To promote job creation and small business preservation in the adjustment of the Federal minimum wage.

SA 4376. Mr. ENZI proposed an amendment to the bill S. 2766, to
authorize appropriations for fiscal year 2007 for military activities
of the Department of Defense, for military construction, and for
defense activities of the Department of Energy, to prescribe personnel
strengths for such fiscal year for the Armed Forces, and for other
purposes; as follows:

At the end, add the following new Division:

DIVISION D--OTHER PROVISIONS

TITLE XXXXI--ASSISTANCE FOR WORKERS AND SMALL BUSINESSES

Subtitle A--Minimum Wage Adjustment

SEC. 4101. MINIMUM WAGE.

(a) In General.--Section 6(a)(1) of the Fair Labor
Standards Act of 1938 (29 U.S.C. 206(a)(1)) is amended to
read as follows:
``(1) except as otherwise provided in this section, not
less than--
``(A) $5.70 an hour, beginning 6 months after the date of
enactment of the National Defense Authorization Act for
Fiscal Year 2007; and
``(B) $6.25 an hour, beginning 18 months after such date of
enactment;''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect 6 months after the date of enactment of
this Act.

Subtitle B--Workplace Flexibility

SEC. 4111. SHORT TITLE.

This subtitle may be cited as the ``Workplace Flexibility
Act''.

SEC. 4112. BIWEEKLY WORK PROGRAMS.

(a) In General.--The Fair Labor Standards Act of 1938 is
amended by inserting after section 13 (29 U.S.C. 213) the
following:

``SEC. 13A. BIWEEKLY WORK PROGRAMS.

``(a) Voluntary Participation.--
``(1) In general.--Except as provided in paragraph (2), no
employee may be required to participate in a program
described in this section. Participation in a program
described in this section may not be a condition of
employment.
``(2) Collective bargaining agreement.--In a case in which
a valid collective bargaining agreement exists between an
employer and the labor organization that has been certified
or recognized as the representative of the employees of the
employer under applicable law, an employee may only be
required to participate in such a program in accordance with
the agreement.
``(b) Biweekly Work Programs.--
``(1) In general.--Notwithstanding section 7, an employer
may establish biweekly work programs that allow the use of a
biweekly work schedule--
``(A) that consists of a basic work requirement of not more
than 80 hours, over a 2-week period; and
``(B) in which more than 40 hours of the work requirement
may occur in a week of the period, except that no more than
10 hours may be shifted between the 2 weeks involved.
``(2) Conditions.--An employer may carry out a biweekly
work program described in paragraph (1) for employees only
pursuant to the following:
``(A) Agreement.--The program may be carried out only in
accordance with--
``(i) applicable provisions of a collective bargaining
agreement between the employer and the labor organization
that has been certified or recognized as the representative
of the employees under applicable law; or
``(ii) in the case of an employee who is not represented by
a labor organization described in clause (i), a written
agreement arrived at between the employer and employee before
the performance of the work involved if the agreement was
entered into knowingly and voluntarily by such employee and
was not a condition of employment.
``(B) Statement.--The program shall apply to an employee
described in subparagraph (A)(ii) if such employee has
affirmed, in a written statement that is made, kept, and
preserved in accordance with section 11(c), that the employee
has chosen to participate in the program.
``(C) Minimum service.--No employee may participate, or
agree to participate, in the program unless the employee has
been employed for at least 12 months by the employer, and for
at least 1,250 hours of service with the employer during the
previous 12-month period.
``(3) Compensation for hours in schedule.--Notwithstanding
section 7, in the case of an employee participating in such a
biweekly work program, the employee shall be compensated for
each hour in such a biweekly work schedule at a rate not less
than the regular rate at which the employee is employed.
``(4) Computation of overtime.--All hours worked by the
employee in excess of such a biweekly work schedule or in
excess of 80 hours in the 2-week period, that are requested
in advance by the employer, shall be overtime hours.
``(5) Overtime compensation provision.--The employee shall
be compensated for each such overtime hour at a rate not less
than one and one-half times the regular rate at which the
employee is employed, in accordance with section 7(a)(1), or
receive compensatory time off in accordance with section 7(r)
for each such overtime hour.
``(6) Discontinuance of program or withdrawal.--
``(A) Discontinuance of program.--An employer that has
established a biweekly work program under paragraph (1) may
discontinue the program for employees described in paragraph
(2)(A)(ii) after providing 30 days' written notice to the
employees who are subject to an agreement described in
paragraph (2)(A)(ii).
``(B) Withdrawal.--An employee may withdraw an agreement
described in paragraph (2)(A)(ii) at the end of any 2-week
period described in paragraph (1)(A), by submitting a written
notice of withdrawal to the employer of the employee.
``(c) Prohibition of Coercion.--
``(1) In general.--An employer shall not directly or
indirectly intimidate, threaten, or coerce, or attempt to
intimidate, threaten, or coerce, any employee for the purpose
of interfering with the rights of the employee under this
section to elect or not to elect to work a biweekly work
schedule.
``(2) Definition.--In paragraph (1), the term `intimidate,
threaten, or coerce' includes promising to confer or
conferring any benefit (such as appointment, promotion, or
compensation) or effecting or threatening to effect any
reprisal (such as deprivation of appointment, promotion, or
compensation).
``(d) Definitions.--In this section:
``(1) Basic work requirement.--The term `basic work
requirement' means the number of hours, excluding overtime
hours, that an employee is required to work or is required to
account for by leave or otherwise.
``(2) Collective bargaining.--The term `collective
bargaining' means the performance of the mutual obligation of
the representative of an employer and the labor organization
that has been certified or recognized as the representative
of the employees of the employer under applicable law to meet
at reasonable times and to consult and bargain in a good-
faith effort to reach agreement with respect to the
conditions of employment affecting such employees and to
execute, if requested by either party, a written document
incorporating any collective bargaining agreement reached,
but the obligation referred to in this paragraph shall not
compel either party to agree to a proposal or to make a
concession.
``(3) Collective bargaining agreement.--The term
`collective bargaining agreement' means an agreement entered
into as a result of collective bargaining.
``(4) Election.--The term `at the election of', used with
respect to an employee, means at the initiative of, and at
the request of, the employee.
``(5) Employee.--The term `employee' means an individual--
``(A) who is an employee (as defined in section 3);
``(B) who is not an employee of a public agency; and
``(C) to whom section 7(a) applies.

[[Page S6179]]

``(6) Employer.--The term `employer' does not include a
public agency.
``(7) Overtime hours.--The term `overtime hours' when used
with respect to biweekly work programs under subsection (b),
means all hours worked in excess of the biweekly work
schedule involved or in excess of 80 hours in the 2-week
period involved, that are requested in advance by an
employer.
``(8) Regular rate.--The term `regular rate' has the
meaning given the term in section 7(e).''.
(b) Remedies.--
(1) Prohibitions.--Section 15(a)(3) of the Fair Labor
Standards Act of 1938 (29 U.S.C. 215(a)(3)) is amended--
(A) by inserting ``(A)'' after ``(3)'';
(B) by adding ``or'' after the semicolon; and
(C) by adding at the end the following:
``(B) to violate any of the provisions of section 13A;''.
(2) Remedies and sanctions.--Section 16 of the Fair Labor
Standards Act of 1938 (29 U.S.C. 216) is amended--
(A) in subsection (c)--
(i) in the first sentence--

(I) by inserting after ``7 of this Act'' the following: ``,
or of the appropriate legal or monetary equitable relief
owing to any employee or employees under section 13A''; and
(II) by striking ``wages or unpaid overtime compensation
and'' and inserting ``wages, unpaid overtime compensation, or
legal or monetary equitable relief, as appropriate, and'';

(ii) in the second sentence, by striking ``wages or
overtime compensation and'' and inserting ``wages, unpaid
overtime compensation, or legal or monetary equitable relief,
as appropriate, and''; and
(iii) in the third sentence--

(I) by inserting after ``first sentence of such
subsection'' the following: ``, or the second sentence of
such subsection in the event of a violation of section
13A,''; and
(II) by striking ``wages or unpaid overtime compensation
under sections 6 and 7 or'' and inserting ``wages, unpaid
overtime compensation, or legal or monetary equitable relief,
as appropriate, or''; and

(B) in subsection (e)--
(i) in the second sentence, by striking ``section 6 or 7''
and inserting ``section 6, 7, or 13A''; and
(ii) in the fourth sentence, in paragraph (3), by striking
``15(a)(4) or'' and inserting ``15(a)(4), a violation of
section 15(a)(3)(B), or''.
(c) Notice to Employees.--Not later than 30 days after the
date of enactment of this Act, the Secretary of Labor shall
revise the materials the Secretary provides, under
regulations contained in section 516.4 of title 29, Code of
Federal Regulations, to employers for purposes of a notice
explaining the Fair Labor Standards Act of 1938 (29 U.S.C.
201 et seq.) to employees so that the notice reflects the
amendments made to the Act by this section.

SEC. 4113. CONGRESSIONAL COVERAGE.

Section 203 of the Congressional Accountability Act of 1995
(2 U.S.C. 1313) is amended--
(1) in subsection (a)--
(A) in paragraph (1), by striking ``and section 12(c)'' and
inserting ``section 12(c), and section 13A''; and
(B) by striking paragraph (3);
(2) in subsection (b)--
(A) by striking ``The remedy'' and inserting the following:
``(1) In general.--Except as provided in paragraphs (2) and
(3), the remedy''; and
(B) by adding at the end the following:
``(2) Biweekly work programs and flexible credit hours
programs.--The remedy for a violation of subsection (a)
relating to the requirements of section 13A of the Fair Labor
Standards Act of 1938 shall be such remedy as would be
appropriate if awarded under sections 16 and 17 of such Act
(29 U.S.C. 216, 217) for such a violation.''; and
(3) in subsection (c), by striking paragraph (4).

SEC. 4114. TERMINATION.

The authority provided by this subtitle and the amendments
made by this subtitle terminates 5 years after the date of
enactment of this Act.

Subtitle C--Small Business Fair Labor Standards Act Exemption

SEC. 4121. ENHANCED SMALL BUSINESS EXEMPTION.

(a) In General.--Section 3(s)(1)(A)(ii) of the Fair Labor
Standards Act of 1938 (29 U.S.C. 203(s)(1)(A)(ii)) is amended
by striking ``$500,000'' and inserting ``$1,000,000''.
(b) Effect of Amendment.--The amendment made by subsection
(a) shall not apply in any State that does not have in
effect, or that does not subsequently enact after the date of
enactment of the National Defense Authorization Act for
Fiscal Year 2007, legislation applying minimum wage and hours
of work protections to workers covered by the Fair Labor
Standards Act of 1938 as of the day before such date of
enactment.

SEC. 4122. SCOPE OF EMPLOYMENT.

Section 6(a) of the Fair Labor Standards Act of 1938 (29
U.S.C. 206(a)), in the matter preceding paragraph (1), and
section 7(a)(1) of such Act (29 U.S.C. 207(a)(1)), are
amended by striking ``who in any workweek is engaged in
commerce or in the production of goods for commerce, or is
employed in an enterprise engaged in commerce or in the
production of goods for commerce,'' and inserting ``who in
any workweek is engaged in industrial homework subject to
section 11(d) and engaged in commerce or in the production of
goods for commerce, or who in any workweek is employed in an
enterprise engaged in commerce or in the production of goods
for commerce,''.

Subtitle D--Small Business Paperwork Reduction

SEC. 4131. SMALL BUSINESS PAPERWORK REDUCTION.

(a) In General.--Section 3506 of title 44, United States
Code (commonly referred to as the ``Paperwork Reduction
Act''), is amended by adding at the end the following:
``(j)(1) In the case of a first-time violation by a small
business concern of a requirement regarding the collection of
information by an agency, the head of such agency shall
provide that no civil fine shall be imposed on the small
business concern unless, based on the particular facts and
circumstances regarding the violation--
``(A) the head of the agency determines that the violation
has the potential to cause serious harm to the public
interest;
``(B) the head of the agency determines that failure to
impose a civil fine would impede or interfere with the
detection of criminal activity;
``(C) the violation is a violation of an internal revenue
law or a law concerning the assessment or collection of any
tax, debt, revenue, or receipt;
``(D) the violation is not corrected on or before the date
that is 6 months after the date of receipt by the small
business concern of notification of the violation in writing
from the agency; or
``(E) except as provided in paragraph (2), the head of the
agency determines that the violation presents a danger to the
public health or safety.
``(2)(A) In any case in which the head of an agency
determines under paragraph (1)(E) that a violation presents a
danger to the public health or safety, the head of the agency
may, notwithstanding paragraph (1)(E), determine that a civil
fine should not be imposed on the small business concern if
the violation is corrected within 24 hours of receipt of
notice in writing by the small business concern of the
violation.
``(B) In determining whether to provide a small business
concern with 24 hours to correct a violation under
subparagraph (A), the head of the agency shall take into
account all of the facts and circumstances regarding the
violation, including--
``(i) the nature and seriousness of the violation,
including whether the violation is technical or inadvertent
or involves willful or criminal conduct;
``(ii) whether the small business concern has made a good
faith effort to comply with applicable laws, and to remedy
the violation within the shortest practicable period of time;
and
``(iii) whether the small business concern has obtained a
significant economic benefit from the violation.
``(C) In any case in which the head of the agency imposes a
civil fine on a small business concern for a violation with
respect to which this paragraph applies and does not provide
the small business concern with 24 hours to correct the
violation, the head of the agency shall notify Congress
regarding such determination not later than 60 days after the
date that the civil fine is imposed by the agency.
``(3) With respect to any agency, this subsection shall not
apply to any violation by a small business concern of a
requirement regarding collection of information by such
agency if such small business concern previously violated any
requirement regarding collection of information by such
agency.
``(4) In determining if a violation is a first-time
violation for purposes of this subsection, the head of an
agency shall not take into account any violation of a
requirement regarding collection of information by another
agency.
``(5) Notwithstanding any other provision of law, no State
may impose a civil penalty on a small business concern, in
the case of a first-time violation by the small-business
concern of a requirement regarding collection of information
under Federal law, in a manner inconsistent with the
provisions of this subsection.
``(6) For purposes of this subsection, the term `small
business concern' means a business concern that meets the
requirements of section 3(a) of the Small Business Act (15
U.S.C. 632(a)) and the regulations promulgated pursuant to
such section.''.
(b) Effective Date.--The amendment made by this section
shall apply to any violation occurring on or after January 1,
2006.

Subtitle E--Small Business Regulatory Relief

SEC. 4141. ENHANCED COMPLIANCE ASSISTANCE FOR SMALL
BUSINESSES.

(a) In General.--Section 212 of the Small Business
Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 601
note) is amended by striking subsection (a) and inserting the
following:
``(a) Compliance Guide.--
``(1) In general.--For each rule for which an agency head
does not make a certification under section 605(b) of title
5, United States Code, the agency shall publish 1 or more
guides to assist small entities in complying with the rule,
and shall entitle such publications `small entity compliance
guides'.
``(2) Publication of guides.--The publication of each guide
under this subsection shall include--
``(A) the posting of the guide in an easily identified
location on the website of the agency; and

[[Page S6180]]

``(B) distribution of the guide to known industry contacts,
such as small entities, associations, or industry leaders
affected by the rule.
``(3) Publication date.--An agency shall publish each guide
(including the posting and distribution of the guide as
described under paragraph (2))--
``(A) on the same date as the date of publication of the
final rule (or as soon as possible after that date); and
``(B) not later than the date on which the requirements of
that rule become effective.
``(4) Compliance actions.--
``(A) In general.--Each guide shall explain the actions a
small entity is required to take to comply with a rule.
``(B) Explanation.--The explanation under subparagraph
(A)--
``(i) shall include a description of actions needed to meet
requirements to enable a small entity to know when such
requirements are met; and
``(ii) if determined appropriate by the agency, may include
a description of possible procedures, such as conducting
tests, that assist a small entity in meeting such
requirements.
``(C) Procedures.--Procedures described under subparagraph
(B)(ii)--
``(i) shall be suggestions to assist small entities; and
``(ii) shall not be additional requirements relating to the
rule.
``(5) Agency preparation of guides.--The agency shall, in
its sole discretion, taking into account the subject matter
of the rule and the language of relevant statutes, ensure
that the guide is written using sufficiently plain language
likely to be understood by affected small entities. Agencies
may prepare separate guides covering groups or classes of
similarly affected small entities, and may cooperate with
associations of small entities to develop and distribute such
guides. An agency may prepare guides and apply this section
with respect to a rule or a group of related rules.''.
(b) Technical and Conforming Amendment.--Section 211(3) of
the Small Business Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 601 note) is amended by inserting ``and
entitled'' after ``designated''.

Subtitle F--Minimum Wage Tip Credit

SEC. 4151. TIPPED WAGE FAIRNESS.

Section 3(m) of the Fair Labor Standards Act of 1938 (29
U.S.C. 203(m)) is amended--
(1) in paragraph (2), by inserting before the period the
following: ``: Provided, That the tips shall not be included
as part of the wage paid to an employee to the extent that
they are excluded therefrom under the terms of a bona fide
collective bargaining agreement applicable to the particular
employee'';
(2) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively;
(3) by striking the subsection designation and inserting
``(m)(1)''; and
(4) by adding at the end of the following:
``(2) Notwithstanding any other provision of this Act, any
State or political subdivision of a State which on and after
the date of enactment of the National Defense Authorization
Act for Fiscal Year 2007 excludes all of a tipped employee's
tips from being considered as wages in determining if such
tipped employee has been paid the applicable minimum wage
rate, may not establish or enforce the minimum wage rate
provisions of such law, ordinance, regulation, or order in
such State or political subdivision thereof with respect to
tipped employees unless such law, ordinance, regulation, or
order is revised or amended to permit such employee to be
paid a wage by the employee's employer in an amount not less
than an amount equal to--
``(A) the cash wage paid such employee which is required
under such law, ordinance, regulation, or order on the date
of enactment of such Act; and
``(B) an additional amount on account of tips received by
such employee which amount is equal to the difference between
such cash wage and the minimum wage rate in effect under such
law, ordinance, regulation, or order or the minimum wage rate
in effect under section 6, whichever is higher.''.

Subtitle G--Small Business Tax Relief

SEC. 4160. AMENDMENT OF 1986 CODE.

Except as otherwise expressly provided, whenever in this
subtitle 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.

CHAPTER 1--PROVISIONS RELATING TO ECONOMIC STIMULUS FOR SMALL
BUSINESSES

SEC. 4161. EXTENSION OF INCREASED EXPENSING FOR SMALL
BUSINESSES.

(a) In General.--Section 179 (relating to election to
expense certain depreciable business assets) is amended by
striking ``2010'' each place it appears and inserting
``2011''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2010.

SEC. 4162. CLARIFICATION OF CASH ACCOUNTING RULES FOR SMALL
BUSINESS.

(a) Cash Accounting Permitted.--Section 446 (relating to
general rule for methods of accounting) is amended by adding
at the end the following new subsection:
``(g) Certain Small Business Taxpayers Permitted to Use
Cash Accounting Method Without Limitation.--
``(1) In general.--An eligible taxpayer shall not be
required to use an accrual method of accounting for any
taxable year.
``(2) Eligible taxpayer.--For purposes of this subsection--
``(A) In general.--A taxpayer is an eligible taxpayer with
respect to any taxable year if--
``(i) for all prior taxable years beginning after December
31, 2004, the taxpayer (or any predecessor) met the gross
receipts test of subparagraph (B), and
``(ii) the taxpayer is not subject to section 447 or 448.
``(B) Gross receipts test.--A taxpayer meets the gross
receipts test of this subparagraph for any prior taxable year
if the average annual gross receipts of the taxpayer for the
3-taxable-year period ending with such prior taxable year
does not exceed $10,000,000. The rules of paragraphs (2) and
(3) of section 448(c) shall apply for purposes of the
preceding sentence.
``(C) Inflation adjustment.--In the case of any taxable
year beginning in a calendar year after 2007, the dollar
amount contained in subparagraph (B) 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 the calendar year in which the taxable
year begins, by substituting `calendar year 2006' for
`calendar year 1992' in subparagraph (B) thereof.
If any amount as adjusted under this subparagraph is not a
multiple of $100,000, such amount shall be rounded to the
nearest multiple of $100,000.''.
(b) Clarification of Inventory Rules for Small Business.--
Section 471 (relating to general rule for inventories) is
amended by redesignating subsection (c) as subsection (d) and
by inserting after subsection (b) the following new
subsection:
``(c) Small Business Taxpayers Not Required to Use
Inventories.--
``(1) In general.--An eligible taxpayer shall not be
required to use inventories under this section for a taxable
year.
``(2) Treatment of taxpayers not using inventories.--If an
eligible taxpayer does not use inventories with respect to
any property for any taxable year beginning after December
31, 2005, such property shall be treated as a material or
supply which is not incidental.
``(3) Eligible taxpayer.--For purposes of this subsection,
the term `eligible taxpayer' has the meaning given such term
by section 446(g)(2).''.
(c) Effective Date and Special Rules.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
(2) Change in method of accounting.--In the case of any
taxpayer changing the taxpayer's method of accounting for any
taxable year under the amendments made by this section--
(A) such change shall be treated as initiated by the
taxpayer;
(B) such change shall be treated as made with the consent
of the Secretary of the Treasury; and
(C) the net amount of the adjustments required to be taken
into account by the taxpayer under section 481 of the
Internal Revenue Code of 1986 shall be taken into account
over a period (not greater than 4 taxable years) beginning
with such taxable year.

SEC. 4163. EXTENSION AND EXPANSION OF 15-YEAR STRAIGHT-LINE
COST RECOVERY FOR QUALIFIED RESTAURANT
IMPROVEMENTS.

(a) Extension.--
(1) In general.--Section 168(e)(3)(E)(v) is amended by
striking ``2006'' and inserting ``2007''.
(2) Effective date.--The amendment made by this subsection
shall apply to property placed in service after December 31,
2005.
(b) Modification of Treatment of Qualified Restaurant
Property as 15-Year Property for Purposes of Depreciation
Deduction.--
(1) Treatment to include new construction.--Paragraph (7)
of section 168(e) (relating to classification of property) is
amended to read as follows:
``(7) Qualified restaurant property.--The term `qualified
restaurant property' means any section 1250 property which is
a building or an improvement to a building if more than 50
percent of the building's square footage is devoted to
preparation of, and seating for on-premises consumption of,
prepared meals.''.
(2) Effective date.--The amendment made by this subsection
shall apply to any property placed in service after the date
of the enactment of this Act.

CHAPTER 2--REVENUE PROVISIONS

SEC. 4171. 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

[[Page S6181]]

``(B) reflects a desire to delay or impede the
administration of Federal tax laws.
``(b) Civil Penalty for Specified Frivolous Submissions.--
``(1) Imposition of penalty.--Except as provided in
paragraph (3), any person who submits a specified frivolous
submission shall pay a penalty of $5,000.
``(2) Specified frivolous submission.--For purposes of this
section--
``(A) Specified frivolous submission.--The term `specified
frivolous submission' means a specified submission if any
portion of such submission--
``(i) is based on a position which the Secretary has
identified as frivolous under subsection (c), or
``(ii) reflects a desire to delay or impede the
administration of Federal tax laws.
``(B) Specified submission.--The term `specified
submission' means--
``(i) a request for a hearing under--

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

``(ii) an application under--

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

``(3) Opportunity to withdraw submission.--If the Secretary
provides a person with notice that a submission is a
specified frivolous submission and such person withdraws such
submission within 30 days after such notice, the penalty
imposed under paragraph (1) shall not apply with respect to
such submission.
``(c) Listing of Frivolous Positions.--The Secretary shall
prescribe (and periodically revise) a list of positions which
the Secretary has identified as being frivolous for purposes
of this subsection. The Secretary shall not include in such
list any position that the Secretary determines meets the
requirement of section 6662(d)(2)(B)(ii)(II).
``(d) Reduction of Penalty.--The Secretary may reduce the
amount of any penalty imposed under this section if the
Secretary determines that such reduction would promote
compliance with and administration of the Federal tax laws.
``(e) Penalties in Addition to Other Penalties.--The
penalties imposed by this section shall be in addition to any
other penalty provided by law.''.
(b) Treatment of Frivolous Requests for Hearings Before
Levy.--
(1) Frivolous requests disregarded.--Section 6330 (relating
to notice and opportunity for hearing before levy) is amended
by adding at the end the following new subsection:
``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding
any other provision of this section, if the Secretary
determines that any portion of a request for a hearing under
this section or section 6320 meets the requirement of clause
(i) or (ii) of section 6702(b)(2)(A), then the Secretary may
treat such portion as if it were never submitted and such
portion shall not be subject to any further administrative or
judicial review.''.
(2) Preclusion from raising frivolous issues at hearing.--
Section 6330(c)(4) is amended--
(A) by striking ``(A)'' and inserting ``(A)(i)'';
(B) by striking ``(B)'' and inserting ``(ii)'';
(C) by striking the period at the end of the first sentence
and inserting ``; or''; and
(D) by inserting after subparagraph (A)(ii) (as so
redesignated) the following:
``(B) the issue meets the requirement of clause (i) or (ii)
of section 6702(b)(2)(A).''.
(3) Statement of grounds.--Section 6330(b)(1) is amended by
striking ``under subsection (a)(3)(B)'' and inserting ``in
writing under subsection (a)(3)(B) and states the grounds for
the requested hearing''.
(c) Treatment of Frivolous Requests for Hearings Upon
Filing of Notice of Lien.--Section 6320 is amended--
(1) in subsection (b)(1), by striking ``under subsection
(a)(3)(B)'' and inserting ``in writing under subsection
(a)(3)(B) and states the grounds for the requested hearing'',
and
(2) in subsection (c), by striking ``and (e)'' and
inserting ``(e), and (g)''.
(d) Treatment of Frivolous Applications for Offers-in-
Compromise and Installment Agreements.--Section 7122 is
amended by adding at the end the following new subsection:
``(e) Frivolous Submissions, Etc.--Notwithstanding any
other provision of this section, if the Secretary determines
that any portion of an application for an offer-in-compromise
or installment agreement submitted under this section or
section 6159 meets the requirement of clause (i) or (ii) of
section 6702(b)(2)(A), then the Secretary may treat such
portion as if it were never submitted and such portion shall
not be subject to any further administrative or judicial
review.''.
(e) Clerical Amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by striking the item
relating to section 6702 and inserting the following new
item:

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

SEC. 4172. 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. 4173. 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.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years ending after March 20, 2002.

SEC. 4174. 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--

[[Page S6182]]

``(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 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).

[[Page S6183]]

``(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.
``(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.--

[[Page S6184]]

``(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.

SEC. 4175. 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.

[[Page S6185]]

(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. 4176. 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.''.
(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. 4177. 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
requiring that such comparable yield be determined by
reference to a noncontingent fixed rate debt instrument which
is convertible into stock.
``(B) Special rule.--For purposes of subparagraph (A), the
comparable yield shall be determined without taking into
account the yield resulting from the conversion of a debt
instrument into stock.''.
(b) Cross Reference.--Section 163(e)(6) (relating to cross
references) is amended by adding at the end the following:
``For the treatment of contingent payment convertible debt,
see section 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.
______