Rebuild America Act of 2003

        [Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 1409 Introduced in Senate (IS)]

108th CONGRESS
1st Session
S. 1409

To provide funding for infrastructure investment to restore the United
States economy and to enhance the security of transportation and
environmental facilities throughout the United States.

_______________________________________________________________________

IN THE SENATE OF THE UNITED STATES

July 15, 2003

Mrs. Feinstein (for herself and Mr. Durbin) introduced the following
bill; which was read twice and referred to the Committee on Finance

_______________________________________________________________________

A BILL

To provide funding for infrastructure investment to restore the United
States economy and to enhance the security of transportation and
environmental facilities throughout the United States.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) Short Title.--This Act may be cited as the ``Rebuild America
Act of 2003''.
(b) Table of Contents.--

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purposes.
TITLE I--HIGHWAY INFRASTRUCTURE INVESTMENT

Sec. 101. Federal-aid highway program obligation ceiling.
TITLE II--TRANSIT INFRASTRUCTURE INVESTMENT

Sec. 201. Additional authorizations for formula grants.
Sec. 202. Federal transit program obligation ceiling.
TITLE III--AVIATION INFRASTRUCTURE INVESTMENT

Sec. 301. Increased funding for airport planning and development.
Sec. 302. Airport security improvement projects.
TITLE IV--RAIL INFRASTRUCTURE INVESTMENT

Subtitle A--Credit for Amtrak Bonds

Sec. 401. Credit to holders of qualified Amtrak bonds.
Subtitle B--High-Speed Rail Provisions

Sec. 411. Department of Transportation approval for qualified Amtrak
projects.
Sec. 412. Multiyear capital spending plan and oversight.
Sec. 413. Issuance of regulations.
Sec. 414. Sense of Congress regarding effect on Amtrak funding.
Sec. 415. Effective date.
Subtitle C--Amtrak Capital Investment

Sec. 421. Authorization of appropriations.
Subtitle D--Capital Investment for Railroad Rehabilitation

Sec. 431. Capital grants for railroad track.
Sec. 432. Regulatory procedure amendments.
TITLE V--PORT SECURITY INFRASTRUCTURE INVESTMENT

Sec. 501. Authorization of appropriations for grants to implement
security plans.
TITLE VI--ENVIRONMENTAL INFRASTRUCTURE INVESTMENT

Sec. 601. General authority for capitalization grants.
Sec. 602. Capitalization grants agreements.
Sec. 603. Water pollution control revolving funds.
Sec. 604. Authorization of appropriations for clean water State
revolving funds.
Sec. 605. Wet weather.
Sec. 606. Safe drinking water State revolving funds.
TITLE VII--WATER RESOURCES INFRASTRUCTURE INVESTMENT

Sec. 701. Increased funding for Corps of Engineers projects.
TITLE VIII--ECONOMIC DEVELOPMENT INFRASTRUCTURE INVESTMENT

Sec. 801. Public works and economic development.
Sec. 802. Appalachian regional development.
Sec. 803. Delta regional development.
Sec. 804. Northern Great Plains regional development.
TITLE IX--PUBLIC BUILDINGS INFRASTRUCTURE INVESTMENT

Sec. 901. Security enhancements for GSA properties.
TITLE X--GENERAL PROVISIONS

Sec. 1001. Priority consideration for security projects.
Sec. 1002. Temporary waiver of non-Federal share.
Sec. 1003. Maintenance of effort.
Sec. 1004. Labor standards.
Sec. 1005. Buy America.
TITLE XI--REVENUE OFFSETS

Sec. 1100. Amendment of 1986 code.
Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 1101. Clarification of economic substance doctrine.
Sec. 1102. Penalty for failing to disclose reportable transaction.
Sec. 1103. Accuracy-related penalty for listed transactions and other
reportable transactions having a
significant tax avoidance purpose.
Sec. 1104. Penalty for understatements attributable to transactions
lacking economic substance, etc.
Sec. 1105. Modifications of substantial understatement penalty for
nonreportable transactions.
Sec. 1106. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 1107. Disclosure of reportable transactions.
Sec. 1108. Modifications to penalty for failure to register tax
shelters.
Sec. 1109. Modification of penalty for failure to maintain lists of
investors.
Sec. 1110. Modification of actions to enjoin certain conduct related to
tax shelters and reportable transactions.
Sec. 1111. Understatement of taxpayer's liability by income tax return
preparer.
Sec. 1112. Penalty on failure to report interests in foreign financial
accounts.
Sec. 1113. Frivolous tax submissions.
Sec. 1114. Regulation of individuals practicing before the Department
of Treasury.
Sec. 1115. Penalty on promoters of tax shelters.
Sec. 1116. Statute of limitations for taxable years for which listed
transactions not reported.
Sec. 1117. Denial of deduction for interest on underpayments
attributable to nondisclosed reportable and
noneconomic substance transactions.
Subtitle B--Other Provisions

Sec. 1121. Limitation on transfer or importation of built-in losses.
Sec. 1122. Disallowance of certain partnership loss transfers.
Sec. 1123. No reduction of basis under section 734 in stock held by
partnership in corporate partner.
Sec. 1124. Repeal of special rules for FASITs.
Sec. 1125. Expanded disallowance of deduction for interest on
convertible debt.
Sec. 1126. Expanded authority to disallow tax benefits under section
269.
Sec. 1127. Modifications of certain rules relating to controlled
foreign corporations.
Sec. 1128. Basis for determining loss always reduced by nontaxed
portion of dividends.
Sec. 1129. Affirmation of consolidated return regulation authority.
Sec. 1130. Extension of customs user fees.
Subtitle C--Prevention of Corporate Expatriation To Avoid United States
Income Tax

Sec. 1131. Prevention of corporate expatriation to avoid United States
income tax.

SEC. 2. FINDINGS AND PURPOSES.

(a) Findings.--Congress finds the following:
(1) Since January 2001, the unemployment rate has increased
from 4.2 percent to 6.1 percent, the highest level since July
1994.
(2) Since January 2001, the number of unemployed people
increased from 5,950,000 people to 9,000,000, an increase of
more than 3,000,000, or more than 50 percent.
(3) The increase in unemployment of the last two and one-
half years has had a disproportionate effect on people of
color. The rate of unemployment for African Americans is 10.8
percent, twice the rate for whites. The unemployment rate for
Hispanic Americans is 8.2 percent, more than 50 percent higher
than the rate for whites.
(4) The number of unemployed private construction workers
is 715,000, an 80 percent increase over the comparable period
in calendar year 2000. The unemployment rate for construction
workers is 8.4 percent, 68 percent higher than the rate in May
2000.
(5) Similarly, the number of unemployed manufacturing
workers is nearly 1,200,000, an increase of more than 25
percent since January 2001. In January 2003, the number of
production workers in manufacturing dropped below 11,000,000
for the first time since February 1946, and the number
continues to fall.
(6) Moreover, after workers have lost their jobs, they have
had more trouble finding new jobs. The average length of
unemployment is almost 20 weeks, the longest it has been in
almost 2 decades. In the past 2 years, the number of workers
who are unemployed for longer than 6 months has increased by
1,300,000 to more than 1,900,000, an increase of more than 206
percent. One-half of the unemployed are out of work for more
than 10 weeks and one in 5 have been out of work for more than
6 months.
(7) In addition, 4,600,000 people seeking full-time
employment are working only part-time. An additional 5,500,000
have completely dropped out of the labor force because they
cannot find work, and therefore are not counted as unemployed.
(8) As labor markets tightened in the late 1990's, even
low- and middle-income workers seemed to gain some wage
bargaining power. But, with the Bush recession, family incomes
are falling across the board, and falling most rapidly among
lower-income workers.
(9) In 75 urban areas, highway congestion alone costs
travelers 3,600,000,000 hours of delay, 5,700,000,000 gallons
of wasted fuel, and $67,500,000,000 in lost productivity and
wasted fuel each year (more than three times the
$22,000,000,000 cost in 1982).
(10) Similarly, States indicate that 40 percent of assessed
waters, or 20,000 discrete areas of the Nation's lakes, rivers,
streams, and coastal waters, do not meet State water quality
standards.
(11) States, cities, transit authorities, airport
authorities, and other entities have thousands of ready-to-go
infrastructure projects, which will create long-term capital
assets for the United States and which can help stimulate the
Nation's economy.
(12) Each $1,000,000,000 of Federal funding invested in
infrastructure construction creates approximately 47,500 jobs
and $6,200,000,000 in economic activity.
(b) Purposes.--The purposes of this Act are as follows:
(1) To invest in the Nation's infrastructure to enhance the
safety, security, and efficiency of highway, transit, aviation,
rail, port, environmental, water resources, and public
buildings infrastructure.
(2) To create jobs and economic activity to put people back
to work and stimulate the Nation's economy.
(3) To create long-term capital assets for the Nation that
will help the United States address its enormous infrastructure
needs and improve its economic productivity.
(4) To demonstrate the commitment of the Federal Government
to economic recovery, thereby increasing the confidence of
consumers and businesses.

TITLE I--HIGHWAY INFRASTRUCTURE INVESTMENT

SEC. 101. FEDERAL-AID HIGHWAY PROGRAM OBLIGATION CEILING.

Section 1102 of the Transportation Equity Act for the 21st Century
(112 Stat. 115) is amended by adding at the end the following:
``(j) Increase in Obligation Limit for Fiscal Year 2003.--
Notwithstanding any other provision of law, limitations on obligations
imposed by subsection (a) for fiscal year 2003 shall be
$36,600,000,000. Such sum shall be distributed in accordance with this
section, except that a program subject to a reduction in funds under
subsection (f) shall receive an amount of obligation authority equal to
the amount of contract authority available for such program in such
fiscal year.''.

TITLE II--TRANSIT INFRASTRUCTURE INVESTMENT

SEC. 201. ADDITIONAL AUTHORIZATIONS FOR FORMULA GRANTS.

(a) From the Trust Fund.--Section 5338(a)(2)(A)(v) of title 49,
United States Code, is amended by striking ``$3,071,200,000'' and
inserting ``$5,471,200,000''.
(b) From the General Fund.--Section 5338(a)(2)(B)(v) of title 49,
United States Code, is amended by striking ``$767,800,000'' and
inserting ``$1,367,800,000''.
(c) Availability of Amounts.--Notwithstanding sections 5307(k)(2)
and section 5336(i), any increase in the amounts apportioned to a
recipient attributable to the amendments made by subsections (a) and
(b) of this section may be obligated by the recipient for 1 year after
the last day of the fiscal year in which the amount is apportioned. Not
later than 30 days after the end of the 1-year period, an amount that
is not obligated at the end of that period shall be added to the amount
that may be apportioned under the urbanized area formula program of
section 5336 of title 49, United States Code.

SEC. 202. FEDERAL TRANSIT PROGRAM OBLIGATION CEILING.

Section 3040(5) of the Transportation Equity Act for the 21st
Century (112 Stat. 394) is amended by striking ``$7,226,000,000'' and
inserting ``$10,226,000,000''.

TITLE III--AVIATION INFRASTRUCTURE INVESTMENT

SEC. 301. INCREASED FUNDING FOR AIRPORT PLANNING AND DEVELOPMENT.

(a) In General.--Section 48103(5) of title 49, United States Code,
is amended by striking ``$3,400,000,000'' and inserting
``$5,400,000,000.''.

SEC. 302. AIRPORT SECURITY IMPROVEMENT PROJECTS.

(a) Grant Authority.--Subject to the requirements of this section,
the Under Secretary for Border and Transportation Security shall make
grants to airport sponsors--
(1) for projects to replace baggage conveyer systems
related to aviation security;
(2) for projects to reconfigure terminal baggage areas as
needed to install explosive detection systems; and
(3) for such other airport security improvement projects as
the Under Secretary determines appropriate.
(b) Applications.--A sponsor seeking a grant under this section
shall submit to the Under Secretary an application in such form and
containing such information as the Under Secretary prescribes.
(c) Approval.--The Under Secretary may approve an application of a
sponsor for a grant under this section only if the Under Secretary
determines that the project will improve security at an airport or
improve the efficiency of the airport without lessening security.
(d) Letters of Intent.--
(1) Issuance.--The Under Secretary may issue a letter of
intent to a sponsor committing to obligate from future budget
authority an amount, not more than the Federal Government's
share of the project's cost, for an airport security
improvement project (including interest costs and costs of
formulating the project).
(2) Schedule.--A letter of intent under this subsection
shall establish a schedule under which the Under Secretary will
reimburse the sponsor for the Government's share of the
project's costs, as amounts become available, if the sponsor,
after the Under Secretary issues the letter, carries out the
project without receiving amounts under this section.
(3) Priority.--In making grants under this section in a
fiscal year, the Under Secretary shall fulfill intentions to
obligate under this subsection.
(4) Notice to under secretary.--A sponsor that has been
issued a letter of intent under this subsection shall notify
the Under Secretary of the sponsors's intent to carry out an
airport security improvement project before the project begins.
(5) Notice to congress.--The Under Secretary shall transmit
to the Committees on Appropriations and Transportation and
Infrastructure of the House of Representatives and the
Committees on Appropriations and Commerce, Science and
Transportation of the Senate a written notification at least 3
days before the issuance of a letter of intent under this
section.
(6) Limitations.--A letter of intent issued under this
subsection is not an obligation of the Government under section
1501 of title 31, and the letter is not deemed to be an
administrative commitment for financing. An obligation or
administrative commitment may be made only as amounts are
provided in authorization and appropriations laws.
(7) Applicability of certain requirements.--The
requirements that apply to grants and letters of intent issued
under chapter 471 shall apply to grants and letters of intent
issued under this section.
(8) Statutory construction.--Nothing in this subsection
shall be construed to prohibit the obligation of amounts
pursuant to a letter of intent under this subsection in the
same fiscal year as the letter of intent is issued.
(e) Federal Share.--The Government's share of the cost of a project
under this section shall be 90 percent for a project at an airport
having at least 0.25 percent of the total number of passenger boardings
each year at all airports and 95 percent for a project at any other
airport.
(f) Sponsor Defined.--In this section, the term ``sponsor'' has the
meaning given that term in section 47102.
(g) Authorization of Appropriations.--There is authorized to be
appropriated $1,000,000,000 for fiscal year 2003 to carry out this
section.

TITLE IV--RAIL INFRASTRUCTURE INVESTMENT

Subtitle A--Credit for Amtrak Bonds

SEC. 401. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

(a) In General.--Part IV of subchapter A of chapter 1 of the
Internal Revenue Code of 1986 (relating to credits against tax) is
amended by adding at the end the following new subpart:

``Subpart H--Nonrefundable Credit for Holders of Qualified Amtrak Bonds

``Sec. 54. Credit to holders of qualified
Amtrak bonds.

``SEC. 54. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

``(a) Allowance of Credit.--In the case of a taxpayer who holds a
qualified Amtrak bond on a credit allowance date of such bond which
occurs during the taxable year, there shall be allowed as a credit
against the tax imposed by this chapter for such taxable year an amount
equal to the sum of the credits determined under subsection (b) with
respect to credit allowance dates during such year on which the
taxpayer holds such bond.
``(b) Amount of Credit.--
``(1) In general.--The amount of the credit determined
under this subsection with respect to any credit allowance date
for a qualified Amtrak bond is 25 percent of the annual credit
determined with respect to such bond.
``(2) Annual credit.--The annual credit determined with
respect to any qualified Amtrak bond is the product of--
``(A) the applicable credit rate, multiplied by
``(B) the outstanding face amount of the bond.
``(3) Applicable credit rate.--For purposes of paragraph
(2), the applicable credit rate with respect to an issue is the
rate equal to an average market yield (as of the day before the
date of sale of the issue) on outstanding long-term corporate
debt obligations (determined under regulations prescribed by
the Secretary).
``(4) Credit allowance date.--For purposes of this section,
the term `credit allowance date' means--
``(A) March 15,
``(B) June 15,
``(C) September 15, and
``(D) December 15.
Such term includes the last day on which the bond is
outstanding.
``(5) Special rule for issuance and redemption.--In the
case of a bond which is issued during the 3-month period ending
on a credit allowance date, the amount of the credit determined
under this subsection with respect to such credit allowance
date shall be a ratable portion of the credit otherwise
determined based on the portion of the 3-month period during
which the bond is outstanding. A similar rule shall apply when
the bond is redeemed.
``(c) Limitation Based on Amount of Tax.--
``(1) In general.--The credit allowed under subsection (a)
for any taxable year shall not exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
part (other than this subpart and subpart C).
``(2) Carryover of unused credit.--If the credit allowable
under subsection (a) exceeds the limitation imposed by
paragraph (1) for such taxable year, such excess shall be
carried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such taxable year.
``(d) Credit Included in Gross Income.--Gross income includes the
amount of the credit allowed to the taxpayer under this section
(determined without regard to subsection (c)) and the amount so
included shall be treated as interest income.
``(e) Qualified Amtrak Bond.--For purposes of this part, the term
`qualified Amtrak bond' means any bond issued as part of an issue if--
``(1) 95 percent or more of the proceeds from the sale of
such issue are to be used for expenditures incurred after the
date of the enactment of this section for any qualified
project,
``(2) the bond is issued by the National Railroad Passenger
Corporation, is in registered form, and meets the bond
limitation requirements under subsection (f),
``(3) the issuer designates such bond for purposes of this
section,
``(4) the issuer certifies that it meets the State
contribution requirement of subsection (k) with respect to such
project, as in effect on the date of the enactment of this
section,
``(5) the issuer certifies that it has obtained the written
approval of the Secretary of Transportation for such project in
accordance with section 26301 of title 49, United States Code,
as in effect on the date of the enactment of this section,
``(6) the term of each bond which is part of such issue
does not exceed 20 years,
``(7) the payment of principal with respect to such bond is
the obligation of the National Railroad Passenger Corporation,
and
``(8) the issue meets the requirements of subsection (g)
(relating to arbitrage).
``(f) Limitations on Amount of Bonds Designated.--
``(1) In general.--There is a qualified Amtrak bond
limitation for each fiscal year. Such limitation is--
``(A) $1,400,000,000 for each of the fiscal years
2003 through 2012, and
``(B) zero after fiscal year 2012.
``(2) Limits on bonds for northeast rail corridor and
individual states.--
``(A) Northeast rail corridor.--Not more than
$3,000,000,000 of the limitation under paragraph (1)
may be designated for qualified projects on the
northeast rail corridor between Washington, D.C., and
Boston, Massachusetts.
``(B) Individual states.--Not more than
$3,000,000,000 of the limitation under paragraph (1)
may be designated for any individual State. The dollar
limitation under this subparagraph is in addition to
the dollar limitation for the qualified projects
described in subparagraph (A).
``(3) Limit on bonds for other projects.--Not more than
$100,000,000 of the limitation under paragraph (1) for any
fiscal year may be designated for all qualified projects
described in subsection (j)(1)(C).
``(4) Carryover of unused limitation.--If for any fiscal
year--
``(A) the limitation amount under paragraph (1),
exceeds
``(B) the amount of bonds issued during such year
which are designated under subsection (e)(3),
the limitation amount under paragraph (1) for the following
fiscal year (through fiscal year 2016) shall be increased by
the amount of such excess.
``(g) Special Rules Relating to Arbitrage.--
``(1) In general.--Subject to paragraph (2), an issue shall
be treated as meeting the requirements of this subsection if as
of the date of issuance, the issuer reasonably expects--
``(A) to spend at least 95 percent of the proceeds
from the sale of the issue for 1 or more qualified
projects within the 3-year period beginning on such date,
``(B) to incur a binding commitment with a third
party to spend at least 10 percent of the proceeds from
the sale of the issue, or to commence construction,
with respect to such projects within the 6-month period
beginning on such date, and
``(C) to proceed with due diligence to complete
such projects and to spend the proceeds from the sale
of the issue.
``(2) Rules regarding continuing compliance after 3-year
determination.--If at least 95 percent of the proceeds from the
sale of the issue is not expended for 1 or more qualified
projects within the 3-year period beginning on the date of
issuance, but the requirements of paragraph (1) are otherwise
met, an issue shall be treated as continuing to meet the
requirements of this subsection if either--
``(A) the issuer uses all unspent proceeds from the
sale of the issue to redeem bonds of the issue within
90 days after the end of such 3-year period, or
``(B) the following requirements are met:
``(i) The issuer spends at least 75 percent
of the proceeds from the sale of the issue for
1 or more qualified projects within the 3-year
period beginning on the date of issuance.
``(ii) Either--
``(I) the issuer spends at least 95
percent of the proceeds from the sale
of the issue for 1 or more qualified
projects within the 4-year period
beginning on the date of issuance, or
``(II) the issuer pays to the
Federal Government any earnings on the
proceeds from the sale of the issue
that accrue after the end of the 3-year
period beginning on the date of
issuance and uses all unspent proceeds
from the sale of the issue to redeem
bonds of the issue within 90 days after
the end of the 4-year period beginning
on the date of issuance.
``(h) Recapture of Portion of Credit Where Cessation of
Compliance.--
``(1) In general.--If any bond which when issued purported
to be a qualified Amtrak bond ceases to be such a qualified
bond, the issuer shall pay to the United States (at the time
required by the Secretary) an amount equal to the sum of--
``(A) the aggregate of the credits allowable under
this section with respect to such bond (determined
without regard to subsection (c)) for taxable years
ending during the calendar year in which such cessation
occurs and the 2 preceding calendar years, and
``(B) interest at the underpayment rate under
section 6621 on the amount determined under
subparagraph (A) for each calendar year for the period
beginning on the first day of such calendar year.
``(2) Failure to pay.--If the issuer fails to timely pay
the amount required by paragraph (1) with respect to such bond,
the tax imposed by this chapter on each holder of any such bond
which is part of such issue shall be increased (for the taxable
year of the holder in which such cessation occurs) by the
aggregate decrease in the credits allowed under this section to
such holder for taxable years beginning in such 3 calendar
years which would have resulted solely from denying any credit
under this section with respect to such issue for such taxable
years.
``(3) Special rules.--
``(A) Tax benefit rule.--The tax for the taxable
year shall be increased under paragraph (2) only with
respect to credits allowed by reason of this section
which were used to reduce tax liability. In the case of
credits not so used to reduce tax liability, the
carryforwards and carrybacks under section 39 shall be
appropriately adjusted.
``(B) No credits against tax.--Any increase in tax
under paragraph (2) shall not be treated as a tax
imposed by this chapter for purposes of determining--
``(i) the amount of any credit allowable
under this part, or
``(ii) the amount of the tax imposed by
section 55.
``(i) Trust Account.--
``(1) In general.--The following amounts shall be held in a
trust account by a trustee independent of the National Railroad
Passenger Corporation:
``(A) The proceeds from the sale of all bonds
designated for purposes of this section.
``(B) The amount of any matching contributions with
respect to such bonds.
``(C) The temporary period investment earnings on
proceeds from the sale of such bonds.
``(D) Any earnings on any amounts described in
subparagraph (A), (B), or (C).
``(2) Use of funds.--Amounts in the trust account may be
used only to pay costs of qualified projects and redeem
qualified Amtrak bonds, except that amounts withdrawn from the
trust account to pay costs of qualified projects may not exceed
the aggregate proceeds from the sale of all qualified Amtrak
bonds issued under this section.
``(3) Use of remaining funds in trust account.--Upon the
redemption of all qualified Amtrak bonds issued under this
section, any remaining amounts in the trust account described
in paragraph (1) shall be available to the issuer for any
qualified project.
``(j) Qualified Project.--For purposes of this section--
``(1) In general.--The term `qualified project' means--
``(A) the acquisition, financing, or refinancing of
equipment, rolling stock, and other capital
improvements (including the introduction of new high-
speed technologies such as magnetic levitation
systems), including track or signal improvements or the
elimination of grade crossings, for the northeast rail
corridor between Washington, D.C., and Boston,
Massachusetts,
``(B) the acquisition, financing, or refinancing of
equipment, rolling stock, and other capital
improvements (including the introduction of new high-
speed technologies such as magnetic levitation
systems), including development of intermodal
facilities, track or signal improvements, or the
elimination of grade crossings, for the improvement of
train speeds or safety (or both) on the high-speed rail
corridors designated under section 104(d)(2) of title
23, United States Code, as in effect on the date of the
enactment of this section, and
``(C) the acquisition, financing, or refinancing of
equipment, rolling stock, and other capital
improvements, including station rehabilitation or
construction, development of intermodal facilities,
track or signal improvements, or the elimination of
grade crossings, for the improvement of train speeds or
safety (or both) for other intercity passenger rail
corridors and for the Alaska Railroad.
``(2) Refinancing rules.--For purposes of paragraph (1), a
refinancing shall constitute a qualified project only if the
indebtedness being refinanced (including any obligation
directly or indirectly refinanced by such indebtedness) was
originally incurred by the issuer--
``(A) after the date of the enactment of this
section,
``(B) for a term of not more than 3 years,
``(C) to finance or acquire capital improvements
described in paragraph (1), and
``(D) in anticipation of being refinanced with
proceeds of a qualified Amtrak bond.
``(k) State Contribution Requirements.--
``(1) In general.--For purposes of subsection (e)(4), the
State contribution requirement of this subsection is met with
respect to any qualified project if the National Railroad
Passenger Corporation has received from 1 or more States, not
later than the date of issuance of the bond, matching
contributions of not less than 20 percent of the cost of the
qualified project.
``(2) No state contribution requirement for certain
qualified projects.--The State contribution requirement of this
subsection is zero with respect to the following projects:
``(A) Any qualified project for the acquisition and
installation of platform facilities, performance of
railroad force account work necessary to complete
improvements below street grade, and any other
necessary improvements related to construction at the
railroad station at the James A. Farley Post Office
Building in New York City, New York.
``(B) Any project described in subsection (j)(1)(C)
for the Alaska Railroad.
``(3) State matching contributions may not include federal
funds.--For purposes of this subsection, State matching
contributions shall not be derived, directly or indirectly,
from Federal funds, including any transfers from the Highway
Trust Fund under section 9503.
``(l) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Bond.--The term `bond' includes any obligation.
``(2) Treatment of changes in use.--For purposes of
subsection (e)(1), the proceeds from the sale of an issue shall
not be treated as used for a qualified project to the extent
that the issuer takes any action within its control which
causes such proceeds not to be used for a qualified project.
The Secretary shall prescribe regulations specifying remedial
actions that may be taken (including conditions to taking such
remedial actions) to prevent an action described in the
preceding sentence from causing a bond to fail to be a
qualified Amtrak bond.
``(3) Partnership; s corporation; and other pass-thru
entities.--Under regulations prescribed by the Secretary, in
the case of a partnership, trust, S corporation, or other pass-
thru entity, rules similar to the rules of section 41(g) shall
apply with respect to the credit allowable under subsection
(a).
``(4) Bonds held by regulated investment companies.--If any
qualified Amtrak bond is held by a regulated investment
company, the credit determined under subsection (a) shall be
allowed to shareholders of such company under procedures
prescribed by the Secretary.
``(5) Reporting.--Issuers of qualified Amtrak bonds shall
submit reports similar to the reports required under section
149(e).''.
(b) Amendments to Other Code Sections.--
(1) Reporting.--Subsection (d) of section 6049 of the
Internal Revenue Code of 1986 (relating to returns regarding
payments of interest) is amended by adding at the end the
following new paragraph:
``(8) Reporting of credit on qualified amtrak bonds.--
``(A) In general.--For purposes of subsection (a),
the term `interest' includes amounts includible in
gross income under section 54(d) and such amounts shall
be treated as paid on the credit allowance date (as
defined in section 54(b)(4)).
``(B) Reporting to corporations, etc.--Except as
otherwise provided in regulations, in the case of any
interest described in subparagraph (A), subsection
(b)(4) shall be applied without regard to subparagraphs
(A), (H), (I), (J), (K), and (L)(i) of such subsection.
``(C) Regulatory authority.--The Secretary may
prescribe such regulations as are necessary or
appropriate to carry out the purposes of this
paragraph, including regulations which require more
frequent or more detailed reporting.''.
(2) Treatment for estimated tax purposes.--
(A) Individual.--Section 6654 of such Code
(relating to failure by individual to pay estimated
income tax) is amended by redesignating subsection (m)
as subsection (n) and by inserting after subsection (l)
the following new subsection:
``(m) Special Rule for Holders of Qualified Amtrak Bonds.--For
purposes of this section, the credit allowed by section 54 to a
taxpayer by reason of holding a qualified Amtrak bond on a credit
allowance date shall be treated as if it were a payment of estimated
tax made by the taxpayer on such date.''.
(B) Corporate.--Section 6655 of such Code (relating
to failure by corporation to pay estimated income tax)
is amended by adding at the end of subsection (g) the
following new paragraph:
``(5) Special rule for holders of qualified amtrak bonds.--
For purposes of this section, the credit allowed by section 54
to a taxpayer by reason of holding a qualified Amtrak bond on a
credit allowance date shall be treated as if it were a payment
of estimated tax made by the taxpayer on such date.''.
(3) Exclusion from gross income of contributions by amtrak
to other rail carriers.--
(A) In general.--Section 118 of the Internal
Revenue Code of 1986 (relating to contributions to the
capital of a corporation) is amended by redesignating
subsections (d) and (e) as subsections (e) and (f),
respectively, and by inserting after subsection (c) the
following new subsection:
``(d) Special Rule for Contributions by Amtrak to Other Rail
Carriers.--For purposes of this section, the term `contribution to the
capital of the taxpayer' does not include any contribution by the
National Railroad Passenger Corporation of personal or real property
funded by the proceeds of qualified Amtrak bonds under section 54.''.
(B) Conforming amendment.--Subsection (b) of such
section 118 is amended by striking ``subsection (c)''
and inserting ``subsections (c) and (d)''.
(4) Protection of highway trust fund.--Section 9503 of such
Code (relating to Highway Trust Fund) is amended by adding at
the end the following new subsection:
``(g) Special Rule Relating to National Railroad Passenger
Corporation.--Except as provided in subsection (c), as in effect on the
date of the enactment of this subsection, amounts in the Highway Trust
Fund may not be used to provide funds to the National Railroad
Passenger Corporation for any purpose, including issuance of any
qualified Amtrak bond pursuant to section 54. The preceding sentence
may not be waived by any provision of law which is not contained or
referenced in this title, whether such provision of law is a
subsequently enacted provision or directly or indirectly seeks to waive
the application of such sentence.''.
(c) Clerical Amendments.--
(1) The table of subparts for part IV of subchapter A of
chapter 1 is amended by adding at the end the following new
item:

``Subpart H. Nonrefundable Credit for
Holders of Qualified Amtrak
Bonds.''.
(2) Section 6401(b)(1) is amended by striking ``and G'' and
inserting ``G, and H''.
(d) Annual Report by Treasury on Amtrak Trust Account.--The
Secretary of the Treasury shall annually report to Congress as to
whether the amount deposited in the trust account established by the
National Railroad Passenger Corporation under section 54(i) of the
Internal Revenue Code of 1986, as added by this section, is sufficient
to fully repay at maturity the principal of any outstanding qualified
Amtrak bonds issued pursuant to section 54 of such Code (as so added),
together with amounts expected to be deposited into such account, as
certified by the National Railroad Passenger Corporation in accordance
with procedures prescribed by the Secretary of the Treasury.
(e) Issuance of Regulations.--The Secretary of the Treasury shall
issue regulations required under section 54 of the Internal Revenue
Code of 1986 (as added by this section) not later than 90 days after
the date of the enactment of this Act.
(f) Effective Date.--The amendments made by this section shall
apply to obligations issued after the date of enactment of this Act.

Subtitle B--High-Speed Rail Provisions

SEC. 411. DEPARTMENT OF TRANSPORTATION APPROVAL FOR QUALIFIED AMTRAK
PROJECTS.

(a) Amendment.--Part D of subtitle V of title 49, United States
Code, is amended by adding at the end the following new chapter:

``CHAPTER 263--HIGH-SPEED RAIL INITIATIVES

``Sec.
``26301. Department of Transportation approval for qualified high-speed
rail projects.
``26302. Qualified projects.
``26303. State contribution requirements.''.
``Sec. 26301. Department of Transportation approval for qualified high-
speed rail projects
``(a) In General.--The written approval of a qualified project by
the Secretary of Transportation required for purposes of subsection
(e)(5) of section 54 of the Internal Revenue Code of 1986 (relating to
credit to holders of qualified Amtrak bonds) shall include--
``(1) the finding by the Inspector General of the
Department of Transportation described in subsection (b);
``(2) the certification by the Secretary of Transportation
described in subsection (c); and
``(3) the agreement by the National Railroad Passenger
Corporation described in subsection (d).
``(b) Finding by Inspector General.--For purposes of subsection
(a), the finding described in this subsection is a finding by the
Inspector General of the Department of Transportation that there is a
reasonable likelihood that the proposed project will result in a
positive financial contribution to the National Railroad Passenger
Corporation and that the investment evaluation process includes
consideration of a return on investment, leveraging of funds (including
State capital and operating contributions), cost effectiveness, safety
improvement, mobility improvement, and feasibility.
``(c) Certification.--For purposes of subsection (a), the
certification described in this subsection is a certification by the
Secretary of Transportation that the issuer of the qualified Amtrak
bond--
``(1) except with respect to projects described in section
54(j)(1)(C) of the Internal Revenue Code of 1986, has entered
into a written agreement with the owners of rail properties
which are to be improved by the project to be funded by the
qualified Amtrak bond, as to the scope and estimated cost of
such project and the impact on rail freight capacity; and
``(2) has met the State contribution requirements described
in section 26303.
The National Railroad Passenger Corporation shall not exercise its
rights under section 24308(a)(2) to resolve disputes with respect to a
project to be funded by a qualified Amtrak bond, or with respect to the
cost of such a project, unless the project is intended to result in
railroad speeds of 79 miles per hour or less.
``(d) Agreement by Amtrak To Issue Additional Bonds for Projects of
Other Carriers.--
``(1) In general.--For purposes of subsection (a), the
agreement described in this subsection is an agreement by the
National Railroad Passenger Corporation with the Secretary of
Transportation to issue bonds which meet the requirements of
section 54 of the Internal Revenue Code of 1986 for use in
financing projects described in paragraph (2).
``(2) Projects covered.--For purposes of paragraph (1), the
projects described in this paragraph are any project described
in subsection (j)(1)(B) or (j)(1)(C) of section 54 of the
Internal Revenue Code of 1986 for an intercity rail passenger
carrier other than the National Railroad Passenger Corporation
or for the Alaska Railroad.
``(3) Additional requirements.--Any project financed by
bonds referred to in paragraph (1) shall be carried out by the
intercity rail passenger carrier other than the National
Railroad Passenger Corporation, through a contract entered into
by the National Railroad Passenger Corporation with such
carrier. Such other intercity rail passenger carrier, in
carrying out the project, shall be subject to the provisions of
this subtitle governing the National Railroad Passenger
Corporation.
``(4) Definition.--For purposes of this subsection, the
term `intercity rail passenger carrier' means any rail carrier
(as such term is defined in section 24102(7)) that is part of
the interstate system of rail transportation and that provides
intercity rail passenger transportation (as such term is
defined in section 24102(5)).
``(e) Additional Selection Criteria.--In determining projects to be
approved under this section (other than projects for the Alaska
Railroad), or to be included in an agreement under subsection (d), the
Secretary of Transportation shall give preference to--
``(1) any project with a State matching contribution rate
exceeding 20 percent;
``(2) projects expected to have a significant impact on air
traffic congestion;
``(3) projects expected to also improve commuter rail
operations;
``(4) projects that anticipate fares designed to recover
costs and generate a return on investment; and
``(5) projects that promote regional balance in
infrastructure investment and the national interest in ensuring
the development of a nationwide high-speed rail transportation
network.
``Sec. 26302. Qualified projects
``For purposes of this chapter:
``(1) In general.--The term `qualified project' means--
``(A) the acquisition, financing, or refinancing of
equipment, rolling stock, and other capital
improvements (including the introduction of new high-
speed technologies such as magnetic levitation
systems), including track or signal improvements or the
elimination of grade crossings, for the northeast rail
corridor between Washington, D.C., and Boston,
Massachusetts;
``(B) the acquisition, financing, or refinancing of
equipment, rolling stock, and other capital
improvements (including the introduction of new high-
speed technologies such as magnetic levitation
systems), including development of intermodal
facilities, track or signal improvements, or the
elimination of grade crossings, for the improvement of
train speeds or safety (or both) on the high-speed rail
corridors designated under section 104(d)(2) of title
23, United States Code, as in effect on the date of the
enactment of this section; and
``(C) the acquisition, financing, or refinancing of
equipment, rolling stock, and other capital
improvements, including station rehabilitation or
construction, development of intermodal facilities,
track or signal improvements, or the elimination of
grade crossings, for the improvement of train speeds or
safety (or both) for other intercity passenger rail
corridors and for the Alaska Railroad.
``(2) Refinancing rules.--For purposes of paragraph (1), a
refinancing shall constitute a qualified project only if the
indebtedness being refinanced (including any obligation
directly or indirectly refinanced by such indebtedness) was
originally incurred by the issuer--
``(A) after the date of the enactment of this
section;
``(B) for a term of not more than 3 years;
``(C) to finance or acquire capital improvements
described in paragraph (1); and
``(D) in anticipation of being refinanced with
proceeds of a qualified Amtrak bond.
``Sec. 26303. State contribution requirements
``(a) In General.--For purposes of section 26301(c)(2), the State
contribution requirement of this section is met with respect to any
qualified project if the National Railroad Passenger Corporation has
received from 1 or more States, not later than the date of issuance of
the bond, matching contributions of not less than 20 percent of the
cost of the qualified project.
``(b) No State Contribution Requirement for Certain Qualified
Projects.--The State contribution requirement of this section is zero
with respect to the following projects:
``(1) Any qualified project for the acquisition and
installation of platform facilities, performance of railroad
force account work necessary to complete improvements below
street grade, and any other necessary improvements related to
construction at the railroad station at the James A. Farley
Post Office Building in New York City, New York.
``(2) Any project described in subsection (j)(1)(C) of
section 54 of the Internal Revenue Code of 1986 for the Alaska
Railroad.
``(c) State Matching Contributions May Not Include Federal Funds.--
For purposes of this section, State matching contributions shall not be
derived, directly or indirectly, from Federal funds, including any
transfers from the Highway Trust Fund under section 9503 of the
Internal Revenue Code of 1986.''.
(b) Table of Chapters Amendment.--The table of chapters of subtitle
V of title 49, United States Code, is amended by inserting after the
item relating to chapter 261 the following new item:

``263. HIGH-SPEED RAIL INITIATIVES..........................   26301''.

SEC. 412. MULTIYEAR CAPITAL SPENDING PLAN AND OVERSIGHT.

(a) Amendment.--Chapter 243 of title 49, United States Code, is
amended by adding at the end the following new section:
``Sec. 24316. Multiyear capital spending plan and oversight
``(a) Amtrak Capital Spending Plan.--
``(1) In general.--The National Railroad Passenger
Corporation shall annually submit to the President and Congress
a multiyear capital spending plan, as approved by the Board of
Directors of the Corporation.
``(2) Contents of plan.--Such plan shall identify the
capital investment needs of the Corporation over a period of
not less than 5 years and the funding sources available to
finance such needs and shall prioritize such needs according to
corporate goals and strategies.
``(3) Initial submission date.--The first plan shall be
submitted before the issuance of any qualified Amtrak bonds by
the National Railroad Passenger Corporation pursuant to section
54 of the Internal Revenue Code of 1986.
``(b) Oversight of Qualified Projects.--The Secretary of
Transportation shall contract for an annual independent assessment of
the costs and benefits of the qualified projects financed by qualified
Amtrak bonds pursuant to section 54 of the Internal Revenue Code of
1986, including an assessment of the investment evaluation process of
the Corporation. The annual assessment shall be included in the plan
submitted under subsection (a).''.
(b) Table of Sections Amendment.--The table of sections of chapter
243 of title 49, United States Code, is amended by adding after the
item relating to section 24315 the following new item:

``24316. Multiyear capital spending plan and oversight.''.

SEC. 413. ISSUANCE OF REGULATIONS.

The Secretary of Transportation shall issue regulations for
carrying out chapter 263 of title 49, United States Code (as added by
section 411 of this Act), not later than 90 days after the date of the
enactment of this Act.

SEC. 414. SENSE OF CONGRESS REGARDING EFFECT ON AMTRAK FUNDING.

It is the sense of the Congress that the proceeds of qualified
Amtrak bonds issued under section 54 of the Internal Revenue Code of
1986 are intended to finance the construction of qualified projects (as
defined in section 26302 of title 49, United States Code, as added by
section 411 of this Act) and are not intended to meet the regular,
ongoing capital funding needs of the National Railroad Passenger
Corporation.

SEC. 415. EFFECTIVE DATE.

The amendments made by this subtitle shall apply to obligations
issued after the date of the enactment of this Act.

Subtitle C--Amtrak Capital Investment

SEC. 421. AUTHORIZATION OF APPROPRIATIONS.

Section 24104(a) of title 49, United States Code, is amended--
(1) by inserting ``(1)'' after ``In General.--'';
(2) by redesignating paragraphs (1) through (5) as
subparagraphs (A) through (E), respectively; and
(3) by adding at the end the following new paragraph:
``(2) There are authorized to be appropriated to the Secretary of
Transportation $2,500,000,000 for fiscal year 2003 for the benefit of
Amtrak for capital expenditures including--
``(A) New York, Washington, D.C., and Baltimore tunnel life
safety projects;
``(B) bridges, tracks, and other improvements to increase
the capacity and reliability of rail passenger transportation;
and
``(C) equipment, including acquisition of trainsets and
rolling stock, for operation in federally designated corridors.
At least \2/3\ of amounts expended under subparagraph (C) shall be for
operations outside the Northeast Corridor.''.

Subtitle D--Capital Investment for Railroad Rehabilitation

SEC. 431. CAPITAL GRANTS FOR RAILROAD TRACK.

(a) Chapter 223.--
(1) Amendment.--Chapter 223 of title 49, United States
Code, is amended to read as follows:

``CHAPTER 223--CAPITAL GRANTS FOR RAILROAD TRACK

``Sec.
``22301. Capital grants for railroad track.
``Sec. 22301. Capital grants for railroad track
``(a) Establishment of Program.--
``(1) Establishment.--The Secretary of Transportation shall
establish a program of capital grants for the rehabilitation,
preservation, or improvement of railroad track (including
roadbed, bridges, and related track structures) of class II and
class III railroads. Such grants shall be for rehabilitating,
preserving, or improving track used primarily for freight
transportation to a standard ensuring that the track can be
operated safely and efficiently, including grants for
rehabilitating, preserving, or improving track to handle
286,000 pound rail cars. Grants may be provided under this
chapter--
``(A) directly to the class II or class III
railroad; or
``(B) with the concurrence of the class II or class
III railroad, to a State or local government.
``(2) State cooperation.--Class II and class III railroad
applicants for a grant under this chapter are encouraged to
utilize the expertise and assistance of State transportation
agencies in applying for and administering such grants. State
transportation agencies are encouraged to provide such
expertise and assistance to such railroads.
``(3) Interim regulations.--Not later than December 31,
2003, the Secretary shall issue temporary regulations to
implement the program under this section. Subchapter II of
chapter 5 of title 5 does not apply to a temporary regulation
issued under this paragraph or to an amendment to such a
temporary regulation.
``(4) Final regulations.--Not later than October 1, 2004,
the Secretary shall issue final regulations to implement the
program under this section.
``(b) Maximum Federal Share.--The maximum Federal share for
carrying out a project under this section shall be 80 percent of the
project cost. The non-Federal share may be provided by any non-Federal
source in cash, equipment, or supplies. Other in-kind contributions may
be approved by the Secretary on a case by case basis consistent with
this chapter.
``(c) Project Eligibility.--For a project to be eligible for
assistance under this section the track must have been operated or
owned by a class II or class III railroad as of the date of the
enactment of this section.
``(d) Use of Funds.--Grants provided under this section shall be
used to implement track capital projects as soon as possible. In no
event shall grant funds be contractually obligated for a project later
than the end of the third Federal fiscal year following the year in
which the grant was awarded. Any funds not so obligated by the end of
such fiscal year shall be returned to the Secretary for reallocation.
``(e) Additional Purpose.--In addition to making grants for
projects as provided in subsection (a), the Secretary may also make
grants to supplement direct loans or loan guarantees made under title V
of the Railroad Revitalization and Regulatory Reform Act of 1976 (45
U.S.C. 821 et seq.), for projects described in the last sentence of
section 502(d) of such title. Grants made under this subsection may be
used, in whole or in part, for paying credit risk premiums, lowering
rates of interest, or providing for a holiday on principal payments.
Credit risk premiums funded under this section shall be exempt from the
non-Federal source requirement of section 502(f)(1) of the Railroad
Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822(f)(1)).
``(f) Employee Protection.--The Secretary shall require as a
condition of any grant made under this section that the recipient
railroad provide a fair arrangement at least as protective of the
interests of employees who are affected by the project to be funded
with the grant as the terms imposed under section 11326(a), as in
effect on the date of the enactment of this section.
``(g) Labor Standards.--
``(1) Prevailing wages.--The Secretary shall ensure that
laborers and mechanics employed by contractors and
subcontractors in construction work financed by a grant made
under this section will be paid wages not less than those
prevailing on similar construction in the locality, as
determined by the Secretary of Labor under section 3142 of
title 40 (known as the Davis-Bacon Act). The Secretary shall
make a grant under this section only after being assured that
required labor standards will be maintained on the construction
work.
``(2) Wage rates.--Wage rates in a collective bargaining
agreement negotiated under the Railway Labor Act (45 U.S.C. 151
et seq.) are deemed for purposes of this subsection to comply
with section 3142 of title 40 (known as the Davis-Bacon Act).
``(h) Authorization of Appropriations.--There is authorized to be
appropriated to the Secretary of Transportation $500,000,000 for fiscal
year 2003 for carrying out this section.''.
(2) Conforming amendment.--The item relating to chapter 223
in the table of chapters of subtitle V of title 49, United
States Code, is amended to read as follows:

``223. CAPITAL GRANTS FOR RAILROAD TRACK....................   22301''.
(b) Railroad Rehabilitation and Improvement Financing.--Section 502
of the Railroad Revitalization and Regulatory Reform Act of 1976 (45
U.S.C. 822(d)) is amended--
(1) in subsection (d)--
(A) by striking ``$3,500,000,000'' and inserting
``$5,000,000,000''; and
(B) by striking ``$1,000,000,000'' and inserting
``$1,500,000,000''; and
(2) by adding at the end the following new subsection:
``(i) Grants.--The Secretary may make grants to supplement direct
loans or loan guarantees made under this title. Grants made under this
subsection may be used, in whole or in part, for paying credit risk
premiums, lowering rates of interest, or providing for a holiday on
principal payments. Credit risk premiums funded under this subsection
shall be exempt from the non-Federal source requirement of subsection
(f)(1). There is authorized to be appropriated to the Secretary for
fiscal year 2003 for carrying out this subsection $250,000,000.''.

SEC. 432. REGULATORY PROCEDURE AMENDMENTS.

(a) Cohorts of Loans.--Section 502(f) of the Railroad
Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822(f)) is
amended--
(1) in paragraph (2)--
(A) by striking ``and'' at the end of subparagraph
(D);
(B) by redesignating subparagraph (E) as
subparagraph (F); and
(C) by adding after subparagraph (D) the following
new subparagraph:
``(E) the size and characteristics of the cohort of
which the loan or loan guarantee is a member; and'';
and
(2) by adding at the end of paragraph (4) the following:
``A cohort may include loans and loan guarantees. The Secretary
shall not establish any limit on the proportion of a cohort
that may be used for 1 loan or loan guarantee.''.
(b) Conditions of Assistance.--Section 502 of the Railroad
Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822) is
amended--
(1) in subsection (f)(2)(A), by inserting ``, if any''
after ``collateral offered''; and
(2) by adding at the end of subsection (h) the following:
``The Secretary shall not require an applicant for a direct loan or
loan guarantee under this section to provide collateral. The Secretary
shall not require that an applicant for a direct loan or loan guarantee
under this section have previously sought the financial assistance
requested from another source. The Secretary shall require recipients
of direct loans or loan guarantees under this section to apply the
standards of section 26106(a)(5) of title 49, United States Code, to
their projects, except for projects primarily benefiting Class III
freight railroads.''.
(c) Time Limit for Approval or Disapproval.--Section 502 of the
Railroad Revitalization and Regulatory Reform Act of 1976 (45 U.S.C.
822), as amended by this Act, is further amended by adding at the end
the following new subsection:
``(j) Time Limit for Approval or Disapproval.--Not later than 30
days after receiving a complete application for a direct loan or loan
guarantee under this section, the Secretary shall approve or disapprove
the application.''.
(d) Fees and Charges.--Section 503 of the Railroad Revitalization
and Regulatory Reform Act of 1976 (45 U.S.C. 823) is amended by adding
at the end the following new subsection:
``(l) Fees and Charges.--Except as provided in this title, the
Secretary may not assess any fees, including user fees, or charges in
connection with a direct loan or loan guarantee provided under section
502.''.
(e) Substantive Criteria and Standards.--Not later than 30 days
after the date of the enactment of this Act, the Secretary of
Transportation shall publish in the Federal Register and post on the
Department of Transportation web site the substantive criteria and
standards used by the Secretary to determine whether to approve or
disapprove applications submitted under section 502 of the Railroad
Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822).

TITLE V--PORT SECURITY INFRASTRUCTURE INVESTMENT

SEC. 501. AUTHORIZATION OF APPROPRIATIONS FOR GRANTS TO IMPLEMENT
SECURITY PLANS.

For grants under section 70107 of title 46, United States Code,
there is authorized to be appropriated to the Secretary of
Transportation (in addition to any amounts appropriated before the date
of the enactment of this Act) $2,500,000,000 for fiscal year 2003.

TITLE VI--ENVIRONMENTAL INFRASTRUCTURE INVESTMENT

SEC. 601. GENERAL AUTHORITY FOR CAPITALIZATION GRANTS.

Section 601(a) of the Federal Water Pollution Control Act (33
U.S.C. 1381(a)) is amended by striking ``(1) for construction'' and all
that follows through the period at the end and inserting ``to
accomplish the objectives, goals, and policies of this Act.''.

SEC. 602. CAPITALIZATION GRANTS AGREEMENTS.

(a) Requirements for Construction of Treatment Works.--Section
602(b)(6) of the Federal Water Pollution Control Act (33 U.S.C.
1382(b)(6)) is amended--
(1) by striking ``treatment works'' the first place it
appears and inserting ``activities'';
(2) by striking ``before fiscal year 1995'' and all that
follows through ``section 205(m) of this Act'' and inserting
``with funds made available from a State water pollution
control revolving fund under this title''; and
(3) by striking ``201(b)'' and all that follows through
``218'' and inserting ``204(b)(1), 211''.
(b) Assistance for Small Treatment Works.--Section 602 of the
Federal Water Pollution Control Act (33 U.S.C. 1382) is amended by
adding at the end the following:
``(c) Assistance for Small Treatment Works.--
``(1) Simplified procedures.--Not later than 1 year after
the date of the enactment of this subsection, the Administrator
shall assist the States in establishing simplified procedures
for small treatment works to obtain assistance under this
title.
``(2) Publication of manual.--Not later than 2 years after
the date of the enactment of this subsection, and after
providing notice and opportunity for public comment, the
Administrator shall publish a manual to assist small treatment
works in obtaining assistance under this title and publish in
the Federal Register notice of the availability of the manual.
``(3) Small treatment works defined.--For purposes of this
title, the term `small treatment works' means treatment works
for which a municipality or intermunicipal, interstate, or
State agency seeks assistance under this title and which serves
a population of 20,000 or fewer.''.

SEC. 603. WATER POLLUTION CONTROL REVOLVING FUNDS.

(a) Projects and Activities Eligible for Assistance.--Section
603(c) of the Federal Water Pollution Control Act (33 U.S.C. 1383(c))
is amended to read as follows:
``(c) Projects and Activities Eligible for Assistance.--
``(1) In general.--The amounts of funds available to each
State water pollution control revolving fund shall be used only
for providing financial assistance--
``(A) to a municipality, intermunicipal agency,
interstate agency, or State agency for construction of
a publicly owned treatment works (as defined in section
212 of this Act);
``(B) for implementation of lake protection
programs and projects under section 314;
``(C) for implementation of a management program
established under section 319;
``(D) for implementation of a conservation and
management plan established under section 320;
``(E) for restoration or protection of publicly or
privately owned riparian areas, including acquisition
of property rights;
``(F) to a municipality, intermunicipal agency,
interstate agency, or State agency for implementation
of measures to improve the efficiency of public water
use;
``(G) for development and implementation of plans
by a public recipient to prevent water pollution;
``(H) for acquisition of lands necessary to meet
any mitigation requirements related to construction of
a publicly owned treatment works; and
``(I) for measures to increase the security of
publicly owned treatment works.
``(2) Fund amounts.--The water pollution control revolving
fund of a State shall be established, maintained, and credited
with repayments, and the fund balance shall be available in perpetuity
for providing financial assistance for activities described in
paragraph (1). Fees charged by a State to recipients of such assistance
may be deposited in the fund for the purpose of financing the cost of
administration of this title.''.
(b) Extended Repayment Period.--Section 603(d)(1) of the Federal
Water Pollution Control Act (33 U.S.C. 1383(d)(1)) is amended--
(1) in subparagraph (A) by striking ``20 years'' and
inserting ``the lesser of 30 years or the expected life of the
project to be financed with the proceeds of the loan''; and
(2) in subparagraph (B) by striking ``not later than 20
years after project completion'' and inserting ``upon the
expiration of the term of the loan''.
(c) Administrative Expenses.--Section 603(d)(7) of the Federal
Water Pollution Control Act (33 U.S.C. 1383(d)(7)) is amended by
inserting before the period at the end the following: ``or $400,000 per
year, or \1/5\ percent per year of the current valuation of the fund,
whichever is greatest, plus the amount of any fees collected by the
State for such purpose regardless of the source''.
(d) Technical and Planning Assistance for Small Systems.--Section
603(d) of the Federal Water Pollution Control Act (33 U.S.C. 1383(d))
is amended--
(1) by striking ``and'' at the end of paragraph (6);
(2) by striking the period at the end of paragraph (7) and
inserting ``; and''; and
(3) by adding at the end the following:
``(8) to provide to owners and operators of small treatment
works (as defined in section 602(c)) with technical and
planning assistance and assistance in financial management,
user fee analysis, budgeting, capital improvement planning,
facility operation and maintenance, repair schedules, and other
activities to improve wastewater treatment plant operations;
except that such amounts shall not exceed 2 percent of all
grant awards to such fund under this title.''.
(e) Additional Subsidization.--Section 603 of the Federal Water
Pollution Control Act is amended by adding at the end the following:
``(i) Additional Subsidization.--
``(1) In general.--In any case in which a State provides
assistance to a municipality or intermunicipal, interstate, or
State agency under subsection (d), the State may provide
additional subsidization, including forgiveness of principal
and negative interest loans--
``(A) to benefit a municipality that--
``(i) meets the State's affordability
criteria established under paragraph (2); or
``(ii) does not meet the State's
affordability criteria if the recipient--
``(I) seeks additional
subsidization to benefit individual
ratepayers in the residential user rate
class;
``(II) demonstrates to the State
that such ratepayers will experience a
significant hardship from the increase
in rates necessary to finance the
project or activity for which
assistance is sought; and
``(III) ensures, as part of an
assistance agreement between the State
and the recipient, that the additional
subsidization provided under this
paragraph is directed through a user
charge rate system (or other
appropriate method) to such ratepayers;
or
``(B) to implement alternative processes,
materials, and techniques (including nonstructural
protection of surface waters, new or improved methods
of waste treatment, and pollutant trading) that may
result in increased environmental benefit when compared
to standard processes, materials, and techniques.
``(2) Affordability criteria.--
``(A) Establishment.--On or before September 30,
2004, and after providing notice and an opportunity for
public comment, a State shall establish affordability
criteria to assist in identifying municipalities that
would experience a significant hardship raising the
revenue necessary to finance a project or activity
eligible for assistance under section 603(c)(1) if
additional subsidization is not provided. Such criteria
shall be based on income data, population trends, and
other data determined relevant by the State.
``(B) Existing criteria.--If a State has previously
established, after providing notice and an opportunity
for public comment, affordability criteria that meet
the requirements of subparagraph (A), the State may use
the criteria for the purposes of this subsection. For
purposes of this Act, any such criteria shall be
treated as affordability criteria established under
this paragraph.
``(C) Information to assist states.--The
Administrator may publish information to assist States
in establishing affordability criteria under
subparagraph (A).
``(3) Priority.--A State may give priority to a recipient
for a project or activity eligible for funding under section
603(c)(1) if the recipient meets the State's affordability
criteria.''.

SEC. 604. AUTHORIZATION OF APPROPRIATIONS FOR CLEAN WATER STATE
REVOLVING FUNDS.

Section 607 of the Federal Water Pollution Control Act (33 U.S.C.
1387) is amended--
(1) by striking ``and'' at the end of paragraph (4);
(2) by striking the period at the end of paragraph (5) and
inserting ``; and''; and
(3) by adding at the end the following:
``(6) $8,500,000,000 for fiscal year 2003.''.

SEC. 605. WET WEATHER.

Section 221(f) of the Federal Water Pollution Control Act (33
U.S.C. 1301(f)) is amended by inserting after the first sentence the
following: ``In addition, there is authorized to be appropriated to
carry out this section an additional $1,500,000,000 for fiscal year
2003.''.

SEC. 606. SAFE DRINKING WATER STATE REVOLVING FUNDS.

Section 1452(m) of title XIV of the Public Health Service Act
(commonly known as the ``Safe Drinking Water Act'') (42 U.S.C. 300j-
12(m)) is amended by inserting after the first sentence the following:
``In addition, there is authorized to be appropriated to carry out this
section an additional $1,500,000,000 for fiscal year 2003.''.

TITLE VII--WATER RESOURCES INFRASTRUCTURE INVESTMENT

SEC. 701. INCREASED FUNDING FOR CORPS OF ENGINEERS PROJECTS.

In addition to other amounts authorized to be appropriated, there
are authorized to be appropriated to the Secretary of the Army
$1,500,000,000 for fiscal year 2003, of which such sums as are
necessary may be derived from the Harbor Maintenance Trust Fund and the
Inland Waterways Trust Fund, to carry out construction, operation, and
maintenance activities for authorized civil functions under the
supervision of the Chief of Engineers. Such sums shall remain available
until September 30, 2004.

TITLE VIII--ECONOMIC DEVELOPMENT INFRASTRUCTURE INVESTMENT

SEC. 801. PUBLIC WORKS AND ECONOMIC DEVELOPMENT.

Section 701 of the Public Works and Economic Development Act of
1965 (42 U.S.C. 3231) is amended--
(1) by inserting ``(a) In General.--'' before ``There are
authorized''; and
(2) by adding at the end the following:
``(b) Additional Authorization.--In addition to amounts authorized
by subsection (a), there are authorized to be appropriated to carry out
this Act $1,025,000,000 for fiscal year 2003. Such sums shall remain
available until September 30, 2004.''.

SEC. 802. APPALACHIAN REGIONAL DEVELOPMENT.

Section 401 of the Appalachian Regional Development Act of 1965 (40
U.S.C. App.) is amended by adding at the end the following:
``(c) Additional Authorization.--In addition to amounts authorized
by subsection (a), there are authorized to be appropriated to the
Commission to carry out this Act $175,000,000 for fiscal year 2003.
Such sums shall remain available until September 30, 2004.''.

SEC. 803. DELTA REGIONAL DEVELOPMENT.

Section 382M of the Consolidated Farm and Rural Development Act (7
U.S.C. 2009aa-12) is amended--
(1) by redesignating subsection (b) as subsection (c);
(2) by inserting after subsection (a) the following:
``(b) Additional Authorization.--In addition to amounts authorized
by subsection (a), there are authorized to be appropriated to the
Authority to carry out this subtitle $175,000,000 for fiscal year 2003.
Such sums shall remain available until September 30, 2004.''; and
(3) in subsection (c) (as so redesignated) by striking
``subsection (a)'' and inserting ``subsections (a) and (b)''.

SEC. 804. NORTHERN GREAT PLAINS REGIONAL DEVELOPMENT.

Section 383M of the Consolidated Farm and Rural Development Act (7
U.S.C. 2009bb-12) is amended--
(1) in subsection (b) by striking ``subsection (a)'' and
inserting ``this section''; and
(2) by adding at the end the following:
``(d) Additional Authorization for Fiscal Year 2003.--In addition
to amounts authorized by subsection (a), there is authorized to be
appropriated to the Authority to carry out this subtitle $175,000,000
for fiscal year 2003. Such sums shall remain available until September
30, 2004.''.

TITLE IX--PUBLIC BUILDINGS INFRASTRUCTURE INVESTMENT

SEC. 901. SECURITY ENHANCEMENTS FOR GSA PROPERTIES.

(a) Authorization of Appropriations.--In addition to other amounts
credited to the Federal Buildings Fund established pursuant to section
210(f) of the Federal Property and Administrative Services Act of 1949
(40 U.S.C. 490(f)), there is authorized to be appropriated $500,000,000
for fiscal year 2003 to be credited to the Fund. Such sums shall remain
available until September 30, 2004.
(b) Use of Funds.--Amounts credited to the Fund under this section
shall be available to the Administrator of General Services to carry
out projects and activities for enhancing the security of properties
under the control of the General Services Administration, including
general purpose office space, courthouses, and border crossing
stations, and for other repair and alteration purposes.

TITLE X--GENERAL PROVISIONS

SEC. 1001. PRIORITY CONSIDERATION FOR SECURITY PROJECTS.

The head of a Federal department or agency may provide financial
assistance with any increase in funds authorized or made available by,
or with any increase in obligation authority made available by, this
Act (including the amendments made by this Act) only if the recipient
of such assistance certifies to the head of such department or agency
that the recipient will give priority consideration to programs or
projects that enhance security, to the extent that such programs or
projects are immediately ready to be implemented.

SEC. 1002. TEMPORARY WAIVER OF NON-FEDERAL SHARE.

(a) In General.--Notwithstanding any other provision of law and
subject to subsection (b), in providing financial assistance for a
program or project with any increase in funds authorized or made
available by, or with any increase in obligation authority made
available by, this Act (including the amendments made by this Act
(other than subtitle A of title I of this Act)), the head of a Federal
department or agency, upon request of the recipient of such assistance,
may increase the Federal share of the cost of the program or project to
not to exceed 100 percent of such cost.
(b) Repayments.--Before increasing the Federal share of the cost of
a program or project under subsection (a), the head of a Federal
department or agency shall enter into a legally binding agreement with
the recipient of financial assistance for the program or project under
which the recipient agrees to repay the United States for the increased
Federal share of the program or project on or before September 30,
2005.

SEC. 1003. MAINTENANCE OF EFFORT.

The head of a Federal department or agency may provide financial
assistance for a program or project with any increase in funds
authorized or made available by, or with any increase in obligation
authority made available by, this Act (including the amendments made by
this Act) for a fiscal year only if the recipient of such assistance
certifies to the head of such department or agency that the aggregate
expenditure of funds of the recipient, exclusive of Federal funds, for
such program or project will be maintained at a level that does not
fall below the average level of such expenditure for the preceding 2
fiscal years of the recipient.

SEC. 1004. LABOR STANDARDS.

(a) Prevailing Wages.--The head of a Federal department or agency
providing financial assistance with any increase in funds authorized or
made available by, or with any increase in obligation authority made
available by, this Act (including the amendments made by this Act)
shall ensure that laborers and mechanics employed by contractors and
subcontractors in construction work financed by such financial
assistance will be paid wages not less than those prevailing on similar
construction in the locality, as determined by section 3142 of title
40, United States Code (known as the Davis-Bacon Act). The head of the
department or agency shall provide such financial assistance only after
being assured that required labor standards will be maintained on the
construction work.
(b) Wage Rates.--Wage rates in a collective bargaining agreement
negotiated under the Railway Labor Act (45 U.S.C. 151 et seq.) are
deemed for purposes of this section to comply with section 3142 of
title 40, United States Code (known as the Davis-Bacon Act).

SEC. 1005. BUY AMERICA.

(a) Preference.--The head of a Federal department or agency may
provide financial assistance for a project with any increase in funds
authorized or made available by, or with any increase in obligation
authority made available by, this Act (including the amendments made by
this Act) only if steel and manufactured goods used in the project are
produced in the United States.
(b) Waiver.--The head of a Federal department or agency may waive
subsection (a) if the head of the Federal department or agency finds
that--
(1) applying subsection (a) would be inconsistent with the
public interest;
(2) the steel and goods produced in the United States are
not produced in a sufficient and reasonably available amount or
are not of a satisfactory quality;
(3) when procuring a facility or equipment with any
increase in funds or obligation authority described in
subsection (a)--
(A) the cost of components and subcomponents
produced in the United States is more than 60 percent
of the cost of all components of the facility or
equipment; and
(B) final assembly of the facility or equipment has
occurred in the United States; or
(4) including domestic material will increase the cost of
the overall project by more than 25 percent.
(c) Labor Costs.--In this section, labor costs involved in final
assembly are not included in calculating the cost of components.

TITLE XI--REVENUE OFFSETS

SEC. 1100. AMENDMENT OF 1986 CODE.

Except as otherwise expressly provided, whenever in this title 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.

Subtitle A--Provisions Designed To Curtail Tax Shelters

SEC. 1101. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

(a) In General.--Section 7701 is amended by redesignating
subsection (m) as subsection (n) and by inserting after subsection (l)
the following new subsection:
``(m) Clarification of Economic Substance Doctrine; Etc.--
``(1) General rules.--
``(A) In general.--In applying the economic
substance doctrine, the determination of whether a
transaction has economic substance shall be made as
provided in this paragraph.
``(B) Definition of economic substance.--For
purposes of subparagraph (A)--
``(i) In general.--A transaction has
economic substance only if--
``(I) the transaction changes in a
meaningful way (apart from Federal tax
effects and, if there are any Federal
tax effects, also apart from any
foreign, State, or local tax effects)
the taxpayer's economic position, and
``(II) the taxpayer has a
substantial nontax purpose for entering
into such transaction and the
transaction is a reasonable means of
accomplishing such purpose.
``(ii) Special rule where taxpayer relies
on profit potential.--A transaction shall not
be treated as having economic substance by
reason of having a potential for profit
unless--
``(I) the present value of the
reasonably expected pre-tax profit from
the transaction is substantial in
relation to the present value of the
expected net tax benefits that would be
allowed if the transaction were
respected, and
``(II) the reasonably expected pre-
tax profit from the transaction exceeds
a risk-free rate of return.
``(C) Treatment of fees and foreign taxes.--Fees
and other transaction expenses and foreign taxes shall
be taken into account as expenses in determining pre-
tax profit under subparagraph (B)(ii).
``(2) Special rules for transactions with tax-indifferent
parties.--
``(A) Special rules for financing transactions.--
The form of a transaction which is in substance the
borrowing of money or the acquisition of financial
capital directly or indirectly from a tax-indifferent
party shall not be respected if the present value of
the deductions to be claimed with respect to the
transaction is substantially in excess of the present
value of the anticipated economic returns of the person
lending the money or providing the financial capital. A
public offering shall be treated as a borrowing, or an
acquisition of financial capital, from a tax-
indifferent party if it is reasonably expected that at
least 50 percent of the offering will be placed with
tax-indifferent parties.
``(B) Artificial income shifting and basis
adjustments.--The form of a transaction with a tax-
indifferent party shall not be respected if--
``(i) it results in an allocation of income
or gain to the tax-indifferent party in excess
of such party's economic income or gain, or
``(ii) it results in a basis adjustment or
shifting of basis on account of overstating the
income or gain of the tax-indifferent party.
``(3) Definitions and special rules.--For purposes of this
subsection--
``(A) Economic substance doctrine.--The term
`economic substance doctrine' means the common law
doctrine under which tax benefits under subtitle A with
respect to a transaction are not allowable if the
transaction does not have economic substance or lacks a
business purpose.
``(B) Tax-indifferent party.--The term `tax-
indifferent party' means any person or entity not
subject to tax imposed by subtitle A. A person shall be
treated as a tax-indifferent party with respect to a
transaction if the items taken into account with
respect to the transaction have no substantial impact
on such person's liability under subtitle A.
``(C) Substantial nontax purpose.--In applying
subclause (II) of paragraph (1)(B)(i), a purpose of
achieving a financial accounting benefit shall not be
taken into account in determining whether a transaction
has a substantial nontax purpose if the origin of such
financial accounting benefit is a reduction of income
tax.
``(D) Exception for personal transactions of
individuals.--In the case of an individual, this
subsection shall apply only to transactions entered
into in connection with a trade or business or an
activity engaged in for the production of income.
``(E) Treatment of lessors.--In applying subclause
(I) of paragraph (1)(B)(ii) to the lessor of tangible
property subject to a lease, the expected net tax
benefits shall not include the benefits of
depreciation, or any tax credit, with respect to the
leased property and subclause (II) of paragraph
(1)(B)(ii) shall be disregarded in determining whether
any of such benefits are allowable.
``(4) Other common law doctrines not affected.--Except as
specifically provided in this subsection, the provisions of
this subsection shall not be construed as altering or
supplanting any other rule of law, and the requirements of this
subsection shall be construed as being in addition to any such
other rule of law.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this subsection. Such regulations may include
exemptions from the application of this subsection.''
(b) Effective Date.--The amendments made by this section shall
apply to transactions entered into after February 13, 2003.

SEC. 1102. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.

(a) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties) is amended by inserting after section 6707 the
following new section:

``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION
INFORMATION WITH RETURN OR STATEMENT.

``(a) Imposition of Penalty.--Any person who fails to include on
any return or statement any information with respect to a reportable
transaction which is required under section 6011 to be included with
such return or statement shall pay a penalty in the amount determined
under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraphs (2) and
(3), the amount of the penalty under subsection (a) shall be
$50,000.
``(2) Listed transaction.--The amount of the penalty under
subsection (a) with respect to a listed transaction shall be
$100,000.
``(3) Increase in penalty for large entities and high net
worth individuals.--
``(A) In general.--In the case of a failure under
subsection (a) by--
``(i) a large entity, or
``(ii) a high net worth individual,
the penalty under paragraph (1) or (2) shall be twice
the amount determined without regard to this paragraph.
``(B) Large entity.--For purposes of subparagraph
(A), the term `large entity' means, with respect to any
taxable year, a person (other than a natural person)
with gross receipts in excess of $10,000,000 for the
taxable year in which the reportable transaction occurs
or the preceding taxable year. Rules similar to the
rules of paragraph (2) and subparagraphs (B), (C), and
(D) of paragraph (3) of section 448(c) shall apply for
purposes of this subparagraph.
``(C) High net worth individual.--For purposes of
subparagraph (A), the term `high net worth individual'
means, with respect to a reportable transaction, a
natural person whose net worth exceeds $2,000,000
immediately before the transaction.
``(c) Definitions.--For purposes of this section--
``(1) Reportable transaction.--The term `reportable
transaction' means any transaction with respect to which
information is required to be included with a return or
statement because, as determined under regulations prescribed
under section 6011, such transaction is of a type which the
Secretary determines as having a potential for tax avoidance or
evasion.
``(2) Listed transaction.--Except as provided in
regulations, the term `listed transaction' means a reportable
transaction which is the same as, or substantially similar to,
a transaction specifically identified by the Secretary as a tax
avoidance transaction for purposes of section 6011.
``(d) Authority To Rescind Penalty.--
``(1) In general.--The Commissioner of Internal Revenue may
rescind all or any portion of any penalty imposed by this
section with respect to any violation if--
``(A) the violation is with respect to a reportable
transaction other than a listed transaction,
``(B) the person on whom the penalty is imposed has
a history of complying with the requirements of this
title,
``(C) it is shown that the violation is due to an
unintentional mistake of fact;
``(D) imposing the penalty would be against equity
and good conscience, and
``(E) rescinding the penalty would promote
compliance with the requirements of this title and
effective tax administration.
``(2) Discretion.--The exercise of authority under
paragraph (1) shall be at the sole discretion of the
Commissioner and may be delegated only to the head of the
Office of Tax Shelter Analysis. The Commissioner, in the
Commissioner's sole discretion, may establish a procedure to
determine if a penalty should be referred to the Commissioner
or the head of such Office for a determination under paragraph
(1).
``(3) No appeal.--Notwithstanding any other provision of
law, any determination under this subsection may not be
reviewed in any administrative or judicial proceeding.
``(4) Records.--If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the Office of
the Commissioner the opinion of the Commissioner or the head of
the Office of Tax Shelter Analysis with respect to the
determination, including--
``(A) the facts and circumstances of the
transaction,
``(B) the reasons for the rescission, and
``(C) the amount of the penalty rescinded.
``(5) Report.--The Commissioner shall each year report to
the Committee on Ways and Means of the House of Representatives
and the Committee on Finance of the Senate--
``(A) a summary of the total number and aggregate
amount of penalties imposed, and rescinded, under this
section, and
``(B) a description of each penalty rescinded under
this subsection and the reasons therefor.
``(e) Penalty Reported to SEC.--In the case of a person--
``(1) which is required to file periodic reports under
section 13 or 15(d) of the Securities Exchange Act of 1934 or
is required to be consolidated with another person for purposes
of such reports, and
``(2) which--
``(A) is required to pay a penalty under this
section with respect to a listed transaction,
``(B) is required to pay a penalty under section
6662A with respect to any reportable transaction at a
rate prescribed under section 6662A(c), or
``(C) is required to pay a penalty under section
6662B with respect to any noneconomic substance
transaction,
the requirement to pay such penalty shall be disclosed in such reports
filed by such person for such periods as the Secretary shall specify.
Failure to make a disclosure in accordance with the preceding sentence
shall be treated as a failure to which the penalty under subsection
(b)(2) applies.
``(f) Coordination With Other Penalties.--The penalty imposed by
this section is in addition to any penalty imposed under this title.''.
(b) Conforming Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by inserting after the item
relating to section 6707 the following:

``Sec. 6707A. Penalty for failure to
include reportable transaction
information with return or
statement.''.
(c) Effective Date.--The amendments made by this section shall
apply to returns and statements the due date for which is after the
date of the enactment of this Act.

SEC. 1103. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER
REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX
AVOIDANCE PURPOSE.

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

``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS
WITH RESPECT TO REPORTABLE TRANSACTIONS.

``(a) Imposition of Penalty.--If a taxpayer has a reportable
transaction understatement for any taxable year, there shall be added
to the tax an amount equal to 20 percent of the amount of such
understatement.
``(b) Reportable Transaction Understatement.--For purposes of this
section--
``(1) In general.--The term `reportable transaction
understatement' means the sum of--
``(A) the product of--
``(i) the amount of the increase (if any)
in taxable income which results from a
difference between the proper tax treatment of
an item to which this section applies and the
taxpayer's treatment of such item (as shown on
the taxpayer's return of tax), and
``(ii) the highest rate of tax imposed by
section 1 (section 11 in the case of a taxpayer
which is a corporation), and
``(B) the amount of the decrease (if any) in the
aggregate amount of credits determined under subtitle A
which results from a difference between the taxpayer's
treatment of an item to which this section applies (as
shown on the taxpayer's return of tax) and the proper
tax treatment of such item.
For purposes of subparagraph (A), any reduction of the excess
of deductions allowed for the taxable year over gross income
for such year, and any reduction in the amount of capital
losses which would (without regard to section 1211) be allowed
for such year, shall be treated as an increase in taxable
income.
``(2) Items to which section applies.--This section shall
apply to any item which is attributable to--
``(A) any listed transaction, and
``(B) any reportable transaction (other than a
listed transaction) if a significant purpose of such
transaction is the avoidance or evasion of Federal
income tax.
``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance
Transactions.--
``(1) In general.--Subsection (a) shall be applied by
substituting `30 percent' for `20 percent' with respect to the
portion of any reportable transaction understatement with
respect to which the requirement of section 6664(d)(2)(A) is
not met.
``(2) Rules applicable to compromise of penalty.--
``(A) In general.--If the 1st letter of proposed
deficiency which allows the taxpayer an opportunity for
administrative review in the Internal Revenue Service
Office of Appeals has been sent with respect to a
penalty to which paragraph (1) applies, only the
Commissioner of Internal Revenue may compromise all or
any portion of such penalty.
``(B) Applicable rules.--The rules of paragraphs
(3), (4), and (5) of section 6707A(d) shall apply for
purposes of subparagraph (A).
``(d) Definitions of Reportable and Listed Transactions.--For
purposes of this section, the terms `reportable transaction' and
`listed transaction' have the respective meanings given to such terms
by section 6707A(c).
``(e) Special Rules.--
``(1) Coordination with penalties, etc., on other
understatements.--In the case of an understatement (as defined
in section 6662(d)(2))--
``(A) the amount of such understatement (determined
without regard to this paragraph) shall be increased by
the aggregate amount of reportable transaction
understatements and noneconomic substance transaction
understatements for purposes of determining whether
such understatement is a substantial understatement
under section 6662(d)(1), and
``(B) the addition to tax under section 6662(a)
shall apply only to the excess of the amount of the
substantial understatement (if any) after the
application of subparagraph (A) over the aggregate
amount of reportable transaction understatements and
noneconomic substance transaction understatements.
``(2) Coordination with other penalties.--
``(A) Application of fraud penalty.--References to
an underpayment in section 6663 shall be treated as
including references to a reportable transaction
understatement and a noneconomic substance transaction
understatement.
``(B) No double penalty.--This section shall not
apply to any portion of an understatement on which a
penalty is imposed under section 6662B or 6663.
``(3) Special rule for amended returns.--Except as provided
in regulations, in no event shall any tax treatment included
with an amendment or supplement to a return of tax be taken
into account in determining the amount of any reportable
transaction understatement or noneconomic substance transaction
understatement if the amendment or supplement is filed after
the earlier of the date the taxpayer is first contacted by the
Secretary regarding the examination of the return or such other
date as is specified by the Secretary.
``(4) Noneconomic substance transaction understatement.--
For purposes of this subsection, the term `noneconomic
substance transaction understatement' has the meaning given
such term by section 6662B(c).
``(5) Cross reference.--

``For reporting of section 6662A(c)
penalty to the Securities and Exchange Commission, see section
6707A(e).''
(b) Determination of Other Understatements.--Subparagraph (A) of
section 6662(d)(2) is amended by adding at the end the following flush
sentence:
``The excess under the preceding sentence shall be
determined without regard to items to which section
6662A applies and without regard to items with respect
to which a penalty is imposed by section 6662B.''
(c) Reasonable Cause Exception.--
(1) In general.--Section 6664 is amended by adding at the
end the following new subsection:
``(d) Reasonable Cause Exception for Reportable Transaction
Understatements.--
``(1) In general.--No penalty shall be imposed under
section 6662A with respect to any portion of a reportable
transaction understatement if it is shown that there was a
reasonable cause for such portion and that the taxpayer acted
in good faith with respect to such portion.
``(2) Special rules.--Paragraph (1) shall not apply to any
reportable transaction understatement unless--
``(A) the relevant facts affecting the tax
treatment of the item are adequately disclosed in
accordance with the regulations prescribed under
section 6011,
``(B) there is or was substantial authority for
such treatment, and
``(C) the taxpayer reasonably believed that such
treatment was more likely than not the proper
treatment.
A taxpayer failing to adequately disclose in accordance with
section 6011 shall be treated as meeting the requirements of
subparagraph (A) if the penalty for such failure was rescinded
under section 6707A(d).
``(3) Rules relating to reasonable belief.--For purposes of
paragraph (2)(C)--
``(A) In general.--A taxpayer shall be treated as
having a reasonable belief with respect to the tax
treatment of an item only if such belief--
``(i) is based on the facts and law that
exist at the time the return of tax which
includes such tax treatment is filed, and
``(ii) relates solely to the taxpayer's
chances of success on the merits of such
treatment and does not take into account the
possibility that a return will not be audited,
such treatment will not be raised on audit, or
such treatment will be resolved through
settlement if it is raised.
``(B) Certain opinions may not be relied upon.--
``(i) In general.--An opinion of a tax
advisor may not be relied upon to establish the
reasonable belief of a taxpayer if--
``(I) the tax advisor is described
in clause (ii), or
``(II) the opinion is described in
clause (iii).
``(ii) Disqualified tax advisors.--A tax
advisor is described in this clause if the tax
advisor--
``(I) is a material advisor (within
the meaning of section 6111(b)(1)) who
participates in the organization,
management, promotion, or sale of the
transaction or who is related (within
the meaning of section 267(b) or
707(b)(1)) to any person who so
participates,
``(II) is compensated directly or
indirectly by a material advisor with
respect to the transaction,
``(III) has a fee arrangement with
respect to the transaction which is
contingent on all or part of the
intended tax benefits from the
transaction being sustained, or
``(IV) as determined under
regulations prescribed by the
Secretary, has a continuing financial
interest with respect to the
transaction.
``(iii) Disqualified opinions.--For
purposes of clause (i), an opinion is
disqualified if the opinion--
``(I) is based on unreasonable
factual or legal assumptions (including
assumptions as to future events),
``(II) unreasonably relies on
representations, statements, findings,
or agreements of the taxpayer or any
other person,
``(III) does not identify and
consider all relevant facts, or
``(IV) fails to meet any other
requirement as the Secretary may
prescribe.''
(2) Conforming amendment.--The heading for subsection (c)
of section 6664 is amended by inserting ``for Underpayments''
after ``Exception''.
(d) Conforming Amendments.--
(1) Subparagraph (C) of section 461(i)(3) is amended by
striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(2) Paragraph (3) of section 1274(b) is amended--
(A) by striking ``(as defined in section
6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
(B) by adding at the end the following new
subparagraph:
``(C) Tax shelter.--For purposes of subparagraph
(B), the term `tax shelter' means--
``(i) a partnership or other entity,
``(ii) any investment plan or arrangement,
or
``(iii) any other plan or arrangement,
if a significant purpose of such partnership, entity,
plan, or arrangement is the avoidance or evasion of
Federal income tax.''
(3) Section 6662(d)(2) is amended by striking subparagraphs
(C) and (D).
(4) Section 6664(c)(1) is amended by striking ``this part''
and inserting ``section 6662 or 6663''.
(5) Subsection (b) of section 7525 is amended by striking
``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(6)(A) The heading for section 6662 is amended to read as
follows:

``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERPAYMENTS.''

(B) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to section
6662 and inserting the following new items:

``Sec. 6662. Imposition of accuracy-
related penalty on
underpayments.
``Sec. 6662A. Imposition of accuracy-
related penalty on
understatements with respect to
reportable transactions.''
(e) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.

SEC. 1104. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS
LACKING ECONOMIC SUBSTANCE, ETC.

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

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

``(a) Imposition of Penalty.--If a taxpayer has an noneconomic
substance transaction understatement for any taxable year, there shall
be added to the tax an amount equal to 40 percent of the amount of such
understatement.
``(b) Reduction of Penalty for Disclosed Transactions.--Subsection
(a) shall be applied by substituting `20 percent' for `40 percent' with
respect to the portion of any noneconomic substance transaction
understatement with respect to which the relevant facts affecting the
tax treatment of the item are adequately disclosed in the return or a
statement attached to the return.
``(c) Noneconomic Substance Transaction Understatement.--For
purposes of this section--
``(1) In general.--The term `noneconomic substance
transaction understatement' means any amount which would be an
understatement under section 6662A(b)(1) if section 6662A were
applied by taking into account items attributable to
noneconomic substance transactions rather than items to which
section 6662A would apply without regard to this paragraph.
``(2) Noneconomic substance transaction.--The term
`noneconomic substance transaction' means any transaction if--
``(A) there is a lack of economic substance (within
the meaning of section 7701(m)(1)) for the transaction
giving rise to the claimed tax benefit or the
transaction was not respected under section 7701(m)(2),
or
``(B) the transaction fails to meet the
requirements of any similar rule of law.
``(d) Rules Applicable to Compromise of Penalty.--
``(1) In general.--If the 1st letter of proposed deficiency
which allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of Appeals has
been sent with respect to a penalty to which this section
applies, only the Commissioner of Internal Revenue may
compromise all or any portion of such penalty.
``(2) Applicable rules.--The rules of paragraphs (3), (4),
and (5) of section 6707A(d) shall apply for purposes of
paragraph (1).
``(e) Coordination With Other Penalties.--Except as otherwise
provided in this part, the penalty imposed by this section shall be in
addition to any other penalty imposed by this title.
``(f) Cross References.--

``(1) For coordination of penalty with
understatements under section 6662 and other special rules, see section
6662A(e).
``(2) For reporting of penalty imposed
under this section to the Securities and Exchange Commission, see
section 6707A(e).''
(b) Clerical Amendment.--The table of sections for part II of
subchapter A of chapter 68 is amended by inserting after the item
relating to section 6662A the following new item:

``Sec. 6662B. Penalty for understatements
attributable to transactions
lacking economic substance,
etc.''
(c) Effective Date.--The amendments made by this section shall
apply to transactions entered into after February 13, 2003.

SEC. 1105. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR
NONREPORTABLE TRANSACTIONS.

(a) Substantial Understatement of Corporations.--Section
6662(d)(1)(B) (relating to special rule for corporations) is amended to
read as follows:
``(B) Special rule for corporations.--In the case
of a corporation other than an S corporation or a
personal holding company (as defined in section 542),
there is a substantial understatement of income tax for
any taxable year if the amount of the understatement
for the taxable year exceeds the lesser of--
``(i) 10 percent of the tax required to be
shown on the return for the taxable year (or,
if greater, $10,000), or
``(ii) $10,000,000.''
(b) Reduction for Understatement of Taxpayer Due to Position of
Taxpayer or Disclosed Item.--
(1) In general.--Section 6662(d)(2)(B)(i) (relating to
substantial authority) is amended to read as follows:
``(i) the tax treatment of any item by the
taxpayer if the taxpayer had reasonable belief
that the tax treatment was more likely than not
the proper treatment, or''.
(2) Conforming amendment.--Section 6662(d) is amended by
adding at the end the following new paragraph:
``(3) Secretarial list.--For purposes of this subsection,
section 6664(d)(2), and section 6694(a)(1), the Secretary may
prescribe a list of positions for which the Secretary believes
there is not substantial authority or there is no reasonable
belief that the tax treatment is more likely than not the
proper tax treatment. Such list (and any revisions thereof)
shall be published in the Federal Register or the Internal
Revenue Bulletin.''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

SEC. 1106. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING
TO TAXPAYER COMMUNICATIONS.

(a) In General.--Section 7525(b) (relating to section not to apply
to communications regarding corporate tax shelters) is amended to read
as follows:
``(b) Section Not To Apply To Communications Regarding Tax
Shelters.--The privilege under subsection (a) shall not apply to any
written communication which is--
``(1) between a federally authorized tax practitioner and--
``(A) any person,
``(B) any director, officer, employee, agent, or
representative of the person, or
``(C) any other person holding a capital or profits
interest in the person, and
``(2) in connection with the promotion of the direct or
indirect participation of the person in any tax shelter (as
defined in section 1274(b)(3)(C)).''
(b) Effective Date.--The amendment made by this section shall apply
to communications made on or after the date of the enactment of this
Act.

SEC. 1107. DISCLOSURE OF REPORTABLE TRANSACTIONS.

(a) In General.--Section 6111 (relating to registration of tax
shelters) is amended to read as follows:

``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

``(a) In General.--Each material advisor with respect to any
reportable transaction shall make a return (in such form as the
Secretary may prescribe) setting forth--
``(1) information identifying and describing the
transaction,
``(2) information describing any potential tax benefits
expected to result from the transaction, and
``(3) such other information as the Secretary may
prescribe.
Such return shall be filed not later than the date specified by the
Secretary.
``(b) Definitions.--For purposes of this section--
``(1) Material advisor.--
``(A) In general.--The term `material advisor'
means any person--
``(i) who provides any material aid,
assistance, or advice with respect to
organizing, promoting, selling, implementing,
or carrying out any reportable transaction, and
``(ii) who directly or indirectly derives
gross income in excess of the threshold amount
for such aid, assistance, or advice.
``(B) Threshold amount.--For purposes of
subparagraph (A), the threshold amount is--
``(i) $50,000 in the case of a reportable
transaction substantially all of the tax
benefits from which are provided to natural
persons, and
``(ii) $250,000 in any other case.
``(2) Reportable transaction.--The term `reportable
transaction' has the meaning given to such term by section
6707A(c).
``(c) Regulations.--The Secretary may prescribe regulations which
provide--
``(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2 or more
persons would otherwise be required to meet such requirements,
``(2) exemptions from the requirements of this section, and
``(3) such rules as may be necessary or appropriate to
carry out the purposes of this section.''
(b) Conforming Amendments.--
(1) The item relating to section 6111 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:

``Sec. 6111. Disclosure of reportable
transactions.''
(2)(A) So much of section 6112 as precedes subsection (c)
thereof is amended to read as follows:

``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP
LISTS OF ADVISEES.

``(a) In General.--Each material advisor (as defined in section
6111) with respect to any reportable transaction (as defined in section
6707A(c)) shall maintain, in such manner as the Secretary may by
regulations prescribe, a list--
``(1) identifying each person with respect to whom such
advisor acted as such a material advisor with respect to such
transaction, and
``(2) containing such other information as the Secretary
may by regulations require.
This section shall apply without regard to whether a material advisor
is required to file a return under section 6111 with respect to such
transaction.''
(B) Section 6112 is amended by redesignating subsection (c)
as subsection (b).
(C) Section 6112(b), as redesignated by subparagraph (B),
is amended--
(i) by inserting ``written'' before ``request'' in
paragraph (1)(A), and
(ii) by striking ``shall prescribe'' in paragraph
(2) and inserting ``may prescribe''.
(D) The item relating to section 6112 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:

``Sec. 6112. Material advisors of
reportable transactions must
keep lists of advisees.''
(3)(A) The heading for section 6708 is amended to read as
follows:

``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO
REPORTABLE TRANSACTIONS.''

(B) The item relating to section 6708 in the table of
sections for part I of subchapter B of chapter 68 is amended to
read as follows:

``Sec. 6708. Failure to maintain lists of
advisees with respect to
reportable transactions.''
(c) Effective Date.--The amendments made by this section shall
apply to transactions with respect to which material aid, assistance,
or advice referred to in section 6111(b)(1)(A)(i) of the Internal
Revenue Code of 1986 (as added by this section) is provided after the
date of the enactment of this Act.

SEC. 1108. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX
SHELTERS.

(a) In General.--Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as follows:

``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE
TRANSACTIONS.

``(a) In General.--If a person who is required to file a return
under section 6111(a) with respect to any reportable transaction--
``(1) fails to file such return on or before the date
prescribed therefor, or
``(2) files false or incomplete information with the
Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the
amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
penalty imposed under subsection (a) with respect to any
failure shall be $50,000.
``(2) Listed transactions.--The penalty imposed under
subsection (a) with respect to any listed transaction shall be
an amount equal to the greater of--
``(A) $200,000, or
``(B) 50 percent of the gross income derived by
such person with respect to aid, assistance, or advice
which is provided with respect to the reportable
transaction before the date the return including the
transaction is filed under section 6111.
Subparagraph (B) shall be applied by substituting `75 percent'
for `50 percent' in the case of an intentional failure or act
described in subsection (a).
``(c) Rescission Authority.--The provisions of section 6707A(d)
(relating to authority of Commissioner to rescind penalty) shall apply
to any penalty imposed under this section.
``(d) Reportable and Listed Transactions.--The terms `reportable
transaction' and `listed transaction' have the respective meanings
given to such terms by section 6707A(c).''.
(b) Clerical Amendment.--The item relating to section 6707 in the
table of sections for part I of subchapter B of chapter 68 is amended
by striking ``tax shelters'' and inserting ``reportable transactions''.
(c) Effective Date.--The amendments made by this section shall
apply to returns the due date for which is after the date of the
enactment of this Act.

SEC. 1109. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF
INVESTORS.

(a) In General.--Subsection (a) of section 6708 is amended to read
as follows:
``(a) Imposition of Penalty.--
``(1) In general.--If any person who is required to
maintain a list under section 6112(a) fails to make such list
available upon written request to the Secretary in accordance
with section 6112(b)(1)(A) within 20 business days after the
date of the Secretary's request, such person shall pay a
penalty of $10,000 for each day of such failure after such 20th
day.
``(2) Reasonable cause exception.--No penalty shall be
imposed by paragraph (1) with respect to the failure on any day
if such failure is due to reasonable cause.''
(b) Effective Date.--The amendment made by this section shall apply
to requests made after the date of the enactment of this Act.

SEC. 1110. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.

(a) In General.--Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by redesignating
subsection (c) as subsection (d) and by striking subsections (a) and
(b) and inserting the following new subsections:
``(a) Authority To Seek Injunction.--A civil action in the name of
the United States to enjoin any person from further engaging in
specified conduct may be commenced at the request of the Secretary. Any
action under this section shall be brought in the district court of the
United States for the district in which such person resides, has his
principal place of business, or has engaged in specified conduct. The
court may exercise its jurisdiction over such action (as provided in
section 7402(a)) separate and apart from any other action brought by
the United States against such person.
``(b) Adjudication and Decree.--In any action under subsection (a),
if the court finds--
``(1) that the person has engaged in any specified conduct,
and
``(2) that injunctive relief is appropriate to prevent
recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in
any other activity subject to penalty under this title.
``(c) Specified Conduct.--For purposes of this section, the term
`specified conduct' means any action, or failure to take action,
subject to penalty under section 6700, 6701, 6707, or 6708.''
(b) Conforming Amendments.--
(1) The heading for section 7408 is amended to read as
follows:

``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX
SHELTERS AND REPORTABLE TRANSACTIONS.''

(2) The table of sections for subchapter A of chapter 67 is
amended by striking the item relating to section 7408 and
inserting the following new item:

``Sec. 7408. Actions to enjoin specified conduct related to tax
shelters and reportable transactions.''
(c) Effective Date.--The amendment made by this section shall take
effect on the day after the date of the enactment of this Act.

SEC. 1111. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN
PREPARER.

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

SEC. 1112. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL
ACCOUNTS.

(a) In General.--Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
``(5) Foreign financial agency transaction violation.--
``(A) Penalty authorized.--The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
``(B) Amount of penalty.--
``(i) In general.--Except as provided in
subparagraph (C), the amount of any civil
penalty imposed under subparagraph (A) shall
not exceed $5,000.
``(ii) Reasonable cause exception.--No
penalty shall be imposed under subparagraph (A)
with respect to any violation if--
``(I) such violation was due to
reasonable cause, and
``(II) the amount of the
transaction or the balance in the
account at the time of the transaction
was properly reported.
``(C) Willful violations.--In the case of any
person willfully violating, or willfully causing any
violation of, any provision of section 5314--
``(i) the maximum penalty under
subparagraph (B)(i) shall be increased to the
greater of--
``(I) $25,000, or
``(II) the amount (not exceeding
$100,000) determined under subparagraph
(D), and
``(ii) subparagraph (B)(ii) shall not
apply.
``(D) Amount.--The amount determined under this
subparagraph is--
``(i) in the case of a violation involving
a transaction, the amount of the transaction,
or
``(ii) in the case of a violation involving
a failure to report the existence of an account
or any identifying information required to be
provided with respect to an account, the
balance in the account at the time of the
violation.''
(b) Effective Date.--The amendment made by this section shall apply
to violations occurring after the date of the enactment of this Act.

SEC. 1113. FRIVOLOUS TAX SUBMISSIONS.

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

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay
a penalty of $5,000 if--
``(1) such person files what purports to be a return of a
tax imposed by this title but which--
``(A) does not contain information on which the
substantial correctness of the self-assessment may be
judged, or
``(B) contains information that on its face
indicates that the self-assessment is substantially
incorrect; and
``(2) the conduct referred to in paragraph (1)--
``(A) is based on a position which the Secretary
has identified as frivolous under subsection (c), or
``(B) reflects a desire to delay or impede the
administration of Federal tax laws.
``(b) Civil Penalty for Specified Frivolous Submissions.--
``(1) Imposition of penalty.--Except as provided in
paragraph (3), any person who submits a specified frivolous
submission shall pay a penalty of $5,000.
``(2) Specified frivolous submission.--For purposes of this
section--
``(A) Specified frivolous submission.--The term
`specified frivolous submission' means a specified
submission if any portion of such submission--
``(i) is based on a position which the
Secretary has identified as frivolous under
subsection (c), or
``(ii) reflects a desire to delay or impede
the administration of Federal tax laws.
``(B) Specified submission.--The term `specified
submission' means--
``(i) a request for a hearing under--
``(I) section 6320 (relating to
notice and opportunity for hearing upon
filing of notice of lien), or
``(II) section 6330 (relating to
notice and opportunity for hearing
before levy), and
``(ii) an application under--
``(I) section 6159 (relating to
agreements for payment of tax liability
in installments),
``(II) section 7122 (relating to
compromises), or
``(III) section 7811 (relating to
taxpayer assistance orders).
``(3) Opportunity to withdraw submission.--If the Secretary
provides a person with notice that a submission is a specified
frivolous submission and such person withdraws such submission
within 30 days after such notice, the penalty imposed under
paragraph (1) shall not apply with respect to such submission.
``(c) Listing of Frivolous Positions.--The Secretary shall
prescribe (and periodically revise) a list of positions which the
Secretary has identified as being frivolous for purposes of this
subsection. The Secretary shall not include in such list any position
that the Secretary determines meets the requirement of section
6662(d)(2)(B)(ii)(II).
``(d) Reduction of Penalty.--The Secretary may reduce the amount of
any penalty imposed under this section if the Secretary determines that
such reduction would promote compliance with and administration of the
Federal tax laws.
``(e) Penalties in Addition to Other Penalties.--The penalties
imposed by this section shall be in addition to any other penalty
provided by law.''
(b) Treatment of Frivolous Requests for Hearings Before Levy.--
(1) Frivolous requests disregarded.--Section 6330 (relating
to notice and opportunity for hearing before levy) is amended
by adding at the end the following new subsection:
``(g) Frivolous Requests for Hearing, etc.--Notwithstanding any
other provision of this section, if the Secretary determines that any
portion of a request for a hearing under this section or section 6320
meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A),
then the Secretary may treat 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. 1114. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT
OF TREASURY.

(a) Censure; Imposition of Penalty.--
(1) In general.--Section 330(b) of title 31, United States
Code, is amended--
(A) by inserting ``, or censure,'' after
``Department'', and
(B) by adding at the end the following new flush
sentence:
``The Secretary may impose a monetary penalty on any representative
described in the preceding sentence. If the representative was acting
on behalf of an employer or any firm or other entity in connection with
the conduct giving rise to such penalty, the Secretary may impose a
monetary penalty on such employer, firm, or entity if it knew, or
reasonably should have known, of such conduct. Such penalty shall not
exceed the gross income derived (or to be derived) from the conduct
giving rise to the penalty and may be in addition to, or in lieu of,
any suspension, disbarment, or censure.''
(2) Effective date.--The amendments made by this subsection
shall apply to actions taken after the date of the enactment of
this Act.
(b) Tax Shelter Opinions, etc.--Section 330 of such title 31 is
amended by adding at the end the following new subsection:
``(d) Nothing in this section or in any other provision of law
shall be construed to limit the authority of the Secretary of the
Treasury to impose standards applicable to the rendering of written
advice with respect to any entity, transaction plan or arrangement, or
other plan or arrangement, which is of a type which the Secretary
determines as having a potential for tax avoidance or evasion.''

SEC. 1115. PENALTY ON PROMOTERS OF TAX SHELTERS.

(a) Penalty on Promoting Abusive Tax Shelters.--Section 6700(a) is
amended by adding at the end the following new sentence:
``Notwithstanding the first sentence, if an activity with respect to
which a penalty imposed under this subsection involves a statement
described in paragraph (2)(A), the amount of the penalty shall be equal
to 50 percent of the gross income derived (or to be derived) from such
activity by the person on which the penalty is imposed.''
(b) Effective Date.--The amendment made by this section shall apply
to activities after the date of the enactment of this Act.

SEC. 1116. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH LISTED
TRANSACTIONS NOT REPORTED.

(a) In General.--Section 6501(e)(1) (relating to substantial
omission of items for income taxes) is amended by adding at the end the
following new subparagraph:
``(C) Listed transactions.--If a taxpayer fails to
include on any return or statement for any taxable year
any information with respect to a listed transaction
(as defined in section 6707A(c)(2)) which is required
under section 6011 to be included with such return or
statement, the tax for such taxable year may be
assessed, or a proceeding in court for collection of
such tax may be begun without assessment, at any time
within 6 years after the time the return is filed. This
subparagraph shall not apply to any taxable year if the
time for assessment or beginning the proceeding in
court has expired before the time a transaction is
treated as a listed transaction under section 6011.''
(b) Effective Date.--The amendment made by this section shall apply
to transactions after the date of the enactment of this Act in taxable
years ending after such date.

SEC. 1117. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND NONECONOMIC
SUBSTANCE TRANSACTIONS.

(a) In General.--Section 163 (relating to deduction for interest)
is amended by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following new subsection:
``(m) Interest on Unpaid Taxes Attributable to Nondisclosed
Reportable Transactions and Noneconomic Substance Transactions.--No
deduction shall be allowed under this chapter for any interest paid or
accrued under section 6601 on any underpayment of tax which is
attributable to--
``(1) the portion of any reportable transaction
understatement (as defined in section 6662A(b)) with respect to
which the requirement of section 6664(d)(2)(A) is not met, or
``(2) any noneconomic substance transaction understatement
(as defined in section 6662B(c)).''
(b) Effective Date.--The amendments made by this section shall
apply to transactions after the date of the enactment of this Act in
taxable years ending after such date.

Subtitle B--Other Provisions

SEC. 1121. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN LOSSES.

(a) In General.--Section 362 (relating to basis to corporations) is
amended by adding at the end the following new subsection:
``(e) Limitations on Built-In Losses.--
``(1) Limitation on importation of built-in losses.--
``(A) In general.--If in any transaction described
in subsection (a) or (b) there would (but for this
subsection) be an importation of a net built-in loss,
the basis of each property described in subparagraph
(B) which is acquired in such transaction shall
(notwithstanding subsections (a) and (b)) be its fair
market value immediately after such transaction.
``(B) Property described.--For purposes of
subparagraph (A), property is described in this
paragraph if--
``(i) gain or loss with respect to such
property is not subject to tax under this
subtitle in the hands of the transferor
immediately before the transfer, and
``(ii) gain or loss with respect to such
property is subject to such tax in the hands of
the transferee immediately after such transfer.
In any case in which the transferor is a partnership,
the preceding sentence shall be applied by treating
each partner in such partnership as holding such
partner's proportionate share of the property of such
partnership.
``(C) Importation of net built-in loss.--For
purposes of subparagraph (A), there is an importation
of a net built-in loss in a transaction if the
transferee's aggregate adjusted bases of property
described in subparagraph (B) which is transferred in
such transaction would (but for this paragraph) exceed
the fair market value of such property immediately
after such transaction.''
``(2) Limitation on transfer of built-in losses in section
351 transactions.--
``(A) In general.--If--
``(i) property is transferred in any
transaction which is described in subsection
(a) and which is not described in paragraph (1)
of this subsection, and
``(ii) the transferee's aggregate adjusted
bases of the property so transferred would (but
for this paragraph) exceed the fair market
value of such property immediately after such
transaction,
then, notwithstanding subsection (a), the transferee's
aggregate adjusted bases of the property so transferred
shall not exceed the fair market value of such property
immediately after such transaction.
``(B) Allocation of basis reduction.--The aggregate
reduction in basis by reason of subparagraph (A) shall
be allocated among the property so transferred in
proportion to their respective built-in losses
immediately before the transaction.
``(C) Exception for transfers within affiliated
group.--Subparagraph (A) shall not apply to any
transaction if the transferor owns stock in the
transferee meeting the requirements of section
1504(a)(2). In the case of property to which
subparagraph (A) does not apply by reason of the
preceding sentence, the transferor's basis in the stock
received for such property shall not exceed its fair
market value immediately after the transfer.''
(b) Comparable Treatment Where Liquidation.--Paragraph (1) of
section 334(b) (relating to liquidation of subsidiary) is amended to
read as follows:
``(1) In general.--If property is received by a corporate
distributee in a distribution in a complete liquidation to
which section 332 applies (or in a transfer described in
section 337(b)(1)), the basis of such property in the hands of
such distributee shall be the same as it would be in the hands
of the transferor; except that the basis of such property in
the hands of such distributee shall be the fair market value of
the property at the time of the distribution--
``(A) in any case in which gain or loss is
recognized by the liquidating corporation with respect
to such property, or
``(B) in any case in which the liquidating
corporation is a foreign corporation, the corporate
distributee is a domestic corporation, and the
corporate distributee's aggregate adjusted bases of
property described in section 362(e)(1)(B) which is
distributed in such liquidation would (but for this
subparagraph) exceed the fair market value of such
property immediately after such liquidation.''
(c) Effective Date.--The amendments made by this section shall
apply to transactions after the date of the enactment of this Act.

SEC. 1122. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANSFERS.

(a) Treatment of Contributed Property With Built-In Loss.--
Paragraph (1) of section 704(c) is amended by striking ``and'' at the
end of subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by adding at the end the
following:
``(C) if any property so contributed has a built-in
loss--
``(i) such built-in loss shall be taken
into account only in determining the amount of
items allocated to the contributing partner,
and
``(ii) except as provided in regulations,
in determining the amount of items allocated to
other partners, the basis of the contributed
property in the hands of the partnership shall
be treated as being equal to its fair market
value immediately after the contribution.
For purposes of subparagraph (C), the term `built-in loss'
means the excess of the adjusted basis of the property
(determined without regard to subparagraph (C)(ii)) over its
fair market value immediately after the contribution.''
(b) Adjustment to Basis of Partnership Property on Transfer of
Partnership Interest if There Is Substantial Built-In Loss.--
(1) Adjustment required.--Subsection (a) of section 743
(relating to optional adjustment to basis of partnership
property) is amended by inserting before the period ``or unless
the partnership has a substantial built-in loss immediately
after such transfer''.
(2) Adjustment.--Subsection (b) of section 743 is amended
by inserting ``or with respect to which there is a substantial
built-in loss immediately after such transfer'' after ``section
754 is in effect''.
(3) Substantial built-in loss.--Section 743 is amended by
adding at the end the following new subsection:
``(d) Substantial Built-In Loss.--
``(1) In general.--For purposes of this section, a
partnership has a substantial built-in loss with respect to a
transfer of an interest in a partnership if the transferee
partner's proportionate share of the adjusted basis of the
partnership property exceeds by more than $250,000 the basis of
such partner's interest in the partnership.
``(2) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes of
paragraph (1) and section 734(d), including regulations
aggregating related partnerships and disregarding property
acquired by the partnership in an attempt to avoid such
purposes.''
(4) Clerical amendments.--
(A) The section heading for section 743 is amended
to read as follows:

``SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY WHERE SECTION
754 ELECTION OR SUBSTANTIAL BUILT-IN LOSS.''

(B) The table of sections for subpart C of part II
of subchapter K of chapter 1 is amended by striking the
item relating to section 743 and inserting the
following new item:

``Sec. 743. Adjustment to basis of
partnership property where
section 754 election or
substantial built-in loss.''
(c) Adjustment to Basis of Undistributed Partnership Property if
There Is Substantial Basis Reduction.--
(1) Adjustment required.--Subsection (a) of section 734
(relating to optional adjustment to basis of undistributed
partnership property) is amended by inserting before the period
``or unless there is a substantial basis reduction''.
(2) Adjustment.--Subsection (b) of section 734 is amended
by inserting ``or unless there is a substantial basis
reduction'' after ``section 754 is in effect''.
(3) Substantial basis reduction.--Section 734 is amended by
adding at the end the following new subsection:
``(d) Substantial Basis Reduction.--
``(1) In general.--For purposes of this section, there is a
substantial basis reduction with respect to a distribution if
the sum of the amounts described in subparagraphs (A) and (B)
of subsection (b)(2) exceeds $250,000.
``(2) Regulations.--

``For regulations to carry out this
subsection, see section 743(d)(2).''
(4) Clerical amendments.--
(A) The section heading for section 734 is amended
to read as follows:

``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY
WHERE SECTION 754 ELECTION OR SUBSTANTIAL BASIS
REDUCTION.''

(B) The table of sections for subpart B of part II
of subchapter K of chapter 1 is amended by striking the
item relating to section 734 and inserting the
following new item:

``Sec. 734. Adjustment to basis of
undistributed partnership
property where section 754
election or substantial basis
reduction.''
(d) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to contributions made after the date of the
enactment of this Act.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to transfers after the date of the enactment of
this Act.
(3) Subsection (c).--The amendments made by subsection (c)
shall apply to distributions after the date of the enactment of
this Act.

SEC. 1123. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK HELD BY
PARTNERSHIP IN CORPORATE PARTNER.

(a) In General.--Section 755 is amended by adding at the end the
following new subsection:
``(c) No Allocation of Basis Decrease to Stock of Corporate
Partner.--In making an allocation under subsection (a) of any decrease
in the adjusted basis of partnership property under section 734(b)--
``(1) no allocation may be made to stock in a corporation
which is a partner in the partnership, and
``(2) any amount not allocable to stock by reason of
paragraph (1) shall be allocated under subsection (a) to other
partnership property.
Gain shall be recognized to the partnership to the extent that the
amount required to be allocated under paragraph (2) to other
partnership property exceeds the aggregate adjusted basis of such other
property immediately before the allocation required by paragraph (2).''
(b) Effective Date.--The amendment made by this section shall apply
to distributions after the date of the enactment of this Act.

SEC. 1124. REPEAL OF SPECIAL RULES FOR FASITS.

(a) In General.--Part V of subchapter M of chapter 1 (relating to
financial asset securitization investment trusts) is hereby repealed.
(b) Conforming Amendments.--
(1) Paragraph (6) of section 56(g) is amended by striking
``REMIC, or FASIT'' and inserting ``or REMIC''.
(2) Clause (ii) of section 382(l)(4)(B) is amended by
striking ``a REMIC to which part IV of subchapter M applies, or
a FASIT to which part V of subchapter M applies,'' and
inserting ``or a REMIC to which part IV of subchapter M
applies,''.
(3) Paragraph (1) of section 582(c) is amended by striking
``, and any regular interest in a FASIT,''.
(4) Subparagraph (E) of section 856(c)(5) is amended by
striking the last sentence.
(5) Paragraph (5) of section 860G(a) is amended by adding
``and'' at the end of subparagraph (B), by striking ``, and''
at the end of subparagraph (C) and inserting a period, and by
striking subparagraph (D).
(6) Subparagraph (C) of section 1202(e)(4) is amended by
striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
(7) Subparagraph (C) of section 7701(a)(19) is amended by
adding ``and'' at the end of clause (ix), by striking ``, and''
at the end of clause (x) and inserting a period, and by
striking clause (xi).
(8) The table of parts for subchapter M of chapter 1 is
amended by striking the item relating to part V.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2003.
(2) Exception for existing fasits.--
(A) In general.--Paragraph (1) shall not apply to
any FASIT in existence on the date of the enactment of
this Act.
(B) Transfer of additional assets not permitted.--
Except as provided in regulations prescribed by the
Secretary of the Treasury or the Secretary's delegate,
subparagraph (A) shall cease to apply as of the
earliest date after the date of the enactment of this
Act that any property is transferred to the FASIT.

SEC. 1125. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON
CONVERTIBLE DEBT.

(a) In General.--Paragraph (2) of section 163(l) is amended by
striking ``or a related party'' and inserting ``or equity held by the
issuer (or any related party) in any other person''.
(b) Conforming Amendment.--Paragraph (3) of section 163(l) is
amended by striking ``or a related party'' in the material preceding
subparagraph (A) and inserting ``or any other person''.
(c) Effective Date.--The amendments made by this section shall
apply to debt instruments issued after the date of the enactment of
this Act.

SEC. 1126. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER SECTION
269.

(a) In General.--Subsection (a) of section 269 (relating to
acquisitions made to evade or avoid income tax) is amended to read as
follows:
``(a) In General.--If--
``(1)(A) any person acquires stock in a corporation, or
``(B) any corporation acquires, directly or indirectly,
property of another corporation and the basis of such property,
in the hands of the acquiring corporation, is determined by
reference to the basis in the hands of the transferor
corporation, and
``(2) the principal purpose for which such acquisition was
made is evasion or avoidance of Federal income tax by securing
the benefit of a deduction, credit, or other allowance,
then the Secretary may disallow such deduction, credit, or other
allowance.''
(b) Effective Date.--The amendment made by this section shall apply
to stock and property acquired after February 13, 2003.

SEC. 1127. MODIFICATIONS OF CERTAIN RULES RELATING TO CONTROLLED
FOREIGN CORPORATIONS.

(a) Limitation on Exception From PFIC Rules for United States
Shareholders of Controlled Foreign Corporations.--Paragraph (2) of
section 1297(e) (relating to passive investment company) is amended by
adding at the end the following flush sentence:
``Such term shall not include any period if there is only a
remote likelihood of an inclusion in gross income under section
951(a)(1)(A)(i) of subpart F income of such corporation for
such period.''
(b) Determination of Pro Rata Share of Subpart F Income.--
Subsection (a) of section 951 (relating to amounts included in gross
income of United States shareholders) is amended by adding at the end
the following new paragraph:
``(4) Special rules for determining pro rata share of
subpart f income.--The pro rata share under paragraph (2) shall
be determined by disregarding--
``(A) any rights lacking substantial economic
effect, and
``(B) stock owned by a shareholder who is a tax-
indifferent party (as defined in section 7701(m)(3)) if
the amount which would (but for this paragraph) be
allocated to such shareholder does not reflect such
shareholder's economic share of the earnings and
profits of the corporation.''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years on controlled foreign corporation beginning
after February 13, 2003, and to taxable years of United States
shareholder in which or with which such taxable years of controlled
foreign corporations end.

SEC. 1128. BASIS FOR DETERMINING LOSS ALWAYS REDUCED BY NONTAXED
PORTION OF DIVIDENDS.

(a) In General.--Section 1059 (relating to corporate shareholder's
basis in stock reduced by nontaxed portion of extraordinary dividends)
is amended by redesignating subsection (g) as subsection (h) and by
inserting after subsection (f) the following new subsection:
``(g) Basis for Determining Loss Always Reduced by Nontaxed Portion
of Dividends.--The basis of stock in a corporation (for purposes of
determining loss) shall be reduced by the nontaxed portion of any
dividend received with respect to such stock if this section does not
otherwise apply to such dividend.''
(b) Effective Date.--The amendment made by this section shall apply
to dividends received after the date of the enactment of this Act.

SEC. 1129. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.

(a) In General.--Section 1502 (relating to consolidated return
regulations) is amended by adding at the end the following new
sentence: ``In prescribing such regulations, the Secretary may
prescribe rules applicable to corporations filing consolidated returns
under section 1501 that are different from other provisions of this
title that would apply if such corporations filed separate returns.''
(b) Result Not Overturned.--Notwithstanding subsection (a), the
Internal Revenue Code of 1986 shall be construed by treating Treasury
regulation Sec. 1.1502-20(c)(1)(iii) (as in effect on January 1, 2001)
as being inapplicable to the type of factual situation in 255 F.3d 1357
(Fed. Cir. 2001).
(c) Effective Date.--The provisions of this section shall apply to
taxable years beginning before, on, or after the date of the enactment
of this Act.

SEC. 1130. EXTENSION OF CUSTOMS USER FEES.

Section 13031(j)(3) of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended by striking
``September 30, 2003'' and inserting ``March 31, 2010''.

Subtitle C--Prevention of Corporate Expatriation To Avoid United States
Income Tax

SEC. 1131. PREVENTION OF CORPORATE EXPATRIATION TO AVOID UNITED STATES
INCOME TAX.

(a) In General.--Paragraph (4) of section 7701(a) (defining
domestic) is amended to read as follows:
``(4) Domestic.--
``(A) In general.--Except as provided in
subparagraph (B), the term `domestic' when applied to a
corporation or partnership means created or organized
in the United States or under the law of the United
States or of any State unless, in the case of a
partnership, the Secretary provides otherwise by
regulations.
``(B) Certain corporations treated as domestic.--
``(i) In general.--The acquiring
corporation in a corporate expatriation
transaction shall be treated as a domestic
corporation.
``(ii) Corporate expatriation
transaction.--For purposes of this
subparagraph, the term `corporate expatriation
transaction' means any transaction if--
``(I) a nominally foreign
corporation (referred to in this
subparagraph as the `acquiring
corporation') acquires, as a result of
such transaction, directly or
indirectly substantially all of the
properties held directly or indirectly
by a domestic corporation, and
``(II) immediately after the
transaction, more than 80 percent of
the stock (by vote or value) of the
acquiring corporation is held by former
shareholders of the domestic
corporation by reason of holding stock
in the domestic corporation.
``(iii) Lower stock ownership requirement
in certain cases.--Subclause (II) of clause
(ii) shall be applied by substituting `50
percent' for `80 percent' with respect to any
nominally foreign corporation if--
``(I) such corporation does not
have substantial business activities
(when compared to the total business
activities of the expanded affiliated
group) in the foreign country in which
or under the law of which the
corporation is created or organized,
and
``(II) the stock of the corporation
is publicly traded and the principal
market for the public trading of such
stock is in the United States.
``(iv) Partnership transactions.--The term
`corporate expatriation transaction' includes
any transaction if--
``(I) a nominally foreign
corporation (referred to in this
subparagraph as the `acquiring
corporation') acquires, as a result of
such transaction, directly or
indirectly properties constituting a
trade or business of a domestic
partnership,
``(II) immediately after the
transaction, more than 80 percent of
the stock (by vote or value) of the
acquiring corporation is held by former
partners of the domestic partnership or
related foreign partnerships
(determined without regard to stock of
the acquiring corporation which is sold
in a public offering related to the
transaction), and
``(III) the acquiring corporation
meets the requirements of subclauses
(I) and (II) of clause (iii).
``(v) Special rules.--For purposes of this
subparagraph--
``(I) a series of related
transactions shall be treated as 1
transaction, and
``(II) stock held by members of the
expanded affiliated group which
includes the acquiring corporation
shall not be taken into account in
determining ownership.
``(vi) Other definitions.--For purposes of
this subparagraph--
``(I) Nominally foreign
corporation.--The term `nominally
foreign corporation' means any
corporation which would (but for this
subparagraph) be treated as a foreign
corporation.
``(II) Expanded affiliated group.--
The term `expanded affiliated group'
means an affiliated group (as defined
in section 1504(a) without regard to
section 1504(b)).
``(III) Related foreign
partnership.--A foreign partnership is
related to a domestic partnership if
they are under common control (within
the meaning of section 482), or they
shared the same trademark or
tradename.''
(b) Effective Dates.--
(1) In general.--The amendment made by this section shall
apply to corporate expatriation transactions completed after
September 11, 2001.
(2) Special rule.--The amendment made by this section shall
also apply to corporate expatriation transactions completed on
or before September 11, 2001, but only with respect to taxable
years of the acquiring corporation beginning after December 31,
2003.
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