II
110th CONGRESS
2d Session
S. 3162
IN THE SENATE OF THE UNITED STATES
June 19, 2008
Mr. Voinovich introduced the following bill; which was read twice and referred to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to provide tax relief to improve the competitiveness of United States corporations and small businesses, to eliminate tax incentives to move jobs and profits overseas, and for other purposes.
Short title, etc
Short title
This Act may be cited as the
Manufacturing, Assembling,
Development, and Export in the USA Tax Act
or the
MADE in the USA Tax
Act
.
Amendment of 1986 Code
Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
Table of contents
The table of contents for this Act is as follows:
Sec. 1. Short title, etc.
TITLE I—Tax relief to improve the competitiveness of United States corporations and small businesses
Sec. 101. Phased in reduction of maximum corporate income tax rate to 28 percent.
Sec. 102. Modifications of deduction for income attributable to domestic production activities.
Sec. 103. Small business expensing provisions made permanent.
Sec. 104. Repeal of imposition of withholding on certain payments made to vendors by government entities.
Sec. 105. Repeal of certain modifications to exclusion for citizens living abroad.
TITLE II—Elimination of tax incentives to move jobs and profits overseas
Subtitle A—Foreign tax credit modifications
Sec. 201. Inclusion of all foreign-source royalties in passive category income in applying foreign tax credit limitation.
Sec. 202. Separate application of foreign tax credit limitation to financial services income.
Subtitle B—Classification of foreign entities
Sec. 211. Treatment of foreign corporations managed and controlled in the United States as domestic corporations.
Sec. 212. Entities with single owner treated as corporations.
Subtitle C—Proper treatment and allocation of income and deductions
Sec. 221. Limitation on treaty benefits for certain deductible payments.
Sec. 222. Repeal of special source rules for inventory property.
Sec. 223. Clarification of determination of foreign oil and gas extraction income.
Sec. 224. Modifications of limitation on excess interest deductions of certain corporations.
Sec. 225. Sense of Senate regarding certain reinsurance transactions with foreign related persons.
Sec. 226. Study on effectiveness of transfer pricing rules with respect to inbound transactions.
Subtitle D—Other provisions
Sec. 231. Nonqualified deferred compensation from certain tax indifferent parties.
Sec. 232. Restrictions on refundable child tax credit to taxpayers outside the United States.
TITLE III—Other revenue measures
Subtitle A—Accounting provisions
Sec. 301. Repeal of lower of cost or market method of inventory.
Sec. 302. Repeal of percentage depletion.
Sec. 303. Amortization of goodwill and other intangibles.
Subtitle B—Codification of economic substance doctrine
Sec. 311. Codification of economic substance doctrine.
Sec. 312. Penalties for underpayments.
Subtitle C—Extension of certain expiring provisions
Sec. 321. Extension of FUTA tax.
Sec. 322. Permanent extension of custom user fees.
Tax relief to improve the competitiveness of United States corporations and small businesses
Phased in reduction of maximum corporate income tax rate to 28 percent
Phased reduction
In general
Paragraph (1) of section 11(b) (relating to amount of tax on corporations) is amended to read as follows:
In general
The amount of the tax imposed by subsection (a) shall be the sum of—
15 percent of so much of the taxable income as does not exceed $50,000,
25 percent of so much of the taxable income as exceeds $50,000, but does not exceed $75,000, and
the applicable percentage of so much of such taxable income as exceeds $75,000.
.
Applicable percentage
Section 11(b) is amended by adding at the end the following new paragraph:
Applicable percentage
For purposes of this subsection, the applicable percentage for any taxable year shall be determined in accordance with the following table:
| In the case of a taxable year beginning in calendar year: | The applicable percentage is: |
| 2009 | 33 |
| 2010 | 32 |
| 2011 | 31 |
| 2012 | 30 |
| 2013 and thereafter | 28 |
.
Personal service corporations
Paragraph (2) of section 11(b) is amended
by striking 35 percent
and inserting the applicable
percentage
.
Conforming amendments
Section 904(b)(3)(D)(ii) is amended by
striking (determined without regard to the last sentence of section
11(b)(1))
.
Section 1201(a) is amended—
by striking 35 percent
each
place it appears and inserting the applicable percentage then in effect
under section 11(b)(3)
, and
by striking (determined without
regard to the last 2 sentences of section 11(b)(1))
.
Subparagraphs (A) and (B)(ii) of section
1201(b)(1), as added by the Heartland, Habitat, Harvest, and Horticulture Act
of 2008, are each amended by striking 35 percent
and inserting
the applicable percentage then in effect under section
11(b)(3)
.
Paragraph (1) of section 1445(e) is amended
by striking 35 percent
and inserting the applicable
percentage in effect under section 11(b)(3) on the 1st day of the calendar year
in which the disposition occurs
.
Paragraph (2) of section 1445(e) is amended
by striking 35 percent
and inserting the applicable
percentage (in effect under section 11(b)(3) on the 1st day of the calendar
year in which the distribution occurs)
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2008; except that the amendments made by subsection (c)(4) shall take effect on January 1, 2009.
Modifications of deduction for income attributable to domestic production activities
Deduction limited to taxpayers other than C corporations
Section
199(a)(1) (relating to allowance of deduction for income attributable to
domestic production activities) is amended by striking There
and
inserting In the case of a taxpayer other than a C corporation,
there
.
Increase in amount of deduction
Section 199(a) is amended—
by striking 9 percent
in
paragraph (1) and inserting 12 percent
, and
in paragraph (2)—
by striking before 2010
and
inserting before 2011
, and
by striking the table and inserting the following:
| For taxable years beginning in: | The transition percentage is: |
| 2005 or 2006 | 3 |
| 2007 or 2008 | 6 |
| 2009 or 2010 | 9 |
.
Conforming amendments
Section 199(c)(4) is amended by striking subparagraph (D).
Section 199(c)(7)(B) is amended to read as follows:
Related person
For purposes of subparagraph (A), a person shall be treated as related to another person if such persons are treated as a single employer under section 52(b) or subsection (m) or (o) of section 414, except that any determination under section 52(b) shall be made without regard to section 1563(b).
.
Section 199(d)(4) is repealed.
Section 199(d)(6) is amended to read as follows:
Coordination with minimum tax
For purposes of determining alternative minimum taxable income under section 55, qualified production activities income shall be determined without regard to any adjustments under sections 56 through 59.
.
Section 163(j)(6)(A)(i) is amended by
inserting and
at the end of subclause (II), by striking
subclause (III), and by redesignating subclause (IV) as subclause (III).
Section 170(b)(2)(C) is amended by
inserting and
at the end of clause (iii), by striking clause
(iv), and by redesignating clause (v) as clause (iv).
Section 246(b)(1) is amended by striking
199,
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2008.
Small business expensing provisions made permanent
Increase in small business expensing made permanent
Subsection (b) of section 179 is amended—
by striking $25,000 ($125,000 in the
case of taxable years beginning after 2006 and before 2011)
in
paragraph (1) and inserting $125,000
, and
by striking $200,000 ($500,000 in
the case of taxable years beginning after 2006 and before 2011)
in
paragraph (2) and inserting $500,000
.
Expensing for computer software made permanent
Clause (ii) of section 179(d)(1)(A) is amended—
by striking , to which
and
inserting and to which
, and
by striking and which is placed in
service in a taxable year beginning after 2002 and before 2011,
.
Inflation adjustment
Subparagraph (A) of section 179(b)(5) is
amended by striking and before 2011
.
Effective date
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2008.
Computer software
The amendment made by subsection (b) shall apply to property placed in service after December 31, 2008.
Repeal of imposition of withholding on certain payments made to vendors by government entities
Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005, and the amendment made by such section, are repealed, and the Internal Revenue Code of 1986 shall be applied and administered as if such amendment had never been enacted.
Repeal of certain modifications to exclusion for citizens living abroad
Modification of housing cost amount
Housing cost floor
Clause (i) of section 911(c)(1)(B) (relating to housing cost amount) is amended to read as follows:
16 percent of the salary (computed on a daily basis) of an employee of the United States who is compensated at a rate equal to the annual rate for step 1 of grade GS–14, multiplied by
.
Maximum amount of exclusion
In general
Section 911(c) is amended—
in paragraph (1)(A), by striking to
the extent such expenses do not exceed the amount determined under paragraph
(2)
, and
by striking paragraph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.
Conforming amendments
Section 911(d)(4) is amended by striking
, (c)(1)(B)(ii), and (c)(2)(A)(ii)
and inserting and
(c)(1)(B)(ii)
.
Section 911(d)(7) is amended by striking
subsection (c)(4)
and inserting subsection
(c)(3)
.
Rates of tax applicable to nonexcluded income
Section 911 (relating to exclusion of earned income of citizens and residents of the United States living abroad) is amended by striking subsection (f) and by redesignating subsection (g) as subsection (f).
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2008.
Elimination of tax incentives to move jobs and profits overseas
Foreign tax credit modifications
Inclusion of all foreign-source royalties in passive category income in applying foreign tax credit limitation
In general
Clause (i) of section 904(d)(2)(B) (defining passive income) is amended to read as follows:
In general
Except as otherwise provided in this
subparagraph, the term passive income
means—
any income received or accrued by any person which is of a kind which would be foreign personal holding company income (as defined in section 954(c)), and
any royalties received or accrued by any person which are not described in subclause (I).
.
Look-thru rules not To apply to royalties
Section 904(d)(3) (relating to look-thru in the case of controlled foreign corporations) is amended—
by striking rents, and
royalties
in subparagraph (A) and inserting and rents
,
and
in subparagraph (C)—
by striking , rent, or
royalty
and inserting or rent
, and
by striking rents, and royalties
in the heading and inserting and rents
.
Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2008.
Separate application of foreign tax credit limitation to financial services income
In general
Section 904(d)(1) (relating to separate
application of section with respect to certain categories of income) is amended
by striking and
at the end of subparagraph (A), by redesignating
subparagraph (B) as subparagraph (C), and by inserting after subparagraph (A)
the following new subparagraph:
financial services category income, and
.
Financial services category income
In general
Section 904(d)(2)(A) (relating to categories of income) is amended—
by redesignating clause (ii) as clause (iii) and inserting after clause (i) the following new clause:
Financial services category income
The term financial services category income means income described in subparagraph (C).
, and
by inserting or financial services
category income
before the period at the end of clause (iii) (as
redesignated by subparagraph (A)).
Coordination with passive income
Clause (iii) of
section 904(d)(2)(B) (relating to exceptions) is amended by striking
and
at the end of subclause (I), by striking the period at the
end of subclause (II) and inserting , and
, and by adding at the
end the following new subclause:
any financial services category income.
.
Financial services category income defined
So much of section 904(d)(2)(C) as precedes clause (ii) thereof is amended to read as follows:
Financial services category income
In general
Financial services income shall be treated as financial services category income in the case of—
a member of a financial services group, or
any other person if such person is predominantly engaged in the active conduct of a banking, insurance, financing, or similar business.
.
Conforming amendments
Section 904(d)(2)(H)(i) is amended by
striking paragraph (1)(B)
and inserting paragraph (1)(C),
except that in the case of taxable years beginning after December 31, 2008, the
taxpayer may elect to treat such tax as tax imposed on income described in
subparagraph (B) or (C) of paragraph (1)
.
Section 904(d)(3) is amended—
in subparagraph (A), by striking
passive category income
and inserting income in a
separate category
,
in subparagraph (B)—
by striking passive category
income
the first place it appears and inserting income in a
separate category
, and
by striking passive category
income
the second place it appears and inserting income in such
category
,
in subparagraph (C)—
by striking passive category
income
the first place it appears and inserting income in a
separate category
, and
by striking passive category income
of the controlled foreign corporation
and inserting income of
the controlled foreign corporation in such category
,
in subparagraph (D)—
by striking passive category
income
the first place it appears and inserting income in a
separate category
, and
by striking passive category
income
the second place it appears and inserting income in such
category
,
in subparagraph (E)—
by striking passive category
income
each place it appears and inserting income in a separate
category
, and
by striking financial services
income
and inserting financial services category income
,
and
by striking subparagraph (F) and inserting the following new subparagraph:
Separate category; coordination with high-taxed income provisions
For purposes of this paragraph—
In general
Except as provided in clause (ii), the term
separate category
means any category of income described in
subparagraph (A) or (B) of paragraph (1).
Coordination with high-taxed income provisions
In determining whether any income of a controlled foreign corporation is in a separate category, subclause (II) of paragraph (2)(B)(iii) shall not apply.
Any income of the taxpayer which is treated as income in a separate category under this paragraph shall be so treated notwithstanding any provision of paragraph (2); except that the determination of whether any amount is high-taxed income shall be made after the application of this paragraph.
.
Effective date
In general
The amendments made by this section shall apply to taxable years beginning after December 31, 2008.
Transition rules
The Secretary shall prescribe such rules or guidance as may be necessary or appropriate to provide for the proper treatment of items of income, gain, deductions, losses, and taxes arising in taxable years beginning before January 1, 2009, which are properly allocable to a different category of income for taxable years beginning on or after such date by reason of the amendments made by this section.
Classification of foreign entities
Treatment of foreign corporations managed and controlled in the United States as domestic corporations
In general
Section 7701 (relating to definitions), as amended by section 311, is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection:
Certain publicly-traded corporations managed and controlled in the United States treated as domestic for income tax
In general
Notwithstanding subsection (a)(4), in the case of a corporation the stock of which is regularly traded on an established securities market, if—
the corporation would not otherwise be treated as a domestic corporation for purposes of this title, but
the management and control of the corporation occurs primarily within the United States,
Management and control
The Secretary shall prescribe regulations for purposes of determining cases in which the management and control of a corporation is to be treated as primarily occurring within the United States. Such regulations shall provide that—
the management and control of a corporation shall be treated as primarily occurring within the United States if substantially all of the executive officers and senior management of the corporation who exercise day-to-day responsibility for making decisions involving strategic, financial, and operational policies of the corporation are primarily located within the United States, and
individuals who are not executive officers and senior management of the corporation (including individuals who are officers or employees of other corporations in the same chain of corporations as the corporation) shall be treated as executive officers and senior management if such individuals exercise the day-to day responsibilities of the corporation described in subparagraph (A).
.
Effective date
The amendments made by this section shall apply to taxable years beginning on or after the date which is 2 years after the date of the enactment of this Act.
Entities with single owner treated as corporations
In general
Section 7701 (relating to definitions), as amended by sections 211 and 311, is amended by redesignating subsection (r) as subsection (s) and by inserting after subsection (q) the following new subsection:
Special rules for entities with single owners
In general
Notwithstanding this section or any regulation issued thereunder, a business entity shall be treated as a corporation if the corporation is created or organized under the laws of any foreign country and has a single owner.
Regulatory authority
Application to domestic entities
The Secretary may issue regulations which apply the rule of paragraph (1) to a domestic business entity in cases where the single owner is a controlled foreign corporation (as defined in section 957(a)).
Other authority
The Secretary may issue such regulations as are necessary or appropriate to carry out the purposes of this section, including regulations which treat a business entity with more than one owner as having a single owner to the extent necessary to prevent the avoidance of the purposes of this section.
.
Effective dates
In general
Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
Transition rule for certain existing entities
In the case of an entity in existence on the date of the enactment of this Act which is not treated as a corporation for purposes of the Internal Revenue Code of 1986 for the taxable year which includes such date, the amendments made by this section shall apply to taxable years of such corporation beginning on or after the date which is 1 year after such date of enactment.
Proper treatment and allocation of income and deductions
Limitation on treaty benefits for certain deductible payments
In general
Section 894 (relating to income affected by treaty) is amended by adding at the end the following new subsection:
Limitation on treaty benefits for certain deductible payments
In general
In the case of any deductible related-party payment, any withholding tax imposed under chapter 3 (and any tax imposed under subpart A or B of this part) with respect to such payment may not be reduced under any treaty of the United States unless any such withholding tax would be reduced under a treaty of the United States if such payment were made directly to the foreign parent corporation.
Deductible related-party payment
For purposes of this subsection, the term deductible related-party payment means any payment made, directly or indirectly, by any person to any other person if the payment is allowable as a deduction under this chapter and both persons are members of the same foreign controlled group of entities.
Foreign controlled group of entities
For purposes of this subsection—
In general
The term foreign controlled group of entities means a controlled group of entities the common parent of which is a foreign corporation.
Controlled group of entities
The term controlled group of entities means a controlled group of corporations as defined in section 1563(a)(1), except that—
more than 50 percent
shall
be substituted for at least 80 percent
each place it appears
therein, and
the determination shall be made without regard to subsections (a)(4) and (b)(2) of section 1563.
Foreign parent corporation
For purposes of this subsection, the term foreign parent corporation means, with respect to any deductible related-party payment, the common parent of the foreign controlled group of entities referred to in paragraph (3)(A).
Regulations
The Secretary may prescribe such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance which provide for—
the treatment of two or more persons as members of a foreign controlled group of entities if such persons would be the common parent of such group if treated as one corporation, and
the treatment of any member of a foreign controlled group of entities as the common parent of such group if such treatment is appropriate taking into account the economic relationships among such entities.
.
Effective date
The amendment made by this section shall apply to payments made after the date of the enactment of this Act.
Repeal of special source rules for inventory property
In general
The following provisions are repealed:
Section 861(a)(6).
Section 862(a)(6).
Section 865(b).
Special rules for determining source
The last sentence of
section 863(b) is amended to read as follows: Gains, profits, and income
from services rendered partly within and partly without the United States shall
be treated as derived partly from sources within and partly from sources
without the United States.
.
Conforming amendments
Section 865 is amended by striking
(b),
in subsection (e).
Section 865(i)(1) is repealed.
Section 954(d)(4) is amended—
by striking subparagraph (A) and inserting the following new subparagraph:
the sale of any unprocessed timber which is a softwood and was cut from an area in the United States, or
, and
by adding at the end the following new
sentence: For purposes of subparagraph (A), the term
.unprocessed
timber
means any log, cant, or similar form of timber.
Effective Date
The amendments made by this section shall apply to taxable years beginning after December 31, 2008.
Clarification of determination of foreign oil and gas extraction income
In general
Paragraph (1) of section 907(c) is amended
by redesignating subparagraph (B) as subparagraph (C), by striking
or
at the end of subparagraph (A), and by inserting after
subparagraph (A) the following new subparagraph:
so much of any transportation of such minerals as occurs before the fair market value event, or
.
Fair market value event
Subsection (c) of section 907 is amended by adding at the end the following new paragraph:
Fair market value event
For purposes of this section, the term fair market value event means, with respect to any mineral, the first point in time at which such mineral—
has a fair market value which can be determined on the basis of a transfer, which is an arm’s length transaction, of such mineral from the taxpayer to a person who is not related (within the meaning of section 482) to such taxpayer, or
is at a location at which the fair market value is readily ascertainable by reason of transactions among unrelated third parties with respect to the same mineral (taking into account source, location, quality, and chemical composition).
.
Special rule for certain petroleum taxes
Subsection (c) of section 907, as amended by subsection (b), is amended by adding at the end the following new paragraph:
Oil and gas taxes
In the case of any tax imposed by a foreign country which is limited in its application to taxpayers engaged in oil or gas activities—
the term oil and gas extraction taxes shall include such tax,
the term foreign oil and gas extraction income shall include any taxable income which is taken into account in determining such tax (or is directly attributable to the activity to which such tax relates), and
the term foreign oil related income shall not include any taxable income which is treated as foreign oil and gas extraction income under subparagraph (B).
.
Conforming amendments
Subparagraph (C) of section 907(c)(1), as
redesignated by this section, is amended by inserting or used by the
taxpayer in the activity described in subparagraph (B)
before the
period at the end.
Subparagraph (B) of section 907(c)(2) is amended to read as follows:
so much of the transportation of such minerals or primary products as is not taken into account under paragraph (1)(B),
.
Effective date
The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
Modifications of limitation on excess interest deductions of certain corporations
Corporations to which limitation applies
Section 163(j)(2) (relating to corporations to which subsection applies) is amended to read as follows:
Corporations to which subsection applies
In general
This subsection shall apply to any corporation for any taxable year if such corporation has excess interest expense for the taxable year.
Excess interest expense
For purposes of this subsection, the term excess interest expense means the excess (if any) of—
the corporation's net interest expense, over
25 percent of the adjusted taxable income of the corporation.
.
Modification of carryforward of disallowed interest
Subparagraph (B) of section 163(j)(1) is amended to read as follows:
Disallowed amount carried to succeeding taxable year
In general
Except as provided in clause (ii), any amount disallowed under subparagraph (A) for any taxable year shall be treated as disqualified interest paid or accrued in the succeeding taxable year.
10-year carryforward limit
Any disqualified interest disallowed under subparagraph (A) shall not be carried forward under clause (i) to any taxable year beginning after the 10th taxable year following the taxable year in which the interest was paid or accrued (determined without regard to this subparagraph). For purposes of the preceding sentence, any deduction under this section with respect to disqualified interest for which a deduction was previously disallowed under subparagraph (A) shall be allocated to such interest on a first-in, first-out basis.
.
Effective date
The amendments made by this section shall apply to interest paid or accrued in taxable years beginning after December 31, 2008.
Sense of Senate regarding certain reinsurance transactions with foreign related persons
It is the sense of the Senate that Congress should enact legislation as soon as possible to address the tax treatment of reinsurance transactions with related persons (and other similar transactions), including the transfer offshore by reinsurance or otherwise of assets and earnings related to insurance of United States risks. In enacting such legislation, Congress should consider the effects of such practices on—
the tax base of the United States, and
the competitiveness of insurers and reinsurers based in the United States.
Study on effectiveness of transfer pricing rules with respect to inbound transactions
In general
The Secretary of the Treasury or the Secretary's delegate shall conduct a study of the effectiveness of the transfer pricing rules under section 482 of the Internal Revenue Code of 1986 in properly allocating items of income and deduction in cases involving foreign persons conducting business within the United States or foreign persons selling goods and services into the United States. Such study shall include an analysis of the effectiveness of such rules in preventing income shifting, preventing the understatement of United States business profits, and ensuring taxation of income effectively connected with the United States.
Report
The Secretary shall, not later than the date which is 1 year after the date of the enactment of this Act, report the results of the study conducted under subsection (a) to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives, including any specific recommendations for changes in legislation which the Secretary considers appropriate.
Other provisions
Nonqualified deferred compensation from certain tax indifferent parties
In general
Subpart B of part II of subchapter E of chapter 1 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 includible in gross income 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.
Determinability of amounts of compensation
In general
If the amount of any compensation is not determinable at the time that such compensation is otherwise includible in gross income under subsection (a)—
such amount shall be so includible in gross income when determinable, and
the tax imposed under this chapter for the taxable year in which such compensation is includible in gross income 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
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.
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
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) is amended by striking
and
at the end of subparagraph (U), by striking the period at
the end of subparagraph (V) and inserting , and
, and by adding
at the end the following new subparagraph:
section 457A(c)(1)(B) (relating to determinability of amounts of compensation).
.
Clerical amendment
The table of sections of subpart B of part II of subchapter E of chapter 1 is amended by inserting after the item relating to section 457 the following new item:
.
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, 2008.
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, 2009, to the extent such amount is not includible in gross income in a taxable year beginning before 2018, such amounts shall be includible in gross income in the later of—
the last taxable year beginning before 2018, 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 120 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, 2008, 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, 2008, 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.
Restrictions on refundable child tax credit to taxpayers outside the United States
In general
Section 24(d) is amended by adding at the end the following new paragraph:
Application to taxpayers outside of the United States
This subsection shall not apply to any taxpayer who claims the benefits of section 911 (relating to citizens or residents living abroad) for the taxable year.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2008.
Application of EGTRRA sunset
The amendment made by this section shall be subject to title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 in the same manner and to the same extent as such title applies to the amendments made by section 201(c) of such Act.
Other revenue measures
Accounting provisions
Repeal of lower of cost or market method of inventory
In general
Section 471 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
Inventories taken into account at cost
A method of determining inventories shall not be treated as clearly reflecting income unless such method provides that inventories shall be taken into account at cost.
.
Effective date
In general
The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
Change in method of accounting
In the case of any taxpayer required by the amendments made by this section to change its method of accounting for its first taxable year beginning after the date of the enactment of this Act—
such change shall be treated as initiated by the taxpayer,
such change shall be treated as made with the consent of the Secretary of the Treasury, and
if the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 is positive, such amount shall be taken into account over a period of 8 years beginning with such first taxable year.
Repeal of percentage depletion
In general
Section 613 (relating to percentage depletion) is amended by adding at the end the following new subsection:
Termination
This section shall not apply to any taxable year beginning after December 31, 2008.
.
Limitations on percentage depletion in case of oil and gas wells
Section 613A (relating to limitations on percentage depletion in case of oil and gas wells) is amended by adding at the end the following new subsection:
Termination
This section shall not apply to any taxable year beginning after December 31, 2008.
.
Amortization of goodwill and other intangibles
In general
Subsection (a) of section 197 (relating to
general rule) is amended by striking 15-year
and inserting
20-year
.
Certain interests or rights acquired separately
Clause (i) of
section 197(e)(4)(D) is amended by striking 15 years
and
inserting 20 years
.
Effective date
The amendments made by this section shall apply to property acquired after the date of the enactment of this Act.
Codification of economic substance doctrine
Codification of economic substance doctrine
In general
Section 7701 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 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 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) is
amended by striking section 6662(h)
and inserting
subsection (h) or (i) of section 6662
.
Reasonable cause exception not applicable to noneconomic substance transactions, tax shelters, and certain large corporations
Section 6664(c) 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
Paragraph (1) shall not apply to—
any portion of an underpayment to which is attributable to one or more transactions described in section 6662(b)(6),
to any portion of an underpayment which is attributable to one or more tax shelters (as defined in section 6662(d)(2)(C)), or
to any taxpayer if such taxpayer is a specified large corporation (as defined in section 6662(d)(2)(D)(ii)).
.
Special understatement reduction rule for certain large corporations
In general
Paragraph (2) of section 6662(d) 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) 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.
Extension of certain expiring provisions
Extension of FUTA tax
Section 3301 of the Internal Revenue Code of 1986 (relating to rate of tax) is amended—
by striking 2008
in
paragraph (1) and inserting 2018
, and
by striking 2009
in
paragraph (2) and inserting 2019
.
Permanent extension of custom user fees
In general
Section 13031(j)(3) of the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended to read as follows:
In any fiscal year for which fees under paragraphs (1) through (8) of subsection (a) are authorized—
the Secretary of the Treasury shall charge fees under each such paragraph in amounts that are reasonably related to the costs of providing customs services in connection with the activity or item for which the fee is charged under such paragraph, except that in no case may the fee charged under any such paragraph exceed by more than 10 percent the amount otherwise prescribed by such paragraph;
the amount of fees collected under such paragraphs may not exceed, in the aggregate, the amounts paid in that fiscal year for the costs described in subsection (f)(3)(A) incurred in providing customs services in connection with the activity or item for which the fees are charged under such paragraphs;
a fee may not be collected under any such paragraph except to the extent such fee will be expended to pay the costs described in subsection (f)(3)(A) incurred in providing customs services in connection with the activity or item for which the fee is charged under such paragraph; and
any fee collected under any such paragraph shall be available for expenditure only to pay the costs described in subsection (f)(3)(A) incurred in providing customs services in connection with the activity or item for which the fee is charged under such paragraph.
.
Effective date
The amendment made by this section shall apply to fees charged after December 31, 2008.