I
110th CONGRESS
2d Session
H. R. 5790
IN THE HOUSE OF REPRESENTATIVES
April 15, 2008
Mr. Foster introduced the following bill; which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to allow the deduction for State and local real property taxes whether or not the taxpayer itemizes other deductions, and for other purposes.
Short title
This Act may be cited as the
Universal Homeowner Tax Cut Act of
2008
.
Deduction for State and local real property taxes allowed whether or not taxpayer itemizes other deductions
Deduction for State and local real property taxes allowed whether or not taxpayer itemizes other deductions
In general
Subsection (a) of section 62 of the Internal Revenue Code of 1986 (defining adjusted gross income) is amended by inserting before the last sentence the following new paragraph:
State and local real property taxes
At the election of the taxpayer, so much of the deduction allowed by section 164 for State and local real property taxes (within the meaning of section 164) as does not exceed $1,000 ($2,000 in the case of a joint return).
.
Effective date
The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2008.
Revenue Provisions
Nonqualified deferred compensation from certain tax indifferent parties
Nonqualified deferred compensation from certain tax indifferent parties
In general
Subpart B of part II of subchapter E of chapter 1 of the Internal Revenue Code of 1986 (relating to taxable year for which items of gross income included) is amended by inserting after section 457 the following new section:
Nonqualified deferred compensation from certain tax indifferent parties
In general
Any compensation which is deferred under a nonqualified deferred compensation plan of a nonqualified entity shall be taken into account for purposes of this chapter when there is no substantial risk of forfeiture of the rights to such compensation.
Nonqualified entity
For purposes of this section, the term nonqualified entity means—
any foreign corporation unless substantially all of its income is—
effectively connected with the conduct of a trade or business in the United States, or
subject to a comprehensive foreign income tax, and
any partnership unless substantially all of its income is allocated to persons other than—
foreign persons with respect to whom such income is not subject to a comprehensive foreign income tax, and
organizations which are exempt from tax under this title.
Ascertainability of amounts of compensation
In general
If the amount of any compensation is not ascertainable at the time that such compensation is otherwise to be taken into account under subsection (a)—
such amount shall be so taken into account when ascertainable, and
the tax imposed under this chapter for the taxable year in which such compensation is taken into account under subparagraph (A) shall be increased by the sum of—
the amount of interest determined under paragraph (2), and
an amount equal to 20 percent of the amount of such compensation.
Interest
For purposes of paragraph (1)(B)(i), the interest determined under this paragraph for any taxable year is the amount of interest at the underpayment rate under section 6621 plus 1 percentage point on the underpayments that would have occurred had the deferred compensation been includible in gross income for the taxable year in which first deferred or, if later, the first taxable year in which such deferred compensation is not subject to a substantial risk of forfeiture.
Other definitions and special rules
For purposes of this section—
Substantial risk of forfeiture
In general
The rights of a person to compensation shall be treated as subject to a substantial risk of forfeiture only if such person’s rights to such compensation are conditioned upon the future performance of substantial services by any individual.
Exception for compensation based on gain recognized on an investment asset
In general
To the extent provided in regulations prescribed by the Secretary, if compensation is determined solely by reference to the amount of gain recognized on the disposition of an investment asset, such compensation shall be treated as subject to a substantial risk of forfeiture until the date of such disposition.
Investment asset
For purposes of clause (i), the term investment
asset
means any single asset (other than an investment fund or similar
entity)—
acquired directly by an investment fund or similar entity,
with respect to which such entity does not (nor does any person related to such entity) participate in the active management of such asset (or if such asset is an interest in an entity, in the active management of the activities of such entity), and
substantially all of any gain on the disposition of which (other than such deferred compensation) is allocated to investors in such entity.
Coordination with special rule for short-term deferrals of compensation
Paragraph (3)(B) shall not apply to any compensation to which clause (i) applies.
Comprehensive foreign income tax
The term comprehensive foreign income tax means, with respect to any foreign person, the income tax of a foreign country if—
such person is eligible for the benefits of a comprehensive income tax treaty between such foreign country and the United States, or
such person demonstrates to the satisfaction of the Secretary that such foreign country has a comprehensive income tax.
Nonqualified deferred compensation plan
In general
The term nonqualified deferred compensation plan has the meaning given such term under section 409A(d), except that such term shall include any plan that provides a right to compensation based on the appreciation in value of a specified number of equity units of the service recipient.
Exception for short-term deferrals
Compensation shall not be treated as deferred for purposes of this section if the service provider receives payment of such compensation not later than 12 months after the end of the taxable year of the service recipient during which the right to the payment of such compensation is no longer subject to a substantial risk of forfeiture.
Exception for certain compensation with respect to effectively connected income
In the case a foreign corporation with income which is taxable under section 882, this section shall not apply to compensation which, had such compensation had been paid in cash on the date that such compensation ceased to be subject to a substantial risk of forfeiture, would have been deductible by such foreign corporation against such income.
Application of rules
Rules similar to the rules of paragraphs (5) and (6) of section 409A(d) shall apply.
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations disregarding a substantial risk of forfeiture in cases where necessary to carry out the purposes of this section.
.
Conforming amendment
Section 26(b)(2) of such Code is amended by striking
and
at the end of subparagraph (S), by striking the period at
the end of subparagraph (T) and inserting , and
, and by adding
at the end the following new subparagraph:
section 457A(c)(1)(B) (relating to ascertainability of amounts of compensation).
.
Clerical amendment
The table of sections of subpart B of part II of subchapter E of chapter 1 of such Code is amended by inserting after the item relating to section 457 the following new item:
.
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall apply to amounts deferred which are attributable to services performed after December 31, 2007.
Application to existing deferrals
In the case of any amount deferred to which the amendments made by this section do not apply solely by reason of the fact that the amount is attributable to services performed before January 1, 2008, to the extent such amount is not includible in gross income in a taxable year beginning before 2017, such amounts shall be includible in gross income in the later of—
the last taxable year beginning before 2017, or
the taxable year in which there is no substantial risk of forfeiture of the rights to such compensation (determined in the same manner as determined for purposes of section 457A of the Internal Revenue Code of 1986, as added by this section).
Accelerated payments
No later than 60 days after the date of the enactment of this Act, the Secretary shall issue guidance providing a limited period of time during which a nonqualified deferred compensation arrangement attributable to services performed on or before December 31, 2007, may, without violating the requirements of section 409A(a) of the Internal Revenue Code of 1986, be amended to conform the date of distribution to the date the amounts are required to be included in income.
Certain back-to-back arrangements
If the taxpayer is also a service recipient and maintains one or more nonqualified deferred compensation arrangements for its service providers under which any amount is attributable to services performed on or before December 31, 2007, the guidance issued under paragraph (3) shall permit such arrangements to be amended to conform the dates of distribution under such arrangement to the date amounts are required to be included in the income of such taxpayer under this subsection.
Accelerated payment not treated as material modification
Any amendment to a nonqualified deferred compensation arrangement made pursuant to paragraph (3) or (4) shall not be treated as a material modification of the arrangement for purposes of section 409A of the Internal Revenue Code of 1986.
Codification of economic substance doctrine
Codification of economic substance doctrine
In general
Section 7701 of the Internal Revenue Code of 1986 is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:
Clarification of economic substance doctrine
Application of doctrine
In the case of any transaction to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if—
the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, and
the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.
Special rule where taxpayer relies on profit potential
In general
The potential for profit of a transaction shall be taken into account in determining whether the requirements of subparagraphs (A) and (B) of paragraph (1) are met with respect to the transaction only if the present value of the reasonably expected pre-tax profit from the transaction is substantial in relation to the present value of the expected net tax benefits that would be allowed if the transaction were respected.
Treatment of fees and foreign taxes
Fees and other transaction expenses and foreign taxes shall be taken into account as expenses in determining pre-tax profit under subparagraph (A).
State and local tax benefits
For purposes of paragraph (1), any State or local income tax effect which is related to a Federal income tax effect shall be treated in the same manner as a Federal income tax effect.
Financial accounting benefits
For purposes of paragraph (1)(B), achieving a financial accounting benefit shall not be taken into account as a purpose for entering into a transaction if such transaction results in a Federal income tax benefit.
Definitions and special rules
For purposes of this subsection—
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.
Exception for personal transactions of individuals
In the case of an individual, paragraph (1) shall apply only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income.
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.
Determination of application of doctrine not affected
The determination of whether the economic substance doctrine is relevant to a transaction shall be made in the same manner as if this subsection had never been enacted.
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.
.
Effective Date
The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.
Penalties for underpayments
Penalty for underpayments attributable to transactions lacking economic substance
In general
Subsection (b) of section 6662 of the Internal Revenue Code of 1986 is amended by inserting after paragraph (5) the following new paragraph:
Any disallowance of claimed tax benefits by reason of a transaction lacking economic substance (within the meaning of section 7701(p)) or failing to meet the requirements of any similar rule of law.
.
Increased penalty for nondisclosed transactions
Section 6662 of such Code is amended by adding at the end the following new subsection:
Increase in penalty in case of nondisclosed noneconomic substance transactions
In general
To the extent that a portion of the underpayment to which
this section applies is attributable to one or more nondisclosed noneconomic
substance transactions, subsection (a) shall be applied with respect to such
portion by substituting 40 percent
for 20
percent
.
Nondisclosed noneconomic substance transactions
For purposes of this subsection, the term nondisclosed noneconomic substance transaction means any portion of a transaction described in subsection (b)(6) with respect to which the relevant facts affecting the tax treatment are not adequately disclosed in the return nor in a statement attached to the return.
Special rule for amended returns
Except as provided in regulations, in no event shall any amendment or supplement to a return of tax be taken into account for purposes of this subsection if the amendment or supplement is filed after the earlier of the date the taxpayer is first contacted by the Secretary regarding the examination of the return or such other date as is specified by the Secretary.
.
Conforming amendment
Subparagraph (B) of section 6662A(e)(2) of such Code is amended—
by striking
section 6662(h)
and inserting subsection (h) or (i) of
section 6662
, and
by striking
gross valuation
misstatement penalty
in the heading and inserting
certain increased
underpayment penalties
.
Reasonable cause exception not applicable to noneconomic substance transactions, tax shelters, and certain large corporations
Subsection (c) of section 6664 of such Code is amended—
by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively,
by striking
paragraph (2)
in paragraph (4), as so redesignated, and
inserting paragraph (3)
, and
by inserting after paragraph (1) the following new paragraph:
Exception for noneconomic substance transactions, tax shelters, and certain large corporations
Paragraph (1) shall not apply—
to any portion of an underpayment which is attributable to one or more tax shelters (as defined in section 6662(d)(2)(C)) or transactions described in section 6662(b)(6), and
to any taxpayer if such taxpayer is a specified large corporation (as defined in section 6662(d)(2)(D)(ii)).
.
Application of penalty for erroneous claim for refund or credit to noneconomic substance transactions
Section 6676 of such Code is amended by redesignating subsection (c) as subsection (d) and inserting after subsection (b) the following new subsection:
Noneconomic substance transactions treated as lacking reasonable basis
For purposes of this section, any excessive amount which is attributable to any transaction described in section 6662(b)(6) shall not be treated as having a reasonable basis.
.
Special understatement reduction rule for certain large corporations
In general
Paragraph (2) of section 6662(d) of such Code is amended by adding at the end the following new subparagraph:
Special reduction rule for certain large corporations
In general
In the case of any specified large corporation—
subparagraph (B) shall not apply, and
the amount of the understatement under subparagraph (A) shall be reduced by that portion of the understatement which is attributable to any item with respect to which the taxpayer has a reasonable belief that the tax treatment of such item by the taxpayer is more likely than not the proper tax treatment of such item.
Specified large corporation
In general
For purposes of this subparagraph, the term specified large corporation means any corporation with gross receipts in excess of $100,000,000 for the taxable year involved.
Aggregation rule
All persons treated as a single employer under section 52(a) shall be treated as one person for purposes of subclause (I).
.
Conforming amendment
Subparagraph (C) of section 6662(d)(2) of such Code is
amended by striking Subparagraph (B)
and inserting
Subparagraphs (B) and (D)(i)(II)
.
Effective Date
The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.