Relative to AMT relief.

SA 3877. Mr. REID proposed an amendment to the bill H.R. 2764, making
appropriations for the Department of State, foreign operations, and
related programs for the fiscal year ending September 30, 2008, and for
other purposes; as follows:

At the end of the amendment add the following:

SECTION 1. SHORT TITLE, ETC.

(a) Short Title.--This Act may be cited as the ``AMT Relief
Act of 2007''.
(b) Reference.--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, etc.

TITLE I--INDIVIDUAL TAX RELIEF

Sec. 101. Extension of alternative minimum tax relief for nonrefundable
personal credits.
Sec. 102. Extension of increased alternative minimum tax exemption
amount.
Sec. 103. Increase of AMT refundable credit amount for individuals with
long-term unused credits for prior year minimum tax
liability, etc.
Sec. 104. Refundable child credit.

TITLE II--REVENUE PROVISIONS

Subtitle A--Nonqualified Deferred Compensation From Certain Tax
Indifferent Parties

Sec. 201. Nonqualified deferred compensation from certain tax
indifferent parties.

Subtitle B--Codification of Economic Substance Doctrine

Sec. 211. Codification of economic substance doctrine.
Sec. 212. Penalties for underpayments.

Subtitle C--Other Provisions

Sec. 221. Delay in application of worldwide allocation of interest.
Sec. 222. Modification of penalty for failure to file partnership
returns.
Sec. 223. Penalty for failure to file S corporation returns.
Sec. 224. Increase in minimum penalty on failure to file a return of
tax.
Sec. 225. Time for payment of corporate estimated taxes.

TITLE I--INDIVIDUAL TAX RELIEF

SEC. 101. EXTENSION OF ALTERNATIVE MINIMUM TAX RELIEF FOR
NONREFUNDABLE PERSONAL CREDITS.

(a) In General.--Paragraph (2) of section 26(a) (relating
to special rule for taxable years 2000 through 2006) is
amended--
(1) by striking ``or 2006'' and inserting ``2006, or
2007'', and
(2) by striking ``2006'' in the heading thereof and
inserting ``2007''.
(b)  Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2006.

SEC. 102. EXTENSION OF INCREASED ALTERNATIVE MINIMUM TAX
EXEMPTION AMOUNT.

(a) In General.--Paragraph (1) of section 55(d) (relating
to exemption amount) is amended--
(1) by striking ``($62,550 in the case of taxable years
beginning in 2006)'' in subparagraph (A) and inserting
``($66,250 in the case of taxable years beginning in 2007)'',
and
(2) by striking ``($42,500 in the case of taxable years
beginning in 2006)'' in subparagraph (B) and inserting
``($44,350 in the case of taxable years beginning in 2007)''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2006.

SEC. 103. INCREASE OF AMT REFUNDABLE CREDIT AMOUNT FOR
INDIVIDUALS WITH LONG-TERM UNUSED CREDITS FOR
PRIOR YEAR MINIMUM TAX LIABILITY, ETC.

(a) In General.--Paragraph (2) of section 53(e) is amended
to read as follows:
``(2) AMT refundable credit amount.--For purposes of
paragraph (1), the term `AMT refundable credit amount' means,
with respect to any taxable year, the amount (not in excess
of the long-term unused minimum tax credit for such taxable
year) equal to the greater of--
``(A) 50 percent of the long-term unused minimum tax credit
for such taxable year, or
``(B) the amount (if any) of the AMT refundable credit
amount determined under this paragraph for the taxpayer's
preceding taxable year.''.
(b) Treatment of Certain Underpayments, Interest, and
Penalties Attributable to the Treatment of Incentive Stock
Options.--Section 53 is amended by adding at the end the
following new subsection:
``(f) Treatment of Certain Underpayments, Interest, and
Penalties Attributable to the Treatment of Incentive Stock
Options.--
``(1) Abatement.--Any underpayment of tax outstanding on
the date of the enactment of this subsection which is
attributable to the application of section 56(b)(3) for any
taxable year ending before January 1, 2007 (and any interest
or penalty with respect to such underpayment which is
outstanding on such date of enactment), is hereby abated. No
credit shall be allowed under this section with respect to
any amount abated under this paragraph.
``(2) Increase in credit for certain interest and penalties
already paid.--Any interest or penalty paid before the date
of the enactment of this subsection which would (but for such
payment) have been abated under paragraph (1) shall be
treated for purposes of this section as an amount of adjusted
net minimum tax imposed for the taxable year of the
underpayment to which such interest or penalty relates.''.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2006.
(2) Abatement.--Section 53(f)(1) of the Internal Revenue
Code of 1986, as added by subsection (b), shall take effect
on the date of the enactment of this Act.

SEC. 104. REFUNDABLE CHILD CREDIT.

(a) Modification of Threshold Amount.--Clause (i) of
section 24(d)(1)(B) is amended by inserting ``($8,500 in the
case of taxable years beginning in 2008)'' after ``$10,000''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31,
2007.

TITLE II--REVENUE PROVISIONS

Subtitle A--Nonqualified Deferred Compensation From Certain Tax
Indifferent Parties

SEC. 201. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX
INDIFFERENT PARTIES.

(a) In General.--Subpart B of part II of subchapter E of
chapter 1 (relating to taxable year for which items of gross
income included) is amended by inserting after section 457
the following new section:

``SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN
TAX INDIFFERENT PARTIES.

``(a) In General.--Any compensation which is deferred under
a nonqualified deferred compensation plan of a nonqualified
entity shall be taken into account for purposes of this
chapter when there is no substantial risk of forfeiture of
the rights to such compensation.
``(b) Nonqualified Entity.--For purposes of this section,
the term `nonqualified entity' means--
``(1) any foreign corporation unless substantially all of
its income is--
``(A) effectively connected with the conduct of a trade or
business in the United States, or
``(B) subject to a comprehensive foreign income tax, and
``(2) any partnership unless substantially all of its
income is allocated to persons other than--
``(A) foreign persons with respect to whom such income is
not subject to a comprehensive foreign income tax, and
``(B) organizations which are exempt from tax under this
title.
``(c) Ascertainability of Amounts of Compensation.--
``(1) In general.--If the amount of any compensation is not
ascertainable at the time that such compensation is otherwise
to be taken into account under subsection (a)--
``(A) such amount shall be so taken into account when
ascertainable, and
``(B) the tax imposed under this chapter for the taxable
year in which such compensation is taken into account under
subparagraph (A) shall be increased by the sum of--
``(i) the amount of interest determined under paragraph
(2), and
``(ii) an amount equal to 20 percent of the amount of such
compensation.
``(2) Interest.--For purposes of paragraph (1)(B)(i), the
interest determined under this paragraph for any taxable year
is the amount of interest at the underpayment rate under
section 6621 plus 1 percentage point on the underpayments
that would have occurred had the deferred compensation been
includible in gross income for the taxable year in which
first deferred or, if later, the first taxable year in which
such deferred compensation is not subject to a substantial
risk of forfeiture.
``(d) Other Definitions and Special Rules.--For purposes of
this section--
``(1) Substantial risk of forfeiture.--
``(A) In general.--The rights of a person to compensation
shall be treated as subject to a substantial risk of
forfeiture only if such person's rights to such compensation
are conditioned upon the future performance of substantial
services by any individual.

[[Page S15931]]

``(B) Exception for compensation based on gain recognized
on an investment asset.--
``(i) In general.--To the extent provided in regulations
prescribed by the Secretary, if compensation is determined
solely by reference to the amount of gain recognized on the
disposition of an investment asset, such compensation shall
be treated as subject to a substantial risk of forfeiture
until the date of such disposition.
``(ii) Investment asset.--For purposes of clause (i), the
term `investment asset' means any single asset (other than an
investment fund or similar entity)--

``(I) acquired directly by an investment fund or similar
entity,
``(II) with respect to which such entity does not (nor does
any person related to such entity) participate in the active
management of such asset (or if such asset is an interest in
an entity, in the active management of the activities of such
entity), and
``(III) substantially all of any gain on the disposition of
which (other than such deferred compensation) is allocated to
investors in such entity.

``(iii) Coordination with special rule for short-term
deferrals of compensation.--Paragraph (3)(B) shall not apply
to any compensation to which clause (i) applies.
``(2) Comprehensive foreign income tax.--The term
`comprehensive foreign income tax' means, with respect to any
foreign person, the income tax of a foreign country if--
``(A) such person is eligible for the benefits of a
comprehensive income tax treaty between such foreign country
and the United States, or
``(B) such person demonstrates to the satisfaction of the
Secretary that such foreign country has a comprehensive
income tax.
Such term shall not include any tax unless such tax includes
rules for the deductibility of deferred compensation which
are similar to the rules of this title.
``(3) Nonqualified deferred compensation plan.--
``(A) In general.--The term `nonqualified deferred
compensation plan' has the meaning given such term under
section 409A(d), except that such term shall include any plan
that provides a right to compensation based on the
appreciation in value of a specified number of equity units
of the service recipient.
``(B) Exception for short-term deferrals.--Compensation
shall not be treated as deferred for purposes of this section
if the service provider receives payment of such compensation
not later than 12 months after the end of the taxable year of
the service recipient during which the right to the payment
of such compensation is no longer subject to a substantial
risk of forfeiture.
``(4) Exception for certain compensation with respect to
effectively connected income.--In the case a foreign
corporation with income which is taxable under section 882,
this section shall not apply to compensation which, had such
compensation had been paid in cash on the date that such
compensation ceased to be subject to a substantial risk of
forfeiture, would have been deductible by such foreign
corporation against such income.
``(5) Application of rules.--Rules similar to the rules of
paragraphs (5) and (6) of section 409A(d) shall apply.
``(e) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this section, including regulations
disregarding a substantial risk of forfeiture in cases where
necessary to carry out the purposes of this section.''.
(b) Conforming Amendment.--Section 26(b)(2) is amended by
striking ``and'' at the end of subparagraph (S), by striking
the period at the end of subparagraph (T) and inserting ``,
and'', and by adding at the end the following new
subparagraph:
``(U) section 457A(c)(1)(B) (relating to ascertainability
of amounts of compensation).''.
(c) Clerical Amendment.--The table of sections of subpart B
of part II of subchapter E of chapter 1 is amended by
inserting after the item relating to section 457 the
following new item:

``Sec. 457A. Nonqualified deferred compensation from certain tax
indifferent parties.''.

(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply
to amounts deferred which are attributable to services
performed after December 31, 2007.
(2) Application to existing deferrals.--In the case of any
amount deferred to which the amendments made by this section
do not apply solely by reason of the fact that the amount is
attributable to services performed before January 1, 2008, to
the extent such amount is not includible in gross income in a
taxable year beginning before 2017, such amounts shall be
includible in gross income in the later of--
(A) the last taxable year beginning before 2017, or
(B) the taxable year in which there is no substantial risk
of forfeiture of the rights to such compensation (determined
in the same manner as determined for purposes of section 457A
of the Internal Revenue Code of 1986, as added by this
section).
(3) Accelerated payments.--No later than 60 days after the
date of the enactment of this Act, the Secretary shall issue
guidance providing a limited period of time during which a
nonqualified deferred compensation arrangement attributable
to services performed on or before December 31, 2007, may,
without violating the requirements of section 409A(a) of the
Internal Revenue Code of 1986, be amended to conform the date
of distribution to the date the amounts are required to be
included in income.
(4) Certain back-to-back arrangements.--If the taxpayer is
also a service recipient and maintains one or more
nonqualified deferred compensation arrangements for its
service providers under which any amount is attributable to
services performed on or before December 31, 2007, the
guidance issued under paragraph (3) shall permit such
arrangements to be amended to conform the dates of
distribution under such arrangement to the date amounts are
required to be included in the income of such taxpayer under
this subsection.
(5) Accelerated payment not treated as material
modification.--Any amendment to a nonqualified deferred
compensation arrangement made pursuant to paragraph (3) or
(4) shall not be treated as a material modification of the
arrangement for purposes of section 409A of the Internal
Revenue Code of 1986.

Subtitle B--Codification of Economic Substance Doctrine

SEC. 211. CODIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

(a) In General.--Section 7701 is amended by redesignating
subsection (p) as subsection (q) and by inserting after
subsection (o) the following new subsection:
``(p) Clarification of Economic Substance Doctrine.--
``(1) Application of doctrine.--In the case of any
transaction to which the economic substance doctrine is
relevant, such transaction shall be treated as having
economic substance only if--
``(A) the transaction changes in a meaningful way (apart
from Federal income tax effects) the taxpayer's economic
position, and
``(B) the taxpayer has a substantial purpose (apart from
Federal income tax effects) for entering into such
transaction.
``(2) Special rule where taxpayer relies on profit
potential.--
``(A) In general.--The potential for profit of a
transaction shall be taken into account in determining
whether the requirements of subparagraphs (A) and (B) of
paragraph (1) are met with respect to the transaction only if
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.
``(B) 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 (A).
``(3) State and local tax benefits.--For purposes of
paragraph (1), any State or local income tax effect which is
related to a Federal income tax effect shall be treated in
the same manner as a Federal income tax effect.
``(4) Financial accounting benefits.--For purposes of
paragraph (1)(B), achieving a financial accounting benefit
shall not be taken into account as a purpose for entering
into a transaction if such transaction results in a Federal
income tax benefit.
``(5) 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) Exception for personal transactions of individuals.--
In the case of an individual, paragraph (1) shall apply only
to transactions entered into in connection with a trade or
business or an activity engaged in for the production of
income.
``(C) 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.
``(D) Determination of application of doctrine not
affected.--The determination of whether the economic
substance doctrine is relevant to a transaction shall be made
in the same manner as if this subsection had never been
enacted.
``(6) 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. 212. PENALTIES FOR UNDERPAYMENTS.

(a) Penalty for Underpayments Attributable to Transactions
Lacking Economic Substance.--
(1) In general.--Subsection (b) of section 6662 is amended
by inserting after paragraph (5) the following new paragraph:
``(6) Any disallowance of claimed tax benefits by reason of
a transaction lacking economic substance (within the meaning
of section 7701(p)) or failing to meet the requirements of
any similar rule of law.''.
(2) Increased penalty for nondisclosed transactions.--
Section 6662 is amended by

[[Page S15932]]

adding at the end the following new subsection:
``(i) Increase in Penalty in Case of Nondisclosed
Noneconomic Substance Transactions.--
``(1) In general.--To the extent that a portion of the
underpayment to which this section applies is attributable to
one or more nondisclosed noneconomic substance transactions,
subsection (a) shall be applied with respect to such portion
by substituting `40 percent' for `20 percent'.
``(2) Nondisclosed noneconomic substance transactions.--For
purposes of this subsection, the term `nondisclosed
noneconomic substance transaction' means any portion of a
transaction described in subsection (b)(6) with respect to
which the relevant facts affecting the tax treatment are not
adequately disclosed in the return nor in a statement
attached to the return.
``(3) Special rule for amended returns.--Except as provided
in regulations, in no event shall any amendment or supplement
to a return of tax be taken into account for purposes of this
subsection if the amendment or supplement is filed after the
earlier of the date the taxpayer is first contacted by the
Secretary regarding the examination of the return or such
other date as is specified by the Secretary.''.
(3) Conforming amendment.--Subparagraph (B) of section
6662A(e)(2) is amended--
(A) by striking ``section 6662(h)'' and inserting
``subsection (h) or (i) of section 6662'', and
(B) by striking ``gross valuation misstatement penalty'' in
the heading and inserting ``certain increased underpayment
penalties''.
(b) Reasonable Cause Exception Not Applicable to
Noneconomic Substance Transactions, Tax Shelters, and Certain
Large Corporations.--Subsection (c) of section 6664 is
amended--
(1) by redesignating paragraphs (2) and (3) as paragraphs
(3) and (4), respectively,
(2) by striking ``paragraph (2)'' in paragraph (4), as so
redesignated, and inserting ``paragraph (3)'', and
(3) by inserting after paragraph (1) the following new
paragraph:
``(2) Exception for noneconomic substance transactions, tax
shelters, and certain large corporations.--Paragraph (1)
shall not apply--
``(A) to any portion of an underpayment which is
attributable to one or more tax shelters (as defined in
section 6662(d)(2)(C)) or transactions described in section
6662(b)(6), and
``(B) to any taxpayer if such taxpayer is a specified large
corporation (as defined in section 6662(d)(2)(D)(ii)).''.
(c) Application of Penalty for Erroneous Claim for Refund
or Credit to Noneconomic Substance Transactions.--Section
6676 is amended by redesignating subsection (c) as subsection
(d) and inserting after subsection (b) the following new
subsection:
``(c) Noneconomic Substance Transactions Treated as Lacking
Reasonable Basis.--For purposes of this section, any
excessive amount which is attributable to any transaction
described in section 6662(b)(6) shall not be treated as
having a reasonable basis.''.
(d) Special Understatement Reduction Rule for Certain Large
Corporations.--
(1) In general.--Paragraph (2) of section 6662(d) is
amended by adding at the end the following new subparagraph:
``(D) Special reduction rule for certain large
corporations.--
``(i) In general.--In the case of any specified large
corporation--

``(I) subparagraph (B) shall not apply, and
``(II) the amount of the understatement under subparagraph
(A) shall be reduced by that portion of the understatement
which is attributable to any item with respect to which the
taxpayer has a reasonable belief that the tax treatment of
such item by the taxpayer is more likely than not the proper
tax treatment of such item.

``(ii) Specified large corporation.--

``(I) In general.--For purposes of this subparagraph, the
term `specified large corporation' means any corporation with
gross receipts in excess of $100,000,000 for the taxable year
involved.
``(II) Aggregation rule.--All persons treated as a single
employer under section 52(a) shall be treated as one person
for purposes of subclause (I).''.

(2) Conforming amendment.--Subparagraph (C) of section
6662(d)(2) is amended by striking ``Subparagraph (B)'' and
inserting ``Subparagraphs (B) and (D)(i)(II)''.
(e) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.

Subtitle C--Other Provisions

SEC. 221. DELAY IN APPLICATION OF WORLDWIDE ALLOCATION OF
INTEREST.

(a) In General.--Paragraphs (5)(D) and (6) of section
864(f) are each amended by striking ``December 31, 2008'' and
inserting ``December 31, 2017''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2008.

SEC. 222. MODIFICATION OF PENALTY FOR FAILURE TO FILE
PARTNERSHIP RETURNS.

(a) Extension of Time Limitation.--Subsection (a) of
section 6698 (relating to general rule) is amended by
striking ``5 months'' and inserting ``12 months''.
(b) Increase in Penalty Amount.--Paragraph (1) of section
6698(b) is amended by striking ``$50'' and inserting
``$100''.
(c) Effective Date.--The amendments made by this section
shall apply to returns required to be filed after the date of
the enactment of this Act.

SEC. 223. PENALTY FOR FAILURE TO FILE S CORPORATION RETURNS.

(a) In General.--Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding at
the end the following new section:

``SEC. 6699A. FAILURE TO FILE S CORPORATION RETURN.

``(a) General Rule.--In addition to the penalty imposed by
section 7203 (relating to willful failure to file return,
supply information, or pay tax), if any S corporation
required to file a return under section 6037 for any taxable
year--
``(1) fails to file such return at the time prescribed
therefor (determined with regard to any extension of time for
filing), or
``(2) files a return which fails to show the information
required under section 6037,
such S corporation shall be liable for a penalty determined
under subsection (b) for each month (or fraction thereof)
during which such failure continues (but not to exceed 12
months), unless it is shown that such failure is due to
reasonable cause.
``(b) Amount Per Month.--For purposes of subsection (a),
the amount determined under this subsection for any month is
the product of--
``(1) $100, multiplied by
``(2) the number of persons who were shareholders in the S
corporation during any part of the taxable year.
``(c) Assessment of Penalty.--The penalty imposed by
subsection (a) shall be assessed against the S corporation.
``(d) Deficiency Procedures Not To Apply.--Subchapter B of
chapter 63 (relating to deficiency procedures for income,
estate, gift, and certain excise taxes) shall not apply in
respect of the assessment or collection of any penalty
imposed by subsection (a).''.
(b) Clerical Amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by adding at the end
the following new item:

``Sec. 6699A. Failure to file S corporation return.''.

(c) Effective Date.--The amendments made by this section
shall apply to returns required to be filed after the date of
the enactment of this Act.

SEC. 224. INCREASE IN MINIMUM PENALTY ON FAILURE TO FILE A
RETURN OF TAX.

(a) In General.--Subsection (a) of section 6651 is amended
by striking ``$100'' in the last sentence and inserting
``$150''.
(b) Effective Date.--The amendment made by this section
shall apply to returns the due date for the filing of which
(including extensions) is after December 31, 2007.

SEC. 225. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

The percentage under subparagraph (B) of section 401(1) of
the Tax Increase Prevention and Reconciliation Act of 2005 in
effect on the date of the enactment of this Act is increased
by 52.5 percentage points.
______