintains as a record of
such contribution--
``(A) a cancelled check, or
``(B) a receipt or a letter or other written communication
from the donee showing the name of the donee organization,
the date of the contribution, and the amount of the
contribution.''.
(b) Effective Date.--The amendment made by this section
shall apply to contributions made in taxable years beginning
after the date of the enactment of this Act.

SEC. 319. CONTRIBUTIONS OF FRACTIONAL INTERESTS IN TANGIBLE
PERSONAL PROPERTY.

(a) Income Tax.--Section 170 (relating to charitable, etc.,
contributions and gifts), as amended by section 301 of this
Act, is amended by redesignating subsection (p) as subsection
(q) and by inserting after subsection (o) the following new
subsection:
``(q) Special Rules for Fractional Gifts.--
``(1) Valuation of subsequent gifts.--
``(A) In general.--In the case of any additional
contribution, the fair market value of such contribution
shall be determined by using the lesser of--
``(i) the fair market value of the property at the time of
the initial fractional contribution, or
``(ii) the fair market value of the property at the time of
the additional contribution.
``(B) Definitions.--For purposes of this paragraph--
``(i) Additional contribution.--The term `additional
contribution' means any charitable contribution by the
taxpayer of any interest in property with respect to which
the

[[Page S548]]

taxpayer has previously made an initial fractional
contribution.
``(ii) Initial fractional contribution.--The term `initial
fractional contribution' means, with respect to any taxpayer,
the first charitable contribution of an undivided portion of
the taxpayer's entire interest in any tangible personal
property.
``(2) Recapture of deduction in certain cases.--
``(A) In general.--The Secretary shall provide for the
recapture of an amount equal to the amount of any deduction
allowed under this section (plus interest) with respect to
any contribution of an undivided interest of a taxpayer's
entire interest in property in any case where such property
is not in the physical possession of the donee during any
applicable period for a period of time which bears
substantially the same ratio to 1 year as--
``(i) the percentage of the undivided interest of the donee
in the property (determined on the day after such
contribution was made), bears to
``(ii) 100 percent.
``(B) Applicable period.--For purposes of subparagraph (A),
the term `applicable period' means any 1-year period which
begins on--
``(i) in the year of the contribution, the date of the
contribution, and
``(ii) in any subsequent calendar year, the date which
corresponds to the date described in clause (i).
``(C) Anti-abuse rules.--The Secretary shall prescribe such
regulations as necessary to prevent the avoidance of the
purposes of this paragraph through the transfer of any such
undivided interest to a third party controlled by the
taxpayer.''.
(b) Estate Tax.--Section 2055 (relating to transfers for
public, charitable, and religious uses) is amended by
redesignating subsection (g) as subsection (h) and by
inserting after subsection (f) the following new subsection:
``(g) Valuation of Subsequent Gifts.--
``(1) In general.--In the case of any additional
contribution, the fair market value of such contribution
shall be determined by using the lesser of--
``(A) the fair market value of the property at the time of
the initial fractional contribution, or
``(B) the fair market value of the property at the time of
the additional contribution.
``(2) Definitions.--For purposes of this paragraph--
``(A) Additional contribution.--The term `additional
contribution' means a bequest, legacy, devise, or transfer
described in subsection (a) of any interest in a property
with respect to which the decedent had previously made an
initial fractional contribution.
``(B) Initial fractional contribution.--The term `initial
fractional contribution' means, with respect to any decedent,
any charitable contribution of an undivided portion of the
decedent's entire interest in any tangible personal property
for which a deduction was allowed under section 170.''.
(c) Gift Tax.--Section 2522 (relating to charitable and
similar gifts) is amended by redesignating subsection (e) as
subsection (f) and by inserting after subsection (d) the
following new subsection:
``(e) Special Rules for Fractional Gifts.--
``(1) Valuation of subsequent gifts.--
``(A) In general.--In the case of any additional
contribution, the fair market value of such contribution
shall be determined by using the lesser of--
``(i) the fair market value of the property at the time of
the initial fractional contribution, or
``(ii) the fair market value of the property at the time of
the additional contribution.
``(B) Definitions.--For purposes of this paragraph--
``(i) Additional contribution.--The term `additional
contribution' means any gift for which a deduction is allowed
under subsection (a) or (b) of any interest in a property
with respect to which the donor has previously made an
initial fractional contribution.
``(ii) Initial fractional contribution.--The term `initial
fractional contribution' means, with respect to any donor,
the first gift of an undivided portion of the donor's entire
interest in any tangible personal property for which a
deduction is allowed under subsection (a) or (b).
``(2) Recapture of deduction in certain cases.--
``(A) In general.--The Secretary shall provide for the
recapture of an amount equal to the amount of any deduction
allowed under this section (plus interest) with respect to
any contribution of an undivided interest of a donor's entire
interest in property in any case where such property is not
in the physical possession of the donee during any applicable
period for a period of time which bears substantially the
same ratio to 1 year as--
``(i) the percentage of the undivided interest of the donee
in the property (determined on the day after such
contribution was made), bears to
``(ii) 100 percent.
``(B) Applicable period.--For purposes of subparagraph (A),
the term `applicable period' means any 1-year period which
begins on--
``(i) in the year of the contribution, the date of the
contribution, and
``(ii) in any subsequent calendar year, the date which
corresponds to the date described in clause (i).
``(C) Anti-abuse rules.--The Secretary shall prescribe such
regulations as necessary to prevent the avoidance of the
purposes of this paragraph though the transfer of any such
undivided interest to a third party controlled by the
donor.''.
(d) Effective Date.--The amendments made by this section
shall apply to contributions, bequests, and gifts made after
the date of the enactment of this Act.

SEC. 320. PROVISIONS RELATING TO SUBSTANTIAL AND GROSS
OVERSTATEMENTS OF VALUATIONS OF CHARITABLE
DEDUCTION PROPERTY.

(a) Substantial and Gross Overstatements of Valuations of
Charitable Deduction Property.--
(1) In general.--Section 6662 (relating to imposition of
accuracy-related penalties) is amended by adding at the end
the following new subsection:
``(i) Special Rules for Charitable Deduction Property.--In
the case of charitable deduction property (as defined in
section 6664(c)(3)(A))--
``(1) the determination under subsection (e)(1)(A) as to
whether there is a substantial valuation misstatement under
chapter 1 with respect to the value of the property shall be
made by substituting `150 percent' for `200 percent', and
``(2) the determination under subsection (h)(2)(A)(i) as to
whether there is a gross valuation misstatement with respect
to the value of the property shall be made by substituting
`200 percent' for `400 percent' and by substituting `150
percent' for `200 percent' in applying subsection (e)(1)(A)
for purposes of such determination.''.
(2) Elimination of reasonable cause exception for gross
misstatements.--Section 6664(c)(2) (relating to reasonable
cause exception for underpayments) is amended by striking
``paragraph (1) shall not apply unless'' and inserting
``paragraph (1) shall not apply. The preceding sentence shall
not apply to a substantial valuation overstatement under
chapter 1 if''.
(b) Penalty on Appraisers Whose Appraisals Result in
Substantial or Gross Valuation Misstatements.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by inserting
after section 6695 the following new section:

``SEC. 6695A. SUBSTANTIAL AND GROSS VALUATION MISSTATEMENTS
ATTRIBUTABLE TO INCORRECT APPRAISALS.

``(a) Imposition of Penalty.--If--
``(1) a person prepares an appraisal of the value of
property and such person knows, or reasonably should have
known, that the appraisal would be used in connection with a
return or a claim for refund, and
``(2) the claimed value of the property on a return or
claim for refund which is based on such appraisal results in
a substantial valuation misstatement under chapter 1 (within
the meaning of section 6662(e)), or a gross valuation
misstatement (within the meaning of section 6662(h)), with
respect to such property,
then such person shall pay a penalty in the amount determined
under subsection (b).
``(b) Amount of Penalty.--The amount of the penalty imposed
under subsection (a) on any person with respect to an
appraisal shall be equal to the lesser of--
``(1) the greater of--
``(A) 10 percent of the amount of the underpayment (as
defined in section 6664(a)) attributable to the misstatement
described in subsection (a)(2), or
``(B) $1,000, or
``(2) 125 percent of the gross income received by the
person described in subsection (a)(1) from the preparation of
the appraisal.
``(c) Exception.--No penalty shall be imposed under
subsection (a) if the person establishes to the satisfaction
of the Secretary that the value established in the appraisal
was more likely than not the proper value.''.
(2) Rules applicable to penalty.--Section 6696 (relating to
rules applicable with respect to sections 6694 and 6695) is
amended--
(A) by striking ``6694 and 6695'' each place it appears in
the text and heading and inserting ``6694, 6695, and 6695A'',
and
(B) by striking ``6694 or 6695'' each place it appears in
the text and inserting ``6694, 6695, or 6695A''.
(3) Conforming amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by striking the item
relating to section 6696 and inserting the following new
items:

``Sec. 6695A. Substantial and gross valuation misstatements
attributable to incorrect appraisals.
``Sec. 6696. Rules applicable with respect to sections 6694, 6695, and
6695A.''.

(c) Qualified Appraisers and Appraisals.--
(1) In general.--Subparagraph (E) of section 170(f)(11) is
amended to read as follows:
``(E) Qualified appraisal and appraiser.--For purposes of
this paragraph--
``(i) Qualified appraisal.--The term `qualified appraisal'
means, with respect to any property, an appraisal of such
property which--

``(I) is treated for purposes of this paragraph as a
qualified appraisal under regulations or other guidance
prescribed by the Secretary, and
``(II) is conducted by a qualified appraiser in accordance
with generally accepted appraisal standards and any
regulations or other guidance prescribed under subclause (I).

[[Page S549]]

``(ii) Qualified appraiser.--Except as provided in clause
(iii), the term `qualified appraiser' means an individual
who--

``(I) has earned an appraisal designation from a recognized
professional appraiser organization or has otherwise met
minimum education and experience requirements set forth in
regulations prescribed by the Secretary,
``(II) regularly performs appraisals for which the
individual receives compensation, and
``(III) meets such other requirements as may be prescribed
by the Secretary in regulations or other guidance.

``(iii) Specific appraisals.--An individual shall not be
treated as a qualified appraiser with respect to any specific
appraisal unless--

``(I) the individual demonstrates verifiable education and
experience in valuing the type of property subject to the
appraisal, and
``(II) the individual has not been prohibited from
practicing before the Internal Revenue Service by the
Secretary under section 330(c) of title 31, United States
Code, at any time during the 3-year period ending on the date
of the appraisal.''.

(2) Reasonable cause exception.--Subparagraphs (B) and (C)
of section 6664(c)(3) are amended to read as follows:
``(B) Qualified appraisal.--The term `qualified appraisal'
has the meaning given such term by section 170(f)(11)(E)(i).
``(C) Qualified appraiser.--The term `qualified appraiser'
has the meaning given such term by section
170(f)(11)(E)(ii).''.
(d) Disciplinary Actions Against Appraisers.--Section
330(c) of title 31, United States Code, is amended by
striking ``with respect to whom a penalty has been assessed
under section 6701(a) of the Internal Revenue Code of 1986''.
(e) Effective Dates.--
(1) Misstatement penalties.--Except as provided in
paragraph (3), the amendments made by subsection (a) shall
apply to returns filed after the date of the enactment of
this Act.
(2) Appraiser provisions.--Except as provided in paragraph
(3), the amendments made by subsections (b), (c), and (d)
shall apply to appraisals prepared with respect to returns or
submissions filed after the date of the enactment of this
Act.
(3) Special rule for certain easements.--In the case of a
contribution of a qualified real property interest which is a
restriction with respect to the exterior of a building
described in section 170(h)(4)(C)(ii) of the Internal Revenue
Code of 1986, and an appraisal with respect to the
contribution, the amendments made by subsections (a) and (b)
shall apply to returns filed after December 16, 2004.

SEC. 321. ADDITIONAL STANDARDS FOR CREDIT COUNSELING
ORGANIZATIONS.

(a) In General.--Section 501 (relating to exemption from
tax on corporations, certain trusts, etc.) is amended by
redesignating subsection (q) as subsection (r) and by
inserting after subsection (p) the following new subsection:
``(q) Special Rules for Credit Counseling Organizations.--
``(1) In general.--An organization with respect to which
the provision of credit counseling services is a substantial
purpose shall not be exempt from tax under subsection (a)
unless such organization is described in paragraph (3) or (4)
of subsection (c) and such organization is organized and
operated in accordance with the following requirements:
``(A) The organization--
``(i) provides credit counseling services tailored to the
specific needs and circumstances of consumers,
``(ii) makes no loans to debtors and does not negotiate the
making of loans on behalf of debtors, and
``(iii) does not promote, or charge any separate fee for,
any service for the purpose of improving any consumer's
credit record, credit history, or credit rating.
``(B) The organization does not refuse to provide credit
counseling services to a consumer due to the inability of the
consumer to pay, the ineligibility of the consumer for debt
management plan enrollment, or the unwillingness of the
consumer to enroll in a debt management plan.
``(C) The organization establishes and implements a fee
policy which--
``(i) requires that any fees charged to a consumer for
services are reasonable, and
``(ii) prohibits charging any fee based in whole or in part
on a percentage of the consumer's debt, the consumer's
payments to be made pursuant to a debt management plan, or
the projected or actual savings to the consumer resulting
from enrolling in a debt management plan.
``(D) At all times the organization has a board of
directors or other governing body--
``(i) which is controlled by persons who represent the
broad interests of the public, such as public officials
acting in their capacities as such, persons having special
knowledge or expertise in credit or financial education, and
community leaders,
``(ii) not more than 20 percent of the voting power of
which is vested in persons who are employed by the
organization or who will benefit financially, directly or
indirectly, from the organization's activities (other than
through the receipt of reasonable directors' fees or the
repayment of consumer debt to creditors other than the credit
counseling organization or its affiliates), and
``(iii) not more than 49 percent of the voting power of
which is vested in persons who are employed by the
organization or who will benefit financially, directly or
indirectly, from the organization's activities (other than
through the receipt of reasonable directors' fees).
``(E) The organization does not own more than 35 percent
of--
``(i) the total combined voting power of a corporation
which is in the business of lending money, repairing credit,
or providing debt management plan services, payment
processing, or similar services,
``(ii) the profits interest of a partnership which is in
the business of lending money, repairing credit, or providing
debt management plan services, payment processing, or similar
services, and
``(iii) the beneficial interest of a trust or estate which
is in the business of lending money, repairing credit, or
providing debt management plan services, payment processing,
or similar services.
``(F) The organization receives no amount for providing
referrals to others for financial services (including debt
management services) or credit counseling services to be
provided to consumers, and pays no amount to others for
obtaining referrals of consumers.
``(2) Requirements under subsection (c)(3).--In addition to
the requirements under paragraph (1), an organization with
respect to which the provision of credit counseling services
is a substantial purpose and which is described in paragraph
(3) of subsection (c) shall not be exempt from tax under
subsection (a) unless such organization is organized and
operated in accordance with the following requirements:
``(A) The organization--
``(i) charges no fees (other than nominal fees) for debt
management plan services or credit counseling services and
waives any fees if the consumer is unable to pay such fees,
and
``(ii) does not solicit contributions from consumers during
the initial counseling process or while the consumer is
receiving services from the organization.
``(B) The activities of the organization related to debt
management plan services (in the aggregate) do not exceed 25
percent of the total activities of the organization
activities measured by any of the following:
``(i) The time spent on activities.
``(ii) The resources dedicated to activities.
``(iii) The effort expended by the organization with
respect to activities.
``(iv) The sources of revenue of the organization.
``(v) Any other measures prescribed by the Secretary.
``(3) Requirements under subsection (c)(4).--In addition to
the requirements under paragraph (1), an organization with
respect to which the provision of credit counseling services
is a substantial purpose and which is described in paragraph
(4) of subsection (c) shall not be exempt from tax under
subsection (a) unless such organization--
``(A) is organized and operated such that it charges no
fees (other than nominal fees) for credit counseling services
and waives any fees if the consumer is unable to pay such
fees, and
``(B) notifies the Secretary, in such manner as the
Secretary may by regulations prescribe, that it is applying
for recognition as a credit counseling organization.
``(4) Secretarial authority.--The Secretary may require any
organization described in paragraph (1) to submit such
information as the Secretary requires to verify that such
organization meets the requirements of this section.
``(5) Credit counseling services; debt management plan
services.--For purposes of this subsection--
``(A) Credit counseling services.--The term `credit
counseling services' means--
``(i) the providing of educational information to the
general public on budgeting, personal finance, financial
literacy, saving and spending practices, and the sound use of
consumer credit,
``(ii) the assisting of individuals and families with
financial problems by providing them with counseling, or
``(iii) a combination of the activities described in
clauses (i) and (ii).
``(B) Debt management plan services.--The term `debt
management plan services' means services related to the
repayment, consolidation, or restructuring of a consumer's
debt, and includes the negotiation with creditors of lower
interest rates, the waiver or reduction of fees, and the
marketing and processing of debt management plans.''.
(b) Debt Management Plan Services Treated as an Unrelated
Business.--Section 513 (relating to unrelated trade or
business) is amended by adding at the end the following:
``(j) Debt Management Plan Services.--The term `unrelated
trade or business' includes--
``(1) the provision of debt management plan services (as
defined in section 501(q)(4)(B)) by an organization described
in section 501(q) to the extent such services are not
substantially related to the provision of credit counseling
services (as defined in section 501(q)(4)(A)) to a consumer,
and
``(2) the provision of debt management plan services (as so
defined) by any organization other than an organization which
meets the requirements of section 501(q).''.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this

[[Page S550]]

section shall apply to taxable years beginning after the date
of the enactment of this Act.
(2) Transition rule for existing organizations.--In the
case of any organization described in paragraph (3) or (4)
section 501(c) of the Internal Revenue Code of 1986 and with
respect to which the provision of credit counseling services
is a substantial purpose on the date of the enactment of this
Act, the amendments made by this section shall apply to
taxable years beginning after the date which is 1 year after
the date of the enactment of this Act.

SEC. 322. EXPANSION OF THE BASE OF TAX ON PRIVATE FOUNDATION
NET INVESTMENT INCOME.

(a) Gross Investment Income.--
(1) In general.--Paragraph (2) of section 4940(c) (relating
to gross investment income) is amended by adding at the end
the following new sentence: ``Such term shall also include
income from sources similar to those in the preceding
sentence.''.
(2) Conforming amendment.--Subsection (e) of section 509
(relating to gross investment income) is amended by adding at
the end the following new sentence: ``Such term shall also
include income from sources similar to those in the preceding
sentence.''.
(b) Capital Gain Net Income.--Paragraph (4) of section
4940(c) (relating to capital gains and losses) is amended--
(1) in subparagraph (A), by striking ``used for the
production of interest, dividends, rents, and royalties'' and
inserting ``used for the production of gross investment
income (as defined in paragraph (2))'', and
(2) in subparagraph (C), by inserting ``or carrybacks''
after ``carryovers''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.

SEC. 323. DEFINITION OF CONVENTION OR ASSOCIATION OF
CHURCHES.

Section 7701 (relating to definitions) is amended by
redesignating subsection(o) as subsection (p) and by
inserting after subsection (n) the following new subsection:
``(o) Convention or Association of Churches.--For purposes
of this title, any organization which is otherwise a
convention or association of churches shall not fail to so
qualify merely because the membership of such organization
includes individuals as well as churches or because
individuals have voting rights in such organization.''.

SEC. 324. NOTIFICATION REQUIREMENT FOR ENTITIES NOT CURRENTLY
REQUIRED TO FILE.

(a) In General.--Section 6033 (relating to returns by
exempt organizations), as amended by section 346 of this Act,
is amended by redesignating subsection (j) as subsection (k)
and by inserting after subsection (i) the following new
subsection:
``(j) Additional Notification Requirements.--Any
organization the gross receipts of which in any taxable year
result in such organization being referred to in subsection
(a)(3)(A)(ii) or (a)(3)(B)--
``(1) shall furnish annually, at such time and in such
manner as the Secretary may by forms or regulations
prescribe, information setting forth--
``(A) the legal name of the organization,
``(B) any name under which such organization operates or
does business,
``(C) the organization's mailing address and Internet web
site address (if any),
``(D) the organization's taxpayer identification number,
``(E) the name and address of a principal officer, and
``(F) evidence of the continuing basis for the
organization's exemption from the filing requirements under
subsection (a)(1), and
``(2) upon the termination of the existence of the
organization, shall furnish notice of such termination.''.
(b) Loss of Exempt Status for Failure To File Return or
Notice.--Section 6033 (relating to returns by exempt
organizations), as amended by subsection (a), is amended by
redesignating subsection (k) as subsection (l) and by
inserting after subsection (j) the following new subsection:
``(k) Loss of Exempt Status for Failure To File Return or
Notice.--
``(1) In general.--If an organization described in
subsection (a)(1) or (i) fails to file an annual return or
notice required under either subsection for 3 consecutive
years, such organization's status as an organization exempt
from tax under section 501(a) shall be considered revoked on
and after the date set by the Secretary for the filing of the
third annual return or notice. The Secretary shall publish
and maintain a list of any organization the status of which
is so revoked.
``(2) Application necessary for reinstatement.--Any
organization the tax-exempt status of which is revoked under
paragraph (1) must apply in order to obtain reinstatement of
such status regardless of whether such organization was
originally required to make such an application.
``(3) Retroactive reinstatement if reasonable cause shown
for failure.--If upon application for reinstatement of status
as an organization exempt from tax under section 501(a), an
organization described in paragraph (1) can show to the
satisfaction of the Secretary evidence of reasonable cause
for the failure described in such paragraph, the
organization's exempt status may, in the discretion of the
Secretary, be reinstated effective from the date of the
revocation under such paragraph.''.
(c) No Declaratory Judgment Relief.--Section 7428(b)
(relating to limitations) is amended by adding at the end the
following new paragraph:
``(4) Nonapplication for certain revocations.--No action
may be brought under this section with respect to any
revocation of status described in section 6033(k)(1).''.
(d) No Inspection Requirement.--Section 6104(b) (relating
to inspection of annual information returns) is amended by
inserting ``(other than subsection (j) thereof)'' after
``6033''.
(e) No Disclosure Requirement.--Section 6104(d)(3)
(relating to exceptions from disclosure requirements) is
amended by redesignating subparagraph (B) as subparagraph (C)
and by inserting after subparagraph (A) the following new
subparagraph:
``(B) Nondisclosure of annual notices.--Paragraph (1) shall
not require the disclosure of any notice required under
section 6033(j).''.
(f) No Monetary Penalty for Failure To Notify.--Section
6652(c)(1) (relating to annual returns under section 6033 or
6012(a)(6)) is amended by adding at the end the following new
subparagraph:
``(E) No penalty for certain annual notices.--This
paragraph shall not apply with respect to any notice required
under section 6033(j).''.
(g) Secretarial Outreach Requirements.--
(1) Notice requirement.--The Secretary of the Treasury
shall notify in a timely manner every organization described
in section 6033(j) of the Internal Revenue Code of 1986 (as
added by this section) of the requirement under such section
6033(j) and of the penalty established under section
6033(k)--
(A) by mail, in the case of any organization the identity
and address of which is included in the list of exempt
organizations maintained by the Secretary, and
(B) by Internet or other means of outreach, in the case of
any other organization.
(2) Loss of status penalty for failure to file return.--The
Secretary of the Treasury shall publicize in a timely manner
in appropriate forms and instructions and through other
appropriate means, the penalty established under section
6033(k) of such Code for the failure to file a return under
section 6033(a)(1) of such Code.
(h) Effective Date.--The amendments made by this section
shall apply to notices and returns with respect to annual
periods beginning after 2005.

SEC. 325. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS
RELATED TO EXEMPT ORGANIZATIONS.

(a) In General.--Subsection (c) of section 6104 is amended
by striking paragraph (2) and inserting the following new
paragraphs:
``(2) Disclosure of proposed actions related to charitable
organizations.--
``(A) Specific notifications.--In the case of an
organization to which paragraph (1) applies, the Secretary
may disclose to the appropriate State officer--
``(i) a notice of proposed refusal to recognize such
organization as an organization described in section
501(c)(3) or a notice of proposed revocation of such
organization's recognition as an organization exempt from
taxation,
``(ii) the issuance of a letter of proposed deficiency of
tax imposed under section 507 or chapter 41 or 42, and
``(iii) the names, addresses, and taxpayer identification
numbers of organizations which have applied for recognition
as organizations described in section 501(c)(3).
``(B) Additional disclosures.--Returns and return
information of organizations with respect to which
information is disclosed under subparagraph (A) may be made
available for inspection by or disclosed to an appropriate
State officer.
``(C) Procedures for disclosure.--Information may be
inspected or disclosed under subparagraph (A) or (B) only--
``(i) upon written request by an appropriate State officer,
and
``(ii) for the purpose of, and only to the extent necessary
in, the administration of State laws regulating such
organizations.
Such information may only be inspected by or disclosed to
representatives of the appropriate State officer designated
as the individuals who are to inspect or to receive the
returns or return information under this paragraph on behalf
of such officer. Such representatives shall not include any
contractor or agent.
``(D) Disclosures other than by request.--The Secretary may
make available for inspection or disclose returns and return
information of an organization to which paragraph (1) applies
to an appropriate State officer of any State if the Secretary
determines that such inspection or disclosure may facilitate
the resolution of Federal or State issues relating to the
tax-exempt status of such organization.
``(3) Disclosure with respect to certain other exempt
organizations.--Upon written request by an appropriate State
officer, the Secretary may make available for inspection or
disclosure returns and return information of an organization
described in paragraph (2), (4), (6), (7), (8), (10), or (13)
of section 501(c) for the purpose of, and to the extent
necessary in, the administration of State laws regulating the
solicitation or administration of the charitable funds or
charitable assets of such organizations. Such information may
be inspected only by or disclosed only to representatives of
the appropriate State officer designated as the individuals
who are to inspect or to receive the returns or return
information under this paragraph on behalf of such officer.
Such representatives shall not include any contractor or
agent.

[[Page S551]]

``(4) Use in civil judicial and administrative
proceedings.--Returns and return information disclosed
pursuant to this subsection may be disclosed in civil
administrative and civil judicial proceedings pertaining to
the enforcement of State laws regulating such organizations
in a manner prescribed by the Secretary similar to that for
tax administration proceedings under section 6103(h)(4).
``(5) No disclosure if impairment.--Returns and return
information shall not be disclosed under this subsection, or
in any proceeding described in paragraph (4), to the extent
that the Secretary determines that such disclosure would
seriously impair Federal tax administration.
``(6) Definitions.--For purposes of this subsection--
``(A) Return and return information.--The terms `return'
and `return information' have the respective meanings given
to such terms by section 6103(b).
``(B) Appropriate state officer.--The term `appropriate
State officer' means--
``(i) the State attorney general,
``(ii) the State tax officer,
``(iii) in the case of an organization to which paragraph
(1) applies, any other State official charged with overseeing
organizations of the type described in section 501(c)(3), and
``(iv) in the case of an organization to which paragraph
(3) applies, the head of an agency designated by the State
attorney general as having primary responsibility for
overseeing the solicitation of funds for charitable
purposes.''.
(b) Conforming Amendments.--
(1) Subparagraph (A) of section 6103(p)(3) is amended by
inserting ``an section 6104(c)'' after ``section'' in the
first sentence.
(2) Paragraph (4) of section 6103(p) is amended--
(A) in the matter preceding subparagraph (A), by inserting
``, or any appropriate State officer (as defined in section
6104(c)),'' before ``or any other person'',
(B) in subparagraph (F)(i), by inserting ``or any
appropriate State officer (as defined in section 6104(c)),''
before ``or any other person'', and
(C) in the matter following subparagraph (F), by inserting
``, an appropriate State officer (as defined in section
6104(c)),'' after ``including an agency'' each place it
appear.
(3) The heading for paragraph (1) of section 6104(c) is
amended by inserting ``for charitable organizations'' after
``rule''.
(4) Paragraph (2) of section 7213(a) is amended by
inserting ``or under section 6104(c)'' after ``6103''.
(5) Paragraph (2) of section 7213A(a) is amended by
inserting ``or 6104(c)'' after ``6103''.
(6) Paragraph (2) of section 7431(a) is amended by
inserting ``(including any disclosure in violation of section
6014(c)'' after ``6103''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act
but shall not apply to requests made before such date.

PART II--IMPROVED ACCOUNTABILITY OF DONOR ADVISED FUNDS

SEC. 331. EXCISE TAX ON SPONSORING ORGANIZATIONS OF DONOR
ADVISED FUNDS FOR FAILURE TO MEET DISTRIBUTION
REQUIREMENTS.

(a) In General.--Chapter 42 (relating to private
foundations and certain other tax-exempt organizations), as
amended by section 311, is amended by adding at the end the
following new subchapter:

``Subchapter G--Donor Advised Funds

``Sec. 4967. Taxes on sponsoring organizations of donor advised funds
for failure to meet distributions requirements
``Sec. 4968. Taxes on prohibited distributions
``Sec. 4969. Taxes on prohibited benefits

``SEC. 4967. TAXES ON SPONSORING ORGANIZATIONS OF DONOR
ADVISED FUNDS FOR FAILURE TO MEET DISTRIBUTION
REQUIREMENTS.

``(a) Initial Tax.--There is hereby imposed on any
sponsoring organization a tax equal to 30 percent of each of
the following amounts:
``(1) The organization level undistributed amount of such
sponsoring organization (other than any organization subject
to tax under section 4942) for any taxable year which has not
been distributed before the first day of the second (or any
succeeding) taxable year following such taxable year (if such
first day falls within the taxable period).
``(2) The fund level undistributed amount of any donor
advised fund of such sponsoring organization for any taxable
year which has not been distributed before the 181st day of
the first (or any succeeding) taxable year following the
applicable period (if such 181st day falls within the taxable
period).
``(3) The illiquid fund undistributed amount of any
illiquid asset donor advised fund of such sponsoring
organization for any taxable year which has not been
distributed before the 181st day of the second (or any
succeeding) taxable year following such taxable year (if such
181st day falls within the taxable period).
``(b) Additional Tax.--In any case in which an initial tax
is imposed under subsection (a) on any amount, if any portion
of such amount remains undistributed at the close of the
taxable period, there is hereby imposed a tax equal to 100
percent of the amount remaining undistributed at such time.
``(c) Organization Level Undistributed Amount; Fund Level
Undistributed Amount; Illiquid Fund Undistributed Amount.--
For purposes of this section--
``(1) Organization level undistributed amount.--The term
`organization level undistributed amount' means, with respect
to any sponsoring organization for any taxable year, the
amount by which--
``(A) the organization level distributable amount for such
taxable year, exceeds
``(B) the qualifying distributions made during such taxable
year and designated for the purpose of reducing such amount.
``(2) Fund level undistributed amount.--The term `fund
level undistributed amount' means, with respect to any donor
advised fund of a sponsoring organization for any applicable
period, the amount by which--
``(A) the fund level distributable amount for such
applicable period, exceeds
``(B) the qualifying distributions made during such
applicable period and designated for the purpose of reducing
such amount.
``(3) Illiquid fund undistributed amount.--
``(A) In general.--The term `illiquid fund undistributed
amount' means, with respect to any illiquid asset donor
advised fund of a sponsoring organization for any taxable
year, the amount by which--
``(i) the illiquid fund distributable amount for such
taxable year, exceeds
``(ii) the qualifying distributions made during such
taxable year and designated for the purpose of reducing such
amount.
``(B) Illiquid asset donor advised fund.--The term
`illiquid asset donor advised fund' means for any taxable
year a donor advised fund the value of the illiquid assets of
which (as of the end of the preceding taxable year) exceeds
10 percent of the value of the total assets of such fund.
``(C) Illiquid asset.--The term `illiquid asset' means for
any taxable year any asset other than cash and marketable
securities the value of which is held for the entire taxable
year as such asset or any other illiquid asset.
``(d) Organization Level Distributable Amount; Fund Level
Distributable Amount; Illiquid Fund Distributable Amount.--
For purposes of this section--
``(1) Organization level distributable amount.--The term
`organization level distributable amount' means, with respect
to any sponsoring organization for any taxable year, an
amount equal to the applicable percentage of the fair market
value of the aggregate assets of all donor advised funds
maintained by such organization as determined on the last day
of the preceding taxable year (other than such funds which
have been in existence for less than 1 year as so
determined).
``(2) Fund level distributable amount.--The term `fund
level distributable amount' means, with respect to any donor
advised fund of any sponsoring organization for any
applicable 3-consecutive taxable year period, an amount equal
to the greater of--
``(A) $250, or
``(B) 2.5 percent of the greater of--
``(i) the average of the sponsoring organization's required
minimum initial contribution amount for such period, or
``(ii) the average of the sponsoring organization's
required minimum balance for such period,
for the type of donor with respect to such donor advised
fund.
``(3) Illiquid fund distributable amount.--The term
`illiquid fund distributable amount' means, with respect to
any illiquid asset donor advised fund of any sponsoring
organization for any taxable year, an amount equal to the
applicable percentage of the value of the assets in such fund
as determined at the end of the preceding taxable year.
``(4) Applicable percentage.--For purposes of paragraphs
(1) and (3), the applicable percentage is--
``(A) 3 percent for the first taxable year beginning after
the date of the enactment of this section,
``(B) 4 percent for the second taxable year beginning after
such date, and
``(C) 5 percent for any taxable year beginning after the
second taxable year beginning after such date.
``(e) Qualifying Distribution.--For purposes of this
section--
``(1) In general.--The term `qualifying distribution'
means--
``(A) any amount paid by the sponsoring organization from a
donor advised fund--
``(i) to any organization described in section 170(b)(1)(A)
(other than any organization described in section 509(a)(3))
or any sponsoring organization if such amount is for
maintenance in a donor advised fund), and
``(ii) notwithstanding clause (i), to any organization
described section 170(f)(17)(B)(ii), but only to the extent
not prohibited by regulations, and
``(B) any amount set aside in such donor advised fund for
purposes, and under procedures similar to those, described in
section 4942(g)(2).
Such term shall also include any amount paid during any
taxable year for reasonable and necessary administrative
expenses charged to a donor advised fund by a sponsoring
organization.
``(2) Distributions to sponsoring organizations.--
``(A) In general.--Except as provided in subparagraph (B),
such term shall include

[[Page S552]]

any distribution to a sponsoring organization.
``(B) Organization level distributions.--For purposes of
subsection (c)(1)(B), such term shall not include any
distribution to a sponsoring organization unless such
distribution is designated for use in connection with a
charitable program of such organization.
``(3) Purpose of distribution.--Each qualifying
distribution shall be taken into account in determining
whether each of the requirements of paragraphs (1), (2), and
(3) of subsection (a) are met, except that only qualifying
distributions from a donor advised fund shall be taken into
account in determining whether the requirements of paragraphs
(2) and (3) of subsection (a) are met with respect to the
fund.
``(4) Designation of taxable year.--
``(A) In general.--A sponsoring organization shall
designate the taxable years or applicable periods with
respect to which any qualifying distribution shall be applied
for purposes of satisfying the distribution requirements of
such taxable year or applicable period.
``(B) Carryover of excess distribution designations.--If a
sponsoring organization designates an amount of qualifying
distributions in excess of the amount necessary to meet the
distribution requirements for all taxable years and all
applicable periods, the sponsoring organization may designate
such excess as a carryover distribution which may be applied
for purposes of satisfying the distribution requirements of
the succeeding 5 taxable years.
``(f) Valuation Rules.--For purposes of determining the
value of any asset held by a donor advised fund, the
following rules shall apply:
``(1) Securities for which market quotations are readily
available shall be valued at fair market value determined on
a monthly basis.
``(2) Cash shall be determined on an average monthly basis.
``(3) Any illiquid asset transferred by a donor to a
sponsoring organization for maintenance in such donor advised
fund shall be valued in an amount equal to the sum of--
``(A) the value of such asset claimed by the donor for
purposes of determining the donor's deduction under section
170, 2055, or 2522 with respect to such transfer and reported
by the donor to the sponsoring organization (in any manner
specified by the Secretary), and
``(B) an assumed annual rate of return of 5 percent of such
value.
``(4) Any illiquid asset purchased by such fund shall be
valued in an amount equal to--
``(A) the purchase price paid for such asset by such fund,
and
``(B) an assumed annual rate of return of 5 percent of such
value.
``(g) Sponsoring Organization; Donor Advised Fund.--For
purposes of this subchapter--
``(1) Sponsoring organization.--The term `sponsoring
organization' means any organization which--
``(A) is described in section 170(c) (other than in
paragraph (1) thereof, and without regard to paragraph (2)(A)
thereof), and
``(B) maintains 1 or more donor advised funds.
``(2) Donor advised fund.--
``(A) In general.--Except as provided in subparagraph (B),
the term `donor advised fund' means a fund or account--
``(i) which is separately identified by reference to
contributions of a donor or donors,
``(ii) which is owned and controlled by a sponsoring
organization, and
``(iii) with respect to which a donor or any person
appointed or designated by such person) has, or reasonably
expects to have, advisory privileges with respect to the
distribution or investment of amounts held in such fund or
account by reason of the donor's status as a donor.
``(B) Exception.--The term `donor advised fund' shall not
include any fund or account with respect to which a person
described in subparagraph (A)(iii) advises as to which
individuals receive grants for travel, study, or other
similar purposes, but only if--
``(i) such person's advisory privileges are performed
exclusively by such person in the person's capacity as a
member of a committee appointed by the sponsoring
organization,
``(ii) no combination of persons described in subparagraph
(A)(iii) (or persons related to such persons) control,
directly or indirectly, such committee, and
``(iii) all grants from such fund or account satisfy
requirements similar to those described in section 4945(g)
(concerning grants to individuals by private foundations).
``(C) Secretarial authority.--The Secretary may exempt a
fund or account from treatment as a donor advised fund
which--
``(i) is advised by committee not directly or indirectly
controlled by the donor or advisor (and any related parties),
or
``(ii) will benefit a single identified organization or
governmental entity or a single identified charitable
purpose.
``(h) Other Definitions.--For purposes of this section--
``(1) Taxable period.--The term `taxable period' means,
with respect to the undistributed amount for any taxable
year, the period beginning with the first day of the taxable
year and ending on the earlier of--
``(A) the date of mailing of a notice of deficiency with
respect to the tax imposed by subsection (a) under section
6212, or
``(B) the date on which the tax imposed by subsection (a)
is assessed.
``(2) Applicable period.--The term `applicable period'
means, with respect to any donor advised fund of any
sponsoring organization, a 3-consecutive taxable year period
determined under the following rules:
``(A) The first applicable 3-consecutive taxable year
period for any donor advised fund shall begin on the first
day of the first taxable year of the sponsoring organization
beginning after the date such fund has been in existence for
1 year.
``(B) Any applicable 3-consecutive taxable year period
after the first such period shall begin on the day after the
termination of any preceding applicable 3-consecutive taxable
year period with respect to such donor advised fund.
``(i) Regulations.--The Secretary may issue such
regulations as are necessary to carry out the purposes of
this section, including regulations regarding--
``(1) the acceptable methods for calculating the
organization level undistributed amount for sponsoring
organizations,
``(2) the allowable adjustments in the determination of the
value of any illiquid asset where the asset value has
declined significantly after a contribution to, or purchase
by, the donor advised fund, and
``(3) the treatment or disregard of transactions designed
to avoid the application of the illiquid asset rules, such as
through exchanges of illiquid assets for other assets.

``SEC. 4968. TAXES ON PROHIBITED DISTRIBUTIONS.

``(a) Imposition of Taxes.--
``(1) On the donor or donor advisor.--There is hereby
imposed on the advice of any person described in section
4967(g)(2)(A)(iii) to have a sponsoring organization of a
donor advised fund make a taxable distribution from such fund
a tax equal to 20 percent of the amount thereof. The tax
imposed by this paragraph shall be paid by such person who
advised the sponsoring organization of the donor advised fund
to make the distribution.
``(2) On the fund management.--There is hereby imposed on
the agreement of any fund manager to the making of a
distribution, knowing that it is a taxable distribution, a
tax equal to 5 percent of the amount thereof, unless such
agreement is not willful and is due to reasonable cause. The
tax imposed by this paragraph shall be paid by any fund
manager who agreed to the making of the distribution.
``(b) Joint and Several Liability.--For purposes of
subsection (a), if more than one person is liable under
subsection (a)(1) or (a)(2) with respect to the making of a
taxable distribution, all such persons shall be jointly and
severally liable under such paragraph with respect to such
distribution.
``(c) Taxable Distribution.--For purposes of this
subsection--
``(1) In general.--The term `taxable distribution' means
any distribution from a donor advised fund to any person
other than the sponsoring organization's non donor advised
funds or accounts or organizations described in section
170(b)(1)(A) (other than any organization described in
section 509(a)(3) or any sponsoring organization if such
amount is for maintenance in a donor advised fund).
``(2) Exception.--Notwithstanding paragraph (1), such term
shall not include any distribution from a donor advised fund
to any organization described section 170(f)(17)(B)(ii) to
the extent such distribution is not prohibited under
regulations.
``(d) Fund Manager.--For purposes of this subchapter, the
term `fund manager' means, with respect to any sponsoring
organization of a donor advised fund--
``(1) an officer, director, or trustee of such sponsoring
organization (or an individual having powers or
responsibilities similar to those of officers, directors, or
trustees of the sponsoring organization), and
``(2) with respect to any act (or failure to act), the
employees of the sponsoring organization having authority or
responsibility with respect to such act (or failure to act).

``SEC. 4969. TAXES ON PROHIBITED BENEFITS.

``(a) Imposition of Taxes.--
``(1) On the donor, donor advisor, or related person.--
There is hereby imposed on the advice of any person described
in subsection (c) to have a sponsoring organization of a
donor advised fund make a distribution from such fund which
results in such a person receiving, directly or indirectly, a
more than incidental benefit as a result of such
distribution, a tax equal to 25 percent of the amount of such
distribution. The tax imposed by this paragraph shall be paid
by such person who advised the sponsoring organization of the
donor advised fund to make the distribution.
``(2) On the recipient of the benefit.--There is hereby
imposed on any person described in subsection (c) who
receives a benefit described in paragraph (1), a tax equal to
25 percent of the amount of the distribution described in
paragraph (1).
``(3) On the fund management.--There is hereby imposed on
the agreement of any fund manager to the making of a
distribution, knowing that such distribution would confer a
benefit described in paragraph (1), a tax equal to 10 percent
of the amount of such distribution, unless such agreement is
not willful and is due to reasonable cause. The tax imposed
by this paragraph shall be paid by any fund manager who
agreed to the making of the distribution.
``(b) Joint and Several Liability.--For purposes of
subsection (a), if more than one person is liable under
subsection (a)(1), (a)(2), or (a)(3) with respect to the
making of a distribution described in subsection (a), all
such

[[Page S553]]

persons shall be jointly and severally liable under such
paragraph with respect to such distribution.
``(c) Donor, Donor Advisor, or Related Person.--A person is
described in this subsection if such person is described in
section 4958(f)(1)(D) (determined without regard to any
investment advisor).''.
(b) Abatement of Taxes Allowed.--Section 4963 is amended--
(1) by inserting ``4967, 4968, 4969,'' after ``4958,'' each
place it appears in subsections (a) and (c),
(2) by inserting ``4967,'' after ``4958,'' in subsection
(b),
(3) in subsection (d)(2), 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:
``(D) in the case of the second tier tax imposed by section
4967(b), reducing the amount of the undistributed amount to
zero.'', and
(4) in subsection (e)(2), by redesignating subparagraphs
(C) and (D) as subparagraphs (E) and (F), respectively, and
by inserting after subparagraph (B) the following new
subparagraphs:
``(C) in the case of section 4967(a)(1), on the first day
of the taxable year for which there was a failure to
distribute,
``(D) in the case of paragraph (2) or (3) of section
4967(a), on the 181st day of the taxable year for which there
was a failure to distribute,''.
(c) Conforming Amendment.--The table of subchapters of
chapter 42 is amended by adding at the end the following new
item:

``Subchapter G. Donor Advised Funds.''.

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

SEC. 332. PROHIBITED TRANSACTIONS.

(a) Disqualified Persons.--
(1) In general.--Paragraph (1) of section 4958(f) 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 after subparagraph (C) the
following new subparagraph:
``(D) any person who is described in paragraph (7) with
respect to any sponsoring organization (as defined in section
4967(g)(1)).''.
(2) Donors, donor advisors, and investment advisors treated
as disqualified persons.--Section 4958(f) is amended by
adding at the end the following new paragraph:
``(7) Donors, donor advisors, and investment advisors with
respect to sponsoring organizations.--For purposes of
paragraph (1)(D)--
``(A) In general.--A person is described in this paragraph
if such person--
``(i) is described in section 4967(g)(2)(A)(iii),
``(ii) is an investment advisor,
``(iii) is a member of the family of an individual
described in clause (i) or (ii), or
``(iv) is a 35-percent controlled entity (as defined in
paragraph (3) by substituting `persons described in clause
(i), (ii), or (iii) of paragraph (7)(A)' for `persons
described in subparagraph (A) or (B) of paragraph (1)' in
subparagraph (A)(i) thereof).
``(B) Investment advisor.--The term `investment advisor'
means, with respect to any sponsoring organization (as
defined in section 4967(g)(1)), any person (other than an
employee of such organization) compensated by such
organization for managing the investment of, or providing
investment advice with respect to, assets maintained in donor
advised funds (as defined in section 4967(g)(2)) owned by
such organization.''.
(3) Donors, donor advisors, and investment advisors treated
as disqualified persons with respect to a sponsoring
organization which is a private foundation.--Section
4946(a)(1) is amended by striking ``and'' at the end of
subparagraph (H), by striking the period at the end of
subparagraph (I) and inserting ``, and'', and by adding at
the end the following new subparagraph:
``(J) a person described in section 4958(f)(1)(D).''.
(b) Certain Transactions Treated as Excess Benefit
Transactions.--
(1) In general.--Section 4958(c) is amended by
redesignating paragraph (2) as paragraph (3) and by inserting
after paragraph (1) the following new paragraph:
``(2) Special rules for donor advised funds owned by
sponsoring organizations.--In the case of any donor advised
fund (as defined in section 4967(g)(2)) of a sponsoring
organization (as defined in section 4967(g)(1))--
``(A) the term `excess benefit transaction' includes any
grant, loan, compensation, or other payment from such fund to
a person described in subsection (f)(1)(D) (determined
without regard to any investment advisor) with respect to
such fund, and
``(B) the term `excess benefit' includes, with respect to
any transaction described in subparagraph (A), the amount of
any such grant, loan, compensation, or other payment.
``Notwithstanding the last sentence of subsection (e), a
sponsoring organization shall be treated as an applicable
tax-exempt organization to the extent necessary to carry out
this paragraph.''.
(2) Special rule for correction of transaction.--Section
4958(f)(6) is amended by inserting ``, except that in the
case of any correction of an excess benefit transaction
described in subsection (c)(2), no amount repaid in a manner
prescribed by the Secretary may be held in, or credited to,
any donor advised fund'' after ``standards''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.

SEC. 333. TREATMENT OF CHARITABLE CONTRIBUTION DEDUCTIONS TO
DONOR ADVISED FUNDS.

(a) Income.--Section 170(f) (relating to disallowance of
deduction in certain cases and special rules), as amended by
section 318 of this Act, is amended by adding at the end the
following new paragraph:
``(17) Contributions to donor advised funds.--
``(A) In general.--A deduction otherwise allowed under
subsection (a) for any contribution to a sponsoring
organization (as defined in section 4967(g)(1)) to be
maintained in any donor advised fund (as defined in section
4967(g)(2)) of such organization shall only be allowed if--
``(i) such sponsoring organization is not described in
paragraph (3), (4), or (5) of subsection (c) or section
509(a)(3), and
``(ii) the taxpayer obtains a contemporaneous written
acknowledgment (determined under rules similar to the rules
of paragraph (8)(C) from the sponsoring organization that
such organization has exclusive legal control over the assets
contributed.
``(B) Contributions to type i or type ii supporting
organizations.--
``(i) In general.--Notwithstanding subparagraph (A)(i), a
contribution to a sponsoring organization (as so defined)
described in clause (ii) to be maintained in any donor
advised fund (as so defined) of such organization shall be
allowed to the extent not prohibited by regulations.
``(ii) Organization described.--An organization is
described in this clause if the organization meets the
requirements of subparagraphs (A) and (C) of section
509(a)(3) and is--

``(I) operated, supervised, or controlled by one or more
organizations described in paragraph (1) or (2) of section
509(a), or
``(II) supervised or controlled in connection with one or
more such organizations.''.

(b) Estate.--Section 2055(e) is amended by adding at the
end the following new paragraph:
``(5) Contributions to donor advised funds.--
``(A) In general.--A deduction otherwise allowed under
subsection (a) for any contribution to a sponsoring
organization (as defined in section 4967(g)(1)) to be
maintained in any donor advised fund (as defined in section
4967(g)(2)) of such organization shall only be allowed if--
``(i) such sponsoring organization is not described in
paragraph (3) or(4) of subsection (a) or section 509(a)(3),
and
``(ii) the taxpayer obtains a contemporaneous written
acknowledgment (determined under rules similar to the rules
of section 170(f)(8)(C)) from the sponsoring organization
that such organization has exclusive legal control over the
assets contributed.
``(B) Contributions to type i or type ii supporting
organizations.--
``(i) In general.--Notwithstanding subparagraph (A)(i), a
contribution to a sponsoring organization (as so defined)
described in clause (ii) to be maintained in any donor
advised fund (as so defined) of such organization shall be
allowed to the extent not prohibited by regulations.
``(ii) Organization described.--An organization is
described in this clause if the organization meets the
requirements of subparagraphs (A) and (C) of section
509(a)(3) and is--

``(I) operated, supervised, or controlled by one or more
organizations described in paragraph (1) or (2) of section
509(a), or
``(II) supervised or controlled in connection with one or
more such organizations.''.

(c) Gift.--Section 2522(c) is amended by adding at the end
the following new paragraph:
``(13) Contributions to donor advised funds.--
``(A) In general.--A deduction otherwise allowed under
subsection (a) for any contribution to a sponsoring
organization (as defined in section 4967(g)(1)) to be
maintained in any donor advised fund (as defined in section
4967(g)(2)) of such organization shall only be allowed if--
``(i) such sponsoring organization is not described in
paragraph (3) or (4) of subsection (a) or section 509(a)(3),
and
``(ii) the taxpayer obtains a contemporaneous written
acknowledgment (determined under rules similar to the rules
of section 170(f)(8)(C)) from the sponsoring organization
that such organization has exclusive legal control over the
assets contributed.
``(B) Contributions to type i or type ii supporting
organizations.--
``(i) In general.--Notwithstanding subparagraph (A)(i), a
contribution to a sponsoring organization (as so defined)
described in clause (ii) to be maintained in any donor
advised fund (as so defined) of such organization shall be
allowed to the extent not prohibited by regulations.
``(ii) Organization described.--An organization is
described in this clause if the organization meets the
requirements of subparagraphs (A) and (C) of section
509(a)(3) and is--

``(I) operated, supervised, or controlled by one or more
organizations described in paragraph (1) or (2) of section
509(a), or
``(II) supervised or controlled in connection with one or
more such organizations.''.

(d) Regulations.--The regulations prescribed under sections
170(f)(17)(B)(i), 2055(e)(5)(B)(i), 2522(c)(13)(B)(i),

[[Page S554]]

4967(e)(i)(A)(ii), and 4968(c)(2) of the Internal Revenue
Code of 1986 shall deny a deduction for contributions to
sponsoring organizations (as defined in section 4967(g)(1) of
such Code) which are described in section 170(f)(17)(B)(ii)
of such Code and shall apply excise taxes to distributions
from donor advised funds (as defined in section 4967(g)(2) of
such Code) and sponsoring organizations (as so defined) to
organizations so described in cases where the donor of the
contributions or the donor or donor advisor of the amounts
distributed directly or indirectly controls a supported
organization (as defined in section 509(f)(3) of such Code)
of such organization.
(e) Effective Date.--The amendments made by this section
shall apply to contributions made after the date which is 180
days after the date of the enactment of this Act.

SEC. 334. RETURNS OF, AND APPLICATIONS FOR RECOGNITION BY,
SPONSORING ORGANIZATIONS.

(a) Matters Included on Returns.--
(1) In general.--Section 6033 is amended by redesignating
subsection (h) as subsection (i) and by inserting after
subsection (g) the following new subsection:
``(h) Additional Provisions Relating to Sponsoring
Organizations.--Every organization described in section
4967(g)(1) shall, on the return required under subsection (a)
for the taxable year--
``(1) list the total number of donor advised funds (as
defined in section 4967(g)(2)) it owns at the end of such
taxable year,
``(2) indicate the aggregate value of assets held in such
funds at the end of such taxable year, and
``(3) indicate the aggregate contributions to and grants
made from such funds during such taxable year.''.
(2) Extension of statute of limitations.--Section 6501(c)
is amended by adding at the end the following new paragraph:
``(11) Donor advised funds.--If a sponsoring organization
(as defined in section 4967(g)(1)) fails to include on any
return for any taxable year any information with respect to
any donor advised fund of such organization which is required
under section 6033(h) to be included with such return, the
time for assessment of any tax imposed under subchapter G of
chapter 42 with respect to any distribution from such donor
advised fund shall not expire before the date which is 3
years after the date on which the secretary is furnished the
information so required.''.
(3) Effective date.--The amendments made by this subsection
shall apply to returns filed for taxable years ending after
the date of the enactment of this Act.
(b) Matters Included on Exempt Status Application.--
(1) In general.--Section 508 is amended by adding at the
end the following new subsection:
``(f) Additional Provisions Relating to Sponsoring
Organizations.--sponsoring organization (as defined in
section 4967(g)(1)) shall give notice to the Secretary (in
such manner as the Secretary may provide) whether such
organization maintains or intends to maintain donor advised
funds (as defined in section 4967(g)(2)) and the manner in
which such organization plans to operate such funds.''.
(2) Effective date.--The amendment made by this subsection
shall apply to organizations applying for tax-exempt status
after the date of the enactment of this Act.

PART III--IMPROVED ACCOUNTABILITY OF SUPPORTING ORGANIZATIONS

SEC. 341. REQUIREMENTS FOR SUPPORTING ORGANIZATIONS.

(a) Types of Supporting Organizations.--Subparagraph (B) of
section 509(a)(3) is amended to read as follows:
``(B) is--
``(i) operated, supervised, or controlled by one or more
organizations described in paragraph (1) or (2),
``(ii) supervised or controlled in connection with one or
more such organizations, or
``(iii) operated in connection with one or more such
organizations, and''.
(b) Requirements for Supporting Organizations.--Section 509
(relating to private foundation defined) is amended by adding
at the end the following new subsection:
``(f) Requirements for Supporting Organizations.--
``(1) Type iii supporting organizations.--For purposes of
subsection (a)(3)(B)(iii), an organization shall not be
considered to be operated in connection with any organization
described in paragraph (1) or (2) of subsection (a) unless
such organization meets the following requirements:
``(A) Application requirement.--The organization provides
to the Secretary, as a part of any notification filed under
section 508(a) after the date of the enactment of this
subsection, a letter from each supported organization
acknowledging that the supported organization has been
designated by such organization as a supported organization.
``(B) Responsiveness.--For each taxable year beginning
after the date of the enactment of this subsection, the
organization provides to each supported organization such
information as the Secretary may require to ensure that such
organization is responsive to the needs or demands of the
supported organization.
``(C) Supported organizations.--
``(i) In general.--The organization--

``(I) is not operated in connection with more than 5
supported organizations, and
``(II) is not operated in connection with any supported
organization that is not organized in the United States on
any date after the date which is 180 days after the date of
the enactment of this subsection.

``(ii) Special rule for existing organizations.--If the
organization is operated in connection with more than 5
supported organizations on the date of the enactment of this
subsection--

``(I) clause (i)(I) shall not apply, and
``(II) the organization may not be operated in connection
with any other organization after such date unless the total
number of supported organizations is 5 or less.

``(D) Contributions to donor advised funds.--The
organization makes no contributions to or for the use of any
donor advised fund (as defined in section 4967(g)(2)).
``(2) Organizations controlled by donors.--
``(A) In general.--For purposes of subsection (a)(3)(B), an
organization shall not be considered to be--
``(i) operated, supervised, or controlled by any
organization described in paragraph (1) or (2) of subsection
(a), or
``(ii) operated in connection with any organization
described in paragraph (1) or (2) of subsection (a),
if such organization accepts any gift or contribution from
any person described in subparagraph (B).
``(B) Person described.--A person is described in this
subparagraph if such person is--
``(i) a person (other than an organization described in
paragraph (1), (2), or (4) of section 509(a)) who controls,
directly or indirectly, either alone or together with persons
described in clauses (ii) and (iii), the governing body of a
supported organization,
``(ii) a member of the family (determined under section
4958(f)(4)) of an individual described in clause (i), or
``(iii) a 35-percent controlled entity (as defined in
section 4958(f)(3) by substituting `persons described in
clause (i) or (ii) of section 509(f)(2)(B)' for `persons
described in subparagraph (A) or (B) of paragraph (1)' in
subparagraph (A)(i) thereof).
``(3) Supported organization.--For purposes of this
subsection, the term `supported organization' means, with
respect to an organization described in subsection (a)(3), an
organization described in paragraph (1) or (2) of subsection
(a)--
``(A) for whose benefit the organization described in
subsection (a)(3) is organized and operated, or
``(B) with respect to which the organization performs the
functions of, or carries out the purposes of.''.
(c) Charitable Trusts Which Are Type III Supporting
Organizations.--For purposes of section 509(a)(3)(B)(iii) of
the Internal Revenue Code of 1986, an organization which is a
trust shall not be considered to be operated in connection
with any organization described in paragraph (1) or (2) of
section 509(a) of such Code solely because--
(1) it is a charitable trust under State law,
(2) the supported organization (as defined in section
509(f)(3) of such Code) is a beneficiary of such trust, and
(3) the supported organization (as so defined) has the
power to enforce the trust and compel an accounting.
(d) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.

SEC. 342. EXCISE TAX ON SUPPORTING ORGANIZATIONS FOR FAILURE
TO MEET DISTRIBUTION REQUIREMENTS.

(a) In General.--Subchapter D of chapter 42 (relating to
failure by certain charitable organizations to meet certain
qualification requirements) is amended by adding at the end
the following new section:

``SEC. 4959. TAXES ON CERTAIN SUPPORTING ORGANIZATIONS
FAILING TO MEET DISTRIBUTION REQUIREMENTS.

``(a) Initial Tax.--There is hereby imposed on the
undistributed income of any type III supporting organization
for any taxable year, which has not been distributed before
the first day of the second (or any succeeding) taxable year
following such taxable year (if such first day falls within
the taxable period), a tax equal to 30 percent of the amount
of such income remaining undistributed at the beginning of
such second (or succeeding) taxable year.
``(b) Additional Tax.--In any case in which an initial tax
is imposed under subsection (a) on the undistributed income
of a type III supporting organization for any taxable year,
if any portion of such income remains undistributed at the
close of the taxable period, there is hereby imposed a tax
equal to 100 percent of the amount remaining undistributed at
such time.
``(c) Undistributed Income.--For purposes of this section,
the term `undistributed income' means, with respect to any
type III supporting organization for any taxable year as of
any time, the amount by which--
``(1) the distributable amount for such taxable year,
exceeds
``(2) the qualifying distributions made before such time
out of such distributable amount.
``(d) Distributable Amount.--For purposes of this section--
``(1) In general.--the term `distributable amount' means,
with respect to any type III supporting organization for any
taxable year, an amount equal to the sum of--
``(A) the greater of--
``(i) 85 percent of the adjusted net income (as defined in
section 4942(f)) of the type III supporting organization for
the preceding taxable year, or
``(ii) the applicable percentage of the fair market value
of the aggregate assets of such

[[Page S555]]

organization (other than assets used or held to perform the
functions of, or carry out the purposes of, a supported
organization) on the last day of the preceding taxable year,
and
``(B) any amount received during the preceding taxable year
which is a repayment of amounts paid by the organization in
any prior taxable year to a supported organization
exclusively for the benefit of such supported organization or
to perform the functions of, or carry out the purposes of
such supported organization.
``(2) Investment assets.--For purposes of paragraph
(1)(A)(ii), assets held for investment or for the operation
of an unrelated trade or business shall not be considered as
assets used or held to perform the functions of, or carry out
the purposes of, a supported organization.
``(3) Applicable percentage.--For purposes of paragraph
(1)(A)(ii), the applicable percentage is--
``(A) 3 percent for the first taxable year beginning after
the date of the enactment of this section,
``(B) 4 percent for the second taxable year beginning after
such date, and
``(C) 5 percent for any taxable year beginning after the
second taxable year beginning after such date.
``(e) Qualifying Distribution.--For purposes of this
section--
``(1) In general.--The term `qualifying distribution' means
amounts paid by the type III supporting organization to or
for the use of a supported organization.
``(2) Administrative and operating expenses.--Reasonable
and necessary administrative expenses of a type III
supporting organization shall be treated as a qualifying
distribution to a supported organization.
``(f) Treatment of Qualifying Distributions.--
``(1) In general.--Except as provided in paragraph (2), any
qualifying distribution made during a taxable year shall be
treated as made--
``(A) first out of the undistributed income of the
immediately preceding taxable year (if the type III
supporting organization was subject to the tax imposed by
this section for such preceding taxable year) to the extent
thereof, and
``(B) second out of the undistributed income for the
taxable year to the extent thereof.
For purposes of this paragraph, distributions shall be taken
into account in the order of time in which made.
``(2) Correction of deficient distributions for prior
taxable years, etc.--In the case of any qualifying
distribution which (under paragraph (1)) is not treated as
made out of the undistributed income of the immediately
preceding taxable year, the type III supporting organization
may elect to treat any portion of such distribution as made
out of the undistributed income of a designated prior taxable
year. The election shall be made by the type III supporting
organization at such time and in such manner as the Secretary
shall by regulations prescribe.
``(g) Adjustment of Distributable Amount Where
Distributions During Prior Years Have Exceeded Income.--
``(1) In general.--If, for the taxable years in the
adjustment period for which an organization is a type III
supporting organization--
``(A) the aggregate qualifying distributions treated (under
subsection (f)) as made out of the undistributed income for
such taxable years, exceed
``(B) the distributable amounts for such taxable years
(determined without regard to this subsection),
then, for purposes of this section (other than subsection
(f)), the distributable amount for the taxable year shall be
reduced by an amount equal to such excess.
``(2) Taxable years in adjustment period.--For purposes of
paragraph (1), with respect to any taxable year of a type III
supporting organization, the taxable years in the adjustment
period are the taxable years (not exceeding 5) beginning
after the date of the enactment of this section and
immediately preceding the taxable year.
``(h) Other Definitions.--For purposes of this section--
``(1) Taxable period.--The term `taxable period' means,
with respect to the undistributed income for any taxable
year, the period beginning with the first day of the taxable
year and ending on the earlier of--
``(A) the date of mailing of a notice of deficiency with
respect to the tax imposed by subsection (a) under section
6212, or
``(B) the date on which the tax imposed by subsection (a)
is assessed.
``(2) Type iii supporting organization.--The term `type III
supporting organization' means an organization which meets
the requirements of subparagraphs (A) and (C) of section
509(a)(3) and which is operated in connection with one or
more organizations described in paragraph (1) or (2) of
section 509(a).
``(3) Supported organization.--The term `supported
organization' has the meaning given such term under section
509(f)(3).''.
(b) Conforming Amendment.--The table of section for
subchapter D of chapter 42 is amended by inserting after the
item relating to section 4958 the following new item:

``Sec. 4959. Taxes on certain supporting organizations failing to meet
distribution requirements.''.

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

SEC. 343. EXCESS BENEFIT TRANSACTIONS.

(a) In General.--Section 4958(c), as amended by section 332
of this Act, is amended by redesignating paragraph (3) as
paragraph (4) and by inserting after paragraph (2) the
following new paragraph:
``(3) Special rules for supporting organizations.--
``(A) In general.--In the case of any organization
described in section 509(a)(3)--
``(i) the term `excess benefit transaction' includes--

``(I) any grant, loan, compensation, or other payment
provided by such organization to a person described in
subparagraph (B), and
``(II) any loan provided by such organization to a
disqualified person (other than an organization described in
paragraph (1), (2), or (4) of section 509(a)), and

``(ii) the term `excess benefit' includes, with respect to
any transaction described in clause (i), the amount of any
such grant, loan, compensation, or other payment.
``(B) Person described.--A person is described in this
subparagraph if such person is--
``(i) a substantial contributor to such organization,
``(ii) a member of the family (determined under section
4958(f)(4)) of an individual described in clause (i), or
``(iii) a 35-percent controlled entity (as defined in
section 4958(f)(3) by substituting `persons described in
clause (i) or (ii) of section 4958(c)(3)(B)' for `persons
described in subparagraph (A) or (B) of paragraph (1)' in
subparagraph (A)(i) thereof).
``(C) Substantial contributor.--For purposes of this
paragraph--
``(i) In general.--The term `substantial contributor' means
any person who contributed or bequeathed an aggregate amount
of more than $5,000 to the organization, if such amount is
more than 2 percent of the total contributions and bequests
received by the organization before the close of the taxable
year of the organization in which the contribution or bequest
is received by the organization from such person. In the case
of a trust, such term also means the creator of the trust.
``(ii) Exception.--Such term shall not include any
organization described in paragraph (1), (2), or (4) of
section 509(a).''.
(b) Disqualified Persons.--Paragraph (1) of section
4958(f), as amended by section 332 of this Act, is amended by
striking ``and'' at the end of subparagraph (D), by striking
the period at the end of subparagraph (E) and inserting ``,
and'', and by adding after subparagraph (D) the following new
subparagraph:
``(E) any person who is described in subparagraph (A), (B),
or (C) with respect to an organization described in section
509(a)(3) which is organized and operated exclusively for the
benefit of, to perform the functions of, or to carry out the
purposes of the applicable tax-exempt organization.''.
(c) Effective Date.--The amendments made by this section
shall apply to transactions occurring after the date of the
enactment of this Act.

SEC. 344. EXCESS BUSINESS HOLDINGS OF SUPPORTING
ORGANIZATIONS.

(a) In General.--Section 4943 is amended by adding at the
end the following new subsection:
``(e) Application of Tax to Supporting Organizations.--
``(1) In general.--For purposes of this section, a
qualified supporting organization shall be treated as a
private foundation.
``(2) Exception.--The Secretary may exempt any qualified
supporting organization from the application of this
subsection if the Secretary determines that the excess
business holdings of such organization are consistent with
the purpose or function constituting the basis for its
exemption under section 501.
``(3) Qualified supporting organization.--For purposes of
this subsection, the term `qualified supporting organization'
means any--
``(A) type III supporting organization (as defined in
section 4959(h)(2)), or
``(B) organization which meets the requirements of
subparagraphs (A) and (C) of section 509(a)(3) and which is
supervised or controlled in connection with or one or more
organizations described in paragraph (1) or (2) of section
509(a), but only if such organization accepts any gift or
contribution from any person described in section
509(f)(2)(B).
``(4) Disqualified person.--
``(A) In general.--In applying this section to any
organization described in section 509(a)(3), the term
`disqualified person' means, with respect to the
organization--
``(i) any person who was, at any time during the 5-year
period ending on date described in subsection (a)(2)(A), in a
position to exercise substantial influence over the affairs
of the organization,
``(ii) any member of the family (determined under section
4958(f)(4)) of an individual described in clause (i),
``(iii) any 35-percent controlled entity (as defined in
section 4958(f)(3) by substituting `persons described in
clause (i) or (ii) of section 4943(e)(2)(A)' for `persons
described in subparagraph (A) or (B) of paragraph (1)' in
subparagraph (A)(i) thereof),
``(iv) any person described in section 4958(c)(3)(B)), and
``(v) any organization--

``(I) which is effectively controlled (directly or
indirectly) by the same person or persons who control the
organization in question, or

[[Page S556]]

``(II) substantially all of the contributions to which were
made (directly or indirectly) by the same person or persons
described in subparagraph (B) or a member of their family
(within the meaning of section 4946(d)) who made (directly or
indirectly) substantially all of the contributions to the
organization in question.

``(B) Persons described.--A person is described in this
subparagraph if such person is--
``(i) a substantial contributor to the organization (as
defined in section 4958(c)(3)(C)),
``(ii) an officer, director, or trustee of the organization
(or an individual having powers or responsibilities similar
to those officers, directors, or trustees of the
organization), or
``(iii) an owner of more than 20 percent of--

``(I) the total combined voting power of a corporation,
``(II) the profits interest of a partnership, or
``(III) the beneficial interest of a trust or
unincorporated enterprise,

which is a substantial contributor (as so defined) to the
organization.
``(5) Special rule for certain holdings of type iii
supporting organizations.--For purposes of this subsection,
the term `excess business holdings' shall not include any
holdings of a type III supporting organization (as defined in
section 4959(h)(2)) in any business enterprise if the
holdings are held for the benefit of the community pursuant
to the direction of a State attorney general or a State
official with jurisdiction over the type III supporting
organization.
``(6) Present holdings.--For purposes of this subsection,
rules similar to the rules of paragraphs (4), (5), and (6) of
subsection (c) shall apply to organizations described in
section 509(a)(3), except that--
``(A) `the date of the enactment of this subsection' shall
be substituted for `May 26, 1969' each place it appears in
paragraphs (4), (5), and (6), and
``(B) `January 1, 2007' shall be substituted for `January
1, 1970' in paragraph (4)(E).''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.

SEC. 345. TREATMENT OF AMOUNTS PAID TO SUPPORTING
ORGANIZATIONS BY PRIVATE FOUNDATIONS.

(a) Qualifying Distributions.--Paragraph (4) of section
4942(g) is amended to read as follows:
``(4) Limitation on distributions by nonoperating private
foundations to supporting organizations.--For purposes of
this section, the term `qualifying distribution' shall not
include any amount paid by a private foundation which is not
an operating foundation to an organization described in
section 509(a)(3).''.
(b) Taxable Expenditures.--
(1) In general.--Subsection (d) of section 4945 is amended
by redesignating paragraphs (4) and (5) as paragraphs (5) and
(6), respectively, and by inserting after paragraph (3) the
following new paragraph:
``(4) to an organization described in section 509(a)(3),''.
(2) Conforming amendments.--
(A) Section 4945(d)(5), as redesignated by subparagraph
(A), is amended--
(i) by striking ``a grant to an organization'' and
inserting ``a grant to any other organization'', and
(ii) by striking ``paragraph (1), (2), or (3) of section
509(a)'' in subparagraph (A) and inserting ``paragraph (1) or
(2) of section 509(a)''.
(B) Section 4945(f) is amended by striking ``Subsection
(d)(4)'' in the last sentence thereof and inserting
``Subsection (d)(5)''.
(C) Section 4945(h) is amended by striking ``subsection
(d)(4)'' and inserting ``subsection (d)(5)''.
(c) Effective Date.--The amendments made by this section
shall apply to distributions and expenditures after the date
of the enactment of this Act.

SEC. 346. RETURNS OF SUPPORTING ORGANIZATIONS.

(a) Requirement To File Return.--Subparagraph (B) of
section 6033(a)(3), as redesignated by section 311, is
amended by inserting ``(other than an organization described
in section 509(a)(3))'' after ``paragraph (1)''.
(b) Matters Included on Returns.--Section 6033, as amended
by section 334 of this Act, is amended by redesignating
subsection (i) as subsection (j) and by inserting after
subsection (h) the following new subsection:
``(i) Additional Provisions Relating to Supporting
Organizations.--
``(1) In general.--Every organization described in section
509(a)(3) shall, on the return required under subsection
(a)--
``(A) list the organizations described in section
509(a)(3)(A) with respect to which such organization provides
support,
``(B) indicate whether the organization meets the
requirements of clause (i), (ii), or (iii) of section
509(a)(3)(B), and
``(C) certify that the organization meets the requirements
of section 509(a)(3)(C).
``(2) Type iii supporting organizations.--Every type III
supporting organization (as defined in section 4959(h)(2))
shall indicate on the return required under subsection (a)
for the taxable year whether the organization has received a
letter from each supported organization (as defined in
section 509(f)(3)) during the taxable year which--
``(A) acknowledges that the supporting organization has
designated such organization as a supported organization,
``(B) details the type of support provided by the
supporting organization, and
``(C) explains how such support furthers the charitable
purpose of the supported organization.''.
(c) Effective Date.--The amendments made by this section
shall apply to returns filed for taxable years ending after
the date of the enactment of this Act.

TITLE IV--MISCELLANEOUS PROVISIONS

SEC. 401. RESTRUCTURING OF NEW YORK LIBERTY ZONE TAX CREDITS.

(a) In General.--Subchapter Y of chapter 1 is amended by
adding at the end the following new section:

``SEC. 1400M. NEW YORK LIBERTY ZONE TAX CREDITS.

``(a) In General.--There shall be allowed as a credit
against any taxes imposed by this title (other than by
section 3111(a), section 3403, or subtitle D) paid or
incurred by any governmental unit of the State of New York
and the City of New York, New York (including any agency or
instrumentality thereof) for any calendar year an amount
equal to the lesser of--
``(1) the total expenditures during such year by such
governmental unit for qualifying projects, or
``(2) the amount allocated to such governmental unit for
such calendar year under subsection (b)(2).
``(b) Qualifying Project.--For purposes of this section--
``(1) In general.--The term `qualifying project' means any
transportation infrastructure project, including highways,
mass transit systems, railroads, airports, ports, and
waterways, in or connecting with the New York Liberty Zone
(as defined in section 1400L(h)), which is designated as a
qualifying project under this section jointly by the Governor
of the State of New York and the Mayor of the City of New
York, New York.
``(2) Dollar limitation.--
``(A) In general.--The Governor of the State of New York
and the Mayor of the City of New York, New York, shall
jointly allocate to a governmental unit the amount of
expenditures which may be taken into account under subsection
(a) for any calendar year in the credit period with respect
to a qualifying project.
``(B) Aggregate limit.--The aggregate amount which may be
allocated under subparagraph (A) for all calendar years in
the credit period shall not exceed $2,000,000,000.
``(C) Annual limit.--The aggregate amount which may be
allocated under subparagraph (A) for any calendar year in the
credit period shall not exceed the sum of--
``(i) $200,000,000, plus
``(ii) the aggregate amount authorized to be allocated
under this paragraph for all preceding calendar years in the
credit period which was not so allocated.
``(D) Unallocated amounts at end of credit period.--If, as
of the close of the credit period, the amount under
subparagraph (B) exceeds the aggregate amount allocated under
subparagraph (A) for all calendar years in the credit period,
the Governor of the State of New York and the Mayor of the
City of New York, New York, may jointly allocate for any
calendar year following the credit period for expenditures
with respect to qualifying projects which may be taken into
account under subsection (a) an amount equal to such excess,
reduced by the aggregate amount allocated under this
subparagraph for all preceding calendar years.
``(c) Carryover of Unused Allocations.--
``(1) In general.--If the amount allocated under subsection
(b)(2) to a governmental unit for any calendar year exceeds
the total expenditures for such year by such governmental
unit for qualifying projects, the allocation of such
governmental unit for the succeeding calendar year shall be
increased by the amount of such excess.
``(2) Reallocation.--If a governmental unit does not use an
amount allocated to it under subsection (b)(2) within the
time prescribed by the Governor of the State of New York and
the Mayor of the City of New York, New York, then such amount
shall after such time be treated for purposes of subsection
(b)(2) in the same manner as if it had never been allocated.
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Credit period.--The term `credit period' means the
10-year period beginning on January 1, 2006.
``(2) Treatment of funds.--Any expenditure for a qualifying
project taken into account for purposes of the credit under
this section shall be considered State and local funds for
the purpose of any Federal program.
``(e) Regulations.--The Secretary may prescribe such
regulations as are necessary to ensure compliance with the
purposes of this section.''.
(b) Termination of Certain New York Liberty Zone
Benefits.--
(1) Special allowance and expensing.--Section
1400L(b)(2)(A)(v) is amended by striking ``the termination
date'' and inserting ``the date of the enactment of the Tax
Relief Act of 2005 or the termination date if pursuant to a
binding contract in effect on such enactment date''.
(2) Leasehold.--Section 1400L(c)(2)(B) is amended by
striking ``before January 1, 2007'' and inserting ``on or
before the date of the enactment of the Tax Relief Act of
2005 or before January 1, 2007, if pursuant to a binding
contract in effect on such enactment date''.

[[Page S557]]

SEC. 402. MODIFICATION TO S CORPORATION PASSIVE INVESTMENT
INCOME RULES.

(a) Increased Percentage Limit.--Paragraph (2) of section
1375(a) is amended by striking ``25 percent'' and inserting
``60 percent''.
(b) Repeal of Excessive Passive Income as a Termination
Event.--
(1) In general.--Section 1362(d) is amended by striking
paragraph (3).
(2) Conforming amendment.--Subsection (b) of section 1375
is amended by striking paragraphs (3) and (4) and inserting
the following new paragraph:
``(3) Passive investment income defined.--
``(A) Except as otherwise provided in this paragraph, the
term `passive investment income' means gross receipts derived
from royalties, rents, dividends, interest, and annuities.
``(B) Exception for interest on notes from sales of
inventory.--The term `passive investment income' shall not
include interest on any obligation acquired in the ordinary
course of the corporation's trade or business from its sale
of property described in section 1221(a)(1).
``(C) Treatment of certain lending or finance companies.--
If the S corporation meets the requirements of section
542(c)(6) for the taxable year, the term `passive investment
income' shall not include gross receipts for the taxable year
which are derived directly from the active and regular
conduct of a lending or finance business (as defined in
section 542(d)(1)).
``(D) Treatment of certain dividends.--If an S corporation
holds stock in a C corporation meeting the requirements of
section 1504(a)(2), the term `passive investment income'
shall not include dividends from such C corporation to the
extent such dividends are attributable to the earnings and
profits of such C corporation derived from the active conduct
of a trade or business.
``(E) Exception for banks, etc.--In the case of a bank (as
defined in section 581), a bank holding company (within the
meaning of section 2(a) of the Bank Holding Company Act of
1956 (12 U.S.C. 1841(a))), or a financial holding company
(within the meaning of section 2(p) of such Act), the term
`passive investment income' shall not include--
``(i) interest income earned by such bank or company, or
``(ii) dividends on assets required to be held by such bank
or company, including stock in the Federal Reserve Bank, the
Federal Home Loan Bank, or the Federal Agricultural Mortgage
Bank or participation certificates issued by a Federal
Intermediate Credit Bank.
``(F) Coordination with section 1374.--The amount of
passive investment income shall be determined by not taking
into account any recognized built-in gain or loss of the S
corporation for any taxable year in the recognition period.
Terms used in the preceding sentence shall have the same
respective meanings as when used in section 1374.''.
(c) Conforming Amendments.--
(1) Subparagraph (J) of section 26(b)(2) is amended by
striking ``25 percent'' and inserting ``60 percent''.
(2) Clause (i) of section 1042(c)(4)(A) is amended by
striking ``section 1362(d)(3)(C)'' and inserting ``section
1375(b)(3)''.
(3) Subparagraph (B) of section 1362(f)(1) is amended by
striking ``or (3)''.
(4) Clause (i) of section 1375(b)(1)(A) is amended by
striking ``25 percent'' and inserting ``60 percent''.
(5) Subsection (d) of section 1375 is amended by striking
``subchapter C'' both places it appears and inserting
``accumulated''.
(6) The heading for section 1375 is amended by striking
``25 percent'' and inserting ``60 percent''.
(7) The item relating to section 1375 in the table of
sections for part III of subchapter S of chapter 1 is amended
by striking ``25 percent'' and inserting ``60 percent''.
(d) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2005.

SEC. 403. MODIFICATION OF EFFECTIVE DATE OF DISREGARD OF
CERTAIN CAPITAL EXPENDITURES FOR PURPOSES OF
QUALIFIED SMALL ISSUE BONDS.

(a) In General.--Section 144(a)(4)(G) is amended by
striking ``September 30, 2009'' and inserting ``December 31,
2006''.
(b) Conforming Amendment.--Section 144(a)(4)(F) is amended
by striking ``September 30, 2009'' and inserting ``December
31, 2006''.

SEC. 404. PREMIUMS FOR MORTGAGE INSURANCE.

(a) In General.--Section 163(h)(3) (relating to qualified
residence interest) is amended by adding at the end the
following new subparagraph:
``(E) Mortgage insurance premiums treated as interest.--
``(i) In general.--Premiums paid or accrued for qualified
mortgage insurance by a taxpayer during the taxable year in
connection with acquisition indebtedness with respect to a
qualified residence of the taxpayer shall be treated for
purposes of this section as interest which is qualified
residence interest.
``(ii) Phaseout.--The amount otherwise treated as interest
under clause (i) shall be reduced (but not below zero) by 10
percent of such amount for each $1,000 ($500 in the case of a
married individual filing a separate return) (or fraction
thereof) that the taxpayer's adjusted gross income for the
taxable year exceeds $100,000 ($50,000 in the case of a
married individual filing a separate return).''.
(b) Definition and Special Rules.--Section 163(h)(4)
(relating to other definitions and special rules) is amended
by adding at the end the following new subparagraphs:
``(E) Qualified mortgage insurance.--The term `qualified
mortgage insurance' means--
``(i) mortgage insurance provided by the Veterans
Administration, the Federal Housing Administration, or the
Rural Housing Administration, and
``(ii) private mortgage insurance (as defined by section 2
of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as
in effect on the date of the enactment of this subparagraph).
``(F) Special rules for prepaid qualified mortgage
insurance.--Any amount paid by the taxpayer for qualified
mortgage insurance that is properly allocable to any mortgage
the payment of which extends to periods that are after the
close of the taxable year in which such amount is paid shall
be chargeable to capital account and shall be treated as paid
in such periods to which so allocated. No deduction shall be
allowed for the unamortized balance of such account if such
mortgage is satisfied before the end of its term. The
preceding sentences shall not apply to amounts paid for
qualified mortgage insurance provided by the Veterans
Administration or the Rural Housing Administration.''.
(c) Information Returns Relating to Mortgage Insurance.--
Section 6050H (relating to returns relating to mortgage
interest received in trade or business from individuals) is
amended by adding at the end the following new subsection:
``(h) Returns Relating to Mortgage Insurance Premiums.--
``(1) In general.--The Secretary may prescribe, by
regulations, that any person who, in the course of a trade or
business, receives from any individual premiums for mortgage
insurance aggregating $600 or more for any calendar year,
shall make a return with respect to each such individual.
Such return shall be in such form, shall be made at such
time, and shall contain such information as the Secretary may
prescribe.
``(2) Statement to be furnished to individuals with respect
to whom information is required.--Every person required to
make a return under paragraph (1) shall furnish to each
individual with respect to whom a return is made a written
statement showing such information as the Secretary may
prescribe. Such written statement shall be furnished on or
before January 31 of the year following the calendar year for
which the return under paragraph (1) was required to be made.
``(3) Special rules.--For purposes of this subsection--
``(A) rules similar to the rules of subsection (c) shall
apply, and
``(B) the term `mortgage insurance' means--
``(i) mortgage insurance provided by the Veterans
Administration, the Federal Housing Administration, or the
Rural Housing Administration, and
``(ii) private mortgage insurance (as defined by section 2
of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as
in effect on the date of the enactment of this
subsection).''.
(d) Effective Date.--The amendments made by this section
shall apply to amounts paid or accrued during the period
beginning after December 31, 2006, and before January 1,
2008, and properly allocable to such period, with respect to
mortgage insurance contracts issued after December 31, 2006.

SEC. 405. SENSE OF THE SENATE ON USE OF NO-BID CONTRACTING BY
FEDERAL EMERGENCY MANAGEMENT AGENCY.

(a) Findings.--The Senate finds that--
(1) on September 8, 2005, the Federal Emergency Management
Agency announced that it had awarded 4 contracts for
emergency housing relief following Hurricane Katrina to The
Shaw Group of Baton Rouge, Louisiana, Fluor Corporation of
Aliso Viejo, California, Bechtel National of San Francisco,
California, and CH2M Hill of Denver, Colorado;
(2) these contracts were awarded with no competition from
other capable firms, and up to $100,000,000 in taxpayer funds
were authorized for each of these contracts;
(3) in the midst of concerns about abusive and
irresponsible spending of taxpayer funds, the Federal
Emergency Management Agency pledged to re-bid these
noncompetitive contracts, with Acting Under Secretary of
Emergency Preparedness and Response, R. David Paulison,
stating before the Committee on Homeland Security and
Government Affairs of the Senate that ``[a]ll of these no-bid
contracts, we are going to go back and re-bid'';
(4) the Federal Emergency Management Agency has yet to
reopen these 4 contracts to competitive bidding, and declared
on November 11, 2005, that these contracts would not be
reopened for bidding until February 2006;
(5) by February 2006, the majority of the contracts will
have been completed and the majority of taxpayer funds will
have been spent;
(6) large and politically-connected firms continue to
benefit from no-bid and limited-competition contracts, and
contracts are not being awarded to capable, local companies;
(7) according to an analysis in the Washington Post,
companies outside the States

[[Page S558]]

most affected by Hurricane Katrina have received more than 90
percent of the Federal contracts for recovery and
reconstruction;
(8) the monitoring of Federal contracting practices remains
difficult, with a report by the San Jose Mercury News stating
``The database of contracts is incomplete. Information
released by Federal agencies is spotty and sporadic. And
disclosure of many no-bid contracts isn't required by law'';
and
(9)(A) there is currently no Chief Financial Officer
charged with monitoring the flow of all funds to the affected
areas; and
(B) the task of financial management is spread across
disparate Federal departments and agencies with inadequate
oversight of taxpayer funds.
(b) Sense of the Senate.--It is the sense of the Senate
that the Federal Emergency Management Agency should--
(1) immediately rebid noncompetitive contracts entered into
following Hurricane Katrina, consistent with the commitment
of the Agency made on October 6, 2005, before millions of
taxpayer dollars are wasted on irresponsible and inefficient
spending;
(2)(A) immediately implement the planned competitive
contracting strategy of the Agency for recovery work in all
current and future reconstruction efforts; and
(B) in carrying out that strategy, should prioritize local
and small disadvantaged businesses in the contracting and
subcontracting process; and
(3) immediately after the awarding of a contract, publicly
disclose the amount and competitive or noncompetitive nature
of the contract.

SEC. 406. DISABILITY PREFERENCE PROGRAM FOR TAX COLLECTION
CONTRACTS.

(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).
(b) Disability Preference Program Requirements.--
(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).
(2) Person described.--For purposes of paragraph (1), a
person is described in this paragraph if--
(A) as of the date any qualified tax collection contract is
awarded--
(i) such person employs not less than 50 severely disabled
individuals within the United States; or
(ii) not less than 30 percent of the employees of such
person within the United States are severely disabled
individuals;
(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--
(i) be hired after the date such contract is awarded; and
(ii) be severely disabled individuals; and
(C) such person is otherwise qualified to perform the
services required.
(c) Definitions.--For purposes of this section--
(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.
(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.
(3) Severely disabled individual.--The term ``severely
disabled individual'' means--
(A) a veteran of the United States armed forces with a
disability of 50 percent or greater--
(i) determined by the Secretary of Veterans Affairs to be
service-connected; or
(ii) deemed by law to be service-connected; or
(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.

SEC. 407. SENSE OF CONGRESS REGARDING DOHA ROUND.

(a) Findings.--The Congress makes the following findings:
(1) Members of the World Trade Organization (WTO) are
currently engaged in a round of trade negotiations known as
the Doha Development Agenda (Doha Round).
(2) The Doha Round includes negotiations aimed at
clarifying and improving disciplines under the Agreement on
Implementation of Article VI of the General Agreement on
Tariffs and Trade 1994 (Antidumping Agreement) and the
Agreement on Subsidies and Countervailing Measures (Subsidies
Agreement).
(3) The WTO Ministerial Declaration adopted on November 14,
2001 (WTO Paper No. WT/MIN(01)/DEC/1) specifically provides
that the Doha Round negotiations are to preserve the ``basic
concepts, principles and effectiveness'' of the Antidumping
Agreement and the Subsidies Agreement.
(4) In section 2102(b)(14)(A) of the Bipartisan Trade
Promotion Authority Act of 2002, the Congress mandated that
the principal negotiating objective of the United States with
respect to trade remedy laws was to ``preserve the ability of
the United States to enforce rigorously its trade laws . . .
and avoid agreements that lessen the effectiveness of
domestic and international disciplines on unfair trade,
especially dumping and subsidies''.
(5) The countries that have been the most persistent and
egregious violators of international fair trade rules are
engaged in an aggressive effort to significantly weaken the
disciplines provided in the Antidumping Agreement and the
Subsidies Agreement and undermine the ability of the United
States to effectively enforce its trade remedy laws.
(6) Chronic violators of fair trade disciplines have put
forward proposals that would substantially weaken United
States trade remedy laws and practices, including mandating
that unfair trade orders terminate after a set number of
years even if unfair trade and injury are likely to recur,
mandating that trade remedy duties reflect less than the full
margin of dumping or subsidization, mandating higher de
minimis levels of unfair trade, making cumulation of the
effects of imports from multiple countries more difficult in
unfair trade investigations, outlawing the critical practice
of ``zeroing'' in antidumping investigations, mandating the
weighing of causes, and mandating other provisions that make
it more difficult to prove injury.
(7) United States trade remedy laws have already been
significantly weakened by numerous unjust and activist WTO
dispute settlement decisions which have created new
obligations to which the United States never agreed.
(8) Trade remedy laws remain a critical resource for
American manufacturers, agricultural producers, and
aquacultural producers in responding to closed foreign
markets, subsidized imports, and other forms of unfair trade,
particularly in the context of the challenges currently faced
by these vital sectors of the United States economy.
(9) The United States had a current account trade deficit
of approximately $668,000,000,000 in 2004, including a trade
deficit of almost $162,000,000,000 with China alone, as well
as a trade deficit of $40,000,000,000 in advanced technology.
(10) United States manufacturers have lost over 3,000,000
jobs since June 2000, and United States manufacturing
employment is currently at its lowest level since 1950.
(11) Many industries critical to United States national
security are at severe risk from unfair foreign competition.
(12) The Congress strongly believes that the proposals put
forward by countries seeking to undermine trade remedy
disciplines in the Doha Round would result in serious harm to
the United States economy, including significant job losses
and trade disadvantages.
(b) Sense of Congress.--It is the sense of Congress that--
(1) the United States should not be a signatory to any
agreement or protocol with respect to the Doha Development
Round of the World Trade Organization negotiations, or any
other bilateral or multilateral trade negotiations, that--
(A) adopts any proposal to lessen the effectiveness of
domestic and international disciplines on unfair trade or
safeguard provisions, including proposals--
(i) mandating that unfair trade orders terminate after a
set number of years even if unfair trade and injury are
likely to recur;
(ii) mandating that trade remedy duties reflect less than
the full margin of dumping or subsidization;
(iii) mandating higher de minimis levels of unfair trade;
(iv) making cumulation of the effects of imports from
multiple countries more difficult in unfair trade
investigations;
(v) outlawing the critical practice of ``zeroing'' in
antidumping investigations; or
(vi) mandating the weighing of causes or other provisions
making it more difficult to prove injury in unfair trade
cases; and
(B) would lessen in any manner the ability of the United
States to enforce rigorously its trade laws, including the
antidumping, countervailing duty, and safeguard laws;
(2) the United States trade laws and international rules
appropriately serve the public interest by offsetting
injurious unfair trade, and that further ``balancing
modifications'' or other similar provisions are unnecessary
and would add to the complexity and difficulty of achieving
relief against injurious unfair trade practices; and
(3) the United States should ensure that any new agreement
relating to international disciplines on unfair trade or
safeguard provisions fully rectifies and corrects decisions
by WTO dispute settlement panels or the Appellate Body that
have unjustifiably and negatively impacted, or threaten to
negatively impact, United States law or practice, including a
law or practice with respect to foreign dumping or
subsidization.

SEC. 408. MODIFICATION OF BOND RULE.

In the case of bonds issued after the date of the enactment
of this Act and before August 31, 2009--
(1) the requirement of paragraph (1) of section 648 of the
Deficit Reduction Act of 1984 (98 Stat. 941) shall be treated
as met with respect to the securities or obligations referred

[[Page S559]]

to in such section if such securities or obligations are held
in a fund the annual distributions from which cannot exceed 7
percent of the average fair market value of the assets held
in such fund except to the extent distributions are necessary
to pay debt service on the bond issue,
(2) paragraph (3) of such section shall be applied by
substituting ``distributions from'' for ``the investment
earnings of'' both places it appears, and
(3) Paragraph (4) of such section shall be applied by
substituting ``March 1, 1985'' for ``October 9, 1969''.

SEC. 409. TREATMENT OF CERTAIN STOCK OPTION PLANS UNDER
NONQUALIFIED DEFERRED COMPENSATION RULES.

(a) In General.--The Secretary of the Treasury shall modify
the regulations under section 409A of the Internal Revenue
Code of 1986 to extend to applicable foreign option plans the
exception under such section for incentive stock options
under section 422 of such Code and options granted under an
employee stock purchase plan meeting the requirements of
section 423 of such Code. Such extension shall be subject to
such terms and conditions as may be prescribed in such
regulations.
(b) Applicable Foreign Option Plans.--For purposes of
subsection (a)--
(1) In general.--The term ``applicable foreign option
plan'' means a plan providing for the issuance of employee
stock options--
(A) which is established under the laws of a foreign
jurisdiction, and
(B) which, under such laws or the terms of the plan (or
both), is subject to requirements substantially similar to
the requirements under section 422 or 423 of such Code.
(2) Substantially similar.--A plan shall not be treated as
subject to substantially similar requirements under paragraph
(1)(B) unless--
(A) the plan is required to cover substantially all
employees,
(B) in the case of an option under an employee stock
purchase plan, the plan is required to provide an option
price which is not less than the amount specified in section
423(b)(6) of such Code, except that such section shall be
applied by substituting ``80 percent'' for ``85 percent''
each place it appears,
(C) the plan is required to provide coverage of individuals
who, but for the exception of the application of section 409A
of such Code by reason of this section, would be subject to
tax under such section with respect to the plan, and
(D) the plan meets such other requirements as the Secretary
of the Treasury prescribes in the regulations under
subsection (a).

SEC. 410. SENSE OF THE SENATE REGARDING THE DEDICATION OF
EXCESS FUNDS.

It is the sense of the Senate that any increases in
revenues to the Treasury as a result of this Act and the
amendments made by this Act that exceed the amounts specified
in the reconciliation instructions shall be dedicated to the
Low-Income Home Energy Assistance Program, in an amount not
to exceed the amount which is $2,900,000,000 more than the
funding levels established for such Program for fiscal year
2005.

TITLE V--REVENUE OFFSET PROVISIONS

Subtitle A--Provisions Designed To Curtail Tax Shelters

SEC. 501. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME
TAX RETURN PREPARER.

(a) Standards Conformed to Taxpayer Standards.--Section
6694(a) (relating to understatements due to unrealistic
positions) is amended--
(1) by striking ``realistic possibility of being sustained
on its merits'' in paragraph (1) and inserting ``reasonable
belief that the tax treatment in such position was more
likely than not the proper treatment'',
(2) by striking ``or was frivolous'' in paragraph (3) and
inserting ``or there was no reasonable basis for the tax
treatment of such position'', and
(3) by striking ``Unrealistic'' in the heading and
inserting ``Improper''.
(b) Amount of Penalty.--Section 6694 is amended--
(1) by striking ``$250'' in subsection (a) and inserting
``$1,000'', and
(2) by striking ``$1,000'' in subsection (b) and inserting
``$5,000''.
(c) Effective Date.--The amendments made by this section
shall apply to documents prepared after the date of the
enactment of this Act.

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

(a) Effective Date Modification.--
(1) In general.--Paragraph (2) of section 903(d) of the
American Jobs Creation Act of 2004 is amended to read as
follows:
``(2) Exception for reportable or listed transactions.--
``(A) In general.--The amendments made by subsection (c)
shall apply with respect to interest accruing after October
3, 2004.
``(B) Special rule for certain listed and reportable
transactions.--
``(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.
``(ii) Participants in settlement initiatives.--Clause (i)
shall not apply to any transaction if, as of January 23,
2006--

``(I) the taxpayer is participating in a settlement
initiative described in Internal Revenue Service Announcement
2005-80 with respect to such transaction, or
``(II) the taxpayer has entered into a settlement agreement
pursuant to such an initiative.

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

SEC. 503. FRIVOLOUS TAX SUBMISSIONS.

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

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

``(a) Civil Penalty for Frivolous Tax Returns.--A person
shall pay a penalty of $5,000 if--
``(1) such person files what purports to be a return of a
tax imposed by this title but which--
``(A) does not contain information on which the substantial
correctness of the self-assessment may be judged, or
``(B) contains information that on its face indicates that
the self-assessment is substantially incorrect; and
``(2) the conduct referred to in paragraph (1)--
``(A) is based on a position which the Secretary has
identified as frivolous under subsection (c), or
``(B) reflects a desire to delay or impede the
administration of Federal tax laws.
``(b) Civil Penalty for Specified Frivolous Submissions.--
``(1) Imposition of penalty.--Except as provided in
paragraph (3), any person who submits a specified frivolous
submission shall pay a penalty of $5,000.
``(2) Specified frivolous submission.--For purposes of this
section--
``(A) Specified frivolous submission.--The term `specified
frivolous submission' means a specified submission if any
portion of such submission--
``(i) is based on a position which the Secretary has
identified as frivolous under subsection (c), or
``(ii) reflects a desire to delay or impede the
administration of Federal tax laws.
``(B) Specified submission.--The term `specified
submission' means--
``(i) a request for a hearing under--

``(I) section 6320 (relating to notice and opportunity for
hearing upon filing of notice of lien), or
``(II) section 6330 (relating to notice and opportunity for
hearing before levy), and

``(ii) an application under--

``(I) section 6159 (relating to agreements for payment of
tax liability in installments),
``(II) section 7122 (relating to compromises), or
``(III) section 7811 (relating to taxpayer assistance
orders).

``(3) Opportunity to withdraw submission.--If the Secretary
provides a person with notice that a submission is a
specified frivolous submission and such person withdraws such
submission within 30 days after such notice, the penalty
imposed under paragraph (1) shall not apply with respect to
such submission.
``(c) Listing of Frivolous Positions.--The Secretary shall
prescribe (and periodically revise) a list of positions which
the Secretary has identified as being frivolous for purposes
of this subsection. The Secretary shall not include in such
list any position that the Secretary determines meets the
requirement of section 6662(d)(2)(B)(ii)(II).
``(d) Reduction of Penalty.--The Secretary may reduce the
amount of any penalty imposed under this section if the
Secretary determines that such reduction would promote
compliance with and administration of the Federal tax laws.
``(e) Penalties in Addition to Other Penalties.--The
penalties imposed by this section shall be in addition to any
other penalty provided by law.''.
(b) Treatment of Frivolous Requests for Hearings Before
Levy.--
(1) Frivolous requests disregarded.--Section 6330 (relating
to notice and opportunity for hearing before levy) is amended
by adding at the end the following new subsection:
``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding
any other provision of this section, if the Secretary
determines that any portion of a request for a hearing under
this section or section 6320 meets the requirement of clause
(i) or (ii) of section 6702(b)(2)(A), then the Secretary may
treat

[[Page S560]]

such portion as if it were never submitted and such portion
shall not be subject to any further administrative or
judicial review.''.
(2) Preclusion from raising frivolous issues at hearing.--
Section 6330(c)(4) is amended--
(A) by striking ``(A)'' and inserting ``(A)(i)'';
(B) by striking ``(B)'' and inserting ``(ii)'';
(C) by striking the period at the end of the first sentence
and inserting ``; or''; and
(D) by inserting after subparagraph (A)(ii) (as so
redesignated) the following:
``(B) the issue meets the requirement of clause (i) or (ii)
of section 6702(b)(2)(A).''.
(3) Statement of grounds.--Section 6330(b)(1) is amended by
striking ``under subsection (a)(3)(B)'' and inserting ``in
writing under subsection (a)(3)(B) and states the grounds for
the requested hearing''.
(c) Treatment of Frivolous Requests for Hearings Upon
Filing of Notice of Lien.--Section 6320 is amended--
(1) in subsection (b)(1), by striking ``under subsection
(a)(3)(B)'' and inserting ``in writing under subsection
(a)(3)(B) and states the grounds for the requested hearing'',
and
(2) in subsection (c), by striking ``and (e)'' and
inserting ``(e), and (g)''.
(d) Treatment of Frivolous Applications for Offers-in-
Compromise and Installment Agreements.--Section 7122 is
amended by adding at the end the following new subsection:
``(e) Frivolous Submissions, Etc.--Notwithstanding any
other provision of this section, if the Secretary determines
that any portion of an application for an offer-in-compromise
or installment agreement submitted under this section or
section 6159 meets the requirement of clause (i) or (ii) of
section 6702(b)(2)(A), then the Secretary may treat such
portion as if it were never submitted and such portion shall
not be subject to any further administrative or judicial
review.''.
(e) Clerical Amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by striking the item
relating to section 6702 and inserting the following new
item:

``Sec. 6702. Frivolous tax submissions''..

(f) Effective Date.--The amendments made by this section
shall apply to submissions made and issues raised after the
date on which the Secretary first prescribes a list under
section 6702(c) of the Internal Revenue Code of 1986, as
amended by subsection (a).

SEC. 504. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

(a) Penalty for Promoting Abusive Tax Shelters.--Section
6700 (relating to promoting abusive tax shelters, etc.) is
amended--
(1) by redesignating subsections (b) and (c) as subsections
(d) and (e), respectively,
(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
(3) by inserting after subsection (a) the following new
subsections:
``(b) Amount of Penalty; Calculation of Penalty; Liability
for Penalty.--
``(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.
``(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.
``(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.
``(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.''.
(b) Conforming Amendment.--Section 6700(a) is amended by
striking the last sentence.
(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.

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

(a) In General.--Section 6701(a) (relating to imposition of
penalty) is amended--
(1) by inserting ``, or tax liability reflected in,'' after
``the preparation or presentation of'' in paragraph (1),
(2) by inserting ``aid, assistance, procurement, or advice
with respect to such'' before ``portion'' both places it
appears in paragraphs (2) and (3), and
(3) by inserting ``instance of aid, assistance,
procurement, or advice or each such'' before ``document'' in
the matter following paragraph (3).
(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:
``(b) Amount of Penalty; Calculation of Penalty; Liability
for Penalty.--
``(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.
``(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.
``(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.''.
(c) Penalty Not Deductible.--Section 6701 is amended by
adding at the end the following new subsection:
``(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.''.
(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.

Subtitle B--Economic Substance Doctrine

SEC. 511. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

(a) In General.--Section 7701 is amended by redesignating
subsection (o) as subsection (p) and by inserting after
subsection (n) the following new subsection:
``(o) Clarification of Economic Substance Doctrine; Etc.--
``(1) General rules.--
``(A) In general.--In any case in which a court determines
that the economic substance doctrine is relevant for purposes
of this title to a transaction (or series of transactions),
such transaction (or series of transactions) shall have
economic substance only if the requirements of this paragraph
are met.
``(B) Definition of economic substance.--For purposes of
subparagraph (A)--
``(i) In general.--A transaction has economic substance
only if--

``(I) the transaction changes in a meaningful way (apart
from Federal tax effects) the taxpayer's economic position,
and
``(II) the taxpayer has a substantial nontax purpose for
entering into such transaction and the transaction is a
reasonable means of accomplishing such purpose.

In applying subclause (II), a purpose of achieving a
financial accounting benefit shall not be taken into account
in determining whether a transaction has a substantial nontax
purpose if the origin of such financial accounting benefit is
a reduction of income tax.
``(ii) Special rule where taxpayer relies on profit
potential.--A transaction shall not be treated as having
economic substance by reason of having a potential for profit
unless--

``(I) the present value of the reasonably expected pre-tax
profit from the transaction is substantial in relation to the
present value of the expected net tax benefits that would be
allowed if the transaction were respected, and
``(II) the reasonably expected pre-tax profit from the
transaction exceeds a risk-free rate of return.

``(C) Treatment of fees and foreign taxes.--Fees and other
transaction expenses and foreign taxes shall be taken into
account as expenses in determining pre-tax profit under
subparagraph (B)(ii).
``(2) Special rules for transactions with tax-indifferent
parties.--
``(A) Special rules for financing transactions.--The form
of a transaction which is in substance the borrowing of money
or the acquisition of financial capital directly or
indirectly from a tax-indifferent party shall not be
respected if the present value of the deductions to be
claimed with respect to the transaction is substantially in
excess of the present value of the anticipated economic
returns of the person lending the money or providing the
financial capital. A public offering shall be treated as a
borrowing, or an acquisition of financial capital, from a
tax-indifferent party if it is reasonably expected that at
least 50 percent of the offering will be placed with tax-
indifferent parties.
``(B) Artificial income shifting and basis adjustments.--
The form of a transaction with a tax-indifferent party shall
not be respected if--
``(i) it results in an allocation of income or gain to the
tax-indifferent party in excess of such party's economic
income or gain, or
``(ii) it results in a basis adjustment or shifting of
basis on account of overstating the income or gain of the
tax-indifferent party.
``(3) Definitions and special rules.--For purposes of this
subsection--
``(A) Economic substance doctrine.--The term `economic
substance doctrine' means the common law doctrine under which
tax benefits under subtitle A with respect to a transaction
are not allowable if the transaction does not have economic
substance or lacks a business purpose.
``(B) Tax-indifferent party.--The term `tax-indifferent
party' means any person or

[[Page S561]]

entity not subject to tax imposed by subtitle A. A person
shall be treated as a tax-indifferent party with respect to a
transaction if the items taken into account with respect to
the transaction have no substantial impact on such person's
liability under subtitle A.
``(C) Exception for personal transactions of individuals.--
In the case of an individual, this subsection shall apply
only to transactions entered into in connection with a trade
or business or an activity engaged in for the production of
income.
``(D) Treatment of lessors.--In applying paragraph
(1)(B)(ii) to the lessor of tangible property subject to a
lease--
``(i) the expected net tax benefits with respect to the
leased property shall not include the benefits of--

``(I) depreciation,
``(II) any tax credit, or
``(III) any other deduction as provided in guidance by the
Secretary, and

``(ii) subclause (II) of paragraph (1)(B)(ii) shall be
disregarded in determining whether any of such benefits are
allowable.
``(4) Other common law doctrines not affected.--Except as
specifically provided in this subsection, the provisions of
this subsection shall not be construed as altering or
supplanting any other rule of law, and the requirements of
this subsection shall be construed as being in addition to
any such other rule of law.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this subsection. Such regulations may include
exemptions from the application of this subsection.''.
(b) Effective Date.--The amendments made by this section
shall apply to transactions entered into after the date of
the enactment of this Act.

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

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

``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO
TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

``(a) Imposition of Penalty.--If a taxpayer has an
noneconomic substance transaction understatement for any
taxable year, there shall be added to the tax an amount equal
to 40 percent of the amount of such understatement.
``(b) Reduction of Penalty for Disclosed Transactions.--
Subsection (a) shall be applied by substituting `20 percent'
for `40 percent' with respect to the portion of any
noneconomic substance transaction understatement with respect
to which the relevant facts affecting the tax treatment of
the item are adequately disclosed in the return or a
statement attached to the return.
``(c) Noneconomic Substance Transaction Understatement.--
For purposes of this section--
``(1) In general.--The term `noneconomic substance
transaction understatement' means any amount which would be
an understatement under section 6662A(b)(1) if section 6662A
were applied by taking into account items attributable to
noneconomic substance transactions rather than items to which
section 6662A would apply without regard to this paragraph.
``(2) Noneconomic substance transaction.--The term
`noneconomic substance transaction' means any transaction
if--
``(A) there is a lack of economic substance (within the
meaning of section 7701(o)(1)) for the transaction giving
rise to the claimed benefit or the transaction was not
respected under section 7701(o)(2), or
``(B) the transaction fails to meet the requirements of any
similar rule of law.
``(d) Rules Applicable to Compromise of Penalty.--
``(1) In general.--If the 1st letter of proposed deficiency
which allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of Appeals has
been sent with respect to a penalty to which this section
applies, only the Commissioner of Internal Revenue may
compromise all or any portion of such penalty.
``(2) Applicable rules.--The rules of paragraphs (2) and
(3) of section 6707A(d) shall apply for purposes of paragraph
(1).
``(e) Coordination With Other Penalties.--Except as
otherwise provided in this part, the penalty imposed by this
section shall be in addition to any other penalty imposed by
this title.
``(f) Cross References.--

``(1) For coordination of penalty with understatements
under section 6662 and other special rules, see section
6662A(e).
``(2) For reporting of penalty imposed under this section
to the Securities and Exchange Commission, see section
6707A(e).''.

(b) Coordination With Other Understatements and
Penalties.--
(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.
(2) Subsection (e) of section 6662A is amended--
(A) in paragraph (1), by inserting ``and noneconomic
substance transaction understatements'' after ``reportable
transaction understatements'' both places it appears,
(B) in paragraph (2)(A), by inserting ``and a noneconomic
substance transaction understatement'' after ``reportable
transaction understatement'',
(C) in paragraph (2)(B), by inserting ``6662B or'' before
``6663'',
(D) in paragraph (2)(C)(i), by inserting ``or section
6662B'' before the period at the end,
(E) in paragraph (2)(C)(ii), by inserting ``and section
6662B'' after ``This section'',
(F) in paragraph (3), by inserting ``or noneconomic
substance transaction understatement'' after ``reportable
transaction understatement'', and
(G) by adding at the end the following new paragraph:
``(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).''.
(3) Subsection (e) of section 6707A is amended--
(A) by striking ``or'' at the end of subparagraph (B), and
(B) by striking subparagraph (C) and inserting the
following new subparagraphs:
``(C) is required to pay a penalty under section 6662B with
respect to any noneconomic substance transaction, or
``(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,''.
(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:

``Sec. 6662B. Penalty for understatements attributable to transactions
lacking economic substance, etc.''.

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

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

(a) In General.--Section 163(m) (relating to interest on
unpaid taxes attributable to nondisclosed reportable
transactions) is amended--
(1) by striking ``attributable'' and all that follows and
inserting the following: ``attributable to--
``(1) the portion of any reportable transaction
understatement (as defined in section 6662A(b)) with respect
to which the requirement of section 6664(d)(2)(A) is not met,
or
``(2) any noneconomic substance transaction understatement
(as defined in section 6662B(c)).'', and
(2) by inserting ``and Noneconomic Substance Transactions''
in the heading thereof after ``Transactions''.
(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.

Subtitle C--Improvements in Efficiency and Safeguards in Internal
Revenue Service Collection

SEC. 521. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING
AUTOMATED WITHDRAWALS.

(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:
``(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.''.
(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.

SEC. 522. TERMINATION OF INSTALLMENT AGREEMENTS.

(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:
``(C) to make a Federal tax deposit under section 6302 at
the time such deposit is required to be made,
``(D) to file a return of tax imposed under this title by
its due date (including extensions), or''.
(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''.
(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.

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

(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:

[[Page S562]]

``(c) Rules for Submission of Offers-in-Compromise.--
``(1) Partial payment required with submission.--
``(A) Lump-sum offers.--
``(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.
``(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.
``(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.
``(2) Rules of application.--
``(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.
``(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.
``(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).''.
(b) Additional Rules Relating to Treatment of Offers.--
(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:
``(C) any offer-in-compromise which does not meet the
requirements of subsection (c) shall be returned to the
taxpayer as unprocessable.''.
(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:
``(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).''.
(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.

Subtitle D--Penalties and Fines

SEC. 531. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION
FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE
TO FRAUD.

(a) In General.--Section 7206 (relating to fraud and false
statements) is amended--
(1) by striking ``Any person who--'' and inserting ``(a) IN
GENERAL.--Any person who--'', and
(2) by adding at the end the following new subsection:
``(b) Increase in Monetary Limitation for Underpayment or
Overpayment of Tax Due to Fraud.--If any portion of any
underpayment (as defined in section 6664(a)) or overpayment
(as defined in section 6401(a)) of tax required to be shown
on a return is attributable to fraudulent action described in
subsection (a), the applicable dollar amount under subsection
(a) shall in no event be less than an amount equal to such
portion. A rule similar to the rule under section 6663(b)
shall apply for purposes of determining the portion so
attributable.''.
(b) Increase in Penalties.--
(1) Attempt to evade or defeat tax.--Section 7201 is
amended--
(A) by striking ``$100,000'' and inserting ``$500,000'',
(B) by striking ``$500,000'' and inserting ``$1,000,000'',
and
(C) by striking ``5 years'' and inserting ``10 years''.
(2) Willful failure to file return, supply information, or
pay tax.--Section 7203 is amended--
(A) in the first sentence--
(i) by striking ``Any person'' and inserting the following:
``(a) In General.--Any person'', and
(ii) by striking ``$25,000'' and inserting ``$50,000'',
(B) in the third sentence, by striking ``section'' and
inserting ``subsection'', and
(C) by adding at the end the following new subsection:
``(b) Aggravated Failure to File.--
``(1) In general.--In the case of any failure described in
paragraph (2), the first sentence of subsection (a) shall be
applied by substituting--
``(A) `felony' for `misdemeanor',
``(B) `$500,000 ($1,000,000' for `$25,000 ($100,000', and
``(C) `10 years' for `1 year'.
``(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.''.
(3) Fraud and false statements.--Section 7206(a) (as
redesignated by subsection (a)) is amended--
(A) by striking ``$100,000'' and inserting ``$500,000'',
(B) by striking ``$500,000'' and inserting ``$1,000,000'',
and
(C) by striking ``3 years'' and inserting ``5 years''.
(c) Effective Date.--The amendments made by this section
shall apply to actions, and failures to act, occurring after
the date of the enactment of this Act.

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

(a) Determination of Penalty.--
(1) In general.--Notwithstanding any other provision of
law, in the case of an applicable taxpayer--
(A) the determination as to whether any interest or
applicable penalty is to be imposed with respect to any
arrangement 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
(B) if any such interest or applicable penalty is imposed,
the amount of such interest or penalty shall be equal to
twice that determined without regard to this section.
(2) Applicable taxpayer.--For purposes of this subsection--
(A) In general.--The term ``applicable taxpayer'' means a
taxpayer which--
(i) has underreported its United States income tax
liability with respect to any item which directly or
indirectly involves--

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

(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.
(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.
(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--
(i) communicates to the taxpayer knowledge about the
specific item, or
(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.
(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.
(c) Effective Date.--The provisions of this section shall
apply to interest, penalties, additions to tax, and fines
with respect to any taxable year if, as of the date of the
enactment of this Act, the assessment of any tax, penalty, or
interest with respect to such taxable year is not prevented
by the operation of any law or rule of law.

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

(a) In General.--Subsection (f) of section 162 (relating to
trade or business expenses) is amended to read as follows:
``(f) Fines, Penalties, and Other Amounts.--
``(1) In general.--Except as provided in paragraph (2), no
deduction otherwise allowable shall be allowed under this
chapter for any amount paid or incurred (whether by suit,
agreement, or otherwise) to, or at the direction of, a
government or entity described in paragraph (4) in relation
to the violation of any law or the investigation or inquiry
by such government or entity into the potential violation of
any law.

[[Page S563]]

``(2) Exception for amounts constituting restitution or
paid to come into compliance with law.--Paragraph (1) shall
not apply to any amount which--
``(A) the taxpayer establishes--
``(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
``(ii) is paid to come into compliance with any law which
was violated or involved in the investigation or inquiry, and
``(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.

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.
``(3) Exception for amounts paid or incurred as the result
of certain court orders.--Paragraph (1) shall not apply to
any amount paid or incurred by order of a court in a suit in
which no government or entity described in paragraph (4) is a
party.
``(4) Certain nongovernmental regulatory entities.--An
entity is described in this paragraph if it is--
``(A) a nongovernmental entity which exercises self-
regulatory powers (including imposing sanctions) in
connection with a qualified board or exchange (as defined in
section 1256(g)(7)), or
``(B) to the extent provided in regulations, a
nongovernmental entity which exercises self-regulatory powers
(including imposing sanctions) as part of performing an
essential governmental function.
``(5) Exception for taxes due.--Paragraph (1) shall not
apply to any amount paid or incurred as taxes due.''.
(b) Reporting of Deductible Amounts.--
(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:

``SEC. 6050U. INFORMATION WITH RESPECT TO CERTAIN FINES,
PENALTIES, AND OTHER AMOUNTS.

``(a) Requirement of Reporting.--
``(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--
``(A) the amount required to be paid as a result of the
suit or agreement to which paragraph (1) of section 162(f)
applies,
``(B) any amount required to be paid as a result of the
suit or agreement which constitutes restitution or
remediation of property, and
``(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.
``(2) Suit or agreement described.--
``(A) In general.--A suit or agreement is described in this
paragraph if--
``(i) it is--

``(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
``(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

``(ii) the aggregate amount involved in all court orders
and agreements with respect to the violation, investigation,
or inquiry is $600 or more.
``(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.
``(3) Time of filing.--The return required under this
subsection shall be filed not later than--
``(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
``(B) the date specified Secretary.
``(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--
``(1) the name of the government or entity, and
``(2) the information supplied to the Secretary under
subsection (a)(1).

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).
``(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.''.
(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:

``Sec. 6050U. Information with respect to certain fines, penalties, and
other amounts.''.

(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.

SEC. 534. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.

(a) Disallowance of Deduction.--
(1) In general.--Section 162(g) (relating to treble damage
payments under the antitrust laws) is amended--
(A) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively,
(B) by striking ``If'' and inserting:
``(1) Treble damages.--If'', and
(C) by adding at the end the following new paragraph:
``(2) Punitive damages.--No deduction shall be allowed
under this chapter for any amount paid or incurred for
punitive damages in connection with any judgment in, or
settlement of, any action. This paragraph shall not apply to
punitive damages described in section 104(c).''.
(2) Conforming amendment.--The heading for section 162(g)
is amended by inserting ``or Punitive Damages'' after
``Laws''.
(b) Inclusion in Income of Punitive Damages Paid by Insurer
or Otherwise.--
(1) In general.--Part II of subchapter B of chapter 1
(relating to items specifically included in gross income) is
amended by adding at the end the following new section:

``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR
OTHERWISE.

``Gross income shall include any amount paid to or on
behalf of a taxpayer as insurance or otherwise by reason of
the taxpayer's liability (or agreement) to pay punitive
damages.''.
(2) Reporting requirements.--Section 6041 (relating to
information at source) is amended by adding at the end the
following new subsection:
``(f) Section To Apply to Punitive Damages Compensation.--
This section shall apply to payments by a person to or on
behalf of another person as insurance or otherwise by reason
of the other person's liability (or agreement) to pay
punitive damages.''.
(3) Conforming amendment.--The table of sections for part
II of subchapter B of chapter 1 is amended by adding at the
end the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise''..
(c) Effective Date.--The amendments made by this section
shall apply to damages paid or incurred on or after the date
of the enactment of this Act.

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

(a) In General.--Section 6657 (relating to bad checks) is
amended--
(1) by striking ``$750'' and inserting ``$2,000'', and
(2) by striking ``$15'' and inserting ``$40''.
(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.

Subtitle E--Provisions To Discourage Expatriation

SEC. 541. TAX TREATMENT OF INVERTED ENTITIES.

(a) In General.--Section 7874 is amended--
(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'',
(2) by striking ``at least 60 percent'' in subsection
(a)(2)(B)(ii) and inserting ``more than 50 percent'',
(3) by striking ``80 percent'' in subsection (b) and
inserting ``at least 80 percent'',
(4) by striking ``60 percent'' in subsection (b) and
inserting ``more than 50 percent'',
(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
(6) by redesignating subsection (g) as subsection (h) and
by inserting after subsection (f) the following new
subsection:
``(g) Special Rules Applicable to Expatriated Entities.--
``(1) Increases in accuracy-related penalties.--In the case
of any underpayment of tax of an expatriated entity--
``(A) section 6662(a) shall be applied with respect to such
underpayment by substituting `30 percent' for `20 percent',
and
``(B) if such underpayment is attributable to one or more
gross valuation understatements, the increase in the rate of
penalty under section 6662(h) shall be to 50 percent rather
than 40 percent.
``(2) Modifications of limitation on interest deduction.--
In the case of an expatriated entity, section 163(j) shall be
applied--
``(A) without regard to paragraph (2)(A)(ii) thereof, and
``(B) by substituting `25 percent' for `50 percent' each
place it appears in paragraph (2)(B) thereof.''.

[[Page S564]]

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

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

(a) In General.--Subpart A of part II of subchapter N of
chapter 1 is amended by inserting after section 877 the
following new section:

``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

``(a) General Rules.--For purposes of this subtitle--
``(1) Mark to market.--Except as provided in subsections
(d) and (f), all property of a covered expatriate to whom
this section applies shall be treated as sold on the day
before the expatriation date for its fair market value.
``(2) Recognition of gain or loss.--In the case of any sale
under paragraph (1)--
``(A) notwithstanding any other provision of this title,
any gain arising from such sale shall be taken into account
for the taxable year of the sale, and
``(B) any loss arising from such sale shall be taken into
account for the taxable year of the sale to the extent
otherwise provided by this title, except that section 1091
shall not apply to any such loss.

Proper adjustment shall be made in the amount of any gain or
loss subsequently realized for gain or loss taken into
account under the preceding sentence.
``(3) Exclusion for certain gain.--
``(A) In general.--The amount which, but for this
paragraph, would be includible in the gross income of any
individual by reason of this section shall be reduced (but
not below zero) by $600,000. For purposes of this paragraph,
allocable expatriation gain taken into account under
subsection (f)(2) shall be treated in the same manner as an
amount required to be includible in gross income.
``(B) Cost-of-living adjustment.--
``(i) In general.--In the case of an expatriation date
occurring in any calendar year after 2005, the $600,000
amount under subparagraph (A) shall be increased by an amount
equal to--

``(I) such dollar amount, multiplied by
``(II) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year, determined by
substituting `calendar year 2004' for `calendar year 1992' in
subparagraph (B) thereof.

``(ii) Rounding rules.--If any amount after adjustment
under clause (i) is not a multiple of $1,000, such amount
shall be rounded to the next lower multiple of $1,000.
``(4) Election to continue to be taxed as united states
citizen.--
``(A) In general.--If a covered expatriate elects the
application of this paragraph--
``(i) this section (other than this paragraph and
subsection (i)) shall not apply to the expatriate, but
``(ii) in the case of property to which this section would
apply but for such election, the expatriate shall be subject
to tax under this title in the same manner as if the
individual were a United States citizen.
``(B) Requirements.--Subparagraph (A) shall not apply to an
individual unless the individual--
``(i) provides security for payment of tax in such form and
manner, and in such amount, as the Secretary may require,
``(ii) consents to the waiver of any right of the
individual under any treaty of the United States which would
preclude assessment or collection of any tax which may be
imposed by reason of this paragraph, and
``(iii) complies with such other requirements as the
Secretary may prescribe.
``(C) Election.--An election under subparagraph (A) shall
apply to all property to which this section would apply but
for the election and, once made, shall be irrevocable. Such
election shall also apply to property the basis of which is
determined in whole or in part by reference to the property
with respect to which the election was made.
``(b) Election To Defer Tax.--
``(1) In general.--If the taxpayer elects the application
of this subsection with respect to any property treated as
sold by reason of subsection (a), the payment of the
additional tax attributable to such property shall be
postponed until the due date of the return for the taxable
year in which such property is disposed of (or, in the case
of property disposed of in a transaction in which gain is not
recognized in whole or in part, until such other date as the
Secretary may prescribe).
``(2) Determination of tax with respect to property.--For
purposes of paragraph (1), the additional tax attributable to
any property is an amount which bears the same ratio to the
additional tax imposed by this chapter for the taxable year
solely by reason of subsection (a) as the gain taken into
account under subsection (a) with respect to such property
bears to the total gain taken into account under subsection
(a) with respect to all property to which subsection (a)
applies.
``(3) Termination of postponement.--No tax may be postponed
under this subsection later than the due date for the return
of tax imposed by this chapter for the taxable year which
includes the date of death of the expatriate (or, if earlier,
the time that the security provided with respect to the
property fails to meet the requirements of paragraph (4),
unless the taxpayer corrects such failure within the time
specified by the Secretary).
``(4) Security.--
``(A) In general.--No election may be made under paragraph
(1) with respect to any property unless adequate security is
provided to the Secretary with respect to such property.
``(B) Adequate security.--For purposes of subparagraph (A),
security with respect to any property shall be treated as
adequate security if--
``(i) it is a bond in an amount equal to the deferred tax
amount under paragraph (2) for the property, or
``(ii) the taxpayer otherwise establishes to the
satisfaction of the Secretary that the security is adequate.
``(5) Waiver of certain rights.--No election may be made
under paragraph (1) unless the taxpayer consents to the
waiver of any right under any treaty of the United States
which would preclude assessment or collection of any tax
imposed by reason of this section.
``(6) Elections.--An election under paragraph (1) shall
only apply to property described in the election and, once
made, is irrevocable. An election may be made under paragraph
(1) with respect to an interest in a trust with respect to
which gain is required to be recognized under subsection
(f)(1).
``(7) Interest.--For purposes of section 6601--
``(A) the last date for the payment of tax shall be
determined without regard to the election under this
subsection, and
``(B) section 6621(a)(2) shall be applied by substituting
`5 percentage points' for `3 percentage points' in
subparagraph (B) thereof.
``(c) Covered Expatriate.--For purposes of this section--
``(1) In general.--Except as provided in paragraph (2), the
term `covered expatriate' means an expatriate.
``(2) Exceptions.--An individual shall not be treated as a
covered expatriate if--
``(A) the individual--
``(i) became at birth a citizen of the United States and a
citizen of another country and, as of the expatriation date,
continues to be a citizen of, and is taxed as a resident of,
such other country, and
``(ii) has not been a resident of the United States (as
defined in section 7701(b)(1)(A)(ii)) during the 5 taxable
years ending with the taxable year during which the
expatriation date occurs, or
``(B)(i) the individual's relinquishment of United States
citizenship occurs before such individual attains age 18\1/
2\, and
``(ii) the individual has been a resident of the United
States (as so defined) for not more than 5 taxable years
before the date of relinquishment.
``(d) Exempt Property; Special Rules for Pension Plans.--
``(1) Exempt property.--This section shall not apply to the
following:
``(A) United states real property interests.--Any United
States real property interest (as defined in section
897(c)(1)), other than stock of a United States real property
holding corporation which does not, on the day before the
expatriation date, meet the requirements of section
897(c)(2).
``(B) Specified property.--Any property or interest in
property not described in subparagraph (A) which the
Secretary specifies in regulations.
``(2) Special rules for certain retirement plans.--
``(A) In general.--If a covered expatriate holds on the day
before the expatriation date any interest in a retirement
plan to which this paragraph applies--
``(i) such interest shall not be treated as sold for
purposes of subsection (a)(1), but
``(ii) an amount equal to the present value of the
expatriate's nonforfeitable accrued benefit shall be treated
as having been received by such individual on such date as a
distribution under the plan.
``(B) Treatment of subsequent distributions.--In the case
of any distribution on or after the expatriation date to or
on behalf of the covered expatriate from a plan from which
the expatriate was treated as receiving a distribution under
subparagraph (A), the amount otherwise includible in gross
income by reason of the subsequent distribution shall be
reduced by the excess of the amount includible in gross
income under subparagraph (A) over any portion of such amount
to which this subparagraph previously applied.
``(C) Treatment of subsequent distributions by plan.--For
purposes of this title, a retirement plan to which this
paragraph applies, and any person acting on the plan's
behalf, shall treat any subsequent distribution described in
subparagraph (B) in the same manner as such distribution
would be treated without regard to this paragraph.
``(D) Applicable plans.--This paragraph shall apply to--
``(i) any qualified retirement plan (as defined in section
4974(c)),
``(ii) an eligible deferred compensation plan (as defined
in section 457(b)) of an eligible employer described in
section 457(e)(1)(A), and
``(iii) to the extent provided in regulations, any foreign
pension plan or similar retirement arrangements or programs.
``(e) Definitions.--For purposes of this section--
``(1) Expatriate.--The term `expatriate' means--
``(A) any United States citizen who relinquishes
citizenship, and
``(B) any long-term resident of the United States who--
``(i) ceases to be a lawful permanent resident of the
United States (within the meaning of section 7701(b)(6)), or
``(ii) commences to be treated as a resident of a foreign
country under the provisions of

[[Page S565]]

a tax treaty between the United States and the foreign
country and who does not waive the benefits of such treaty
applicable to residents of the foreign country.
``(2) Expatriation date.--The term `expatriation date'
means--
``(A) the date an individual relinquishes United States
citizenship, or
``(B) in the case of a long-term resident of the United
States, the date of the event described in clause (i) or (ii)
of paragraph (1)(B).
``(3) Relinquishment of citizenship.--A citizen shall be
treated as relinquishing United States citizenship on the
earliest of--
``(A) the date the individual renounces such individual's
United States nationality before a diplomatic or consular
officer of the United States pursuant to paragraph (5) of
section 349(a) of the Immigration and Nationality Act (8
U.S.C. 1481(a)(5)),
``(B) the date the individual furnishes to the United
States Department of State a signed statement of voluntary
relinquishment of United States nationality confirming the
performance of an act of expatriation specified in paragraph
(1), (2), (3), or (4) of section 349(a) of the Immigration
and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
``(C) the date the United States Department of State issues
to the individual a certificate of loss of nationality, or
``(D) the date a court of the United States cancels a
naturalized citizen's certificate of naturalization.

Subparagraph (A) or (B) shall not apply to any individual
unless the renunciation or voluntary relinquishment is
subsequently approved by the issuance to the individual of a
certificate of loss of nationality by the United States
Department of State.
``(4) Long-term resident.--The term `long-term resident'
has the meaning given to such term by section 877(e)(2).
``(f) Special Rules Applicable to Beneficiaries' Interests
in Trust.--
``(1) In general.--Except as provided in paragraph (2), if
an individual is determined under paragraph (3) to hold an
interest in a trust on the day before the expatriation date--
``(A) the individual shall not be treated as having sold
such interest,
``(B) such interest shall be treated as a separate share in
the trust, and
``(C)(i) such separate share shall be treated as a separate
trust consisting of the assets allocable to such share,
``(ii) the separate trust shall be treated as having sold
its assets on the day before the expatriation date for their
fair market value and as having distributed all of its assets
to the individual as of such time, and
``(iii) the individual shall be treated as having
recontributed the assets to the separate trust.

Subsection (a)(2) shall apply to any income, gain, or loss of
the individual arising from a distribution described in
subparagraph (C)(ii). In determining the amount of such
distribution, proper adjustments shall be made for
liabilities of the trust allocable to an individual's share
in the trust.
``(2) Special rules for interests in qualified trusts.--
``(A) In general.--If the trust interest described in
paragraph (1) is an interest in a qualified trust--
``(i) paragraph (1) and subsection (a) shall not apply, and
``(ii) in addition to any other tax imposed by this title,
there is hereby imposed on each distribution with respect to
such interest a tax in the amount determined under
subparagraph (B).
``(B) Amount of tax.--The amount of tax under subparagraph
(A)(ii) shall be equal to the lesser of--
``(i) the highest rate of tax imposed by section 1(e) for
the taxable year which includes the day before the
expatriation date, multiplied by the amount of the
distribution, or
``(ii) the balance in the deferred tax account immediately
before the distribution determined without regard to any
increases under subparagraph (C)(ii) after the 30th day
preceding the distribution.
``(C) Deferred tax account.--For purposes of subparagraph
(B)(ii)--
``(i) Opening balance.--The opening balance in a deferred
tax account with respect to any trust interest is an amount
equal to the tax which would have been imposed on the
allocable expatriation gain with respect to the trust
interest if such gain had been included in gross income under
subsection (a).
``(ii) Increase for interest.--The balance in the deferred
tax account shall be increased by the amount of interest
determined (on the balance in the account at the time the
interest accrues), for periods after the 90th day after the
expatriation date, by using the rates and method applicable
under section 6621 for underpayments of tax for such periods,
except that section 6621(a)(2) shall be applied by
substituting `5 percentage points' for `3 percentage points'
in subparagraph (B) thereof.
``(iii) Decrease for taxes previously paid.--The balance in
the tax deferred account shall be reduced--

``(I) by the amount of taxes imposed by subparagraph (A) on
any distribution to the person holding the trust interest,
and
``(II) in the case of a person holding a nonvested
interest, to the extent provided in regulations, by the
amount of taxes imposed by subparagraph (A) on distributions
from the trust with respect to nonvested interests not held
by such person.

``(D) Allocable expatriation gain.--For purposes of this
paragraph, the allocable expatriation gain with respect to
any beneficiary's interest in a trust is the amount of gain
which would be allocable to such beneficiary's vested and
nonvested interests in the trust if the beneficiary held
directly all assets allocable to such interests.
``(E) Tax deducted and withheld.--
``(i) In general.--The tax imposed by subparagraph (A)(ii)
shall be deducted and withheld by the trustees from the
distribution to which it relates.
``(ii) Exception where failure to waive treaty rights.--If
an amount may not be deducted and withheld under clause (i)
by reason of the distributee failing to waive any treaty
right with respect to such distribution--

``(I) the tax imposed by subparagraph (A)(ii) shall be
imposed on the trust and each trustee shall be personally
liable for the amount of such tax, and
``(II) any other beneficiary of the trust shall be entitled
to recover from the distributee the amount of such tax
imposed on the other beneficiary.

``(F) Disposition.--If a trust ceases to be a qualified
trust at any time, a covered expatriate disposes of an
interest in a qualified trust, or a covered expatriate
holding an interest in a qualified trust dies, then, in lieu
of the tax imposed by subparagraph (A)(ii), there is hereby
imposed a tax equal to the lesser of--
``(i) the tax determined under paragraph (1) as if the day
before the expatriation date were the date of such cessation,
disposition, or death, whichever is applicable, or
``(ii) the balance in the tax deferred account immediately
before such date.
Such tax shall be imposed on the trust and each trustee shall
be personally liable for the amount of such tax and any other
beneficiary of the trust shall be entitled to recover from
the covered expatriate or the estate the amount of such tax
imposed on the other beneficiary.
``(G) Definitions and special rules.--For purposes of this
paragraph--
``(i) Qualified trust.--The term `qualified trust' means a
trust which is described in section 7701(a)(30)(E).
``(ii) Vested interest.--The term `vested interest' means
any interest which, as of the day before the expatriation
date, is vested in the beneficiary.
``(iii) Nonvested interest.--The term `nonvested interest'
means, with respect to any beneficiary, any interest in a
trust which is not a vested interest. Such interest shall be
determined by assuming the maximum exercise of discretion in
favor of the beneficiary and the occurrence of all
contingencies in favor of the beneficiary.
``(iv) Adjustments.--The Secretary may provide for such
adjustments to the bases of assets in a trust or a deferred
tax account, and the timing of such adjustments, in order to
ensure that gain is taxed only once.
``(v) Coordination with retirement plan rules.--This
subsection shall not apply to an interest in a trust which is
part of a retirement plan to which subsection (d)(2) applies.
``(3) Determination of beneficiaries' interest in trust.--
``(A) Determinations under paragraph (1).--For purposes of
paragraph (1), a beneficiary's interest in a trust shall be
based upon all relevant facts and circumstances, including
the terms of the trust instrument and any letter of wishes or
similar document, historical patterns of trust distributions,
and the existence of and functions performed by a trust
protector or any similar adviser.
``(B) Other determinations.--For purposes of this section--
``(i) Constructive ownership.--If a beneficiary of a trust
is a corporation, partnership, trust, or estate, the
shareholders, partners, or beneficiaries shall be deemed to
be the trust beneficiaries for purposes of this section.
``(ii) Taxpayer return position.--A taxpayer shall clearly
indicate on its income tax return--

``(I) the methodology used to determine that taxpayer's
trust interest under this section, and
``(II) if the taxpayer knows (or has reason to know) that
any other beneficiary of such trust is using a different
methodology to determine such beneficiary's trust interest
under this section.

``(g) Termination of Deferrals, Etc.--In the case of any
covered expatriate, notwithstanding any other provision of
this title--
``(1) any period during which recognition of income or gain
is deferred shall terminate on the day before the
expatriation date, and
``(2) any extension of time for payment of tax shall cease
to apply on the day before the expatriation date and the
unpaid portion of such tax shall be due and payable at the
time and in the manner prescribed by the Secretary.
``(h) Imposition of Tentative Tax.--
``(1) In general.--If an individual is required to include
any amount in gross income under subsection (a) for any
taxable year, there is hereby imposed, immediately before the
expatriation date, a tax in an amount equal to the amount of
tax which would be imposed if the taxable year were a short
taxable year ending on the expatriation date.
``(2) Due date.--The due date for any tax imposed by
paragraph (1) shall be the 90th day after the expatriation
date.

[[Page S566]]

``(3) Treatment of tax.--Any tax paid under paragraph (1)
shall be treated as a payment of the tax imposed by this
chapter for the taxable year to which subsection (a) applies.
``(4) Deferral of tax.--The provisions of subsection (b)
shall apply to the tax imposed by this subsection to the
extent attributable to gain includible in gross income by
reason of this section.
``(i) Special Liens for Deferred Tax Amounts.--
``(1) Imposition of lien.--
``(A) In general.--If a covered expatriate makes an
election under subsection (a)(4) or (b) which results in the
deferral of any tax imposed by reason of subsection (a), the
deferred amount (including any interest, additional amount,
addition to tax, assessable penalty, and costs attributable
to the deferred amount) shall be a lien in favor of the
United States on all property of the expatriate located in
the United States (without regard to whether this section
applies to the property).
``(B) Deferred amount.--For purposes of this subsection,
the deferred amount is the amount of the increase in the
covered expatriate's income tax which, but for the election
under subsection (a)(4) or (b), would have occurred by reason
of this section for the taxable year including the
expatriation date.
``(2) Period of lien.--The lien imposed by this subsection
shall arise on the expatriation date and continue until--
``(A) the liability for tax by reason of this section is
satisfied or has become unenforceable by reason of lapse of
time, or
``(B) it is established to the satisfaction of the
Secretary that no further tax liability may arise by reason
of this section.
``(3) Certain rules apply.--The rules set forth in
paragraphs (1), (3), and (4) of section 6324A(d) shall apply
with respect to the lien imposed by this subsection as if it
were a lien imposed by section 6324A.
``(j) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this section.''.
(b) Inclusion in Income of Gifts and Bequests Received by
United States Citizens and Residents From Expatriates.--
Section 102 (relating to gifts, etc. not included in gross
income) is amended by adding at the end the following new
subsection:
``(d) Gifts and Inheritances From Covered Expatriates.--
``(1) In general.--Subsection (a) shall not exclude from
gross income the value of any property acquired by gift,
bequest, devise, or inheritance from a covered expatriate
after the expatriation date. For purposes of this subsection,
any term used in this subsection which is also used in
section 877A shall have the same meaning as when used in
section 877A.
``(2) Exceptions for transfers otherwise subject to estate
or gift tax.--Paragraph (1) shall not apply to any property
if either--
``(A) the gift, bequest, devise, or inheritance is--
``(i) shown on a timely filed return of tax imposed by
chapter 12 as a taxable gift by the covered expatriate, or
``(ii) included in the gross estate of the covered
expatriate for purposes of chapter 11 and shown on a timely
filed return of tax imposed by chapter 11 of the estate of
the covered expatriate, or
``(B) no such return was timely filed but no such return
would have been required to be filed even if the covered
expatriate were a citizen or long-term resident of the United
States.''.
(c) Definition of Termination of United States
Citizenship.--Section 7701(a) is amended by adding at the end
the following new paragraph:
``(49) Termination of united states citizenship.--
``(A) In general.--An individual shall not cease to be
treated as a United States citizen before the date on which
the individual's citizenship is treated as relinquished under
section 877A(e)(3).
``(B) Dual citizens.--Under regulations prescribed by the
Secretary, subparagraph (A) shall not apply to an individual
who became at birth a citizen of the United States and a
citizen of another country.''.
(d) Ineligibility for Visa or Admission to United States.--
(1) In general.--Section 212(a)(10)(E) of the Immigration
and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to
read as follows:
``(E) Former citizens not in compliance with expatriation
revenue provisions.--Any alien who is a former citizen of the
United States who relinquishes United States citizenship
(within the meaning of section 877A(e)(3) of the Internal
Revenue Code of 1986) and who is not in compliance with
section 877A of such Code (relating to expatriation) is
inadmissible.''.
(2) Availability of information.--
(A) In general.--Section 6103(l) (relating to disclosure of
returns and return information for purposes other than tax
administration) is amended by adding at the end the following
new paragraph:
``(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).''.
(B) Safeguards.--Section 6103(p)(4) (relating to
safeguards) is amended by striking ``or (20)'' each place it
appears and inserting ``(20), or (21)''.
(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.
(e) Conforming Amendments.--
(1) Section 877 is amended by adding at the end the
following new subsection:
``(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.''.
(2) Section 2107 is amended by adding at the end the
following new subsection:
``(f) Application.--This section shall not apply to any
expatriate subject to section 877A.''.
(3) Section 2501(a)(3) is amended by adding at the end the
following new subparagraph:
``(C) Application.--This paragraph shall not apply to any
expatriate subject to section 877A.''.
(4) Section 6039G(a) is amended by inserting ``or 877A''
after ``section 877(b)''.
(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))''.
(f) Clerical Amendment.--The table of sections for subpart
A of part II of subchapter N of chapter 1 is amended by
inserting after the item relating to section 877 the
following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.

(g) Effective Date.--
(1) In general.--Except as provided in this subsection, the
amendments made by this section shall apply to expatriates
(within the meaning of section 877A(e) of the Internal
Revenue Code of 1986, as added by this section) whose
expatriation date (as so defined) occurs on or after the date
of the enactment of this Act.
(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.
(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.

Subtitle F--Miscellaneous Provisions

SEC. 551. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT
INSTRUMENTS.

(a) In General.--Section 1275(d) (relating to regulation
authority) is amended--
(1) by striking ``The Secretary'' and inserting the
following:
``(1) In general.--The Secretary'', and
(2) by adding at the end the following new paragraph:
``(2) Treatment of contingent payment convertible debt.--
``(A) In general.--In the case of a debt instrument which--
``(i) is convertible into stock of the issuing corporation,
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
``(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.
``(B) Special rule.--For purposes of subparagraph (A), the
comparable yield shall be determined without taking into
account the yield resulting from the conversion of a debt
instrument into stock.''.
(b) Cross Reference.--Section 163(e)(6) (relating to cross
references) is amended by adding at the end the following:
``For the treatment of contingent payment convertible debt,
see section 1275(d)(2).''.
(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.

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

(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:
``(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.''.

[[Page S567]]

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

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

(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.
(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:
``(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.''.
(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.

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

(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:
``(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--
``(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,
``(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
``(C) such corporation's share of the liabilities of such
partnership shall be treated as liabilities of such
corporation.''.
(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:
``(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.''.
(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.

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

(a) In General.--Paragraph (2) of section 274(e) (relating
to expenses treated as compensation) is amended to read as
follows:
``(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).''.
(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''.
(c) Effective Date.--The amendments made by this section
shall apply to expenses incurred after the date of the
enactment of this Act.

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

(a) In General.--Section 1(g)(2)(A) (relating to child to
whom subsection applies) is amended by striking ``age 14''
and inserting ``age 18''.
(b) 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:
``(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.''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2005.

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

(a) Strengthened Reasonable Expectation Requirement.--
Subparagraph (A) of section 149(f)(2) (relating to reasonable
expectation requirement) is amended to read as follows:
``(A) In general.--The requirements of this paragraph are
met with respect to an issue if the issuer reasonably expects
that--
``(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
``(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.''.
(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:
``(4) Written loan commitment requirement.--
``(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.
``(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.
``(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--
``(A) the amount required to be used under such clause,
over
``(B) the amount actually used by the close of such period,
``to redeem outstanding bonds within 90 days after the end
of such period.''.
(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.
(d) Conforming Amendments.--
(1) Section 149(f)(1) is amended by striking ``paragraphs
(2) and (3)'' and inserting ``paragraphs (2), (3), (4), and
(5)''.
(2) Section 149(f)(7)(B), as redesignated by subsection
(b), is amended by striking ``paragraph (4)(A)'' and
inserting ``paragraph (6)(A)''.
(3) Section 54(l)(2) is amended by striking ``section
149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
(e) Effective Date.--The amendments made by this section
shall apply to bonds issued after the date of the enactment
of this Act.

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

(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.
(b) Conforming Amendment.--Section 6049(b)(2)(C), as
redesignated by subsection (a), is amended by striking
``subparagraph (C)'' and inserting ``subparagraph (B)''.
(c) Effective Date.--The amendments made by this section
shall apply to interest earned after December 31, 2005.

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

(a) Taxable Years Ending Before 2006.--
(1) Modification of phaseout.--
(A) In general.--Section 29(b)(1)(A) is amended by
inserting ``the calendar year preceding'' before ``the
calendar year''.
(B) Conforming amendments.--Section 29(b)((2) is amended--
(i) by striking ``The'' and inserting ``With respect to any
calendar year, the'', and
(ii) by striking ``for the calendar year in which the sale
occurs'' and inserting ``for such calendar year''.
(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.''.
(b) Taxable Years Ending After 2005.--
(1) Modification of phaseout.--
(A) In general.--Section 45K(b)(1)(A) is amended by
inserting ``the calendar year preceding'' before ``the
calendar year''.
(B) Conforming amendments.--Section 45K(b)((2) is amended--
(i) by striking ``The'' and inserting ``With respect to any
calendar year, the'', and
(ii) by striking ``for the calendar year in which the sale
occurs'' and inserting ``for such calendar year''.
(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

[[Page S568]]

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.''.
(3) Treatment of coke and coke gas.--
(A) Nonapplication of phaseout.--Section 45K(g)(2) is
amended by adding at the end the following new subparagraph:
``(D) Nonapplication of phaseout.--Subsection (b)(1) shall
not apply.''.
(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.''.
(C) Clarification of qualifying facility.--Section
45K(g)(1) is amended by inserting ``(other than from
petroleum based products)'' after ``coke or coke gas''.
(c) Effective Date.--The amendments made by this section
shall apply to fuel sold after December 31, 2004.

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

(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:

``2006............................................................120
2007 or thereafter.............................................110''.

(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.

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

(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--
(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
(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.
(b) Layer Adjustment Amount.--For purposes of this
section--
(1) In general.--The term ``layer adjustment amount''
means, with respect to any historic LIFO layer, the product
of--
(A) $18.75, and
(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.
(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).
(c) Application of Requirement.--
(1) No change in method of accounting.--Any adjustment
required by this section shall not be treated as a change in
method of accounting.
(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.
(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.

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

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

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

(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--
(1) greater of--
(A) the fair market value of such use, or
(B) the actual cost of such use (including all fixed and
variable costs), over
(2) any amount paid by or on behalf of such employee for
such use.
(b) Effective Date.--Subsection (a) shall apply to use
after the date of the enactment of this Act.

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

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

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

(a) Qualified Investment Entity.--
(1) In general.--Section 897(h)(1) is amended--
(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'',
(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
(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.''.
(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).''.
(b) Treatment of Certain Distributions as Dividends.--
(1) In general.--Section 852(b)(3) (relating to capital
gains) is amended by adding at the end the following new
subparagraph:
``(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)--
``(i) shall not be included in computing such shareholder's
long-term capital gains, and
``(ii) shall be included in such shareholder's gross income
as a dividend from the regulated investment company.''.
(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:
``(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)--
``(i) shall not be treated as a short-term capital gain
dividend, and
``(ii) shall be included in such shareholder's gross income
as a dividend from the regulated investment company.''.
(c) Effective Dates.--
(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.
(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.

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

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

[[Page S569]]

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).
``(B) Applicable wash sales transaction.--For purposes of
this paragraph--
``(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--

``(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
``(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).

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

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

(a) Modification of Active Business Definition Under
Section 355.--
(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:
``(3) Special rules relating to active business
requirement.--
``(A) In general.--For purposes of determining whether a
corporation meets the requirement of paragraph (2)(A), all
members of such corporation's separate affiliated group shall
be treated as 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.
``(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.''.
(2) Conforming amendments.--
(A) Subparagraph (A) of section 355(b)(2) is amended to
read as follows:
``(A) it is engaged in the active conduct of a trade or
business,''.
(B) Section 355(b)(2) of such Code is amended by striking
the last sentence.
(3) Effective dates.--
(A) In general.--The amendments made by this subsection
shall apply--
(i) to distributions after the date of the enactment of
this Act, and before January 1, 2010, and
(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.
(B) Transition rule.--The amendments made by this
subsection shall not apply to any distribution pursuant to a
transaction which is--
(i) made pursuant to an agreement which was binding on such
date of enactment and at all times thereafter,
(ii) described in a ruling request submitted to the
Internal Revenue Service on or before such date, or
(iii) described on or before such date in a public
announcement or in a filing with the Securities and Exchange
Commission.
(C) Elections.--
(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.
(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.
(b) Section 355 Not To Apply to Distributions if the
Distributing or Controlled Corporation Is a Disqualified
Investment Corporation.--
(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:
``(g) Section Not To Apply to Distributions Involving
Disqualified Investment Corporations.--
``(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--
``(A) either the distributing corporation or controlled
corporation is, immediately after the transaction, a
disqualified investment corporation, and
``(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.
``(2) Disqualified investment corporation.--For purposes of
this subsection--
``(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.
``(B) Investment assets.--
``(i) In general.--Except as otherwise provided in this
subparagraph, the term `investment assets' means--

``(I) cash,
``(II) any stock or securities in a corporation,
``(III) any interest in a partnership,
``(IV) any debt instrument or other evidence of
indebtedness,
``(V) any option, forward or futures contract, notional
principal contract, or derivative,
``(VI) foreign currency, or
``(VII) any similar asset.

``(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--

``(I) a lending or finance business (within the meaning of
section 954(h)(4)),
``(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
``(III) an insurance business if the conduct of the
business is licensed, authorized, or regulated by an
applicable insurance regulatory body.

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.
``(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.
``(iv) Stock or securities in a 25-percent controlled
entity.--

``(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.
``(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.
``(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).

``(v) Interests in certain partnerships.--

``(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.
``(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).

``(3) 50-percent or greater interest.--For purposes of this
subsection--
``(A) In general.--The term `50-percent or greater
interest' has the meaning given such term by subsection
(d)(4).

[[Page S570]]

``(B) Attribution rules.--The rules of section 318 shall
apply for purposes of determining ownership of stock for
purposes of this paragraph.
``(4) Transaction.--For purposes of this subsection, the
term `transaction' includes a series of transactions.
``(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--
``(A) to carry out, or prevent the avoidance of, the
purposes of this subsection in cases involving--
``(i) the use of related persons, intermediaries, pass-thru
entities, options, or other arrangements, and
``(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,
``(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
``(C) which modify the application of the attribution rules
applied for purposes of this subsection.''.
(2) Effective dates.--
(A) In general.--The amendments made by this subsection
shall apply to distributions after the date of the enactment
of this Act.
(B) Transition rule.--The amendments made by this
subsection shall not apply to any distribution pursuant to a
transaction which is--
(i) made pursuant to an agreement which was binding on such
date of enactment and at all times thereafter,
(ii) described in a ruling request submitted to the
Internal Revenue Service on or before such date, or
(iii) described on or before such date in a public
announcement or in a filing with the Securities and Exchange
Commission.

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

(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:
``(i) Special Rules for Certain Musical Works and
Copyrights.--
``(1) In general.--If--
``(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
``(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).
``(2) Exceptions.--Paragraph (1) shall not apply to any
expense--
``(A) which is a qualified creative expense under
subsection (h),
``(B) to which a simplified procedure established under
subsection (j)(2) applies,
``(C) which is an amortizable section 197 intangible (as
defined in section 197(c)), or
``(D) which, without regard to this section, would not be
allowable as a deduction.''
(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.

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

(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:

``SEC. 54A. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

``(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.
``(b) Amount of Credit.--
``(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.
``(2) Annual credit.--The annual credit determined with
respect to any rural renaissance bond is the product of--
``(A) the credit rate determined by the Secretary under
paragraph (3) for the day on which such bond was sold,
multiplied by
``(B) the outstanding face amount of the bond.
``(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.
``(4) Credit allowance date.--For purposes of this section,
the term `credit allowance date' means--
``(A) March 15,
``(B) June 15,
``(C) September 15, and
``(D) December 15.

Such term also includes the last day on which the bond is
outstanding.
``(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.
``(c) Limitation Based on Amount of Tax.--The credit
allowed under subsection (a) for any taxable year shall not
exceed the excess of--
``(1) the sum of the regular tax liability (as defined in
section 26(b)) plus the tax imposed by section 55, over
``(2) the sum of the credits allowable under this part
(other than subpart C thereof, relating to refundable
credits).
``(d) Rural Renaissance Bond.--For purposes of this
section--
``(1) In general.--The term `rural renaissance bond' means
any bond issued as part of an issue if--
``(A) the bond is issued by a qualified issuer,
``(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,
``(C) the qualified issuer designates such bond for
purposes of this section and the bond is in registered form,
and
``(D) the issue meets the requirements of subsections (e)
and (h).
``(2) Qualified project; special use rules.--
``(A) In general.--The term `qualified project' means 1 or
more projects described in subparagraph (B) located in a
rural area.
``(B) Projects described.--A project described in this
subparagraph is--
``(i) a water or waste treatment project,
``(ii) an affordable housing project,
``(iii) a community facility project, including hospitals,
fire and police stations, and nursing and assisted-living
facilities,
``(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,
``(v) a distance learning or telemedicine project,
``(vi) a rural utility infrastructure project, including
any electric or telephone system,
``(vii) a project to expand broadband technology,
``(viii) a rural teleworks project, and
``(ix) any project described in any preceding clause
carried out by the Delta Regional Authority.
``(C) Special rules.--For purposes of this paragraph--
``(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
``(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.
``(3) Special use rules.--
``(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.
``(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--
``(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,
``(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
``(iii) the reimbursement is made not later than 18 months
after the date the original expenditure is paid.
``(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

[[Page S571]]

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.
``(e) Maturity Limitations.--
``(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.
``(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.
``(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.
``(f) Limitation on Amount of Bonds Designated.--
``(1) National limitation.--There is a rural renaissance
bond limitation of $200,000,000.
``(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.
``(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.
``(h) Special Rules Relating to Expenditures.--
``(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--
``(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,
``(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
``(C) such projects will be completed with due diligence
and the proceeds from the sale of the issue will be spent
with due diligence.
``(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.
``(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.
``(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.
``(j) Qualified Issuer.--For purposes of this section--
``(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).
``(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.
``(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.
``(l) Other Definitions and Special Rules.--For purposes of
this section--
``(1) Bond.--The term `bond' includes any obligation.
``(2) Pooled financing bond.--The term `pooled financing
bond' shall have the meaning given such term by section
149(f)(4)(A).
``(3) Rural area.--The term `rural area' means any area
other than--
``(A) a city or town which has a population of greater than
50,000 inhabitants, or
``(B) the urbanized area contiguous and adjacent to such a
city or town.
``(4) Partnership; s corporation; and other pass-thru
entities.--
``(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).
``(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.
``(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.
``(6) Reporting.--Issuers of rural renaissance bonds shall
submit reports similar to the reports required under section
149(e).''.
(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:
``(9) Reporting of credit on rural renaissance bonds.--
``(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)).
``(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.
``(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.''.
(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:

``Sec. 54A. Credit to holders of rural renaissance bonds.''.

(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.
(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.

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

(a) In General.--Subsection (g) of section 7872 is amended
to read as follows:
``(g) Exception for Loans to Qualified Continuing Care
Facilities.--
``(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.
``(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--
``(A) the individual or individual's spouse may use a
qualified continuing care facility for their life or lives,
``(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
``(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.
``(3) Qualified continuing care facility.--
``(A) In general.--For purposes of this section, the term
`qualified continuing care facility' means 1 or more
facilities--
``(i) which are designed to provide services under
continuing care contracts,
``(ii) that include an independent living unit, plus an
assisted living or nursing facility, or both, and
``(iii) substantially all of the independent living unit
residents of which are covered by continuing care contracts.
``(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.''.
(b) Effective Date.--The amendment made by this section
shall apply to loans made after December 31, 2005.

[[Page S572]]

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

(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:
``(m) Special Rules Relating To Large Integrated Oil
Companies Which Are Dual Capacity Taxpayers.--
``(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--
``(A) if, for such period, the foreign country or
possession does not impose a generally applicable income tax,
or
``(B) to the extent such amount exceeds the amount
(determined in accordance with regulations) which--
``(i) is paid by such dual capacity taxpayer pursuant to
the generally applicable income tax imposed by the country or
possession, or
``(ii) would be paid if the generally applicable income tax
imposed by the country or possession were applicable to such
dual capacity taxpayer.

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).
``(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--
``(A) is subject to a levy of such country or possession,
and
``(B) receives (or will receive) directly or indirectly a
specific economic benefit (as determined in accordance with
regulations) from such country or possession.
``(3) Generally applicable income tax.--For purposes of
this subsection--
``(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.
``(B) Exceptions.--Such term shall not include a tax unless
it has substantial application, by its terms and in practice,
to--
``(i) persons who are not dual capacity taxpayers, and
``(ii) persons who are citizens or residents of the foreign
country or possession.
``(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--
``(A) had gross receipts in excess of $1,000,000,000 for
such taxable year, and
``(B) has an average daily worldwide production of crude
oil of at least 500,000 barrels for such taxable year.''
(b) Effective Date.--
(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.
(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.

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

(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--
``(i) as a member of the uniformed services,
``(ii) as a member of the Foreign Service of the United
States, or
``(iii) as an employee of the intelligence community.''.
(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:
``(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--

``(I) the Office of the Director of National Intelligence,
``(II) the Central Intelligence Agency,
``(III) the National Security Agency,
``(IV) the Defense Intelligence Agency,
``(V) the National Geospatial-Intelligence Agency,
``(VI) the National Reconnaissance Office,
``(VII) any other office within the Department of Defense
for the collection of specialized national intelligence
through reconnaissance programs,
``(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,
``(IX) the Bureau of Intelligence and Research of the
Department of State, or
``(X) any of the elements of the Department of Homeland
Security concerned with the analyses of foreign intelligence
information.''.

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

``(I) for purposes of such duty such employee has moved
from 1 duty station to another, and
``(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).''.

(d) Conforming Amendment.--The heading for section
121(d)(9) is amended to read as follows: ``Uniformed
services, foreign service, and intelligence community''.
(e) Effective Date.--The amendments made by this section
shall apply to sales or exchanges after the date of the
enactment of this Act.

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

(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).
(b) Disability Preference Program Requirements.--
(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).
(2) Person described.--For purposes of paragraph (1), a
person is described in this paragraph if--
(A) as of the date any qualified tax collection contract is
awarded--
(i) such person employs not less than 50 severely disabled
individuals within the United States; or
(ii) not less than 30 percent of the employees of such
person within the United States are severely disabled
individuals;
(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--
(i) be hired after the date such contract is awarded; and
(ii) be severely disabled individuals; and
(C) such person is otherwise qualified to perform the
services required.
(c) Definitions.--For purposes of this section--
(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.
(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.
(3) Severely disabled individual.--The term ``severely
disabled individual'' means--
(A) a veteran of the United States armed forces with a
disability of 50 percent or greater--
(i) determined by the Secretary of Veterans Affairs to be
service-connected; or
(ii) deemed by law to be service-connected; or
(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.

TITLE VI--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

SEC. 601. SUNSET OF CERTAIN PROVISIONS AND AMENDMENTS.

The provisions of, and amendments made by, title I, title
II, subtitle A of title III, and title IV shall not apply to
taxable years beginning after September 30, 2010, and the
Internal Revenue Code of 1986 shall be applied and
administered to such years as if such provisions and
amendments had never been enacted.
______