TEXT OF AMENDMENTS
(Senate - May 10, 2004)

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[Pages S5095-S5167]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           TEXT OF AMENDMENTS

  SA 3121. Ms. LANDRIEU submitted an amendment intended to be proposed 
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       Beginning on page 441, strike line 1 through page 446, line 
     4, and insert the following:

     SEC. 632. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT AND 
                   READY RESERVE-NATIONAL GUARD REPLACEMENT 
                   EMPLOYEE CREDIT.

       (a) Ready Reserve-National Guard Credit.--
       (1) In general.--Subpart D of part IV of subchapter A of 
     chapter 1 (relating to business-related credits), as amended 
     by this Act, is amended by adding at the end the following:

     ``SEC. 45H. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT.

       ``(a) General Rule.--For purposes of section 38, the Ready 
     Reserve-National Guard

[[Page S5096]]

     employee credit determined under this section for any taxable 
     year with respect to each Ready Reserve-National Guard 
     employee of an employer is an amount equal to 50 percent of 
     the lesser of--
       ``(1) the actual compensation amount with respect to such 
     employee for such taxable year, or
       ``(2) $30,000.
       ``(b) Definition of Actual Compensation Amount.--For 
     purposes of this section, the term `actual compensation 
     amount' means the amount of compensation paid or incurred by 
     an employer with respect to a Ready Reserve-National Guard 
     employee on any day when the employee was absent from 
     employment for the purpose of performing qualified active 
     duty.
       ``(c) Limitations.--No credit shall be allowed with respect 
     to any day that a Ready Reserve-National Guard employee who 
     performs qualified active duty was not scheduled to work (for 
     reason other than to participate in qualified active duty).
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified active duty.--The term `qualified active 
     duty' means--
       ``(A) active duty, other than the training duty specified 
     in section 10147 of title 10, United States Code (relating to 
     training requirements for the Ready Reserve), or section 
     502(a) of title 32, United States Code (relating to required 
     drills and field exercises for the National Guard), in 
     connection with which an employee is entitled to reemployment 
     rights and other benefits or to a leave of absence from 
     employment under chapter 43 of title 38, United States Code, 
     and
       ``(B) hospitalization incident to such duty.
       ``(2) Compensation.--The term `compensation' means any 
     remuneration for employment, whether in cash or in kind, 
     which is paid or incurred by a taxpayer and which is 
     deductible from the taxpayer's gross income under section 
     162(a)(1).
       ``(3) Ready reserve-national guard employee.--The term 
     `Ready Reserve-National Guard employee' means an employee who 
     is a member of the Ready Reserve of a reserve component of an 
     Armed Force of the United States as described in sections 
     10142 and 10101 of title 10, United States Code.
       ``(4) Certain rules to apply.--Rules similar to the rules 
     of section 52 shall apply.
       ``(e) Portion of Credit Refundable.--
       ``(1) In general.--In the case of an employer of a 
     qualified first responder, the aggregate credits allowed to a 
     taxpayer under subpart C shall be increased by the lesser 
     of--
       ``(A) the credit which would be allowed under this section 
     without regard to this subsection and the limitation under 
     section 38(c), or
       ``(B) the amount by which the aggregate amount of credits 
     allowed by this subpart (determined without regard to this 
     subsection) would increase if the limitation imposed by 
     section 38(c) for any taxable year were increased by the 
     amount of employer payroll taxes imposed on the taxpayer 
     during the calendar year in which the taxable year begins.

     The amount of the credit allowed under this subsection shall 
     not be treated as a credit allowed under this subpart and 
     shall reduce the amount of the credit otherwise allowable 
     under subsection (a) without regard to section 38(c).
       ``(2) Employer payroll taxes.--For purposes of this 
     subsection--
       ``(A) In general.--The term `employer payroll taxes' means 
     the taxes imposed by--
       ``(i) section 3111(b), and
       ``(ii) sections 3211(a) and 3221(a) (determined at a rate 
     equal to the rate under section 3111(b)).
       ``(B) Special rule.--A rule similar to the rule of section 
     24(d)(2)(C) shall apply for purposes of subparagraph (A).
       ``(3) Qualified first responder.--For purposes of this 
     subsection, the term `qualified first responder' means any 
     person who is--
       ``(A) employed as a law enforcement official, a 
     firefighter, or a paramedic, and
       ``(B) a Ready Reserve-National Guard employee.''.
       (2) Credit to be part of general business credit.--
     Subsection (b) of section 38 (relating to general business 
     credit), as amended by this Act, is amended by striking 
     ``plus'' at the end of paragraph (15), by striking the period 
     at the end of paragraph (16) and inserting ``, plus'', and by 
     adding at the end the following:
       ``(17) the Ready Reserve-National Guard employee credit 
     determined under section 45H(a).''.
       (3) Denial of double benefit.--Section 280C(a) (relating to 
     rule for employment credits) is amended by inserting 
     ``45H(a),'' after ``45A(a),''.
       (4) Conforming amendment.--The table of sections for 
     subpart D of part IV of subchapter A of chapter 1, as amended 
     by this Act, is amended by inserting after the item relating 
     to section 45G the following:

``Sec. 45H. Ready Reserve-National Guard employee credit.''.

       (5) Effective date.--The amendments made by this subsection 
     shall apply to amounts paid or incurred after September 30, 
     2004, in taxable years ending after such date.
       (b) Application of Annual Exclusion Limit Under Section 911 
     to Housing Costs.--
       (1) In general.--Section 911(c) (relating to housing cost 
     amount) is amended by adding at the end the following new 
     paragraph:
       ``(4) Limit on exclusion for employer provided housing 
     costs.--The housing cost amount for any individual for any 
     taxable year attributable to employer provided amounts shall 
     not exceed the excess (if any) of--
       ``(A) the product of--
       ``(i) the exclusion amount determined under subsection 
     (b)(2)(D) for the taxable year, and
       ``(ii) a fraction equal to the number of days of the 
     taxable year within the applicable period described in 
     subparagraph (A) or (B) of subsection (d)(1) divided by the 
     number of days in the taxable year, over
       ``(B) the foreign earned income of the individual excluded 
     under subsection (a)(1) for the taxable year.''.
       (2) Conforming amendment.--Section 911(c)(1) is amended by 
     striking ``The'' and inserting ``Except as provided in 
     paragraph (4), the''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2004.
                                 ______
                                 
  SA 3122. Ms. LANDRIEU submitted an amendment intended to be proposed 
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       Beginning on page 441, strike line 1 through page 446, line 
     4, and insert the following:

     SEC. 632. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT AND 
                   READY RESERVE-NATIONAL GUARD REPLACEMENT 
                   EMPLOYEE CREDIT.

       (a) Ready Reserve-National Guard Credit.--
       (1) In general.--Subpart D of part IV of subchapter A of 
     chapter 1 (relating to business-related credits), as amended 
     by this Act, is amended by adding at the end the following:

     ``SEC. 45H. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT.

       ``(a) General Rule.--For purposes of section 38, the Ready 
     Reserve-National Guard employee credit determined under this 
     section for any taxable year with respect to each Ready 
     Reserve-National Guard employee of an employer is an amount 
     equal to 50 percent of the actual compensation amount with 
     respect to such employee for such taxable year.
       ``(b) Definition of Actual Compensation Amount.--For 
     purposes of this section, the term `actual compensation 
     amount' means the amount of compensation paid or incurred by 
     an employer with respect to a Ready Reserve-National Guard 
     employee on any day when the employee was absent from 
     employment for the purpose of performing qualified active 
     duty.
       ``(c) Limitations.--No credit shall be allowed with respect 
     to any day that a Ready Reserve-National Guard employee who 
     performs qualified active duty was not scheduled to work (for 
     reason other than to participate in qualified active duty).
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified active duty.--The term `qualified active 
     duty' means--
       ``(A) active duty, other than the training duty specified 
     in section 10147 of title 10, United States Code (relating to 
     training requirements for the Ready Reserve), or section 
     502(a) of title 32, United States Code (relating to required 
     drills and field exercises for the National Guard), in 
     connection with which an employee is entitled to reemployment 
     rights and other benefits or to a leave of absence from 
     employment under chapter 43 of title 38, United States Code, 
     and
       ``(B) hospitalization incident to such duty.
       ``(2) Compensation.--The term `compensation' means any 
     remuneration for employment, whether in cash or in kind, 
     which is paid or incurred by a taxpayer and which is 
     deductible from the taxpayer's gross income under section 
     162(a)(1).
       ``(3) Ready reserve-national guard employee.--The term 
     `Ready Reserve-National Guard employee' means an employee who 
     is a member of the Ready Reserve of a reserve component of an 
     Armed Force of the United States as described in sections 
     10142 and 10101 of title 10, United States Code.
       ``(4) Certain rules to apply.--Rules similar to the rules 
     of section 52 shall apply.
       ``(e) Portion of Credit Refundable.--
       ``(1) In general.--In the case of an employer of a 
     qualified first responder, the aggregate credits allowed to a 
     taxpayer under subpart C shall be increased by the lesser 
     of--
       ``(A) the credit which would be allowed under this section 
     without regard to this subsection and the limitation under 
     section 38(c), or
       ``(B) the amount by which the aggregate amount of credits 
     allowed by this subpart (determined without regard to this 
     subsection) would increase if the limitation imposed by 
     section 38(c) for any taxable year were increased by the 
     amount of employer payroll taxes imposed on the taxpayer 
     during the calendar year in which the taxable year begins.


[[Page S5097]]


     The amount of the credit allowed under this subsection shall 
     not be treated as a credit allowed under this subpart and 
     shall reduce the amount of the credit otherwise allowable 
     under subsection (a) without regard to section 38(c).
       ``(2) Employer payroll taxes.--For purposes of this 
     subsection--
       ``(A) In general.--The term `employer payroll taxes' means 
     the taxes imposed by--
       ``(i) section 3111(b), and
       ``(ii) sections 3211(a) and 3221(a) (determined at a rate 
     equal to the rate under section 3111(b)).
       ``(B) Special rule.--A rule similar to the rule of section 
     24(d)(2)(C) shall apply for purposes of subparagraph (A).
       ``(3) Qualified first responder.--For purposes of this 
     subsection, the term `qualified first responder' means any 
     person who is--
       ``(A) employed as a law enforcement official, a 
     firefighter, or a paramedic, and
       ``(B) a Ready Reserve-National Guard employee.''.
       (2) Credit to be part of general business credit.--
     Subsection (b) of section 38 (relating to general business 
     credit), as amended by this Act, is amended by striking 
     ``plus'' at the end of paragraph (15), by striking the period 
     at the end of paragraph (16) and inserting ``, plus'', and by 
     adding at the end the following:
       ``(17) the Ready Reserve-National Guard employee credit 
     determined under section 45H(a).''.
       (3) Denial of double benefit.--Section 280C(a) (relating to 
     rule for employment credits) is amended by inserting 
     ``45H(a),'' after ``45A(a),''.
       (4) Conforming amendment.--The table of sections for 
     subpart D of part IV of subchapter A of chapter 1, as amended 
     by this Act, is amended by inserting after the item relating 
     to section 45G the following:

``Sec. 45H. Ready Reserve-National Guard employee credit.''.

       (5) Effective date.--The amendments made by this subsection 
     shall apply to amounts paid or incurred after September 30, 
     2004, in taxable years ending after such date.
       (b) Application of Annual Exclusion Limit Under Section 911 
     to Housing Costs.--
       (1) In general.--Section 911(c) (relating to housing cost 
     amount) is amended by adding at the end the following new 
     paragraph:
       ``(4) Limit on exclusion for employer provided housing 
     costs.--The housing cost amount for any individual for any 
     taxable year attributable to employer provided amounts shall 
     not exceed the excess (if any) of--
       ``(A) the product of--
       ``(i) the exclusion amount determined under subsection 
     (b)(2)(D) for the taxable year, and
       ``(ii) a fraction equal to the number of days of the 
     taxable year within the applicable period described in 
     subparagraph (A) or (B) of subsection (d)(1) divided by the 
     number of days in the taxable year, over
       ``(B) the foreign earned income of the individual excluded 
     under subsection (a)(1) for the taxable year.''.
       (2) Conforming amendment.--Section 911(c)(1) is amended by 
     striking ``The'' and inserting ``Except as provided in 
     paragraph (4), the''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2004.
                                 ______
                                 
  SA 3123. Ms. LANDRIEU submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       Beginning on page 441, strike line 1 through page 446, line 
     4, and insert the following:

     SEC. 632. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT AND 
                   READY RESERVE-NATIONAL GUARD REPLACEMENT 
                   EMPLOYEE CREDIT.

       (a) Ready Reserve-National Guard Credit.--
       (1) In general.--Subpart D of part IV of subchapter A of 
     chapter 1 (relating to business-related credits), as amended 
     by this Act, is amended by adding at the end the following:

     ``SEC. 45H. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT.

       ``(a) General Rule.--For purposes of section 38, the Ready 
     Reserve-National Guard employee credit determined under this 
     section for any taxable year with respect to each Ready 
     Reserve-National Guard employee of an employer is an amount 
     equal to 50 percent of the lesser of--
       ``(1) the actual compensation amount with respect to such 
     employee for such taxable year, or
       ``(2) $30,000.
       ``(b) Definition of Actual Compensation Amount.--For 
     purposes of this section, the term `actual compensation 
     amount' means the amount of compensation paid or incurred by 
     an employer with respect to a Ready Reserve-National Guard 
     employee on any day when the employee was absent from 
     employment for the purpose of performing qualified active 
     duty.
       ``(c) Limitations.--No credit shall be allowed with respect 
     to any day that a Ready Reserve-National Guard employee who 
     performs qualified active duty was not scheduled to work (for 
     reason other than to participate in qualified active duty).
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified active duty.--The term `qualified active 
     duty' means--
       ``(A) active duty, other than the training duty specified 
     in section 10147 of title 10, United States Code (relating to 
     training requirements for the Ready Reserve), or section 
     502(a) of title 32, United States Code (relating to required 
     drills and field exercises for the National Guard), in 
     connection with which an employee is entitled to reemployment 
     rights and other benefits or to a leave of absence from 
     employment under chapter 43 of title 38, United States Code, 
     and
       ``(B) hospitalization incident to such duty.
       ``(2) Compensation.--The term `compensation' means any 
     remuneration for employment, whether in cash or in kind, 
     which is paid or incurred by a taxpayer and which is 
     deductible from the taxpayer's gross income under section 
     162(a)(1).
       ``(3) Ready reserve-national guard employee.--The term 
     `Ready Reserve-National Guard employee' means an employee who 
     is a member of the Ready Reserve of a reserve component of an 
     Armed Force of the United States as described in sections 
     10142 and 10101 of title 10, United States Code.
       ``(4) Certain rules to apply.--Rules similar to the rules 
     of section 52 shall apply.
       ``(e) Portion of Credit Refundable.--
       ``(1) In general.--In the case of an employer of a 
     qualified first responder, the aggregate credits allowed to a 
     taxpayer under subpart C shall be increased by the lesser 
     of--
       ``(A) the credit which would be allowed under this section 
     without regard to this subsection and the limitation under 
     section 38(c), or
       ``(B) the amount by which the aggregate amount of credits 
     allowed by this subpart (determined without regard to this 
     subsection) would increase if the limitation imposed by 
     section 38(c) for any taxable year were increased by the 
     amount of employer payroll taxes imposed on the taxpayer 
     during the calendar year in which the taxable year begins.

     The amount of the credit allowed under this subsection shall 
     not be treated as a credit allowed under this subpart and 
     shall reduce the amount of the credit otherwise allowable 
     under subsection (a) without regard to section 38(c).
       ``(2) Employer payroll taxes.--For purposes of this 
     subsection--
       ``(A) In general.--The term `employer payroll taxes' means 
     the taxes imposed by--
       ``(i) section 3111(b), and
       ``(ii) sections 3211(a) and 3221(a) (determined at a rate 
     equal to the rate under section 3111(b)).
       ``(B) Special rule.--A rule similar to the rule of section 
     24(d)(2)(C) shall apply for purposes of subparagraph (A).
       ``(3) Qualified first responder.--For purposes of this 
     subsection, the term `qualified first responder' means any 
     person who is--
       ``(A) employed as a law enforcement official, a 
     firefighter, or a paramedic, and
       ``(B) a Ready Reserve-National Guard employee.''.
       (2) Credit to be part of general business credit.--
     Subsection (b) of section 38 (relating to general business 
     credit), as amended by this Act, is amended by striking 
     ``plus'' at the end of paragraph (15), by striking the period 
     at the end of paragraph (16) and inserting ``, plus'', and by 
     adding at the end the following:
       ``(17) the Ready Reserve-National Guard employee credit 
     determined under section 45H(a).''.
       (3) Denial of double benefit.--Section 280C(a) (relating to 
     rule for employment credits) is amended by inserting 
     ``45H(a),'' after ``45A(a),''.
       (4) Conforming amendment.--The table of sections for 
     subpart D of part IV of subchapter A of chapter 1, as amended 
     by this Act, is amended by inserting after the item relating 
     to section 45G the following:

``Sec. 45H. Ready Reserve-National Guard employee credit.''.
       (5) Effective date.--The amendments made by this subsection 
     shall apply to amounts paid or incurred after September 30, 
     2004, in taxable years ending after such date.
       (b) Ready Reserve-National Guard Replacement Employee 
     Credit.--
       (1) In general.--Subpart B of part IV of subchapter A of 
     chapter 1 (relating to foreign tax credit, etc.), as amended 
     by this Act, is amended by adding after section 30C the 
     following new section:

     ``SEC. 30D. READY RESERVE-NATIONAL GUARD REPLACEMENT EMPLOYEE 
                   CREDIT.

       ``(a) Allowance of Credit.--
       ``(1) In general.--In the case of an eligible taxpayer, 
     there shall be allowed as a credit against the tax imposed by 
     this chapter for the taxable year the sum of the employment 
     credits for each qualified replacement employee under this 
     section.
       ``(2) Employment credit.--The employment credit with 
     respect to a qualified replacement employee of the taxpayer 
     for any taxable year is equal to 50 percent of the lesser 
     of--
       ``(A) the individual's qualified compensation attributable 
     to service rendered as a qualified replacement employee, or

[[Page S5098]]

       ``(B) $12,000.
       ``(b) Qualified Compensation.--The term `qualified 
     compensation' means--
       ``(1) compensation which is normally contingent on the 
     qualified replacement employee's presence for work and which 
     is deductible from the taxpayer's gross income under section 
     162(a)(1),
       ``(2) compensation which is not characterized by the 
     taxpayer as vacation or holiday pay, or as sick leave or pay, 
     or as any other form of pay for a nonspecific leave of 
     absence, and
       ``(3) group health plan costs (if any) with respect to the 
     qualified replacement employee.
       ``(c) Qualified Replacement Employee.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified replacement 
     employee' means an individual who is hired to replace a Ready 
     Reserve-National Guard employee or a Ready Reserve-National 
     Guard self-employed taxpayer, but only with respect to the 
     period during which such Ready Reserve-National Guard 
     employee or Ready Reserve-National Guard self-employed 
     taxpayer participates in qualified active duty, including 
     time spent in travel status.
       ``(2) Ready reserve-national guard employee.--The term 
     `Ready Reserve-National Guard employee' has the meaning given 
     such term by section 45H(d)(3).
       ``(3) Ready reserve-national guard self-employed 
     taxpayer.--The term `Ready Reserve-National Guard self-
     employed taxpayer' means a taxpayer who--
       ``(A) has net earnings from self-employment (as defined in 
     section 1402(a)) for the taxable year, and
       ``(B) is a member of the Ready Reserve of a reserve 
     component of an Armed Force of the United States as described 
     in section 10142 and 10101 of title 10, United States Code.
       ``(d) Coordination With Other Credits.--The amount of 
     credit otherwise allowable under sections 51(a) and 1396(a) 
     with respect to any employee shall be reduced by the credit 
     allowed by this section with respect to such employee.
       ``(e) Limitations.--
       ``(1) Application with other credits.--The credit allowed 
     under subsection (a) for any taxable year shall not exceed 
     the excess (if any) of--
       ``(A) the regular tax for the taxable year reduced by the 
     sum of the credits allowable under subpart A and sections 27, 
     29, and 30, over
       ``(B) the tentative minimum tax for the taxable year.
       ``(2) Disallowance for failure to comply with employment or 
     reemployment rights of members of the reserve components of 
     the armed forces of the united states.--No credit shall be 
     allowed under subsection (a) to a taxpayer for--
       ``(A) any taxable year, beginning after the date of the 
     enactment of this section, in which the taxpayer is under a 
     final order, judgment, or other process issued or required by 
     a district court of the United States under section 4323 of 
     title 38 of the United States Code with respect to a 
     violation of chapter 43 of such title, and
       ``(B) the 2 succeeding taxable years.
       ``(f) General Definitions and Special Rules.--For purposes 
     of this section--
       ``(1) Eligible taxpayer.--The term `eligible taxpayer' 
     means a small business employer or a Ready Reserve-National 
     Guard self-employed taxpayer.
       ``(2) Small business employer.--
       ``(A) In general.--The term `small business employer' 
     means, with respect to any taxable year, any employer who 
     employed an average of 50 or fewer employees on business days 
     during such taxable year.
       ``(B) Controlled groups.--For purposes of subparagraph (A), 
     all persons treated as a single employer under subsection 
     (b), (c), (m), or (o) of section 414 shall be treated as a 
     single employer.
       ``(3) Qualified active duty.--The term `qualified active 
     duty' has the meaning given such term by section 45H(d)(1).
       ``(4) Special rules for certain manufacturers.--
       ``(A) In general.--In the case of any qualified 
     manufacturer--
       ``(i) subsection (a)(2)(B) shall be applied by substituting 
     `$20,000' for `$12,000', and
       ``(ii) paragraph (2)(A) of this subsection shall be applied 
     by substituting `100' for `50'.
       ``(B) Qualified manufacturer.--For purposes of this 
     paragraph, the term `qualified manufacturer' means any person 
     if--
       ``(i) the primary business of such person is classified in 
     sector 31, 32, or 33 of the North American Industrial 
     Classification System, and
       ``(ii) all of such person's facilities which are used for 
     production in such business are located in the United States.
       ``(5) Carryback and carryforward allowed.--
       ``(A) In general.--If the credit allowable under subsection 
     (a) for a taxable year exceeds the amount of the limitation 
     under subsection (e)(1) for such taxable year (in this 
     paragraph referred to as the `unused credit year'), such 
     excess shall be a credit carryback to each of the 3 taxable 
     years preceding the unused credit year and a credit 
     carryforward to each of the 20 taxable years following the 
     unused credit year.
       ``(B) Rules.--Rules similar to the rules of section 39 
     shall apply with respect to the credit carryback and credit 
     carryforward under subparagraph (A).
       ``(6) Certain rules to apply.--Rules similar to the rules 
     of subsections (c), (d), and (e) of section 52 shall 
     apply.''.
       (2) No deduction for compensation taken into account for 
     credit.--Section 280C(a) (relating to rule for employment 
     credits), as amended by this Act, is amended--
       (A) by inserting ``or compensation'' after ``salaries'', 
     and
       (B) by inserting ``30D,'' before ``45A(a),''.
       (3) Conforming amendment.--Section 55(c)(2), as amended by 
     this Act, is amended by inserting ``30D(e)(1),'' after 
     ``30C(e),''.
       (4) Clerical amendment.--The table of sections for subpart 
     B of part IV of subchapter A of chapter 1, as amended by this 
     Act, is amended by adding after the item relating to section 
     30C the following new item:

``Sec. 30D. Credit for replacement of activated military reservists.''.
       (5) Effective date.--The amendments made by this subsection 
     shall apply to amounts paid or incurred after September 30, 
     2004, in taxable years ending after such date.
       (c) Application of Annual Exclusion Limit Under Section 911 
     to Housing Costs.--
       (1) In general.--Section 911(c) (relating to housing cost 
     amount) is amended by adding at the end the following new 
     paragraph:
       ``(4) Limit on exclusion for employer provided housing 
     costs.--The housing cost amount for any individual for any 
     taxable year attributable to employer provided amounts shall 
     not exceed the excess (if any) of--
       ``(A) the product of--
       ``(i) the exclusion amount determined under subsection 
     (b)(2)(D) for the taxable year, and
       ``(ii) a fraction equal to the number of days of the 
     taxable year within the applicable period described in 
     subparagraph (A) or (B) of subsection (d)(1) divided by the 
     number of days in the taxable year, over
       ``(B) the foreign earned income of the individual excluded 
     under subsection (a)(1) for the taxable year.''
       (2) Conforming amendment.--Section 911(c)(1) is amended by 
     striking ``The'' and inserting ``Except as provided in 
     paragraph (4), the''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2003.
                                 ______
                                 
  SA 3124. Ms. LANDRIEU submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       Beginning on page 441, strike line 10 through page 442, 
     line 13, and insert the following:
       ``(a) General Rule.--For purposes of section 38, the Ready 
     Reserve-National Guard employee credit determined under this 
     section for any taxable year with respect to each Ready 
     Reserve-National Guard employee of an employer is an amount 
     equal to 50 percent of the lesser of--
       ``(1) the actual compensation amount with respect to such 
     employee for such taxable year, or
       ``(2) $30,000.
       ``(b) Definition of Actual Compensation Amount.--For 
     purposes of this section, the term `actual compensation 
     amount' means the amount of compensation paid or incurred by 
     an employer with respect to a Ready Reserve-National Guard 
     employee on any day when the employee was absent from 
     employment for the purpose of performing qualified active 
     duty.
       ``(c) Limitations.--No credit shall be allowed with respect 
     to any day that a Ready Reserve-National Guard employee who 
     performs qualified active duty was not scheduled to work (for 
     reason other than to participate in qualified active duty).
                                 ______
                                 
  SA 3125. Mr. DASCHLE submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 557, between lines 9 and 10, insert the following:

     SEC. __. MODIFICATION OF EXEMPTION FROM SELF-EMPLOYMENT TAX 
                   FOR CERTAIN TERMINATION PAYMENTS RECEIVED BY 
                   FORMER INSURANCE SALESMEN.

       (a) Internal Revenue Code.--Paragraph (4) of section 
     1402(k) of the Internal Revenue Code of 1986 (relating to 
     codification of treatment of certain termination payments 
     received by former insurance salesmen) is amended--
       (1) by striking ``during the last year of such agreement'' 
     in subparagraph (A), and
       (2) by striking ``length of service or'' in subparagraph 
     (B).

[[Page S5099]]

       (b) Social Security Act.--Paragraph (4) of section 211(j) 
     of the Social Security Act is amended--
       (1) by striking ``during the last year of such agreement'' 
     in subparagraph (A), and
       (2) by striking ``length of service or'' in subparagraph 
     (B).
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments after the date of the enactment of 
     this Act.
                                 ______
                                 
  SA 3126. Mr. KYL submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       Strike all after the enacting clause and insert the 
     following:

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF 
                   CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Jumpstart 
     Our Business Strength (JOBS) Act''.
       (b) 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.
       (c) Table of Contents.--

Sec. 1. Short title; amendment of 1986 Code; table of contents.

        TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                        EXTRATERRITORIAL INCOME

Sec. 101. Repeal of exclusion for extraterritorial income.

             TITLE II--REDUCTION OF TOP CORPORATE TAX RATE

Sec. 201. Reduction in corporate income tax rate.

               TITLE III--ALTERNATIVE MINIMUM TAX RELIEF

Sec. 301. Reduction in corporate AMT rate.
Sec. 302. Increase in exemption from AMT for small corporations.
Sec. 303. Foreign tax credit under alternative minimum tax.

                    TITLE IV--ADDITIONAL PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 401. Clarification of economic substance doctrine.
Sec. 402. Penalty for failing to disclose reportable transaction.
Sec. 403. Accuracy-related penalty for listed transactions and other 
              reportable transactions having a significant tax 
              avoidance purpose.
Sec. 404. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 405. Modifications of substantial understatement penalty for 
              nonreportable transactions.
Sec. 406. Tax shelter exception to confidentiality privileges relating 
              to taxpayer communications.
Sec. 407. Disclosure of reportable transactions.
Sec. 408. Modifications to penalty for failure to register tax 
              shelters.
Sec. 409. Modification of penalty for failure to maintain lists of 
              investors.
Sec. 410. Modification of actions to enjoin certain conduct related to 
              tax shelters and reportable transactions.
Sec. 411. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 412. Penalty on failure to report interests in foreign financial 
              accounts.
Sec. 413. Frivolous tax submissions.
Sec. 414. Regulation of individuals practicing before the Department of 
              Treasury.
Sec. 415. Penalty on promoters of tax shelters.
Sec. 416. Statute of limitations for taxable years for which required 
              listed transactions not reported.
Sec. 417. Denial of deduction for interest on underpayments 
              attributable to nondisclosed reportable and noneconomic 
              substance transactions.
Sec. 418. Authorization of appropriations for tax law enforcement.

           Subtitle B--Other Corporate Governance Provisions

Sec. 421. Affirmation of consolidated return regulation authority.
Sec. 422. Increase in criminal monetary penalty limitation for the 
              underpayment or overpayment of tax due to fraud.

            Subtitle C--Enron-Related Tax Shelter Provisions

Sec. 431. Limitation on transfer or importation of built-in losses.
Sec. 432. No reduction of basis under section 734 in stock held by 
              partnership in corporate partner.
Sec. 433. Repeal of special rules for FASITs.
Sec. 434. Expanded disallowance of deduction for interest on 
              convertible debt.
Sec. 435. Expanded authority to disallow tax benefits under section 
              269.
Sec. 436. Modification of interaction between subpart F and passive 
              foreign investment company rules.

           Subtitle D--Provisions to Discourage Expatriation

Sec. 441. Tax treatment of inverted corporate entities.
Sec. 442. Imposition of mark-to-market tax on individuals who 
              expatriate.
Sec. 443. Excise tax on stock compensation of insiders in inverted 
              corporations.
Sec. 444. Reinsurance of United States risks in foreign jurisdictions.
Sec. 445. Reporting of taxable mergers and acquisitions.

                     Subtitle E--International Tax

Sec. 451. Clarification of banking business for purposes of determining 
              investment of earnings in United States property.
Sec. 452. Prohibition on nonrecognition of gain through complete 
              liquidation of holding company.
Sec. 453. Prevention of mismatching of interest and original issue 
              discount deductions and income inclusions in transactions 
              with related foreign persons.
Sec. 454. Effectively connected income to include certain foreign 
              source income.
Sec. 455. Recapture of overall foreign losses on sale of controlled 
              foreign corporation.
Sec. 456. Minimum holding period for foreign tax credit on withholding 
              taxes on income other than dividends.

                  Subtitle F--Other Revenue Provisions

                     Part I--Financial Instruments

Sec. 461. Treatment of stripped interests in bond and preferred stock 
              funds, etc.
Sec. 462. Application of earnings stripping rules to partnerships and S 
              corporations.
Sec. 463. Recognition of cancellation of indebtedness income realized 
              on satisfaction of debt with partnership interest.
Sec. 464. Modification of straddle rules.
Sec. 465. Denial of installment sale treatment for all readily 
              tradeable debt.

                 Part II--Corporations and Partnerships

Sec. 466. Modification of treatment of transfers to creditors in 
              divisive reorganizations.
Sec. 467. Clarification of definition of nonqualified preferred stock.
Sec. 468. Modification of definition of controlled group of 
              corporations.
Sec. 469. Mandatory basis adjustments in connection with partnership 
              distributions and transfers of partnership interests.

                Part III--Depreciation and Amortization

Sec. 471. Extension of amortization of intangibles to sports 
              franchises.
Sec. 472. Class lives for utility grading costs.
Sec. 473. Expansion of limitation on depreciation of certain passenger 
              automobiles.
Sec. 474. Consistent amortization of periods for intangibles.
Sec. 475. Reform of tax treatment of leasing operations.
Sec. 476. Limitation on deductions allocable to property used by 
              governments or other tax-exempt entities. 

                   Part IV--Administrative Provisions

Sec. 481. Clarification of rules for payment of estimated tax for 
              certain deemed asset sales.
Sec. 482. Extension of IRS user fees.
Sec. 483. Doubling of certain penalties, fines, and interest on 
              underpayments related to certain offshore financial 
              arrangement.
Sec. 484. Partial payment of tax liability in installment agreements.
Sec. 485. Extension of customs user fees.
Sec. 486. Deposits made to suspend running of interest on potential 
              underpayments.
Sec. 487. Qualified tax collection contracts.

                    Part V--Miscellaneous Provisions

Sec. 491. Addition of vaccines against hepatitis A to list of taxable 
              vaccines.
Sec. 492. Recognition of gain from the sale of a principal residence 
              acquired in a like-kind exchange within 5 years of sale.
Sec. 493. Clarification of exemption from tax for small property and 
              casualty insurance companies.
Sec. 494. Definition of insurance company for section 831.
Sec. 495. Limitations on deduction for charitable contributions of 
              patents and similar property.
Sec. 496. Increase in age of minor children whose unearned income is 
              taxed as if parent's income.

        TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                        EXTRATERRITORIAL INCOME

     SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

       (a) In General.--Section 114 is hereby repealed.

[[Page S5100]]

       (b) Conforming Amendments.--
       (1)(A) Subpart E of part III of subchapter N of chapter 1 
     (relating to qualifying foreign trade income) is hereby 
     repealed.
       (B) The table of subparts for such part III is amended by 
     striking the item relating to subpart E.
       (2) The table of sections for part III of subchapter B of 
     chapter 1 is amended by striking the item relating to section 
     114.
       (3) The second sentence of section 56(g)(4)(B)(i) is 
     amended by striking ``114 or''.
       (4) Section 275(a) is amended--
       (A) by inserting ``or'' at the end of paragraph (4)(A), by 
     striking ``or'' at the end of paragraph (4)(B) and inserting 
     a period, and by striking subparagraph (C), and
       (B) by striking the last sentence.
       (5) Paragraph (3) of section 864(e) is amended--
       (A) by striking:
       ``(3) Tax-exempt assets not taken into account.--
       ``(A) In general.--For purposes of''; and inserting:
       ``(3) Tax-exempt assets not taken into account.--For 
     purposes of'', and
       (B) by striking subparagraph (B).
       (6) Section 903 is amended by striking ``114, 164(a),'' and 
     inserting ``164(a)''.
       (7) Section 999(c)(1) is amended by striking 
     ``941(a)(5),''.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to transactions occurring after the date of the 
     enactment of this Act.
       (2) Binding contracts.--The amendments made by this section 
     shall not apply to any transaction in the ordinary course of 
     a trade or business which occurs pursuant to a binding 
     contract--
       (A) which is between the taxpayer and a person who is not a 
     related person (as defined in section 943(b)(3) of the 
     Internal Revenue Code of 1986, as in effect on the day before 
     the date of the enactment of this Act), and
       (B) which is in effect on September 17, 2003, and at all 
     times thereafter.
       (d) Revocation of Section 943(e) Elections.--
       (1) In general.--In the case of a corporation that elected 
     to be treated as a domestic corporation under section 943(e) 
     of the Internal Revenue Code of 1986 (as in effect on the day 
     before the date of the enactment of this Act)--
       (A) the corporation may, during the 1-year period beginning 
     on the date of the enactment of this Act, revoke such 
     election, effective as of such date of enactment, and
       (B) if the corporation does revoke such election--
       (i) such corporation shall be treated as a domestic 
     corporation transferring (as of such date of enactment) all 
     of its property to a foreign corporation in connection with 
     an exchange described in section 354 of such Code, and
       (ii) no gain or loss shall be recognized on such transfer.
       (2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall 
     not apply to gain on any asset held by the revoking 
     corporation if--
       (A) the basis of such asset is determined in whole or in 
     part by reference to the basis of such asset in the hands of 
     the person from whom the revoking corporation acquired such 
     asset,
       (B) the asset was acquired by transfer (not as a result of 
     the election under section 943(e) of such Code) occurring on 
     or after the 1st day on which its election under section 
     943(e) of such Code was effective, and
       (C) a principal purpose of the acquisition was the 
     reduction or avoidance of tax (other than a reduction in tax 
     under section 114 of such Code, as in effect on the day 
     before the date of the enactment of this Act).
       (e) General Transition.--
       (1) In general.--In the case of a taxable year ending after 
     the date of the enactment of this Act and beginning before 
     January 1, 2007, for purposes of chapter 1 of such Code, a 
     current FSC/ETI beneficiary shall be allowed a deduction 
     equal to the transition amount determined under this 
     subsection with respect to such beneficiary for such year.
       (2) Current fsc/eti beneficiary.--The term ``current FSC/
     ETI beneficiary'' means any corporation which entered into 
     one or more transactions during its taxable year beginning in 
     calendar year 2002 with respect to which FSC/ETI benefits 
     were allowable.
       (3) Transition amount.--For purposes of this subsection--
       (A) In general.--The transition amount applicable to any 
     current FSC/ETI beneficiary for any taxable year is the 
     phaseout percentage of the base period amount.
       (B) Phaseout percentage.--
       (i) In general.--In the case of a taxpayer using the 
     calendar year as its taxable year, the phaseout percentage 
     shall be determined under the following table:

      The phaseout
      percentage is:
         80 ...........................................................
         60............................................................
       (ii) Special rule for 2004.--The phaseout percentage for 
     2004 shall be the amount that bears the same ratio to 80 
     percent as the number of days after the date of the enactment 
     of this Act bears to 366.
       (iii) Special rule for fiscal year taxpayers.--In the case 
     of a taxpayer not using the calendar year as its taxable 
     year, the phaseout percentage is the weighted average of the 
     phaseout percentages determined under the preceding 
     provisions of this paragraph with respect to calendar years 
     any portion of which is included in the taxpayer's taxable 
     year. The weighted average shall be determined on the basis 
     of the respective portions of the taxable year in each 
     calendar year.
       (C) Short taxable year.--The Secretary shall prescribe 
     guidance for the computation of the transition amount in the 
     case of a short taxable year.
       (4) Base period amount.--For purposes of this subsection, 
     the base period amount is the average FSC/ETI benefit for the 
     taxpayer's taxable years beginning in calendar years 2000, 
     2001, and 2002.
       (5) FSC/ETI benefit.--For purposes of this subsection, the 
     term ``FSC/ETI benefit'' means--
       (A) amounts excludable from gross income under section 114 
     of such Code, and
       (B) the exempt foreign trade income of related foreign 
     sales corporations from property acquired from the taxpayer 
     (determined without regard to section 923(a)(5) of such Code 
     (relating to special rule for military property), as in 
     effect on the day before the date of the enactment of the FSC 
     Repeal and Extraterritorial Income Exclusion Act of 2000).

     In determining the FSC/ETI benefit there shall be excluded 
     any amount attributable to a transaction with respect to 
     which the taxpayer is the lessor unless the leased property 
     was manufactured or produced in whole or in significant part 
     by the taxpayer.
       (6) Special rule for agricultural and horticultural 
     cooperatives.--Determinations under this subsection with 
     respect to an organization described in section 943(g)(1) of 
     such Code, as in effect on the day before the date of the 
     enactment of this Act, shall be made at the cooperative level 
     and the purposes of this subsection shall be carried out in a 
     manner similar to section 199(h)(2) of such Code, as added by 
     this Act. Such determinations shall be in accordance with 
     such requirements and procedures as the Secretary may 
     prescribe.
       (7) Certain rules to apply.--Rules similar to the rules of 
     section 41(f) of such Code shall apply for purposes of this 
     subsection.
       (8) Coordination with binding contract rule.--The deduction 
     determined under paragraph (1) for any taxable year shall be 
     reduced by the phaseout percentage of any FSC/ETI benefit 
     realized for the taxable year by reason of subsection (c)(2) 
     or section 5(c)(1)(B) of the FSC Repeal and Extraterritorial 
     Income Exclusion Act of 2000, except that for purposes of 
     this paragraph the phaseout percentage for 2004 shall be 
     treated as being equal to 100 percent.
       (9) Special rule for taxable year which includes date of 
     enactment.--In the case of a taxable year which includes the 
     date of the enactment of this Act, the deduction allowed 
     under this subsection to any current FSC/ETI beneficiary 
     shall in no event exceed--
       (A) 100 percent of such beneficiary's base period amount 
     for calendar year 2004, reduced by
       (B) the FSC/ETI benefit of such beneficiary with respect to 
     transactions occurring during the portion of the taxable year 
     ending on the date of the enactment of this Act.

             TITLE II--REDUCTION OF TOP CORPORATE TAX RATE

     SEC. 201. REDUCTION IN CORPORATE INCOME TAX RATE.

       (a) In General.--Subsection (b) of section 11 (relating to 
     tax imposed on corporations) is amended by redesignating 
     paragraph (2) as paragraph (6) and by striking paragraph (1) 
     and inserting the following new paragraphs:
       ``(1) For taxable years beginning after 2009.--In the case 
     of taxable years beginning after 2009, the amount of the tax 
     imposed by subsection (a) shall be determined in accordance 
     with the following table:

The tax is:e income is:
15% of taxable income..................................................
$7,500, plus 25% of the excess over $50,000............................
$13,750, plus 33% of the excess over $75,000...........................
       ``(2) For taxable years beginning in 2006, 2007, 2008, or 
     2009.--In the case of taxable years beginning in 2006, 2007, 
     2008, or 2009, the amount of the tax imposed by subsection 
     (a) shall be determined in accordance with the following 
     table:

The tax is:e income is:
15% of taxable income..................................................
$7,500, plus 25% of the excess over $50,000............................
$13,750, plus 33.5% of the excess over $75,000.........................
       ``(3) For taxable years beginning in 2005.--In the case of 
     taxable years beginning in 2005, the amount of the tax 
     imposed by subsection (a) shall be determined in accordance 
     with the following table:

The tax is:e income is:
15% of taxable income..................................................
$7,500, plus 25% of the excess over $50,000............................
$13,750, plus 34% of the excess over $75,000...........................
       ``(4) For taxable years beginning in 2004.--In the case of 
     taxable years beginning in 2004, the amount of the tax 
     imposed by subsection (a) shall be determined in accordance 
     with the following table:

The tax is:e income is:
15% of taxable income..................................................
$7,500, plus 25% of the excess over $50,000............................
$13,750, plus 34% of the excess over $75,000...........................
$3,388,250, plus 34.5% of the excess over $10,000,000..................

[[Page S5101]]

       ``(5) Phaseout of lower rates for certain taxpayers.--
       ``(A) General rule.--In the case of a corporation which has 
     taxable income in excess of $100,000 for any taxable year, 
     the amount of tax determined under paragraph (1), (2), (3) or 
     (4) for such taxable year shall be increased by the lesser of 
     (i) 5 percent of such excess, or (ii) $11,000 ($11,750 in the 
     case of taxable years beginning before 2006 and $11,375 in 
     the case of taxable years beginning after 2005 and before 
     2010).
       ``(B) Higher income corporations.--In the case of a 
     corporation which has taxable income in excess of $15,000,000 
     for taxable years beginning in 2004, the amount of the tax 
     determined under the foregoing provisions of this subsection 
     shall be increased by an additional amount equal to the 
     lesser of (i) 3 percent of such excess, or (ii) $50,000.''.
       (b) Conforming Amendments.--
       (1) Section 904(b)(3)(D)(ii) is amended to read as follows:
       ``(ii) in the case of a corporation, section 1201(a) 
     applies to such taxable year.''.
       (2) Section 1201(a) is amended by striking ``the last 2 
     sentences of section 11(b)(1)'' and inserting ``section 
     11(b)(5)''.
       (3) Section 1561(a) is amended--
       (A) by striking ``the last 2 sentences of section 
     11(b)(1)'' and inserting ``section 11(b)(5)'', and
       (B) by striking ``such last 2 sentences'' and inserting 
     ``section 11(b)(5)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

               TITLE III--ALTERNATIVE MINIMUM TAX RELIEF

     SEC. 301. REDUCTION IN CORPORATE AMT RATE.

       (a) In General.--Section 55(b)(1)(B)(i) (relating to amount 
     of tentative tax for corporations) is amended by striking 
     ``20 percent'' and inserting ``19 percent (19.5 percent for 
     taxable years beginning in 2004 or 2005)''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 302. INCREASE IN EXEMPTION FROM AMT FOR SMALL 
                   CORPORATIONS.

       (a) In General.--Paragraph (1) of section 55(e) (relating 
     to exemption for small corporations) is amended--
       (1) by striking ``$7,500,000'' in the heading and the text 
     of subparagraph (A) and inserting ``$15,000,000'',
       (2) by striking subparagraph (B), and
       (3) by redesignating subparagraphs (C) and (D) as 
     subparagraphs (B) and (C), respectively.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 303. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.

       (a) In General.--
       (1) Subsection (a) of section 59 is amended by striking 
     paragraph (2) and by redesignating paragraphs (3) and (4) as 
     paragraphs (2) and (3), respectively.
       (2) Section 53(d)(1)(B)(i)(II) is amended by striking ``and 
     if section 59(a)(2) did not apply''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

                    TITLE IV--ADDITIONAL PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 401. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

       (a) In General.--Section 7701 is amended by redesignating 
     subsection (n) as subsection (o) and by inserting after 
     subsection (m) the following new subsection:
       ``(n) Clarification of Economic Substance Doctrine; Etc.--
       ``(1) General rules.--
       ``(A) In general.--In any case in which a court determines 
     that the economic substance doctrine is relevant for purposes 
     of this title to a transaction (or series of transactions), 
     such transaction (or series of transactions) shall have 
     economic substance only if the requirements of this paragraph 
     are met.
       ``(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) 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.

     In applying subclause (II), 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.
       ``(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) 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.
       ``(D) Treatment of lessors.--In applying paragraph 
     (1)(B)(ii) to the lessor of tangible property subject to a 
     lease--
       ``(i) the expected net tax benefits with respect to the 
     leased property shall not include the benefits of--

       ``(I) depreciation,
       ``(II) any tax credit, or
       ``(III) any other deduction as provided in guidance by the 
     Secretary, and

       ``(ii) 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 the date of 
     the enactment of this Act.

     SEC. 402. 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

[[Page S5102]]

     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. 403. 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 assertion and compromise of 
     penalty.--
       ``(A) In general.--Only upon the approval by the Chief 
     Counsel for the Internal Revenue Service or the Chief 
     Counsel's delegate at the national office of the Internal 
     Revenue Service may a penalty to which paragraph (1) applies 
     be included in a 1st letter of proposed deficiency which 
     allows the taxpayer an opportunity for administrative review 
     in the Internal Revenue Service Office of Appeals. If such a 
     letter is provided to the taxpayer, only the Commissioner of 
     Internal Revenue may compromise all or any portion of such 
     penalty.
       ``(B) Applicable rules.--The rules of paragraphs (2), (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:


[[Page S5103]]


     ``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 disqualifying 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. 404. 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(n)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(n)(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 (2), (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 the date of 
     the enactment of this Act.

     SEC. 405. 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

[[Page S5104]]

     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. 406. 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. 407. 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, managing, 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) Required Disclosure Not Subject to Claim of 
     Confidentiality.--Subparagraph (A) of section 6112(b)(1), as 
     redesignated by subsection (b)(2)(B), is amended by adding at 
     the end the following new flush sentence:
     ``For purposes of this section, the identity of any person on 
     such list shall not be privileged.''.
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), 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.
       (2) No claim of confidentiality against disclosure.--The 
     amendment made by subsection (c) shall take effect as if 
     included in the amendments made by section 142 of the Deficit 
     Reduction Act of 1984.

     SEC. 408. 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 listed 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) Certain Rules To Apply.--The provisions of section 
     6707A(d) 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. 409. 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. 410. 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

[[Page S5105]]

     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. 411. 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. 412. 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. 413. 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

[[Page S5106]]

     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. 414. 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 of the representative.''.
       (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. 415. 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. 416. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   REQUIRED LISTED TRANSACTIONS NOT REPORTED.

       (a) In General.--Section 6501(c) (relating to exceptions) 
     is amended by adding at the end the following new paragraph:
       ``(10) 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 time for 
     assessment of any tax imposed by this title with respect to 
     such transaction shall not expire before the date which is 1 
     year after the earlier of--
       ``(A) the date on which the Secretary is furnished the 
     information so required; or
       ``(B) the date that a material advisor (as defined in 
     section 6111) meets the requirements of section 6112 with 
     respect to a request by the Secretary under section 6112(b) 
     relating to such transaction with respect to such 
     taxpayer.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years with respect to which the period 
     for assessing a deficiency did not expire before the date of 
     the enactment of this Act.

     SEC. 417. 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 in taxable years beginning after 
     the date of the enactment of this Act.

     SEC. 418. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW 
                   ENFORCEMENT.

       There is authorized to be appropriated $300,000,000 for 
     each fiscal year beginning after September 30, 2003, for the 
     purpose of carrying out tax law enforcement to combat tax 
     avoidance transactions and other tax shelters, including the 
     use of offshore financial accounts to conceal taxable income.

           Subtitle B--Other Corporate Governance Provisions

     SEC. 421. 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. 422. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION 
                   FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE 
                   TO FRAUD.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) In 
     General.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due to Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$250,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``misdemeanor'' and inserting ``felony'', 
     and
       (ii) by striking ``1 year'' and inserting ``10 years'', and
       (B) by striking the third sentence.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$250,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to underpayments and overpayments attributable to 
     actions occurring after the date of the enactment of this 
     Act.

            Subtitle C--Enron-Related Tax Shelter Provisions

     SEC. 431. 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 subparagraph 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.

[[Page S5107]]

       ``(2) Limitation on transfer of built-in losses in section 
     351 transactions.--
       ``(A) In general.--If--
       ``(i) property is transferred by a transferor 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 such 
     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 February 13, 2003.

     SEC. 432. 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 
     (or any person which is related (within the meaning of 
     section 267(b) or 707(b)(1)) to such 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 in such manner as the Secretary 
     may prescribe.

     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 February 13, 2003.

     SEC. 433. 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)(A) Section 860G(a)(1) is amended by adding at the end 
     the following new sentence: ``An interest shall not fail to 
     qualify as a regular interest solely because the specified 
     principal amount of the regular interest (or the amount of 
     interest accrued on the regular interest) can be reduced as a 
     result of the nonoccurrence of 1 or more contingent payments 
     with respect to any reverse mortgage loan held by the REMIC 
     if, on the startup day for the REMIC, the sponsor reasonably 
     believes that all principal and interest due under the 
     regular interest will be paid at or prior to the liquidation 
     of the REMIC.''.
       (B) The last sentence of section 860G(a)(3) is amended by 
     inserting ``, and any reverse mortgage loan (and each balance 
     increase on such loan meeting the requirements of 
     subparagraph (A)(iii)) shall be treated as an obligation 
     secured by an interest in real property'' before the period 
     at the end.
       (6) Paragraph (3) 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).
       (7) Section 860G(a)(3), as amended by paragraph (6), is 
     amended by adding at the end the following new sentence: 
     ``For purposes of subparagraph (A), if more than 50 percent 
     of the obligations transferred to, or purchased by, the REMIC 
     are originated by the United States or any State (or any 
     political subdivision, agency, or instrumentality of the 
     United States or any State) and are principally secured by an 
     interest in real property, then each obligation transferred 
     to, or purchased by, the REMIC shall be treated as secured by 
     an interest in real property.''.
       (8)(A) Section 860G(a)(3)(A) is amended by striking ``or'' 
     at the end of clause (i), by inserting ``or'' at the end of 
     clause (ii), and by inserting after clause (ii) the following 
     new clause:
       ``(iii) represents an increase in the principal amount 
     under the original terms of an obligation described in clause 
     (i) or (ii) if such increase--

       ``(I) is attributable to an advance made to the obligor 
     pursuant to the original terms of the obligation,
       ``(II) occurs after the startup day, and
       ``(III) is purchased by the REMIC pursuant to a fixed price 
     contract in effect on the startup day.''.

       (B) Section 860G(a)(7)(B) is amended to read as follows:
       ``(B) Qualified reserve fund.--For purposes of subparagraph 
     (A), the term `qualified reserve fund' means any reasonably 
     required reserve to--
       ``(i) provide for full payment of expenses of the REMIC or 
     amounts due on regular interests in the event of defaults on 
     qualified mortgages or lower than expected returns on cash 
     flow investments, or
       ``(ii) provide a source of funds for the purchase of 
     obligations described in clause (ii) or (iii) of paragraph 
     (3)(A).

     The aggregate fair market value of the assets held in any 
     such reserve shall not exceed 50 percent of the aggregate 
     fair market value of all of the assets of the REMIC on the 
     startup day, and the amount of any such reserve shall be 
     promptly and appropriately reduced to the extent the amount 
     held in such reserve is no longer reasonably required for 
     purposes specified in clause (i) or (ii) of paragraph 
     (3)(A).''.
       (9) Subparagraph (C) of section 1202(e)(4) is amended by 
     striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
       (10) Clause (xi) of section 7701(a)(19)(C) is amended--
       (A) by striking ``and any regular interest in a FASIT,'', 
     and
       (B) by striking ``or FASIT'' each place it appears.
       (11) Subparagraph (A) of section 7701(i)(2) is amended by 
     striking ``or a FASIT''.
       (12) 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 take effect on February 
     14, 2003.
       (2) Exception for existing fasits.--Paragraph (1) shall not 
     apply to any FASIT in existence on the date of the enactment 
     of this Act to the extent that regular interests issued by 
     the FASIT before such date continue to remain outstanding in 
     accordance with the original terms of issuance.

     SEC. 434. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON 
                   CONVERTIBLE DEBT.

       (a) In General.--Paragraph (2) of section 163(l) is amended 
     by inserting ``or equity held by the issuer (or any related 
     party) in any other person'' after ``or a related party''.
       (b) Capitalization Allowed With Respect to Equity of 
     Persons Other Than Issuer and Related Parties.--Section 
     163(l) is amended by redesignating paragraphs (4) and (5) as 
     paragraphs (5) and (6) and by inserting after paragraph (3) 
     the following new paragraph:
       ``(4) Capitalization allowed with respect to equity of 
     persons other than issuer and related parties.--If the 
     disqualified debt instrument of a corporation is payable in 
     equity held by the issuer (or any related party) in any other 
     person (other than a related party), the basis of such equity 
     shall be increased by the amount not allowed as a deduction 
     by reason of paragraph (1) with respect to the instrument.''.
       (c) Exception for Certain Instruments Issued by Dealers in 
     Securities.--Section 163(l), as amended by subsection (b), is 
     amended by redesignating paragraphs (5) and (6) as paragraphs 
     (6) and (7) and by inserting after paragraph (4) the 
     following new paragraph:
       ``(5) Exception for certain instruments issued by dealers 
     in securities.--For purposes of this subsection, the term 
     `disqualified debt instrument' does not include indebtedness 
     issued by a dealer in securities (or a related party) which 
     is payable in, or by reference to, equity (other than equity 
     of the issuer or a related party) held by such dealer in its 
     capacity as a dealer in securities. For purposes of this 
     paragraph, the term `dealer in securities' has the meaning 
     given such term by section 475.''.

[[Page S5108]]

       (c) Conforming Amendments.--Paragraph (3) of section 163(l) 
     is amended--
       (1) by striking ``or a related party'' in the material 
     preceding subparagraph (A) and inserting ``or any other 
     person'', and
       (2) by striking ``or interest'' each place it appears.
       (d) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after February 13, 
     2003.

     SEC. 435. 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 or persons acquire, directly or 
     indirectly, control of 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,

     then the Secretary may disallow such deduction, credit, or 
     other allowance. For purposes of paragraph (1)(A), control 
     means the ownership of stock possessing at least 50 percent 
     of the total combined voting power of all classes of stock 
     entitled to vote or at least 50 percent of the total value of 
     all shares of all classes of stock of the corporation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to stock and property acquired after February 13, 
     2003.

     SEC. 436. MODIFICATION OF INTERACTION BETWEEN SUBPART F AND 
                   PASSIVE FOREIGN INVESTMENT COMPANY RULES.

       (a) Limitation on Exception From PFIC Rules for United 
     States Shareholders of Controlled Foreign Corporations.--
     Paragraph (2) of section 1297(e) (relating to passive foreign 
     investment company) is amended by adding at the end the 
     following flush sentence:

     ``Such term shall not include any period if the earning of 
     subpart F income by such corporation during such period would 
     result in only a remote likelihood of an inclusion in gross 
     income under section 951(a)(1)(A)(i).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years of controlled foreign 
     corporations beginning after February 13, 2003, and to 
     taxable years of United States shareholders with or within 
     which such taxable years of controlled foreign corporations 
     end.

           Subtitle D--Provisions to Discourage Expatriation

     SEC. 441. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.

       (a) In General.--Subchapter C of chapter 80 (relating to 
     provisions affecting more than one subtitle) is amended by 
     adding at the end the following new section:

     ``SEC. 7874. RULES RELATING TO INVERTED CORPORATE ENTITIES.

       ``(a) Inverted Corporations Treated as Domestic 
     Corporations.--
       ``(1) In general.--If a foreign incorporated entity is 
     treated as an inverted domestic corporation, then, 
     notwithstanding section 7701(a)(4), such entity shall be 
     treated for purposes of this title as a domestic corporation.
       ``(2) Inverted domestic corporation.--For purposes of this 
     section, a foreign incorporated entity shall be treated as an 
     inverted domestic corporation if, pursuant to a plan (or a 
     series of related transactions)--
       ``(A) the entity completes after March 20, 2002, the direct 
     or indirect acquisition of substantially all of the 
     properties held directly or indirectly by a domestic 
     corporation or substantially all of the properties 
     constituting a trade or business of a domestic partnership,
       ``(B) after the acquisition at least 80 percent of the 
     stock (by vote or value) of the entity is held--
       ``(i) in the case of an acquisition with respect to a 
     domestic corporation, by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation, or
       ``(ii) in the case of an acquisition with respect to a 
     domestic partnership, by former partners of the domestic 
     partnership by reason of holding a capital or profits 
     interest in the domestic partnership, and
       ``(C) the expanded affiliated group which after the 
     acquisition includes the entity does not have substantial 
     business activities in the foreign country in which or under 
     the law of which the entity is created or organized when 
     compared to the total business activities of such expanded 
     affiliated group.

     Except as provided in regulations, an acquisition of 
     properties of a domestic corporation shall not be treated as 
     described in subparagraph (A) if none of the corporation's 
     stock was readily tradeable on an established securities 
     market at any time during the 4-year period ending on the 
     date of the acquisition.
       ``(b) Preservation of Domestic Tax Base in Certain 
     Inversion Transactions to Which Subsection (a) Does Not 
     Apply.--
       ``(1) In general.--If a foreign incorporated entity would 
     be treated as an inverted domestic corporation with respect 
     to an acquired entity if either--
       ``(A) subsection (a)(2)(A) were applied by substituting 
     `after December 31, 1996, and on or before March 20, 2002' 
     for `after March 20, 2002' and subsection (a)(2)(B) were 
     applied by substituting `more than 50 percent' for `at least 
     80 percent', or
       ``(B) subsection (a)(2)(B) were applied by substituting 
     `more than 50 percent' for `at least 80 percent',

     then the rules of subsection (c) shall apply to any inversion 
     gain of the acquired entity during the applicable period and 
     the rules of subsection (d) shall apply to any related party 
     transaction of the acquired entity during the applicable 
     period. This subsection shall not apply for any taxable year 
     if subsection (a) applies to such foreign incorporated entity 
     for such taxable year.
       ``(2) Acquired entity.--For purposes of this section--
       ``(A) In general.--The term `acquired entity' means the 
     domestic corporation or partnership substantially all of the 
     properties of which are directly or indirectly acquired in an 
     acquisition described in subsection (a)(2)(A) to which this 
     subsection applies.
       ``(B) Aggregation rules.--Any domestic person bearing a 
     relationship described in section 267(b) or 707(b) to an 
     acquired entity shall be treated as an acquired entity with 
     respect to the acquisition described in subparagraph (A).
       ``(3) Applicable period.--For purposes of this section--
       ``(A) In general.--The term `applicable period' means the 
     period--
       ``(i) beginning on the first date properties are acquired 
     as part of the acquisition described in subsection (a)(2)(A) 
     to which this subsection applies, and
       ``(ii) ending on the date which is 10 years after the last 
     date properties are acquired as part of such acquisition.
       ``(B) Special rule for inversions occurring before march 
     21, 2002.--In the case of any acquired entity to which 
     paragraph (1)(A) applies, the applicable period shall be the 
     10-year period beginning on January 1, 2003.
       ``(c) Tax on Inversion Gains May Not Be Offset.--If 
     subsection (b) applies--
       ``(1) In general.--The taxable income of an acquired entity 
     (or any expanded affiliated group which includes such entity) 
     for any taxable year which includes any portion of the 
     applicable period shall in no event be less than the 
     inversion gain of the entity for the taxable year.
       ``(2) Credits not allowed against tax on inversion gain.--
     Credits shall be allowed against the tax imposed by this 
     chapter on an acquired entity for any taxable year described 
     in paragraph (1) only to the extent such tax exceeds the 
     product of--
       ``(A) the amount of the inversion gain for the taxable 
     year, and
       ``(B) the highest rate of tax specified in section 
     11(b)(1).
     For purposes of determining the credit allowed by section 901 
     inversion gain shall be treated as from sources within the 
     United States.
       ``(3) Special rules for partnerships.--In the case of an 
     acquired entity which is a partnership--
       ``(A) the limitations of this subsection shall apply at the 
     partner rather than the partnership level,
       ``(B) the inversion gain of any partner for any taxable 
     year shall be equal to the sum of--
       ``(i) the partner's distributive share of inversion gain of 
     the partnership for such taxable year, plus
       ``(ii) income or gain required to be recognized for the 
     taxable year by the partner under section 367(a), 741, or 
     1001, or under any other provision of chapter 1, by reason of 
     the transfer during the applicable period of any partnership 
     interest of the partner in such partnership to the foreign 
     incorporated entity, and
       ``(C) the highest rate of tax specified in the rate 
     schedule applicable to the partner under chapter 1 shall be 
     substituted for the rate of tax under paragraph (2)(B).
       ``(4) Inversion gain.--For purposes of this section, the 
     term `inversion gain' means any income or gain required to be 
     recognized under section 304, 311(b), 367, 1001, or 1248, or 
     under any other provision of chapter 1, by reason of the 
     transfer during the applicable period of stock or other 
     properties by an acquired entity--
       ``(A) as part of the acquisition described in subsection 
     (a)(2)(A) to which subsection (b) applies, or
       ``(B) after such acquisition to a foreign related person.

     The Secretary may provide that income or gain from the sale 
     of inventories or other transactions in the ordinary course 
     of a trade or business shall not be treated as inversion gain 
     under subparagraph (B) to the extent the Secretary determines 
     such treatment would not be inconsistent with the purposes of 
     this section.
       ``(5) Coordination with section 172 and minimum tax.--Rules 
     similar to the rules of paragraphs (3) and (4) of section 
     860E(a) shall apply for purposes of this section.
       ``(6) Statute of limitations.--
       ``(A) In general.--The statutory period for the assessment 
     of any deficiency attributable to the inversion gain of any 
     taxpayer for any pre-inversion year shall not expire before 
     the expiration of 3 years from the date the Secretary is 
     notified by the taxpayer (in such manner as the Secretary may 
     prescribe) of the acquisition described in subsection 
     (a)(2)(A) to which such gain relates and such deficiency may 
     be assessed before the expiration of such 3-year period 
     notwithstanding the provisions of any other law or rule of 
     law

[[Page S5109]]

     which would otherwise prevent such assessment.
       ``(B) Pre-inversion year.--For purposes of subparagraph 
     (A), the term `pre-inversion year' means any taxable year 
     if--
       ``(i) any portion of the applicable period is included in 
     such taxable year, and
       ``(ii) such year ends before the taxable year in which the 
     acquisition described in subsection (a)(2)(A) is completed.
       ``(d) Special Rules Applicable to Acquired Entities to 
     Which Subsection (b) Applies.--
       ``(1) Increases in accuracy-related penalties.--In the case 
     of any underpayment of tax of an acquired entity to which 
     subsection (b) applies--
       ``(A) section 6662(a) shall be applied with respect to such 
     underpayment by substituting `30 percent' for `20 percent', 
     and
       ``(B) if such underpayment is attributable to one or more 
     gross valuation understatements, the increase in the rate of 
     penalty under section 6662(h) shall be to 50 percent rather 
     than 40 percent.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an acquired entity to which subsection (b) 
     applies, section 163(j) shall be applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.
       ``(e) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Rules for application of subsection (a)(2).--In 
     applying subsection (a)(2) for purposes of subsections (a) 
     and (b), the following rules shall apply:
       ``(A) Certain stock disregarded.--There shall not be taken 
     into account in determining ownership for purposes of 
     subsection (a)(2)(B)--
       ``(i) stock held by members of the expanded affiliated 
     group which includes the foreign incorporated entity, or
       ``(ii) stock of such entity which is sold in a public 
     offering or private placement related to the acquisition 
     described in subsection (a)(2)(A).
       ``(B) Plan deemed in certain cases.--If a foreign 
     incorporated entity acquires directly or indirectly 
     substantially all of the properties of a domestic corporation 
     or partnership during the 4-year period beginning on the date 
     which is 2 years before the ownership requirements of 
     subsection (a)(2)(B) are met with respect to such domestic 
     corporation or partnership, such actions shall be treated as 
     pursuant to a plan.
       ``(C) Certain transfers disregarded.--The transfer of 
     properties or liabilities (including by contribution or 
     distribution) shall be disregarded if such transfers are part 
     of a plan a principal purpose of which is to avoid the 
     purposes of this section.
       ``(D) Special rule for related partnerships.--For purposes 
     of applying subsection (a)(2) to the acquisition of a 
     domestic partnership, except as provided in regulations, all 
     partnerships which are under common control (within the 
     meaning of section 482) shall be treated as 1 partnership.
       ``(E) Treatment of certain rights.--The Secretary shall 
     prescribe such regulations as may be necessary--
       ``(i) to treat warrants, options, contracts to acquire 
     stock, convertible debt instruments, and other similar 
     interests as stock, and
       ``(ii) to treat stock as not stock.
       ``(2) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a) but without regard to section 1504(b)(3), 
     except that section 1504(a) shall be applied by substituting 
     `more than 50 percent' for `at least 80 percent' each place 
     it appears.
       ``(3) Foreign incorporated entity.--The term `foreign 
     incorporated entity' means any entity which is, or but for 
     subsection (a)(1) would be, treated as a foreign corporation 
     for purposes of this title.
       ``(4) Foreign related person.--The term `foreign related 
     person' means, with respect to any acquired entity, a foreign 
     person which--
       ``(A) bears a relationship to such entity described in 
     section 267(b) or 707(b), or
       ``(B) is under the same common control (within the meaning 
     of section 482) as such entity.
       ``(5) Subsequent acquisitions by unrelated domestic 
     corporations.--
       ``(A) In general.--Subject to such conditions, limitations, 
     and exceptions as the Secretary may prescribe, if, after an 
     acquisition described in subsection (a)(2)(A) to which 
     subsection (b) applies, a domestic corporation stock of which 
     is traded on an established securities market acquires 
     directly or indirectly any properties of one or more acquired 
     entities in a transaction with respect to which the 
     requirements of subparagraph (B) are met, this section shall 
     cease to apply to any such acquired entity with respect to 
     which such requirements are met.
       ``(B) Requirements.--The requirements of the subparagraph 
     are met with respect to a transaction involving any 
     acquisition described in subparagraph (A) if--
       ``(i) before such transaction the domestic corporation did 
     not have a relationship described in section 267(b) or 
     707(b), and was not under common control (within the meaning 
     of section 482), with the acquired entity, or any member of 
     an expanded affiliated group including such entity, and
       ``(ii) after such transaction, such acquired entity--

       ``(I) is a member of the same expanded affiliated group 
     which includes the domestic corporation or has such a 
     relationship or is under such common control with any member 
     of such group, and
       ``(II) is not a member of, and does not have such a 
     relationship and is not under such common control with any 
     member of, the expanded affiliated group which before such 
     acquisition included such entity.

       ``(f) Regulations.--The Secretary shall provide such 
     regulations as are necessary to carry out this section, 
     including regulations providing for such adjustments to the 
     application of this section as are necessary to prevent the 
     avoidance of the purposes of this section, including the 
     avoidance of such purposes through--
       ``(1) the use of related persons, pass-thru or other 
     noncorporate entities, or other intermediaries, or
       ``(2) transactions designed to have persons cease to be (or 
     not become) members of expanded affiliated groups or related 
     persons.''.
       (b) Information Reporting.--The Secretary of the Treasury 
     shall exercise the Secretary's authority under the Internal 
     Revenue Code of 1986 to require entities involved in 
     transactions to which section 7874 of such Code (as added by 
     subsection (a)) applies to report to the Secretary, 
     shareholders, partners, and such other persons as the 
     Secretary may prescribe such information as is necessary to 
     ensure the proper tax treatment of such transactions.
       (c) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 80 is amended by adding at the end 
     the following new item:

``Sec. 7874. Rules relating to inverted corporate entities.''.
       (d) Transition Rule for Certain Regulated Investment 
     Companies and Unit Investment Trusts.--Notwithstanding 
     section 7874 of the Internal Revenue Code of 1986 (as added 
     by subsection (a)), a regulated investment company, or other 
     pooled fund or trust specified by the Secretary of the 
     Treasury, may elect to recognize gain by reason of section 
     367(a) of such Code with respect to a transaction under which 
     a foreign incorporated entity is treated as an inverted 
     domestic corporation under section 7874(a) of such Code by 
     reason of an acquisition completed after March 20, 2002, and 
     before January 1, 2004.

     SEC. 442. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS WHO 
                   EXPATRIATE.

       (a) In General.--Subpart A of part II of subchapter N of 
     chapter 1 is amended by inserting after section 877 the 
     following new section:

     ``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies shall be treated as sold on the day 
     before the expatriation date for its fair market value.
       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply to any such loss.

     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2004, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2003' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,

[[Page S5110]]

       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election To Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property treated as 
     sold by reason of subsection (a), the payment of the 
     additional tax attributable to such property shall be 
     postponed until the due date of the return for the taxable 
     year in which such property is disposed of (or, in the case 
     of property disposed of in a transaction in which gain is not 
     recognized in whole or in part, until such other date as the 
     Secretary may prescribe).
       ``(2) Determination of tax with respect to property.--For 
     purposes of paragraph (1), the additional tax attributable to 
     any property is an amount which bears the same ratio to the 
     additional tax imposed by this chapter for the taxable year 
     solely by reason of subsection (a) as the gain taken into 
     account under subsection (a) with respect to such property 
     bears to the total gain taken into account under subsection 
     (a) with respect to all property to which subsection (a) 
     applies.
       ``(3) Termination of postponement.--No tax may be postponed 
     under this subsection later than the due date for the return 
     of tax imposed by this chapter for the taxable year which 
     includes the date of death of the expatriate (or, if earlier, 
     the time that the security provided with respect to the 
     property fails to meet the requirements of paragraph (4), 
     unless the taxpayer corrects such failure within the time 
     specified by the Secretary).
       ``(4) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided to the Secretary with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be made under paragraph 
     (1) with respect to an interest in a trust with respect to 
     which gain is required to be recognized under subsection 
     (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or
       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18\1/
     2\, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.
       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution described in 
     subparagraph (B) in the same manner as such distribution 
     would be treated without regard to this paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     United States nationality before a diplomatic or consular 
     officer of the United States pursuant to paragraph (5) of 
     section 349(a) of the Immigration and Nationality Act (8 
     U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.

     Subparagraph (A) or (B) shall not apply to any individual 
     unless the renunciation or voluntary relinquishment is 
     subsequently approved by the issuance to the individual of a 
     certificate of loss of nationality by the United States 
     Department of State.
       ``(4) Long-term resident.--The term `long-term resident' 
     has the meaning given to such term by section 877(e)(2).
       ``(f) Special Rules Applicable to Beneficiaries' Interests 
     in Trust.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     an individual is determined under paragraph (3) to hold an 
     interest in a trust on the day before the expatriation date--
       ``(A) the individual shall not be treated as having sold 
     such interest,
       ``(B) such interest shall be treated as a separate share in 
     the trust, and
       ``(C)(i) such separate share shall be treated as a separate 
     trust consisting of the assets allocable to such share,
       ``(ii) the separate trust shall be treated as having sold 
     its assets on the day before the expatriation date for their 
     fair market value and as having distributed all of its assets 
     to the individual as of such time, and
       ``(iii) the individual shall be treated as having 
     recontributed the assets to the separate trust.

     Subsection (a)(2) shall apply to any income, gain, or loss of 
     the individual arising from a distribution described in 
     subparagraph (C)(ii). In determining the amount of such 
     distribution, proper adjustments shall be made for 
     liabilities of the trust allocable to an individual's share 
     in the trust.
       ``(2) Special rules for interests in qualified trusts.--

[[Page S5111]]

       ``(A) In general.--If the trust interest described in 
     paragraph (1) is an interest in a qualified trust--
       ``(i) paragraph (1) and subsection (a) shall not apply, and
       ``(ii) in addition to any other tax imposed by this title, 
     there is hereby imposed on each distribution with respect to 
     such interest a tax in the amount determined under 
     subparagraph (B).
       ``(B) Amount of tax.--The amount of tax under subparagraph 
     (A)(ii) shall be equal to the lesser of--
       ``(i) the highest rate of tax imposed by section 1(e) for 
     the taxable year which includes the day before the 
     expatriation date, multiplied by the amount of the 
     distribution, or
       ``(ii) the balance in the deferred tax account immediately 
     before the distribution determined without regard to any 
     increases under subparagraph (C)(ii) after the 30th day 
     preceding the distribution.
       ``(C) Deferred tax account.--For purposes of subparagraph 
     (B)(ii)--
       ``(i) Opening balance.--The opening balance in a deferred 
     tax account with respect to any trust interest is an amount 
     equal to the tax which would have been imposed on the 
     allocable expatriation gain with respect to the trust 
     interest if such gain had been included in gross income under 
     subsection (a).
       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods, 
     except that section 6621(a)(2) shall be applied by 
     substituting `5 percentage points' for `3 percentage points' 
     in subparagraph (B) thereof.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--

       ``(I) by the amount of taxes imposed by subparagraph (A) on 
     any distribution to the person holding the trust interest, 
     and
       ``(II) in the case of a person holding a nonvested 
     interest, to the extent provided in regulations, by the 
     amount of taxes imposed by subparagraph (A) on distributions 
     from the trust with respect to nonvested interests not held 
     by such person.

       ``(D) Allocable expatriation gain.--For purposes of this 
     paragraph, the allocable expatriation gain with respect to 
     any beneficiary's interest in a trust is the amount of gain 
     which would be allocable to such beneficiary's vested and 
     nonvested interests in the trust if the beneficiary held 
     directly all assets allocable to such interests.
       ``(E) Tax deducted and withheld.--
       ``(i) In general.--The tax imposed by subparagraph (A)(ii) 
     shall be deducted and withheld by the trustees from the 
     distribution to which it relates.
       ``(ii) Exception where failure to waive treaty rights.--If 
     an amount may not be deducted and withheld under clause (i) 
     by reason of the distributee failing to waive any treaty 
     right with respect to such distribution--

       ``(I) the tax imposed by subparagraph (A)(ii) shall be 
     imposed on the trust and each trustee shall be personally 
     liable for the amount of such tax, and
       ``(II) any other beneficiary of the trust shall be entitled 
     to recover from the distributee the amount of such tax 
     imposed on the other beneficiary.

       ``(F) Disposition.--If a trust ceases to be a qualified 
     trust at any time, a covered expatriate disposes of an 
     interest in a qualified trust, or a covered expatriate 
     holding an interest in a qualified trust dies, then, in lieu 
     of the tax imposed by subparagraph (A)(ii), there is hereby 
     imposed a tax equal to the lesser of--
       ``(i) the tax determined under paragraph (1) as if the day 
     before the expatriation date were the date of such cessation, 
     disposition, or death, whichever is applicable, or
       ``(ii) the balance in the tax deferred account immediately 
     before such date.
     Such tax shall be imposed on the trust and each trustee shall 
     be personally liable for the amount of such tax and any other 
     beneficiary of the trust shall be entitled to recover from 
     the covered expatriate or the estate the amount of such tax 
     imposed on the other beneficiary.
       ``(G) Definitions and special rules.--For purposes of this 
     paragraph--
       ``(i) Qualified trust.--The term `qualified trust' means a 
     trust which is described in section 7701(a)(30)(E).
       ``(ii) Vested interest.--The term `vested interest' means 
     any interest which, as of the day before the expatriation 
     date, is vested in the beneficiary.
       ``(iii) Nonvested interest.--The term `nonvested interest' 
     means, with respect to any beneficiary, any interest in a 
     trust which is not a vested interest. Such interest shall be 
     determined by assuming the maximum exercise of discretion in 
     favor of the beneficiary and the occurrence of all 
     contingencies in favor of the beneficiary.
       ``(iv) Adjustments.--The Secretary may provide for such 
     adjustments to the bases of assets in a trust or a deferred 
     tax account, and the timing of such adjustments, in order to 
     ensure that gain is taxed only once.
       ``(v) Coordination with retirement plan rules.--This 
     subsection shall not apply to an interest in a trust which is 
     part of a retirement plan to which subsection (d)(2) applies.
       ``(3) Determination of beneficiaries' interest in trust.--
       ``(A) Determinations under paragraph (1).--For purposes of 
     paragraph (1), a beneficiary's interest in a trust shall be 
     based upon all relevant facts and circumstances, including 
     the terms of the trust instrument and any letter of wishes or 
     similar document, historical patterns of trust distributions, 
     and the existence of and functions performed by a trust 
     protector or any similar adviser.
       ``(B) Other determinations.--For purposes of this section--
       ``(i) Constructive ownership.--If a beneficiary of a trust 
     is a corporation, partnership, trust, or estate, the 
     shareholders, partners, or beneficiaries shall be deemed to 
     be the trust beneficiaries for purposes of this section.
       ``(ii) Taxpayer return position.--A taxpayer shall clearly 
     indicate on its income tax return--

       ``(I) the methodology used to determine that taxpayer's 
     trust interest under this section, and
       ``(II) if the taxpayer knows (or has reason to know) that 
     any other beneficiary of such trust is using a different 
     methodology to determine such beneficiary's trust interest 
     under this section.

       ``(g) Termination of Deferrals, etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11

[[Page S5112]]

     and shown on a timely filed return of tax imposed by chapter 
     11 of the estate of the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(48) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation).''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(19) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--
       (i) Technical amendments.--Paragraph (4) of section 6103(p) 
     of the Internal Revenue Code of 1986, as amended by section 
     202(b)(2)(B) of the Trade Act of 2002 (Public Law 107-210; 
     116 Stat. 961), is amended by striking ``or (17)'' after 
     ``any other person described in subsection (l)(16)'' each 
     place it appears and inserting ``or (18)''.
       (ii) Conforming amendments.--Section 6103(p)(4) (relating 
     to safeguards), as amended by clause (i), is amended by 
     striking ``or (18)'' after ``any other person described in 
     subsection (l)(16)'' each place it appears and inserting 
     ``(18), or (19)''.
       (3) Effective dates.--
       (A) In general.--Except as provided in subparagraph (B), 
     the amendments made by this subsection shall apply to 
     individuals who relinquish United States citizenship on or 
     after the date of the enactment of this Act.
       (B) Technical amendments.--The amendments made by paragraph 
     (2)(B)(i) shall take effect as if included in the amendments 
     made by section 202(b)(2)(B) of the Trade Act of 2002 (Public 
     Law 107-210; 116 Stat. 961).
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(g) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after January 1, 2004.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(F) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4)(A) Paragraph (1) of section 6039G(d) is amended by 
     inserting ``or 877A'' after ``section 877''.
       (B) The second sentence of section 6039G(e) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after 
     ``877(a))''.
       (C) Section 6039G(f) is amended by inserting ``or 
     877A(e)(2)(B)'' after ``877(e)(1)''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.
       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after January 
     1, 2004.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after January 1, 2004, 
     from an individual or the estate of an individual whose 
     expatriation date (as so defined) occurs after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

     SEC. 443. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN 
                   INVERTED CORPORATIONS.

       (a) In General.--Subtitle D is amended by adding at the end 
     the following new chapter:

 ``CHAPTER 48--STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS

``Sec. 5000A. Stock compensation of insiders in inverted corporations 
              entities.

     ``SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN INVERTED 
                   CORPORATIONS.

       ``(a) Imposition of Tax.--In the case of an individual who 
     is a disqualified individual with respect to any inverted 
     corporation, there is hereby imposed on such person a tax 
     equal to 20 percent of the value (determined under subsection 
     (b)) of the specified stock compensation held (directly or 
     indirectly) by or for the benefit of such individual or a 
     member of such individual's family (as defined in section 
     267) at any time during the 12-month period beginning on the 
     date which is 6 months before the inversion date.
       ``(b) Value.--For purposes of subsection (a)--
       ``(1) In general.--The value of specified stock 
     compensation shall be--
       ``(A) in the case of a stock option (or other similar 
     right) or any stock appreciation right, the fair value of 
     such option or right, and
       ``(B) in any other case, the fair market value of such 
     compensation.
       ``(2) Date for determining value.--The determination of 
     value shall be made--
       ``(A) in the case of specified stock compensation held on 
     the inversion date, on such date,
       ``(B) in the case of such compensation which is canceled 
     during the 6 months before the inversion date, on the day 
     before such cancellation, and
       ``(C) in the case of such compensation which is granted 
     after the inversion date, on the date such compensation is 
     granted.
       ``(c) Tax To Apply Only if Shareholder Gain Recognized.--
     Subsection (a) shall apply to any disqualified individual 
     with respect to an inverted corporation only if gain (if any) 
     on any stock in such corporation is recognized in whole or 
     part by any shareholder by reason of the acquisition referred 
     to in section 7874(a)(2)(A) (determined by substituting `July 
     10, 2002' for `March 20, 2002') with respect to such 
     corporation.
       ``(d) Exception Where Gain Recognized on Compensation.--
     Subsection (a) shall not apply to--
       ``(1) any stock option which is exercised on the inversion 
     date or during the 6-month period before such date and to the 
     stock acquired in such exercise, if income is recognized 
     under section 83 on or before the inversion date with respect 
     to the stock acquired pursuant to such exercise, and
       ``(2) any specified stock compensation which is exercised, 
     sold, exchanged, distributed, cashed out, or otherwise paid 
     during such period in a transaction in which gain or loss is 
     recognized in full.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Disqualified individual.--The term `disqualified 
     individual' means, with respect to a corporation, any 
     individual who, at any time during the 12-month period 
     beginning on the date which is 6 months before the inversion 
     date--
       ``(A) is subject to the requirements of section 16(a) of 
     the Securities Exchange Act of 1934 with respect to such 
     corporation, or
       ``(B) would be subject to such requirements if such 
     corporation were an issuer of equity securities referred to 
     in such section.
       ``(2) Inverted corporation; inversion date.--
       ``(A) Inverted corporation.--The term `inverted 
     corporation' means any corporation to which subsection (a) or 
     (b) of section 7874 applies determined--
       ``(i) by substituting `July 10, 2002' for `March 20, 2002' 
     in section 7874(a)(2)(A), and
       ``(ii) without regard to subsection (b)(1)(A).

     Such term includes any predecessor or successor of such a 
     corporation.
       ``(B) Inversion date.--The term `inversion date' means, 
     with respect to a corporation, the date on which the 
     corporation first becomes an inverted corporation.
       ``(3) Specified stock compensation.--
       ``(A) In general.--The term `specified stock compensation' 
     means payment (or right to payment) granted by the inverted 
     corporation (or by any member of the expanded affiliated 
     group which includes such corporation) to any person in 
     connection with the performance of services by a disqualified 
     individual for such corporation or member if the value of 
     such payment or right is based on (or determined by reference 
     to) the value (or change in value) of stock in such 
     corporation (or any such member).
       ``(B) Exceptions.--Such term shall not include--
       ``(i) any option to which part II of subchapter D of 
     chapter 1 applies, or
       ``(ii) any payment or right to payment from a plan referred 
     to in section 280G(b)(6).
       ``(4) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group (as defined in 
     section 1504(a) without regard to section 1504(b)(3)); except

[[Page S5113]]

     that section 1504(a) shall be applied by substituting `more 
     than 50 percent' for `at least 80 percent' each place it 
     appears.
       ``(f) Special Rules.--For purposes of this section--
       ``(1) Cancellation of restriction.--The cancellation of a 
     restriction which by its terms will never lapse shall be 
     treated as a grant.
       ``(2) Payment or reimbursement of tax by corporation 
     treated as specified stock compensation.--Any payment of the 
     tax imposed by this section directly or indirectly by the 
     inverted corporation or by any member of the expanded 
     affiliated group which includes such corporation--
       ``(A) shall be treated as specified stock compensation, and
       ``(B) shall not be allowed as a deduction under any 
     provision of chapter 1.
       ``(3) Certain restrictions ignored.--Whether there is 
     specified stock compensation, and the value thereof, shall be 
     determined without regard to any restriction other than a 
     restriction which by its terms will never lapse.
       ``(4) Property transfers.--Any transfer of property shall 
     be treated as a payment and any right to a transfer of 
     property shall be treated as a right to a payment.
       ``(5) Other administrative provisions.--For purposes of 
     subtitle F, any tax imposed by this section shall be treated 
     as a tax imposed by subtitle A.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Denial of Deduction.--
       (1) In general.--Paragraph (6) of section 275(a) is amended 
     by inserting ``48,'' after ``46,''.
       (2) $1,000,000 limit on deductible compensation reduced by 
     payment of excise tax on specified stock compensation.--
     Paragraph (4) of section 162(m) is amended by adding at the 
     end the following new subparagraph:
       ``(G) Coordination with excise tax on specified stock 
     compensation.--The dollar limitation contained in paragraph 
     (1) with respect to any covered employee shall be reduced 
     (but not below zero) by the amount of any payment (with 
     respect to such employee) of the tax imposed by section 5000A 
     directly or indirectly by the inverted corporation (as 
     defined in such section) or by any member of the expanded 
     affiliated group (as defined in such section) which includes 
     such corporation.''.
       (c) Conforming Amendments.--
       (1) The last sentence of section 3121(v)(2)(A) is amended 
     by inserting before the period ``or to any specified stock 
     compensation (as defined in section 5000A) on which tax is 
     imposed by section 5000A''.
       (2) The table of chapters for subtitle D is amended by 
     adding at the end the following new item:

``Chapter 48. Stock compensation of insiders in inverted 
              corporations.''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on July 11, 2002; except that periods 
     before such date shall not be taken into account in applying 
     the periods in subsections (a) and (e)(1) of section 5000A of 
     the Internal Revenue Code of 1986, as added by this section.

     SEC. 444. REINSURANCE OF UNITED STATES RISKS IN FOREIGN 
                   JURISDICTIONS.

       (a) In General.--Section 845(a) (relating to allocation in 
     case of reinsurance agreement involving tax avoidance or 
     evasion) is amended by striking ``source and character'' and 
     inserting ``amount, source, or character''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to any risk reinsured after April 11, 2002.

     SEC. 445. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.

       (a) In General.--Subpart B of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6043 the 
     following new section:

     ``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.

       ``(a) In General.--The acquiring corporation in any taxable 
     acquisition shall make a return (according to the forms or 
     regulations prescribed by the Secretary) setting forth--
       ``(1) a description of the acquisition,
       ``(2) the name and address of each shareholder of the 
     acquired corporation who is required to recognize gain (if 
     any) as a result of the acquisition,
       ``(3) the amount of money and the fair market value of 
     other property transferred to each such shareholder as part 
     of such acquisition, and
       ``(4) such other information as the Secretary may 
     prescribe.

     To the extent provided by the Secretary, the requirements of 
     this section applicable to the acquiring corporation shall be 
     applicable to the acquired corporation and not to the 
     acquiring corporation.
       ``(b) Nominee Reporting.--Any person who holds stock as a 
     nominee for another person shall furnish in the manner 
     prescribed by the Secretary to such other person the 
     information provided by the corporation under subsection (d).
       ``(c) Taxable Acquisition.--For purposes of this section, 
     the term `taxable acquisition' means any acquisition by a 
     corporation of stock in or property of another corporation if 
     any shareholder of the acquired corporation is required to 
     recognize gain (if any) as a result of such acquisition.
       ``(d) Statements To Be Furnished to Shareholders.--Every 
     person required to make a return under subsection (a) shall 
     furnish to each shareholder whose name is required to be set 
     forth in such return a written statement showing--
       ``(1) the name, address, and phone number of the 
     information contact of the person required to make such 
     return,
       ``(2) the information required to be shown on such return 
     with respect to such shareholder, and
       ``(3) such other information as the Secretary may 
     prescribe.

     The written statement required under the preceding sentence 
     shall be furnished to the shareholder on or before January 31 
     of the year following the calendar year during which the 
     taxable acquisition occurred.''.
       (b) Assessable Penalties.--
       (1) Subparagraph (B) of section 6724(d)(1) (relating to 
     definitions) is amended by redesignating clauses (ii) through 
     (xvii) as clauses (iii) through (xviii), respectively, and by 
     inserting after clause (i) the following new clause:
       ``(ii) section 6043A(a) (relating to returns relating to 
     taxable mergers and acquisitions),''.
       (2) Paragraph (2) of section 6724(d) is amended by 
     redesignating subparagraphs (F) through (AA) as subparagraphs 
     (G) through (BB), respectively, and by inserting after 
     subparagraph (E) the following new subparagraph:
       ``(F) subsections (b) and (d) of section 6043A (relating to 
     returns relating to taxable mergers and acquisitions).''.
       (c) Clerical Amendment.--The table of sections for subpart 
     B of part III of subchapter A of chapter 61 is amended by 
     inserting after the item relating to section 6043 the 
     following new item:

``Sec. 6043A. Returns relating to taxable mergers and acquisitions.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to acquisitions after the date of the enactment 
     of this Act.

                     Subtitle E--International Tax

     SEC. 451. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF 
                   DETERMINING INVESTMENT OF EARNINGS IN UNITED 
                   STATES PROPERTY.

       (a) In General.--Subparagraph (A) of section 956(c)(2) is 
     amended to read as follows:
       ``(A) obligations of the United States, money, or deposits 
     with--
       ``(i) any bank (as defined by section 2(c) of the Bank 
     Holding Company Act of 1956 (12 U.S.C. 1841(c)), without 
     regard to subparagraphs (C) and (G) of paragraph (2) of such 
     section), or
       ``(ii) any corporation not described in clause (i) with 
     respect to which a bank holding company (as defined by 
     section 2(a) of such Act) or financial holding company (as 
     defined by section 2(p) of such Act) owns directly or 
     indirectly more than 80 percent by vote or value of the stock 
     of such corporation;''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 452. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH 
                   COMPLETE LIQUIDATION OF HOLDING COMPANY.

       (a) In General.--Section 332 is amended by adding at the 
     end the following new subsection:
       ``(d) Recognition of Gain on Liquidation of Certain Holding 
     Companies.--
       ``(1) In general.--In the case of any distribution to a 
     foreign corporation in complete liquidation of an applicable 
     holding company--
       ``(A) subsection (a) and section 331 shall not apply to 
     such distribution, and
       ``(B) such distribution shall be treated as a distribution 
     to which section 301 applies.
       ``(2) Applicable holding company.--For purposes of this 
     subsection--
       ``(A) In general.--The term `applicable holding company' 
     means any domestic corporation--
       ``(i) which is a common parent of an affiliated group,
       ``(ii) stock of which is directly owned by the distributee 
     foreign corporation,
       ``(iii) substantially all of the assets of which consist of 
     stock in other members of such affiliated group, and
       ``(iv) which has not been in existence at all times during 
     the 5 years immediately preceding the date of the 
     liquidation.
       ``(B) Affiliated group.--For purposes of this subsection, 
     the term `affiliated group' has the meaning given such term 
     by section 1504(a) (without regard to paragraphs (2) and (4) 
     of section 1504(b)).
       ``(3) Coordination with subpart f.--If the distributee of a 
     distribution described in paragraph (1) is a controlled 
     foreign corporation (as defined in section 957), then 
     notwithstanding paragraph (1) or subsection (a), such 
     distribution shall be treated as a distribution to which 
     section 331 applies.
       ``(4) Regulations.--The Secretary shall provide such 
     regulations as appropriate to prevent the abuse of this 
     subsection, including regulations which provide, for the 
     purposes of clause (iv) of paragraph (2)(A), that a 
     corporation is not in existence for any period unless it is 
     engaged in the active conduct of a trade or business or owns 
     a significant ownership interest in another corporation so 
     engaged.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions in complete liquidation 
     occurring on or after the date of the enactment of this Act.

[[Page S5114]]

     SEC. 453. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL 
                   ISSUE DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS 
                   IN TRANSACTIONS WITH RELATED FOREIGN PERSONS.

       (a) Original Issue Discount.--Section 163(e)(3) (relating 
     to special rule for original issue discount on obligation 
     held by related foreign person) is amended by redesignating 
     subparagraph (B) as subparagraph (C) and by inserting after 
     subparagraph (A) the following new subparagraph:
       ``(B) Special rule for certain foreign entities.--
       ``(i) In general.--In the case of any debt instrument 
     having original issue discount which is held by a related 
     foreign person which is a foreign personal holding company 
     (as defined in section 552), a controlled foreign corporation 
     (as defined in section 957), or a passive foreign investment 
     company (as defined in section 1297), a deduction shall be 
     allowable to the issuer with respect to such original issue 
     discount for any taxable year before the taxable year in 
     which paid only to the extent such original issue discount is 
     included during such prior taxable year in the gross income 
     of a United States person who owns (within the meaning of 
     section 958(a)) stock in such corporation.
       ``(ii) Secretarial authority.--The Secretary may by 
     regulation exempt transactions from the application of clause 
     (i), including any transaction which is entered into by a 
     payor in the ordinary course of a trade or business in which 
     the payor is predominantly engaged.''.
       (b) Interest and Other Deductible Amounts.--Section 
     267(a)(3) is amended--
       (1) by striking ``The Secretary'' and inserting:
       ``(A) In general.--The Secretary'', and
       (2) by adding at the end the following new subparagraph:
       ``(B) Special rule for certain foreign entities.--
       ``(i) In general.--Notwithstanding subparagraph (A), in the 
     case of any amount payable to a foreign personal holding 
     company (as defined in section 552), a controlled foreign 
     corporation (as defined in section 957), or a passive foreign 
     investment company (as defined in section 1297), a deduction 
     shall be allowable to the payor with respect to such amount 
     for any taxable year before the taxable year in which paid 
     only to the extent such amount is included during such prior 
     taxable year in the gross income of a United States person 
     who owns (within the meaning of section 958(a)) stock in such 
     corporation.
       ``(ii) Secretarial authority.--The Secretary may by 
     regulation exempt transactions from the application of clause 
     (i), including any transaction which is entered into by a 
     payor in the ordinary course of a trade or business in which 
     the payor is predominantly engaged and in which the payment 
     of the accrued amounts occurs within 8\1/2\ months after 
     accrual or within such other period as the Secretary may 
     prescribe.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments accrued on or after the date of the 
     enactment of this Act.

     SEC. 454. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN 
                   FOREIGN SOURCE INCOME.

       (a) In General.--Section 864(c)(4)(B) (relating to 
     treatment of income from sources without the United States as 
     effectively connected income) is amended by adding at the end 
     the following new flush sentence:

     ``Any income or gain which is equivalent to any item of 
     income or gain described in clause (i), (ii), or (iii) shall 
     be treated in the same manner as such item for purposes of 
     this subparagraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 455. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF 
                   CONTROLLED FOREIGN CORPORATION.

       (a) In General.--Section 904(f)(3) (relating to 
     dispositions) is amending by adding at the end the following 
     new subparagraph:
       ``(D) Application to dispositions of stock in controlled 
     foreign corporations.--In the case of any disposition by a 
     taxpayer of any share of stock in a controlled foreign 
     corporation (as defined in section 957), this paragraph shall 
     apply to such disposition in the same manner as if it were a 
     disposition of property described in subparagraph (A), except 
     that the exception contained in subparagraph (C)(i) shall not 
     apply.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to dispositions after the date of the enactment 
     of this Act.

     SEC. 456. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON 
                   WITHHOLDING TAXES ON INCOME OTHER THAN 
                   DIVIDENDS.

       (a) In General.--Section 901 is amended by redesignating 
     subsection (l) as subsection (m) and by inserting after 
     subsection (k) the following new subsection:
       ``(l) Minimum Holding Period for Withholding Taxes on Gain 
     and Income Other Than Dividends etc.--
       ``(1) In general.--In no event shall a credit be allowed 
     under subsection (a) for any withholding tax (as defined in 
     subsection (k)) on any item of income or gain with respect to 
     any property if--
       ``(A) such property is held by the recipient of the item 
     for 15 days or less during the 30-day period beginning on the 
     date which is 15 days before the date on which the right to 
     receive payment of such item arises, or
       ``(B) to the extent that the recipient of the item is under 
     an obligation (whether pursuant to a short sale or otherwise) 
     to make related payments with respect to positions in 
     substantially similar or related property.

     This paragraph shall not apply to any dividend to which 
     subsection (k) applies.
       ``(2) Exception for taxes paid by dealers.--
       ``(A) In general.--Paragraph (1) shall not apply to any 
     qualified tax with respect to any property held in the active 
     conduct in a foreign country of a business as a dealer in 
     such property.
       ``(B) Qualified tax.--For purposes of subparagraph (A), the 
     term `qualified tax' means a tax paid to a foreign country 
     (other than the foreign country referred to in subparagraph 
     (A)) if--
       ``(i) the item to which such tax is attributable is subject 
     to taxation on a net basis by the country referred to in 
     subparagraph (A), and
       ``(ii) such country allows a credit against its net basis 
     tax for the full amount of the tax paid to such other foreign 
     country.
       ``(C) Dealer.--For purposes of subparagraph (A), the term 
     `dealer' means--
       ``(i) with respect to a security, any person to whom 
     paragraphs (1) and (2) of subsection (k) would not apply by 
     reason of paragraph (4) thereof if such security were stock, 
     and
       ``(ii) with respect to any other property, any person with 
     respect to whom such property is described in section 
     1221(a)(1).
       ``(D) Regulations.--The Secretary may prescribe such 
     regulations as may be appropriate to carry out this 
     paragraph, including regulations to prevent the abuse of the 
     exception provided by this paragraph and to treat other taxes 
     as qualified taxes.
       ``(3) Exceptions.--The Secretary may by regulation provide 
     that paragraph (1) shall not apply to property where the 
     Secretary determines that the application of paragraph (1) to 
     such property is not necessary to carry out the purposes of 
     this subsection.
       ``(4) Certain rules to apply.--Rules similar to the rules 
     of paragraphs (5), (6), and (7) of subsection (k) shall apply 
     for purposes of this subsection.
       ``(5) Determination of holding period.--Holding periods 
     shall be determined for purposes of this subsection without 
     regard to section 1235 or any similar rule.''.
       (b) Conforming Amendment.--The heading of subsection (k) of 
     section 901 is amended by inserting ``on Dividends'' after 
     ``Taxes''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or accrued more than 30 days 
     after the date of the enactment of this Act.

                  Subtitle F--Other Revenue Provisions

                     PART I--FINANCIAL INSTRUMENTS

     SEC. 461. TREATMENT OF STRIPPED INTERESTS IN BOND AND 
                   PREFERRED STOCK FUNDS, ETC.

       (a) In General.--Section 1286 (relating to tax treatment of 
     stripped bonds) is amended by redesignating subsection (f) as 
     subsection (g) and by inserting after subsection (e) the 
     following new subsection:
       ``(f) Treatment of Stripped Interests in Bond and Preferred 
     Stock Funds, etc.--In the case of an account or entity 
     substantially all of the assets of which consist of bonds, 
     preferred stock, or a combination thereof, the Secretary may 
     by regulations provide that rules similar to the rules of 
     this section and 305(e), as appropriate, shall apply to 
     interests in such account or entity to which (but for this 
     subsection) this section or section 305(e), as the case may 
     be, would not apply.''.
       (b) Cross Reference.--Subsection (e) of section 305 is 
     amended by adding at the end the following new paragraph:
       ``(7) Cross reference.--

  ``For treatment of stripped interests in certain accounts or entities 
holding preferred stock, see section 1286(f).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to purchases and dispositions after the date of 
     the enactment of this Act.

     SEC. 462. APPLICATION OF EARNINGS STRIPPING RULES TO 
                   PARTNERSHIPS AND S CORPORATIONS.

       (a) In General.--Section 168(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     redesignating paragraph (8) as paragraph (9) and by inserting 
     after paragraph (7) the following new paragraph:
       ``(8) Application to partnerships and s corporations.--
       ``(A) In general.--This subsection shall apply to 
     partnerships and S corporations in the same manner as it 
     applies to C corporations.
       ``(B) Allocations to certain corporate partners.--If a C 
     corporation is a partner in a partnership--
       ``(i) the corporation's allocable share of indebtedness and 
     interest income of the partnership shall be taken into 
     account in applying this subsection to the corporation, and
       ``(ii) if a deduction is not disallowed under this 
     subsection with respect to any interest expense of the 
     partnership, this subsection shall be applied separately in 
     determining whether a deduction is allowable to the 
     corporation with respect to the corporation's allocable share 
     of such interest expense.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

[[Page S5115]]

     SEC. 463. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME 
                   REALIZED ON SATISFACTION OF DEBT WITH 
                   PARTNERSHIP INTEREST.

       (a) In General.--Paragraph (8) of section 108(e) (relating 
     to general rules for discharge of indebtedness (including 
     discharges not in title 11 cases or insolvency)) is amended 
     to read as follows:
       ``(8) Indebtedness satisfied by corporate stock or 
     partnership interest.--For purposes of determining income of 
     a debtor from discharge of indebtedness, if--
       ``(A) a debtor corporation transfers stock, or
       ``(B) a debtor partnership transfers a capital or profits 
     interest in such partnership,

     to a creditor in satisfaction of its recourse or nonrecourse 
     indebtedness, such corporation or partnership shall be 
     treated as having satisfied the indebtedness with an amount 
     of money equal to the fair market value of the stock or 
     interest. In the case of any partnership, any discharge of 
     indebtedness income recognized under this paragraph shall be 
     included in the distributive shares of taxpayers which were 
     the partners in the partnership immediately before such 
     discharge.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply with respect to cancellations of indebtedness 
     occurring on or after the date of the enactment of this Act.

     SEC. 464. MODIFICATION OF STRADDLE RULES.

       (a) Rules Relating to Identified Straddles.--
       (1) In general.--Subparagraph (A) of section 1092(a)(2) 
     (relating to special rule for identified straddles) is 
     amended to read as follows:
       ``(A) In general.--In the case of any straddle which is an 
     identified straddle--
       ``(i) paragraph (1) shall not apply with respect to 
     identified positions comprising the identified straddle,
       ``(ii) if there is any loss with respect to any identified 
     position of the identified straddle, the basis of each of the 
     identified offsetting positions in the identified straddle 
     shall be increased by an amount which bears the same ratio to 
     the loss as the unrecognized gain with respect to such 
     offsetting position bears to the aggregate unrecognized gain 
     with respect to all such offsetting positions, and
       ``(iii) any loss described in clause (ii) shall not 
     otherwise be taken into account for purposes of this 
     title.''.
       (2) Identified straddle.--Section 1092(a)(2)(B) (defining 
     identified straddle) is amended--
       (A) by striking clause (ii) and inserting the following:
       ``(ii) to the extent provided by regulations, the value of 
     each position of which (in the hands of the taxpayer 
     immediately before the creation of the straddle) is not less 
     than the basis of such position in the hands of the taxpayer 
     at the time the straddle is created, and'', and
       (B) by adding at the end the following new flush sentence:

     ``The Secretary shall prescribe regulations which specify the 
     proper methods for clearly identifying a straddle as an 
     identified straddle (and the positions comprising such 
     straddle), which specify the rules for the application of 
     this section for a taxpayer which fails to properly identify 
     the positions of an identified straddle, and which specify 
     the ordering rules in cases where a taxpayer disposes of less 
     than an entire position which is part of an identified 
     straddle.''.
       (3) Unrecognized gain.--Section 1092(a)(3) (defining 
     unrecognized gain) is amended by redesignating subparagraph 
     (B) as subparagraph (C) and by inserting after subparagraph 
     (A) the following new subparagraph:
       ``(B) Special rule for identified straddles.--For purposes 
     of paragraph (2)(A)(ii), the unrecognized gain with respect 
     to any identified offsetting position shall be the excess of 
     the fair market value of the position at the time of the 
     determination over the fair market value of the position at 
     the time the taxpayer identified the position as a position 
     in an identified straddle.''.
       (4) Conforming amendment.--Section 1092(c)(2) is amended by 
     striking subparagraph (B) and by redesignating subparagraph 
     (C) as subparagraph (B).
       (b) Physically Settled Positions.--Section 1092(d) 
     (relating to definitions and special rules) is amended by 
     adding at the end the following new paragraph:
       ``(8) Special rules for physically settled positions.--For 
     purposes of subsection (a), if a taxpayer settles a position 
     which is part of a straddle by delivering property to which 
     the position relates (and such position, if terminated, would 
     result in a realization of a loss), then such taxpayer shall 
     be treated as if such taxpayer--
       ``(A) terminated the position for its fair market value 
     immediately before the settlement, and
       ``(B) sold the property so delivered by the taxpayer at its 
     fair market value.''.
       (c) Repeal of Stock Exception.--
       (1) In general.--Paragraph (3) of section 1092(d) (relating 
     to definitions and special rules) is amended to read as 
     follows:
       ``(3) Special rules for stock.--For purposes of paragraph 
     (1)--
       ``(A) In general.--The term `personal property' includes--
       ``(i) any stock which is a part of a straddle at least 1 of 
     the offsetting positions of which is a position with respect 
     to such stock or substantially similar or related property, 
     or
       ``(ii) any stock of a corporation formed or availed of to 
     take positions in personal property which offset positions 
     taken by any shareholder.
       ``(B) Rule for application.--For purposes of determining 
     whether subsection (e) applies to any transaction with 
     respect to stock described in subparagraph (A)(ii), all 
     includible corporations of an affiliated group (within the 
     meaning of section 1504(a)) shall be treated as 1 
     taxpayer.''.
       (2) Conforming amendment.--Section 1258(d)(1) is amended by 
     striking ``; except that the term `personal property' shall 
     include stock''.
       (d) Repeal of Qualified Covered Call Exception.--Section 
     1092(c)(4) is amended by adding at the end the following new 
     subparagraph:
       ``(I) Termination.--This paragraph shall not apply to any 
     position established on or after the date of the enactment of 
     this subparagraph.''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to positions established on or after the date of 
     the enactment of this Act.

     SEC. 465. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL 
                   READILY TRADEABLE DEBT.

       (a) In General.--Section 453(f)(4)(B) (relating to 
     purchaser evidences of indebtedness payable on demand or 
     readily tradeable) is amended by striking ``is issued by a 
     corporation or a government or political subdivision thereof 
     and''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales occurring on or after the date of the 
     enactment of this Act.

                 PART II--CORPORATIONS AND PARTNERSHIPS

     SEC. 466. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS 
                   IN DIVISIVE REORGANIZATIONS.

       (a) In General.--Section 361(b)(3) (relating to treatment 
     of transfers to creditors) is amended by adding at the end 
     the following new sentence: ``In the case of a reorganization 
     described in section 368(a)(1)(D) with respect to which stock 
     or securities of the corporation to which the assets are 
     transferred are distributed in a transaction which qualifies 
     under section 355, this paragraph shall apply only to the 
     extent that the sum of the money and the fair market value of 
     other property transferred to such creditors does not exceed 
     the adjusted bases of such assets transferred.''.
       (b) Liabilities in Excess of Basis.--Section 357(c)(1)(B) 
     is amended by inserting ``with respect to which stock or 
     securities of the corporation to which the assets are 
     transferred are distributed in a transaction which qualifies 
     under section 355'' after ``section 368(a)(1)(D)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transfers of money or other property, or 
     liabilities assumed, in connection with a reorganization 
     occurring on or after the date of the enactment of this Act.

     SEC. 467. CLARIFICATION OF DEFINITION OF NONQUALIFIED 
                   PREFERRED STOCK.

       (a) In General.--Section 351(g)(3)(A) is amended by adding 
     at the end the following: ``Stock shall not be treated as 
     participating in corporate growth to any significant extent 
     unless there is a real and meaningful likelihood of the 
     shareholder actually participating in the earnings and growth 
     of the corporation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to transactions after May 14, 2003.

     SEC. 468. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF 
                   CORPORATIONS.

       (a) In General.--Section 1563(a)(2) (relating to brother-
     sister controlled group) is amended by striking 
     ``possessing--'' and all that follows through ``(B)'' and 
     inserting ``possessing''.
       (b) Application of Existing Rules to Other Code 
     Provisions.--Section 1563(f) (relating to other definitions 
     and rules) is amended by adding at the end the following new 
     paragraph:
       ``(5) Brother-sister controlled group definition for 
     provisions other than this part.--
       ``(A) In general.--Except as specifically provided in an 
     applicable provision, subsection (a)(2) shall be applied to 
     an applicable provision as if it read as follows:
       `(2) Brother-sister controlled group.--Two or more 
     corporations if 5 or fewer persons who are individuals, 
     estates, or trusts own (within the meaning of subsection 
     (d)(2) stock possessing--
       `(A) at least 80 percent of the total combined voting power 
     of all classes of stock entitled to vote, or at least 80 
     percent of the total value of shares of all classes of stock, 
     of each corporation, and
       `(B) more than 50 percent of the total combined voting 
     power of all classes of stock entitled to vote or more than 
     50 percent of the total value of shares of all classes of 
     stock of each corporation, taking into account the stock 
     ownership of each such person only to the extent such stock 
     ownership is identical with respect to each such 
     corporation.'
       ``(B) Applicable provision.--For purposes of this 
     paragraph, an applicable provision is any provision of law 
     (other than this part) which incorporates the definition of 
     controlled group of corporations under subsection (a).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

[[Page S5116]]

     SEC. 469. MANDATORY BASIS ADJUSTMENTS IN CONNECTION WITH 
                   PARTNERSHIP DISTRIBUTIONS AND TRANSFERS OF 
                   PARTNERSHIP INTERESTS.

       (a) In General.--Section 754 is repealed.
       (b) Adjustment to Basis of Undistributed Partnership 
     Property.--Section 734 is amended--
       (1) by striking ``, with respect to which the election 
     provided in section 754 is in effect,'' in the matter 
     preceding paragraph (1) of subsection (b),
       (2) by striking ``(as adjusted by section 732(d))'' both 
     places it appears in subsection (b),
       (3) by striking the last sentence of subsection (b),
       (4) by striking subsection (a) and by redesignating 
     subsections (b) and (c) as subsections (a) and (b), 
     respectively, and
       (5) by striking ``OPTIONAL'' in the heading.
       (c) Adjustment to Basis of Partnership Property.--Section 
     743 is amended--
       (1) by striking ``with respect to which the election 
     provided in section 754 is in effect'' in the matter 
     preceding paragraph (1) of subsection (b),
       (2) by striking subsection (a) and by redesignating 
     subsections (b) and (c) as subsections (a) and (b), 
     respectively,
       (3) by adding at the end the following new subsection:
       ``(c) Election To Adjust Basis for Transfers Upon Death of 
     Partner.--Subsection (a) shall not apply and no adjustments 
     shall be made in the case of any transfer of an interest in a 
     partnership upon the death of a partner unless an election to 
     do so is made by the partnership. Such an election shall 
     apply with respect to all such transfers of interests in the 
     partnership. Any election under section 754 in effect on the 
     date of the enactment of this subsection shall constitute an 
     election made under this subsection. Such election may be 
     revoked by the partnership, subject to such limitations as 
     may be provided by regulations prescribed by the 
     Secretary.'', and
       (4) by striking ``OPTIONAL'' in the heading.
       (d) Conforming Amendments.--
       (1) Subsection (d) of section 732 is repealed.
       (2) Section 755(a) is amended--
       (A) by striking ``section 734(b) (relating to the optional 
     adjustment'' and inserting ``section 734(a) (relating to the 
     adjustment'', and
       (B) by striking ``section 743(b) (relating to the optional 
     adjustment'' and inserting ``section 743(a) (relating to the 
     adjustment''.
       (3) Section 755(c), as added by this Act, is amended by 
     striking ``section 734(b)'' and inserting ``section 734(a)''.
       (4) Section 761(e)(2) is amended by striking ``optional''.
       (5) Section 774(a) is amended by striking ``743(b)'' both 
     places it appears and inserting ``743(a)''.
       (6) The item relating to section 734 in the table of 
     sections for subpart B of part II of subchapter K of chapter 
     1 is amended by striking ``Optional''.
       (7) The item relating to section 743 in the table of 
     sections for subpart C of part II of subchapter K of chapter 
     1 is amended by striking ``Optional''.
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to transfers and 
     distributions made after the date of the enactment of this 
     Act.
       (2) Repeal of section 732(d).--The amendments made by 
     subsections (b)(2) and (d)(1) shall apply to--
       (A) except as provided in subparagraph (B), transfers made 
     after the date of the enactment of this Act, and
       (B) in the case of any transfer made on or before such date 
     to which section 732(d) applies, distributions made after the 
     date which is 2 years after such date of enactment.

                PART III--DEPRECIATION AND AMORTIZATION

     SEC. 471. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS 
                   FRANCHISES.

       (a) In General.--Section 197(e) (relating to exceptions to 
     definition of section 197 intangible) is amended by striking 
     paragraph (6) and by redesignating paragraphs (7) and (8) as 
     paragraphs (6) and (7), respectively.
       (b) Conforming Amendments.--
       (1)(A) Section 1056 (relating to basis limitation for 
     player contracts transferred in connection with the sale of a 
     franchise) is repealed.
       (B) The table of sections for part IV of subchapter O of 
     chapter 1 is amended by striking the item relating to section 
     1056.
       (2) Section 1245(a) (relating to gain from disposition of 
     certain depreciable property) is amended by striking 
     paragraph (4).
       (3) Section 1253 (relating to transfers of franchises, 
     trademarks, and trade names) is amended by striking 
     subsection (e).
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to property 
     acquired after the date of the enactment of this Act.
       (2) Section 1245.--The amendment made by subsection (b)(2) 
     shall apply to franchises acquired after the date of the 
     enactment of this Act.

     SEC. 472. CLASS LIVES FOR UTILITY GRADING COSTS.

       (a) Gas Utility Property.--Section 168(e)(3)(E) (defining 
     15-year property) is amended by striking ``and'' at the end 
     of clause (ii), by striking the period at the end of clause 
     (iii) and inserting ``, and'', and by adding at the end the 
     following new clause:
       ``(iv) initial clearing and grading land improvements with 
     respect to gas utility property.''.
       (b) Electric Utility Property.--Section 168(e)(3) is 
     amended by adding at the end the following new subparagraph:
       ``(F) 20-year property.--The term `20-year property' means 
     initial clearing and grading land improvements with respect 
     to any electric utility transmission and distribution 
     plant.''.
       (c) Conforming Amendments.--The table contained in section 
     168(g)(3)(B) is amended--
       (1) by inserting ``or (E)(iv)'' after ``(E)(iii)'', and
       (2) by adding at the end the following new item:

  ``(F).......................................................25''.....

       (d) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

     SEC. 473. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN 
                   PASSENGER AUTOMOBILES.

       (a) In General.--Section 179(b) (relating to limitations) 
     is amended by adding at the end the following new paragraph:
       ``(6) Limitation on cost taken into account for certain 
     passenger vehicles.--
       ``(A) In general.--The cost of any sport utility vehicle 
     for any taxable year which may be taken into account under 
     this section shall not exceed $25,000.
       ``(B) Sport utility vehicle.--For purposes of subparagraph 
     (A)--
       ``(i) In general.--The term `sport utility vehicle' means 
     any 4-wheeled vehicle which--

       ``(I) is manufactured primarily for use on public streets, 
     roads, and highways,

       ``(II) is not subject to section 280F, and
       ``(III) is rated at not more than 14,000 pounds gross 
     vehicle weight.

       ``(ii) Certain vehicles excluded.--Such term does not 
     include any vehicle which--

       ``(I) does not have the primary load carrying device or 
     container attached,
       ``(II) has a seating capacity of more than 12 individuals,
       ``(III) is designed for more than 9 individuals in seating 
     rearward of the driver's seat,
       ``(IV) is equipped with an open cargo area, or a covered 
     box not readily accessible from the passenger compartment, of 
     at least 72.0 inches in interior length, or
       ``(V) has an integral enclosure, fully enclosing the driver 
     compartment and load carrying device, does not have seating 
     rearward of the driver's seat, and has no body section 
     protruding more than 30 inches ahead of the leading edge of 
     the windshield.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

     SEC. 474. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.

       (a) Start-Up Expenditures.--
       (1) Allowance of deduction.--Paragraph (1) of section 
     195(b) (relating to start-up expenditures) is amended to read 
     as follows:
       ``(1) Allowance of deduction.--If a taxpayer elects the 
     application of this subsection with respect to any start-up 
     expenditures--
       ``(A) the taxpayer shall be allowed a deduction for the 
     taxable year in which the active trade or business begins in 
     an amount equal to the lesser of--
       ``(i) the amount of start-up expenditures with respect to 
     the active trade or business, or
       ``(ii) $5,000, reduced (but not below zero) by the amount 
     by which such start-up expenditures exceed $50,000, and
       ``(B) the remainder of such start-up expenditures shall be 
     allowed as a deduction ratably over the 180-month period 
     beginning with the month in which the active trade or 
     business begins.''.
       (2) Conforming amendment.--Subsection (b) of section 195 is 
     amended by striking ``Amortize'' and inserting ``Deduct'' in 
     the heading.
       (b) Organizational Expenditures.--Subsection (a) of section 
     248 (relating to organizational expenditures) is amended to 
     read as follows:
       ``(a) Election to Deduct.--If a corporation elects the 
     application of this subsection (in accordance with 
     regulations prescribed by the Secretary) with respect to any 
     organizational expenditures--
       ``(1) the corporation shall be allowed a deduction for the 
     taxable year in which the corporation begins business in an 
     amount equal to the lesser of--
       ``(A) the amount of organizational expenditures with 
     respect to the taxpayer, or
       ``(B) $5,000, reduced (but not below zero) by the amount by 
     which such organizational expenditures exceed $50,000, and
       ``(2) the remainder of such organizational expenditures 
     shall be allowed as a deduction ratably over the 180-month 
     period beginning with the month in which the corporation 
     begins business.''.
       (c) Treatment of Organizational and Syndication Fees or 
     Partnerships.--
       (1) In general.--Section 709(b) (relating to amortization 
     of organization fees) is amended by redesignating paragraph 
     (2) as paragraph (3) and by amending paragraph (1) to read as 
     follows:

[[Page S5117]]

       ``(1) Allowance of deduction.--If a taxpayer elects the 
     application of this subsection (in accordance with 
     regulations prescribed by the Secretary) with respect to any 
     organizational expenses--
       ``(A) the taxpayer shall be allowed a deduction for the 
     taxable year in which the partnership begins business in an 
     amount equal to the lesser of--
       ``(i) the amount of organizational expenses with respect to 
     the partnership, or
       ``(ii) $5,000, reduced (but not below zero) by the amount 
     by which such organizational expenses exceed $50,000, and
       ``(B) the remainder of such organizational expenses shall 
     be allowed as a deduction ratably over the 180-month period 
     beginning with the month in which the partnership begins 
     business.
       ``(2) Dispositions before close of amortization period.--In 
     any case in which a partnership is liquidated before the end 
     of the period to which paragraph (1)(B) applies, any deferred 
     expenses attributable to the partnership which were not 
     allowed as a deduction by reason of this section may be 
     deducted to the extent allowable under section 165.''.
       (2) Conforming amendment.--Subsection (b) of section 709 is 
     amended by striking ``Amortization'' and inserting 
     ``Deduction'' in the heading.
       (d) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after the date of the 
     enactment of this Act.

     SEC. 475. REFORM OF TAX TREATMENT OF LEASING OPERATIONS.

       (a) Clarification of Recovery Period for Tax-Exempt Use 
     Property Subject to Lease.--Subparagraph (A) of section 
     168(g)(3) (relating to special rules for determining class 
     life) is amended by inserting ``(notwithstanding any other 
     subparagraph of this paragraph)'' after ``shall''.
       (b) Limitation on Depreciation Period for Software Leased 
     to Tax-Exempt Entity.--Paragraph (1) of section 167(f) is 
     amended by adding at the end the following new subparagraph:
       ``(C) Tax-exempt use property subject to lease.--In the 
     case of computer software which would be tax-exempt use 
     property as defined in subsection (h) of section 168 if such 
     section applied to computer software, the useful life under 
     subparagraph (A) shall not be less than 125 percent of the 
     lease term (within the meaning of section 168(i)(3)).''
       (c) Lease Term To Include Related Service Contracts.--
     Subparagraph (A) of section 168(i)(3) (relating to lease 
     term) is amended by striking ``and'' at the end of clause 
     (i), by redesignating clause (ii) as clause (iii), and by 
     inserting after clause (i) the following new clause:
       ``(ii) the term of a lease shall include the term of any 
     service contract or similar arrangement (whether or not 
     treated as a lease under section 7701(e))--

       ``(I) which is part of the same transaction (or series of 
     related transactions) which includes the lease, and
       ``(II) which is with respect to the property subject to the 
     lease or substantially similar property, and''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to leases entered into after December 31, 2003.

     SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED 
                   BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

       (a) In General.--Subpart C of part II of subchapter E of 
     chapter 1 (relating to taxable year for which deductions 
     taken) is amended by adding at the end the following new 
     section:

     ``SEC. 470. LIMITATIONS ON LOSSES FROM TAX-EXEMPT USE 
                   PROPERTY.

       ``(a) Limitation on Losses.--Except as otherwise provided 
     in this section, a tax-exempt use loss for any taxable year 
     shall not be allowed.
       ``(b) Disallowed Loss Carried to Next Year.--Any tax-exempt 
     use loss with respect to any tax-exempt use property which is 
     disallowed under subsection (a) for any taxable year shall be 
     treated as a deduction with respect to such property in the 
     next taxable year.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Tax-exempt use loss.--The term `tax-exempt use loss' 
     means, with respect to any taxable year, the amount (if any) 
     by which--
       ``(A) the sum of--
       ``(i) the aggregate deductions (other than interest) 
     directly allocable to a tax-exempt use property, plus
       ``(ii) the aggregate deductions for interest properly 
     allocable to such property, exceed
       ``(B) the aggregate income from such property.
       ``(2) Tax-exempt use property.--The term `tax-exempt use 
     property' has the meaning given to such term by section 
     168(h) (without regard to paragraph (1)(C) or (3)(C) thereof 
     and determined as if property described in section 
     167(f)(1)(B) were tangible property).
       ``(d) Exception for Certain Leases.--This section shall not 
     apply to any lease of property which meets the requirements 
     of all of the following paragraphs:
       ``(1) Property not financed with tax-exempt bonds.--A lease 
     of property meets the requirements of this paragraph if no 
     part of the property was financed (directly or indirectly) 
     from the proceeds of an obligation the interest on which is 
     exempt from tax under section 103(a) and which (or any 
     refunding bond of which) is outstanding when the lease is 
     entered into. The Secretary may by regulations provide for a 
     de minimis exception from this paragraph.
       ``(2) Availability of funds.--
       ``(A) In general.--A lease of property meets the 
     requirements of this paragraph if (at any time during the 
     lease term) not more than an allowable amount of funds are--
       ``(i) subject to any arrangement referred to in 
     subparagraph (B), or
       ``(ii) otherwise reasonably expected to remain available,

     to or for the benefit of the lessor or any lender, or to or 
     for the benefit of the lessee to satisfy the lessee's 
     obligations or options under the lease.
       ``(B) Arrangements.--The arrangements referred to in this 
     subparagraph are--
       ``(i) a defeasance arrangement, a loan by the lessee to the 
     lessor or any lender, a deposit arrangement, a letter of 
     credit collateralized with cash or cash equivalents, a 
     payment undertaking agreement, a lease prepayment, a sinking 
     fund arrangement, or any similar arrangement (whether or not 
     such arrangement provides credit support), and
       ``(ii) any other arrangement identified by the Secretary in 
     regulations.
       ``(C) Allowable amount.--
       ``(i) In general.--Except as otherwise provided in this 
     subparagraph, the term `allowable amount' means an amount 
     equal to 20 percent of the lessor's adjusted basis in the 
     property at the time the lease is entered into.
       ``(ii) Higher amount permitted in certain cases.--To the 
     extent provided in regulations, a higher percentage shall be 
     permitted under clause (i) where necessary because of the 
     credit-worthiness of the lessee. In no event may such 
     regulations permit a percentage of more than 50 percent.
       ``(iii) Option to purchase.--If under the lease the lessee 
     has the option to purchase the property for other than the 
     fair market value of the property (determined at the time of 
     exercise), the allowable amount at the time such option may 
     be exercised may not exceed 50 percent of the price at which 
     such option may be exercised.
       ``(3) Lessor must make substantial equity investment.--A 
     lease of property meets the requirements of this paragraph 
     if--
       ``(A) the lessor--
       ``(i) has at the time the lease is entered into an 
     unconditional at-risk equity investment (as determined by the 
     Secretary) in the property of at least 20 percent of the 
     lessor's adjusted basis in the property as of that time, and
       ``(ii) maintains such investment throughout the term of the 
     lease, and
       ``(B) the fair market value of the property at the end of 
     the lease term is reasonably expected to be equal to at least 
     20 percent of such basis.
       ``(4) Lessee may not bear more than minimal risk of loss.--
       ``(A) In general.--A lease of property meets the 
     requirements of this paragraph if there is no arrangement 
     under which more than a minimal risk of loss (as determined 
     under regulations) in the value of the property is borne by 
     the lessee.
       ``(B) Certain arrangements fail requirement.--In no event 
     will the requirements of this paragraph be met if there is 
     any arrangement under which the lessee bears--
       ``(i) any portion of the loss that would occur if the fair 
     market value of the leased property at the time the lease is 
     terminated were 25 percent less than its projected fair 
     market value at the end of the lease term, or
       ``(ii) more than 50 percent of the loss that would occur if 
     the fair market value of the leased property at the time the 
     lease is terminated were zero.
       ``(5) Regulatory requirements.--A lease of property meets 
     the requirements of this paragraph if such lease of property 
     meets such requirements as the Secretary may prescribe by 
     regulations.
       ``(e) Special Rules.--
       ``(1) Treatment of former tax-exempt use property.--
       ``(A) In general.--In the case of any former tax-exempt use 
     property--
       ``(i) any deduction allowable under subsection (b) with 
     respect to such property for any taxable year shall be 
     allowed only to the extent of any net income (without regard 
     to such deduction) from such property for such taxable year, 
     and
       ``(ii) any portion of such unused deduction remaining after 
     application of clause (i) shall be treated as allowable under 
     subsection (b) with respect to such property in the next 
     taxable year.
       ``(B) Former tax-exempt use property.--For purposes of this 
     subsection, the term `former tax-exempt use property' means 
     any property which--
       ``(i) is not tax-exempt use property for the taxable year, 
     but
       ``(ii) was tax-exempt use property for any prior taxable 
     year.
       ``(2) Disposition of entire interest in property.--If 
     during the taxable year a taxpayer disposes of the taxpayer's 
     entire interest in tax-exempt use property (or former tax-
     exempt use property), rules similar to the rules of section 
     469(g) shall apply for purposes of this section.
       ``(3) Coordination with section 469.--This section shall be 
     applied before the application of section 469.
       ``(f) Other Definitions.--For purposes of this section--
       ``(1) Related parties.--The terms `lessor', `lessee', and 
     `lender' include any related

[[Page S5118]]

     party (within the meaning of section 197(f)(9)(C)(i)).
       ``(2) Lease term.--The term `lease term' has the meaning 
     given to such term by section 168(i)(3).
       ``(3) Lender.--The term `lender' means, with respect to any 
     lease, a person that makes a loan to the lessor which is 
     secured (or economically similar to being secured) by the 
     lease or the leased property.
       ``(4) Loan.--The term `loan' includes any similar 
     arrangement.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the provisions of this section, including regulation which--
       ``(1) allow in appropriate cases the aggregation of 
     property subject to the same lease, and
       ``(2) provide for the determination of the allocation of 
     interest expense for purposes of this section.''
       (b) Conforming Amendment.--The table of sections for 
     subpart C of part II of subchapter E of chapter 1 is amended 
     by adding at the end the following new item:

``Sec. 470. Limitations on losses from tax-exempt use property.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to leases entered into after December 31, 2003.

                   PART IV--ADMINISTRATIVE PROVISIONS

     SEC. 481. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX 
                   FOR CERTAIN DEEMED ASSET SALES.

       (a) In General.--Paragraph (13) of section 338(h) (relating 
     to tax on deemed sale not taken into account for estimated 
     tax purposes) is amended by adding at the end the following: 
     ``The preceding sentence shall not apply with respect to a 
     qualified stock purchase for which an election is made under 
     paragraph (10).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to transactions occurring after the date of the 
     enactment of this Act.

     SEC. 482. EXTENSION OF IRS USER FEES.

       (a) In General.--Section 7528(c) (relating to termination) 
     is amended by striking ``December 31, 2004'' and inserting 
     ``September 30, 2013''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to requests after the date of the enactment of 
     this Act.

     SEC. 483. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENT.

       (a) General Rule.--If--
       (1) a taxpayer eligible to participate in--
       (A) the Department of the Treasury's Offshore Voluntary 
     Compliance Initiative, or
       (B) the Department of the Treasury's voluntary disclosure 
     initiative which applies to the taxpayer by reason of the 
     taxpayer's underreporting of United States income tax 
     liability through financial arrangements which rely on the 
     use of offshore arrangements which were the subject of the 
     initiative described in subparagraph (A), and
       (2) any interest or applicable penalty is imposed with 
     respect to any arrangement to which any initiative described 
     in paragraph (1) applied or to any underpayment of Federal 
     income tax attributable to items arising in connection with 
     any arrangement described in paragraph (1),
     then, notwithstanding any other provision of law, the amount 
     of such interest or penalty shall be equal to twice that 
     determined without regard to this section.
       (b) Definitions and Rules.--For purposes of this section--
       (1) Applicable penalty.--The term ``applicable penalty'' 
     means any penalty, addition to tax, or fine imposed under 
     chapter 68 of the Internal Revenue Code of 1986.
       (2) Voluntary offshore compliance initiative.--The term 
     ``Voluntary Offshore Compliance Initiative'' means the 
     program established by the Department of the Treasury in 
     January of 2003 under which any taxpayer was eligible to 
     voluntarily disclose previously undisclosed income on assets 
     placed in offshore accounts and accessed through credit card 
     and other financial arrangements.
       (3) Participation.--A taxpayer shall be treated as having 
     participated in the Voluntary Offshore Compliance Initiative 
     if the taxpayer submitted the request in a timely manner and 
     all information requested by the Secretary of the Treasury or 
     his delegate within a reasonable period of time following the 
     request.
       (c) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

     SEC. 484. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT 
                   AGREEMENTS.

       (a) In General.--
       (1) Section 6159(a) (relating to authorization of 
     agreements) is amended--
       (A) by striking ``satisfy liability for payment of'' and 
     inserting ``make payment on'', and
       (B) by inserting ``full or partial'' after ``facilitate''.
       (2) Section 6159(c) (relating to Secretary required to 
     enter into installment agreements in certain cases) is 
     amended in the matter preceding paragraph (1) by inserting 
     ``full'' before ``payment''.
       (b) Requirement To Review Partial Payment Agreements Every 
     Two Years.--Section 6159, as amended by this Act, is amended 
     by redesignating subsections (d), (e), and (f) as subsections 
     (e), (f), and (g), respectively, and inserting after 
     subsection (c) the following new subsection:
       ``(d) Secretary Required To Review Installment Agreements 
     for Partial Collection Every Two Years.--In the case of an 
     agreement entered into by the Secretary under subsection (a) 
     for partial collection of a tax liability, the Secretary 
     shall review the agreement at least once every 2 years.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     of the enactment of this Act.

     SEC. 485. 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 ``March 31, 2004'' and inserting ``September 30, 
     2013''.

     SEC. 486. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS.

       (a) In General.--Subchapter A of chapter 67 (relating to 
     interest on underpayments) is amended by adding at the end 
     the following new section:

     ``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS, ETC.

       ``(a) Authority To Make Deposits Other Than As Payment of 
     Tax.--A taxpayer may make a cash deposit with the Secretary 
     which may be used by the Secretary to pay any tax imposed 
     under subtitle A or B or chapter 41, 42, 43, or 44 which has 
     not been assessed at the time of the deposit. Such a deposit 
     shall be made in such manner as the Secretary shall 
     prescribe.
       ``(b) No Interest Imposed.--To the extent that such deposit 
     is used by the Secretary to pay tax, for purposes of section 
     6601 (relating to interest on underpayments), the tax shall 
     be treated as paid when the deposit is made.
       ``(c) Return of Deposit.--Except in a case where the 
     Secretary determines that collection of tax is in jeopardy, 
     the Secretary shall return to the taxpayer any amount of the 
     deposit (to the extent not used for a payment of tax) which 
     the taxpayer requests in writing.
       ``(d) Payment of Interest.--
       ``(1) In general.--For purposes of section 6611 (relating 
     to interest on overpayments), a deposit which is returned to 
     a taxpayer shall be treated as a payment of tax for any 
     period to the extent (and only to the extent) attributable to 
     a disputable tax for such period. Under regulations 
     prescribed by the Secretary, rules similar to the rules of 
     section 6611(b)(2) shall apply.
       ``(2) Disputable tax.--
       ``(A) In general.--For purposes of this section, the term 
     `disputable tax' means the amount of tax specified at the 
     time of the deposit as the taxpayer's reasonable estimate of 
     the maximum amount of any tax attributable to disputable 
     items.
       ``(B) Safe harbor based on 30-day letter.--In the case of a 
     taxpayer who has been issued a 30-day letter, the maximum 
     amount of tax under subparagraph (A) shall not be less than 
     the amount of the proposed deficiency specified in such 
     letter.
       ``(3) Other definitions.--For purposes of paragraph (2)--
       ``(A) Disputable item.--The term `disputable item' means 
     any item of income, gain, loss, deduction, or credit if the 
     taxpayer--
       ``(i) has a reasonable basis for its treatment of such 
     item, and
       ``(ii) reasonably believes that the Secretary also has a 
     reasonable basis for disallowing the taxpayer's treatment of 
     such item.
       ``(B) 30-day letter.--The term `30-day letter' means the 
     first letter of proposed deficiency which allows the taxpayer 
     an opportunity for administrative review in the Internal 
     Revenue Service Office of Appeals.
       ``(4) Rate of interest.--The rate of interest allowable 
     under this subsection shall be the Federal short-term rate 
     determined under section 6621(b), compounded daily.
       ``(e) Use of Deposits.--
       ``(1) Payment of tax.--Except as otherwise provided by the 
     taxpayer, deposits shall be treated as used for the payment 
     of tax in the order deposited.
       ``(2) Returns of deposits.--Deposits shall be treated as 
     returned to the taxpayer on a last-in, first-out basis.''.
       (b) Clerical Amendment.--The table of sections for 
     subchapter A of chapter 67 is amended by adding at the end 
     the following new item:

``Sec. 6603. Deposits made to suspend running of interest on potential 
              underpayments, etc.''.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to deposits made after the date of the enactment of 
     this Act.
       (2) Coordination with deposits made under revenue procedure 
     84-58.--In the case of an amount held by the Secretary of the 
     Treasury or his delegate on the date of the enactment of this 
     Act as a deposit in the nature of a cash bond deposit 
     pursuant to Revenue Procedure 84-58, the date that the 
     taxpayer identifies such amount as a deposit made pursuant to 
     section 6603 of the Internal Revenue Code (as added by this 
     Act) shall be treated as the date such amount is deposited 
     for purposes of such section 6603.

     SEC. 487. QUALIFIED TAX COLLECTION CONTRACTS.

       (a) Contract Requirements.--

[[Page S5119]]

       (1) In general.--Subchapter A of chapter 64 (relating to 
     collection) is amended by adding at the end the following new 
     section:

     ``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.

       ``(a) In General.--Nothing in any provision of law shall be 
     construed to prevent the Secretary from entering into a 
     qualified tax collection contract.
       ``(b) Qualified Tax Collection Contract.--For purposes of 
     this section, the term `qualified tax collection contract' 
     means any contract which--
       ``(1) is for the services of any person (other than an 
     officer or employee of the Treasury Department)--
       ``(A) to locate and contact any taxpayer specified by the 
     Secretary,
       ``(B) to request full payment from such taxpayer of an 
     amount of Federal tax specified by the Secretary and, if such 
     request cannot be met by the taxpayer, to offer the taxpayer 
     an installment agreement providing for full payment of such 
     amount during a period not to exceed 3 years, and
       ``(C) to obtain financial information specified by the 
     Secretary with respect to such taxpayer,
       ``(2) prohibits each person providing such services under 
     such contract from committing any act or omission which 
     employees of the Internal Revenue Service are prohibited from 
     committing in the performance of similar services,
       ``(3) prohibits subcontractors from--
       ``(A) having contacts with taxpayers,
       ``(B) providing quality assurance services, and
       ``(C) composing debt collection notices, and
       ``(4) permits subcontractors to perform other services only 
     with the approval of the Secretary.
       ``(c) Fees.--The Secretary may retain and use an amount not 
     in excess of 25 percent of the amount collected under any 
     qualified tax collection contract for the costs of services 
     performed under such contract. The Secretary shall keep 
     adequate records regarding amounts so retained and used. The 
     amount credited as paid by any taxpayer shall be determined 
     without regard to this subsection.
       ``(d) No Federal Liability.--The United States shall not be 
     liable for any act or omission of any person performing 
     services under a qualified tax collection contract.
       ``(e) Application of Fair Debt Collection Practices Act.--
     The provisions of the Fair Debt Collection Practices Act (15 
     U.S.C. 1692 et seq.) shall apply to any qualified tax 
     collection contract, except to the extent superseded by 
     section 6304, section 7602(c), or by any other provision of 
     this title.
       ``(f) Cross References.--
       ``(1) For damages for certain unauthorized collection 
     actions by persons performing services under a qualified tax 
     collection contract, see section 7433A.
       ``(2) For application of Taxpayer Assistance Orders to 
     persons performing services under a qualified tax collection 
     contract, see section 7811(a)(4).''.
       (2) Conforming amendments.--
       (A) Section 7809(a) is amended by inserting ``6306,'' 
     before ``7651''.
       (B) The table of sections for subchapter A of chapter 64 is 
     amended by adding at the end the following new item:

``Sec. 6306. Qualified Tax Collection Contracts.''.
       (b) Civil Damages for Certain Unauthorized Collection 
     Actions by Persons Performing Services Under Qualified Tax 
     Collection Contracts.--
       (1) In general.--Subchapter B of chapter 76 (relating to 
     proceedings by taxpayers and third parties) is amended by 
     inserting after section 7433 the following new section:

     ``SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED 
                   COLLECTION ACTIONS BY PERSONS PERFORMING 
                   SERVICES UNDER QUALIFIED TAX COLLECTION 
                   CONTRACTS.

       ``(a) In General.--Subject to the modifications provided by 
     subsection (b), section 7433 shall apply to the acts and 
     omissions of any person performing services under a qualified 
     tax collection contract (as defined in section 6306(b)) to 
     the same extent and in the same manner as if such person were 
     an employee of the Internal Revenue Service.
       ``(b) Modifications.--For purposes of subsection (a)--
       ``(1) Any civil action brought under section 7433 by reason 
     of this section shall be brought against the person who 
     entered into the qualified tax collection contract with the 
     Secretary and shall not be brought against the United States.
       ``(2) Such person and not the United States shall be liable 
     for any damages and costs determined in such civil action.
       ``(3) Such civil action shall not be an exclusive remedy 
     with respect to such person.
       ``(4) Subsections (c), (d)(1), and (e) of section 7433 
     shall not apply.''.
       (2) Clerical amendment.--The table of sections for 
     subchapter B of chapter 76 is amended by inserting after the 
     item relating to section 7433 the following new item:

``Sec. 7433A. Civil damages for certain unauthorized collection actions 
              by persons performing services under a qualified tax 
              collection contract.''.
       (c) Application of Taxpayer Assistance Orders to Persons 
     Performing Services Under a Qualified Tax Collection 
     Contract.--Section 7811 (relating to taxpayer assistance 
     orders) is amended by adding at the end the following new 
     subsection:
       ``(g) Application to Persons Performing Services Under a 
     Qualified Tax Collection Contract.--Any order issued or 
     action taken by the National Taxpayer Advocate pursuant to 
     this section shall apply to persons performing services under 
     a qualified tax collection contract (as defined in section 
     6306(b)) to the same extent and in the same manner as such 
     order or action applies to the Secretary.''.
       (d) Ineligibility of Individuals Who Commit Misconduct To 
     Perform Under Contract.--Section 1203 of the Internal Revenue 
     Service Restructuring Act of 1998 (relating to termination of 
     employment for misconduct) is amended by adding at the end 
     the following new subsection:
       ``(e) Individuals Performing Services Under a Qualified Tax 
     Collection Contract.--An individual shall cease to be 
     permitted to perform any services under any qualified tax 
     collection contract (as defined in section 6306(b) of the 
     Internal Revenue Code of 1986) if there is a final 
     determination by the Secretary of the Treasury under such 
     contract that such individual committed any act or omission 
     described under subsection (b) in connection with the 
     performance of such services.''.
       (e) Effective Date.--The amendments made to this section 
     shall take effect on the date of the enactment of this Act.

                    PART V--MISCELLANEOUS PROVISIONS

     SEC. 491. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF 
                   TAXABLE VACCINES.

       (a) In General.--Section 4132(a)(1) (defining taxable 
     vaccine) is amended by redesignating subparagraphs (I), (J), 
     (K), and (L) as subparagraphs (J), (K), (L), and (M), 
     respectively, and by inserting after subparagraph (H) the 
     following new subparagraph:
       ``(I) Any vaccine against hepatitis A.''.
       (b) Conforming Amendment.--Section 9510(c)(1)(A) is amended 
     by striking ``October 18, 2000'' and inserting ``May 8, 
     2003''.
       (c) Effective Date.--
       (1) Sales, etc.--The amendments made by this section shall 
     apply to sales and uses on or after the first day of the 
     first month which begins more than 4 weeks after the date of 
     the enactment of this Act.
       (2) Deliveries.--For purposes of paragraph (1) and section 
     4131 of the Internal Revenue Code of 1986, in the case of 
     sales on or before the effective date described in such 
     paragraph for which delivery is made after such date, the 
     delivery date shall be considered the sale date.

     SEC. 492. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL 
                   RESIDENCE ACQUIRED IN A LIKE-KIND EXCHANGE 
                   WITHIN 5 YEARS OF SALE.

       (a) In General.--Section 121(d) (relating to special rules 
     for exclusion of gain from sale of principal residence) is 
     amended by adding at the end the following new paragraph:
       ``(10) Property acquired in like-kind exchange.--If a 
     taxpayer acquired property in an exchange to which section 
     1031 applied, subsection (a) shall not apply to the sale or 
     exchange of such property if it occurs during the 5-year 
     period beginning with the date of the acquisition of such 
     property.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales or exchanges after the date of the 
     enactment of this Act.

     SEC. 493. CLARIFICATION OF EXEMPTION FROM TAX FOR SMALL 
                   PROPERTY AND CASUALTY INSURANCE COMPANIES.

       (a) In General.--Section 501(c)(15)(A) is amended to read 
     as follows:
       ``(A) Insurance companies (as defined in section 816(a)) 
     other than life (including interinsurers and reciprocal 
     underwriters) if--
       ``(i) the gross receipts for the taxable year do not exceed 
     $600,000, and
       ``(ii) more than 50 percent of such gross receipts consist 
     of premiums.''.
       (b) Controlled Group Rule.--Section 501(c)(15)(C) is 
     amended by inserting ``, except that in applying section 1563 
     for purposes of section 831(b)(2)(B)(ii), subparagraphs (B) 
     and (C) of section 1563(b)(2) shall be disregarded'' before 
     the period at the end.
       (c) Conforming Amendment.--Clause (i) of section 
     831(b)(2)(A) is amended by striking ``exceed $350,000 but''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 494. DEFINITION OF INSURANCE COMPANY FOR SECTION 831.

       (a) In General.--Section 831 is amended by redesignating 
     subsection (c) as subsection (d) and by inserting after 
     subsection (b) the following new subsection:
       ``(c) Insurance Company Defined.--For purposes of this 
     section, the term `insurance company' has the meaning given 
     to such term by section 816(a)).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 495. LIMITATIONS ON DEDUCTION FOR CHARITABLE 
                   CONTRIBUTIONS OF PATENTS AND SIMILAR PROPERTY.

       (a) Deduction Allowed Only to the Extent of Basis.--Section 
     170(e)(1)(B) (relating to certain contributions of ordinary 
     income and capital gain property) is amended by striking 
     ``or'' at the end of clause (i), by adding ``or'' at the end 
     of clause (ii), and by inserting after clause (ii) the 
     following new clause:
       ``(iii) of any patent, copyright, trademark, trade name, 
     trade secret, know-how, software, or similar property, or 
     applications or registrations of such property,''.
       (b) Treatment of Contributions Where Donor Receives 
     Interest.--Section 170(e) is amended by adding at the end the 
     following new paragraph:

[[Page S5120]]

       ``(7) Special rules for contributions of patents and 
     similar property where donor receives interest.--
       ``(A) Disallowance of deduction.--No deduction shall be 
     allowed under this section with respect to a contribution of 
     property described in paragraph (1)(B)(iii) if the taxpayer 
     after the contribution has any interest in the property other 
     than a qualified interest.
       ``(B) Contributions with qualified interest.--If a taxpayer 
     after a contribution of property described in paragraph 
     (1)(B)(iii) has a qualified interest in the property--
       ``(i) any payment pursuant to the qualified interest shall 
     be treated as ordinary income and shall be includible in 
     gross income of the taxpayer for the taxable year in which 
     the payment is received by the taxpayer, and
       ``(ii) subsection (f)(3) and section 1011(b) shall not 
     apply to the transfer of the property from the taxpayer to 
     the donee.
       ``(C) Qualified interest.--For purposes of this paragraph--
       ``(i) In general.--The term `qualified interest' means, 
     with respect to any taxpayer, a right to receive from the 
     donee a percentage (not greater than 50 percent) of any 
     royalty payment received by the donee with respect to 
     property described in paragraph (1)(B)(iii) (other than 
     copyrights which are described in section 1221(a)(3) or 
     1231(b)(1)(C)) contributed by the taxpayer to the donee.
       ``(ii) Secretarial authority.--

       ``(I) In general.--Except as provided in subclause (II), 
     the Secretary may by regulation or other administrative 
     guidance treat as a qualified interest the right to receive 
     other payments from the donee, but only if the donee does not 
     possess a right to receive any payment (whether royalties or 
     otherwise) from a third party with respect to the contributed 
     property.
       ``(II) Exceptions.--The Secretary may not treat as a 
     qualified interest the right to receive any payment which 
     provides a benefit to the donor which is greater than the 
     benefit retained by the donee or the right to receive any 
     portion of the proceeds from the sale of the property 
     contributed.

       ``(iii) Limitation.--An interest shall be treated as a 
     qualified interest under this subparagraph only if the 
     taxpayer has no right to receive any payment described in 
     clause (i) or (ii)(I) after the earlier of the date on which 
     the legal life of the contributed property expires or the 
     date which is 20 years after the date of the contribution.''.
       (c) Reporting Requirements.--
       (1) In general.--Section 6050L(a) (relating to returns 
     regarding certain dispositions of donated property) is 
     amended--
       (A) by striking ``If'' and inserting:
       ``(1) Dispositions of donated property.--If'',
       (B) by redesignating paragraphs (1) through (5) as 
     subparagraphs (A) through (E), respectively, and
       (C) by adding at the end the following new paragraph:
       ``(2) Payments of qualified interests.--Each donee of 
     property described in section 170(e)(1)(B)(iii) which makes a 
     payment to a donor pursuant to a qualified interest (as 
     defined in section 170(e)(7)) during any calendar year shall 
     make a return (in accordance with forms and regulations 
     prescribed by the Secretary) showing--
       ``(A) the name, address, and TIN of the payor and the payee 
     with respect to such a payment,
       ``(B) a description, and date of contribution, of the 
     property to which the qualified interest relates,
       ``(C) the dates and amounts of any royalty payments 
     received by the donee with respect to such property,
       ``(D) the date and the amount of the payment pursuant to 
     the qualified interest, and
       ``(E) a description of the terms of the qualified 
     interest.''.
       (2) Conforming amendments.--
       (A) The heading for section 6050L is amended by striking 
     ``CERTAIN DISPOSITIONS OF''.
       (B) The item relating to section 6050L in the table of 
     sections for subpart B of part III of subchapter A of chapter 
     61 is amended by striking ``certain dispositions of''.
       (d) Anti-Abuse Rules.--The Secretary of the Treasury may 
     prescribe such regulations or other administrative guidance 
     as may be necessary or appropriate to prevent the avoidance 
     of the purposes of section 170(e)(1)(B)(iii) of the Internal 
     Revenue Code of 1986 (as added by subsection (a)), including 
     preventing--
       (1) the circumvention of the reduction of the charitable 
     deduction by embedding or bundling the patent or similar 
     property as part of a charitable contribution of property 
     that includes the patent or similar property,
       (2) the manipulation of the basis of the property to 
     increase the amount of the charitable deduction through the 
     use of related persons, pass-thru entities, or other 
     intermediaries, or through the use of any provision of law or 
     regulation (including the consolidated return regulations), 
     and
       (3) a donor from changing the form of the patent or similar 
     property to property of a form for which different deduction 
     rules would apply.
       (e) Effective Date.--The amendments made by this section 
     shall apply to contributions made after October 1, 2003.

     SEC. 496. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
                   INCOME IS TAXED AS IF PARENT'S INCOME.

       (a) In General.--Section 1(g)(2)(A) (relating to child to 
     whom subsection applies) is amended by striking ``age 14'' 
     and inserting ``age 18''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.
                                 ______
                                 
  SA 3127. Mr. KYL submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

         Beginning on page 558, line 1, strike all through page 
     559, line 5.
                                 ______
                                 
  SA 3128. Mr. BUNNING submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

         At the end of part V of title IV, insert:

     SEC. __. CLARIFICATION OF STATUS OF CERTAIN ORGANIZATIONS AND 
                   RETIREMENT PLANS.

         (a) In General.--For purposes of any provision of law--
         (1) the organization described in subsection (c)(5) 
     maintaining the retirement plan of the eligible organization 
     shall be treated as an organization described in section 
     414(e)(3)(A) of the Internal Revenue Code of 1986 with 
     respect to its maintenance of benefit plans of the eligible 
     organization, and
         (2) subject to the provisions of subsection (b), any 
     retirement plan which, as of January 1, 2003, was maintained 
     by the organization described in paragraph (1) shall be 
     treated as a church plan (within the meaning of section 
     414(e) of such Code) which is maintained by an organization 
     described in section 414(e)(3)(A) of such Code.
         (b) Special Rules Relating to Retirement Plans.--
         (1) Tax-deferred retirement plan.--In the case of a 
     retirement plan which allows contributions to be made under a 
     salary reduction agreement and which is treated as a church 
     plan under subsection (a)--
         (A) such treatment shall not apply for purposes of 
     section 415(c)(7) of the Internal Revenue Code of 1986, and
         (B) any account maintained for a participant or 
     beneficiary of such plan shall be treated as a retirement 
     income account described in section 403(b)(9) of such Code, 
     except that such account shall not, for purposes of section 
     403(b)(12) of such Code, be treated as a contract purchased 
     by a church for purposes of section 403(b)(1)(D) of such 
     Code.
         (2) Money purchase pension plan.--In the case of a 
     retirement plan subject to the requirements of section 401(a) 
     of such Code and treated as a church plan under subsection 
     (a)--
         (A) such plan (but not any reserves held by the 
     organization described in subsection (c)(5) maintaining the 
     retirement plan of the eligible organization)--
         (i) shall be treated as a defined contribution plan which 
     is a money purchase pension plan, and
         (ii) shall be treated as having made an election under 
     section 410(d) of such Code for plan years beginning after 
     December 31, 2005, except that notwithstanding the election--

         (I) nothing in the Employee Retirement Income Security 
     Act of 1974 shall prohibit the plan from commingling for 
     investment purposes its assets with any other assets of the 
     organization described in subsection (c)(5) maintaining the 
     retirement plan of the eligible organization (or of plans 
     maintained by it), and
         (II) nothing in this section shall be construed as 
     subjecting such other assets to any provision of such Act,

         (B) notwithstanding section 401(a)(11) or 417 of such 
     Code or section 205 of such Act, such plan may offer a lump-
     sum distribution option to participants who have not attained 
     age 55 without offering such participants an annuity option, 
     and
         (C) any account maintained for a participant or 
     beneficiary of such plan shall, for purposes of section 
     401(a)(9) of such Code, be treated as a retirement income 
     account described in section 403(b)(9) of such Code.
         (c) Eligible Organization.--For purposes of this section, 
     the term ``eligible organization'' means any organization if, 
     as of January 1, 2003--
         (1) more than 1 church recognizes employment at the 
     organization by a duly ordained, commissioned, or licensed 
     minister as service in the exercise of the minister's 
     ministry,
         (2) at least 1 nationally or internationally recognized 
     church association includes the organization (or its national 
     or international representative body) in its directory of 
     participating or founding organizations,

[[Page S5121]]

         (3) such organization or national representative body 
     thereof is part of an ecumenical movement (founded in the 
     nineteenth century) to promote worldwide fellowship united by 
     common loyalty to certain religious values,
         (4) such organization's national representative body has 
     chartered at least 1 organization that provides educational, 
     recreational, social and religious support to the armed 
     forces of the United States, and
         (5) the organization has a retirement plan which is 
     administered by an organization--
         (A) which was established by State law by a special act 
     of the legislature and subject to certain provisions of the 
     State's insurance law,
         (B) the principal purpose or function of which is the 
     administration or funding of a plan or program for the 
     provision of retirement benefits or welfare benefits, or 
     both, for employees of the eligible organization,
         (C) is treated as an entity exempt from tax under section 
     501(m) of the Internal Revenue Code of 1986 without regard to 
     the application of subsection (a), and
         (D) whose organizing documents are amended no later than 
     January 1, 2006, to require that, for plan years beginning on 
     or after such date, the greater of 2 trustees or 10 percent 
     of the membership of its board of trustees be associated with 
     a church.
     For purposes of paragraph (5)(D), association with a church 
     may include past or present service as an officer or board 
     member of a church (within the meaning of section 
     3121(w)(3)(A) of such Code) or a church-controlled 
     organization (within the meaning of section 3121(w)(3)(B) of 
     such Code).
         (d) Effective Date.--The provisions of this section shall 
     apply to plan years beginning after December 31, 2003.
                                 ______
                                 
  SA 3129. Mr. McCAIN submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       Strike title VIII.
                                 ______
                                 
  SA 3130. Mr. McCAIN submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

  Beginning on page 797, line 17, strike all through page 810, line 9.
                                 ______
                                 
  SA 3131. Mr. McCAIN submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

  Beginning on page 773, line 4, strike all through page 827, line 14.
                                 ______
                                 
  SA 3132. Mr. McCAIN submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       Strike all after the enacting clause and insert the 
     following:

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF 
                   CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Jumpstart 
     Our Business Strength (JOBS) Act''.
       (b) 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.
       (c) Table of Contents.--

Sec. 1. Short title; amendment of 1986 Code; table of contents.

        TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                        EXTRATERRITORIAL INCOME

Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to United States 
              production activities.

                 TITLE II--INTERNATIONAL TAX PROVISIONS

                  Subtitle A--International Tax Reform

Sec. 201. 20-year foreign tax credit carryover; 1-year foreign tax 
              credit carryback.
Sec. 202. Look-thru rules to apply to dividends from noncontrolled 
              section 902 corporations.
Sec. 203. Foreign tax credit under alternative minimum tax.
Sec. 204. Recharacterization of overall domestic loss.
Sec. 205. Interest expense allocation rules.
Sec. 206. Determination of foreign personal holding company income with 
              respect to transactions in commodities.

              Subtitle B--International Tax Simplification

Sec. 211. Repeal of foreign personal holding company rules and foreign 
              investment company rules.
Sec. 212. Expansion of de minimis rule under subpart F.
Sec. 213. Attribution of stock ownership through partnerships to apply 
              in determining section 902 and 960 credits.
Sec. 214. Application of uniform capitalization rules to foreign 
              persons.
Sec. 215. Repeal of withholding tax on dividends from certain foreign 
              corporations.
Sec. 216. Repeal of special capital gains tax on aliens present in the 
              United States for 183 days or more.

          Subtitle C--Additional International Tax Provisions

Sec. 221. Active leasing income from aircraft and vessels.
Sec. 222. Look-thru treatment of payments between related controlled 
              foreign corporations under foreign personal holding 
              company income rules.
Sec. 223. Look-thru treatment for sales of partnership interests.
Sec. 224. Election not to use average exchange rate for foreign tax 
              paid other than in functional currency.
Sec. 225. Treatment of income tax base differences.
Sec. 226. Modification of exceptions under subpart F for active 
              financing.
Sec. 227. United States property not to include certain assets of 
              controlled foreign corporation.
Sec. 228. Provide equal treatment for interest paid by foreign 
              partnerships and foreign corporations.
Sec. 229. Clarification of treatment of certain transfers of intangible 
              property.
Sec. 230. Modification of the treatment of certain REIT distributions 
              attributable to gain from sales or exchanges of United 
              States real property interests.
Sec. 231. Toll tax on excess qualified foreign distribution amount.
Sec. 232. Exclusion of income derived from certain wagers on horse 
              races and dog races from gross income of nonresident 
              alien individuals.
Sec. 233. Limitation of withholding tax for Puerto Rico corporations.
Sec. 234. Report on WTO dispute settlement panels and the appellate 
              body.
Sec. 235. Study of impact of international tax laws on taxpayers other 
              than large corporations.
Sec. 236. Consultative role for Senate Committee on Finance in 
              connection with the review of proposed tax treaties.

       TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS

                     Subtitle A--General Provisions

Sec. 301. Expansion of qualified small-issue bond program.
Sec. 302. Expensing of broadband Internet access expenditures.
Sec. 303. Exemption of natural aging process in determination of 
              production period for distilled spirits under section 
              263A.
Sec. 304. Modification of active business definition under section 355.
Sec. 305. Exclusion of certain indebtedness of small business 
              investment companies from acquisition indebtedness.
Sec. 306. Modified taxation of imported archery products.
Sec. 307. Modification to cooperative marketing rules to include value 
              added processing involving animals.
Sec. 308. Extension of declaratory judgment procedures to farmers' 
              cooperative organizations.
Sec. 309. Temporary suspension of personal holding company tax.
Sec. 310. Increase in section 179 expensing.
Sec. 311. Three-year carryback of net operating losses.

              Subtitle B--Manufacturing Relating to Films

Sec. 321. Special rules for certain film and television productions.
Sec. 322. Modification of application of income forecast method of 
              depreciation.

[[Page S5122]]

              Subtitle C--Manufacturing Relating to Timber

Sec. 331. Expensing of certain reforestation expenditures.
Sec. 332. Election to treat cutting of timber as a sale or exchange.
Sec. 333. Capital gain treatment under section 631(b) to apply to 
              outright sales by landowners.
Sec. 334. Modification of safe harbor rules for timber REITS.

                    TITLE IV--ADDITIONAL PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 401. Clarification of economic substance doctrine.
Sec. 402. Penalty for failing to disclose reportable transaction.
Sec. 403. Accuracy-related penalty for listed transactions and other 
              reportable transactions having a significant tax 
              avoidance purpose.
Sec. 404. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 405. Modifications of substantial understatement penalty for 
              nonreportable transactions.
Sec. 406. Tax shelter exception to confidentiality privileges relating 
              to taxpayer communications.
Sec. 407. Disclosure of reportable transactions.
Sec. 408. Modifications to penalty for failure to register tax 
              shelters.
Sec. 409. Modification of penalty for failure to maintain lists of 
              investors.
Sec. 410. Modification of actions to enjoin certain conduct related to 
              tax shelters and reportable transactions.
Sec. 411. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 412. Penalty on failure to report interests in foreign financial 
              accounts.
Sec. 413. Frivolous tax submissions.
Sec. 414. Regulation of individuals practicing before the Department of 
              Treasury.
Sec. 415. Penalty on promoters of tax shelters.
Sec. 416. Statute of limitations for taxable years for which required 
              listed transactions not reported.
Sec. 417. Denial of deduction for interest on underpayments 
              attributable to nondisclosed reportable and noneconomic 
              substance transactions.
Sec. 418. Authorization of appropriations for tax law enforcement.

           Subtitle B--Other Corporate Governance Provisions

Sec. 421. Affirmation of consolidated return regulation authority.
Sec. 422. Signing of corporate tax returns by chief executive officer.
Sec. 423. Denial of deduction for certain fines, penalties, and other 
              amounts.
Sec. 424. Disallowance of deduction for punitive damages.
Sec. 425. Increase in criminal monetary penalty limitation for the 
              underpayment or overpayment of tax due to fraud.

            Subtitle C--Enron-Related Tax Shelter Provisions

Sec. 431. Limitation on transfer or importation of built-in losses.
Sec. 432. No reduction of basis under section 734 in stock held by 
              partnership in corporate partner.
Sec. 433. Repeal of special rules for FASITs.
Sec. 434. Expanded disallowance of deduction for interest on 
              convertible debt.
Sec. 435. Expanded authority to disallow tax benefits under section 
              269.
Sec. 436. Modification of interaction between subpart F and passive 
              foreign investment company rules.

           Subtitle D--Provisions To Discourage Expatriation

Sec. 441. Tax treatment of inverted corporate entities.
Sec. 442. Imposition of mark-to-market tax on individuals who 
              expatriate.
Sec. 443. Excise tax on stock compensation of insiders of inverted 
              corporations.
Sec. 444. Reinsurance of United States risks in foreign jurisdictions.
Sec. 445. Reporting of taxable mergers and acquisitions.

                     Subtitle E--International Tax

Sec. 451. Clarification of banking business for purposes of determining 
              investment of earnings in United States property.
Sec. 452. Prohibition on nonrecognition of gain through complete 
              liquidation of holding company.
Sec. 453. Prevention of mismatching of interest and original issue 
              discount deductions and income inclusions in transactions 
              with related foreign persons.
Sec. 454. Effectively connected income to include certain foreign 
              source income.
Sec. 455. Recapture of overall foreign losses on sale of controlled 
              foreign corporation.
Sec. 456. Minimum holding period for foreign tax credit on withholding 
              taxes on income other than dividends.

                  Subtitle F--Other Revenue Provisions

                     Part I--Financial Instruments

Sec. 461. Treatment of stripped interests in bond and preferred stock 
              funds, etc.
Sec. 462. Application of earnings stripping rules to partnerships and S 
              corporations.
Sec. 463. Recognition of cancellation of indebtedness income realized 
              on satisfaction of debt with partnership interest.
Sec. 464. Modification of straddle rules.
Sec. 465. Denial of installment sale treatment for all readily 
              tradeable debt.

                 Part II--Corporations and Partnerships

Sec. 466. Modification of treatment of transfers to creditors in 
              divisive reorganizations.
Sec. 467. Clarification of definition of nonqualified preferred stock.
Sec. 468. Modification of definition of controlled group of 
              corporations.
Sec. 469. Mandatory basis adjustments in connection with partnership 
              distributions and transfers of partnership interests.

                Part III--Depreciation and Amortization

Sec. 471. Extension of amortization of intangibles to sports 
              franchises.
Sec. 472. Services contracts treated in the same manner as leases for 
              rules relating to tax-exempt use of property.
Sec. 473. Class lives for utility grading costs.
Sec. 474. Expansion of limitation on depreciation of certain passenger 
              automobiles.
Sec. 475. Consistent amortization of periods for intangibles.
Sec. 476. Limitation on deductions allocable to property used by 
              governments or other tax-exempt entities.

                   Part IV--Administrative Provisions

Sec. 481. Clarification of rules for payment of estimated tax for 
              certain deemed asset sales.
Sec. 482. Extension of IRS user fees.
Sec. 483. Doubling of certain penalties, fines, and interest on 
              underpayments related to certain offshore financial 
              arrangement.
Sec. 484. Partial payment of tax liability in installment agreements.
Sec. 485. Extension of customs user fees.
Sec. 486. Deposits made to suspend running of interest on potential 
              underpayments.
Sec. 487. Qualified tax collection contracts.

                    Part V--Miscellaneous Provisions

Sec. 491. Addition of vaccines against hepatitis A to list of taxable 
              vaccines.
Sec. 492. Recognition of gain from the sale of a principal residence 
              acquired in a like-kind exchange within 5 years of sale.
Sec. 493. Clarification of exemption from tax for small property and 
              casualty insurance companies.
Sec. 494. Definition of insurance company for section 831.
Sec. 495. Limitations on deduction for charitable contributions of 
              patents and similar property.
Sec. 496. Repeal of 10-percent rehabilitation tax credit.
Sec. 497. Increase in age of minor children whose unearned income is 
              taxed as if parent's income.

        TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                        EXTRATERRITORIAL INCOME

     SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

       (a) In General.--Section 114 is hereby repealed.
       (b) Conforming Amendments.--
       (1)(A) Subpart E of part III of subchapter N of chapter 1 
     (relating to qualifying foreign trade income) is hereby 
     repealed.
       (B) The table of subparts for such part III is amended by 
     striking the item relating to subpart E.
       (2) The table of sections for part III of subchapter B of 
     chapter 1 is amended by striking the item relating to section 
     114.
       (3) The second sentence of section 56(g)(4)(B)(i) is 
     amended by striking ``or under section 114''.
       (4) Section 275(a) is amended--
       (A) by inserting ``or'' at the end of paragraph (4)(A), by 
     striking ``or'' at the end of paragraph (4)(B) and inserting 
     a period, and by striking subparagraph (C), and
       (B) by striking the last sentence.
       (5) Paragraph (3) of section 864(e) is amended--
       (A) by striking:
       ``(3) Tax-exempt assets not taken into account.--
       ``(A) In general.--For purposes of''; and inserting:
       ``(3) Tax-exempt assets not taken into account.--For 
     purposes of'', and
       (B) by striking subparagraph (B).
       (6) Section 903 is amended by striking ``114, 164(a),'' and 
     inserting ``164(a)''.
       (7) Section 999(c)(1) is amended by striking 
     ``941(a)(5),''.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to transactions occurring after the date of the 
     enactment of this Act.

[[Page S5123]]

       (2) Binding contracts.--The amendments made by this section 
     shall not apply to any transaction in the ordinary course of 
     a trade or business which occurs pursuant to a binding 
     contract--
       (A) which is between the taxpayer and a person who is not a 
     related person (as defined in section 943(b)(3) of such Code, 
     as in effect on the day before the date of the enactment of 
     this Act), and
       (B) which is in effect on September 17, 2003, and at all 
     times thereafter.
       (d) Revocation of Section 943(e) Elections.--
       (1) In general.--In the case of a corporation that elected 
     to be treated as a domestic corporation under section 943(e) 
     of the Internal Revenue Code of 1986 (as in effect on the day 
     before the date of the enactment of this Act)--
       (A) the corporation may, during the 1-year period beginning 
     on the date of the enactment of this Act, revoke such 
     election, effective as of such date of enactment, and
       (B) if the corporation does revoke such election--
       (i) such corporation shall be treated as a domestic 
     corporation transferring (as of such date of enactment) all 
     of its property to a foreign corporation in connection with 
     an exchange described in section 354 of such Code, and
       (ii) no gain or loss shall be recognized on such transfer.
       (2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall 
     not apply to gain on any asset held by the revoking 
     corporation if--
       (A) the basis of such asset is determined in whole or in 
     part by reference to the basis of such asset in the hands of 
     the person from whom the revoking corporation acquired such 
     asset,
       (B) the asset was acquired by transfer (not as a result of 
     the election under section 943(e) of such Code) occurring on 
     or after the 1st day on which its election under section 
     943(e) of such Code was effective, and
       (C) a principal purpose of the acquisition was the 
     reduction or avoidance of tax (other than a reduction in tax 
     under section 114 of such Code, as in effect on the day 
     before the date of the enactment of this Act).
       (e) General Transition.--
       (1) In general.--In the case of a taxable year ending after 
     the date of the enactment of this Act and beginning before 
     January 1, 2007, for purposes of chapter 1 of such Code, a 
     current FSC/ETI beneficiary shall be allowed a deduction 
     equal to the transition amount determined under this 
     subsection with respect to such beneficiary for such year.
       (2) Current fsc/eti beneficiary.--The term ``current FSC/
     ETI beneficiary'' means any corporation which entered into 
     one or more transactions during its taxable year beginning in 
     calendar year 2002 with respect to which FSC/ETI benefits 
     were allowable.
       (3) Transition amount.--For purposes of this subsection--
       (A) In general.--The transition amount applicable to any 
     current FSC/ETI beneficiary for any taxable year is the 
     phaseout percentage of the base period amount.
       (B) Phaseout percentage.--
       (i) In general.--In the case of a taxpayer using the 
     calendar year as its taxable year, the phaseout percentage 
     shall be determined under the following table:

                                                           The phaseout
Years:                                                   percentage is:
2004...............................................................80 .
2005...............................................................80 .
2006................................................................60.

       (ii) Special rule for 2003.--The phaseout percentage for 
     2003 shall be the amount that bears the same ratio to 100 
     percent as the number of days after the date of the enactment 
     of this Act bears to 365.
       (iii) Special rule for fiscal year taxpayers.--In the case 
     of a taxpayer not using the calendar year as its taxable 
     year, the phaseout percentage is the weighted average of the 
     phaseout percentages determined under the preceding 
     provisions of this paragraph with respect to calendar years 
     any portion of which is included in the taxpayer's taxable 
     year. The weighted average shall be determined on the basis 
     of the respective portions of the taxable year in each 
     calendar year.
       (C) Short taxable year.--The Secretary shall prescribe 
     guidance for the computation of the transition amount in the 
     case of a short taxable year.
       (4) Base period amount.--For purposes of this subsection, 
     the base period amount is the FSC/ETI benefit for the 
     taxpayer's taxable year beginning in calendar year 2002.
       (5) FSC/ETI benefit.--For purposes of this subsection, the 
     term ``FSC/ETI benefit'' means--
       (A) amounts excludable from gross income under section 114 
     of such Code, and
       (B) the exempt foreign trade income of related foreign 
     sales corporations from property acquired from the taxpayer 
     (determined without regard to section 923(a)(5) of such Code 
     (relating to special rule for military property), as in 
     effect on the day before the date of the enactment of the FSC 
     Repeal and Extraterritorial Income Exclusion Act of 2000).

     In determining the FSC/ETI benefit there shall be excluded 
     any amount attributable to a transaction with respect to 
     which the taxpayer is the lessor unless the leased property 
     was manufactured or produced in whole or in significant part 
     by the taxpayer.
       (6) Special rule for agricultural and horticultural 
     cooperatives.--Determinations under this subsection with 
     respect to an organization described in section 943(g)(1) of 
     such Code, as in effect on the day before the date of the 
     enactment of this Act, shall be made at the cooperative level 
     and the purposes of this subsection shall be carried out in a 
     manner similar to section 199(h)(2) of such Code, as added by 
     this Act. Such determinations shall be in accordance with 
     such requirements and procedures as the Secretary may 
     prescribe.
       (7) Certain rules to apply.--Rules similar to the rules of 
     section 41(f) of such Code shall apply for purposes of this 
     subsection.
       (8) Coordination with binding contract rule.--The deduction 
     determined under paragraph (1) for any taxable year shall be 
     reduced by the phaseout percentage of any FSC/ETI benefit 
     realized for the taxable year by reason of subsection (c)(2) 
     or section 5(c)(1)(B) of the FSC Repeal and Extraterritorial 
     Income Exclusion Act of 2000, except that for purposes of 
     this paragraph the phaseout percentage for 2003 shall be 
     treated as being equal to 100 percent.
       (9) Special rule for taxable year which includes date of 
     enactment.--In the case of a taxable year which includes the 
     date of the enactment of this Act, the deduction allowed 
     under this subsection to any current FSC/ETI beneficiary 
     shall in no event exceed--
       (A) 100 percent of such beneficiary's base period amount 
     for calendar year 2003, reduced by
       (B) the FSC/ETI benefit of such beneficiary with respect to 
     transactions occurring during the portion of the taxable year 
     ending on the date of the enactment of this Act.

     SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED 
                   STATES PRODUCTION ACTIVITIES.

       (a) In General.--Part VI of subchapter B of chapter 1 
     (relating to itemized deductions for individuals and 
     corporations) is amended by adding at the end the following 
     new section:

     ``SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION 
                   ACTIVITIES.

       ``(a) Allowance of Deduction.--
       ``(1) In general.--There shall be allowed as a deduction an 
     amount equal to 9 percent of the qualified production 
     activities income of the taxpayer for the taxable year.
       ``(2) Phasein.--In the case of taxable years beginning in 
     2003, 2004, 2005, 2006, 2007, or 2008, paragraph (1) shall be 
     applied by substituting for the percentage contained therein 
     the transition percentage determined under the following 
     table:

    ``Taxable years                                      The transition
    beginning in:                                        percentage is:
2003 or 2004........................................................1 .
2005................................................................2 .
2006................................................................3 .
2007 or 2008.........................................................6.

       ``(b) Deduction Limited to Wages Paid.--
       ``(1) In general.--The amount of the deduction allowable 
     under subsection (a) for any taxable year shall not exceed 50 
     percent of the W-2 wages of the employer for the taxable 
     year.
       ``(2) W-2 wages.--For purposes of paragraph (1), the term 
     `W-2 wages' means the sum of the aggregate amounts the 
     taxpayer is required to include on statements under 
     paragraphs (3) and (8) of section 6051(a) with respect to 
     employment of employees of the taxpayer during the taxpayer's 
     taxable year.
       ``(3) Special rules.--
       ``(A) Pass-thru entities.--In the case of an S corporation, 
     partnership, estate or trust, or other pass-thru entity, the 
     limitation under this subsection shall apply at the entity 
     level.
       ``(B) Acquisitions and dispositions.--The Secretary shall 
     provide for the application of this subsection in cases where 
     the taxpayer acquires, or disposes of, the major portion of a 
     trade or business or the major portion of a separate unit of 
     a trade or business during the taxable year.
       ``(c) Qualified Production Activities Income.--For purposes 
     of this section--
       ``(1) In general.--The term `qualified production 
     activities income' means an amount equal to the portion of 
     the modified taxable income of the taxpayer which is 
     attributable to domestic production activities.
       ``(2) Reduction for taxable years beginning before 2013.--
     The amount otherwise determined under paragraph (1) (the 
     `unreduced amount') shall not exceed--
       ``(A) in the case of taxable years beginning before 2010, 
     the product of the unreduced amount and the domestic/
     worldwide fraction, and
       ``(B) in the case of taxable years beginning in 2010, 2011, 
     or 2012, an amount equal to the sum of--
       ``(i) the product of the unreduced amount and the domestic/
     worldwide fraction, plus
       ``(ii) the applicable percentage of an amount equal to the 
     unreduced amount minus the amount determined under clause 
     (i).

     For purposes of subparagraph (B)(ii), the applicable 
     percentage is 25 percent for 2010, 50 percent for 2011, and 
     75 percent for 2012.
       ``(d) Determination of Income Attributable to Domestic 
     Production Activities.--For purposes of this section--
       ``(1) In general.--The portion of the modified taxable 
     income which is attributable to domestic production 
     activities is so much of the modified taxable income for the 
     taxable year as does not exceed--
       ``(A) the taxpayer's domestic production gross receipts for 
     such taxable year, reduced by
       ``(B) the sum of--

[[Page S5124]]

       ``(i) the costs of goods sold that are allocable to such 
     receipts,
       ``(ii) other deductions, expenses, or losses directly 
     allocable to such receipts, and
       ``(iii) a proper share of other deductions, expenses, and 
     losses that are not directly allocable to such receipts or 
     another class of income.
       ``(2) Allocation method.--The Secretary shall prescribe 
     rules for the proper allocation of items of income, 
     deduction, expense, and loss for purposes of determining 
     income attributable to domestic production activities.
       ``(3) Special rules for determining costs.--
       ``(A) In general.--For purposes of determining costs under 
     clause (i) of paragraph (1)(B), any item or service brought 
     into the United States shall be treated as acquired by 
     purchase, and its cost shall be treated as not less than its 
     fair market value immediately after it entered the United 
     States. A similar rule shall apply in determining the 
     adjusted basis of leased or rented property where the lease 
     or rental gives rise to domestic production gross receipts.
       ``(B) Exports for further manufacture.--In the case of any 
     property described in subparagraph (A) that had been exported 
     by the taxpayer for further manufacture, the increase in cost 
     or adjusted basis under subparagraph (A) shall not exceed the 
     difference between the value of the property when exported 
     and the value of the property when brought back into the 
     United States after the further manufacture.
       ``(4) Modified taxable income.--The term `modified taxable 
     income' means taxable income computed without regard to the 
     deduction allowable under this section.
       ``(e) Domestic Production Gross Receipts.--For purposes of 
     this section--
       ``(1) In general.--The term `domestic production gross 
     receipts' means the gross receipts of the taxpayer which are 
     derived from--
       ``(A) any sale, exchange, or other disposition of, or
       ``(B) any lease, rental, or license of,

     qualifying production property which was manufactured, 
     produced, grown, or extracted in whole or in significant part 
     by the taxpayer within the United States.
       ``(2) Special rules for certain property.--In the case of 
     any qualifying production property described in subsection 
     (f)(1)(C)--
       ``(A) such property shall be treated for purposes of 
     paragraph (1) as produced in significant part by the taxpayer 
     within the United States if more than 50 percent of the 
     aggregate development and production costs are incurred by 
     the taxpayer within the United States, and
       ``(B) if a taxpayer acquires such property before such 
     property begins to generate substantial gross receipts, any 
     development or production costs incurred before the 
     acquisition shall be treated as incurred by the taxpayer for 
     purposes of subparagraph (A) and paragraph (1).
       ``(f) Qualifying Production Property.--For purposes of this 
     section--
       ``(1) In general.--Except as otherwise provided in this 
     paragraph, the term `qualifying production property' means--
       ``(A) any tangible personal property,
       ``(B) any computer software, and
       ``(C) any property described in section 168(f) (3) or (4), 
     including any underlying copyright or trademark.
       ``(2) Exclusions from qualifying production property.--The 
     term `qualifying production property' shall not include--
       ``(A) consumable property that is sold, leased, or licensed 
     by the taxpayer as an integral part of the provision of 
     services,
       ``(B) oil or gas,
       ``(C) electricity,
       ``(D) water supplied by pipeline to the consumer,
       ``(E) utility services, or
       ``(F) any film, tape, recording, book, magazine, newspaper, 
     or similar property the market for which is primarily topical 
     or otherwise essentially transitory in nature.
       ``(g) Domestic/Worldwide Fraction.--For purposes of this 
     section--
       ``(1) In general.--The term `domestic/worldwide fraction' 
     means a fraction (not greater than 1)--
       ``(A) the numerator of which is the value of the domestic 
     production of the taxpayer, and
       ``(B) the denominator of which is the value of the 
     worldwide production of the taxpayer.
       ``(2) Value of domestic production.--The value of domestic 
     production is the excess (if any) of--
       ``(A) the domestic production gross receipts, over
       ``(B) the cost of purchased inputs allocable to such 
     receipts that are deductible under this chapter for the 
     taxable year.
       ``(3) Purchased inputs.--
       ``(A) In general.--Purchased inputs are any of the 
     following items acquired by purchase:
       ``(i) Services (other than services of employees) used in 
     manufacture, production, growth, or extraction activities.
       ``(ii) Items consumed in connection with such activities.
       ``(iii) Items incorporated as part of the property being 
     manufactured, produced, grown, or extracted.
       ``(B) Special rule.--Rules similar to the rules of 
     subsection (d)(3) shall apply for purposes of this 
     subsection.
       ``(4) Value of worldwide production.--
       ``(A) In general.--The value of worldwide production shall 
     be determined under the principles of paragraph (2), except 
     that--
       ``(i) worldwide production gross receipts shall be taken 
     into account, and
       ``(ii) paragraph (3)(B) shall not apply.
       ``(B) Worldwide production gross receipts.--The worldwide 
     production gross receipts is the amount that would be 
     determined under subsection (e) if such subsection were 
     applied without any reference to the United States.
       ``(h) Definitions and Special Rules.--
       ``(1) Application of section to pass-thru entities.--In the 
     case of an S corporation, partnership, estate or trust, or 
     other pass-thru entity--
       ``(A) subject to the provisions of paragraph (2) and 
     subsection (b)(3)(A), this section shall be applied at the 
     shareholder, partner, or similar level, and
       ``(B) the Secretary shall prescribe rules for the 
     application of this section, including rules relating to--
       ``(i) restrictions on the allocation of the deduction to 
     taxpayers at the partner or similar level, and
       ``(ii) additional reporting requirements.
       ``(2) Exclusion for patrons of agricultural and 
     horticultural cooperatives.--
       ``(A) In general.--If any amount described in paragraph (1) 
     or (3) of section 1385 (a)--
       ``(i) is received by a person from an organization to which 
     part I of subchapter T applies which is engaged in the 
     marketing of agricultural or horticultural products, and
       ``(ii) is allocable to the portion of the qualified 
     production activities income of the organization which is 
     deductible under subsection (a) and designated as such by the 
     organization in a written notice mailed to its patrons during 
     the payment period described in section 1382(d),

     then such person shall be allowed an exclusion from gross 
     income with respect to such amount. The taxable income of the 
     organization shall not be reduced under section 1382 by the 
     portion of any such amount with respect to which an exclusion 
     is allowable to a person by reason of this paragraph.
       ``(B) Special rules.--For purposes of applying subparagraph 
     (A), in determining the qualified production activities 
     income of the organization under this section--
       ``(i) there shall not be taken into account in computing 
     the organization's modified taxable income any deduction 
     allowable under subsection (b) or (c) of section 1382 
     (relating to patronage dividends, per-unit retain 
     allocations, and nonpatronage distributions), and
       ``(ii) the organization shall be treated as having 
     manufactured, produced, grown, or extracted in whole or 
     significant part any qualifying production property marketed 
     by the organization which its patrons have so manufactured, 
     produced, grown, or extracted.
       ``(3) Special rule for affiliated groups.--
       ``(A) In general.--All members of an expanded affiliated 
     group shall be treated as a single corporation for purposes 
     of this section.
       ``(B) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a), determined--
       ``(i) by substituting `50 percent' for `80 percent' each 
     place it appears, and
       ``(ii) without regard to paragraphs (2) and (4) of section 
     1504(b).

     For purposes of determining the domestic/worldwide fraction 
     under subsection (g), clause (ii) shall be applied by also 
     disregarding paragraphs (3) and (8) of section 1504(b).
       ``(4) Coordination with minimum tax.--The deduction under 
     this section shall be allowed for purposes of the tax imposed 
     by section 55; except that for purposes of section 55, 
     alternative minimum taxable income shall be taken into 
     account in determining the deduction under this section.
       ``(5) Ordering rule.--The amount of any other deduction 
     allowable under this chapter shall be determined as if this 
     section had not been enacted.
       ``(6) Trade or business requirement.--This section shall be 
     applied by only taking into account items which are 
     attributable to the actual conduct of a trade or business.
       ``(7) Possessions, etc.--
       ``(A) In general.--For purposes of subsections (d) and (e), 
     the term `United States' includes the Commonwealth of Puerto 
     Rico, Guam, American Samoa, the Commonwealth of the Northern 
     Mariana Islands, and the Virgin Islands of the United States.
       ``(B) Special rules for applying wage limitation.--For 
     purposes of applying the limitation under subsection (b) for 
     any taxable year--
       ``(i) the determination of W-2 wages of a taxpayer shall be 
     made without regard to any exclusion under section 3401(a)(8) 
     for remuneration paid for services performed in a 
     jurisdiction described in subparagraph (A), and
       ``(ii) in determining the amount of any credit allowable 
     under section 30A or 936 for the taxable year, there shall 
     not be taken into account any wages which are taken into 
     account in applying such limitation.
       ``(8) Coordination with transition rules.--For purposes of 
     this section--
       ``(A) domestic production gross receipts shall not include 
     gross receipts from any transaction if the binding contract 
     transition relief of section 101(c)(2) of the Jumpstart Our 
     Business Strength (JOBS) Act applies to such transaction, and

[[Page S5125]]

       ``(B) any deduction allowed under section 101(e) of such 
     Act shall be disregarded in determining the portion of the 
     taxable income which is attributable to domestic production 
     gross receipts.''.
       (b) Minimum Tax.--Section 56(g)(4)(C) (relating to 
     disallowance of items not deductible in computing earnings 
     and profits) is amended by adding at the end the following 
     new clause:
       ``(v) Deduction for domestic production.--Clause (i) shall 
     not apply to any amount allowable as a deduction under 
     section 199.''.
       (c) Clerical Amendment.--The table of sections for part VI 
     of subchapter B of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 199. Income attributable to domestic production activities.''.

       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after the date of the enactment 
     of this Act.
       (2) Application of section 15.--Section 15 of the Internal 
     Revenue Code of 1986 shall apply to the amendments made by 
     this section as if they were changes in a rate of tax.

                 TITLE II--INTERNATIONAL TAX PROVISIONS

                  Subtitle A--International Tax Reform

     SEC. 201. 20-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-YEAR 
                   FOREIGN TAX CREDIT CARRYBACK.

       (a) General Rule.--Section 904(c) (relating to carryback 
     and carryover of excess tax paid) is amended--
       (1) by striking ``in the second preceding taxable year,'', 
     and
       (2) by striking ``, and in the first, second, third, 
     fourth, or fifth'' and inserting ``and in any of the first 
     20''.
       (b) Excess Extraction Taxes.--Paragraph (1) of section 
     907(f) is amended--
       (1) by striking ``in the second preceding taxable year,'',
       (2) by striking ``, and in the first, second, third, 
     fourth, or fifth'' and inserting ``and in any of the first 
     20'', and
       (3) by striking the last sentence.
       (c) Effective Date.--
       (1) Carryback.--The amendments made by subsections (a)(1) 
     and (b)(1) shall apply to excess foreign taxes arising in 
     taxable years beginning after the date of the enactment of 
     this Act.
       (2) Carryover.--The amendments made by subsections (a)(2) 
     and (b)(2) shall apply to excess foreign taxes which (without 
     regard to the amendments made by this section) may be carried 
     to any taxable year ending after the date of the enactment of 
     this Act.

     SEC. 202. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM 
                   NONCONTROLLED SECTION 902 CORPORATIONS.

       (a) In General.--Section 904(d)(4) (relating to look-thru 
     rules apply to dividends from noncontrolled section 902 
     corporations) is amended to read as follows:
       ``(4) Look-thru applies to dividends from noncontrolled 
     section 902 corporations.--
       ``(A) In general.--For purposes of this subsection, any 
     dividend from a noncontrolled section 902 corporation with 
     respect to the taxpayer shall be treated as income described 
     in a subparagraph of paragraph (1) in proportion to the ratio 
     of--
       ``(i) the portion of earnings and profits attributable to 
     income described in such subparagraph, to
       ``(ii) the total amount of earnings and profits.
       ``(B) Earnings and profits of controlled foreign 
     corporations.--In the case of any distribution from a 
     controlled foreign corporation to a United States 
     shareholder, rules similar to the rules of subparagraph (A) 
     shall apply in determining the extent to which earnings and 
     profits of the controlled foreign corporation which are 
     attributable to dividends received from a noncontrolled 
     section 902 corporation may be treated as income in a 
     separate category.
       ``(C) Special rules.--For purposes of this paragraph--
       ``(i) Earnings and profits.--

       ``(I) In general.--The rules of section 316 shall apply.
       ``(II) Regulations.--The Secretary may prescribe 
     regulations regarding the treatment of distributions out of 
     earnings and profits for periods before the taxpayer's 
     acquisition of the stock to which the distributions relate.

       ``(ii) Inadequate substantiation.--If the Secretary 
     determines that the proper subparagraph of paragraph (1) in 
     which a dividend is described has not been substantiated, 
     such dividend shall be treated as income described in 
     paragraph (1)(A).
       ``(iii) Coordination with high-taxed income provisions.--
     Rules similar to the rules of paragraph (3)(F) shall apply 
     for purposes of this paragraph.
       ``(iv) Look-thru with respect to carryover of credit.--
     Rules similar to subparagraph (A) also shall apply to any 
     carryforward under subsection (c) from a taxable year 
     beginning before January 1, 2003, of tax allocable to a 
     dividend from a noncontrolled section 902 corporation with 
     respect to the taxpayer. The Secretary may by regulations 
     provide for the allocation of any carryback of tax allocable 
     to a dividend from a noncontrolled section 902 corporation to 
     such a taxable year for purposes of allocating such dividend 
     among the separate categories in effect for such taxable 
     year.''.
       (b) Conforming Amendments.--
       (1) Subparagraph (E) of section 904(d)(1) is hereby 
     repealed.
       (2) Section 904(d)(2)(C)(iii) is amended by adding ``and'' 
     at the end of subclause (I), by striking subclause (II), and 
     by redesignating subclause (III) as subclause (II).
       (3) The last sentence of section 904(d)(2)(D) is amended to 
     read as follows: ``Such term does not include any financial 
     services income.''.
       (4) Section 904(d)(2)(E) is amended--
       (A) by inserting ``or (4)'' after ``paragraph (3)'' in 
     clause (i), and
       (B) by striking clauses (ii) and (iv) and by redesignating 
     clause (iii) as clause (ii).
       (5) Section 904(d)(3)(F) is amended by striking ``(D), or 
     (E)'' and inserting ``or (D)''.
       (6) Section 864(d)(5)(A)(i) is amended by striking 
     ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 203. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.

       (a) In General.--
       (1) Subsection (a) of section 59 is amended by striking 
     paragraph (2) and by redesignating paragraphs (3) and (4) as 
     paragraphs (2) and (3), respectively.
       (2) Section 53(d)(1)(B)(i)(II) is amended by striking ``and 
     if section 59(a)(2) did not apply''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 204. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.

       (a) General Rule.--Section 904 is amended by redesignating 
     subsections (g), (h), (i), (j), and (k) as subsections (h), 
     (i), (j), (k), and (l) respectively, and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Recharacterization of Overall Domestic Loss.--
       ``(1) General rule.--For purposes of this subpart and 
     section 936, in the case of any taxpayer who sustains an 
     overall domestic loss for any taxable year beginning after 
     December 31, 2006, that portion of the taxpayer's taxable 
     income from sources within the United States for each 
     succeeding taxable year which is equal to the lesser of--
       ``(A) the amount of such loss (to the extent not used under 
     this paragraph in prior taxable years), or
       ``(B) 50 percent of the taxpayer's taxable income from 
     sources within the United States for such succeeding taxable 
     year,

     shall be treated as income from sources without the United 
     States (and not as income from sources within the United 
     States).
       ``(2) Overall domestic loss defined.--For purposes of this 
     subsection--
       ``(A) In general.--The term `overall domestic loss' means 
     any domestic loss to the extent such loss offsets taxable 
     income from sources without the United States for the taxable 
     year or for any preceding taxable year by reason of a 
     carryback. For purposes of the preceding sentence, the term 
     `domestic loss' means the amount by which the gross income 
     for the taxable year from sources within the United States is 
     exceeded by the sum of the deductions properly apportioned or 
     allocated thereto (determined without regard to any carryback 
     from a subsequent taxable year).
       ``(B) Taxpayer must have elected foreign tax credit for 
     year of loss.--The term `overall domestic loss' shall not 
     include any loss for any taxable year unless the taxpayer 
     chose the benefits of this subpart for such taxable year.
       ``(3) Characterization of subsequent income.--
       ``(A) In general.--Any income from sources within the 
     United States that is treated as income from sources without 
     the United States under paragraph (1) shall be allocated 
     among and increase the income categories in proportion to the 
     loss from sources within the United States previously 
     allocated to those income categories.
       ``(B) Income category.--For purposes of this paragraph, the 
     term `income category' has the meaning given such term by 
     subsection (f)(5)(E)(i).
       ``(4) Coordination with subsection (f).--The Secretary 
     shall prescribe such regulations as may be necessary to 
     coordinate the provisions of this subsection with the 
     provisions of subsection (f).''.
       (b) Conforming Amendments.--
       (1) Section 535(d)(2) is amended by striking ``section 
     904(g)(6)'' and inserting ``section 904(h)(6)''.
       (2) Subparagraph (A) of section 936(a)(2) is amended by 
     striking ``section 904(f)'' and inserting ``subsections (f) 
     and (g) of section 904''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to losses for taxable years beginning after 
     December 31, 2006.

     SEC. 205. INTEREST EXPENSE ALLOCATION RULES.

       (a) Election To Allocate on Worldwide Basis.--Section 864 
     is amended by redesignating subsection (f) as subsection (g) 
     and by inserting after subsection (e) the following new 
     subsection:
       ``(f) Election To Allocate Interest, etc. on Worldwide 
     Basis.--For purposes of this subchapter, at the election of 
     the worldwide affiliated group--
       ``(1) Allocation and apportionment of interest expense.--

[[Page S5126]]

       ``(A) In general.--The taxable income of each domestic 
     corporation which is a member of a worldwide affiliated group 
     shall be determined by allocating and apportioning interest 
     expense of each member as if all members of such group were a 
     single corporation.
       ``(B) Treatment of worldwide affiliated group.--The taxable 
     income of the domestic members of a worldwide affiliated 
     group from sources outside the United States shall be 
     determined by allocating and apportioning the interest 
     expense of such domestic members to such income in an amount 
     equal to the excess (if any) of--
       ``(i) the total interest expense of the worldwide 
     affiliated group multiplied by the ratio which the foreign 
     assets of the worldwide affiliated group bears to all the 
     assets of the worldwide affiliated group, over
       ``(ii) the interest expense of all foreign corporations 
     which are members of the worldwide affiliated group to the 
     extent such interest expense of such foreign corporations 
     would have been allocated and apportioned to foreign source 
     income if this subsection were applied to a group consisting 
     of all the foreign corporations in such worldwide affiliated 
     group.
       ``(C) Worldwide affiliated group.--For purposes of this 
     paragraph, the term `worldwide affiliated group' means a 
     group consisting of--
       ``(i) the includible members of an affiliated group (as 
     defined in section 1504(a), determined without regard to 
     paragraphs (2) and (4) of section 1504(b)), and
       ``(ii) all controlled foreign corporations in which such 
     members in the aggregate meet the ownership requirements of 
     section 1504(a)(2) either directly or indirectly through 
     applying paragraph (2) of section 958(a) or through applying 
     rules similar to the rules of such paragraph to stock owned 
     directly or indirectly by domestic partnerships, trusts, or 
     estates.
       ``(2) Allocation and apportionment of other expenses.--
     Expenses other than interest which are not directly allocable 
     or apportioned to any specific income producing activity 
     shall be allocated and apportioned as if all members of the 
     affiliated group were a single corporation. For purposes of 
     the preceding sentence, the term `affiliated group' has the 
     meaning given such term by section 1504 (determined without 
     regard to paragraph (4) of section 1504(b)).
       ``(3) Treatment of tax-exempt assets; basis of stock in 
     nonaffiliated 10-percent owned corporations.--The rules of 
     paragraphs (3) and (4) of subsection (e) shall apply for 
     purposes of this subsection, except that paragraph (4) shall 
     be applied on a worldwide affiliated group basis.
       ``(4) Treatment of certain financial institutions.--
       ``(A) In general.--For purposes of paragraph (1), any 
     corporation described in subparagraph (B) shall be treated as 
     an includible corporation for purposes of section 1504 only 
     for purposes of applying this subsection separately to 
     corporations so described.
       ``(B) Description.--A corporation is described in this 
     subparagraph if--
       ``(i) such corporation is a financial institution described 
     in section 581 or 591,
       ``(ii) the business of such financial institution is 
     predominantly with persons other than related persons (within 
     the meaning of subsection (d)(4)) or their customers, and
       ``(iii) such financial institution is required by State or 
     Federal law to be operated separately from any other entity 
     which is not such an institution.
       ``(C) Treatment of bank and financial holding companies.--
     To the extent provided in regulations--
       ``(i) a bank holding company (within the meaning of section 
     2(a) of the Bank Holding Company Act of 1956 (12 U.S.C. 
     1841(a)),
       ``(ii) a financial holding company (within the meaning of 
     section 2(p) of the Bank Holding Company Act of 1956 (12 
     U.S.C. 1841(p)), and
       ``(iii) any subsidiary of a financial institution described 
     in section 581 or 591, or of any such bank or financial 
     holding company, if such subsidiary is predominantly engaged 
     (directly or indirectly) in the active conduct of a banking, 
     financing, or similar business,

     shall be treated as a corporation described in subparagraph 
     (B).
       ``(5) Election to expand financial institution group of 
     worldwide group.--
       ``(A) In general.--If a worldwide affiliated group elects 
     the application of this subsection, all financial 
     corporations which--
       ``(i) are members of such worldwide affiliated group, but
       ``(ii) are not corporations described in paragraph (4)(B),

     shall be treated as described in paragraph (4)(B) for 
     purposes of applying paragraph (4)(A). This subsection (other 
     than this paragraph) shall apply to any such group in the 
     same manner as this subsection (other than this paragraph) 
     applies to the pre-election worldwide affiliated group of 
     which such group is a part.
       ``(B) Financial corporation.--For purposes of this 
     paragraph, the term `financial corporation' means any 
     corporation if at least 80 percent of its gross income is 
     income described in section 904(d)(2)(C)(ii) and the 
     regulations thereunder which is derived from transactions 
     with persons who are not related (within the meaning of 
     section 267(b) or 707(b)(1)) to the corporation. For purposes 
     of the preceding sentence, there shall be disregarded any 
     item of income or gain from a transaction or series of 
     transactions a principal purpose of which is the 
     qualification of any corporation as a financial corporation.
       ``(C) Antiabuse rules.--In the case of a corporation which 
     is a member of an electing financial institution group, to 
     the extent that such corporation--
       ``(i) distributes dividends or makes other distributions 
     with respect to its stock after the date of the enactment of 
     this paragraph to any member of the pre-election worldwide 
     affiliated group (other than to a member of the electing 
     financial institution group) in excess of the greater of--

       ``(I) its average annual dividend (expressed as a 
     percentage of current earnings and profits) during the 5-
     taxable-year period ending with the taxable year preceding 
     the taxable year, or
       ``(II) 25 percent of its average annual earnings and 
     profits for such 5-taxable-year period, or

       ``(ii) deals with any person in any manner not clearly 
     reflecting the income of the corporation (as determined under 
     principles similar to the principles of section 482),

     an amount of indebtedness of the electing financial 
     institution group equal to the excess distribution or the 
     understatement or overstatement of income, as the case may 
     be, shall be recharacterized (for the taxable year and 
     subsequent taxable years) for purposes of this paragraph as 
     indebtedness of the worldwide affiliated group (excluding the 
     electing financial institution group). If a corporation has 
     not been in existence for 5 taxable years, this subparagraph 
     shall be applied with respect to the period it was in 
     existence.
       ``(D) Election.--An election under this paragraph with 
     respect to any financial institution group may be made only 
     by the common parent of the pre-election worldwide affiliated 
     group and may be made only for the first taxable year 
     beginning after December 31, 2008, in which such affiliated 
     group includes 1 or more financial corporations. Such an 
     election, once made, shall apply to all financial 
     corporations which are members of the electing financial 
     institution group for such taxable year and all subsequent 
     years unless revoked with the consent of the Secretary.
       ``(E) Definitions relating to groups.--For purposes of this 
     paragraph--
       ``(i) Pre-election worldwide affiliated group.--The term 
     `pre-election worldwide affiliated group' means, with respect 
     to a corporation, the worldwide affiliated group of which 
     such corporation would (but for an election under this 
     paragraph) be a member for purposes of applying paragraph 
     (1).
       ``(ii) Electing financial institution group.--The term 
     `electing financial institution group' means the group of 
     corporations to which this subsection applies separately 
     by reason of the application of paragraph (4)(A) and which 
     includes financial corporations by reason of an election 
     under subparagraph (A).
       ``(F) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this 
     subsection, including regulations--
       ``(i) providing for the direct allocation of interest 
     expense in other circumstances where such allocation would be 
     appropriate to carry out the purposes of this subsection,
       ``(ii) preventing assets or interest expense from being 
     taken into account more than once, and
       ``(iii) dealing with changes in members of any group 
     (through acquisitions or otherwise) treated under this 
     paragraph as an affiliated group for purposes of this 
     subsection.
       ``(6) Election.--An election to have this subsection apply 
     with respect to any worldwide affiliated group may be made 
     only by the common parent of the domestic affiliated group 
     referred to in paragraph (1)(C) and may be made only for the 
     first taxable year beginning after December 31, 2008, in 
     which a worldwide affiliated group exists which includes such 
     affiliated group and at least 1 foreign corporation. Such an 
     election, once made, shall apply to such common parent and 
     all other corporations which are members of such worldwide 
     affiliated group for such taxable year and all subsequent 
     years unless revoked with the consent of the Secretary.''.
       (b) Expansion of Regulatory Authority.--Paragraph (7) of 
     section 864(e) is amended--
       (1) by inserting before the comma at the end of 
     subparagraph (B) ``and in other circumstances where such 
     allocation would be appropriate to carry out the purposes of 
     this subsection'', and
       (2) by striking ``and'' at the end of subparagraph (E), by 
     redesignating subparagraph (F) as subparagraph (G), and by 
     inserting after subparagraph (E) the following new 
     subparagraph:
       ``(F) preventing assets or interest expense from being 
     taken into account more than once, and''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2008.

     SEC. 206. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY 
                   INCOME WITH RESPECT TO TRANSACTIONS IN 
                   COMMODITIES.

       (a) In General.--Clauses (i) and (ii) of section 
     954(c)(1)(C) (relating to commodity transactions) are amended 
     to read as follows:
       ``(i) arise out of commodity hedging transactions (as 
     defined in paragraph (4)(A)),
       ``(ii) are active business gains or losses from the sale of 
     commodities, but only if substantially all of the controlled 
     foreign

[[Page S5127]]

     corporation's commodities are property described in paragraph 
     (1), (2), or (8) of section 1221(a), or''.
       (b) Definition and Special Rules.--Subsection (c) of 
     section 954 is amended by adding after paragraph (3) the 
     following new paragraph:
       ``(4) Definition and special rules relating to commodity 
     transactions.--
       ``(A) Commodity hedging transactions.--For purposes of 
     paragraph (1)(C)(i), the term `commodity hedging transaction' 
     means any transaction with respect to a commodity if such 
     transaction--
       ``(i) is a hedging transaction as defined in section 
     1221(b)(2), determined--

       ``(I) without regard to subparagraph (A)(ii) thereof,
       ``(II) by applying subparagraph (A)(i) thereof by 
     substituting `ordinary property or property described in 
     section 1231(b)' for `ordinary property', and
       ``(III) by substituting `controlled foreign corporation' 
     for `taxpayer' each place it appears, and

       ``(ii) is clearly identified as such in accordance with 
     section 1221(a)(7).
       ``(B) Treatment of dealer activities under paragraph 
     (1)(C).--Commodities with respect to which gains and losses 
     are not taken into account under paragraph (2)(C) in 
     computing a controlled foreign corporation's foreign personal 
     holding company income shall not be taken into account in 
     applying the substantially all test under paragraph 
     (1)(C)(ii) to such corporation.
       ``(C) Regulations.--The Secretary shall prescribe such 
     regulations as are appropriate to carry out the purposes of 
     paragraph (1)(C) in the case of transactions involving 
     related parties.''.
       (c) Modification of Exception for Dealers.--Clause (i) of 
     section 954(c)(2)(C) is amended by inserting ``and 
     transactions involving physical settlement'' after 
     ``(including hedging transactions''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after December 31, 
     2004.

              Subtitle B--International Tax Simplification

     SEC. 211. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES 
                   AND FOREIGN INVESTMENT COMPANY RULES.

       (a) General Rule.--The following provisions are hereby 
     repealed:
       (1) Part III of subchapter G of chapter 1 (relating to 
     foreign personal holding companies).
       (2) Section 1246 (relating to gain on foreign investment 
     company stock).
       (3) Section 1247 (relating to election by foreign 
     investment companies to distribute income currently).
       (b) Exemption of Foreign Corporations From Personal Holding 
     Company Rules.--
       (1) In general.--Subsection (c) of section 542 (relating to 
     exceptions) is amended--
       (A) by striking paragraph (5) and inserting the following:
       ``(5) a foreign corporation,'',
       (B) by striking paragraphs (7) and (10) and by 
     redesignating paragraphs (8) and (9) as paragraphs (7) and 
     (8), respectively,
       (C) by inserting ``and'' at the end of paragraph (7) (as so 
     redesignated), and
       (D) by striking ``; and'' at the end of paragraph (8) (as 
     so redesignated) and inserting a period.
       (2) Treatment of income from personal service contracts.--
     Paragraph (1) of section 954(c) is amended by adding at the 
     end the following new subparagraph:
       ``(I) Personal service contracts.--
       ``(i) Amounts received under a contract under which the 
     corporation is to furnish personal services if--

       ``(I) some person other than the corporation has the right 
     to designate (by name or by description) the individual who 
     is to perform the services, or
       ``(II) the individual who is to perform the services is 
     designated (by name or by description) in the contract, and

       ``(ii) amounts received from the sale or other disposition 
     of such a contract.

     This subparagraph shall apply with respect to amounts 
     received for services under a particular contract only if at 
     some time during the taxable year 25 percent or more in value 
     of the outstanding stock of the corporation is owned, 
     directly or indirectly, by or for the individual who has 
     performed, is to perform, or may be designated (by name or by 
     description) as the one to perform, such services.''.
       (c) Conforming Amendments.--
       (1) Section 1(h) is amended--
       (A) in paragraph (10), by inserting ``and'' at the end of 
     subparagraph (F), by striking subparagraph (G), and by 
     redesignating subparagraph (H) as subparagraph (G), and
       (B) by striking ``a foreign personal holding company (as 
     defined in section 552), a foreign investment company (as 
     defined in section 1246(b)), or'' in paragraph (11)(C)(iii).
       (2) Section 163(e)(3)(B), as amended by this Act, is 
     amended by striking ``which is a foreign personal holding 
     company (as defined in section 552), a controlled foreign 
     corporation (as defined in section 957), or'' and inserting 
     ``which is a controlled foreign corporation (as defined in 
     section 957) or''.
       (3) Paragraph (2) of section 171(c) is amended--
       (A) by striking ``, or by a foreign personal holding 
     company, as defined in section 552'', and
       (B) by striking ``, or foreign personal holding company''.
       (4) Paragraph (2) of section 245(a) is amended by striking 
     ``foreign personal holding company or''.
       (5) Section 267(a)(3)(B), as amended by this Act, is 
     amended by striking ``to a foreign personal holding company 
     (as defined in section 552), a controlled foreign corporation 
     (as defined in section 957), or'' and inserting ``to a 
     controlled foreign corporation (as defined in section 957) 
     or''.
       (6) Section 312 is amended by striking subsection (j).
       (7) Subsection (m) of section 312 is amended by striking 
     ``, a foreign investment company (within the meaning of 
     section 1246(b)), or a foreign personal holding company 
     (within the meaning of section 552)''.
       (8) Subsection (e) of section 443 is amended by striking 
     paragraph (3) and by redesignating paragraphs (4) and (5) as 
     paragraphs (3) and (4), respectively.
       (9) Subparagraph (B) of section 465(c)(7) is amended by 
     adding ``or'' at the end of clause (i), by striking clause 
     (ii), and by redesignating clause (iii) as clause (ii).
       (10) Paragraph (1) of section 543(b) is amended by 
     inserting ``and'' at the end of subparagraph (A), by striking 
     ``, and'' at the end of subparagraph (B) and inserting a 
     period, and by striking subparagraph (C).
       (11) Paragraph (1) of section 562(b) is amended by striking 
     ``or a foreign personal holding company described in section 
     552''.
       (12) Section 563 is amended--
       (A) by striking subsection (c),
       (B) by redesignating subsection (d) as subsection (c), and
       (C) by striking ``subsection (a), (b), or (c)'' in 
     subsection (c) (as so redesignated) and inserting 
     ``subsection (a) or (b)''.
       (13) Subsection (d) of section 751 is amended by adding 
     ``and'' at the end of paragraph (2), by striking paragraph 
     (3), by redesignating paragraph (4) as paragraph (3), and by 
     striking ``paragraph (1), (2), or (3)'' in paragraph (3) (as 
     so redesignated) and inserting ``paragraph (1) or (2)''.
       (14) Paragraph (2) of section 864(d) is amended by striking 
     subparagraph (A) and by redesignating subparagraphs (B) and 
     (C) as subparagraphs (A) and (B), respectively.
       (15)(A) Subparagraph (A) of section 898(b)(1) is amended to 
     read as follows:
       ``(A) which is treated as a controlled foreign corporation 
     for any purpose under subpart F of part III of this 
     subchapter, and''.
       (B) Subparagraph (B) of section 898(b)(2) is amended by 
     striking ``and sections 551(f) and 554, whichever are 
     applicable,''.
       (C) Paragraph (3) of section 898(b) is amended to read as 
     follows:
       ``(3) United states shareholder.--The term `United States 
     shareholder' has the meaning given to such term by section 
     951(b), except that, in the case of a foreign corporation 
     having related person insurance income (as defined in section 
     953(c)(2)), the Secretary may treat any person as a United 
     States shareholder for purposes of this section if such 
     person is treated as a United States shareholder under 
     section 953(c)(1).''.
       (D) Subsection (c) of section 898 is amended to read as 
     follows:
       ``(c) Determination of Required Year.--
       ``(1) In general.--The required year is--
       ``(A) the majority U.S. shareholder year, or
       ``(B) if there is no majority U.S. shareholder year, the 
     taxable year prescribed under regulations.
       ``(2) 1-month deferral allowed.--A specified foreign 
     corporation may elect, in lieu of the taxable year under 
     paragraph (1)(A), a taxable year beginning 1 month earlier 
     than the majority U.S. shareholder year.
       ``(3) Majority u.s. shareholder year.--
       ``(A) In general.--For purposes of this subsection, the 
     term `majority U.S. shareholder year' means the taxable year 
     (if any) which, on each testing day, constituted the taxable 
     year of--
       ``(i) each United States shareholder described in 
     subsection (b)(2)(A), and
       ``(ii) each United States shareholder not described in 
     clause (i) whose stock was treated as owned under subsection 
     (b)(2)(B) by any shareholder described in such clause.
       ``(B) Testing day.--The testing days shall be--
       ``(i) the first day of the corporation's taxable year 
     (determined without regard to this section), or
       ``(ii) the days during such representative period as the 
     Secretary may prescribe.''.
       (16) Clause (ii) of section 904(d)(2)(A) is amended to read 
     as follows:
       ``(ii) Certain amounts included.--Except as provided in 
     clause (iii), the term `passive income' includes, except as 
     provided in subparagraph (E)(iii) or paragraph (3)(I), any 
     amount includible in gross income under section 1293 
     (relating to certain passive foreign investment 
     companies).''.
       (17)(A) Subparagraph (A) of section 904(g)(1), as 
     redesignated by section 204, is amended by adding ``or'' at 
     the end of clause (i), by striking clause (ii), and by 
     redesignating clause (iii) as clause (ii).
       (B) The paragraph heading of paragraph (2) of section 
     904(g), as so redesignated, is amended by striking ``foreign 
     personal holding or''.
       (18) Section 951 is amended by striking subsections (c) and 
     (d) and by redesignating subsections (e) and (f) as 
     subsections (c) and (d), respectively.
       (19) Paragraph (3) of section 989(b) is amended by striking 
     ``, 551(a),''.
       (20) Paragraph (5) of section 1014(b) is amended by 
     inserting ``and before January 1, 2005,'' after ``August 26, 
     1937,''.
       (21) Subsection (a) of section 1016 is amended by striking 
     paragraph (13).
       (22)(A) Paragraph (3) of section 1212(a) is amended to read 
     as follows:

[[Page S5128]]

       ``(3) Special rules on carrybacks.--A net capital loss of a 
     corporation shall not be carried back under paragraph (1)(A) 
     to a taxable year--
       ``(A) for which it is a regulated investment company (as 
     defined in section 851), or
       ``(B) for which it is a real estate investment trust (as 
     defined in section 856).''.
       (B) The amendment made by subparagraph (A) shall apply to 
     taxable years beginning after December 31, 2004.
       (23) Section 1223 is amended by striking paragraph (10) and 
     by redesignating the following paragraphs accordingly.
       (24) Subsection (d) of section 1248 is amended by striking 
     paragraph (5) and by redesignating paragraphs (6) and (7) as 
     paragraphs (5) and (6), respectively.
       (25) Paragraph (2) of section 1260(c) is amended by 
     striking subparagraphs (H) and (I) and by redesignating 
     subparagraph (J) as subparagraph (H).
       (26)(A) Subparagraph (F) of section 1291(b)(3) is amended 
     by striking ``551(d), 959(a),'' and inserting ``959(a)''.
       (B) Subsection (e) of section 1291 is amended by inserting 
     ``(as in effect on the day before the date of the enactment 
     of the Jumpstart Our Business Strength (JOBS) Act)'' after 
     ``section 1246''.
       (27) Paragraph (2) of section 1294(a) is amended to read as 
     follows:
       ``(2) Election not permitted where amounts otherwise 
     includible under section 951.--The taxpayer may not make an 
     election under paragraph (1) with respect to the 
     undistributed PFIC earnings tax liability attributable to a 
     qualified electing fund for the taxable year if any amount is 
     includible in the gross income of the taxpayer under section 
     951 with respect to such fund for such taxable year.''.
       (28) Section 6035 is hereby repealed.
       (29) Subparagraph (D) of section 6103(e)(1) is amended by 
     striking clause (iv) and redesignating clauses (v) and (vi) 
     as clauses (iv) and (v), respectively.
       (30) Subparagraph (B) of section 6501(e)(1) is amended to 
     read as follows:
       ``(B) Constructive dividends.--If the taxpayer omits from 
     gross income an amount properly includible therein under 
     section 951(a), the tax may be assessed, or a proceeding in 
     court for the collection of such tax may be done without 
     assessing, at any time within 6 years after the return was 
     filed.''.
       (31) Subsection (a) of section 6679 is amended--
       (A) by striking ``6035, 6046, and 6046A'' in paragraph (1) 
     and inserting ``6046 and 6046A'', and
       (B) by striking paragraph (3).
       (32) Sections 170(f)(10)(A), 508(d), 4947, and 4948(c)(4) 
     are each amended by striking ``556(b)(2),'' each place it 
     appears.
       (33) The table of parts for subchapter G of chapter 1 is 
     amended by striking the item relating to part III.
       (34) The table of sections for part IV of subchapter P of 
     chapter 1 is amended by striking the items relating to 
     sections 1246 and 1247.
       (35) The table of sections for subpart A of part III of 
     subchapter A of chapter 61 is amended by striking the item 
     relating to section 6035.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 212. EXPANSION OF DE MINIMIS RULE UNDER SUBPART F.

       (a) In General.--Clause (ii) of section 954(b)(3)(A) 
     (relating to de minimis, etc., rules) is amended by striking 
     ``$1,000,000'' and inserting ``$5,000,000''.
       (b) Technical Amendments.--
       (1) Clause (ii) of section 864(d)(5)(A) is amended by 
     striking ``$1,000,000'' and inserting ``$5,000,000''.
       (2) Clause (i) of section 881(c)(5)(A) is amended by 
     striking ``$1,000,000'' and inserting ``$5,000,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 213. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS 
                   TO APPLY IN DETERMINING SECTION 902 AND 960 
                   CREDITS.

       (a) In General.--Subsection (c) of section 902 is amended 
     by redesignating paragraph (7) as paragraph (8) and by 
     inserting after paragraph (6) the following new paragraph:
       ``(7) Constructive ownership through partnerships.--Stock 
     owned, directly or indirectly, by or for a partnership shall 
     be considered as being owned proportionately by its partners. 
     Stock considered to be owned by a person by reason of the 
     preceding sentence shall, for purposes of applying such 
     sentence, be treated as actually owned by such person. The 
     Secretary may prescribe such regulations as may be necessary 
     to carry out the purposes of this paragraph, including rules 
     to account for special partnership allocations of dividends, 
     credits, and other incidents of ownership of stock in 
     determining proportionate ownership.''.
       (b) Clarification of Comparable Attribution Under Section 
     901(b)(5).--Paragraph (5) of section 901(b) is amended by 
     striking ``any individual'' and inserting ``any person''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxes of foreign corporations for taxable 
     years of such corporations beginning after the date of the 
     enactment of this Act.

     SEC. 214. APPLICATION OF UNIFORM CAPITALIZATION RULES TO 
                   FOREIGN PERSONS.

       (a) In General.--Section 263A(c) (relating to exceptions) 
     is amended by adding at the end the following new paragraph:
       ``(7) Foreign persons.--Except for purposes of applying 
     sections 871(b)(1) and 882(a)(1), this section shall not 
     apply to any taxpayer who is not a United States person if 
     such taxpayer capitalizes costs of produced property or 
     property acquired for resale by applying the method used to 
     ascertain the income, profit, or loss for purposes of reports 
     or statements to shareholders, partners, other proprietors, 
     or beneficiaries, or for credit purposes.''.
       (b) Effective Date.--
       (1) In general.--The amendment made by subsection (a) shall 
     apply to taxable years beginning after December 31, 2004.
       (2) Change in method of accounting.--In the case of any 
     taxpayer required by the amendment made by this section to 
     change its method of accounting for its first taxable year 
     beginning after December 31, 2004--
       (A) such change shall be treated as initiated by the 
     taxpayer,
       (B) such change shall be treated as made with the consent 
     of the Secretary of the Treasury, and
       (C) the net amount of the adjustments required to be taken 
     into account by the taxpayer under section 481 of the 
     Internal Revenue Code of 1986 shall be taken into account in 
     such first year.

     SEC. 215. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN 
                   FOREIGN CORPORATIONS.

       (a) In General.--Paragraph (2) of section 871(i) (relating 
     to tax not to apply to certain interest and dividends) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Dividends paid by a foreign corporation which are 
     treated under section 861(a)(2)(B) as income from sources 
     within the United States.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments made after December 31, 2004.

     SEC. 216. REPEAL OF SPECIAL CAPITAL GAINS TAX ON ALIENS 
                   PRESENT IN THE UNITED STATES FOR 183 DAYS OR 
                   MORE.

       (a) In General.--Subsection (a) of section 871 is amended 
     by striking paragraph (2) and by redesignating paragraph (3) 
     as paragraph (2).
       (b) Conforming Amendment.--Section 1441(g) is amended is 
     amended by striking ``section 871(a)(3)'' and inserting 
     ``section 871(a)(2)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

          Subtitle C--Additional International Tax Provisions

     SEC. 221. ACTIVE LEASING INCOME FROM AIRCRAFT AND VESSELS.

       (a) In General.--Section 954(c)(2) is amended by adding at 
     the end the following new subparagraph:
       ``(D) Certain rents, etc.--
       ``(i) In general.--Foreign personal holding company income 
     shall not include qualified leasing income derived from or in 
     connection with the leasing or rental of any aircraft or 
     vessel.
       ``(ii) Qualified leasing income.--For purposes of this 
     subparagraph, the term `qualified leasing income' means rents 
     and gains derived in the active conduct of a trade or 
     business of leasing with respect to which the controlled 
     foreign corporation conducts substantial activity, but only 
     if--

       ``(I) the leased property is used by the lessee or other 
     end-user in foreign commerce and predominantly outside the 
     United States, and
       ``(II) the lessee or other end-user is not a related person 
     (as defined in subsection (d)(3)).

     Any amount not treated as foreign personal holding income 
     under this subparagraph shall not be treated as foreign base 
     company shipping income.''.
       (b) Conforming Amendment.--Section 954(c)(1)(B) is amended 
     by inserting ``or (2)(D)'' after ``paragraph (2)(A)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2006, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 222. LOOK-THRU TREATMENT OF PAYMENTS BETWEEN RELATED 
                   CONTROLLED FOREIGN CORPORATIONS UNDER FOREIGN 
                   PERSONAL HOLDING COMPANY INCOME RULES.

       (a) In General.--Subsection (c) of section 954, as amended 
     by this Act, is amended by adding after paragraph (4) the 
     following new paragraph:
       ``(5) Look-thru in the case of related controlled foreign 
     corporations.--For purposes of this subsection, dividends, 
     interest, rents, and royalties received or accrued from a 
     controlled foreign corporation which is a related person (as 
     defined in subsection (b)(9)) shall not be treated as foreign 
     personal holding company income to the extent attributable or 
     properly allocable (determined under rules similar to the 
     rules of subparagraphs (C) and (D) of section 904(d)(3)) to 
     income of the related person which is not subpart F income 
     (as defined in section 952).

[[Page S5129]]

     The Secretary shall prescribe such regulations as may be 
     appropriate to prevent the abuse of the purposes of this 
     paragraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 223. LOOK-THRU TREATMENT FOR SALES OF PARTNERSHIP 
                   INTERESTS.

       (a) In General.--Section 954(c) (defining foreign personal 
     holding company income), as amended by this Act, is amended 
     by adding after paragraph (5) the following new paragraph:
       ``(6) Look-thru rule for certain partnership sales.--
       ``(A) In general.--In the case of any sale by a controlled 
     foreign corporation of an interest in a partnership with 
     respect to which such corporation is a 25-percent owner, such 
     corporation shall be treated for purposes of this subsection 
     as selling the proportionate share of the assets of the 
     partnership attributable to such interest. The Secretary 
     shall prescribe such regulations as may be appropriate to 
     prevent abuse of the purposes of this paragraph, including 
     regulations providing for coordination of this paragraph with 
     the provisions of subchapter K.
       ``(B) 25-percent owner.--For purposes of this paragraph, 
     the term `25-percent owner' means a controlled foreign 
     corporation which owns directly 25 percent or more of the 
     capital or profits interest in a partnership. For purposes of 
     the preceding sentence, if a controlled foreign corporation 
     is a shareholder or partner of a corporation or partnership, 
     the controlled foreign corporation shall be treated as owning 
     directly its proportionate share of any such capital 
     or profits interest held directly or indirectly by such 
     corporation or partnership''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 224. ELECTION NOT TO USE AVERAGE EXCHANGE RATE FOR 
                   FOREIGN TAX PAID OTHER THAN IN FUNCTIONAL 
                   CURRENCY.

       (a) In General.--Paragraph (1) of section 986(a) (relating 
     to determination of foreign taxes and foreign corporation's 
     earnings and profits) is amended by redesignating 
     subparagraph (D) as subparagraph (E) and by inserting after 
     subparagraph (C) the following new subparagraph:
       ``(D) Elective exception for taxes paid other than in 
     functional currency.--
       ``(i) In general.--At the election of the taxpayer, 
     subparagraph (A) shall not apply to any foreign income taxes 
     the liability for which is denominated in any currency other 
     than in the taxpayer's functional currency.
       ``(ii) Application to qualified business units.--An 
     election under this subparagraph may apply to foreign income 
     taxes attributable to a qualified business unit in accordance 
     with regulations prescribed by the Secretary.
       ``(iii) Election.--Any such election shall apply to the 
     taxable year for which made and all subsequent taxable years 
     unless revoked with the consent of the Secretary.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 225. TREATMENT OF INCOME TAX BASE DIFFERENCES.

       (a) In General.--Paragraph (2) of section 904(d) is amended 
     by redesignating subparagraphs (H) and (I) as subparagraphs 
     (I) and (J), respectively, and by inserting after 
     subparagraph (G) the following new subparagraph:
       ``(H) Treatment of income tax base differences.--
       ``(i) In general.--A taxpayer may elect to treat tax 
     imposed under the law of a foreign country or possession of 
     the United States on an amount which does not constitute 
     income under United States tax principles as tax imposed on 
     income described in subparagraph (C) or (I) of paragraph (1).
       ``(ii) Election irrevocable.--Any such election shall apply 
     to the taxable year for which made and all subsequent taxable 
     years unless revoked with the consent of the Secretary.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 226. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR 
                   ACTIVE FINANCING.

       (a) In General.--Section 954(h)(3) is amended by adding at 
     the end the following:
       ``(E) Direct conduct of activities.--For purposes of 
     subparagraph (A)(ii)(II), an activity shall be treated as 
     conducted directly by an eligible controlled foreign 
     corporation or qualified business unit in its home country if 
     the activity is performed by employees of a related person 
     and--
       ``(i) the related person is an eligible controlled foreign 
     corporation the home country of which is the same as the home 
     country of the corporation or unit to which subparagraph 
     (A)(ii)(II) is being applied,
       ``(ii) the activity is performed in the home country of the 
     related person, and
       ``(iii) the related person is compensated on an arm's-
     length basis for the performance of the activity by its 
     employees and such compensation is treated as earned by such 
     person in its home country for purposes of the home country's 
     tax laws.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years of such foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of such foreign corporations end.

     SEC. 227. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN 
                   ASSETS OF CONTROLLED FOREIGN CORPORATION.

       (a) In General.--Section 956(c)(2) (relating to exceptions 
     from property treated as United States property) is amended 
     by striking ``and'' at the end of subparagraph (J), by 
     striking the period at the end of subparagraph (K) and 
     inserting a semicolon, and by adding at the end the following 
     new subparagraphs:
       ``(L) securities acquired and held by a controlled foreign 
     corporation in the ordinary course of its business as a 
     dealer in securities if--
       ``(i) the dealer accounts for the securities as securities 
     held primarily for sale to customers in the ordinary course 
     of business, and
       ``(ii) the dealer disposes of the securities (or such 
     securities mature while held by the dealer) within a period 
     consistent with the holding of securities for sale to 
     customers in the ordinary course of business; and
       ``(M) an obligation of a United States person which--
       ``(i) is not a domestic corporation, and
       ``(ii) is not--

       ``(I) a United States shareholder (as defined in section 
     951(b)) of the controlled foreign corporation, or
       ``(II) a partnership, estate, or trust in which the 
     controlled foreign corporation, or any related person (as 
     defined in section 954(d)(3)), is a partner, beneficiary, or 
     trustee immediately after the acquisition of any obligation 
     of such partnership, estate, or trust by the controlled 
     foreign corporation.''.

       (b) Conforming Amendment.--Section 956(c)(2) is amended by 
     striking ``and (K)'' in the last sentence and inserting ``, 
     (K), and (L)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 228. PROVIDE EQUAL TREATMENT FOR INTEREST PAID BY 
                   FOREIGN PARTNERSHIPS AND FOREIGN CORPORATIONS.

       (a) In General.--Paragraph (1) of section 861(a) 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 
     new subparagraph:
       ``(C) in the case of a foreign partnership in which United 
     States persons do not hold directly or indirectly 20 percent 
     or more of either the capital or profits interests, any 
     interest not paid by a trade or business engaged in by the 
     partnership in the United States and not allocable to income 
     which is effectively connected (or treated as effectively 
     connected) with the conduct of a trade or business in the 
     United States.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 229. CLARIFICATION OF TREATMENT OF CERTAIN TRANSFERS OF 
                   INTANGIBLE PROPERTY.

       (a) In General.--Subparagraph (C) of section 367(d)(2) is 
     amended by adding at the end the following new sentence: 
     ``For purposes of applying section 904(d), any such amount 
     shall be treated in the same manner as if such amount were a 
     royalty.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to amounts treated as received pursuant to 
     section 367(d)(2) of the Internal Revenue Code of 1986 on or 
     after August 5, 1997.

     SEC. 230. MODIFICATION OF THE TREATMENT OF CERTAIN REIT 
                   DISTRIBUTIONS ATTRIBUTABLE TO GAIN FROM SALES 
                   OR EXCHANGES OF UNITED STATES REAL PROPERTY 
                   INTERESTS.

       (a) In General.--Paragraph (1) of section 897(h) (relating 
     to look-through of distributions) is amended by adding at the 
     end the following new sentence: ``Notwithstanding the 
     preceding sentence, any distribution by a REIT with respect 
     to any class of stock which is regularly traded on an 
     established securities market located in the United States 
     shall not be treated as gain recognized from the sale or 
     exchange of a United States real property interest if the 
     shareholder did not own more than 5 percent of such class of 
     stock at any time during the taxable year.''.
       (b) Conforming Amendment.--Paragraph (3) of section 857(b) 
     (relating to capital gains) is amended by adding at the end 
     the following new subparagraph:
       ``(F) Certain distributions.--In the case of a shareholder 
     of a real estate investment trust to whom section 897 does 
     not apply by reason of the second sentence of section 
     897(h)(1), the amount which would be included in computing 
     long-term capital gains for such shareholder under 
     subparagraph (B) or (D) (without regard to this 
     subparagraph)--
       ``(i) shall not be included in computing such shareholder's 
     long-term capital gains, and
       ``(ii) shall be included in such shareholder's gross income 
     as a dividend from the real estate investment trust.''.

[[Page S5130]]

       (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. 231. TOLL TAX ON EXCESS QUALIFIED FOREIGN DISTRIBUTION 
                   AMOUNT.

       (a) In General.--Subpart F of part III of subchapter N of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 965. TOLL TAX IMPOSED ON EXCESS QUALIFIED FOREIGN 
                   DISTRIBUTION AMOUNT.

       ``(a) Toll Tax Imposed on Excess Qualified Foreign 
     Distribution Amount.--If a corporation elects the application 
     of this section, a tax shall be imposed on the taxpayer in an 
     amount equal to 5.25 percent of--
       ``(1) the taxpayer's excess qualified foreign distribution 
     amount, and
       ``(2) the amount determined under section 78 which is 
     attributable to such excess qualified foreign distribution 
     amount.

     Such tax shall be imposed in lieu of the tax imposed under 
     section 11 or 55 on the amounts described in paragraphs (1) 
     and (2) for such taxable year.
       ``(b) Excess Qualified Foreign Distribution Amount.--For 
     purposes of this section--
       ``(1) In general.--The term `excess qualified foreign 
     distribution amount' means the excess (if any) of--
       ``(A) the aggregate dividends received by the taxpayer 
     during the taxable year which are--
       ``(i) from 1 or more corporations which are controlled 
     foreign corporations in which the taxpayer is a United States 
     shareholder on the date such dividends are paid, and
       ``(ii) described in a domestic reinvestment plan which--

       ``(I) is approved by the taxpayer's president, chief 
     executive officer, or comparable official before the payment 
     of such dividends and subsequently approved by the taxpayer's 
     board of directors, management committee, executive 
     committee, or similar body, and
       ``(II) provides for the reinvestment of such dividends in 
     the United States (other than as payment for executive 
     compensation), including as a source for the funding of 
     worker hiring and training, infrastructure, research and 
     development, capital investments, or the financial 
     stabilization of the corporation for the purposes of job 
     retention or creation, over

       ``(B) the base dividend amount.
       ``(2) Base dividend amount.--The term `base dividend 
     amount' means an amount designated under subsection (c)(7), 
     but not less than the average amount of dividends received 
     during the fixed base period from 1 or more corporations 
     which are controlled foreign corporations in which the 
     taxpayer is a United States shareholder on the date such 
     dividends are paid.
       ``(3) Fixed base period.--
       ``(A) In general.--The term `fixed base period' means each 
     of 3 taxable years which are among the 5 most recent taxable 
     years of the taxpayer ending on or before December 31, 2002, 
     determined by disregarding--
       ``(i) the 1 taxable year for which the taxpayer had the 
     highest amount of dividends from 1 or more corporations which 
     are controlled foreign corporations relative to the other 4 
     taxable years, and
       ``(ii) the 1 taxable year for which the taxpayer had the 
     lowest amount of dividends from such corporations relative to 
     the other 4 taxable years.
       ``(B) Shorter period.--If the taxpayer has fewer than 5 
     taxable years ending on or before December 31, 2002, then in 
     lieu of applying subparagraph (A), the fixed base period 
     shall include all the taxable years of the taxpayer ending on 
     or before December 31, 2002.
       ``(c) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Dividends.--The term `dividend' has the meaning given 
     such term by section 316, except that the term shall include 
     amounts described in section 951(a)(1)(B), but shall not 
     include amounts described in sections 78 and 959.
       ``(2) Controlled foreign corporations and united states 
     shareholders.--The term `controlled foreign corporation' has 
     the meaning given such term by section 957(a) and the term 
     `United States shareholder' has the meaning given such term 
     by section 951(b).
       ``(3) Foreign tax credits.--The amount of any income, war, 
     profits, or excess profit taxes paid (or deemed paid under 
     sections 902 and 960) or accrued by the taxpayer with respect 
     to the excess qualified foreign distribution amount for which 
     a credit would be allowable under section 901 in the absence 
     of this section, shall be reduced by 85 percent. No deduction 
     shall be allowed under this chapter for the portion of any 
     tax for which credit is not allowable by reason of the 
     preceding sentence.
       ``(4) Foreign tax credit limitation.--For purposes of 
     section 904, there shall be disregarded 85 percent of--
       ``(A) the excess qualified foreign distribution amount,
       ``(B) the amount determined under section 78 which is 
     attributable to such excess qualified foreign distribution 
     amount, and
       ``(C) the amounts (including assets, gross income, and 
     other relevant bases of apportionment) which are attributable 
     to the excess qualified foreign distribution amount which 
     would, determined without regard to this section, be used to 
     apportion the expenses, losses, and deductions of the 
     taxpayer under section 861 and 864 in determining its taxable 
     income from sources without the United States.

     For purposes of applying subparagraph (C), the principles of 
     section 864(e)(3)(A) shall apply.
       ``(5) Treatment of acquisitions and dispositions.--Rules 
     similar to the rules of section 41(f)(3) shall apply in the 
     case of acquisitions or dispositions of controlled foreign 
     corporations occurring on or after the first day of the 
     earliest taxable year taken into account in determining the 
     fixed base period.
       ``(6) Treatment of consolidated groups.--Members of an 
     affiliated group of corporations filing a consolidated return 
     under section 1501 shall be treated as a single taxpayer for 
     purposes of this section.
       ``(7) Designation of dividends.--Subject to subsection 
     (b)(2), the taxpayer shall designate the particular dividends 
     received during the taxable year from 1 or more corporations 
     which are controlled foreign corporations in which it is a 
     United States shareholder which are dividends excluded from 
     the excess qualified foreign distribution amount. The total 
     amount of such designated dividends shall equal the base 
     dividend amount.
       ``(8) Treatment of expenses, losses, and deductions.--Any 
     expenses, losses, or deductions of the taxpayer allowable 
     under subchapter B--
       ``(A) shall not be applied to reduce the amounts described 
     in subsection (a)(1), and
       ``(B) shall be applied to reduce other income of the 
     taxpayer (determined without regard to the amounts described 
     in subsection (a)(1)).
       ``(d) Election.--
       ``(1) In general.--An election under this section shall be 
     made on the taxpayer's timely filed income tax return for the 
     first taxable year (determined by taking extensions into 
     account) ending 120 days or more after the date of the 
     enactment of this section, and, once made, may be revoked 
     only with the consent of the Secretary.
       ``(2) All controlled foreign corporations.--The election 
     shall apply to all corporations which are controlled foreign 
     corporations in which the taxpayer is a United States 
     shareholder during the taxable year.
       ``(3) Consolidated groups.--If a taxpayer is a member of an 
     affiliated group of corporations filing a consolidated return 
     under section 1501 for the taxable year, an election under 
     this section shall be made by the common parent of the 
     affiliated group which includes the taxpayer and shall apply 
     to all members of the affiliated group.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary and appropriate to carry out 
     the purposes of this section, including regulations under 
     section 55 and regulations addressing corporations which, 
     during the fixed base period or thereafter, join or leave an 
     affiliated group of corporations filing a consolidated 
     return.''.
       (b) Conforming Amendment.--The table of sections for 
     subpart F of part III of subchapter N of chapter 1 is amended 
     by adding at the end the following new item:

``Sec. 965. Toll tax imposed on excess qualified foreign distribution 
              amount.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply only to the first taxable year of the electing 
     taxpayer ending 120 days or more after the date of the 
     enactment of this Act.

     SEC. 232. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON 
                   HORSE RACES AND DOG RACES FROM GROSS INCOME OF 
                   NONRESIDENT ALIEN INDIVIDUALS.

       (a) In General.--Subsection (b) of section 872 (relating to 
     exclusions) is amended by redesignating paragraphs (5), (6), 
     and (7) as paragraphs (6), (7), and (8), respectively, and 
     inserting after paragraph (4) the following new paragraph:
       ``(5) Income derived from wagering transactions in certain 
     parimutuel pools.--Gross income derived by a nonresident 
     alien individual from a legal wagering transaction initiated 
     outside the United States in a parimutuel pool with respect 
     to a live horse race or dog race in the United States.''.
       (b) Conforming Amendment.--Section 883(a)(4) is amended by 
     striking ``(5), (6), and (7)'' and inserting ``(6), (7), and 
     (8)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to wagers made after the date of the enactment of 
     this Act.

     SEC. 233. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO 
                   CORPORATIONS.

       (a) In General.--Subsection (b) of section 881 is amended 
     by redesignating paragraph (2) as paragraph (3) and by 
     inserting after paragraph (1) the following new paragraph:
       ``(2) Commonwealth of puerto rico.--If dividends are 
     received during a taxable year by a corporation--
       ``(A) created or organized in, or under the law of, the 
     Commonwealth of Puerto Rico, and
       ``(B) with respect to which the requirements of 
     subparagraphs (A), (B), and (C) of paragraph (1) are met for 
     the taxable year,

     subsection (a) shall be applied for such taxable year by 
     substituting `10 percent' for `30 percent'.''.
       (b) Withholding.--Subsection (c) of section 1442 (relating 
     to withholding of tax on foreign corporations) is amended--
       (1) by striking ``For purposes'' and inserting the 
     following:
       ``(1) Guam, american samoa, the northern mariana islands, 
     and the virgin islands.--For purposes'', and
       (2) by adding at the end the following new paragraph:

[[Page S5131]]

       ``(2) Commonwealth of puerto rico.--If dividends are 
     received during a taxable year by a corporation--
       ``(A) created or organized in, or under the law of, the 
     Commonwealth of Puerto Rico, and
       ``(B) with respect to which the requirements of 
     subparagraphs (A), (B), and (C) of section 881(b)(1) are met 
     for the taxable year,

     subsection (a) shall be applied for such taxable year by 
     substituting `10 percent' for `30 percent'.''.
       (b) Conforming Amendments.--
       (1) Subsection (b) of section 881 is amended by striking 
     ``Guam and Virgin Islands Corporations'' in the heading and 
     inserting ``Possessions''.
       (2) Paragraph (1) of section 881(b) is amended by striking 
     ``In general'' in the heading and inserting ``Guam, american 
     samoa, the northern mariana islands, and the virgin 
     islands''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to dividends paid after the date of the enactment 
     of this Act.

     SEC. 234. REPORT ON WTO DISPUTE SETTLEMENT PANELS AND THE 
                   APPELLATE BODY.

       Not later than March 31, 2004, the Secretary of Commerce, 
     in consultation with the United States Trade Representative, 
     shall transmit a report to the Committee on Finance of the 
     Senate and the Committee on Ways and Means of the House of 
     Representatives, regarding whether dispute settlement panels 
     and the Appellate Body of the World Trade Organization have--
       (1) added to or diminished the rights of the United States 
     by imposing obligations or restrictions on the use of 
     antidumping, countervailing, and safeguard measures not 
     agreed to under the Agreement on Implementation of Article VI 
     of the General Agreement on Tariffs and Trade of 1994, the 
     Agreement on Subsidies and Countervailing Measures, and the 
     Agreement on Safeguards;
       (2) appropriately applied the standard of review contained 
     in Article 17.6 of the Agreement on Implementation of Article 
     VI of the General Agreement on Tariffs and Trade of 1994; or
       (3) exceeded their authority or terms of reference under 
     the Agreements referred to in paragraph (1).

     SEC. 235. STUDY OF IMPACT OF INTERNATIONAL TAX LAWS ON 
                   TAXPAYERS OTHER THAN LARGE CORPORATIONS.

       (a) Study.--The Secretary of the Treasury or the 
     Secretary's delegate shall conduct a study of the impact of 
     Federal international tax rules on taxpayers other than large 
     corporations, including the burdens placed on such taxpayers 
     in complying with such rules.
       (b) Report.--Not later than 180 days after the date of the 
     enactment of this Act, the Secretary shall report to the 
     Committee on Finance of the Senate and the Committee on Ways 
     and Means of the House of Representatives the results of the 
     study conducted under subsection (a), including any 
     recommendations for legislative or administrative changes to 
     reduce the compliance burden on taxpayers other than large 
     corporations and for such other purposes as the Secretary 
     determines appropriate.

     SEC. 236. CONSULTATIVE ROLE FOR SENATE COMMITTEE ON FINANCE 
                   IN CONNECTION WITH THE REVIEW OF PROPOSED TAX 
                   TREATIES.

       Paragraph 1(j) of Rule XXV of the Standing Rules of the 
     Senate is amended by adding at the end the following:
       ``(3)(A) Notwithstanding any other rule of the Senate, the 
     Committee on Foreign Relations shall consult with the 
     Committee on Finance with respect to any proposed treaty on 
     taxation prior to reporting such treaty to the Senate.
       ``(B) The Committee on Foreign Relations shall request in 
     writing the views of the Committee on Finance with respect to 
     any proposed treaty on taxation which is referred to the 
     Committee on Foreign Relations. Not less than 120 days after 
     the date on which such request is made, the Committee on 
     Finance shall respond to such request in writing. If the 
     Committee on Finance does not provide such written response 
     during such 120 day period, the Committee on Finance shall be 
     deemed to have waived the opportunity to submit such views.
       ``(C) The Committee on Foreign Relations shall consider the 
     views submitted by the Committee on Finance and shall include 
     such views in any report of the treaty to the Senate.''.

       TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS

                     Subtitle A--General Provisions

     SEC. 301. EXPANSION OF QUALIFIED SMALL-ISSUE BOND PROGRAM.

       (a) In General.--Subparagraph (F) of section 144(a)(4) 
     (relating to $10,000,000 limit in certain cases) is amended 
     to read as follows:
       ``(F) Additional capital expenditures not taken into 
     account.--With respect to any issue, in addition to any 
     capital expenditure described in subparagraph (C), capital 
     expenditures of not to exceed $10,000,000 shall not be taken 
     into account for purposes of applying subparagraph 
     (A)(ii).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 302. EXPENSING OF BROADBAND INTERNET ACCESS 
                   EXPENDITURES.

       (a) In General.--Part VI of subchapter B of chapter 1 
     (relating to itemized deductions for individuals and 
     corporations) is amended by inserting after section 190 the 
     following new section:

     ``SEC. 191. BROADBAND EXPENDITURES.

       ``(a) Treatment of Expenditures.--
       ``(1) In general.--A taxpayer may elect to treat any 
     qualified broadband expenditure which is paid or incurred by 
     the taxpayer as an expense which is not chargeable to capital 
     account. Any expenditure which is so treated shall be allowed 
     as a deduction.
       ``(2) Election.--An election under paragraph (1) shall be 
     made at such time and in such manner as the Secretary may 
     prescribe by regulation.
       ``(b) Qualified Broadband Expenditures.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified broadband 
     expenditure' means, with respect to any taxable year, any 
     direct or indirect costs incurred during 2004 and properly 
     taken into account for such taxable year with respect to--
       ``(A) the purchase or installation of qualified equipment 
     (including any upgrades thereto), and
       ``(B) the connection of such qualified equipment to any 
     qualified subscriber.
       ``(2) Certain satellite expenditures excluded.--Such term 
     shall not include any costs incurred with respect to the 
     launching of any satellite equipment.
       ``(3) Leased equipment.--Such term shall include so much of 
     the purchase price paid by the lessor of qualified equipment 
     subject to a lease described in subsection (c)(2)(B) as is 
     attributable to expenditures incurred by the lessee which 
     would otherwise be described in paragraph (1).
       ``(c) When Expenditures Taken Into Account.--For purposes 
     of this section--
       ``(1) In general.--Qualified broadband expenditures with 
     respect to qualified equipment shall be taken into account 
     with respect to the first taxable year in which--
       ``(A) current generation broadband services are provided 
     through such equipment to qualified subscribers, or
       ``(B) next generation broadband services are provided 
     through such equipment to qualified subscribers.
       ``(2) Limitation.--
       ``(A) In general.--Qualified expenditures shall be taken 
     into account under paragraph (1) only with respect to 
     qualified equipment--
       ``(i) the original use of which commences with the 
     taxpayer, and
       ``(ii) which is placed in service, after December 31, 2003.
       ``(B) Sale-leasebacks.--For purposes of subparagraph (A), 
     if property--
       ``(i) is originally placed in service after December 31, 
     2003, by any person, and
       ``(ii) sold and leased back by such person within 3 months 
     after the date such property was originally placed in 
     service,

     such property shall be treated as originally placed in 
     service not earlier than the date on which such property is 
     used under the leaseback referred to in clause (ii).
       ``(d) Special Allocation Rules.--
       ``(1) Current generation broadband services.--For purposes 
     of determining the amount of qualified broadband expenditures 
     under subsection (a)(1) with respect to qualified equipment 
     through which current generation broadband services are 
     provided, if the qualified equipment is capable of serving 
     both qualified subscribers and other subscribers, the 
     qualified broadband expenditures shall be multiplied by a 
     fraction--
       ``(A) the numerator of which is the sum of the number of 
     potential qualified subscribers within the rural areas and 
     the underserved areas which the equipment is capable of 
     serving with current generation broadband services, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving with current generation broadband 
     services.
       ``(2) Next generation broadband services.--For purposes of 
     determining the amount of qualified broadband expenditures 
     under subsection (a)(1) with respect to qualified equipment 
     through which next generation broadband services are 
     provided, if the qualified equipment is capable of serving 
     both qualified subscribers and other subscribers, the 
     qualified expenditures shall be multiplied by a fraction--
       ``(A) the numerator of which is the sum of--
       ``(i) the number of potential qualified subscribers within 
     the rural areas and underserved areas, plus
       ``(ii) the number of potential qualified subscribers within 
     the area consisting only of residential subscribers not 
     described in clause (i),

     which the equipment is capable of serving with next 
     generation broadband services, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving with next generation broadband services.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Antenna.--The term `antenna' means any device used to 
     transmit or receive signals through the electromagnetic 
     spectrum, including satellite equipment.
       ``(2) Cable operator.--The term `cable operator' has the 
     meaning given such term by section 602(5) of the 
     Communications Act of 1934 (47 U.S.C. 522(5)).
       ``(3) Commercial mobile service carrier.--The term 
     `commercial mobile service carrier' means any person 
     authorized to provide commercial mobile radio service as 
     defined in section 20.3 of title 47, Code of Federal 
     Regulations.

[[Page S5132]]

       ``(4) Current generation broadband service.--The term 
     `current generation broadband service' means the transmission 
     of signals at a rate of at least 1,000,000 bits per second to 
     the subscriber and at least 128,000 bits per second from the 
     subscriber.
       ``(5) Multiplexing or demultiplexing.--The term 
     `multiplexing' means the transmission of 2 or more signals 
     over a single channel, and the term `demultiplexing' means 
     the separation of 2 or more signals previously combined by 
     compatible multiplexing equipment.
       ``(6) Next generation broadband service.--The term `next 
     generation broadband service' means the transmission of 
     signals at a rate of at least 22,000,000 bits per second to 
     the subscriber and at least 5,000,000 bits per second from 
     the subscriber.
       ``(7) Nonresidential subscriber.--The term `nonresidential 
     subscriber' means any person who purchases broadband services 
     which are delivered to the permanent place of business of 
     such person.
       ``(8) Open video system operator.--The term `open video 
     system operator' means any person authorized to provide 
     service under section 653 of the Communications Act of 1934 
     (47 U.S.C. 573).
       ``(9) Other wireless carrier.--The term `other wireless 
     carrier' means any person (other than a telecommunications 
     carrier, commercial mobile service carrier, cable operator, 
     open video system operator, or satellite carrier) providing 
     current generation broadband services or next generation 
     broadband service to subscribers through the radio 
     transmission of energy.
       ``(10) Packet switching.--The term `packet switching' means 
     controlling or routing the path of any digitized transmission 
     signal which is assembled into packets or cells.
       ``(11) Provider.--The term `provider' means, with respect 
     to any qualified equipment--
       ``(A) a cable operator,
       ``(B) a commercial mobile service carrier,
       ``(C) an open video system operator,
       ``(D) a satellite carrier,
       ``(E) a telecommunications carrier, or
       ``(F) any other wireless carrier,

     providing current generation broadband services or next 
     generation broadband services to subscribers through such 
     qualified equipment.
       ``(12) Provision of services.--A provider shall be treated 
     as providing services to 1 or more subscribers if--
       ``(A) such a subscriber has been passed by the provider's 
     equipment and can be connected to such equipment for a 
     standard connection fee,
       ``(B) the provider is physically able to deliver current 
     generation broadband services or next generation broadband 
     services, as applicable, to such a subscriber without 
     making more than an insignificant investment with respect 
     to such subscriber,
       ``(C) the provider has made reasonable efforts to make such 
     subscribers aware of the availability of such services,
       ``(D) such services have been purchased by 1 or more such 
     subscribers, and
       ``(E) such services are made available to such subscribers 
     at average prices comparable to those at which the provider 
     makes available similar services in any areas in which the 
     provider makes available such services.
       ``(13) Qualified equipment.--
       ``(A) In general.--The term `qualified equipment' means 
     equipment which provides current generation broadband 
     services or next generation broadband services--
       ``(i) at least a majority of the time during periods of 
     maximum demand to each subscriber who is utilizing such 
     services, and
       ``(ii) in a manner substantially the same as such services 
     are provided by the provider to subscribers through equipment 
     with respect to which no deduction is allowed under 
     subsection (a)(1).
       ``(B) Only certain investment taken into account.--Except 
     as provided in subparagraph (C) or (D), equipment shall be 
     taken into account under subparagraph (A) only to the extent 
     it--
       ``(i) extends from the last point of switching to the 
     outside of the unit, building, dwelling, or office owned or 
     leased by a subscriber in the case of a telecommunications 
     carrier,
       ``(ii) extends from the customer side of the mobile 
     telephone switching office to a transmission/receive antenna 
     (including such antenna) owned or leased by a subscriber in 
     the case of a commercial mobile service carrier,
       ``(iii) extends from the customer side of the headend to 
     the outside of the unit, building, dwelling, or office owned 
     or leased by a subscriber in the case of a cable operator or 
     open video system operator, or
       ``(iv) extends from a transmission/receive antenna 
     (including such antenna) which transmits and receives signals 
     to or from multiple subscribers, to a transmission/receive 
     antenna (including such antenna) on the outside of the unit, 
     building, dwelling, or office owned or leased by a subscriber 
     in the case of a satellite carrier or other wireless carrier, 
     unless such other wireless carrier is also a 
     telecommunications carrier.
       ``(C) Packet switching equipment.--Packet switching 
     equipment, regardless of location, shall be taken into 
     account under subparagraph (A) only if it is deployed in 
     connection with equipment described in subparagraph (B) and 
     is uniquely designed to perform the function of packet 
     switching for current generation broadband services or next 
     generation broadband services, but only if such packet 
     switching is the last in a series of such functions performed 
     in the transmission of a signal to a subscriber or the first 
     in a series of such functions performed in the transmission 
     of a signal from a subscriber.
       ``(D) Multiplexing and demultiplexing equipment.--
     Multiplexing and demultiplexing equipment shall be taken into 
     account under subparagraph (A) only to the extent it is 
     deployed in connection with equipment described in 
     subparagraph (B) and is uniquely designed to perform the 
     function of multiplexing and demultiplexing packets or cells 
     of data and making associated application adaptions, but only 
     if such multiplexing or demultiplexing equipment is located 
     between packet switching equipment described in subparagraph 
     (C) and the subscriber's premises.
       ``(14) Qualified subscriber.--The term `qualified 
     subscriber' means--
       ``(A) with respect to the provision of current generation 
     broadband services--
       ``(i) any nonresidential subscriber maintaining a permanent 
     place of business in a rural area or underserved area, or
       ``(ii) any residential subscriber residing in a dwelling 
     located in a rural area or underserved area which is not a 
     saturated market, and
       ``(B) with respect to the provision of next generation 
     broadband services--
       ``(i) any nonresidential subscriber maintaining a permanent 
     place of business in a rural area or underserved area, or
       ``(ii) any residential subscriber.
       ``(15) Residential subscriber.--The term `residential 
     subscriber' means any individual who purchases broadband 
     services which are delivered to such individual's dwelling.
       ``(16) Rural area.--The term `rural area' means any census 
     tract which--
       ``(A) is not within 10 miles of any incorporated or census 
     designated place containing more than 25,000 people, and
       ``(B) is not within a county or county equivalent which has 
     an overall population density of more than 500 people per 
     square mile of land.
       ``(17) Rural subscriber.--The term `rural subscriber' means 
     any residential subscriber residing in a dwelling located in 
     a rural area or nonresidential subscriber maintaining a 
     permanent place of business located in a rural area.
       ``(18) Satellite carrier.--The term `satellite carrier' 
     means any person using the facilities of a satellite or 
     satellite service licensed by the Federal Communications 
     Commission and operating in the Fixed-Satellite Service under 
     part 25 of title 47 of the Code of Federal Regulations or the 
     Direct Broadcast Satellite Service under part 100 of title 47 
     of such Code to establish and operate a channel of 
     communications for distribution of signals, and owning or 
     leasing a capacity or service on a satellite in order to 
     provide such point-to-multipoint distribution.
       ``(19) Saturated market.--The term `saturated market' means 
     any census tract in which, as of the date of the enactment of 
     this section--
       ``(A) current generation broadband services have been 
     provided by a single provider to 85 percent or more of the 
     total number of potential residential subscribers residing in 
     dwellings located within such census tract, and
       ``(B) such services can be utilized--
       ``(i) at least a majority of the time during periods of 
     maximum demand by each such subscriber who is utilizing such 
     services, and
       ``(ii) in a manner substantially the same as such services 
     are provided by the provider to subscribers through equipment 
     with respect to which no deduction is allowed under 
     subsection (a)(1).
       ``(20) Subscriber.--The term `subscriber' means any person 
     who purchases current generation broadband services or next 
     generation broadband services.
       ``(21) Telecommunications carrier.--The term 
     `telecommunications carrier' has the meaning given such term 
     by section 3(44) of the Communications Act of 1934 (47 U.S.C. 
     153(44)), but--
       ``(A) includes all members of an affiliated group of which 
     a telecommunications carrier is a member, and
       ``(B) does not include a commercial mobile service carrier.
       ``(22) Total potential subscriber population.--The term 
     `total potential subscriber population' means, with respect 
     to any area and based on the most recent census data, the 
     total number of potential residential subscribers residing in 
     dwellings located in such area and potential nonresidential 
     subscribers maintaining permanent places of business located 
     in such area.
       ``(23) Underserved area.--The term `underserved area' 
     means--
       ``(A) any census tract which is located in--
       ``(i) an empowerment zone or enterprise community 
     designated under section 1391, or
       ``(ii) the District of Columbia Enterprise Zone established 
     under section 1400, or
       ``(B) any census tract--
       ``(i) the poverty level of which is at least 30 percent 
     (based on the most recent census data), and
       ``(ii) the median family income of which does not exceed--

       ``(I) in the case of a census tract located in a 
     metropolitan statistical area, 70 percent of the greater of 
     the metropolitan area median family income or the statewide 
     median family income, and

[[Page S5133]]

       ``(II) in the case of a census tract located in a 
     nonmetropolitan statistical area, 70 percent of the 
     nonmetropolitan statewide median family income.

       ``(24) Underserved subscriber.--The term `underserved 
     subscriber' means any residential subscriber residing in a 
     dwelling located in an underserved area or nonresidential 
     subscriber maintaining a permanent place of business located 
     in an underserved area.
       ``(f) Special Rules.--
       ``(1) Property used outside the united states, etc., not 
     qualified.--No expenditures shall be taken into account under 
     subsection (a)(1) with respect to the portion of the cost of 
     any property referred to in section 50(b) or with respect to 
     the portion of the cost of any property specified in an 
     election under section 179.
       ``(2) Basis reduction.--
       ``(A) In general.--For purposes of this title, the basis of 
     any property shall be reduced by the portion of the cost of 
     such property taken into account under subsection (a)(1).
       ``(B) Ordinary income recapture.--For purposes of section 
     1245, the amount of the deduction allowable under subsection 
     (a)(1) with respect to any property which is of a character 
     subject to the allowance for depreciation shall be treated as 
     a deduction allowed for depreciation under section 167.
       ``(3) Coordination with section 38.--No credit shall be 
     allowed under section 38 with respect to any amount for which 
     a deduction is allowed under subsection (a)(1).''.
       (b) Special Rule for Mutual or Cooperative Telephone 
     Companies.--Section 501(c)(12)(B) (relating to list of exempt 
     organizations) is amended by striking ``or'' at the end of 
     clause (iii), by striking the period at the end of clause 
     (iv) and inserting ``, or'', and by adding at the end the 
     following:
       ``(v) from the sale of property subject to a lease 
     described in section 191(c)(2)(B), but only to the extent 
     such income does not in any year exceed an amount equal to 
     the qualified broadband expenditures which would be taken 
     into account under section 191 for such year if the mutual or 
     cooperative telephone company was not exempt from taxation 
     and was treated as the owner of the property subject to such 
     lease.''.
       (c) Conforming Amendments.--
       (1) Section 263(a)(1) (relating to capital expenditures) is 
     amended by striking ``or'' at the end of subparagraph (G), by 
     striking the period at the end of subparagraph (H) and 
     inserting ``, or'', and by adding at the end the following 
     new subparagraph:
       ``(I) expenditures for which a deduction is allowed under 
     section 191.''.
       (2) Section 1016(a) of such Code is amended by striking 
     ``and'' at the end of paragraph (27), by striking the period 
     at the end of paragraph (28) and inserting ``, and'', and by 
     adding at the end the following new paragraph:
       ``(29) to the extent provided in section 191(f)(2).''.
       (3) The table of sections for part VI of subchapter A of 
     chapter 1 of such Code is amended by inserting after the item 
     relating to section 190 the following new item:

``Sec. 191. Broadband expenditures.''.

       (d) Designation of Census Tracts.--
       (1) In general.--The Secretary of the Treasury shall, not 
     later than 90 days after the date of the enactment of this 
     Act, designate and publish those census tracts meeting the 
     criteria described in paragraphs (16), (22), and (23) of 
     section 191(e) of the Internal Revenue Code of 1986 (as added 
     by this section). In making such designations, the Secretary 
     of the Treasury shall consult with such other departments and 
     agencies as the Secretary determines appropriate.
       (2) Saturated market.--
       (A) In general.--For purposes of designating and publishing 
     those census tracts meeting the criteria described in 
     subsection (e)(19) of such section 191--
       (i) the Secretary of the Treasury shall prescribe not later 
     than 30 days after the date of the enactment of this Act the 
     form upon which any provider which takes the position that it 
     meets such criteria with respect to any census tract shall 
     submit a list of such census tracts (and any other 
     information required by the Secretary) not later than 60 days 
     after the date of the publication of such form, and
       (ii) the Secretary of the Treasury shall publish an 
     aggregate list of such census tracts and the applicable 
     providers not later than 30 days after the last date such 
     submissions are allowed under clause (i).
       (B) No subsequent lists required.--The Secretary of the 
     Treasury shall not be required to publish any list of census 
     tracts meeting such criteria subsequent to the list described 
     in subparagraph (A)(ii).
       (e) Other Regulatory Matters.--
       (1) Prohibition.--No Federal or State agency or 
     instrumentality shall adopt regulations or ratemaking 
     procedures that would have the effect of eliminating or 
     reducing any deduction or portion thereof allowed under 
     section 191 of the Internal Revenue Code of 1986 (as added by 
     this section) or otherwise subverting the purpose of this 
     section.
       (2) Treasury regulatory authority.--It is the intent of 
     Congress in providing the election to deduct qualified 
     broadband expenditures under section 191 of the Internal 
     Revenue Code of 1986 (as added by this section) to provide 
     incentives for the purchase, installation, and connection of 
     equipment and facilities offering expanded broadband access 
     to the Internet for users in certain low income and rural 
     areas of the United States, as well as to residential users 
     nationwide, in a manner that maintains competitive neutrality 
     among the various classes of providers of broadband services. 
     Accordingly, the Secretary of the Treasury shall prescribe 
     such regulations as may be necessary or appropriate to carry 
     out the purposes of section 191 of such Code, including--
       (A) regulations to determine how and when a taxpayer that 
     incurs qualified broadband expenditures satisfies the 
     requirements of section 191 of such Code to provide broadband 
     services, and
       (B) regulations describing the information, records, and 
     data taxpayers are required to provide the Secretary to 
     substantiate compliance with the requirements of section 191 
     of such Code.
       (f) Effective Date.--The amendments made by this section 
     shall apply to expenditures incurred after December 31, 2003.

     SEC. 303. EXEMPTION OF NATURAL AGING PROCESS IN DETERMINATION 
                   OF PRODUCTION PERIOD FOR DISTILLED SPIRITS 
                   UNDER SECTION 263A.

       (a) In General.--Section 263A(f) of the Internal Revenue 
     Code of 1986 (relating to general exceptions) is amended by 
     adding at the end the following new paragraph:
       ``(5) Exemption of natural aging process in determination 
     of production period for distilled spirits.--For purposes of 
     this subsection, the production period for distilled spirits 
     shall be determined without regard to any period allocated to 
     the natural aging process.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to production periods beginning after the date of 
     the enactment of this Act.

     SEC. 304. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER 
                   SECTION 355.

       (a) In General.--Section 355(b) (defining active conduct of 
     a trade or business) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rules relating to active business 
     requirement.--
       ``(A) In general.--For purposes of determining whether a 
     corporation meets the requirement of paragraph (2)(A), all 
     members of such corporation's separate affiliated group shall 
     be treated as one corporation. For purposes of the preceding 
     sentence, a corporation's separate affiliated group is the 
     affiliated group which would be determined under section 
     1504(a) if such corporation were the common parent and 
     section 1504(b) did not apply.
       ``(B) Control.--For purposes of paragraph (2)(D), all 
     distributee corporations which are members of the same 
     affiliated group (as defined in section 1504(a) without 
     regard to section 1504(b)) shall be treated as one 
     distributee corporation.''.
       (b) Conforming Amendments.--
       (1) Subparagraph (A) of section 355(b)(2) is amended to 
     read as follows:
       ``(A) it is engaged in the active conduct of a trade or 
     business,''.
       (2) Section 355(b)(2) is amended by striking the last 
     sentence.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply--
       (A) to distributions after the date of the enactment of 
     this Act, and
       (B) for purposes of determining the continued qualification 
     under section 355(b)(2)(A) of the Internal Revenue Code of 
     1986 (as amended by subsection (b)(1)) of distributions made 
     before such date, as a result of an acquisition, disposition, 
     or other restructuring after such date.
       (2) Transition rule.--The amendments made by this section 
     shall not apply to any distribution pursuant to a transaction 
     which is--
       (A) made pursuant to an agreement which was binding on such 
     date of enactment and at all times thereafter,
       (B) described in a ruling request submitted to the Internal 
     Revenue Service on or before such date, or
       (C) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission.
       (3) Election to have amendments apply.--Paragraph (2) shall 
     not apply if the distributing corporation elects not to have 
     such paragraph apply to distributions of such corporation. 
     Any such election, once made, shall be irrevocable.

     SEC. 305. EXCLUSION OF CERTAIN INDEBTEDNESS OF SMALL BUSINESS 
                   INVESTMENT COMPANIES FROM ACQUISITION 
                   INDEBTEDNESS.

       (a) In General.--Section 514(c) (relating to acquisition 
     indebtedness) is amended by adding at the end the following 
     new paragraph:
       ``(10) Certain indebtedness of small business investment 
     companies.--For purposes of this section, the term 
     `acquisition indebtedness' does not include any indebtedness 
     incurred by a small business investment company licensed 
     under the Small Business Investment Act of 1958 which is 
     evidenced by a debenture--
       ``(A) issued by such company under section 303(a) of such 
     Act, and
       ``(B) held or guaranteed by the Small Business 
     Administration.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to any indebtedness incurred after December 31, 
     2003, by a small business investment company described in 
     section 514(c)(10) of the Internal Revenue Code of 1986 (as 
     added by this section) with respect to property acquired by 
     such company after such date.

[[Page S5134]]

     SEC. 306. MODIFIED TAXATION OF IMPORTED ARCHERY PRODUCTS.

       (a) Bows.--Paragraph (1) of section 4161(b) (relating to 
     bows) is amended to read as follows:
       ``(1) Bows.--
       ``(A) In general.--There is hereby imposed on the sale by 
     the manufacturer, producer, or importer of any bow which has 
     a peak draw weight of 30 pounds or more, a tax equal to 11 
     percent of the price for which so sold.
       ``(B) Archery equipment.--There is hereby imposed on the 
     sale by the manufacturer, producer, or importer--
       ``(i) of any part or accessory suitable for inclusion in or 
     attachment to a bow described in subparagraph (A), and
       ``(ii) of any quiver or broadhead suitable for use with an 
     arrow described in paragraph (2),

     a tax equal to 11 percent of the price for which so sold.''.
       (b) Arrows.--Subsection (b) of section 4161 (relating to 
     bows and arrows, etc.) is amended by redesignating paragraph 
     (3) as paragraph (4) and inserting after paragraph (2) the 
     following:
       ``(3) Arrows.--
       ``(A) In general.--There is hereby imposed on the sale by 
     the manufacturer, producer, or importer of any arrow, a tax 
     equal to 12 percent of the price for which so sold.
       ``(B) Exception.--In the case of any arrow of which the 
     shaft or any other component has been previously taxed under 
     paragraph (1) or (2)--
       ``(i) section 6416(b)(3) shall not apply, and
       ``(ii) the tax imposed by subparagraph (A) shall be an 
     amount equal to the excess (if any) of--

       ``(I) the amount of tax imposed by this paragraph 
     (determined without regard to this subparagraph), over
       ``(II) the amount of tax paid with respect to the tax 
     imposed under paragraph (1) or (2) on such shaft or 
     component.

       ``(C) Arrow.--For purposes of this paragraph, the term 
     `arrow' means any shaft described in paragraph (2) to which 
     additional components are attached.''.
       (c) Conforming Amendments.--Section 4161(b)(2) is amended--
       (1) by inserting ``(other than broadheads)'' after 
     ``point'', and
       (2) by striking ``Arrows.--'' in the heading and inserting 
     ``Arrow components.--''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to articles sold by the manufacturer, producer, 
     or importer after December 31, 2003.

     SEC. 307. MODIFICATION TO COOPERATIVE MARKETING RULES TO 
                   INCLUDE VALUE ADDED PROCESSING INVOLVING 
                   ANIMALS.

       (a) In General.--Section 1388 (relating to definitions and 
     special rules) is amended by adding at the end the following 
     new subsection:
       ``(k) Cooperative Marketing Includes Value-Added Processing 
     Involving Animals.--For purposes of section 521 and this 
     subchapter, the marketing of the products of members or other 
     producers shall include the feeding of such products to 
     cattle, hogs, fish, chickens, or other animals and the sale 
     of the resulting animals or animal products.''.
       (b) Conforming Amendment.--Section 521(b) is amended by 
     adding at the end the following new paragraph:
       ``(7) Cross Reference.--

  ``For treatment of value-added processing involving animals, see 
section 1388(k).''.

       (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. 308. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO 
                   FARMERS' COOPERATIVE ORGANIZATIONS.

       (a) In General.--Section 7428(a)(1) (relating to 
     declaratory judgments of tax exempt organizations) is amended 
     by striking ``or'' at the end of subparagraph (B) and by 
     adding at the end the following new subparagraph:
       ``(D) with respect to the initial classification or 
     continuing classification of a cooperative as an organization 
     described in section 521(b) which is exempt from tax under 
     section 521(a), or''.
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to pleadings filed after the date of 
     the enactment of this Act.

     SEC. 309. TEMPORARY SUSPENSION OF PERSONAL HOLDING COMPANY 
                   TAX.

       (a) In General.--Section 541 (relating to imposition of 
     personal holding company tax) is amended by adding at the end 
     the following new sentence: ``The preceding sentence shall 
     not apply with respect to any taxable year to which section 
     1(h)(11) (as in effect on the date of the enactment of this 
     sentence) applies.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 310. INCREASE IN SECTION 179 EXPENSING.

       (a) In General.--Section 179(b)(2) (relating to reduction 
     in limitation) is amended by inserting ``50 percent of'' 
     before ``the amount''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 311. THREE-YEAR CARRYBACK OF NET OPERATING LOSSES.

       (a) In General.--Paragraph (1) of section 172(b) (relating 
     to years to which loss may be carried) is amended by adding 
     at the end the following new subparagraph:
       ``(I) Special rule for 2003.--In the case of a net 
     operating loss for any taxable year ending during 2003, 
     subparagraph (A)(i) shall be applied by substituting `3' for 
     `2'.''.
       (b) Election To Disregard 3-Year Carryback.--Section 172 
     (relating to net operating loss deduction) is amended by 
     redesignating subsection (k) as subsection (l) and by 
     inserting after subsection (j) the following new subsection:
       ``(k) Election To Disregard 3-Year Carryback for Certain 
     Net Operating Losses.--Any taxpayer entitled to a 3-year 
     carryback under subsection (b)(1)(I) from any loss year may 
     elect to have the carryback period with respect to such loss 
     year determined without regard to subsection (b)(1)(I). Such 
     election shall be made in such manner as may be prescribed by 
     the Secretary and shall be made by the due date (including 
     extensions of time) for filing the taxpayer's return for the 
     taxable year of the net operating loss. Such election, once 
     made for any taxable year, shall be irrevocable for such 
     taxable year.''.
       (c) Temporary Suspension of 90 Percent Limit on Certain NOL 
     Carryovers.--
       (1) In general.--Section 56(d)(1)(A)(ii)(I) (relating to 
     general rule defining alternative tax net operating loss 
     deduction) is amended--
       (A) by striking ``or 2002'' and inserting ``, 2002, or 
     2003'', and
       (B) by striking ``and 2002'' and inserting ``, 2002, and 
     2003''.
       (d) Technical Corrections.--
       (1) Subparagraph (H) of section 172(b)(1) is amended by 
     striking ``a taxpayer which has''.
       (2) Section 102(c)(2) of the Job Creation and Worker 
     Assistance Act of 2002 (Public Law 107-147) is amended by 
     striking ``before January 1, 2003'' and inserting ``after 
     December 31, 1990''.
       (3)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended 
     by striking ``attributable to carryovers''.
       (B) Subclause (I) of section 56(d)(1)(A)(ii) is amended--
       (i) by striking ``for taxable years'' and inserting ``from 
     taxable years'', and
       (ii) by striking ``carryforwards'' and inserting 
     ``carryovers''.
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to net operating 
     losses for taxable years ending after December 31, 2002.
       (2) Technical corrections.--The amendments made by 
     subsection (d) shall take effect as if included in the 
     amendments made by section 102 of the Job Creation and Worker 
     Assistance Act of 2002.
       (3) Election.--In the case of a net operating loss for a 
     taxable year ending during 2003--
       (A) any election made under section 172(b)(3) of such Code 
     may (notwithstanding such section) be revoked before April 
     15, 2004, and
       (B) any election made under section 172(k) (as added by 
     this section) of such Code shall (notwithstanding such 
     section) be treated as timely made if made before April 15, 
     2004.

              Subtitle B--Manufacturing Relating to Films

     SEC. 321. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION 
                   PRODUCTIONS.

       (a) In General.--Part VI of subchapter B of chapter 1 is 
     amended by inserting after section 180 the following new 
     section:

     ``SEC. 181. TREATMENT OF QUALIFIED FILM AND TELEVISION 
                   PRODUCTIONS.

       ``(a) Election To Treat Certain Costs of Qualified Film and 
     Television Productions as Expenses.--
       ``(1) In general.--A taxpayer may elect to treat the cost 
     of any qualified film or television production as an expense 
     which is not chargeable to capital account. Any cost so 
     treated shall be allowed as a deduction.
       ``(2) Dollar limitation.--
       ``(A) In general.--The aggregate cost which may be taken 
     into account under paragraph (1) with respect to each 
     qualified film or television production shall not exceed 
     $15,000,000.
       ``(B) Higher dollar limitation for productions in certain 
     areas.--In the case of any qualified film or television 
     production the aggregate cost of which is significantly 
     incurred in an area eligible for designation as--
       ``(i) a low-income community under section 45D, or
       ``(ii) a distressed county or isolated area of distress by 
     the Delta Regional Authority established under section 
     2009aa-1 of title 7, United States Code,

     subparagraph (A) shall be applied by substituting 
     `$20,000,000' for `$15,000,000'.
       ``(b) Amortization of Remaining Costs.--
       ``(1) In general.--If an election is made under subsection 
     (a) with respect to any qualified film or television 
     production, that portion of the basis of such production in 
     excess of the amount taken into account under subsection (a) 
     shall be allowed as a deduction ratably over the 36-month 
     period beginning with the month in which such production is 
     placed in service.
       ``(2) No other deduction or amortization deduction 
     allowable.--With respect to the basis of any qualified film 
     or television production described in paragraph (1), no other 
     depreciation or amortization deduction shall be allowable.
       ``(c) Election.--
       ``(1) In general.--An election under subsection (a) with 
     respect to any qualified film or television production shall 
     be made in

[[Page S5135]]

     such manner as prescribed by the Secretary and by the due 
     date (including extensions) for filing the taxpayer's return 
     of tax under this chapter for the taxable year in which costs 
     of the production are first incurred.
       ``(2) Revocation of election.--Any election made under 
     subsection (a) may not be revoked without the consent of the 
     Secretary.
       ``(d) Qualified Film or Television Production.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified film or television 
     production' means any production described in paragraph (2) 
     if 75 percent of the total compensation of the production is 
     qualified compensation.
       ``(2) Production.--
       ``(A) In general.--A production is described in this 
     paragraph if such production is property described in section 
     168(f)(3). For purposes of a television series, only the 
     first 44 episodes of such series may be taken into account.
       ``(B) Exception.--A production is not described in this 
     paragraph if records are required under section 2257 of title 
     18, United States Code, to be maintained with respect to any 
     performer in such production.
       ``(3) Qualified compensation.--For purposes of paragraph 
     (1)--
       ``(A) In general.--The term `qualified compensation' means 
     compensation for services performed in the United States by 
     actors, directors, producers, and other relevant production 
     personnel.
       ``(B) Participations and residuals excluded.--The term 
     `compensation' does not include participations and residuals 
     (as defined in section 167(g)(7)(B)).
       ``(e) Application of Certain Other Rules.--For purposes of 
     this section, rules similar to the rules of subsections 
     (b)(2) and (c)(4) of section 194 shall apply.
       ``(f) Termination.--This section shall not apply to 
     qualified film and television productions commencing after 
     December 31, 2008.''.
       (b) Conforming Amendment.--The table of sections for part 
     VI of subchapter B of chapter 1 is amended by inserting after 
     the item relating to section 180 the following new item:

``Sec. 181. Treatment of qualified film and television productions.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to qualified film and television productions (as 
     defined in section 181(d)(1) of the Internal Revenue Code of 
     1986, as added by this section) commencing after the date of 
     the enactment of this Act.

     SEC. 322. MODIFICATION OF APPLICATION OF INCOME FORECAST 
                   METHOD OF DEPRECIATION.

       (a) In General.--Section 167(g) (relating to depreciation 
     under income forecast method) is amended by adding at the end 
     the following new paragraph:
       ``(7) Treatment of participations and residuals.--
       ``(A) In general.--For purposes of determining the 
     depreciation deduction allowable with respect to a property 
     under this subsection, the taxpayer may include 
     participations and residuals with respect to such property in 
     the adjusted basis of such property for the taxable year in 
     which the property is placed in service, but only to the 
     extent that such participations and residuals relate to 
     income estimated (for purposes of this subsection) to be 
     earned in connection with the property before the close of 
     the 10th taxable year referred to in paragraph (1)(A).
       ``(B) Participations and residuals.--For purposes of this 
     paragraph, the term `participations and residuals' means, 
     with respect to any property, costs the amount of which by 
     contract varies with the amount of income earned in 
     connection with such property.
       ``(C) Special rules relating to recomputation years.--If 
     the adjusted basis of any property is determined under this 
     paragraph, paragraph (4) shall be applied by substituting 
     `for each taxable year in such period' for `for such period'.
       ``(D) Other special rules.--
       ``(i) Participations and residuals.--Notwithstanding 
     subparagraph (A), the taxpayer may exclude participations and 
     residuals from the adjusted basis of such property and deduct 
     such participations and residuals in the taxable year that 
     such participations and residuals are paid.
       ``(ii) Coordination with other rules.--Deductions computed 
     in accordance with this paragraph shall be allowable 
     notwithstanding paragraph (1)(B) or sections 263, 263A, 404, 
     419, or 461(h).
       ``(E) Authority to make adjustments.--The Secretary shall 
     prescribe appropriate adjustments to the basis of property 
     and to the look-back method for the additional amounts 
     allowable as a deduction solely by reason of this 
     paragraph.''.
       (b) Determination of Income.--Section 167(g)(5) (relating 
     to special rules) is amended by redesignating subparagraphs 
     (E) and (F) as subparagraphs (F) and (G), respectively, and 
     inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) Treatment of distribution costs.--For purposes of 
     this subsection, the income with respect to any property 
     shall be the taxpayer's gross income from such property.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

              Subtitle C--Manufacturing Relating to Timber

     SEC. 331. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.

       (a) In General.--So much of subsection (b) of section 194 
     (relating to amortization of reforestation expenditures) as 
     precedes paragraph (2) is amended to read as follows:
       ``(b) Treatment as Expenses.--
       ``(1) Election to treat certain reforestation expenditures 
     as expenses.--
       ``(A) In general.--In the case of any qualified timber 
     property with respect to which the taxpayer has made (in 
     accordance with regulations prescribed by the Secretary) an 
     election under this subsection, the taxpayer shall treat 
     reforestation expenditures which are paid or incurred during 
     the taxable year with respect to such property as an expense 
     which is not chargeable to capital account. The reforestation 
     expenditures so treated shall be allowed as a deduction.
       ``(B) Dollar limitation.--The aggregate amount of 
     reforestation expenditures which may be taken into account 
     under subparagraph (A) with respect to each qualified timber 
     property for any taxable year shall not exceed $10,000 
     ($5,000 in the case of a separate return by a married 
     individual (as defined in section 7703)).''.
       (b) Net Amortizable Basis.--Section 194(c)(2) (defining 
     amortizable basis) is amended by inserting ``which have not 
     been taken into account under subsection (b)'' after 
     ``expenditures''.
       (c) Conforming Amendments.--
       (1) Section 194(b) is amended by striking paragraphs (3) 
     and (4).
       (2) Section 194(b)(2) is amended by striking ``paragraph 
     (1)'' both places it appears and inserting ``paragraph 
     (1)(B)''.
       (3) Section 194(c) is amended by striking paragraph (4) and 
     inserting the following new paragraphs:
       ``(4) Treatment of trusts and estates.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     this section shall not apply to trusts and estates.
       ``(B) Amortization deduction allowed to estates.--The 
     benefit of the deduction for amortization provided by 
     subsection (a) shall be allowed to estates in the same manner 
     as in the case of an individual. The allowable deduction 
     shall be apportioned between the income beneficiary and the 
     fiduciary under regulations prescribed by the Secretary. Any 
     amount so apportioned to a beneficiary shall be taken into 
     account for purposes of determining the amount allowable as a 
     deduction under subsection (a) to such beneficiary.
       ``(5) Application with other deductions.--No deduction 
     shall be allowed under any other provision of this chapter 
     with respect to any expenditure with respect to which a 
     deduction is allowed or allowable under this section to the 
     taxpayer .''.
       (4) The heading for section 194 is amended by striking 
     ``AMORTIZATION'' and inserting ``TREATMENT''.
       (5) The item relating to section 194 in the table of 
     sections for part VI of subchapter B of chapter 1 is amended 
     by striking ``Amortization'' and inserting ``Treatment''.
       (d) Repeal of Reforestation Credit.--
       (1) In general.--Section 46 (relating to amount of credit) 
     is amended--
       (A) by adding ``and'' at the end of paragraph (1),
       (B) by striking ``, and '' at the end of paragraph (2) and 
     inserting a period, and
       (C) by striking paragraph (3).
       (2) Conforming amendments.--
       (A) Section 48 is amended--
       (i) by striking subsection (b),
       (ii) by striking ``this subsection'' in paragraph (5) of 
     subsection (a) and inserting ``subsection (a)'', and
       (iii) by redesignating such paragraph (5) as subsection 
     (b).
       (B) The heading for section 48 is amended by striking `` 
     REFORESTATION CREDIT''.
       (C) The item relating to section 48 in the table of 
     sections for subpart E of part IV of subchapter A of chapter 
     1 is amended by striking ``, reforestation credit''.
       (D) Section 50(c)(3) is amended by striking ``or 
     reforestation credit''.
       (e) Effective Date.--The amendments made by this section 
     shall apply with respect to expenditures paid or incurred 
     after the date of the enactment of this Act.

     SEC. 332. ELECTION TO TREAT CUTTING OF TIMBER AS A SALE OR 
                   EXCHANGE.

       Any election under section 631(a) of the Internal Revenue 
     Code of 1986 made for a taxable year ending on or before the 
     date of the enactment of this Act may be revoked by the 
     taxpayer for any taxable year ending after such date. For 
     purposes of determining whether the taxpayer may make a 
     further election under such section, such election (and any 
     revocation under this section) shall not be taken into 
     account.

     SEC. 333. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO 
                   APPLY TO OUTRIGHT SALES BY LANDOWNERS.

       (a) In General.--The first sentence of section 631(b) 
     (relating to disposal of timber with a retained economic 
     interest) is amended by striking ``retains an economic 
     interest in such timber'' and inserting ``either retains an 
     economic interest in such timber or makes an outright sale of 
     such timber''.
       (b) Conforming Amendments.--
       (1) The third sentence of section 631(b) is amended by 
     striking ``The date of disposal'' and inserting ``In the case 
     of disposal of timber with a retained economic interest, the 
     date of disposal''.
       (2) The heading for section 631(b) is amended by striking 
     ``With a Retained Economic Interest''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to sales after the date of the enactment of this 
     Act.

[[Page S5136]]

     SEC. 334. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITS.

       (a) Expansion of Prohibited Transaction Safe Harbor.--
     Section 857(b)(6) (relating to income from prohibited 
     transactions) is amended by redesignating subparagraphs (D) 
     and (E) as subparagraphs (E) and (F), respectively, and by 
     inserting after subparagraph (C) the following new 
     subparagraph:
       ``(D) Certain sales not to constitute prohibited 
     transactions.--For purposes of this part, the term 
     `prohibited transaction' does not include a sale of property 
     which is a real estate asset (as defined in section 
     856(c)(5)(B)) if--
       ``(i) the trust held the property for not less than 4 years 
     in connection with the trade or business of producing timber,
       ``(ii) the aggregate expenditures made by the trust, or a 
     partner of the trust, during the 4-year period preceding the 
     date of sale which--

       ``(I) are includible in the basis of the property (other 
     than timberland acquisition expenditures), and
       ``(II) are directly related to operation of the property 
     for the production of timber or for the preservation of the 
     property for use as timberland,

     do not exceed 30 percent of the net selling price of the 
     property,
       ``(iii) the aggregate expenditures made by the trust, or a 
     partner of the trust, during the 4-year period preceding the 
     date of sale which--

       ``(I) are includible in the basis of the property (other 
     than timberland acquisition expenditures), and
       ``(II) are not directly related to operation of the 
     property for the production of timber, or for the 
     preservation of the property for use as timberland,

     do not exceed 5 percent of the net selling price of the 
     property,
       ``(iv)(I) during the taxable year the trust does not make 
     more than 7 sales of property (other than sales of 
     foreclosure property or sales to which section 1033 applies), 
     or
       ``(II) the aggregate adjusted bases (as determined for 
     purposes of computing earnings and profits) of property 
     (other than sales of foreclosure property or sales to which 
     section 1033 applies) sold during the taxable year does not 
     exceed 10 percent of the aggregate bases (as so determined) 
     of all of the assets of the trust as of the beginning of the 
     taxable year,
       ``(v) in the case that the requirement of clause (iv)(I) is 
     not satisfied, substantially all of the marketing 
     expenditures with respect to the property were made through 
     an independent contractor (as defined in section 856(d)(3)) 
     from whom the trust itself does not derive or receive any 
     income, and
       ``(vi) the sales price of the property sold by the trust is 
     not based in whole or in part on income or profits, including 
     income or profits derived from the sale or operation of such 
     property.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

                    TITLE IV--ADDITIONAL PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 401. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

       (a) In General.--Section 7701 is amended by redesignating 
     subsection (n) as subsection (o) and by inserting after 
     subsection (m) the following new subsection:
       ``(n) Clarification of Economic Substance Doctrine; Etc.--
       ``(1) General rules.--
       ``(A) In general.--In any case in which a court determines 
     that the economic substance doctrine is relevant for purposes 
     of this title to a transaction (or series of transactions), 
     such transaction (or series of transactions) shall have 
     economic substance only if the requirements of this paragraph 
     are met.
       ``(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) 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.

     In applying subclause (II), 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.
       ``(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) 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.
       ``(D) Treatment of lessors.--In applying paragraph 
     (1)(B)(ii) to the lessor of tangible property subject to a 
     lease--
       ``(i) the expected net tax benefits with respect to the 
     leased property shall not include the benefits of--

       ``(I) depreciation,
       ``(II) any tax credit, or
       ``(III) any other deduction as provided in guidance by the 
     Secretary, and

       ``(ii) 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 the date of 
     the enactment of this Act.

     SEC. 402. 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.

[[Page S5137]]

       ``(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. 403. 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 assertion and compromise of 
     penalty.--
       ``(A) In general.--Only upon the approval by the Chief 
     Counsel for the Internal Revenue Service or the Chief 
     Counsel's delegate at the national office of the Internal 
     Revenue Service may a penalty to which paragraph (1) applies 
     be included in a 1st letter of proposed deficiency which 
     allows the taxpayer an opportunity for administrative review 
     in the Internal Revenue Service Office of Appeals. If such a 
     letter is provided to the taxpayer, only the Commissioner of 
     Internal Revenue may compromise all or any portion of such 
     penalty.
       ``(B) Applicable rules.--The rules of paragraphs (2), (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

[[Page S5138]]

     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 disqualifying 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. 404. 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(n)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(n)(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 (2), (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 the date of 
     the enactment of this Act.

     SEC. 405. 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

[[Page S5139]]

     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. 406. 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. 407. 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, managing, 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) Required Disclosure Not Subject to Claim of 
     Confidentiality.--Subparagraph (A) of section 6112(b)(1), as 
     redesignated by subsection (b)(2)(B), is amended by adding at 
     the end the following new flush sentence:

     ``For purposes of this section, the identity of any person on 
     such list shall not be privileged.''.
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), 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.
       (2) No claim of confidentiality against disclosure.--The 
     amendment made by subsection (c) shall take effect as if 
     included in the amendments made by section 142 of the Deficit 
     Reduction Act of 1984.

     SEC. 408. 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 listed 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) Certain Rules To Apply.--The provisions of section 
     6707A(d) 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. 409. 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. 410. 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

[[Page S5140]]

     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. 411. 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. 412. 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. 413. 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

[[Page S5141]]

     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. 414. 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 of the representative.''.
       (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. 415. 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. 416. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   REQUIRED LISTED TRANSACTIONS NOT REPORTED.

       (a) In General.--Section 6501(c) (relating to exceptions) 
     is amended by adding at the end the following new paragraph:
       ``(10) 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 time for 
     assessment of any tax imposed by this title with respect to 
     such transaction shall not expire before the date which is 1 
     year after the earlier of--
       ``(A) the date on which the Secretary is furnished the 
     information so required; or
       ``(B) the date that a material advisor (as defined in 
     section 6111) meets the requirements of section 6112 with 
     respect to a request by the Secretary under section 6112(b) 
     relating to such transaction with respect to such 
     taxpayer.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years with respect to which the period 
     for assessing a deficiency did not expire before the date of 
     the enactment of this Act.

     SEC. 417. 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 in taxable years beginning after 
     the date of the enactment of this Act.

     SEC. 418. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW 
                   ENFORCEMENT.

       There is authorized to be appropriated $300,000,000 for 
     each fiscal year beginning after September 30, 2003, for the 
     purpose of carrying out tax law enforcement to combat tax 
     avoidance transactions and other tax shelters, including the 
     use of offshore financial accounts to conceal taxable income.

           Subtitle B--Other Corporate Governance Provisions

     SEC. 421. 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. 422. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE 
                   OFFICER.

       (a) In General.--Section 6062 (relating to signing of 
     corporation returns) is amended by inserting after the first 
     sentence the following new sentences: ``The return of a 
     corporation with respect to income shall also include a 
     declaration signed by the chief executive officer of such 
     corporation (or other such officer of the corporation as the 
     Secretary may designate if the corporation does not have a 
     chief executive officer), under penalties of perjury, that 
     the chief executive officer ensures that such return 
     complies with this title and that the chief executive 
     officer was provided reasonable assurance of the accuracy 
     of all material aspects of such return. The preceding 
     sentence shall not apply to any return of a regulated 
     investment company (within the meaning of section 851).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to returns filed after the date of the enactment 
     of this Act.

     SEC. 423. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (4) in relation 
     to the violation of any law or the investigation or inquiry 
     by such government or entity into the potential violation of 
     any law.
       ``(2) Exception for amounts constituting restitution.--
     Paragraph (1) shall not apply to any amount which the 
     taxpayer establishes constitutes restitution for damage or 
     harm caused by the violation of any law or the potential 
     violation of any law. This paragraph shall not apply to any 
     amount paid or incurred as reimbursement to the government or 
     entity for the costs of any investigation or litigation.
       ``(3) Exception for amounts paid or incurred as the result 
     of certain court orders.--Paragraph (1) shall not apply to 
     any amount paid or incurred by order of a court in a suit in 
     which no government or entity described in paragraph (4) is a 
     party.
       ``(4) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to amounts paid or incurred after April 27, 2003, 
     except that such amendment shall not apply to amounts paid or 
     incurred under any binding order or agreement entered into on 
     or before April 27, 2003. Such exception shall not apply to 
     an order or agreement requiring court approval unless the 
     approval was obtained on or before April 27, 2003.

     SEC. 424. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

       (a) Disallowance of Deduction.--
       (1) In general.--Section 162(g) (relating to treble damage 
     payments under the antitrust laws) is amended by adding at 
     the end the following new paragraph:
       ``(2) Punitive damages.--No deduction shall be allowed 
     under this chapter for any amount paid or incurred for 
     punitive damages in connection with any judgment in, or 
     settlement of, any action. This paragraph shall not apply to 
     punitive damages described in section 104(c).''.
       (2) Conforming amendments.--
       (A) Section 162(g) is amended--
       (i) by striking ``If'' and inserting:
       ``(1) Treble damages.--If'', and
       (ii) by redesignating paragraphs (1) and (2) as 
     subparagraphs (A) and (B), respectively.

[[Page S5142]]

       (B) The heading for section 162(g) is amended by inserting 
     ``or Punitive Damages'' after ``Laws''.
       (b) Inclusion in Income of Punitive Damages Paid by Insurer 
     or Otherwise.--
       (1) In general.--Part II of subchapter B of chapter 1 
     (relating to items specifically included in gross income) is 
     amended by adding at the end the following new section:

     ``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR 
                   OTHERWISE.

       ``Gross income shall include any amount paid to or on 
     behalf of a taxpayer as insurance or otherwise by reason of 
     the taxpayer's liability (or agreement) to pay punitive 
     damages.''.
       (2) Reporting requirements.--Section 6041 (relating to 
     information at source) is amended by adding at the end the 
     following new subsection:
       ``(f) Section To Apply to Punitive Damages Compensation.--
     This section shall apply to payments by a person to or on 
     behalf of another person as insurance or otherwise by reason 
     of the other person's liability (or agreement) to pay 
     punitive damages.''.
       (3) Conforming amendment.--The table of sections for part 
     II of subchapter B of chapter 1 is amended by adding at the 
     end the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to damages paid or incurred on or after the date 
     of the enactment of this Act.

     SEC. 425. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION 
                   FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE 
                   TO FRAUD.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) In 
     General.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due to Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$250,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``misdemeanor'' and inserting ``felony'', 
     and
       (ii) by striking ``1 year'' and inserting ``10 years'', and
       (B) by striking the third sentence.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$250,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to underpayments and overpayments attributable to 
     actions occurring after the date of the enactment of this 
     Act.

            Subtitle C--Enron-Related Tax Shelter Provisions

     SEC. 431. 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 subparagraph 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 by a transferor 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 such 
     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 February 13, 2003.

     SEC. 432. 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 
     (or any person which is related (within the meaning of 
     section 267(b) or 707(b)(1)) to such 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 in such manner as the Secretary 
     may prescribe.

     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 February 13, 2003.

     SEC. 433. 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)(A) Section 860G(a)(1) is amended by adding at the end 
     the following new sentence: ``An interest shall not fail to 
     qualify as a regular interest solely because the specified 
     principal amount of the regular interest (or the amount of 
     interest accrued on the regular interest) can be reduced as a 
     result

[[Page S5143]]

     of the nonoccurrence of 1 or more contingent payments with 
     respect to any reverse mortgage loan held by the REMIC if, on 
     the startup day for the REMIC, the sponsor reasonably 
     believes that all principal and interest due under the 
     regular interest will be paid at or prior to the liquidation 
     of the REMIC.''.
       (B) The last sentence of section 860G(a)(3) is amended by 
     inserting ``, and any reverse mortgage loan (and each balance 
     increase on such loan meeting the requirements of 
     subparagraph (A)(iii)) shall be treated as an obligation 
     secured by an interest in real property'' before the period 
     at the end.
       (6) Paragraph (3) 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).
       (7) Section 860G(a)(3), as amended by paragraph (6), is 
     amended by adding at the end the following new sentence: 
     ``For purposes of subparagraph (A), if more than 50 percent 
     of the obligations transferred to, or purchased by, the REMIC 
     are originated by the United States or any State (or any 
     political subdivision, agency, or instrumentality of the 
     United States or any State) and are principally secured by an 
     interest in real property, then each obligation transferred 
     to, or purchased by, the REMIC shall be treated as secured by 
     an interest in real property.''.
       (8)(A) Section 860G(a)(3)(A) is amended by striking ``or'' 
     at the end of clause (i), by inserting ``or'' at the end of 
     clause (ii), and by inserting after clause (ii) the following 
     new clause:
       ``(iii) represents an increase in the principal amount 
     under the original terms of an obligation described in clause 
     (i) or (ii) if such increase--

       ``(I) is attributable to an advance made to the obligor 
     pursuant to the original terms of the obligation,
       ``(II) occurs after the startup day, and
       ``(III) is purchased by the REMIC pursuant to a fixed price 
     contract in effect on the startup day.''.

       (B) Section 860G(a)(7)(B) is amended to read as follows:
       ``(B) Qualified reserve fund.--For purposes of subparagraph 
     (A), the term `qualified reserve fund' means any reasonably 
     required reserve to--
       ``(i) provide for full payment of expenses of the REMIC or 
     amounts due on regular interests in the event of defaults on 
     qualified mortgages or lower than expected returns on cash 
     flow investments, or
       ``(ii) provide a source of funds for the purchase of 
     obligations described in clause (ii) or (iii) of paragraph 
     (3)(A).

     The aggregate fair market value of the assets held in any 
     such reserve shall not exceed 50 percent of the aggregate 
     fair market value of all of the assets of the REMIC on the 
     startup day, and the amount of any such reserve shall be 
     promptly and appropriately reduced to the extent the amount 
     held in such reserve is no longer reasonably required for 
     purposes specified in clause (i) or (ii) of paragraph 
     (3)(A).''.
       (9) Subparagraph (C) of section 1202(e)(4) is amended by 
     striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
       (10) Section 1272(a)(6)(B) is amended by adding at the end 
     the following new flush sentence:

     ``For purposes of clause (iii), the Secretary shall prescribe 
     regulations permitting the use of a current prepayment 
     assumption, determined as of the close of the accrual period 
     (or such other time as the Secretary may prescribe during the 
     taxable year in which the accrual period ends).''.
       (11) 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).
       (12) 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 take effect on February 
     14, 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 to the 
     extent that regular interests issued by the FASIT before such 
     date continue to remain outstanding in accordance with the 
     original terms of issuance.
       (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. 434. 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) Capitalization Allowed With Respect to Equity of 
     Persons Other Than Issuer and Related Parties.--Section 
     163(l) is amended by redesignating paragraphs (4) and (5) as 
     paragraphs (5) and (6) and by inserting after paragraph (3) 
     the following new paragraph:
       ``(4) Capitalization allowed with respect to equity of 
     persons other than issuer and related parties.--If the 
     disqualified debt instrument of a corporation is payable in 
     equity held by the issuer (or any related party) in any other 
     person (other than a related party), the basis of such equity 
     shall be increased by the amount not allowed as a deduction 
     by reason of paragraph (1) with respect to the instrument.''.
       (c) Exception for Certain Instruments Issued by Dealers in 
     Securities.--Section 163(l), as amended by subsection (b), is 
     amended by redesignating paragraphs (5) and (6) as paragraphs 
     (6) and (7) and by inserting after paragraph (4) the 
     following new paragraph:
       ``(5) Exception for certain instruments issued by dealers 
     in securities.--For purposes of this subsection, the term 
     `disqualified debt instrument' does not include indebtedness 
     issued by a dealer in securities (or a related party) which 
     is payable in, or by reference to, equity (other than equity 
     of the issuer or a related party) held by such dealer in its 
     capacity as a dealer in securities. For purposes of this 
     paragraph, the term `dealer in securities' has the meaning 
     given such term by section 475.''.
       (c) Conforming Amendments.--Paragraph (3) of section 163(l) 
     is amended--
       (1) by striking ``or a related party'' in the material 
     preceding subparagraph (A) and inserting ``or any other 
     person'', and
       (2) by striking ``or interest'' each place it appears.
       (d) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after February 13, 
     2003.

     SEC. 435. 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 or persons acquire, directly or 
     indirectly, control of 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,

     then the Secretary may disallow such deduction, credit, or 
     other allowance. For purposes of paragraph (1)(A), control 
     means the ownership of stock possessing at least 50 percent 
     of the total combined voting power of all classes of stock 
     entitled to vote or at least 50 percent of the total value of 
     all shares of all classes of stock of the corporation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to stock and property acquired after February 13, 
     2003.

     SEC. 436. MODIFICATION OF INTERACTION BETWEEN SUBPART F AND 
                   PASSIVE FOREIGN INVESTMENT COMPANY RULES.

       (a) Limitation on Exception From PFIC Rules for United 
     States Shareholders of Controlled Foreign Corporations.--
     Paragraph (2) of section 1297(e) (relating to passive foreign 
     investment company) is amended by adding at the end the 
     following flush sentence:

     ``Such term shall not include any period if the earning of 
     subpart F income by such corporation during such period would 
     result in only a remote likelihood of an inclusion in gross 
     income under section 951(a)(1)(A)(i).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years of controlled foreign 
     corporations beginning after February 13, 2003, and to 
     taxable years of United States shareholders with or within 
     which such taxable years of controlled foreign corporations 
     end.

           Subtitle D--Provisions to Discourage Expatriation

     SEC. 441. TAX TREATMENT OF INVERTED CORPORATE ENTITIES

       (a) In General.--Subchapter C of chapter 80 (relating to 
     provisions affecting more than one subtitle) is amended by 
     adding at the end the following new section:

     ``SEC. 7874. RULES RELATING TO INVERTED CORPORATE ENTITIES

       ``(a) Inverted Corporations Treated as Domestic 
     Corporations.--
       ``(1) In general.--If a foreign incorporated entity is 
     treated as an inverted domestic corporation, then, 
     notwithstanding section 7701(a)(4), such entity shall be 
     treated for purposes of this title as a domestic corporation.
       ``(2) Inverted domestic corporation.--For purposes of this 
     section, a foreign incorporated entity shall be treated as an 
     inverted domestic corporation if, pursuant to a plan (or a 
     series of related transactions)--
       ``(A) the entity completes after March 20, 2002, the direct 
     or indirect acquisition of substantially all of the 
     properties held directly or indirectly by a domestic 
     corporation or substantially all of the properties 
     constituting a trade or business of a domestic partnership,
       ``(B) after the acquisition at least 80 percent of the 
     stock (by vote or value) of the entity is held--
       ``(i) in the case of an acquisition with respect to a 
     domestic corporation, by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation, or
       ``(ii) in the case of an acquisition with respect to a 
     domestic partnership, by former

[[Page S5144]]

     partners of the domestic partnership by reason of holding a 
     capital or profits interest in the domestic partnership, and
       ``(C) the expanded affiliated group which after the 
     acquisition includes the entity does not have substantial 
     business activities in the foreign country in which or under 
     the law of which the entity is created or organized when 
     compared to the total business activities of such expanded 
     affiliated group.

     Except as provided in regulations, an acquisition of 
     properties of a domestic corporation shall not be treated as 
     described in subparagraph (A) if none of the corporation's 
     stock was readily tradeable on an established securities 
     market at any time during the 4-year period ending on the 
     date of the acquisition.
       ``(b) Preservation of Domestic Tax Base in Certain 
     Inversion Transactions to Which Subsection (a) Does Not 
     Apply.--
       ``(1) In general.--If a foreign incorporated entity would 
     be treated as an inverted domestic corporation with respect 
     to an acquired entity if either--
       ``(A) subsection (a)(2)(A) were applied by substituting 
     `after December 31, 1996, and on or before March 20, 2002' 
     for `after March 20, 2002' and subsection (a)(2)(B) were 
     applied by substituting `more than 50 percent' for `at least 
     80 percent', or
       ``(B) subsection (a)(2)(B) were applied by substituting 
     `more than 50 percent' for `at least 80 percent',

     then the rules of subsection (c) shall apply to any inversion 
     gain of the acquired entity during the applicable period and 
     the rules of subsection (d) shall apply to any related party 
     transaction of the acquired entity during the applicable 
     period. This subsection shall not apply for any taxable year 
     if subsection (a) applies to such foreign incorporated entity 
     for such taxable year.
       ``(2) Acquired entity.--For purposes of this section--
       ``(A) In general.--The term `acquired entity' means the 
     domestic corporation or partnership substantially all of the 
     properties of which are directly or indirectly acquired in an 
     acquisition described in subsection (a)(2)(A) to which this 
     subsection applies.
       ``(B) Aggregation rules.--Any domestic person bearing a 
     relationship described in section 267(b) or 707(b) to an 
     acquired entity shall be treated as an acquired entity with 
     respect to the acquisition described in subparagraph (A).
       ``(3) Applicable period.--For purposes of this section--
       ``(A) In general.--The term `applicable period' means the 
     period--
       ``(i) beginning on the first date properties are acquired 
     as part of the acquisition described in subsection (a)(2)(A) 
     to which this subsection applies, and
       ``(ii) ending on the date which is 10 years after the last 
     date properties are acquired as part of such acquisition.
       ``(B) Special rule for inversions occurring before march 
     21, 2002.--In the case of any acquired entity to which 
     paragraph (1)(A) applies, the applicable period shall be the 
     10-year period beginning on January 1, 2003.
       ``(c) Tax on Inversion Gains May Not Be Offset.--If 
     subsection (b) applies--
       ``(1) In general.--The taxable income of an acquired entity 
     (or any expanded affiliated group which includes such entity) 
     for any taxable year which includes any portion of the 
     applicable period shall in no event be less than the 
     inversion gain of the entity for the taxable year.
       ``(2) Credits not allowed against tax on inversion gain.--
     Credits shall be allowed against the tax imposed by this 
     chapter on an acquired entity for any taxable year described 
     in paragraph (1) only to the extent such tax exceeds the 
     product of--
       ``(A) the amount of the inversion gain for the taxable 
     year, and
       ``(B) the highest rate of tax specified in section 
     11(b)(1).

     For purposes of determining the credit allowed by section 901 
     inversion gain shall be treated as from sources within the 
     United States.
       ``(3) Special rules for partnerships.--In the case of an 
     acquired entity which is a partnership--
       ``(A) the limitations of this subsection shall apply at the 
     partner rather than the partnership level,
       ``(B) the inversion gain of any partner for any taxable 
     year shall be equal to the sum of--
       ``(i) the partner's distributive share of inversion gain of 
     the partnership for such taxable year, plus
       ``(ii) income or gain required to be recognized for the 
     taxable year by the partner under section 367(a), 741, or 
     1001, or under any other provision of chapter 1, by reason of 
     the transfer during the applicable period of any partnership 
     interest of the partner in such partnership to the foreign 
     incorporated entity, and
       ``(C) the highest rate of tax specified in the rate 
     schedule applicable to the partner under chapter 1 shall be 
     substituted for the rate of tax under paragraph (2)(B).
       ``(4) Inversion gain.--For purposes of this section, the 
     term `inversion gain' means any income or gain required to be 
     recognized under section 304, 311(b), 367, 1001, or 1248, or 
     under any other provision of chapter 1, by reason of the 
     transfer during the applicable period of stock or other 
     properties by an acquired entity--
       ``(A) as part of the acquisition described in subsection 
     (a)(2)(A) to which subsection (b) applies, or
       ``(B) after such acquisition to a foreign related person.

     The Secretary may provide that income or gain from the sale 
     of inventories or other transactions in the ordinary course 
     of a trade or business shall not be treated as inversion gain 
     under subparagraph (B) to the extent the Secretary determines 
     such treatment would not be inconsistent with the purposes of 
     this section.
       ``(5) Coordination with section 172 and minimum tax.--Rules 
     similar to the rules of paragraphs (3) and (4) of section 
     860E(a) shall apply for purposes of this section.
       ``(6) Statute of limitations.--
       ``(A) In general.--The statutory period for the assessment 
     of any deficiency attributable to the inversion gain of any 
     taxpayer for any pre-inversion year shall not expire before 
     the expiration of 3 years from the date the Secretary is 
     notified by the taxpayer (in such manner as the Secretary may 
     prescribe) of the acquisition described in subsection 
     (a)(2)(A) to which such gain relates and such deficiency may 
     be assessed before the expiration of such 3-year period 
     notwithstanding the provisions of any other law or rule of 
     law which would otherwise prevent such assessment.
       ``(B) Pre-inversion year.--For purposes of subparagraph 
     (A), the term `pre-inversion year' means any taxable year 
     if--
       ``(i) any portion of the applicable period is included in 
     such taxable year, and
       ``(ii) such year ends before the taxable year in which the 
     acquisition described in subsection (a)(2)(A) is completed.
       ``(d) Special Rules Applicable to Acquired Entities to 
     Which Subsection (b) Applies.--
       ``(1) Increases in accuracy-related penalties.--In the case 
     of any underpayment of tax of an acquired entity to which 
     subsection (b) applies--
       ``(A) section 6662(a) shall be applied with respect to such 
     underpayment by substituting `30 percent' for `20 percent', 
     and
       ``(B) if such underpayment is attributable to one or more 
     gross valuation understatements, the increase in the rate of 
     penalty under section 6662(h) shall be to 50 percent rather 
     than 40 percent.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an acquired entity to which subsection (b) 
     applies, section 163(j) shall be applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.
       ``(e) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Rules for application of subsection (a)(2).--In 
     applying subsection (a)(2) for purposes of subsections (a) 
     and (b), the following rules shall apply:
       ``(A) Certain stock disregarded.--There shall not be taken 
     into account in determining ownership for purposes of 
     subsection (a)(2)(B)--
       ``(i) stock held by members of the expanded affiliated 
     group which includes the foreign incorporated entity, or
       ``(ii) stock of such entity which is sold in a public 
     offering or private placement related to the acquisition 
     described in subsection (a)(2)(A).
       ``(B) Plan deemed in certain cases.--If a foreign 
     incorporated entity acquires directly or indirectly 
     substantially all of the properties of a domestic corporation 
     or partnership during the 4-year period beginning on the date 
     which is 2 years before the ownership requirements of 
     subsection (a)(2)(B) are met with respect to such domestic 
     corporation or partnership, such actions shall be treated 
     as pursuant to a plan.
       ``(C) Certain transfers disregarded.--The transfer of 
     properties or liabilities (including by contribution or 
     distribution) shall be disregarded if such transfers are part 
     of a plan a principal purpose of which is to avoid the 
     purposes of this section.
       ``(D) Special rule for related partnerships.--For purposes 
     of applying subsection (a)(2) to the acquisition of a 
     domestic partnership, except as provided in regulations, all 
     partnerships which are under common control (within the 
     meaning of section 482) shall be treated as 1 partnership.
       ``(E) Treatment of certain rights.--The Secretary shall 
     prescribe such regulations as may be necessary--
       ``(i) to treat warrants, options, contracts to acquire 
     stock, convertible debt instruments, and other similar 
     interests as stock, and
       ``(ii) to treat stock as not stock.
       ``(2) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a) but without regard to section 1504(b)(3), 
     except that section 1504(a) shall be applied by substituting 
     `more than 50 percent' for `at least 80 percent' each place 
     it appears.
       ``(3) Foreign incorporated entity.--The term `foreign 
     incorporated entity' means any entity which is, or but for 
     subsection (a)(1) would be, treated as a foreign corporation 
     for purposes of this title.
       ``(4) Foreign related person.--The term `foreign related 
     person' means, with respect to any acquired entity, a foreign 
     person which--
       ``(A) bears a relationship to such entity described in 
     section 267(b) or 707(b), or
       ``(B) is under the same common control (within the meaning 
     of section 482) as such entity.
       ``(5) Subsequent acquisitions by unrelated domestic 
     corporations.--

[[Page S5145]]

       ``(A) In general.--Subject to such conditions, limitations, 
     and exceptions as the Secretary may prescribe, if, after an 
     acquisition described in subsection (a)(2)(A) to which 
     subsection (b) applies, a domestic corporation stock of which 
     is traded on an established securities market acquires 
     directly or indirectly any properties of one or more acquired 
     entities in a transaction with respect to which the 
     requirements of subparagraph (B) are met, this section shall 
     cease to apply to any such acquired entity with respect to 
     which such requirements are met.
       ``(B) Requirements.--The requirements of the subparagraph 
     are met with respect to a transaction involving any 
     acquisition described in subparagraph (A) if--
       ``(i) before such transaction the domestic corporation did 
     not have a relationship described in section 267(b) or 
     707(b), and was not under common control (within the meaning 
     of section 482), with the acquired entity, or any member of 
     an expanded affiliated group including such entity, and
       ``(ii) after such transaction, such acquired entity--

       ``(I) is a member of the same expanded affiliated group 
     which includes the domestic corporation or has such a 
     relationship or is under such common control with any member 
     of such group, and
       ``(II) is not a member of, and does not have such a 
     relationship and is not under such common control with any 
     member of, the expanded affiliated group which before such 
     acquisition included such entity.

       ``(f) Regulations.--The Secretary shall provide such 
     regulations as are necessary to carry out this section, 
     including regulations providing for such adjustments to the 
     application of this section as are necessary to prevent the 
     avoidance of the purposes of this section, including the 
     avoidance of such purposes through--
       ``(1) the use of related persons, pass-thru or other 
     noncorporate entities, or other intermediaries, or
       ``(2) transactions designed to have persons cease to be (or 
     not become) members of expanded affiliated groups or related 
     persons.''.
       (b) Information Reporting.--The Secretary of the Treasury 
     shall exercise the Secretary's authority under the Internal 
     Revenue Code of 1986 to require entities involved in 
     transactions to which section 7874 of such Code (as added by 
     subsection (a)) applies to report to the Secretary, 
     shareholders, partners, and such other persons as the 
     Secretary may prescribe such information as is necessary to 
     ensure the proper tax treatment of such transactions.
       (c) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 80 is amended by adding at the end 
     the following new item:

``Sec. 7874. Rules relating to inverted corporate entities.''.

       (d) Transition Rule for Certain Regulated Investment 
     Companies and Unit Investment Trusts.--Notwithstanding 
     section 7874 of the Internal Revenue Code of 1986 (as added 
     by subsection (a)), a regulated investment company, or other 
     pooled fund or trust specified by the Secretary of the 
     Treasury, may elect to recognize gain by reason of section 
     367(a) of such Code with respect to a transaction under which 
     a foreign incorporated entity is treated as an inverted 
     domestic corporation under section 7874(a) of such Code by 
     reason of an acquisition completed after March 20, 2002, and 
     before January 1, 2004.

     SEC. 442. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS WHO 
                   EXPATRIATE.

       (a) In General.--Subpart A of part II of subchapter N of 
     chapter 1 is amended by inserting after section 877 the 
     following new section:

     ``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies shall be treated as sold on the day 
     before the expatriation date for its fair market value.
       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply to any such loss.

     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2003, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2002' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election To Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property treated as 
     sold by reason of subsection (a), the payment of the 
     additional tax attributable to such property shall be 
     postponed until the due date of the return for the taxable 
     year in which such property is disposed of (or, in the case 
     of property disposed of in a transaction in which gain is not 
     recognized in whole or in part, until such other date as the 
     Secretary may prescribe).
       ``(2) Determination of tax with respect to property.--For 
     purposes of paragraph (1), the additional tax attributable to 
     any property is an amount which bears the same ratio to the 
     additional tax imposed by this chapter for the taxable year 
     solely by reason of subsection (a) as the gain taken into 
     account under subsection (a) with respect to such property 
     bears to the total gain taken into account under subsection 
     (a) with respect to all property to which subsection (a) 
     applies.
       ``(3) Termination of postponement.--No tax may be postponed 
     under this subsection later than the due date for the return 
     of tax imposed by this chapter for the taxable year which 
     includes the date of death of the expatriate (or, if earlier, 
     the time that the security provided with respect to the 
     property fails to meet the requirements of paragraph (4), 
     unless the taxpayer corrects such failure within the time 
     specified by the Secretary).
       ``(4) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided to the Secretary with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be made under paragraph 
     (1) with respect to an interest in a trust with respect to 
     which gain is required to be recognized under subsection 
     (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or

[[Page S5146]]

       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18\1/
     2\, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.
       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution described in 
     subparagraph (B) in the same manner as such distribution 
     would be treated without regard to this paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     United States nationality before a diplomatic or consular 
     officer of the United States pursuant to paragraph (5) of 
     section 349(a) of the Immigration and Nationality Act (8 
     U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.

     Subparagraph (A) or (B) shall not apply to any individual 
     unless the renunciation or voluntary relinquishment is 
     subsequently approved by the issuance to the individual of a 
     certificate of loss of nationality by the United States 
     Department of State.
       ``(4) Long-term resident.--The term `long-term resident' 
     has the meaning given to such term by section 877(e)(2).
       ``(f) Special Rules Applicable to Beneficiaries' Interests 
     in Trust.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     an individual is determined under paragraph (3) to hold an 
     interest in a trust on the day before the expatriation date--
       ``(A) the individual shall not be treated as having sold 
     such interest,
       ``(B) such interest shall be treated as a separate share in 
     the trust, and
       ``(C)(i) such separate share shall be treated as a separate 
     trust consisting of the assets allocable to such share,
       ``(ii) the separate trust shall be treated as having sold 
     its assets on the day before the expatriation date for their 
     fair market value and as having distributed all of its assets 
     to the individual as of such time, and
       ``(iii) the individual shall be treated as having 
     recontributed the assets to the separate trust.

     Subsection (a)(2) shall apply to any income, gain, or loss of 
     the individual arising from a distribution described in 
     subparagraph (C)(ii). In determining the amount of such 
     distribution, proper adjustments shall be made for 
     liabilities of the trust allocable to an individual's share 
     in the trust.
       ``(2) Special rules for interests in qualified trusts.--
       ``(A) In general.--If the trust interest described in 
     paragraph (1) is an interest in a qualified trust--
       ``(i) paragraph (1) and subsection (a) shall not apply, and
       ``(ii) in addition to any other tax imposed by this title, 
     there is hereby imposed on each distribution with respect to 
     such interest a tax in the amount determined under 
     subparagraph (B).
       ``(B) Amount of tax.--The amount of tax under subparagraph 
     (A)(ii) shall be equal to the lesser of--
       ``(i) the highest rate of tax imposed by section 1(e) for 
     the taxable year which includes the day before the 
     expatriation date, multiplied by the amount of the 
     distribution, or
       ``(ii) the balance in the deferred tax account immediately 
     before the distribution determined without regard to any 
     increases under subparagraph (C)(ii) after the 30th day 
     preceding the distribution.
       ``(C) Deferred tax account.--For purposes of subparagraph 
     (B)(ii)--
       ``(i) Opening balance.--The opening balance in a deferred 
     tax account with respect to any trust interest is an amount 
     equal to the tax which would have been imposed on the 
     allocable expatriation gain with respect to the trust 
     interest if such gain had been included in gross income under 
     subsection (a).
       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods, 
     except that section 6621(a)(2) shall be applied by 
     substituting `5 percentage points' for `3 percentage points' 
     in subparagraph (B) thereof.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--

       ``(I) by the amount of taxes imposed by subparagraph (A) on 
     any distribution to the person holding the trust interest, 
     and
       ``(II) in the case of a person holding a nonvested 
     interest, to the extent provided in regulations, by the 
     amount of taxes imposed by subparagraph (A) on distributions 
     from the trust with respect to nonvested interests not 
     held by such person.
       ``(D) Allocable expatriation gain.--For purposes of this 
     paragraph, the allocable expatriation gain with respect to 
     any beneficiary's interest in a trust is the amount of gain 
     which would be allocable to such beneficiary's vested and 
     nonvested interests in the trust if the beneficiary held 
     directly all assets allocable to such interests.
       ``(E) Tax deducted and withheld.--
       ``(i) In general.--The tax imposed by subparagraph (A)(ii) 
     shall be deducted and withheld by the trustees from the 
     distribution to which it relates.
       ``(ii) Exception where failure to waive treaty rights.--If 
     an amount may not be deducted and withheld under clause (i) 
     by reason of the distributee failing to waive any treaty 
     right with respect to such distribution--

       ``(I) the tax imposed by subparagraph (A)(ii) shall be 
     imposed on the trust and each trustee shall be personally 
     liable for the amount of such tax, and
       ``(II) any other beneficiary of the trust shall be entitled 
     to recover from the distributee the amount of such tax 
     imposed on the other beneficiary.

       ``(F) Disposition.--If a trust ceases to be a qualified 
     trust at any time, a covered expatriate disposes of an 
     interest in a qualified trust, or a covered expatriate 
     holding an interest in a qualified trust dies, then, in lieu 
     of the tax imposed by subparagraph (A)(ii), there is hereby 
     imposed a tax equal to the lesser of--
       ``(i) the tax determined under paragraph (1) as if the day 
     before the expatriation date were the date of such cessation, 
     disposition, or death, whichever is applicable, or
       ``(ii) the balance in the tax deferred account immediately 
     before such date.
     Such tax shall be imposed on the trust and each trustee shall 
     be personally liable for the amount of such tax and any other 
     beneficiary of the trust shall be entitled to recover from 
     the covered expatriate or the estate the amount of such tax 
     imposed on the other beneficiary.
       ``(G) Definitions and special rules.--For purposes of this 
     paragraph--
       ``(i) Qualified trust.--The term `qualified trust' means a 
     trust which is described in section 7701(a)(30)(E).

[[Page S5147]]

       ``(ii) Vested interest.--The term `vested interest' means 
     any interest which, as of the day before the expatriation 
     date, is vested in the beneficiary.
       ``(iii) Nonvested interest.--The term `nonvested interest' 
     means, with respect to any beneficiary, any interest in a 
     trust which is not a vested interest. Such interest shall be 
     determined by assuming the maximum exercise of discretion in 
     favor of the beneficiary and the occurrence of all 
     contingencies in favor of the beneficiary.
       ``(iv) Adjustments.--The Secretary may provide for such 
     adjustments to the bases of assets in a trust or a deferred 
     tax account, and the timing of such adjustments, in order to 
     ensure that gain is taxed only once.
       ``(v) Coordination with retirement plan rules.--This 
     subsection shall not apply to an interest in a trust which is 
     part of a retirement plan to which subsection (d)(2) applies.
       ``(3) Determination of beneficiaries' interest in trust.--
       ``(A) Determinations under paragraph (1).--For purposes of 
     paragraph (1), a beneficiary's interest in a trust shall be 
     based upon all relevant facts and circumstances, including 
     the terms of the trust instrument and any letter of wishes or 
     similar document, historical patterns of trust distributions, 
     and the existence of and functions performed by a trust 
     protector or any similar adviser.
       ``(B) Other determinations.--For purposes of this section--
       ``(i) Constructive ownership.--If a beneficiary of a trust 
     is a corporation, partnership, trust, or estate, the 
     shareholders, partners, or beneficiaries shall be deemed to 
     be the trust beneficiaries for purposes of this section.
       ``(ii) Taxpayer return position.--A taxpayer shall clearly 
     indicate on its income tax return--

       ``(I) the methodology used to determine that taxpayer's 
     trust interest under this section, and
       ``(II) if the taxpayer knows (or has reason to know) that 
     any other beneficiary of such trust is using a different 
     methodology to determine such beneficiary's trust interest 
     under this section.

       ``(g) Termination of Deferrals, etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11 and shown on a timely 
     filed return of tax imposed by chapter 11 of the estate of 
     the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(48) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation).''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(19) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--
       (i) Technical amendments.--Paragraph (4) of section 6103(p) 
     of the Internal Revenue Code of 1986, as amended by section 
     202(b)(2)(B) of the Trade Act of 2002 (Public Law 107-210; 
     116 Stat. 961), is amended by striking ``or (17)'' after 
     ``any other person described in subsection (l)(16)'' each 
     place it appears and inserting ``or (18)''.
       (ii) Conforming amendments.--Section 6103(p)(4) (relating 
     to safeguards), as amended by clause (i), is amended by 
     striking ``or (18)'' after ``any other person described in 
     subsection (l)(16)'' each place it appears and inserting 
     ``(18), or (19)''.
       (3) Effective dates.--
       (A) In general.--Except as provided in subparagraph (B), 
     the amendments made by this subsection shall apply to 
     individuals who relinquish United States citizenship on or 
     after the date of the enactment of this Act.
       (B) Technical amendments.--The amendments made by paragraph 
     (2)(B)(i) shall take effect as if included in the amendments 
     made by section 202(b)(2)(B) of the Trade Act of 2002 (Public 
     Law 107-210; 116 Stat. 961).
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(g) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after February 5, 2003.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(F) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4)(A) Paragraph (1) of section 6039G(d) is amended by 
     inserting ``or 877A'' after ``section 877''.
       (B) The second sentence of section 6039G(e) is amended by 
     inserting ``or who relinquishes

[[Page S5148]]

     United States citizenship (within the meaning of section 
     877A(e)(3))'' after ``877(a))''.
       (C) Section 6039G(f) is amended by inserting ``or 
     877A(e)(2)(B)'' after ``877(e)(1)''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.

       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after February 
     5, 2003.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after February 5, 2003, 
     from an individual or the estate of an individual whose 
     expatriation date (as so defined) occurs after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

     SEC. 443. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN 
                   INVERTED CORPORATIONS.

       (a) In General.--Subtitle D is amended by adding at the end 
     the following new chapter:

 ``CHAPTER 48--STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS

``Sec. 5000A. Stock compensation of insiders in inverted corporations 
              entities.

     ``SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN INVERTED 
                   CORPORATIONS.

       ``(a) Imposition of Tax.--In the case of an individual who 
     is a disqualified individual with respect to any inverted 
     corporation, there is hereby imposed on such person a tax 
     equal to 20 percent of the value (determined under subsection 
     (b)) of the specified stock compensation held (directly or 
     indirectly) by or for the benefit of such individual or a 
     member of such individual's family (as defined in section 
     267) at any time during the 12-month period beginning on the 
     date which is 6 months before the inversion date.
       ``(b) Value.--For purposes of subsection (a)--
       ``(1) In general.--The value of specified stock 
     compensation shall be--
       ``(A) in the case of a stock option (or other similar 
     right) or any stock appreciation right, the fair value of 
     such option or right, and
       ``(B) in any other case, the fair market value of such 
     compensation.
       ``(2) Date for determining value.--The determination of 
     value shall be made--
       ``(A) in the case of specified stock compensation held on 
     the inversion date, on such date,
       ``(B) in the case of such compensation which is canceled 
     during the 6 months before the inversion date, on the day 
     before such cancellation, and
       ``(C) in the case of such compensation which is granted 
     after the inversion date, on the date such compensation is 
     granted.
       ``(c) Tax To Apply Only if Shareholder Gain Recognized.--
     Subsection (a) shall apply to any disqualified individual 
     with respect to an inverted corporation only if gain (if any) 
     on any stock in such corporation is recognized in whole or 
     part by any shareholder by reason of the acquisition referred 
     to in section 7874(a)(2)(A) (determined by substituting `July 
     10, 2002' for `March 20, 2002') with respect to such 
     corporation.
       ``(d) Exception Where Gain Recognized on Compensation.--
     Subsection (a) shall not apply to--
       ``(1) any stock option which is exercised on the inversion 
     date or during the 6-month period before such date and to the 
     stock acquired in such exercise, if income is recognized 
     under section 83 on or before the inversion date with respect 
     to the stock acquired pursuant to such exercise, and
       ``(2) any specified stock compensation which is exercised, 
     sold, exchanged, distributed, cashed out, or otherwise paid 
     during such period in a transaction in which gain or loss is 
     recognized in full.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Disqualified individual.--The term `disqualified 
     individual' means, with respect to a corporation, any 
     individual who, at any time during the 12-month period 
     beginning on the date which is 6 months before the inversion 
     date--
       ``(A) is subject to the requirements of section 16(a) of 
     the Securities Exchange Act of 1934 with respect to such 
     corporation, or
       ``(B) would be subject to such requirements if such 
     corporation were an issuer of equity securities referred to 
     in such section.
       ``(2) Inverted corporation; inversion date.--
       ``(A) Inverted corporation.--The term `inverted 
     corporation' means any corporation to which subsection (a) or 
     (b) of section 7874 applies determined--
       ``(i) by substituting `July 10, 2002' for `March 20, 2002' 
     in section 7874(a)(2)(A), and
       ``(ii) without regard to subsection (b)(1)(A).

     Such term includes any predecessor or successor of such a 
     corporation.
       ``(B) Inversion date.--The term `inversion date' means, 
     with respect to a corporation, the date on which the 
     corporation first becomes an inverted corporation.
       ``(3) Specified stock compensation.--
       ``(A) In general.--The term `specified stock compensation' 
     means payment (or right to payment) granted by the inverted 
     corporation (or by any member of the expanded affiliated 
     group which includes such corporation) to any person in 
     connection with the performance of services by a disqualified 
     individual for such corporation or member if the value of 
     such payment or right is based on (or determined by reference 
     to) the value (or change in value) of stock in such 
     corporation (or any such member).
       ``(B) Exceptions.--Such term shall not include--
       ``(i) any option to which part II of subchapter D of 
     chapter 1 applies, or
       ``(ii) any payment or right to payment from a plan referred 
     to in section 280G(b)(6).
       ``(4) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group (as defined in 
     section 1504(a) without regard to section 1504(b)(3)); except 
     that section 1504(a) shall be applied by substituting `more 
     than 50 percent' for `at least 80 percent' each place it 
     appears.
       ``(f) Special Rules.--For purposes of this section--
       ``(1) Cancellation of restriction.--The cancellation of a 
     restriction which by its terms will never lapse shall be 
     treated as a grant.
       ``(2) Payment or reimbursement of tax by corporation 
     treated as specified stock compensation.--Any payment of the 
     tax imposed by this section directly or indirectly by the 
     inverted corporation or by any member of the expanded 
     affiliated group which includes such corporation--
       ``(A) shall be treated as specified stock compensation, and
       ``(B) shall not be allowed as a deduction under any 
     provision of chapter 1.
       ``(3) Certain restrictions ignored.--Whether there is 
     specified stock compensation, and the value thereof, shall be 
     determined without regard to any restriction other than a 
     restriction which by its terms will never lapse.
       ``(4) Property transfers.--Any transfer of property shall 
     be treated as a payment and any right to a transfer of 
     property shall be treated as a right to a payment.
       ``(5) Other administrative provisions.--For purposes of 
     subtitle F, any tax imposed by this section shall be treated 
     as a tax imposed by subtitle A.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Denial of Deduction.--
       (1) In general.--Paragraph (6) of section 275(a) is amended 
     by inserting ``48,'' after ``46,''.
       (2) $1,000,000 limit on deductible compensation reduced by 
     payment of excise tax on specified stock compensation.--
     Paragraph (4) of section 162(m) is amended by adding at the 
     end the following new subparagraph:
       ``(G) Coordination with excise tax on specified stock 
     compensation.--The dollar limitation contained in paragraph 
     (1) with respect to any covered employee shall be reduced 
     (but not below zero) by the amount of any payment (with 
     respect to such employee) of the tax imposed by section 5000A 
     directly or indirectly by the inverted corporation (as 
     defined in such section) or by any member of the expanded 
     affiliated group (as defined in such section) which includes 
     such corporation.''.
       (c) Conforming Amendments.--
       (1) The last sentence of section 3121(v)(2)(A) is amended 
     by inserting before the period ``or to any specified stock 
     compensation (as defined in section 5000A) on which tax is 
     imposed by section 5000A''.
       (2) The table of chapters for subtitle D is amended by 
     adding at the end the following new item:

``Chapter 48. Stock compensation of insiders in inverted 
              corporations.''.

       (d) Effective Date.--The amendments made by this section 
     shall take effect on July 11, 2002; except that periods 
     before such date shall not be taken into account in applying 
     the periods in subsections (a) and (e)(1) of section 5000A of 
     the Internal Revenue Code of 1986, as added by this section.

     SEC. 444. REINSURANCE OF UNITED STATES RISKS IN FOREIGN 
                   JURISDICTIONS.

       (a) In General.--Section 845(a) (relating to allocation in 
     case of reinsurance agreement involving tax avoidance or 
     evasion) is amended by striking ``source and character'' and 
     inserting ``amount, source, or character''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to any risk reinsured after April 11, 2002.

     SEC. 445. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.

       (a) In General.--Subpart B of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6043 the 
     following new section:

     ``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.

       ``(a) In General.--The acquiring corporation in any taxable 
     acquisition shall make a return (according to the forms or 
     regulations prescribed by the Secretary) setting forth--
       ``(1) a description of the acquisition,
       ``(2) the name and address of each shareholder of the 
     acquired corporation who is required to recognize gain (if 
     any) as a result of the acquisition,

[[Page S5149]]

       ``(3) the amount of money and the fair market value of 
     other property transferred to each such shareholder as part 
     of such acquisition, and
       ``(4) such other information as the Secretary may 
     prescribe.

     To the extent provided by the Secretary, the requirements of 
     this section applicable to the acquiring corporation shall be 
     applicable to the acquired corporation and not to the 
     acquiring corporation.
       ``(b) Nominee Reporting.--Any person who holds stock as a 
     nominee for another person shall furnish in the manner 
     prescribed by the Secretary to such other person the 
     information provided by the corporation under subsection (d).
       ``(c) Taxable Acquisition.--For purposes of this section, 
     the term `taxable acquisition' means any acquisition by a 
     corporation of stock in or property of another corporation if 
     any shareholder of the acquired corporation is required to 
     recognize gain (if any) as a result of such acquisition.
       ``(d) Statements To Be Furnished to Shareholders.--Every 
     person required to make a return under subsection (a) shall 
     furnish to each shareholder whose name is required to be set 
     forth in such return a written statement showing--
       ``(1) the name, address, and phone number of the 
     information contact of the person required to make such 
     return,
       ``(2) the information required to be shown on such return 
     with respect to such shareholder, and
       ``(3) such other information as the Secretary may 
     prescribe.

     The written statement required under the preceding sentence 
     shall be furnished to the shareholder on or before January 31 
     of the year following the calendar year during which the 
     taxable acquisition occurred.''.
       (b) Assessable Penalties.--
       (1) Subparagraph (B) of section 6724(d)(1) (relating to 
     definitions) is amended by redesignating clauses (ii) through 
     (xvii) as clauses (iii) through (xviii), respectively, and by 
     inserting after clause (i) the following new clause:
       ``(ii) section 6043A(a) (relating to returns relating to 
     taxable mergers and acquisitions),''.
       (2) Paragraph (2) of section 6724(d) is amended by 
     redesignating subparagraphs (F) through (AA) as subparagraphs 
     (G) through (BB), respectively, and by inserting after 
     subparagraph (E) the following new subparagraph:
       ``(F) subsections (b) and (d) of section 6043A (relating to 
     returns relating to taxable mergers and acquisitions).''.
       (c) Clerical Amendment.--The table of sections for subpart 
     B of part III of subchapter A of chapter 61 is amended by 
     inserting after the item relating to section 6043 the 
     following new item:

``Sec. 6043A. Returns relating to taxable mergers and acquisitions.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to acquisitions after the date of the enactment 
     of this Act.

                     Subtitle E--International Tax

     SEC. 451. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF 
                   DETERMINING INVESTMENT OF EARNINGS IN UNITED 
                   STATES PROPERTY.

       (a) In General.--Subparagraph (A) of section 956(c)(2) is 
     amended to read as follows:
       ``(A) obligations of the United States, money, or deposits 
     with--
       ``(i) any bank (as defined by section 2(c) of the Bank 
     Holding Company Act of 1956 (12 U.S.C. 1841(c)), without 
     regard to subparagraphs (C) and (G) of paragraph (2) of such 
     section), or
       ``(ii) any corporation not described in clause (i) with 
     respect to which a bank holding company (as defined by 
     section 2(a) of such Act) or financial holding company (as 
     defined by section 2(p) of such Act) owns directly or 
     indirectly more than 80 percent by vote or value of the stock 
     of such corporation;''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 452. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH 
                   COMPLETE LIQUIDATION OF HOLDING COMPANY.

       (a) In General.--Section 332 is amended by adding at the 
     end the following new subsection:
       ``(d) Recognition of Gain on Liquidation of Certain Holding 
     Companies.--
       ``(1) In general.--In the case of any distribution to a 
     foreign corporation in complete liquidation of an applicable 
     holding company--
       ``(A) subsection (a) and section 331 shall not apply to 
     such distribution, and
       ``(B) such distribution shall be treated as a distribution 
     to which section 301 applies.
       ``(2) Applicable holding company.--For purposes of this 
     subsection--
       ``(A) In general.--The term `applicable holding company' 
     means any domestic corporation--
       ``(i) which is a common parent of an affiliated group,
       ``(ii) stock of which is directly owned by the distributee 
     foreign corporation,
       ``(iii) substantially all of the assets of which consist of 
     stock in other members of such affiliated group, and
       ``(iv) which has not been in existence at all times during 
     the 5 years immediately preceding the date of the 
     liquidation.
       ``(B) Affiliated group.--For purposes of this subsection, 
     the term `affiliated group' has the meaning given such term 
     by section 1504(a) (without regard to paragraphs (2) and (4) 
     of section 1504(b)).
       ``(3) Coordination with subpart f.--If the distributee of a 
     distribution described in paragraph (1) is a controlled 
     foreign corporation (as defined in section 957), then 
     notwithstanding paragraph (1) or subsection (a), such 
     distribution shall be treated as a distribution to which 
     section 331 applies.
       ``(4) Regulations.--The Secretary shall provide such 
     regulations as appropriate to prevent the abuse of this 
     subsection, including regulations which provide, for the 
     purposes of clause (iv) of paragraph (2)(A), that a 
     corporation is not in existence for any period unless it is 
     engaged in the active conduct of a trade or business or owns 
     a significant ownership interest in another corporation so 
     engaged.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions in complete liquidation 
     occurring on or after the date of the enactment of this Act.

     SEC. 453. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL 
                   ISSUE DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS 
                   IN TRANSACTIONS WITH RELATED FOREIGN PERSONS.

       (a) Original Issue Discount.--Section 163(e)(3) (relating 
     to special rule for original issue discount on obligation 
     held by related foreign person) is amended by redesignating 
     subparagraph (B) as subparagraph (C) and by inserting after 
     subparagraph (A) the following new subparagraph:
       ``(B) Special rule for certain foreign entities.--
       ``(i) In general.--In the case of any debt instrument 
     having original issue discount which is held by a related 
     foreign person which is a foreign personal holding company 
     (as defined in section 552), a controlled foreign corporation 
     (as defined in section 957), or a passive foreign investment 
     company (as defined in section 1297), a deduction shall be 
     allowable to the issuer with respect to such original issue 
     discount for any taxable year before the taxable year in 
     which paid only to the extent such original issue discount is 
     included during such prior taxable year in the gross income 
     of a United States person who owns (within the meaning of 
     section 958(a)) stock in such corporation.
       ``(ii) Secretarial authority.--The Secretary may by 
     regulation exempt transactions from the application of clause 
     (i), including any transaction which is entered into by a 
     payor in the ordinary course of a trade or business in which 
     the payor is predominantly engaged.''.
       (b) Interest and Other Deductible Amounts.--Section 
     267(a)(3) is amended--
       (1) by striking ``The Secretary'' and inserting:
       ``(A) In general.--The Secretary'', and
       (2) by adding at the end the following new subparagraph:
       ``(B) Special rule for certain foreign entities.--
       ``(i) In general.--Notwithstanding subparagraph (A), in the 
     case of any amount payable to a foreign personal holding 
     company (as defined in section 552), a controlled foreign 
     corporation (as defined in section 957), or a passive foreign 
     investment company (as defined in section 1297), a deduction 
     shall be allowable to the payor with respect to such amount 
     for any taxable year before the taxable year in which paid 
     only to the extent such amount is included during such prior 
     taxable year in the gross income of a United States person 
     who owns (within the meaning of section 958(a)) stock in such 
     corporation.
       ``(ii) Secretarial authority.--The Secretary may by 
     regulation exempt transactions from the application of clause 
     (i), including any transaction which is entered into by a 
     payor in the ordinary course of a trade or business in which 
     the payor is predominantly engaged and in which the payment 
     of the accrued amounts occurs within 8\1/2\ months after 
     accrual or within such other period as the Secretary may 
     prescribe.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments accrued on or after the date of the 
     enactment of this Act.

     SEC. 454. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN 
                   FOREIGN SOURCE INCOME.

       (a) In General.--Section 864(c)(4)(B) (relating to 
     treatment of income from sources without the United States as 
     effectively connected income) is amended by adding at the end 
     the following new flush sentence:

     ``Any income or gain which is equivalent to any item of 
     income or gain described in clause (i), (ii), or (iii) shall 
     be treated in the same manner as such item for purposes of 
     this subparagraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 455. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF 
                   CONTROLLED FOREIGN CORPORATION.

       (a) In General.--Section 904(f)(3) (relating to 
     dispositions) is amending by adding at the end the following 
     new subparagraph:
       ``(D) Application to dispositions of stock in controlled 
     foreign corporations.--In the case of any disposition by a 
     taxpayer of any share of stock in a controlled foreign 
     corporation (as defined in section 957), this paragraph shall 
     apply to such disposition in the same manner as if it were a 
     disposition of property described in subparagraph (A), except 
     that the exception contained in subparagraph (C)(i) shall not 
     apply.''.

[[Page S5150]]

       (b) Effective Date.--The amendment made by this section 
     shall apply to dispositions after the date of the enactment 
     of this Act.

     SEC. 456. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON 
                   WITHHOLDING TAXES ON INCOME OTHER THAN 
                   DIVIDENDS.

       (a) In General.--Section 901 is amended by redesignating 
     subsection (l) as subsection (m) and by inserting after 
     subsection (k) the following new subsection:
       ``(l) Minimum Holding Period for Withholding Taxes on Gain 
     and Income Other Than Dividends etc.--
       ``(1) In general.--In no event shall a credit be allowed 
     under subsection (a) for any withholding tax (as defined in 
     subsection (k)) on any item of income or gain with respect to 
     any property if--
       ``(A) such property is held by the recipient of the item 
     for 15 days or less during the 30-day period beginning on the 
     date which is 15 days before the date on which the right to 
     receive payment of such item arises, or
       ``(B) to the extent that the recipient of the item is under 
     an obligation (whether pursuant to a short sale or otherwise) 
     to make related payments with respect to positions in 
     substantially similar or related property.

     This paragraph shall not apply to any dividend to which 
     subsection (k) applies.
       ``(2) Exception for taxes paid by dealers.--
       ``(A) In general.--Paragraph (1) shall not apply to any 
     qualified tax with respect to any property held in the active 
     conduct in a foreign country of a business as a dealer in 
     such property.
       ``(B) Qualified tax.--For purposes of subparagraph (A), the 
     term `qualified tax' means a tax paid to a foreign country 
     (other than the foreign country referred to in subparagraph 
     (A)) if--
       ``(i) the item to which such tax is attributable is subject 
     to taxation on a net basis by the country referred to in 
     subparagraph (A), and
       ``(ii) such country allows a credit against its net basis 
     tax for the full amount of the tax paid to such other foreign 
     country.
       ``(C) Dealer.--For purposes of subparagraph (A), the term 
     `dealer' means--
       ``(i) with respect to a security, any person to whom 
     paragraphs (1) and (2) of subsection (k) would not apply by 
     reason of paragraph (4) thereof if such security were stock, 
     and
       ``(ii) with respect to any other property, any person with 
     respect to whom such property is described in section 
     1221(a)(1).
       ``(D) Regulations.--The Secretary may prescribe such 
     regulations as may be appropriate to carry out this 
     paragraph, including regulations to prevent the abuse of the 
     exception provided by this paragraph and to treat other taxes 
     as qualified taxes.
       ``(3) Exceptions.--The Secretary may by regulation provide 
     that paragraph (1) shall not apply to property where the 
     Secretary determines that the application of paragraph (1) to 
     such property is not necessary to carry out the purposes of 
     this subsection.
       ``(4) Certain rules to apply.--Rules similar to the rules 
     of paragraphs (5), (6), and (7) of subsection (k) shall apply 
     for purposes of this subsection.
       ``(5) Determination of holding period.--Holding periods 
     shall be determined for purposes of this subsection without 
     regard to section 1235 or any similar rule.''.
       (b) Conforming Amendment.--The heading of subsection (k) of 
     section 901 is amended by inserting ``on Dividends'' after 
     ``Taxes''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or accrued more than 30 days 
     after the date of the enactment of this Act.

                  Subtitle F--Other Revenue Provisions

                     PART I--FINANCIAL INSTRUMENTS

     SEC. 461. TREATMENT OF STRIPPED INTERESTS IN BOND AND 
                   PREFERRED STOCK FUNDS, ETC.

       (a) In General.--Section 1286 (relating to tax treatment of 
     stripped bonds) is amended by redesignating subsection (f) as 
     subsection (g) and by inserting after subsection (e) the 
     following new subsection:
       ``(f) Treatment of Stripped Interests in Bond and Preferred 
     Stock Funds, etc.--In the case of an account or entity 
     substantially all of the assets of which consist of bonds, 
     preferred stock, or a combination thereof, the Secretary may 
     by regulations provide that rules similar to the rules of 
     this section and 305(e), as appropriate, shall apply to 
     interests in such account or entity to which (but for this 
     subsection) this section or section 305(e), as the case may 
     be, would not apply.''.
       (b) Cross Reference.--Subsection (e) of section 305 is 
     amended by adding at the end the following new paragraph:
       ``(7) Cross reference.--

  ``For treatment of stripped interests in certain accounts or entities 
holding preferred stock, see section 1286(f).''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to purchases and dispositions after the date of 
     the enactment of this Act.

     SEC. 462. APPLICATION OF EARNINGS STRIPPING RULES TO 
                   PARTNERSHIPS AND S CORPORATIONS.

       (a) In General.--Section 168(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     redesignating paragraph (8) as paragraph (9) and by inserting 
     after paragraph (7) the following new paragraph:
       ``(8) Application to partnerships and s corporations.--
       ``(A) In general.--This subsection shall apply to 
     partnerships and S corporations in the same manner as it 
     applies to C corporations.
       ``(B) Allocations to certain corporate partners.--If a C 
     corporation is a partner in a partnership--
       ``(i) the corporation's allocable share of indebtedness and 
     interest income of the partnership shall be taken into 
     account in applying this subsection to the corporation, and
       ``(ii) if a deduction is not disallowed under this 
     subsection with respect to any interest expense of the 
     partnership, this subsection shall be applied separately in 
     determining whether a deduction is allowable to the 
     corporation with respect to the corporation's allocable share 
     of such interest expense.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 463. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME 
                   REALIZED ON SATISFACTION OF DEBT WITH 
                   PARTNERSHIP INTEREST.

       (a) In General.--Paragraph (8) of section 108(e) (relating 
     to general rules for discharge of indebtedness (including 
     discharges not in title 11 cases or insolvency)) is amended 
     to read as follows:
       ``(8) Indebtedness satisfied by corporate stock or 
     partnership interest.--For purposes of determining income of 
     a debtor from discharge of indebtedness, if--
       ``(A) a debtor corporation transfers stock, or
       ``(B) a debtor partnership transfers a capital or profits 
     interest in such partnership,
     to a creditor in satisfaction of its recourse or nonrecourse 
     indebtedness, such corporation or partnership shall be 
     treated as having satisfied the indebtedness with an amount 
     of money equal to the fair market value of the stock or 
     interest. In the case of any partnership, any discharge of 
     indebtedness income recognized under this paragraph shall be 
     included in the distributive shares of taxpayers which were 
     the partners in the partnership immediately before such 
     discharge.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply with respect to cancellations of indebtedness 
     occurring on or after the date of the enactment of this Act.

     SEC. 464. MODIFICATION OF STRADDLE RULES.

       (a) Rules Relating to Identified Straddles.--
       (1) In general.--Subparagraph (A) of section 1092(a)(2) 
     (relating to special rule for identified straddles) is 
     amended to read as follows:
       ``(A) In general.--In the case of any straddle which is an 
     identified straddle--
       ``(i) paragraph (1) shall not apply with respect to 
     identified positions comprising the identified straddle,
       ``(ii) if there is any loss with respect to any identified 
     position of the identified straddle, the basis of each of the 
     identified offsetting positions in the identified straddle 
     shall be increased by an amount which bears the same ratio to 
     the loss as the unrecognized gain with respect to such 
     offsetting position bears to the aggregate unrecognized gain 
     with respect to all such offsetting positions, and
       ``(iii) any loss described in clause (ii) shall not 
     otherwise be taken into account for purposes of this 
     title.''.
       (2) Identified straddle.--Section 1092(a)(2)(B) (defining 
     identified straddle) is amended--
       (A) by striking clause (ii) and inserting the following:
       ``(ii) to the extent provided by regulations, the value of 
     each position of which (in the hands of the taxpayer 
     immediately before the creation of the straddle) is not less 
     than the basis of such position in the hands of the taxpayer 
     at the time the straddle is created, and'', and
       (B) by adding at the end the following new flush sentence:

     ``The Secretary shall prescribe regulations which specify the 
     proper methods for clearly identifying a straddle as an 
     identified straddle (and the positions comprising such 
     straddle), which specify the rules for the application of 
     this section for a taxpayer which fails to properly identify 
     the positions of an identified straddle, and which specify 
     the ordering rules in cases where a taxpayer disposes of less 
     than an entire position which is part of an identified 
     straddle.''.
       (3) Unrecognized gain.--Section 1092(a)(3) (defining 
     unrecognized gain) is amended by redesignating subparagraph 
     (B) as subparagraph (C) and by inserting after subparagraph 
     (A) the following new subparagraph:
       ``(B) Special rule for identified straddles.--For purposes 
     of paragraph (2)(A)(ii), the unrecognized gain with respect 
     to any identified offsetting position shall be the excess of 
     the fair market value of the position at the time of the 
     determination over the fair market value of the position at 
     the time the taxpayer identified the position as a position 
     in an identified straddle.''
       (4) Conforming amendment.--Section 1092(c)(2) is amended by 
     striking subparagraph (B) and by redesignating subparagraph 
     (C) as subparagraph (B).
       (b) Physically Settled Positions.--Section 1092(d) 
     (relating to definitions and special rules) is amended by 
     adding at the end the following new paragraph:
       ``(8) Special rules for physically settled positions.--For 
     purposes of subsection (a), if a taxpayer settles a position 
     which is

[[Page S5151]]

     part of a straddle by delivering property to which the 
     position relates (and such position, if terminated, would 
     result in a realization of a loss), then such taxpayer shall 
     be treated as if such taxpayer--
       ``(A) terminated the position for its fair market value 
     immediately before the settlement, and
       ``(B) sold the property so delivered by the taxpayer at its 
     fair market value.''.
       (c) Repeal of Stock Exception.--
       (1) In general.--Section 1092(d)(3) is repealed.
       (2) Conforming amendment.--Section 1258(d)(1) is amended by 
     striking ``; except that the term `personal property' shall 
     include stock''.
       (d) Repeal of Qualified Covered Call Exception.--Section 
     1092(c)(4) is amended by adding at the end the following new 
     subparagraph:
       ``(I) Termination.--This paragraph shall not apply to any 
     position established on or after the date of the enactment of 
     this subparagraph.''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to positions established on or after the date of 
     the enactment of this Act.

     SEC. 465. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL 
                   READILY TRADEABLE DEBT.

       (a) In General.--Section 453(f)(4)(B) (relating to 
     purchaser evidences of indebtedness payable on demand or 
     readily tradeable) is amended by striking ``is issued by a 
     corporation or a government or political subdivision thereof 
     and''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales occurring on or after the date of the 
     enactment of this Act.

                 PART II--CORPORATIONS AND PARTNERSHIPS

     SEC. 466. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS 
                   IN DIVISIVE REORGANIZATIONS.

       (a) In General.--Section 361(b)(3) (relating to treatment 
     of transfers to creditors) is amended by adding at the end 
     the following new sentence: ``In the case of a reorganization 
     described in section 368(a)(1)(D) with respect to which stock 
     or securities of the corporation to which the assets are 
     transferred are distributed in a transaction which qualifies 
     under section 355, this paragraph shall apply only to the 
     extent that the sum of the money and the fair market value of 
     other property transferred to such creditors does not exceed 
     the adjusted bases of such assets transferred.''.
       (b) Liabilities in Excess of Basis.--Section 357(c)(1)(B) 
     is amended by inserting ``with respect to which stock or 
     securities of the corporation to which the assets are 
     transferred are distributed in a transaction which qualifies 
     under section 355'' after ``section 368(a)(1)(D)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transfers of money or other property, or 
     liabilities assumed, in connection with a reorganization 
     occurring on or after the date of the enactment of this Act.

     SEC. 467. CLARIFICATION OF DEFINITION OF NONQUALIFIED 
                   PREFERRED STOCK.

       (a) In General.--Section 351(g)(3)(A) is amended by adding 
     at the end the following: ``Stock shall not be treated as 
     participating in corporate growth to any significant extent 
     unless there is a real and meaningful likelihood of the 
     shareholder actually participating in the earnings and growth 
     of the corporation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to transactions after May 14, 2003.

     SEC. 468. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF 
                   CORPORATIONS.

       (a) In General.--Section 1563(a)(2) (relating to brother-
     sister controlled group) is amended by striking 
     ``possessing--'' and all that follows through ``(B)'' and 
     inserting ``possessing''.
       (b) Application of Existing Rules to Other Code 
     Provisions.--Section 1563(f) (relating to other definitions 
     and rules) is amended by adding at the end the following new 
     paragraph:
       ``(5) Brother-sister controlled group definition for 
     provisions other than this part.--
       ``(A) In general.--Except as specifically provided in an 
     applicable provision, subsection (a)(2) shall be applied to 
     an applicable provision as if it read as follows:
       `(2) Brother-sister controlled group.--Two or more 
     corporations if 5 or fewer persons who are individuals, 
     estates, or trusts own (within the meaning of subsection 
     (d)(2) stock possessing--
       `(A) at least 80 percent of the total combined voting power 
     of all classes of stock entitled to vote, or at least 80 
     percent of the total value of shares of all classes of stock, 
     of each corporation, and
       `(B) more than 50 percent of the total combined voting 
     power of all classes of stock entitled to vote or more than 
     50 percent of the total value of shares of all classes of 
     stock of each corporation, taking into account the stock 
     ownership of each such person only to the extent such stock 
     ownership is identical with respect to each such 
     corporation.'
       ``(B) Applicable provision.--For purposes of this 
     paragraph, an applicable provision is any provision of law 
     (other than this part) which incorporates the definition of 
     controlled group of corporations under subsection (a).''.
       (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. 469. MANDATORY BASIS ADJUSTMENTS IN CONNECTION WITH 
                   PARTNERSHIP DISTRIBUTIONS AND TRANSFERS OF 
                   PARTNERSHIP INTERESTS.

       (a) In General.--Section 754 is repealed.
       (b) Adjustment to Basis of Undistributed Partnership 
     Property.--Section 734 is amended--
       (1) by striking ``, with respect to which the election 
     provided in section 754 is in effect,'' in the matter 
     preceding paragraph (1) of subsection (b),
       (2) by striking ``(as adjusted by section 732(d))'' both 
     places it appears in subsection (b),
       (3) by striking the last sentence of subsection (b),
       (4) by striking subsection (a) and by redesignating 
     subsections (b) and (c) as subsections (a) and (b), 
     respectively, and
       (5) by striking ``OPTIONAL'' in the heading.
       (c) Adjustment to Basis of Partnership Property.--Section 
     743 is amended--
       (1) by striking ``with respect to which the election 
     provided in section 754 is in effect'' in the matter 
     preceding paragraph (1) of subsection (b),
       (2) by striking subsection (a) and by redesignating 
     subsections (b) and (c) as subsections (a) and (b), 
     respectively,
       (3) by adding at the end the following new subsection:
       ``(c) Election To Adjust Basis for Transfers Upon Death of 
     Partner.--Subsection (a) shall not apply and no adjustments 
     shall be made in the case of any transfer of an interest in a 
     partnership upon the death of a partner unless an election to 
     do so is made by the partnership. Such an election shall 
     apply with respect to all such transfers of interests in the 
     partnership. Any election under section 754 in effect on the 
     date of the enactment of this subsection shall constitute an 
     election made under this subsection. Such election may be 
     revoked by the partnership, subject to such limitations as 
     may be provided by regulations prescribed by the 
     Secretary.'', and
       (4) by striking ``OPTIONAL'' in the heading.
       (d) Conforming Amendments.--
       (1) Subsection (d) of section 732 is repealed.
       (2) Section 755(a) is amended--
       (A) by striking ``section 734(b) (relating to the optional 
     adjustment'' and inserting ``section 734(a) (relating to the 
     adjustment'', and
       (B) by striking ``section 743(b) (relating to the optional 
     adjustment'' and inserting ``section 743(a) (relating to the 
     adjustment''.
       (3) Section 761(e)(2) is amended by striking ``optional''.
       (4) Section 774(a) is amended by striking ``743(b)'' both 
     places it appears and inserting ``743(a)''.
       (5) The item relating to section 734 in the table of 
     sections for subpart B of part II of subchapter K of chapter 
     1 is amended by striking ``Optional''.
       (6) The item relating to section 743 in the table of 
     sections for subpart C of part II of subchapter K of chapter 
     1 is amended by striking ``Optional''.
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to transfers and 
     distributions made after the date of the enactment of this 
     Act.
       (2) Repeal of section 732(d).--The amendments made by 
     subsections (b)(2) and (d)(1) shall apply to--
       (A) except as provided in subparagraph (B), transfers made 
     after the date of the enactment of this Act, and
       (B) in the case of any transfer made on or before such date 
     to which section 732(d) applies, distributions made after the 
     date which is 2 years after such date of enactment.

                PART III--DEPRECIATION AND AMORTIZATION

     SEC. 471. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS 
                   FRANCHISES.

       (a) In General.--Section 197(e) (relating to exceptions to 
     definition of section 197 intangible) is amended by striking 
     paragraph (6) and by redesignating paragraphs (7) and (8) as 
     paragraphs (6) and (7), respectively.
       (b) Conforming Amendments.--
       (1)(A) Section 1056 (relating to basis limitation for 
     player contracts transferred in connection with the sale of a 
     franchise) is repealed.
       (B) The table of sections for part IV of subchapter O of 
     chapter 1 is amended by striking the item relating to section 
     1056.
       (2) Section 1245(a) (relating to gain from disposition of 
     certain depreciable property) is amended by striking 
     paragraph (4).
       (3) Section 1253 (relating to transfers of franchises, 
     trademarks, and trade names) is amended by striking 
     subsection (e).
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to property 
     acquired after the date of the enactment of this Act.
       (2) Section 1245.--The amendment made by subsection (b)(2) 
     shall apply to franchises acquired after the date of the 
     enactment of this Act.

     SEC. 472. SERVICE CONTRACTS TREATED IN SAME MANNER AS LEASES 
                   FOR RULES RELATING TO TAX-EXEMPT USE PROPERTY.

       (a) In General.--Section 168(h)(7) (defining lease) is 
     amended by adding at the end the

[[Page S5152]]

     following: ``Such term shall also include any service 
     contract or other similar arrangement.''.
       (b) Lease Term.--Section 168(i)(3) (relating to lease term) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(C) Special rule for service contracts.--In the case of 
     any service contract or other similar arrangement treated as 
     a lease under subsection (h)(7), the lease term shall be 
     determined in the same manner as a lease.''.
       (c) Conforming Amendments.--Section 168(g)(3)(A) is 
     amended--
       (1) by inserting ``(as defined in subsection (h)(7)'' after 
     ``lease'' the first place it appears, and
       (2) by inserting ``(as determined under subsection 
     (i)(3))'' after ``term''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to leases and service contracts or other similar 
     arrangements entered into after the date of the enactment of 
     this Act.

     SEC. 473. CLASS LIVES FOR UTILITY GRADING COSTS.

       (a) Gas Utility Property.--Section 168(e)(3)(E) (defining 
     15-year property) is amended by striking ``and'' at the end 
     of clause (ii), by striking the period at the end of clause 
     (iii) and inserting ``, and'', and by adding at the end the 
     following new clause:
       ``(iv) initial clearing and grading land improvements with 
     respect to gas utility property.''.
       (b) Electric Utility Property.--Section 168(e)(3) is 
     amended by adding at the end the following new subparagraph:
       ``(F) 20-year property.--The term `20-year property' means 
     initial clearing and grading land improvements with respect 
     to any electric utility transmission and distribution 
     plant.''.
       (c) Conforming Amendments.--The table contained in section 
     168(g)(3)(B) is amended--
       (1) by inserting ``or (E)(iv)'' after ``(E)(iii)'', and
       (2) by adding at the end the following new item:

  ``(F).......................................................25''.....

       (d) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

     SEC. 474. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN 
                   PASSENGER AUTOMOBILES.

       (a) In General.--Section 179(b) (relating to limitations) 
     is amended by adding at the end the following new paragraph:
       ``(6) Limitation on cost taken into account for certain 
     passenger vehicles.--
       ``(A) In general.--The cost of any sport utility vehicle 
     for any taxable year which may be taken into account under 
     this section shall not exceed $25,000.
       ``(B) Sport utility vehicle.--For purposes of subparagraph 
     (A)--
       ``(i) In general.--The term `sport utility vehicle' means 
     any 4-wheeled vehicle which--

       ``(I) is manufactured primarily for use on public streets, 
     roads, and highways,

       ``(II) is not subject to section 280F, and
       ``(III) is rated at not more than 14,000 pounds gross 
     vehicle weight.

       ``(ii) Certain vehicles excluded.--Such term does not 
     include any vehicle which--

       ``(I) does not have the primary load carrying device or 
     container attached,
       ``(II) has a seating capacity of more than 12 individuals,
       ``(III) is designed for more than 9 individuals in seating 
     rearward of the driver's seat,
       ``(IV) is equipped with an open cargo area, or a covered 
     box not readily accessible from the passenger compartment, of 
     at least 72.0 inches in interior length, or
       ``(V) has an integral enclosure, fully enclosing the driver 
     compartment and load carrying device, does not have seating 
     rearward of the driver's seat, and has no body section 
     protruding more than 30 inches ahead of the leading edge of 
     the windshield.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

     SEC. 475. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.

       (a) Start-Up Expenditures.--
       (1) Allowance of deduction.--Paragraph (1) of section 
     195(b) (relating to start-up expenditures) is amended to read 
     as follows:
       ``(1) Allowance of deduction.--If a taxpayer elects the 
     application of this subsection with respect to any start-up 
     expenditures--
       ``(A) the taxpayer shall be allowed a deduction for the 
     taxable year in which the active trade or business begins in 
     an amount equal to the lesser of--
       ``(i) the amount of start-up expenditures with respect to 
     the active trade or business, or
       ``(ii) $5,000, reduced (but not below zero) by the amount 
     by which such start-up expenditures exceed $50,000, and
       ``(B) the remainder of such start-up expenditures shall be 
     allowed as a deduction ratably over the 180-month period 
     beginning with the month in which the active trade or 
     business begins.''.
       (2) Conforming amendment.--Subsection (b) of section 195 is 
     amended by striking ``Amortize'' and inserting ``Deduct'' in 
     the heading.
       (b) Organizational Expenditures.--Subsection (a) of section 
     248 (relating to organizational expenditures) is amended to 
     read as follows:
       ``(a) Election to Deduct.--If a corporation elects the 
     application of this subsection (in accordance with 
     regulations prescribed by the Secretary) with respect to any 
     organizational expenditures--
       ``(1) the corporation shall be allowed a deduction for the 
     taxable year in which the corporation begins business in an 
     amount equal to the lesser of--
       ``(A) the amount of organizational expenditures with 
     respect to the taxpayer, or
       ``(B) $5,000, reduced (but not below zero) by the amount by 
     which such organizational expenditures exceed $50,000, and
       ``(2) the remainder of such organizational expenditures 
     shall be allowed as a deduction ratably over the 180-month 
     period beginning with the month in which the corporation 
     begins business.''.
       (c) Treatment of Organizational and Syndication Fees or 
     Partnerships.--
       (1) In general.--Section 709(b) (relating to amortization 
     of organization fees) is amended by redesignating paragraph 
     (2) as paragraph (3) and by amending paragraph (1) to read as 
     follows:
       ``(1) Allowance of deduction.--If a taxpayer elects the 
     application of this subsection (in accordance with 
     regulations prescribed by the Secretary) with respect to any 
     organizational expenses--
       ``(A) the taxpayer shall be allowed a deduction for the 
     taxable year in which the partnership begins business in an 
     amount equal to the lesser of--
       ``(i) the amount of organizational expenses with respect to 
     the partnership, or
       ``(ii) $5,000, reduced (but not below zero) by the amount 
     by which such organizational expenses exceed $50,000, and
       ``(B) the remainder of such organizational expenses shall 
     be allowed as a deduction ratably over the 180-month period 
     beginning with the month in which the partnership begins 
     business.
       ``(2) Dispositions before close of amortization period.--In 
     any case in which a partnership is liquidated before the end 
     of the period to which paragraph (1)(B) applies, any deferred 
     expenses attributable to the partnership which were not 
     allowed as a deduction by reason of this section may be 
     deducted to the extent allowable under section 165.''.
       (2) Conforming amendment.--Subsection (b) of section 709 is 
     amended by striking ``Amortization'' and inserting 
     ``Deduction'' in the heading.
       (d) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after the date of the 
     enactment of this Act.

     SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED 
                   BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

       (a) In General.--Subpart C of part II of subchapter E of 
     chapter 1 (relating to taxable year for which deductions 
     taken) is amended by adding at the end the following new 
     section:

     ``SEC. 470. DEDUCTIONS ALLOCABLE TO PROPERTY USED BY 
                   GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

       ``(a) General Rule.--The aggregate amount of deductions 
     otherwise allowable to the taxpayer with respect to tax-
     exempt use property for any taxable year shall not exceed 
     the aggregate amount of income includible in gross income 
     of the taxpayer for the taxable year with respect to such 
     property.
       ``(b) Disallowed Deduction Carried to Next Year.--Except as 
     otherwise provided in this section, any deduction with 
     respect to any tax-exempt use property which is disallowed 
     under subsection (a) shall, subject to the limitation under 
     subsection (a), be treated as a deduction with respect to 
     such property in the next taxable year.
       ``(c) Tax-Exempt Use Property.--For purposes of this 
     section--
       ``(1) In general.--The term `tax-exempt use property' has 
     the meaning given such term by section 168(h), except that 
     such section shall be applied without regard to paragraphs 
     (2)(C)(ii) and (3).
       ``(2) Special rules for service contracts and similar 
     arrangements.--If tangible property is subject to a service 
     contract or other similar arrangement between a taxpayer (or 
     any related person) and any tax-exempt entity, such contract 
     or arrangement shall be treated in the same manner as if it 
     were a lease for purposes of determining whether such 
     property is tax-exempt use property under paragraph (1).
       ``(d) Special Rules.--
       ``(1) Allocable deductions.--Subsection (a) shall apply 
     to--
       ``(A) any deduction directly allocable to any tax-exempt 
     use property, and
       ``(B) a proper share of other deductions that are not 
     directly allocable to such property.
       ``(2) Property ceasing to be tax-exempt use property.--If 
     property of a taxpayer ceases to be tax-exempt use property 
     in the hands of the taxpayer--
       ``(A) any unused deduction allocable to such property under 
     subsection (b) shall only be allowable as a deduction for any 
     taxable year to the extent of any net income of the taxpayer 
     allocable to such property, and
       ``(B) any portion of such unused deduction remaining after 
     application of subparagraph (A) shall, subject to the 
     limitation of subparagraph (A), be treated as a deduction 
     allocable to such property in the next taxable year.

[[Page S5153]]

       ``(3) Disposition of entire interest in property.--If 
     during the taxable year a taxpayer disposes of the taxpayer's 
     entire interest in tax-exempt use property, rules similar to 
     the rules of section 469(g) shall apply for purposes of this 
     section.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the provisions of this section.''.
       (b) Conforming Amendment.--The table of sections for 
     subpart C of part II of subchapter E of chapter 1 is amended 
     by adding at the end the following new item:

``Sec. 470. Deductions allocable to property used by governments or 
              other tax-exempt entities.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to leases and service contracts or similar 
     arrangements entered into after the date of the enactment of 
     this Act.

                   PART IV--ADMINISTRATIVE PROVISIONS

     SEC. 481. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX 
                   FOR CERTAIN DEEMED ASSET SALES.

       (a) In General.--Paragraph (13) of section 338(h) (relating 
     to tax on deemed sale not taken into account for estimated 
     tax purposes) is amended by adding at the end the following: 
     ``The preceding sentence shall not apply with respect to a 
     qualified stock purchase for which an election is made under 
     paragraph (10).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to transactions occurring after the date of the 
     enactment of this Act.

     SEC. 482. EXTENSION OF IRS USER FEES.

       (a) In General.--Section 7528(c) (relating to termination) 
     is amended by striking ``December 31, 2004'' and inserting 
     ``September 30, 2013''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to requests after the date of the enactment of 
     this Act.

     SEC. 483. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENT.

       (a) General Rule.--If--
       (1) a taxpayer eligible to participate in--
       (A) the Department of the Treasury's Offshore Voluntary 
     Compliance Initiative, or
       (B) the Department of the Treasury's voluntary disclosure 
     initiative which applies to the taxpayer by reason of the 
     taxpayer's underreporting of United States income tax 
     liability through financial arrangements which rely on the 
     use of offshore arrangements which were the subject of the 
     initiative described in subparagraph (A), and
       (2) any interest or applicable penalty is imposed with 
     respect to any arrangement to which any initiative described 
     in paragraph (1) applied or to any underpayment of Federal 
     income tax attributable to items arising in connection with 
     any arrangement described in paragraph (1),

     then, notwithstanding any other provision of law, the amount 
     of such interest or penalty shall be equal to twice that 
     determined without regard to this section.
       (b) Definitions and Rules.--For purposes of this section--
       (1) Applicable penalty.--The term ``applicable penalty'' 
     means any penalty, addition to tax, or fine imposed under 
     chapter 68 of the Internal Revenue Code of 1986.
       (2) Voluntary offshore compliance initiative.--The term 
     ``Voluntary Offshore Compliance Initiative'' means the 
     program established by the Department of the Treasury in 
     January of 2003 under which any taxpayer was eligible to 
     voluntarily disclose previously undisclosed income on assets 
     placed in offshore accounts and accessed through credit card 
     and other financial arrangements.
       (3) Participation.--A taxpayer shall be treated as having 
     participated in the Voluntary Offshore Compliance Initiative 
     if the taxpayer submitted the request in a timely manner and 
     all information requested by the Secretary of the Treasury or 
     his delegate within a reasonable period of time following the 
     request.
       (c) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

     SEC. 484. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT 
                   AGREEMENTS.

       (a) In General.--
       (1) Section 6159(a) (relating to authorization of 
     agreements) is amended--
       (A) by striking ``satisfy liability for payment of'' and 
     inserting ``make payment on'', and
       (B) by inserting ``full or partial'' after ``facilitate''.
       (2) Section 6159(c) (relating to Secretary required to 
     enter into installment agreements in certain cases) is 
     amended in the matter preceding paragraph (1) by inserting 
     ``full'' before ``payment''.
       (b) Requirement To Review Partial Payment Agreements Every 
     Two Years.--Section 6159, as amended by this Act, is amended 
     by redesignating subsections (d), (e), and (f) as subsections 
     (e), (f), and (g), respectively, and inserting after 
     subsection (c) the following new subsection:
       ``(d) Secretary Required To Review Installment Agreements 
     for Partial Collection Every Two Years.--In the case of an 
     agreement entered into by the Secretary under subsection (a) 
     for partial collection of a tax liability, the Secretary 
     shall review the agreement at least once every 2 years.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     of the enactment of this Act.

     SEC. 485. 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 ``March 31, 2004'' and inserting ``September 30, 
     2013''.

     SEC. 486. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS.

       (a) In General.--Subchapter A of chapter 67 (relating to 
     interest on underpayments) is amended by adding at the end 
     the following new section:

     ``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS, ETC.

       ``(a) Authority To Make Deposits Other Than As Payment of 
     Tax.--A taxpayer may make a cash deposit with the Secretary 
     which may be used by the Secretary to pay any tax imposed 
     under subtitle A or B or chapter 41, 42, 43, or 44 which has 
     not been assessed at the time of the deposit. Such a deposit 
     shall be made in such manner as the Secretary shall 
     prescribe.
       ``(b) No Interest Imposed.--To the extent that such deposit 
     is used by the Secretary to pay tax, for purposes of section 
     6601 (relating to interest on underpayments), the tax shall 
     be treated as paid when the deposit is made.
       ``(c) Return of Deposit.--Except in a case where the 
     Secretary determines that collection of tax is in jeopardy, 
     the Secretary shall return to the taxpayer any amount of the 
     deposit (to the extent not used for a payment of tax) which 
     the taxpayer requests in writing.
       ``(d) Payment of Interest.--
       ``(1) In general.--For purposes of section 6611 (relating 
     to interest on overpayments), a deposit which is returned to 
     a taxpayer shall be treated as a payment of tax for any 
     period to the extent (and only to the extent) attributable to 
     a disputable tax for such period. Under regulations 
     prescribed by the Secretary, rules similar to the rules of 
     section 6611(b)(2) shall apply.
       ``(2) Disputable tax.--
       ``(A) In general.--For purposes of this section, the term 
     `disputable tax' means the amount of tax specified at the 
     time of the deposit as the taxpayer's reasonable estimate of 
     the maximum amount of any tax attributable to disputable 
     items.
       ``(B) Safe harbor based on 30-day letter.--In the case of a 
     taxpayer who has been issued a 30-day letter, the maximum 
     amount of tax under subparagraph (A) shall not be less than 
     the amount of the proposed deficiency specified in such 
     letter.
       ``(3) Other definitions.--For purposes of paragraph (2)--
       ``(A) Disputable item.--The term `disputable item' means 
     any item of income, gain, loss, deduction, or credit if the 
     taxpayer--
       ``(i) has a reasonable basis for its treatment of such 
     item, and
       ``(ii) reasonably believes that the Secretary also has a 
     reasonable basis for disallowing the taxpayer's treatment of 
     such item.
       ``(B) 30-day letter.--The term `30-day letter' means the 
     first letter of proposed deficiency which allows the taxpayer 
     an opportunity for administrative review in the Internal 
     Revenue Service Office of Appeals.
       ``(4) Rate of interest.--The rate of interest allowable 
     under this subsection shall be the Federal short-term rate 
     determined under section 6621(b), compounded daily.
       ``(e) Use of Deposits.--
       ``(1) Payment of tax.--Except as otherwise provided by the 
     taxpayer, deposits shall be treated as used for the payment 
     of tax in the order deposited.
       ``(2) Returns of deposits.--Deposits shall be treated as 
     returned to the taxpayer on a last-in, first-out basis.''.
       (b) Clerical Amendment.--The table of sections for 
     subchapter A of chapter 67 is amended by adding at the end 
     the following new item:

``Sec. 6603. Deposits made to suspend running of interest on potential 
              underpayments, etc.''.

       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to deposits made after the date of the enactment of 
     this Act.
       (2) Coordination with deposits made under revenue procedure 
     84-58.--In the case of an amount held by the Secretary of the 
     Treasury or his delegate on the date of the enactment of this 
     Act as a deposit in the nature of a cash bond deposit 
     pursuant to Revenue Procedure 84-58, the date that the 
     taxpayer identifies such amount as a deposit made pursuant to 
     section 6603 of the Internal Revenue Code (as added by this 
     Act) shall be treated as the date such amount is deposited 
     for purposes of such section 6603.

     SEC. 487. QUALIFIED TAX COLLECTION CONTRACTS.

       (a) Contract Requirements.--
       (1) In general.--Subchapter A of chapter 64 (relating to 
     collection) is amended by adding at the end the following new 
     section:

     ``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.

       ``(a) In General.--Nothing in any provision of law shall be 
     construed to prevent the Secretary from entering into a 
     qualified tax collection contract.

[[Page S5154]]

       ``(b) Qualified Tax Collection Contract.--For purposes of 
     this section, the term `qualified tax collection contract' 
     means any contract which--
       ``(1) is for the services of any person (other than an 
     officer or employee of the Treasury Department)--
       ``(A) to locate and contact any taxpayer specified by the 
     Secretary,
       ``(B) to request full payment from such taxpayer of an 
     amount of Federal tax specified by the Secretary and, if such 
     request cannot be met by the taxpayer, to offer the taxpayer 
     an installment agreement providing for full payment of such 
     amount during a period not to exceed 3 years, and
       ``(C) to obtain financial information specified by the 
     Secretary with respect to such taxpayer,
       ``(2) prohibits each person providing such services under 
     such contract from committing any act or omission which 
     employees of the Internal Revenue Service are prohibited from 
     committing in the performance of similar services,
       ``(3) prohibits subcontractors from--
       ``(A) having contacts with taxpayers,
       ``(B) providing quality assurance services, and
       ``(C) composing debt collection notices, and
       ``(4) permits subcontractors to perform other services only 
     with the approval of the Secretary.
       ``(c) Fees.--The Secretary may retain and use an amount not 
     in excess of 25 percent of the amount collected under any 
     qualified tax collection contract for the costs of services 
     performed under such contract. The Secretary shall keep 
     adequate records regarding amounts so retained and used. The 
     amount credited as paid by any taxpayer shall be determined 
     without regard to this subsection.
       ``(d) No Federal Liability.--The United States shall not be 
     liable for any act or omission of any person performing 
     services under a qualified tax collection contract.
       ``(e) Application of Fair Debt Collection Practices Act.--
     The provisions of the Fair Debt Collection Practices Act (15 
     U.S.C. 1692 et seq.) shall apply to any qualified tax 
     collection contract, except to the extent superseded by 
     section 6304, section 7602(c), or by any other provision of 
     this title.
       ``(f) Cross References.--
       ``(1) For damages for certain unauthorized collection 
     actions by persons performing services under a qualified tax 
     collection contract, see section 7433A.
       ``(2) For application of Taxpayer Assistance Orders to 
     persons performing services under a qualified tax collection 
     contract, see section 7811(a)(4).''.
       (2) Conforming amendments.--
       (A) Section 7809(a) is amended by inserting ``6306,'' 
     before ``7651''.
       (B) The table of sections for subchapter A of chapter 64 is 
     amended by adding at the end the following new item:

``Sec. 6306. Qualified Tax Collection Contracts.''.

       (b) Civil Damages for Certain Unauthorized Collection 
     Actions by Persons Performing Services Under Qualified Tax 
     Collection Contracts.--
       (1) In general.--Subchapter B of chapter 76 (relating to 
     proceedings by taxpayers and third parties) is amended by 
     inserting after section 7433 the following new section:

     ``SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED 
                   COLLECTION ACTIONS BY PERSONS PERFORMING 
                   SERVICES UNDER QUALIFIED TAX COLLECTION 
                   CONTRACTS.

       ``(a) In General.--Subject to the modifications provided by 
     subsection (b), section 7433 shall apply to the acts and 
     omissions of any person performing services under a qualified 
     tax collection contract (as defined in section 6306(b)) to 
     the same extent and in the same manner as if such person were 
     an employee of the Internal Revenue Service.
       ``(b) Modifications.--For purposes of subsection (a)--
       ``(1) Any civil action brought under section 7433 by reason 
     of this section shall be brought against the person who 
     entered into the qualified tax collection contract with the 
     Secretary and shall not be brought against the United States.
       ``(2) Such person and not the United States shall be liable 
     for any damages and costs determined in such civil action.
       ``(3) Such civil action shall not be an exclusive remedy 
     with respect to such person.
       ``(4) Subsections (c), (d)(1), and (e) of section 7433 
     shall not apply.''.
       (2) Clerical amendment.--The table of sections for 
     subchapter B of chapter 76 is amended by inserting after the 
     item relating to section 7433 the following new item:

``Sec. 7433A. Civil damages for certain unauthorized collection actions 
              by persons performing services under a qualified tax 
              collection contract.''.

       (c) Application of Taxpayer Assistance Orders to Persons 
     Performing Services Under a Qualified Tax Collection 
     Contract.--Section 7811 (relating to taxpayer assistance 
     orders) is amended by adding at the end the following new 
     subsection:
       ``(g) Application to Persons Performing Services Under a 
     Qualified Tax Collection Contract.--Any order issued or 
     action taken by the National Taxpayer Advocate pursuant to 
     this section shall apply to persons performing services under 
     a qualified tax collection contract (as defined in section 
     6306(b)) to the same extent and in the same manner as such 
     order or action applies to the Secretary.''.
       (d) Ineligibility of Individuals Who Commit Misconduct To 
     Perform Under Contract.--Section 1203 of the Internal Revenue 
     Service Restructuring Act of 1998 (relating to termination of 
     employment for misconduct) is amended by adding at the end 
     the following new subsection:
       ``(e) Individuals Performing Services Under a Qualified Tax 
     Collection Contract.-- An individual shall cease to be 
     permitted to perform any services under any qualified tax 
     collection contract (as defined in section 6306(b) of the 
     Internal Revenue Code of 1986) if there is a final 
     determination by the Secretary of the Treasury under such 
     contract that such individual committed any act or omission 
     described under subsection (b) in connection with the 
     performance of such services.''.
       (e) Effective Date.--The amendments made to this section 
     shall take effect on the date of the enactment of this Act.

                    PART V--MISCELLANEOUS PROVISIONS

     SEC. 491. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF 
                   TAXABLE VACCINES.

       (a) In General.--Section 4132(a)(1) (defining taxable 
     vaccine) is amended by redesignating subparagraphs (I), (J), 
     (K), and (L) as subparagraphs (J), (K), (L), and (M), 
     respectively, and by inserting after subparagraph (H) the 
     following new subparagraph:
       ``(I) Any vaccine against hepatitis A.''.
       (b) Conforming Amendment.--Section 9510(c)(1)(A) is amended 
     by striking ``October 18, 2000'' and inserting ``May 8, 
     2003''.
       (c) Effective Date.--
       (1) Sales, etc.--The amendments made by this section shall 
     apply to sales and uses on or after the first day of the 
     first month which begins more than 4 weeks after the date of 
     the enactment of this Act.
       (2) Deliveries.--For purposes of paragraph (1) and section 
     4131 of the Internal Revenue Code of 1986, in the case of 
     sales on or before the effective date described in such 
     paragraph for which delivery is made after such date, the 
     delivery date shall be considered the sale date.

     SEC. 492. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL 
                   RESIDENCE ACQUIRED IN A LIKE-KIND EXCHANGE 
                   WITHIN 5 YEARS OF SALE.

       (a) In General.--Section 121(d) (relating to special rules 
     for exclusion of gain from sale of principal residence) is 
     amended by adding at the end the following new paragraph:
       ``(10) Property acquired in like-kind exchange.--If a 
     taxpayer acquired property in an exchange to which section 
     1031 applied, subsection (a) shall not apply to the sale or 
     exchange of such property if it occurs during the 5-year 
     period beginning with the date of the acquisition of such 
     property.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales or exchanges after the date of the 
     enactment of this Act.

     SEC. 493. CLARIFICATION OF EXEMPTION FROM TAX FOR SMALL 
                   PROPERTY AND CASUALTY INSURANCE COMPANIES.

       (a) In General.--Section 501(c)(15)(A) is amended to read 
     as follows:
       ``(A) Insurance companies (as defined in section 816(a)) 
     other than life (including interinsurers and reciprocal 
     underwriters) if--
       ``(i) the gross receipts for the taxable year do not exceed 
     $600,000, and
       ``(ii) more than 50 percent of such gross receipts consist 
     of premiums.''.
       (b) Controlled Group Rule.--Section 501(c)(15)(C) is 
     amended by inserting ``, except that in applying section 1563 
     for purposes of section 831(b)(2)(B)(ii), subparagraphs (B) 
     and (C) of section 1563(b)(2) shall be disregarded'' before 
     the period at the end.
       (c) Conforming Amendment.--Clause (i) of section 
     831(b)(2)(A) is amended by striking ``exceed $350,000 but''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 494. DEFINITION OF INSURANCE COMPANY FOR SECTION 831.

       (a) In General.--Section 831 is amended by redesignating 
     subsection (c) as subsection (d) and by inserting after 
     subsection (b) the following new subsection:
       ``(c) Insurance Company Defined.--For purposes of this 
     section, the term `insurance company' has the meaning given 
     to such term by section 816(a)).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 495. LIMITATIONS ON DEDUCTION FOR CHARITABLE 
                   CONTRIBUTIONS OF PATENTS AND SIMILAR PROPERTY.

       (a) Deduction Allowed Only to the Extent of Basis.--Section 
     170(e)(1)(B) (relating to certain contributions of ordinary 
     income and capital gain property) is amended by striking 
     ``or'' at the end of clause (i), by adding ``or'' at the end 
     of clause (ii), and by inserting after clause (ii) the 
     following new clause:
       ``(iii) of any patent, copyright, trademark, trade name, 
     trade secret, know-how, software, or similar property, or 
     applications or registrations of such property,''.
       (b) Treatment of Contributions Where Donor Receives 
     Interest.--Section 170(e) is amended by adding at the end the 
     following new paragraph:
       ``(7) Special rules for contributions of patents and 
     similar property where donor receives interest.--
       ``(A) Disallowance of deduction.--No deduction shall be 
     allowed under this section

[[Page S5155]]

     with respect to a contribution of property described in 
     paragraph (1)(B)(iii) if the taxpayer after the contribution 
     has any interest in the property other than a qualified 
     interest.
       ``(B) Contributions with qualified interest.--If a taxpayer 
     after a contribution of property described in paragraph 
     (1)(B)(iii) has a qualified interest in the property--
       ``(i) any payment pursuant to the qualified interest shall 
     be treated as ordinary income and shall be includible in 
     gross income of the taxpayer for the taxable year in which 
     the payment is received by the taxpayer, and
       ``(ii) subsection (f)(3) and section 1011(b) shall not 
     apply to the transfer of the property from the taxpayer to 
     the donee.
       ``(C) Qualified interest.--For purposes of this paragraph--
       ``(i) In general.--The term `qualified interest' means, 
     with respect to any taxpayer, a right to receive from the 
     donee a percentage (not greater than 50 percent) of any 
     royalty payment received by the donee with respect to 
     property described in paragraph (1)(B)(iii) (other than 
     copyrights which are described in section 1221(a)(3) or 
     1231(b)(1)(C)) contributed by the taxpayer to the donee.
       ``(ii) Secretarial authority.--

       ``(I) In general.--Except as provided in subclause (II), 
     the Secretary may by regulation or other administrative 
     guidance treat as a qualified interest the right to receive 
     other payments from the donee, but only if the donee does not 
     possess a right to receive any payment (whether royalties or 
     otherwise) from a third party with respect to the contributed 
     property.
       ``(II) Exceptions.--The Secretary may not treat as a 
     qualified interest the right to receive any payment which 
     provides a benefit to the donor which is greater than the 
     benefit retained by the donee or the right to receive any 
     portion of the proceeds from the sale of the property 
     contributed.

       ``(iii) Limitation.--An interest shall be treated as a 
     qualified interest under this subparagraph only if the 
     taxpayer has no right to receive any payment described in 
     clause (i) or (ii)(I) after the earlier of the date on which 
     the legal life of the contributed property expires or the 
     date which is 20 years after the date of the contribution.''.
       (c) Reporting Requirements.--
       (1) In general.--Section 6050L(a) (relating to returns 
     regarding certain dispositions of donated property) is 
     amended--
       (A) by striking ``If'' and inserting:
       ``(1) Dispositions of donated property.--If'',
       (B) by redesignating paragraphs (1) through (5) as 
     subparagraphs (A) through (E), respectively, and
       (C) by adding at the end the following new paragraph:
       ``(2) Payments of qualified interests.--Each donee of 
     property described in section 170(e)(1)(B)(iii) which makes a 
     payment to a donor pursuant to a qualified interest (as 
     defined in section 170(e)(7)) during any calendar year shall 
     make a return (in accordance with forms and regulations 
     prescribed by the Secretary) showing--
       ``(A) the name, address, and TIN of the payor and the payee 
     with respect to such a payment,
       ``(B) a description, and date of contribution, of the 
     property to which the qualified interest relates,
       ``(C) the dates and amounts of any royalty payments 
     received by the donee with respect to such property,
       ``(D) the date and the amount of the payment pursuant to 
     the qualified interest, and
       ``(E) a description of the terms of the qualified 
     interest.''.
       (2) Conforming amendments.--
       (A) The heading for section 6050L is amended by striking 
     ``CERTAIN DISPOSITIONS OF''.
       (B) The item relating to section 6050L in the table of 
     sections for subpart B of part III of subchapter A of chapter 
     61 is amended by striking ``certain dispositions of''.
       (d) Anti-Abuse Rules.--The Secretary of the Treasury may 
     prescribe such regulations or other administrative guidance 
     as may be necessary or appropriate to prevent the avoidance 
     of the purposes of section 170(e)(1)(B)(iii) of the Internal 
     Revenue Code of 1986 (as added by subsection (a)), including 
     preventing--
       (1) the circumvention of the reduction of the charitable 
     deduction by embedding or bundling the patent or similar 
     property as part of a charitable contribution of property 
     that includes the patent or similar property,
       (2) the manipulation of the basis of the property to 
     increase the amount of the charitable deduction through the 
     use of related persons, pass-thru entities, or other 
     intermediaries, or through the use of any provision of law or 
     regulation (including the consolidated return regulations), 
     and
       (3) a donor from changing the form of the patent or similar 
     property to property of a form for which different deduction 
     rules would apply.
       (e) Effective Date.--The amendments made by this section 
     shall apply to contributions made after October 1, 2003.

     SEC. 496. REPEAL OF 10-PERCENT REHABILITATION TAX CREDIT.

       Section 47 is amended by adding at the end the following 
     new subsection:
       ``(e) Termination.--This section shall not apply to 
     expenditures described in subsection (a)(1) incurred in 
     taxable years beginning after December 31, 2003.''.

     SEC. 497. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
                   INCOME IS TAXED AS IF PARENT'S INCOME.

       (a) In General.--Section 1(g)(2)(A) (relating to child to 
     whom subsection applies) is amended by striking ``age 14'' 
     and inserting ``age 18''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.
                                 ______
                                 
  SA 3133. Mr. GRASSLEY submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 59, line 13, insert ``section 453(a) of'' after 
     ``by''.
       On page 60, line 3, insert ``section 453(a) of'' after 
     ``by''.
       On page 68, strike lines 10 through 14, and insert the 
     following:
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     of foreign corporations beginning after December 31, 2004, 
     and to taxable years of United States shareholders with or 
     within which such taxable years of foreign corporations end.
       (2) Subsection (c)(29).--The amendments made by subsection 
     (c)(29) shall apply to disclosures of return or return 
     information with respect to taxable years beginning after 
     December 31, 2004.
       On page 98, line 3, strike ``September 24, 2004'' and 
     insert ``December 31, 2004''.
       On page 98, between lines 3 and 4, insert the following:

     SECTION 237. INTEREST PAYMENTS DEDUCTIBLE WHERE DISQUALIFIED 
                   GUARANTEE HAS NO ECONOMIC EFFECT.

       (a) In General.--Section 163(j)(6)(D)(ii) (relating to 
     exceptions to disqualified guarantee) is amended--
       (1) by striking ``or'' at the end of subclause (I),
       (2) by striking the period at the end of subclause (II) and 
     inserting ``, or'',
       (3) by inserting after subclause (II) the following new 
     subclause:

       ``(III) in the case of a guarantee by a foreign person, to 
     the extent of the amount that the taxpayer establishes to the 
     satisfaction of the Secretary that the taxpayer could have 
     borrowed from an unrelated person without the guarantee.''.

       (b) Effective Date.--The amendments made by this section 
     shall apply to guarantees issued on or after the date of the 
     enactment of this Act.
       On page 125, line 25, strike ``December 31, 2003'' and 
     insert ``the date which is 30 days after the date of the 
     enactment of this Act''.
       Beginning on page 135, line 17, strike all through page 
     136, line 2, and insert the following:
       ``(i) which is--

       ``(I) described in section 501(c)(3) or 501(c)(6) and is 
     exempt from tax under section 501(a) and is organized and 
     operated primarily to conduct research, or
       ``(II) organized and operated primarily to conduct research 
     in the public interest (within the meaning of section 
     501(c)(3)),

       On page 137, lines 18 and 19, strike ``which is energy 
     research''.
       On page 139, lines 9 and 10, strike ``Energy Tax Incentives 
     Act of 2003'' and insert ``Jumpstart Our Business Strength 
     (JOBS) Act''.
       On page 14, line 18, of Senate amendment number 3118, as 
     passed, strike ``2'' and insert ``3''.
       On page 14, line 21, of Senate amendment number 3118, as 
     passed, insert ``for such taxable year'' after ``United 
     States''.
       Beginning on page 212, line 9, strike all through page 213, 
     line 3, and insert the following:
       (1) In general.--Section 162(g) (relating to treble damage 
     payments under the antitrust laws) is amended--
       (A) by redesignating paragraphs (1) and (2) as 
     subparagraphs (A) and (B), respectively,
       (B) by striking ``If'' and inserting:
       ``(1) Treble damages.--If'', and
       (C) by adding at the end the following new paragraph:
       ``(2) Punitive damages.--No deduction shall be allowed 
     under this chapter for any amount paid or incurred for 
     punitive damages in connection with any judgment in, or 
     settlement of, any action. This paragraph shall not apply to 
     punitive damages described in section 104(c).''.
       (2) Conforming amendment.--The heading for section 162(g) 
     is amended by inserting ``or Punitive Damages'' after 
     ``Laws''.
       On page 225, line 14, strike ``paragraph (3)(A)'' and 
     insert ``this subparagraph''.
       On page 228, line 1, strike ``(c)'' and insert ``(d)''.
       On page 228, line 8, strike ``(d)'' and insert ``(e)''.
       On page 230, line 17, add a period at the end.
       On page 245, strike lines 5 through 7, and insert the 
     following:
       (1) In general.--Section 14 of the Securities Exchange Act 
     of 1934 (15 U.S.C. 78n) is amended by adding at the end the 
     following new subsection:
       On page 286, strike lines 6 through 10, and insert the 
     following:

[[Page S5156]]

       (1) Subparagraph (B) of section 6724(d)(1) (defining 
     information return) is amended by redesignating clauses (ii) 
     through (xviii) as clauses (iii) through (xix), respectively, 
     and by inserting after clause (i) the following new clause:
       On page 286, strike lines 14 through 18, and insert the 
     following:
       (2) Paragraph (2) of section 6724(d) (relating to 
     definitions) is amended by redesignating subparagraphs (F) 
     through (BB) as subparagraphs (G) through (CC), respectively, 
     and by inserting after subparagraph (E) the following new 
     subparagraph:
       On page 301, line 7, strike ``168(j)'' and insert 
     ``163(j)''.
       On page 311, line 10, insert beginning double quotation 
     marks before the beginning single quotation mark.
       On page 311, line 14, insert beginning double quotation 
     marks before the beginning single quotation mark.
       On page 311, line 19, insert beginning double quotation 
     marks before the beginning single quotation mark.
       On page 345, strike lines 13 through 19, and insert the 
     following:
       ``(c) Fees and Expenses.--The Secretary may retain and 
     use--
       ``(1) an amount not in excess of 25 percent of the amount 
     collected under any qualified tax collection contract for the 
     costs of services performed under such contract, and
       ``(2) an amount not in excess of 25 percent of such amount 
     collected for collection enforcement activities of the 
     Internal Revenue Service.

     The Secretary shall keep adequate records regarding amounts 
     so retained and used. The amount credited as paid by any 
     taxpayer shall be determined without regard to this 
     subsection.
       On page 346, between lines 4 and 5, insert the following:
       ``(f) Application of Section.--In no event may the term of 
     any qualified tax collection contract extend beyond the date 
     which is 5 years after the date of the enactment of this 
     section.
       On page 346, line 5, strike ``(f)'' and insert ``(g)''.
       On page 349, between lines 11 and 12, insert the following:
       (e) Biennial Report.--The Secretary of the Treasury shall 
     biennially submit (beginning in 2005) to the Committee on 
     Finance of the Senate and the Committee on Ways and Means of 
     the House of Representatives a report with respect to 
     qualified tax collection contracts under section 6306 of the 
     Internal Revenue Code of 1986 (as added by this section) 
     which includes--
       (1) a complete cost benefit analysis,
       (2) the impact of such contracts on collection enforcement 
     staff levels in the Internal Revenue Service,
       (3) the amounts collected and the collection costs incurred 
     (directly and indirectly),
       (4) an evaluation of contractor performance,
       (5) a disclosure safeguard report in a form similar to that 
     required under section 6103(p)(5) of such Code, and
       (6) a measurement plan which includes a comparison of the 
     best practices used by the private collectors with the 
     Internal Revenue Service's own collection techniques) and 
     mechanisms to identify and capture information on successful 
     collection techniques used by the contractors which could be 
     adopted by the Internal Revenue Service.
       On page 349, line 12, strike ``(e)'' and insert ``(f)''.
       Beginning on page 349, line 15, strike all through page 
     353, line 24, and insert the following:

     SEC. 488. WHISTLEBLOWER REFORMS.

       (a) In General.--Section 7623 (relating to expenses of 
     detection of underpayments and fraud, etc.) is amended--
       (1) by striking ``The Secretary'' and inserting ``(a) In 
     General.--The Secretary'',
       (2) by striking ``and'' at the end of paragraph (1) and 
     inserting ``or'',
       (3) by striking ``(other than interest)'', and
       (4) by adding at the end the following new subsections:
       ``(b) Awards to Whistleblowers.--
       ``(1) In general.--If the Secretary proceeds with any 
     administrative or judicial action described in subsection (a) 
     based on information brought to the Secretary's attention by 
     an individual, such individual shall, subject to paragraph 
     (2), receive as an award at least 15 percent but not more 
     than 30 percent of the collected proceeds (including 
     penalties, interest, additions to tax, and additional 
     amounts) resulting from the action (including any related 
     actions) or from any settlement in response to such action. 
     The determination of the amount of such award by the 
     Whistleblower Office shall depend upon the extent to which 
     the individual substantially contributed to such action.
       ``(2) Award in case of less substantial contribution.--
       ``(A) In general.--In the event the action described in 
     paragraph (1) is one which the Whistleblower Office 
     determines to be based principally on disclosures of specific 
     allegations (other than information provided by the 
     individual described in paragraph (1)) resulting from a 
     judicial or administrative hearing, from a governmental 
     report, hearing, audit, or investigation, or from the news 
     media, the Whistleblower Office may award such sums as it 
     considers appropriate, but in no case more than 10 percent of 
     the collected proceeds (including penalties, interest, 
     additions to tax, and additional amounts) resulting from the 
     action (including any related actions) or from any settlement 
     in response to such action, taking into account the 
     significance of the individual's information and the role of 
     such individual and any legal representative of such 
     individual in contributing to such action.
       ``(B) Nonapplication of paragraph where individual is 
     original source of information.--Subparagraph (A) shall not 
     apply if the information resulting in the initiation of the 
     action described in paragraph (1) was originally provided by 
     the individual described in paragraph (1).
       ``(3) Appeal of award determination.--Any determination 
     regarding an award under paragraph (1) or (2) shall be 
     subject to the filing by the individual described in such 
     paragraph of a petition for review with the Tax Court under 
     rules similar to the rules under section 7463 (without regard 
     to the amount in dispute) and such review shall be subject to 
     the rules under section 7461(b)(1).
       ``(4) Application of this subsection.--This subsection 
     shall apply with respect to any action--
       ``(A) against any taxpayer, but in the case of any 
     individual, only if such individual's gross income exceeds 
     $200,000 for any taxable year subject to such action, and
       ``(B) if the tax, penalties, interest, additions to tax, 
     and additional amounts in dispute exceed $20,000.
       ``(5) Additional rules.--
       ``(A) No contract necessary.--No contract with the Internal 
     Revenue Service is necessary for any individual to receive an 
     award under this subsection.
       ``(B) Representation.--Any individual described in 
     paragraph (1) or (2) may be represented by counsel.
       ``(C) Award not subject to individual alternative minimum 
     tax.--No award received under this subsection shall be 
     included in gross income for purposes of determining 
     alternative minimum taxable income.
       ``(c) Whistleblower Office.--
       ``(1) In general.--There is established in the Internal 
     Revenue Service an office to be known as the `Whistleblower 
     Office' which--
       ``(A) shall analyze information received from any 
     individual described in subsection (b) and either investigate 
     the matter itself or assign it to the appropriate Internal 
     Revenue Service office,
       ``(B) shall monitor any action taken with respect to such 
     matter,
       ``(C) shall inform such individual that it has accepted the 
     individual's information for further review,
       ``(D) may require such individual and any legal 
     representative of such individual to not disclose any 
     information so provided,
       ``(E) may ask for additional assistance from such 
     individual or any legal representative of such individual, 
     and
       ``(F) shall determine the amount to be awarded to such 
     individual under subsection (b).
       ``(2) Funding for office.--From the amounts available for 
     expenditure under subsection (a), the Whistleblower Office 
     shall be credited with an amount equal to the awards made 
     under subsection (b). These funds shall be used to maintain 
     the Whistleblower Office and also to reimburse other Internal 
     Revenue Service offices for related costs, such as costs of 
     investigation and collection.
       ``(3) Request for assistance.--
       ``(A) In general.--Any assistance requested under paragraph 
     (1)(E) shall be under the direction and control of the 
     Whistleblower Office or the office assigned to investigate 
     the matter under subparagraph (A). To the extent the 
     disclosure of any returns or return information to the 
     individual or legal representative is required for the 
     performance of such assistance, such disclosure shall be 
     pursuant to a contract entered into between the Secretary and 
     the recipients of such disclosure subject to section 6103(n).
       ``(B) Funding of assistance.--From the funds made available 
     to the Whistleblower Office under paragraph (2), the 
     Whistleblower Office may reimburse the costs incurred by any 
     legal representative in providing assistance described in 
     subparagraph (A).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to information provided on or after the date of 
     the enactment of this Act.
       On page 354, line 12, strike ``May 8, 2003'' and insert 
     ``the date of the enactment of the Jumpstart Our Business 
     Strength (JOBS) Act''.
       Beginning on page 355, line 17, strike all through page 
     357, line 24, and insert the following:

     SEC. 493. MODIFICATION OF EXEMPTION FROM TAX FOR SMALL 
                   PROPERTY AND CASUALTY INSURANCE COMPANIES.

       (a) Premiums as Percentage of Gross Receipts Increased.--
     Section 501(c)(15)(A)(i)(II) is amended by striking ``50 
     percent'' and inserting ``60 percent''.
       (b) Limitation on Net Written Premiums Increased.--Section 
     831(b)(2) (relating to companies to which this subsection 
     applies) is amended--
       (1) by striking ``$1,200,000'' and inserting 
     ``$1,890,000'', and
       (2) by adding at the end the following new subparagraph:
       ``(C) Inflation adjustments.--
       ``(i) In general.--In the case of any taxable year 
     beginning in a calendar year after 2005, the dollar amount in 
     subparagraph (A)(i) shall be increased by an amount equal 
     to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar

[[Page S5157]]

     year in which the taxable year begins, by substituting 
     `calendar year 2004' for `calendar year 1992' in subparagraph 
     (B) thereof.

       ``(ii) Rounding.--If the amount in subparagraph (A)(i) as 
     increased under clause (i) is not a multiple of $10,000, such 
     amount shall be rounded to the nearest multiple of 
     $10,000.''.
       (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, 2004.
       (2) Transition rule for companies in receivership or 
     liquidation.--In the case of a company or association which--
       (A) for the taxable year which includes April 1, 2004, 
     meets the requirements of section 501(c)(15)(A) of the 
     Internal Revenue Code of 1986, as in effect for the last 
     taxable year beginning before January 1, 2004, and
       (B) on April 1, 2004, is in a receivership, liquidation, or 
     similar proceeding under the supervision of a State court,

     the amendments made by this section shall apply to taxable 
     years beginning after the earlier of the date such proceeding 
     ends (or, if later, December 31, 2004) or December 31, 2007.
       Beginning on page 358, line 1, strike all through page 363, 
     line 21, and insert the following:

     SEC. 494. TREATMENT OF CHARITABLE CONTRIBUTIONS OF PATENTS 
                   AND SIMILAR PROPERTY.

       (a) In General.--Section 170(e)(1)(B) (relating to certain 
     contributions of ordinary income and capital gain property) 
     is amended by striking ``or'' at the end of clause (i), by 
     adding ``or'' at the end of clause (ii), and by inserting 
     after clause (ii) the following new clause:
       ``(iii) of any patent, copyright, trademark, trade name, 
     trade secret, know-how, software (other than software 
     described in section 197(e)(3)(A)(i)), or similar property, 
     or applications or registrations of such property,''.
       (b) Additional Deduction for Certain Contributions of 
     Patents and Similar Property.--Section 170(e) is amended by 
     adding at the end the following new paragraph:
       ``(7) Additional deduction for certain contributions of 
     patents and similar property.--
       ``(A) In general.--In the case of a charitable contribution 
     of any property described in paragraph (1)(B)(iii) (other 
     than copyrights described in section 1221(a)(3) or 
     1231(b)(1)(C) or property contributed to or for the use of an 
     organization described in paragraph (1)(B)(ii)), if--
       ``(i) the lesser of--

       ``(I) 5 percent of the fair market value of such property 
     (determined at the time of such contribution), or
       ``(II) $1,000,000, exceeds

       ``(ii) the amount of such contribution as determined under 
     paragraph (1),

     then the amount of the charitable contribution of such 
     property otherwise taken into account under this section 
     shall equal the amount determined under clause (i).''.
       (c) Certain Donee Income From Intellectual Property Treated 
     as an Additional Charitable Contribution.--Section 170 is 
     amended by redesignating subsection (m) as subsection (n) and 
     by inserting after subsection (l) the following new 
     subsection:
       ``(m) Certain Donee Income From Intellectual Property 
     Treated as an Additional Charitable Contribution.--
       ``(1) Treatment as additional contribution.--In the case of 
     a taxpayer who makes a qualified intellectual property 
     contribution, the deduction allowed under subsection (a) for 
     each taxable year of the taxpayer ending on or after the date 
     of such contribution shall be increased (subject to the 
     limitations under subsection (b)) by the applicable 
     percentage of qualified donee income with respect to such 
     contribution which is properly allocable to such year under 
     this subsection.
       ``(2) Qualified donee income.--For purposes of this 
     subsection, the term `qualified donee income' means any net 
     income received by or accrued to the donee which is properly 
     allocable to the qualified intellectual property.
       ``(3) Allocation of qualified donee income to taxable years 
     of donor.--For purposes of this subsection, qualified donee 
     income shall be treated as properly allocable to a taxable 
     year of the donor if such income is received by or accrued to 
     the donee for the taxable year of the donee which ends within 
     or with such taxable year of the donor.
       ``(4) 10-year limitation.--Income shall not be treated as 
     properly allocable to qualified intellectual property for 
     purposes of this subsection if such income is received by or 
     accrued to the donee after the 10-year period beginning on 
     the date of the contribution of such property.
       ``(5) Benefit limited to life of intellectual property.--
     Income shall not be treated as properly allocable to 
     qualified intellectual property for purposes of this 
     subsection if such income is received by or accrued to the 
     donee after the expiration of the legal life of such 
     property.
       ``(6) Applicable percentage.--For purposes of this 
     subsection, the term `applicable percentage' means the 
     percentage determined under the following table which 
     corresponds to a taxable year of the donor ending on or after 
     the date of the qualified intellectual property contribution:

Applicable Percentage:r Ending On or After Date of Contribution:
  1st or 2d....................................................100 ....

  3rd...........................................................90 ....

  4th...........................................................80 ....

  5th...........................................................70 ....

  6th...........................................................60 ....

  7th...........................................................50 ....

  8th...........................................................40 ....

  9th...........................................................30 ....

  10th..........................................................20 ....

  11th or 12th..................................................10.....

       ``(7) Qualified intellectual property contribution.--For 
     purposes of this subsection, the term `qualified intellectual 
     property contribution' means any charitable contribution of 
     qualified intellectual property--
       ``(A) the amount of which taken into account under this 
     section--
       ``(i) is reduced by reason of subsection (e)(1), or
       ``(ii) determined under subsection (e)(7), and
       ``(B) with respect to which the donor informs the donee at 
     the time of such contribution that the donor intends to treat 
     such contribution as a qualified intellectual property 
     contribution for purposes of this subsection and section 
     6050L.
       ``(8) Qualified intellectual property.--For purposes of 
     this subsection, the term `qualified intellectual property' 
     means property described in subsection (e)(1)(B)(iii) (other 
     than copyrights described in section 1221(a)(3) or 
     1231(b)(1)(C) or property contributed to or for the use of an 
     organization described in subsection (e)(1)(B)(ii)).
       ``(9) Other special rules.--
       ``(A) Application of limitations on charitable 
     contributions.--Any increase under this subsection of the 
     deduction provided under subparagraph (a) shall be treated 
     for purposes of subsection (b) as a deduction which is 
     attributable to a charitable contribution to the donee to 
     which such increase relates.
       ``(B) Net income determined by donee.--The net income taken 
     into account under paragraph (2) shall not exceed the amount 
     of such income reported under section 6050L(b)(1).
       ``(C) Deduction limited to 12 taxable years.--Except as may 
     be provided under subparagraph (D)(i), this subsection shall 
     not apply with respect to any qualified intellectual property 
     contribution for any taxable year of the donor after the 12th 
     taxable year of the donor which ends on or after the date of 
     such contribution.
       ``(D) Regulations.--The Secretary may issue regulations or 
     other guidance to carry out the purposes of this subsection, 
     including regulations or guidance--
       ``(i) modifying the application of this subsection in the 
     case of a donor or donee with a short taxable year, and
       ``(ii) providing for the determination of an amount to be 
     treated as net income of the donee which is properly 
     allocable to qualified intellectual property in the case of a 
     donee who uses such property to further a purpose or function 
     constituting the basis of the donee's exemption under section 
     501 (or, in the case of a governmental unit, any purpose 
     described in section 170(c)) and does not possess a right to 
     receive any payment from a third party with respect to such 
     property.''.
       (d) Reporting Requirements.--Section 6050L (relating to 
     returns relating to certain dispositions of donated property) 
     is amended to read as follows:

     ``SEC. 6050L. RETURNS RELATING TO CERTAIN DONATED PROPERTY.

       ``(a) Dispositions of Donated Property.--
       ``(1) In general.--If the donee of any charitable deduction 
     property sells, exchanges, or otherwise disposes of such 
     property within 2 years after its receipt, the donee shall 
     make a return (in accordance with forms and regulations 
     prescribed by the Secretary) showing--
       ``(A) the name, address, and TIN of the donor,
       ``(B) a description of the property,
       ``(C) the date of the contribution,
       ``(D) the amount received on the disposition, and
       ``(E) the date of such disposition.
       ``(2) Definitions.--For purposes of this subsection--
       ``(A) Charitable deduction property.--The term `charitable 
     deduction property' means any property (other than publicly 
     traded securities) contributed in a contribution for which a 
     deduction was claimed under section 170 if the claimed value 
     of such property (plus the claimed value of all similar items 
     of property donated by the donor to 1 or more donees) exceeds 
     $5,000.
       ``(B) Publicly traded securities.--The term `publicly 
     traded securities' means securities for which (as of the date 
     of the contribution) market quotations are readily available 
     on an established securities market.
       ``(b) Qualified Intellectual Property Contributions.--
       ``(1) In general.--Each donee with respect to a qualified 
     intellectual property contribution shall make a return (at 
     such time and in such form and manner as the Secretary may by 
     regulations prescribe) with respect to each specified taxable 
     year of the donee showing--
       ``(A) the name, address, and TIN of the donor,
       ``(B) a description of the qualified intellectual property 
     contributed,
       ``(C) the date of the contribution, and

[[Page S5158]]

       ``(D) the amount of net income of the donee for the taxable 
     year which is properly allocable to the qualified 
     intellectual property (determined without regard to paragraph 
     (9)(B) of section 170(m) and with the modifications described 
     in paragraphs (4) and (5) of such section).
       ``(2) Definitions.--For purposes of this subsection--
       ``(A) In general.--Terms used in this subsection which are 
     also used in section 170(m) have the respective meanings 
     given such terms in such section.
       ``(B) Specified taxable year.--The term `specified taxable 
     year' means, with respect to any qualified intellectual 
     property contribution, any taxable year of the donee any 
     portion of which is part of the 10-year period beginning on 
     the date of such contribution.
       ``(c) Statement to Be Furnished to Donors.--Every person 
     making a return under subsection (a) or (b) shall furnish a 
     copy of such return to the donor at such time and in such 
     manner as the Secretary may by regulations prescribe.''.
       (e) Processing Fee.--Section 170, as amended by subsection 
     (b), is amended by redesignating subsection (n) as subsection 
     (o) and by inserting after subsection (m) the following new 
     subsection:
       ``(n) Processing Fee.--In the case of a deduction allowed 
     for any taxable year under this section with respect to a 
     charitable contribution of any property described in 
     subsection (e)(1)(B)(iii) (other than copyrights described in 
     section 1221(a)(3) or 1231(b)(1)(C) or property contributed 
     to or for the use of an organization described in subsection 
     (e)(1)(B)(ii)), the taxpayer shall include, with the 
     taxpayer's return of tax including such deduction, a fee 
     equal to 1 percent of the amount of such deduction. Such fee 
     shall be credited by the Secretary to the operations of the 
     Exempt Organizations unit within the Internal Revenue 
     Service.''.
       (f) Modification of Substantial Valuations Misstatement 
     Penalty for Charitable Contributions of Property.--
       (1) Substantial misstatements.--Section 6662(e)(1)(A) 
     (relating to substantial valuation misstatements under 
     chapter 1) is amended by inserting ``(50 percent or more in 
     the case of a charitable contribution of any property 
     described in section 170(e)(1)(B)(iii))'' after ``200 percent 
     or more''.
       (2) Gross misstatements.--Section 6662(h)(2)(A) (defining 
     gross valuation misstatements) is amended by striking clause 
     (ii) and inserting the following new clauses:
       ``(ii) `100 percent or more' for `50 percent or more',
       ``(iii) `25 percent or less' for `50 percent or less', 
     and''.
       (g) Anti-Abuse Rules.--The Secretary of the Treasury--
       (1) may prescribe such regulations or other guidance as may 
     be necessary or appropriate to prevent the avoidance of the 
     purposes of paragraphs (1)(B)(iii) and (7) of section 170(e) 
     of the Internal Revenue Code of 1986 (as added by subsections 
     (a) and (b)), including preventing--
       (A) the circumvention of the reduction of the charitable 
     deduction by embedding or bundling the patent or similar 
     property as part of a charitable contribution of property 
     that includes the patent or similar property,
       (B) the manipulation of the basis of the property to 
     increase the amount of the charitable deduction through the 
     use of related persons, pass-thru entities, or other 
     intermediaries, or through the use of any provision of law or 
     regulation (including the consolidated return regulations), 
     and
       (C) a donor from changing the form of the patent or similar 
     property to property of a form for which different deduction 
     rules would apply, and
       (2) shall prescribe guidance on appraisal standards for 
     contributions of property described in section 
     170(e)(1)(B)(iii) of the Internal Revenue Code of 1986 (as 
     added by this section).
       (h) Effective Date.--The amendments made by this section 
     shall apply to contributions made after the date of the 
     enactment of this Act.
       Beginning on page 363, line 22, strike all through page 
     364, line 3.
       On page 420, strike lines 1 through 8, and insert the 
     following:
       ``(A) In general.--The term `motorsports entertainment 
     complex' means a racing track facility which--
       ``(i) is permanently situated on land, and
       ``(ii) during the 36-month period following the first day 
     of the month in which the asset is placed in service, is 
     scheduled to host 1 or more racing events for automobiles (of 
     any type), trucks, or motorcycles which are open to the 
     public for the price of admission.
       On page 421, at the end of line 9, add end quotation marks 
     and a period.
       On page 421, strike lines 10 through 20.
       On page 421, line 24, strike ``Act.'' and insert ``Act and 
     before January 1, 2008.''.
       On page 425, line 19, strike ``45E'' and insert ``45D''.
       On page 425, line 20, strike ``45d'' and insert ``45e''.
       On page 438, in the matter following line 22, strike 
     ``Native American new markets tax credit'' and insert ``New 
     markets tax credit for Native American reservations''.
       On page 440, line 1, strike ``(f)'' and insert ``(h)''.
       On page 484, line 4, strike ``45F'' and insert ``45H''.
       On page 488, line 2, strike ``grade'' and insert ``at 
     grade''.
       On page 488, line 5, strike ``rail'' and insert ``train''.
       On page 502, line 19, strike ``3(20)'' and insert 
     ``103(20)''.
       On page 502, line 20, strike ``1974'' and insert ``1994''.
       On page 504, between lines 6 and 7, insert the following:

     SEC. 639. CREDIT FOR INVESTMENT IN TECHNOLOGY TO MAKE MOTION 
                   PICTURES MORE ACCESSIBLE TO THE DEAF AND HARD 
                   OF HEARING.

       (a) In General.--
       (1) Allowance of credit.--Subpart D of part IV of 
     subchapter A of chapter 1 (relating to business related 
     credits), as amended by this Act, is amended by adding at the 
     end the following new section:

     ``SEC. 45T. EXPENDITURES TO PROVIDE ACCESS TO MOTION PICTURES 
                   FOR THE DEAF AND HARD OF HEARING.

       ``(a) General Rule.--For purposes of section 38, in the 
     case of an eligible taxpayer, the motion picture 
     accessibility credit for any taxable year shall be an amount 
     equal to 50 percent of the qualified expenditures made by the 
     eligible taxpayer during the taxable year.
       ``(b) Eligible Taxpayer.--For purposes of this section, the 
     term `eligible taxpayer' means a taxpayer who is in the 
     business of--
       ``(1) showing motion pictures to the public in theaters, or
       ``(2) producing or distributing such motion pictures.
       ``(c) Qualified Expenditures.--For purposes of this 
     section, the term `qualified expenditures' means amounts paid 
     or incurred by the taxpayer for the purpose of making motion 
     pictures accessible to individuals who are deaf or hard of 
     hearing through the use of captioning technology.
       ``(d) Basis Adjustment.--For purposes of this subtitle, if 
     a credit is allowed under this section with respect to any 
     property, the basis of such property shall be reduced by the 
     amount of the credit so allowed.
       ``(e) No Double Benefit.--In the case of the credit 
     determined under this section, no deduction or credit shall 
     be allowed for such amount under any other provision of this 
     chapter.''.
       (2) Conforming amendments.--
       (A) Section 38(b) (relating to general business credit), as 
     amended by this Act, is amended by striking ``plus'' at the 
     end of paragraph (30), by striking the period at the end of 
     paragraph (31) and inserting ``, plus'', and by adding at the 
     end the following new paragraph:
       ``(32) the motion picture accessibility credit determined 
     under section 45T(a).''.
       (B) Subsection (a) of section 1016, as amended by this Act, 
     is amended by striking ``and'' at the end of paragraph (38), 
     by striking the period at the end of paragraph (39) and 
     inserting ``, and'', and by adding at the end the following 
     new paragraph:
       ``(40) in the case of property with respect to which a 
     credit was allowed under section 45T, to the extent provided 
     in section 45T(d).''.
       (b) Limitation on Carryback.--Section 39(d) (relating to 
     transition rules) is amended by adding at the end the 
     following new paragraph:
       ``(16) No carryback of motion picture accessibility credit 
     before effective date.--No portion of the unused business 
     credit for any taxable year which is attributable to the 
     motion picture accessibility credit determined under section 
     45T may be carried to a taxable year beginning before January 
     1, 2004.''.
       (c) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1, as amended by this 
     Act, is amended by inserting after the item relating to 
     section 45S the following new item:

``Sec. 45T. Expenditures to provide access to motion pictures for the 
              deaf and hard of hearing.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.
       On page 504, line 14, insert ``, as amended by this Act,'' 
     after ``income)''.
       On page 504, line 16, strike ``(18)'' and insert ``(19)''.
       On page 522, line 17, strike ``(18)'' and insert ``(19)''.
       On page 524, line 18, insert ``or a claim made under 
     section 1862(b)(3)(A) of the Social Security Act (42 U.S.C. 
     1395y(b)(3)(A))'' after ``Code''.
       On page 535, line 8, strike ``December 31, 2003'' and 
     insert ``December 31, 2001''.
       On page 557, between lines 9 and 10, insert the following:

     SEC. 660. REPEAL OF APPLICATION OF BELOW-MARKET LOAN RULES TO 
                   AMOUNTS PAID TO CERTAIN CONTINUING CARE 
                   FACILITIES.

       (a) In General.--Section 7872(c)(1) (relating to below-
     market loans to which section applies) is amended--
       (1) by striking subparagraph (F), and
       (2) by striking ``(C), or (F)'' in subparagraph (E) and 
     inserting ``or (C)''.
       (b) Full Exception.--Section 7872(g) (relating to exception 
     for certain loans to qualified continuing care facilities) is 
     amended--
       (1) by striking ``made by a lender to a qualified 
     continuing care facility pursuant to a continuing care 
     contract'' in paragraph (1) and inserting ``owed by a 
     facility which on the last day of such year is a qualified 
     continuing care facility, if such loan was made pursuant to a 
     continuing care contract and'',
       (2) by striking ``increased personal care services or'' in 
     paragraph (3)(C),
       (3) by adding at the end of paragraph (3) the following new 
     flush sentence:


[[Page S5159]]


     ``The Secretary shall issue guidance which limits such term 
     to contracts which provide to an individual or individual's 
     spouse only facilities, care, and services described in this 
     paragraph which are customarily offered by continuing care 
     facilities.'',
       (4) by inserting ``independent living unit'' after ``all of 
     the'' in paragraph (4)(A)(ii),
       (5) by striking paragraphs (2) and (5),
       (6) by redesignating paragraphs (3) and (4) as paragraphs 
     (2) and (3), respectively, and
       (7) by striking ``Certain'' in the heading thereof.
       (c) Effective Date.--The amendments made by this section 
     shall apply to calendar years beginning after 2004.
       On page 559, strike lines 6 through 17, and insert the 
     following:

     SEC. 663. FREEZE OF PROVISIONS REGARDING SUSPENSION OF 
                   INTEREST WHERE SECRETARY FAILS TO CONTACT 
                   TAXPAYER.

       (a) In General.--Section 6404(g) (relating to suspension of 
     interest and certain penalties where Secretary fails to 
     contact taxpayer) is amended by striking ``1-year period (18-
     month period in the case of taxable years beginning before 
     January 1, 2004)'' both places it appears and inserting ``18-
     month period''.
       (b) Exception for Gross Misstatement.--Section 6404(g)(2) 
     (relating to exceptions) is amended by striking ``or'' at the 
     end of subparagraph (C), by redesignating subparagraph (D) as 
     subparagraph (E), and by inserting after subparagraph (C) the 
     following new subparagraph:
       ``(D) any interest, penalty, addition to tax, or additional 
     amount with respect to any gross misstatement; or''.
       (c) Exception for Listed and Reportable Transactions.--
     Section 6404(g)(2) (relating to exceptions), as amended by 
     subsection (b), is amended by striking ``or'' at the end of 
     subparagraph (D), by redesignating subparagraph (E) as 
     subparagraph (F), and by inserting after subparagraph (D) the 
     following new subparagraph:
       ``(E) any interest, penalty, addition to tax, or additional 
     amount with respect to any reportable transaction or listed 
     transaction (as defined in 6707A(c)); or''.
       (d) Effective Dates.--
       (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 reportable or listed transactions.--The 
     amendments made by subsection (c) shall apply with respect to 
     interest accruing after May 5, 2004.
       Beginning on page 559, line 20, strike all through page 
     578, line 16, and insert the following:

     SEC. 671. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION 
                   PLANS.

       (a) In General.--Subpart A of part I of subchapter D of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED 
                   COMPENSATION UNDER NONQUALIFIED DEFERRED 
                   COMPENSATION PLANS.

       ``(a) Rules Relating to Constructive Receipt.--
       ``(1) In general.--
       ``(A) Gross income inclusion.--If at any time during a 
     taxable year a nonqualified deferred compensation plan--
       ``(i) fails to meet the requirements of paragraphs (2), 
     (3), (4), and (5), or
       ``(ii) is not operated in accordance with such 
     requirements,

     all compensation deferred under the plan for the taxable year 
     and all preceding taxable years shall be includible in gross 
     income for the taxable year to the extent not subject to a 
     substantial risk of forfeiture and not previously included in 
     gross income.
       ``(B) Interest and additional tax payable with respect to 
     previously deferred compensation.--
       ``(i) In general.--If compensation is required to be 
     included in gross income under subparagraph (A) for a taxable 
     year, the tax imposed by this chapter for the taxable year of 
     inclusion shall be increased by the sum of--

       ``(I) the amount of interest determined under clause (ii), 
     and
       ``(II) an amount equal to 10 percent of the compensation 
     which is required to be included in gross income.

       ``(ii) Interest.--For purposes of clause (i), the interest 
     determined under this clause for any taxable year is 
     the amount of interest at the underpayment rate 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.
       ``(2) Distributions.--
       ``(A) In general.--The requirements of this paragraph are 
     met if the plan provides that compensation deferred under the 
     plan may not be distributed earlier than--
       ``(i) except as provided in subparagraph (B)(i), separation 
     from service (as determined by the Secretary),
       ``(ii) the date the participant becomes disabled (within 
     the meaning of subparagraph (C)),
       ``(iii) death,
       ``(iv) a specified time (or pursuant to a fixed schedule) 
     specified under the plan as of the date of the deferral of 
     such compensation,
       ``(v) to the extent provided by the Secretary, a change in 
     the ownership or effective control of the corporation, or in 
     the ownership of a substantial portion of the assets of the 
     corporation, or
       ``(vi) the occurrence of an unforeseeable emergency.
       ``(B) Special rules.--
       ``(i) Separation from service of specified employees.--In 
     the case of specified employees, the requirement of 
     subparagraph (A)(i) is met only if distributions may not be 
     made earlier than 6 months after the date of separation from 
     service. For purposes of the preceding sentence, a specified 
     employee is a key employee (as defined in section 416(i)) of 
     a corporation the stock in which is publicly traded on an 
     established securities market or otherwise.
       ``(ii) Changes in ownership or control.--In the case of a 
     participant who is subject to the requirements of section 
     16(a) of the Securities Exchange Act of 1934, the requirement 
     of subparagraph (A)(v) is met only if distributions may not 
     be made earlier than 1 year after the date of the change in 
     ownership or effective control.
       ``(iii) Unforeseeable emergency.--For purposes of 
     subparagraph (A)(vi)--

       ``(I) In general.--The term `unforeseeable emergency' means 
     a severe financial hardship to the participant or beneficiary 
     resulting from a sudden and unexpected illness or accident of 
     the participant or beneficiary, the participant's or 
     beneficiary's spouse, or the participant's or beneficiary's 
     dependent (as defined in section 152(a)), loss of the 
     participant's or beneficiary's property due to casualty, or 
     other similar extraordinary and unforeseeable circumstances 
     arising as a result of events beyond the control of the 
     participant or beneficiary.
       ``(II) Limitation on distributions.--The requirement of 
     subparagraph (A)(vi) is met only if, as determined under 
     regulations of the Secretary, the amounts distributed with 
     respect to an emergency do not exceed the amounts necessary 
     to satisfy such emergency plus amounts necessary to pay taxes 
     reasonably anticipated as a result of the distribution, after 
     taking into account the extent to which such hardship is or 
     may be relieved through reimbursement or compensation by 
     insurance or otherwise or by liquidation of the participant's 
     or beneficiary's assets (to the extent the liquidation of 
     such assets would not itself cause severe financial 
     hardship).

       ``(C) Disabled.--For purposes of subparagraph (A)(ii), a 
     participant shall be considered disabled if the participant--
       ``(i) is unable to engage in any substantial gainful 
     activity by reason of any medically determinable physical or 
     mental impairment which can be expected to result in death or 
     can be expected to last for a continuous period of not less 
     than 12 months, or
       ``(ii) is, by reason of any medically determinable physical 
     or mental impairment which can be expected to result in death 
     or can be expected to last for a continuous period of not 
     less than 12 months, receiving income replacement benefits 
     for a period of not less than 3 months under an accident and 
     health plan covering employees of the participant's employer.
       ``(3) Investment options.--The requirements of this 
     paragraph are met if the plan provides that the investment 
     options a participant may elect under the plan--
       ``(A) are comparable to the investment options which a 
     participant may elect under the defined contribution plan of 
     the employer which--
       ``(i) meets the requirement of section 401(a) and includes 
     a trust exempt from taxation under section 501(a), and
       ``(ii) has the fewest investment options, or
       ``(B) if there is no such defined contribution plan, meet 
     such requirements as the Secretary may prescribe (including 
     requirements limiting such options to permissible investment 
     options specified by the Secretary).
       ``(4) Acceleration of benefits.--The requirements of this 
     paragraph are met if the plan does not permit the 
     acceleration of the time or schedule of any payment under the 
     plan, except as provided by the Secretary in regulations.
       ``(5) Elections.--
       ``(A) In general.--The requirements of this paragraph are 
     met if the requirements of subparagraphs (B) and (C) are met.
       ``(B) Initial deferral decision.--The requirements of this 
     subparagraph are met if the plan provides that compensation 
     for services performed during a taxable year may be deferred 
     at the participant's election only if the election to defer 
     such compensation is made during the preceding taxable year 
     or at such other time as provided in regulations. In the case 
     of the first year in which a participant becomes eligible to 
     participate in the plan, such election may be made with 
     respect to services to be performed subsequent to the 
     election within 30 days after the date the participant 
     becomes eligible to participate in such plan.
       ``(C) Changes in time and form of distribution.--The 
     requirements of this subparagraph are met if, in the case of 
     a plan which permits under a subsequent election a delay in a 
     payment or a change in the form of payment--
       ``(i) the plan requires that such election may not take 
     effect until at least 12 months after the date on which the 
     election is made,
       ``(ii) in the case an election related to a payment not 
     described in clause (ii), (iii), or (vi) of paragraph (2)(A), 
     the plan requires that the first payment with respect to 
     which such election is made be deferred for a period of not 
     less than 5 years from the date such payment would otherwise 
     have been made, and

[[Page S5160]]

       ``(iii) the plan requires that any election related to a 
     payment described in paragraph (2)(A)(iv) may not be made 
     less than 12 months prior to the date of the first scheduled 
     payment under such paragraph.

     A plan shall be treated as failing to meet the requirements 
     of this subparagraph if the plan permits more than 1 
     subsequent election to delay any payment.
       ``(b) Rules Relating to Funding.--
       ``(1) Offshore property in a trust.--In the case of assets 
     set aside (directly or indirectly) in a trust (or other 
     arrangement determined by the Secretary) for purposes of 
     paying deferred compensation under a nonqualified deferred 
     compensation plan, such assets shall be treated for purposes 
     of section 83 as property transferred in connection with the 
     performance of services whether or not such assets are 
     available to satisfy claims of general creditors--
       ``(A) at the time set aside if such assets are located 
     outside of the United States, or
       ``(B) at the time transferred if such assets are 
     subsequently transferred outside of the United States.

     This paragraph shall not apply to assets located in a foreign 
     jurisdiction if substantially all of the services to which 
     the nonqualified deferred compensation relates are performed 
     in such jurisdiction.
       ``(2) Employer's financial health.--In the case of a 
     nonqualified deferred compensation plan, there is a transfer 
     of property within the meaning of section 83 as of the 
     earlier of--
       ``(A) the date on which the plan first provides that assets 
     will become restricted to the provision of benefits under the 
     plan in connection with a change in the employer's financial 
     health, or
       ``(B) the date on which assets are so restricted.
       ``(3) Income inclusion for offshore trusts and employer's 
     financial health.--For each taxable year that assets treated 
     as transferred under this subsection remain set aside in a 
     trust or other arrangement subject to paragraph (1) or (2), 
     any increase in value in, or earnings with respect to, such 
     assets shall be treated as an additional transfer of property 
     under this subsection (to the extent not previously included 
     in income).
       ``(4) Interest on tax liability payable with respect to 
     transferred property.--
       ``(A) In general.--If amounts are required to be included 
     in gross income by reason of paragraph (1) or (2) for a 
     taxable year, the tax imposed by this chapter for such 
     taxable year shall be increased by the sum of--
       ``(i) the amount of interest determined under subparagraph 
     (B), and
       ``(ii) an amount equal to 10 percent of the amounts 
     required to be included in gross income.
       ``(B) Interest.--For purposes of subparagraph (A), the 
     interest determined under this subparagraph for any taxable 
     year is the amount of interest at the underpayment rate on 
     the underpayments that would have occurred had the amounts so 
     required to be included in gross income by paragraph (1) or 
     (2) been includible in gross income for the taxable year in 
     which first deferred or, if later, the first taxable year in 
     which such amounts are not subject to a substantial risk of 
     forfeiture.
       ``(c) No Inference on Earlier Income Inclusion.--Nothing in 
     this section shall be construed to prevent the inclusion of 
     amounts in gross income under any other provision of this 
     chapter or any other rule of law earlier than the time 
     provided in this section. Any amount included in gross income 
     under this section shall not be required to be included in 
     gross income under any other provision of this chapter or any 
     other rule of law later than the time provided in this 
     section.
       ``(d) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Nonqualified deferred compensation plan.--The term 
     `nonqualified deferred compensation plan' means any plan that 
     provides for the deferral of compensation, other than--
       ``(A) a qualified employer plan, and
       ``(B) any bona fide vacation leave, sick leave, 
     compensatory time, disability pay, or death benefit plan.
       ``(2) Qualified employer plan.--The term `qualified 
     employer plan' means--
       ``(A) any plan, contract, pension, account, or trust 
     described in subparagraph (A) or (B) of section 219(g)(5), 
     and
       ``(B) any eligible deferred compensation plan (within the 
     meaning of section 457(b)) of an employer described in 
     section 457(e)(1)(A).
       ``(3) Plan includes arrangements, etc.--The term `plan' 
     includes any agreement or arrangement, including an agreement 
     or arrangement that includes one person.
       ``(4) Substantial risk of forfeiture.--The rights of a 
     person to compensation are subject to a substantial risk of 
     forfeiture if such person's rights to such compensation are 
     conditioned upon the future performance of substantial 
     services by any individual.
       ``(5) Treatment of earnings.--References to deferred 
     compensation shall be treated as including references to 
     income (whether actual or notional) attributable to such 
     compensation or such income.
       ``(6) Exception for nonelective deferred compensation.--
     This section shall not apply to any nonelective deferred 
     compensation to which section 457 does not apply by reason of 
     section 457(e)(12), but only if such compensation is provided 
     under a nonqualified deferred compensation plan which was in 
     existence on May 1, 2004, and which was providing nonelective 
     deferred compensation described in section 457(e)(12) on such 
     date. If, after May 1, 2004, a plan described in the 
     preceding sentence adopts a plan amemdment which provides a 
     material change in the classes of individuals eligible to 
     participate in the plan, this paragraph shall not apply to 
     any nonelective deferred compensation provided under the plan 
     on or after the date of the adoption of the amendment.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section, including regulations--
       ``(1) providing for the determination of amounts of 
     deferral in the case of a nonqualified deferred compensation 
     plan which is a defined benefit plan,
       ``(2) relating to changes in the ownership and control of a 
     corporation or assets of a corporation for purposes of 
     subsection (a)(2)(A)(v),
       ``(3) exempting arrangements from the application of 
     subsection (b) if such arrangements will not result in an 
     improper deferral of United States tax and will not result in 
     assets being effectively beyond the reach of creditors,
       ``(4) defining financial health for purposes of subsection 
     (b)(2), and
       ``(5) disregarding a substantial risk of forfeiture in 
     cases where necessary to carry out the purposes of this 
     section.''.
       (b) Application of Golden Parachute Payment Provisions.--
     Section 280G of such Code (relating to golden parachute 
     payments) is amended by redesignating subsection (e) as 
     subsection (f) and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Special Rules for Certain Payments From Nonqualified 
     Deferred Compensation Plans.--
       ``(1) In general.--Notwithstanding any other provision of 
     this section, an applicable payment shall be treated as an 
     excess parachute payment for purposes of this section and 
     section 4999.
       ``(2) Coordination with other payments.--
       ``(A) Applicable payments which are parachute payments.--If 
     any applicable payment is a parachute payment (determined 
     without regard to subsection (b)(2)(A)(ii))--
       ``(i) except as provided in paragraph (4), this section 
     shall be applied to such payment in the same manner as if 
     this subsection had not been enacted, and
       ``(ii) if such application results in an excess parachute 
     payment, any tax under section 4999 on the excess parachute 
     payment shall be in addition to the tax imposed by reason of 
     paragraph (1).
       ``(B) Applicable payments which are not parachute 
     payments.--An applicable payment not described in 
     subparagraph (A) shall be taken into account in determining 
     whether any payment described in subparagraph (A) or any 
     payment which is not an applicable payment is a parachute 
     payment under subsection (b)(2).
       ``(3) Applicable payment.--For purposes of this subsection, 
     the term `applicable payment' means any distribution 
     (including any distribution treated as a parachute payment 
     without regard to this subsection) from a nonqualified 
     deferred compensation plan (as defined in section 409A(d)) 
     which is made--
       ``(A) to a participant who is subject to the requirements 
     of section 16(a) of the Securities Exchange Act of 1934, and
       ``(B) during the 1-year period following a change in the 
     ownership or effective control of the corporation or in the 
     ownership of a substantial portion of the assets of the 
     corporation.

     Such terms shall not include any distribution by reason of 
     the death of the participant or the participant becoming 
     disabled (within the meaning of section 409A(a)(2)(C)).
       ``(4) No double counting.--Under regulations, proper 
     adjustments shall be made in the application of this 
     subsection to prevent a deduction from being disallowed more 
     than once.''.
       (c) W-2 Forms.--
       (1) In general.--Subsection (a) of section 6051 (relating 
     to receipts for employees) is amended by striking ``and'' at 
     the end of paragraph (11), by striking the period at the end 
     of paragraph (12) and inserting ``, and'', and by inserting 
     after paragraph (12) the following new paragraph:
       ``(13) the total amount of deferrals under a nonqualified 
     deferred compensation plan (within the meaning of section 
     409A(d)).''.
       (2) Threshold.--Subsection (a) of section 6051 is amended 
     by adding at the end the following: ``In the case of the 
     amounts required to be shown by paragraph (13), the Secretary 
     may (by regulation) establish a minimum amount of deferrals 
     below which paragraph (13) does not apply.''.
       (d) Conforming and Clerical Amendments.--
       (1) Section 414(b) is amended by inserting ``409A,'' after 
     ``408(p),''.
       (2) Section 414(c) is amended by inserting ``409A,'' after 
     ``408(p),''.
       (3) The table of sections for such subpart A is amended by 
     adding at the end the following new item:

``Sec. 409A. Inclusion in gross income of deferred compensation under 
              nonqualified deferred compensation plans.''.

       (e) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to amounts deferred

[[Page S5161]]

     in taxable years beginning after December 31, 2004.
       (2) Earnings attributable to amount previously deferred.--
     The amendments made by this section shall apply to earnings 
     on deferred compensation only to the extent that such 
     amendments apply to such compensation.
       (f) Guidance Relating to Change of Ownership or Control.--
     Not later than 90 days after the date of the enactment of 
     this Act, the Secretary of the Treasury shall issue guidance 
     on what constitutes a change in ownership or effective 
     control for purposes of section 409A of the Internal Revenue 
     Code of 1986, as added by this section.
       (g) Guidance Relating to Termination of Certain Existing 
     Arrangements.--Not later than 90 days after the date of the 
     enactment of this Act, the Secretary of the Treasury shall 
     issue guidance providing a limited period during which an 
     individual participating in a nonqualified deferred 
     compensation plan adopted on or before December 31, 2004, 
     may, without violating the requirements of paragraphs (2), 
     (3), (4), and (5) of section 409A(a) of the Internal Revenue 
     Code of 1986 (as added by this section), terminate 
     participation or cancel an outstanding deferral election with 
     regard to amounts earned after December 31, 2004, if such 
     amounts are includible in income as earned.

     SEC. 672. PROHIBITION ON DEFERRAL OF GAIN FROM THE EXERCISE 
                   OF STOCK OPTIONS AND RESTRICTED STOCK GAINS 
                   THROUGH DEFERRED COMPENSATION ARRANGEMENTS.

       (a) In General.--Section 83 (relating to property 
     transferred in connection with performance of services) is 
     amending by adding at the end the following new subsection:
       ``(i) Prohibition on Additional Deferral Through Deferred 
     Compensation Arrangements.--If a taxpayer exchanges--
       ``(1) an option to purchase employer securities--
       ``(A) to which subsection (a) applies, or
       ``(B) which is described in subsection (e)(3), or
       ``(2) employer securities or any other property based on 
     employer securities transferred to the taxpayer,

     for a right to receive future payments, then, notwithstanding 
     any other provision of this title, there shall be included in 
     gross income for the taxable year of the exchange an amount 
     equal to the present value of such right (or such other 
     amount as the Secretary may by regulations specify). For 
     purposes of this subsection, the term `employer securities' 
     includes any security issued by the employer.''.
       (b) Controlled Group Rules.--Section 414(t)(2) is amended 
     by inserting ``83(i),'' after ``79,''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to any exchange after December 31, 2004.
       On page 581, strike lines 1 through 20, and insert the 
     following:

     SEC. 675. APPLICATION OF BASIS RULES TO EMPLOYER AND EMPLOYEE 
                   CONTRIBUTIONS ON BEHALF OF NONRESIDENT ALIENS.

       (a) In General.--Section 72 (relating to annuities and 
     certain proceeds of endowment and life insurance contracts) 
     is amended by redesignating subsection (w) as subsection (x) 
     and by inserting after subsection (v) the following new 
     subsection:
       ``(w) Application of Basis Rules to Employer and Employee 
     Contributions Made on Behalf of Nonresident Aliens.--
       ``(1) In general.--Notwithstanding any other provision of 
     this section, for purposes of determining the portion of any 
     distribution which is includible in gross income of a 
     distributee who is a citizen or resident of the United 
     States, the investment in the contract shall not include any 
     applicable nontaxable contributions.
       ``(2) Applicable nontaxable contribution.--For purposes of 
     this subsection, the term `applicable nontaxable 
     contribution' means any employer or employee contribution--
       ``(A) which was made with respect to compensation for labor 
     or personal services by an employee who, at the time the 
     services were performed, was a nonresident alien for purposes 
     of the laws of the United States in effect at such time, but 
     only if such compensation is treated as from sources without 
     the United States, and
       ``(B) which was not subject to income tax under the laws of 
     the United States or any foreign country.
       ``(3) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the provisions 
     of this subsection, including regulations treating 
     contributions as not subject to tax under the laws of any 
     foreign country where appropriate to carry out the purposes 
     of this subsection.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to distributions on or after the date of the 
     enactment of this Act.
       On page 596, strike lines 8 through 10, and insert the 
     following:
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.
       On page 596, line 22, strike ``Section 904(h)'' and insert 
     ``Section 904(i), as redesignated by this Act,''.
       Beginning on page 598, line 17, strike all through 601, 
     line 7, and insert the following:
       (a) Amendments of ERISA.--
       (1) Section 101(e)(3) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by 
     striking ``Pension Funding Equity Act of 2004'' and inserting 
     ``Jumpstart Our Business Strength (JOBS) Act''.
       (2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is 
     amended by striking ``Pension Funding Equity Act of 2004'' 
     and inserting ``Jumpstart Our Business Strength (JOBS) Act''.
       (3) Paragraph (13) of section 408(b) of such Act (29 U.S.C. 
     1108(b)(3)) is amended by striking ``Pension Funding Equity 
     Act of 2004'' and inserting ``Jumpstart Our Business Strength 
     (JOBS) Act''.
       (b) Minimum Cost Requirements.--
       (1) In general.--Section 420(c)(3)(E) is amended by adding 
     at the end the following new clause:
       ``(ii) Insignificant cost reductions permitted.--

       ``(I) In general.--An eligible employer shall not be 
     treated as failing to meet the requirements of this paragraph 
     for any taxable year if, in lieu of any reduction of retiree 
     health coverage permitted under the regulations prescribed 
     under clause (i), the employer reduces applicable employer 
     cost by an amount not in excess of the reduction in costs 
     which would have occurred if the employer had made the 
     maximum permissible reduction in retiree health coverage 
     under such regulations. In applying such regulations to any 
     subsequent taxable year, any reduction in applicable employer 
     cost under this clause shall be treated as if it were an 
     equivalent reduction in retiree health coverage.
       ``(II) Eligible employer.--For purposes of subclause (I), 
     an employer shall be treated as an eligible employer for any 
     taxable year if, for the preceding taxable year, the 
     qualified current retiree health liabilities of the employer 
     were at least 5 percent of the gross receipts of the 
     employer. For purposes of this subclause, the rules of 
     paragraphs (2), (3)(B), and (3)(C) of section 448(c) shall 
     apply in determining the amount of an employer's gross 
     receipts.''.

       (2) Conforming amendment.--Section 420(c)(3)(E) is amended 
     by striking ``The Secretary'' and inserting:
       ``(i) In general.--The Secretary''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.
       On page 606, line 18, insert ``, as amended by section 
     882(c) of this Act,'' after ``penalties)''.
       On page 606, line 21, strike ``6717'' and insert ``6720a''.
       On page 607, line 18, insert ``, as amended by section 
     882(c) of this Act,'' after ``chapter 68''.
       On page 607, in the matter after line 20, strike ``6717'' 
     and insert ``6720A''.
       On page 608, line 4, insert ``, as amended by this Act,'' 
     after ``vaccine)''.
       On page 608, line 6, strike ``(M)'' and insert ``(N)''.
       On page 608, strike lines 8 through 11.
       On page 612, line 10, strike the end quotation marks and 
     second period.
       On page 624, line 7, strike ``or''.
       On page 624, line 11, strike the period and insert ``, 
     or''.
       On page 624, between lines 11 and 12, insert the following:

       ``(VI) the Tennessee Valley Authority.

       On page 624, lines 13 and 14, strike ``A person described 
     in subparagraph (A)(ii)'' and insert ``A person described in 
     subclause (I), (II), (III), (IV), or (V) of subparagraph 
     (A)(ii)''.
       On page 625, between lines 21 and 22, insert the following:
       ``(D) Use by tva.--
       ``(i) In general.--Notwithstanding any other provision of 
     law, in the case of a person described in subparagraph 
     (A)(ii)(VI), any credit to which subparagraph (A)(i) applies 
     may be applied as a credit against the payments required to 
     be made in any fiscal year under section 15d(e) of the 
     Tennessee Valley Authority Act of 1933 (16 U.S.C. 831n-4(e)) 
     as an annual return on the appropriations investment and an 
     annual repayment sum.
       ``(ii) Treatment of credits.--The aggregate amount of 
     credits described in subparagraph (A)(i) with respect to such 
     person shall be treated in the same manner and to the same 
     extent as if such credits were a payment in cash and shall be 
     applied first against the annual return on the appropriations 
     investment.
       ``(iii) Credit carryover.--With respect to any fiscal year, 
     if the aggregate amount of credits described subparagraph 
     (A)(i) with respect to such person exceeds the aggregate 
     amount of payment obligations described in clause (i), the 
     excess amount shall remain available for application as 
     credits against the amounts of such payment obligations in 
     succeeding fiscal years in the same manner as described in 
     this subparagraph.
       On page 625, line 22, strike ``(D)'' and insert ``(E)''.
       On page 626, line 3, strike ``(E)'' and insert ``(F)''.
       On page 626, line 8, strike ``(g)'' and insert ``(f)''.
       On page 627, line 14, insert ``, as amended by this Act,'' 
     after ``etc.)''.
       On page 627, line 16, strike ``30B'' and insert ``30C''.
       On page 652, strike lines 2 through 17, and insert the 
     following:
       (1) Section 1016(a) is amended by striking ``and'' at the 
     end of paragraph (31), by striking the period at the end of 
     paragraph (32) and inserting ``, and'', and by adding at the 
     end the following new paragraph:

[[Page S5162]]

       ``(33) to the extent provided in section 30C(f)(4).''.
       (2) Section 55(c)(2), as amended by this Act, is amended by 
     inserting ``30C(e),'' after ``30(b)(2),''.
       (3) Section 6501(m) is amended by inserting ``30C(f)(9),'' 
     after ``30(d)(4),''.
       (4) The table of sections for subpart B of part IV of 
     subchapter A of chapter 1, as amended by this Act, is amended 
     by inserting after the item relating to section 30B the 
     following new item:

``Sec. 30C. Alternative motor vehicle credit.''.

       (c) Effective Date.--The amendments made by
       On page 658, line 3, strike ``30C'' and insert ``30D''.
       On page 659, line 21, strike ``30B'' and insert ``30C''.
       Beginning on page 662, line 21, strike all through page 
     663, line 9, and insert the following:
       (1) Section 1016(a), as amended by this Act, is amended by 
     striking ``and'' at the end of paragraph (32), by striking 
     the period at the end of paragraph (33) and inserting ``, 
     and'', and by adding at the end the following new paragraph:
       ``(34) to the extent provided in section 30D(f).''.
       (2) Section 55(c)(2), as amended by this Act, is amended by 
     inserting ``30D(e),'' after ``30C(e),''.
       (3) The table of sections for subpart B of part IV of 
     subchapter A of chapter 1, as amended by this Act, is amended 
     by inserting after the item relating to section 30C the 
     following new item:

``Sec. 30D. Clean-fuel vehicle refueling property credit.''.

       (e) Effective Date.--The amendments made by
       On page 665, line 7, strike ``section 30B(d)(4)'' and 
     insert ``section 30C(d)(4)''.
       On page 670, line 12, insert ``, as amended by this Act,'' 
     after the end parenthetical.
       On page 670, line 14, strike ``(k)'' and insert ``(l)''.
       On page 702, line 3, strike ``Section 904(h)'' and insert 
     ``Section 904(i), as redesignated and amended by this Act,''.
       On page 702, strike lines 8 through 15, and insert the 
     following:
       (1) Section 1016(a), as amended by this Act, is amended by 
     striking ``and'' at the end of paragraph (33), by striking 
     the period at the end of paragraph (34) and inserting ``, 
     and'', and by adding at the end the following new paragraph:
       ``(35) to the extent provided in section 25C(f), in the 
     case of amounts with respect to which a credit has been 
     allowed under section 25C.''.
       On page 715, line 22, strike ``(30)'' and insert ``(34)''.
       On page 715, line 23, strike ``(31)'' and insert ``(35)''.
       On page 716, line 1, strike ``(32)'' and insert ``(36)''.
       On page 716, strike lines 9 through 15, and insert the 
     following:
       (4) Section 263(a)(1), as amended by this Act, is amended 
     by striking ``or'' at the end of subparagraph (H), by 
     striking the period at the end of subparagraph (I) and 
     inserting ``, or'', and by inserting after subparagraph (I) 
     the following new subparagraph:
       ``(J) expenditures for which a deduction is allowed under 
     section 179B.''.
       On page 717, line 13, insert ``, as amended by this Act,'' 
     after ``rules)''.
       On page 717, line 15, strike ``(15)'' and insert ``(16)''.
       On page 719, line 7, strike ``(16)'' and insert ``(17)''.
       On page 734, lines 16 and 17, strike ``Section 904(h), as 
     amended by this Act,'' and insert ``Section 904(i), as 
     redesignated and amended by this Act,''.
       On page 734, line 25, strike ``(31)'' and insert ``(35)''.
       On page 735, line 1, strike ``(32)'' and insert ``(36)''.
       On page 735, line 3, strike ``(33)'' and insert ``(37)''.
       Beginning on page 747, line 23, strike all through page 
     748, line 5, and insert the following:
       (a) Allowance of Qualifying Advanced Clean Coal Technology 
     Unit Credit.--Section 46 (relating to amount of credit), as 
     amended by this Act, is amended by striking ``and'' at the 
     end of paragraph (1), by striking the period at the end of 
     paragraph (2) and inserting ``, and'', and by adding at the 
     end the following new paragraph:
       ``(3) the qualifying advanced clean coal technology unit 
     credit.''.
       On page 780, strike lines 16 through 21, and insert the 
     following:
       (a) In General.--Section 168(e)(3)(C) (defining 7-year 
     property), as amended by this Act, is amended by striking 
     ``and'' at the end of clause (ii), by redesignating clause 
     (iii) as clause (iv), and by inserting after clause (ii) the 
     following new clause:
       ``(iii) any natural gas gathering line, and''.
       On page 781, line 3, strike ``(17)'' and insert ``(18)''.
       On page 782, in the matter following line 2, strike 
     ``(C)(ii)'' and insert ``(C)(iii)''.
       On page 783, line 22, strike the end quotation marks and 
     second period.
       On page 784, line 4, strike ``(H)'' and insert ``(I)''.
       On page 784, line 5, strike ``(I)'' and insert ``(J)''.
       On page 784, line 7, strike ``(J)'' and insert ``(K)''.
       On page 784, line 17, strike ``(32)'' and insert ``(36)''.
       On page 784, line 18, strike ``(33)'' and insert ``(37)''.
       On page 784, line 20, strike ``(34)'' and insert ``(38)''.
       On page 785, line 1, strike ``(5)'' and insert ``(6)''.
       On page 793, line 15, strike ``(33)'' and insert ``(37)''.
       On page 793, line 16, strike ``(34)'' and insert ``(38)''.
       On page 793, line 19, strike ``(35)'' and insert ``(39)''.
       On page 795, line 5, insert ``, as amended by this Act,'' 
     after ``production)''.
       On page 805, line 3, strike the semicolon and insert a 
     colon.
       On page 805, line 8, insert ``of subsection (f)'' before 
     ``owned''.
       On page 805, line 11, strike the end quotation marks and 
     second period.
       On page 807, line 2, insert ``, as amended by this Act,'' 
     after ``38(b)''.
       On page 808, strike lines 8 through 12, and insert the 
     following:
       (G) Subsection (a) of section 772, as amended by this Act, 
     is amended by striking paragraph (10) and by redesignating 
     paragraphs (11) and (12) as paragraphs (10) and (11), 
     respectively.
       On page 810, strike lines 12 through 18, and insert the 
     following:
       (a) In General.--Section 168(e)(3)(E) (defining 15-year 
     property), as amended by this Act, is amended by striking 
     ``and'' at the end of clause (iii), by striking the period at 
     the end of clause (iv) and by inserting ``, and'', and by 
     adding at the end the following new clause:
       ``(v) any natural gas distribution line.''.
       On page 810, in the matter after line 23, strike 
     ``(E)(iv)'' and insert ``(E)(v)''.
       On page 814, line 5, strike ``(18)'' and insert ``(19)''.
       On page 818, strike lines 19 through 25, and insert the 
     following:
       (a) In General.--Section 168(e)(3)(C) (defining 7-year 
     property), as amended by this Act, is amended by striking 
     ``and'' at the end of clause (iii), by redesignating clause 
     (iv) as clause (v), and by inserting after clause (iii) the 
     following new clause:
       ``(iv) any Alaska natural gas pipeline, and''.
       On page 819, line 5, strike ``(18)'' and insert ``(19)''.
       On page 820, line 2, strike ``(C)(ii)'' and insert 
     ``(C)(iii)''.
       On page 820, in the matter following line 2, strike 
     ``(C)(iii)'' and insert ``(C)(iv)''.
       On page 820, line 3, strike the beginning quotation marks.
       On page 840, line 14, insert ``, as amended by this Act,'' 
     after ``modifications)''.
       On page 840, line 17, strike ``(18)'' and insert ``(20)''.
       On page 849, line 20, strike ``5211 and 5242'' and insert 
     ``871 and 880''.
       On page 855, lines 1 and 2, strike ``, as amended by 
     section 5101 of this Act,''.
       On page 862, line 3, insert ``, as amended by this Act,'' 
     after ``credit)''.
       On page 862, strike lines 10 through 19, and insert the 
     following:
       (1)(A) Section 87, as amended by this Act, is amended--
       (i) by striking ``and'' at the end of paragraph (1),
       (ii) by striking the period at the end of paragraph (2) and 
     inserting ``, and'',
       (iii) by adding at the end the following new paragraph:
       ``(3) the biodiesel fuels credit determined with respect to 
     the taxpayer for the taxable year under section 40B(a).'', 
     and
       (iv) by striking ``FUEL CREDIT'' in the heading and 
     inserting ``AND BIODIESEL FUELS CREDITS''.
       Beginning on page 862, line 24, strike all through page 
     863, line 5, and insert the following:
       (2) Section 196(c), as amended by this Act, is amended by 
     striking ``and'' at the end of paragraph (11), by striking 
     the period at the end of paragraph (12) and inserting ``, 
     and'', and by adding at the end the following new paragraph:
       ``(13) the biodiesel fuels credit determined under section 
     40B(a).''.
       On page 872, strike lines 1 through 8, and insert the 
     following:
       (M) Subparagraph (B) of section 6724(d)(1), as amended by 
     this Act, is amended by striking clause (xvi) and by 
     redesignating clauses (xvii), (xviii), and (xix) as clauses 
     (xvi), (xvii), and (xviii), respectively.
       (N) Paragraph (2) of section 6724(d), as amended by this 
     Act, is amended by striking subparagraph (X) and by 
     redesignating subparagraphs (Y), (Z), (AA), (BB), and (CC) as 
     subparagraphs (X), (Y), (Z), (AA), and (BB), respectively.
       On page 878, line 8, strike ``Penalty--'' and insert 
     ``Penalty.--''.
       On page 883, line 7, strike ``section 5211 of''.
       On page 883, lines 17 and 18, strike ``section 5211 of''.
       On page 884, lines 6 and 7, strike ``section 5221 of''.
       On page 885, lines 8 and 9, strike ``section 5211 of''.
       On page 885, lines 21 and 22, strike ``section 5221 of''.
       On page 886, line 18, strike ``section 5232 of''.
       On page 888, line 10, strike ``section 5232 of''.
       On page 889, line 13, strike ``section 5241 of''.
       On page 890, line 11, strike ``section 5241 of''.
       On page 890, line 16, strike the second period.
       On page 890, line 18, strike ``section 5242 of''.

[[Page S5163]]

       On page 890, line 22, strike the second period.
       On page 891, line 22, strike ``section 5242 of''.
       On page 892, line 17, strike ``section 5242 of''.
       On page 895, lines 18 and 19, strike ``section 5245 of''.
       On page 898, lines 20 and 21, strike ``section 5102 of''.
       On page 902, lines 24 and 25, strike ``section 5152 of''.
       On page 903, line 10, strike ``section 5251 of''.
       On page 904, line 15, strike ``section 5251 of''.
       On page 906, lines 12 and 13, strike ``, as amended by 
     section 5001 of this Act,''.
       On page 907, lines 12 and 13, strike ``, as amended by 
     section 5001 of this Act,''.
       On page 909, line 19, strike ``section 5211 of''.
       On page 910, lines 20 and 21, strike ``section 5211 of''.
       On page 912, lines 9 and 10, strike ``section 5243 of''.
       On page 912, lines 12 through 14, strike ``as added by 
     section 5242 of this Act and redesignated by section 5243 of 
     this Act'' and insert ``as added and redesignated by this 
     Act''.
       On page 912, lines 20 and 21, strike ``section 5241 of''.
       On page 912, line 24, strike the space after the beginning 
     quotation marks.
       On page 913, strike lines 1 and 2, and insert the 
     following:
       (II) in the heading, by inserting ``or reportable liquids'' 
     after ``taxable fuel''.
       On page 913, line 5, strike ``section 5241 of''.
       On page 914, line 8, strike ``section 5252 of''.
       On page 919, strike lines 3 through 9, and insert the 
     following:
       ``(C) Special rule for use by certain tax-exempt 
     organizations.--For purposes of subparagraph (A), the use-
     based test shall be determined without regard to any use in a 
     vehicle by an organization which is described in section 
     501(c) and exempt from tax under section 501(a).''.
       On page 931, after line 18, add the following:

     SEC. 899B. CREDIT FOR QUALIFYING POLLUTION CONTROL EQUIPMENT.

       (a) Allowance of Qualifying Pollution Control Equipment 
     Credit.--Section 46 (relating to amount of credit), as 
     amended by this Act, is amended by striking ``and'' at the 
     end of paragraph (2), by striking the period at the end of 
     paragraph (3) and inserting ``, and'', and by adding at the 
     end the following new paragraph:
       ``(4) the qualifying pollution control equipment credit.''.
       (b) Amount of Qualifying Pollution Control Equipment 
     Credit.--Subpart E of part IV of subchapter A of chapter 1 
     (relating to rules for computing investment credit), as 
     amended by this Act, is amended by inserting after section 
     48A the following new section:

     ``SEC. 48B. QUALIFYING POLLUTION CONTROL EQUIPMENT CREDIT.

       ``(a) In General.--For purposes of section 46, the 
     qualifying pollution control equipment credit for any taxable 
     year is an amount equal to 15 percent of the basis of the 
     qualifying pollution control equipment placed in service at a 
     qualifying facility during such taxable year.
       ``(b) Qualifying Pollution Control Equipment.--For purposes 
     of this section, the term `qualifying pollution control 
     equipment' means any technology installed in or on a 
     qualifying facility to reduce air emissions of any pollutant 
     regulated by the Environmental Protection Agency under the 
     Clean Air Act, including thermal oxidizers, regenerative 
     thermal oxidizers, scrubber systems, evaporative control 
     systems, vapor recovery systems, flair systems, bag houses, 
     cyclones, continuous emissions monitoring systems, and low 
     nitric oxide burners.
       ``(c) Qualifying Facility.--For purposes of this section, 
     the term `qualifying facility' means any facility which 
     produces not less than 1,000,000 gallons of ethanol during 
     the taxable year.
       ``(d) Special Rule for Certain Subsidized Property.--Rules 
     similar to section 48(a)(4) shall apply for purposes of this 
     section.
       ``(e) Certain Qualified Progress Expenditures Rules Made 
     Applicable.--Rules similar to the rules of subsections (c)(4) 
     and (d) of section 46 (as in effect on the day before the 
     enactment of the Revenue Reconciliation Act of 1990) shall 
     apply for purposes of this subsection.''.
       (c) Recapture of Credit Where Emissions Reduction Offset is 
     Sold.--Paragraph (1) of section 50(a) is amended by 
     redesignating subparagraph (B) as subparagraph (C) and by 
     inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) Special rule for qualifying pollution control 
     equipment.--For purposes of subparagraph (A), any investment 
     property which is qualifying pollution control equipment (as 
     defined in section 48B(b)) shall cease to be investment 
     credit property with respect to a taxpayer if such taxpayer 
     receives a payment in exchange for a credit for emission 
     reductions attributable to such qualifying pollution control 
     equipment for purposes of an offset requirement under part D 
     of title I of the Clean Air Act.''.
       (d) Special Rule for Basis Reduction; Recapture of 
     Credit.--Paragraph (3) of section 50(c) (relating to basis 
     adjustment to investment credit property), as amended by this 
     Act, is amended by inserting ``or qualifying pollution 
     control equipment credit'' after ``energy credit''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after December 31, 
     2003, in taxable years ending after such date, under rules 
     similar to the rules of section 48(m) of the Internal Revenue 
     Code of 1986 (as in effect on the day before the date of the 
     enactment of the Revenue Reconciliation Act of 1990).
                                 ______
                                 
  SA 3134. Mr. HOLLINGS submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 19, beginning with line 25, strike through line 3 
     on page 98 and insert the following:
       ``(a) Allowance of Deduction.--There shall be allowed as a 
     deduction an amount equal to 9 percent of the qualified 
     production activities income of the taxpayer for the taxable 
     year.
       ``(b) Deduction Limited to Wages Paid.--
       ``(1) In general.--The amount of the deduction allowable 
     under subsection (a) for any taxable year shall not exceed 50 
     percent of the W-2 wages of the employer for the taxable 
     year.
       ``(2) W-2 wages.--For purposes of paragraph (1), the term 
     `W-2 wages' means the sum of the aggregate amounts the 
     taxpayer is required to include on statements under 
     paragraphs (3) and (8) of section 6051(a) with respect to 
     employment of employees of the taxpayer during the taxpayer's 
     taxable year.
       ``(3) Special rules.--
       ``(A) Pass-thru entities.--In the case of an S corporation, 
     partnership, estate or trust, or other pass-thru entity, the 
     limitation under this subsection shall apply at the entity 
     level.
       ``(B) Acquisitions and dispositions.--The Secretary shall 
     provide for the application of this subsection in cases where 
     the taxpayer acquires, or disposes of, the major portion of a 
     trade or business or the major portion of a separate unit of 
     a trade or business during the taxable year.
       ``(c) Qualified Production Activities Income.--For purposes 
     of this section--
       ``(1) In general.--The term `qualified production 
     activities income' means an amount equal to the portion of 
     the modified taxable income of the taxpayer which is 
     attributable to domestic production activities.
       ``(2) Reduction for taxable years beginning before 2013.--
     The amount otherwise determined under paragraph (1) (the 
     `unreduced amount') shall not exceed--
       ``(A) in the case of taxable years beginning before 2010, 
     the product of the unreduced amount and the domestic/
     worldwide fraction, and
       ``(B) in the case of taxable years beginning in 2010, 2011, 
     or 2012, an amount equal to the sum of--
       ``(i) the product of the unreduced amount and the domestic/
     worldwide fraction, plus
       ``(ii) the applicable percentage of an amount equal to the 
     unreduced amount minus the amount determined under clause 
     (i).

     For purposes of subparagraph (B)(ii), the applicable 
     percentage is 25 percent for 2010, 50 percent for 2011, and 
     75 percent for 2012.
       ``(d) Determination of Income Attributable to Domestic 
     Production Activities.--For purposes of this section--
       ``(1) In general.--The portion of the modified taxable 
     income which is attributable to domestic production 
     activities is so much of the modified taxable income for the 
     taxable year as does not exceed--
       ``(A) the taxpayer's domestic production gross receipts for 
     such taxable year, reduced by
       ``(B) the sum of--
       ``(i) the costs of goods sold that are allocable to such 
     receipts,
       ``(ii) other deductions, expenses, or losses directly 
     allocable to such receipts, and
       ``(iii) a proper share of other deductions, expenses, and 
     losses that are not directly allocable to such receipts or 
     another class of income.
       ``(2) Allocation method.--The Secretary shall prescribe 
     rules for the proper allocation of items of income, 
     deduction, expense, and loss for purposes of determining 
     income attributable to domestic production activities.
       ``(3) Special rules for determining costs.--
       ``(A) In general.--For purposes of determining costs under 
     clause (i) of paragraph (1)(B), any item or service brought 
     into the United States shall be treated as acquired by 
     purchase, and its cost shall be treated as not less than its 
     fair market value immediately after it entered the United 
     States. A similar rule shall apply in determining the 
     adjusted basis of leased or rented property where the lease 
     or rental gives rise to domestic production gross receipts.
       ``(B) Exports for further manufacture.--In the case of any 
     property described in subparagraph (A) that had been exported 
     by the taxpayer for further manufacture, the increase in cost 
     or adjusted basis under subparagraph (A) shall not exceed the 
     difference

[[Page S5164]]

     between the value of the property when exported and the value 
     of the property when brought back into the United States 
     after the further manufacture.
       ``(4) Modified taxable income.--The term `modified taxable 
     income' means taxable income computed without regard to the 
     deduction allowable under this section.
       ``(e) Domestic Production Gross Receipts.--For purposes of 
     this section--
       ``(1) In general.--The term `domestic production gross 
     receipts' means the gross receipts of the taxpayer which are 
     derived from--
       ``(A) any sale, exchange, or other disposition of, or
       ``(B) any lease, rental, or license of,
     qualifying production property which was manufactured, 
     produced, grown, or extracted in whole or in significant part 
     by the taxpayer within the United States.
       ``(2) Special rules for certain property.--In the case of 
     any qualifying production property described in subsection 
     (f)(1)(C)--
       ``(A) such property shall be treated for purposes of 
     paragraph (1) as produced in significant part by the taxpayer 
     within the United States if more than 50 percent of the 
     aggregate development and production costs are incurred by 
     the taxpayer within the United States, and
       ``(B) if a taxpayer acquires such property before such 
     property begins to generate substantial gross receipts, any 
     development or production costs incurred before the 
     acquisition shall be treated as incurred by the taxpayer for 
     purposes of subparagraph (A) and paragraph (1).
       ``(f) Qualifying Production Property.--For purposes of this 
     section--
       ``(1) In general.--Except as otherwise provided in this 
     paragraph, the term `qualifying production property' means--
       ``(A) any tangible personal property,
       ``(B) any computer software, and
       ``(C) any property described in section 168(f) (3) or (4), 
     including any underlying copyright or trademark.
       ``(2) Exclusions from qualifying production property.--The 
     term `qualifying production property' shall not include--
       ``(A) consumable property that is sold, leased, or licensed 
     by the taxpayer as an integral part of the provision of 
     services,
       ``(B) oil or gas,
       ``(C) electricity,
       ``(D) water supplied by pipeline to the consumer,
       ``(E) utility services, or
       ``(F) any film, tape, recording, book, magazine, newspaper, 
     or similar property the market for which is primarily topical 
     or otherwise essentially transitory in nature.
       ``(g) Domestic/Worldwide Fraction.--For purposes of this 
     section--
       ``(1) In general.--The term `domestic/worldwide fraction' 
     means a fraction (not greater than 1)--
       ``(A) the numerator of which is the value of the domestic 
     production of the taxpayer, and
       ``(B) the denominator of which is the value of the 
     worldwide production of the taxpayer.
       ``(2) Value of domestic production.--The value of domestic 
     production is the excess (if any) of--
       ``(A) the domestic production gross receipts, over
       ``(B) the cost of purchased inputs allocable to such 
     receipts that are deductible under this chapter for the 
     taxable year.
       ``(3) Purchased inputs.--
       ``(A) In general.--Purchased inputs are any of the 
     following items acquired by purchase:
       ``(i) Services (other than services of employees) used in 
     manufacture, production, growth, or extraction activities.
       ``(ii) Items consumed in connection with such activities.
       ``(iii) Items incorporated as part of the property being 
     manufactured, produced, grown, or extracted.
       ``(B) Special rule.--Rules similar to the rules of 
     subsection (d)(3) shall apply for purposes of this 
     subsection.
       ``(4) Value of worldwide production.--
       ``(A) In general.--The value of worldwide production shall 
     be determined under the principles of paragraph (2), except 
     that--
       ``(i) worldwide production gross receipts shall be taken 
     into account, and
       ``(ii) paragraph (3)(B) shall not apply.
       ``(B) Worldwide production gross receipts.--The worldwide 
     production gross receipts is the amount that would be 
     determined under subsection (e) if such subsection were 
     applied without any reference to the United States.
       ``(h) Definitions and Special Rules.--
       ``(1) Application of section to pass-thru entities.--In the 
     case of an S corporation, partnership, estate or trust, or 
     other pass-thru entity--
       ``(A) subject to the provisions of paragraph (2) and 
     subsection (b)(3)(A), this section shall be applied at the 
     shareholder, partner, or similar level, and
       ``(B) the Secretary shall prescribe rules for the 
     application of this section, including rules relating to--
       ``(i) restrictions on the allocation of the deduction to 
     taxpayers at the partner or similar level, and
       ``(ii) additional reporting requirements.
       ``(2) Exclusion for patrons of agricultural and 
     horticultural cooperatives.--
       ``(A) In general.--If any amount described in paragraph (1) 
     or (3) of section 1385 (a)--
       ``(i) is received by a person from an organization to which 
     part I of subchapter T applies which is engaged in the 
     marketing of agricultural or horticultural products, and
       ``(ii) is allocable to the portion of the qualified 
     production activities income of the organization which is 
     deductible under subsection (a) and designated as such by the 
     organization in a written notice mailed to its patrons during 
     the payment period described in section 1382(d),

     then such person shall be allowed an exclusion from gross 
     income with respect to such amount. The taxable income of the 
     organization shall not be reduced under section 1382 by the 
     portion of any such amount with respect to which an exclusion 
     is allowable to a person by reason of this paragraph.
       ``(B) Special rules.--For purposes of applying subparagraph 
     (A), in determining the qualified production activities 
     income of the organization under this section--
       ``(i) there shall not be taken into account in computing 
     the organization's modified taxable income any deduction 
     allowable under subsection (b) or (c) of section 1382 
     (relating to patronage dividends, per-unit retain 
     allocations, and nonpatronage distributions), and
       ``(ii) the organization shall be treated as having 
     manufactured, produced, grown, or extracted in whole or 
     significant part any qualifying production property marketed 
     by the organization which its patrons have so manufactured, 
     produced, grown, or extracted.
       ``(3) Special rule for affiliated groups.--
       ``(A) In general.--All members of an expanded affiliated 
     group shall be treated as a single corporation for purposes 
     of this section.
       ``(B) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a), determined--
       ``(i) by substituting `50 percent' for `80 percent' each 
     place it appears, and
       ``(ii) without regard to paragraphs (2) and (4) of section 
     1504(b).

     For purposes of determining the domestic/worldwide fraction 
     under subsection (g), clause (ii) shall be applied by also 
     disregarding paragraphs (3) and (8) of section 1504(b).
       ``(4) Coordination with minimum tax.--The deduction under 
     this section shall be allowed for purposes of the tax imposed 
     by section 55; except that for purposes of section 55, 
     alternative minimum taxable income shall be taken into 
     account in determining the deduction under this section.
       ``(5) Ordering rule.--The amount of any other deduction 
     allowable under this chapter shall be determined as if this 
     section had not been enacted.
       ``(6) Trade or business requirement.--This section shall be 
     applied by only taking into account items which are 
     attributable to the actual conduct of a trade or business.
       ``(7) Possessions, etc.--
       ``(A) In general.--For purposes of subsections (d) and (e), 
     the term `United States' includes the Commonwealth of Puerto 
     Rico, Guam, American Samoa, the Commonwealth of the Northern 
     Mariana Islands, and the Virgin Islands of the United States.
       ``(B) Special rules for applying wage limitation.--For 
     purposes of applying the limitation under subsection (b) for 
     any taxable year--
       ``(i) the determination of W-2 wages of a taxpayer shall be 
     made without regard to any exclusion under section 3401(a)(8) 
     for remuneration paid for services performed in a 
     jurisdiction described in subparagraph (A), and
       ``(ii) in determining the amount of any credit allowable 
     under section 30A or 936 for the taxable year, there shall 
     not be taken into account any wages which are taken into 
     account in applying such limitation.
       ``(8) Coordination with transition rules.--For purposes of 
     this section--
       ``(A) domestic production gross receipts shall not include 
     gross receipts from any transaction if the binding contract 
     transition relief of section 101(c)(2) of the Jumpstart Our 
     Business Strength (JOBS) Act applies to such transaction, and
       ``(B) any deduction allowed under section 101(e) of such 
     Act shall be disregarded in determining the portion of the 
     taxable income which is attributable to domestic production 
     gross receipts.''.
       (b) Minimum Tax.--Section 56(g)(4)(C) (relating to 
     disallowance of items not deductible in computing earnings 
     and profits) is amended by adding at the end the following 
     new clause:
       ``(v) Deduction for domestic production.--Clause (i) shall 
     not apply to any amount allowable as a deduction under 
     section 199.''.
       (c) Clerical Amendment.--The table of sections for part VI 
     of subchapter B of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 199. Income attributable to domestic production activities.''.

       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after the date of the enactment 
     of this Act.
       (2) Application of section 15.--Section 15 of the Internal 
     Revenue Code of 1986 shall apply to the amendments made by 
     this section as if they were changes in a rate of tax.
                                 ______
                                 
  SA 3135. Mr. COLEMAN submitted an amendment intended to be proposed 
by

[[Page S5165]]

him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       At the end of the bill, add the following:

                    TITLE IX--NON-REVENUE PROVISIONS

     SEC. 901. CUSTOMS SERVICES.

       Section 13031(e)(1) of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985 (19 U.S.C. 58c(e)(1)) is amended--
       (1) by striking ``(1) Notwithstanding section 451 of the 
     Tariff Act of 1930 (19 U.S.C. 1451) or any other provision of 
     law (other than paragraph (2)),'' and inserting:
       ``(1) In general.--
       ``(A) Scheduled flights.--Notwithstanding section 451 of 
     the Tariff Act of 1930 (19 U.S.C. 1451) or any other 
     provision of law (other than subparagraph (B) and paragraph 
     (2)),''; and
       (2) by adding at the end the following:
       ``(B) Charter flights.--If a charter air carrier (as 
     defined in section 40102(13) of title 49, United States Code) 
     specifically requests that customs border patrol services for 
     passengers and their baggage be provided for a charter flight 
     arriving after normal operating hours at a customs border 
     patrol serviced airport and overtime funds for those services 
     are not available, the appropriate customs border patrol 
     officer may assign sufficient customs employees (if 
     available) to perform any such services, which could lawfully 
     be performed during regular hours of operation, and any 
     overtime fees incurred in connection with such service shall 
     be paid by the charter air carrier.''.
                                 ______
                                 
  SA 3136. Mr. SANTORUM submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       At the appropriate place insert the following:

     SEC. __. TAXATION OF CERTAIN SETTLEMENT FUNDS.

       (a) In General.--Subsection (g) of section 468B (relating 
     to clarification of taxation of certain funds) is amended to 
     read as follows:
       ``(g) Clarification of Taxation of Certain Funds.--
       ``(1) In general.--Except as provided in paragraph (2), 
     nothing in any provision of law shall be construed as 
     providing that an escrow account, settlement fund, or similar 
     fund is not subject to current income tax. The Secretary 
     shall prescribe regulations providing for the taxation of any 
     such account or fund whether as a grantor trust or otherwise.
       ``(2) Exemption from tax for certain settlement funds.--An 
     escrow account, settlement fund, or similar fund shall be 
     treated as beneficially owned by the United States and shall 
     be exempt from taxation under this subtitle if--
       ``(A) it is established pursuant to a consent decree 
     entered by a judge of a United States District Court,
       ``(B) it is created for the receipt of settlement payments 
     as directed by a government entity for the sole purpose of 
     resolving or satisfying one or more claims asserting 
     liability under the Comprehensive Environmental Response, 
     Compensation, and Liability Act of 1980,
       ``(C) the authority and control over the expenditure of 
     funds therein (including the expenditure of contributions 
     thereto and any net earnings thereon) is with such government 
     entity, and
       ``(D) upon termination, any remaining funds will be 
     disbursed upon instructions by such government entity in 
     accordance with applicable law.

     For purposes of this paragraph, the term `government entity' 
     means the United States, any State or political subdivision 
     thereof, the District of Columbia, any possession of the 
     United States, and any agency or instrumentality of any of 
     the foregoing.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.
                                 ______
                                 
  SA 3137. Mr. GRAHAM of South Carolina submitted an amendment intended 
to be proposed by him to the bill S. 1637, to amend the Internal 
Revenue Code of 1986 to comply with the World Trade Organization 
rulings on the FSC/ETI benefit in a manner that preserves jobs and 
production activities in the United States, to reform and simplify the 
international taxation rules of the United States, and for other 
purposes; which was ordered to lie on the table; as follows:

       At the end of the bill, add the following:

                   TITLE V--MISCELLANEOUS PROVISIONS

     SEC. 501. NEGOTIATIONS REGARDING CURRENCY VALUATION.

       (a) Findings.--Congress makes the following findings:
       (1) The currency of the People's Republic of China, known 
     as the yuan or renminbi, is artificially pegged at a level 
     significantly below its market value. Economists estimate the 
     yuan to be undervalued by between 15 percent and 40 percent 
     or an average of 27.5 percent.
       (2) The undervaluation of the yuan provides the People's 
     Republic of China with a significant trade advantage by 
     making exports less expensive for foreign consumers and by 
     making foreign products more expensive for Chinese consumers. 
     The effective result is a significant subsidization of 
     China's exports and a virtual tariff on foreign imports.
       (3) The Government of the People's Republic of China has 
     intervened in the foreign exchange markets to hold the value 
     of the yuan within an artificial trading range. China's 
     foreign reserves are estimated to be over $350,000,000,000 as 
     of September 2003, and have increased by over 
     $110,000,000,000 in the last 12 months.
       (4) China's undervalued currency, China's trade advantage 
     from that undervaluation, and the Chinese Government's 
     intervention in the value of its currency violates the spirit 
     and letter of the world trading system of which the People's 
     Republic of China is now a member.
       (5) The Government of the People's Republic of China has 
     failed to promptly address concerns or to provide a 
     definitive timetable for resolution of these concerns raised 
     by the United States and the international community 
     regarding the value of its currency.
       (6) Article XXI of the GATT 1994 (as defined in section 
     2(1)(B) of the Uruguay Round Agreements Act (19 U.S.C. 
     3501(1)(B))) allows a member of the World Trade Organization 
     to take any action which it considers necessary for the 
     protection of its essential security interests. Protecting 
     the United States manufacturing sector is essential to the 
     interests of the United States.
       (b) Negotiations and Certification Regarding the Currency 
     Valuation Policy of the People's Republic of China.--
       (1) In general.--Notwithstanding the provisions of title I 
     of Public Law 106-286 (19 U.S.C. 2431 note), on and after the 
     date that is 180 days after the date of enactment of this 
     Act, unless a certification described in paragraph (2) has 
     been made to Congress, in addition to any other duty, there 
     shall be imposed a rate of duty of 27.5 percent ad valorem on 
     any article that is the growth, product, or manufacture of 
     the People's Republic of China, imported directly or 
     indirectly into the United States.
       (2) Certification.--The certification described in this 
     paragraph means a certification by the President to Congress 
     that the People's Republic of China is no longer acquiring 
     foreign exchange reserves to prevent the appreciation of the 
     rate of exchange between its currency and the United States 
     dollar for purposes of gaining an unfair competitive 
     advantage in international trade. The certification shall 
     also include a determination that the currency of the 
     People's Republic of China has undergone a substantial upward 
     revaluation placing it at or near its fair market value.
       (3) Alternative certification.--If the President certifies 
     to Congress 180 days after the date of enactment of this Act 
     that the People's Republic of China has made a good faith 
     effort to revalue its currency upward placing it at or near 
     its fair market value, the President may delay the imposition 
     of the tariffs described in paragraph (1) for an additional 
     180 days. If at the end of the 180-day period the President 
     determines that China has developed and started actual 
     implementation of a plan to revalue its currency, the 
     President may delay imposition of the tariffs for an 
     additional 12 months, so that the People's Republic of China 
     shall have time to implement the plan.
       (4) Negotiations.--Beginning on the date of enactment of 
     this Act, the Secretary of the Treasury, in consultation with 
     the United States Trade Representative, shall begin 
     negotiations with the People's Republic of China to ensure 
     that the People's Republic of China adopts a process that 
     leads to a substantial upward currency revaluation within 180 
     days after the date of enactment of this Act. Because various 
     Asian governments have also been acquiring substantial 
     foreign exchange reserves in an effort to prevent 
     appreciation of their currencies for purposes of gaining an 
     unfair competitive advantage in international trade, and 
     because the People's Republic of China has concerns about the 
     value of those currencies, the Secretary shall also seek to 
     convene a multilateral summit to discuss exchange rates with 
     representatives of various Asian governments and other 
     interested parties, including representatives of other G-7 
     nations.
                                 ______
                                 
  SA 3138. Mrs. HUTCHISON submitted an amendment intended to be 
proposed by her to the bill S. 1637, to amend the Internal Revenue Code 
of 1986 to comply with the World Trade Organization rulings on the FSC/
ETI benefit in a manner that preserves jobs and production activities 
in the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 35, between lines 11 and 12, insert the following:

[[Page S5166]]

     SEC. 103. DEDUCTION FOR UNITED STATES PRODUCTION ACTIVITIES 
                   INCLUDES INCOME RELATED TO CERTAIN 
                   ARCHITECTURAL AND ENGINEERING SERVICES.

       (a) In General.--Paragraph (1) of section 199(e) (relating 
     to domestic production gross receipts), as added by section 
     102, is amended to read as follows:
       ``(1) In general.--
       ``(A) Receipts from qualifying production property.--The 
     term `domestic production gross receipts' means the gross 
     receipts of the taxpayer which are derived from--
       ``(i) any sale, exchange, or other disposition of, or
       ``(ii) any lease, rental, or license of,
     qualifying production property which was manufactured, 
     produced, grown, or extracted in whole or in significant part 
     by the taxpayer within the United States.
       ``(B) Receipts from certain services.--
       ``(i) In general.--Such term also includes the applicable 
     percentage of gross receipts of the taxpayer which are 
     derived from any engineering or architectural services 
     performed in the United States for construction projects in 
     the United States.
       ``(ii) Applicable percentage.--For purposes of clause (i), 
     the applicable percentage shall be determined under the 
     following table:

The applicable percentage is--ear beginning in--
  2004, 2005, 2006, 2007, or 2008...............................25 ....

  2009, 2010, 2011, or 2012.....................................50 ....

  2013 or thereafter...........................................100.....

       (b) Limitation of Employer Deduction for Certain 
     Entertainment Expenses with Respect to Covered Employees.--
     Paragraph (2) of section 274(e) (relating to expenses treated 
     as compensation) is amended to read as follows:
       ``(2) Expenses treated as compensation.--Expenses for 
     goods, services, and facilities--
       ``(A) in the case of a covered employee (within the meaning 
     of section 162(m)(3)), to the extent that the expenses do not 
     exceed the amount of the expenses treated by the taxpayer, 
     with respect to the recipient of the entertainment, 
     amusement, or recreation, as compensation to such covered 
     employee on the taxpayer's return of tax under this chapter 
     and as wages to such covered employee for purposes of chapter 
     24 (relating to withholding of income tax at source on 
     wages), and
       ``(B) in the case of any other employee, to the extent that 
     the expenses are treated by the taxpayer, with respect to the 
     recipient of the entertainment, amusement, or recreation, as 
     compensation to such employee on the taxpayer's return of tax 
     under this chapter and as wages to such employee for purposes 
     of chapter 24 (relating to withholding of income tax at 
     source on wages).''.
       (c) Effective Dates.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to taxable years ending after the date of the 
     enactment of this Act, and section 15 of the Internal Revenue 
     Code of 1986 shall apply to the amendment made by this 
     subsection as if it were a change in the rate of tax.
       (2) Subsection (b).--The amendment made by subsection (b) 
     shall apply to expenses incurred after the date of the 
     enactment of this Act and before January 1, 2006.
                                 ______
                                 
  SA 3139. Mr. SPECTER submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 35, between lines 11 and 12, insert the following:

     SEC. 103. MANUFACTURER'S TAX EQUITY CREDIT AGAINST PAYROLL 
                   TAXES IN LIEU OF DEDUCTION.

       (a) In General.--Subchapter C of chapter 21 is amended by 
     redesignating section 3128 as section 3129 and inserting 
     after section 3127 the following new section:

     ``SEC. 3128. MANUFACTURER'S TAX EQUITY CREDIT.

       ``(a) General Rule.--In the case of a qualified 
     manufacturer who elects application of this section for any 
     taxable year, there shall be allowed a credit against the 
     taxes imposed by this chapter during the taxable year an 
     amount equal to 10 percent of qualified health benefit plan 
     costs paid during the taxable year.
       ``(b) Qualified Manufacturer.--For purposes of this 
     section, the term `qualified manufacturer' means any taxpayer 
     50 percent or more of whose gross receipts from activities 
     performed within the United States during the taxable year 
     were domestic production gross receipts (within the meaning 
     of section 199(e)).
       ``(c) Qualified Health Benefit Plan Costs.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified health benefit plan 
     costs' means any costs paid by the qualified manufacturer for 
     a qualified health benefit plan with respect to qualified 
     plan participants and their spouses and dependents (as 
     defined by section 152), but only if the amount of costs paid 
     by the qualified manufacturer is equal to or greater than 50 
     percent of the cost of coverage for such qualified plan 
     participants under such plan.
       ``(2) Qualified health benefit plan.--The term `qualified 
     health benefit plan' means an employee welfare benefit plan 
     (within the meaning of section 3(3) of the Employee 
     Retirement Income Security Act of 1974) which provides health 
     benefits.
       ``(3) Qualified plan participants.--The term `qualified 
     plan participants' means employees and former employees of 
     the qualified manufacturer--
       ``(A) who participate in a qualified health benefit plan of 
     the qualified manufacturer,
       ``(B) who are between the ages of 55 and 64, and
       ``(C)(i) in the case of a participant who is an employee of 
     such qualified manufacturer during the taxable year, whose 
     services for such qualified manufacturer for such year are 
     performed predominantly in the United States, and
       ``(ii) in the case of a participant who is a former 
     employee of such qualified manufacturer, whose services for 
     such qualified manufacturer were performed predominantly in 
     the United States during the period such participant was an 
     employee.
       ``(d) Denial of Deduction for Income Attributable to United 
     States Production.--No deduction shall be allowed under 
     section 199 for any qualified manufacturer for any taxable 
     year for which such qualified manufacturer elects the 
     application of this section.
       ``(e) Special Rule for Affiliated Groups.--Rules similar to 
     the rules of section 199(h)(3) shall apply for purposes of 
     this section.''.
       (b) Transfer of Funds.--The Secretary of the Treasury shall 
     transfer from the general revenues of the Federal Government 
     an amount sufficient so as to ensure that the income and 
     balances of the trust funds under section 201 of the Social 
     Security Act are not reduced as a result of the application 
     of the amendment made by subsection (a).
       (c) Determination of Benefits.--In making any determination 
     of benefits under title II of the Social Security Act and 
     part A of title XVIII of such Act, the Commissioner of Social 
     Security shall disregard the effect of the amendment made by 
     subsection (a) on any individual's earnings record.
       (d) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 21 is amended by striking the last 2 
     items and inserting the following:

``Sec. 3128. Manufacturer's tax equity credit.
``Sec. 3129. Short title.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.
                                 ______
                                 
  SA 3140. Mr. FEINGOLD submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       At the end of the bill, add the following:

    TITLE IX--OFFICE OF FEDERAL PROCUREMENT POLICY ACT IMPROVEMENTS

     SEC. 901. PREFERENCE FOR DOMESTIC BIDDERS.

       The Office of Federal Procurement Policy Act (41 U.S.C. 403 
     et seq.), as amended by this Act, is further amended by 
     adding at the end the following new section:

     ``SEC. 43. PREFERENCE FOR DOMESTIC BIDDERS.

       ``(a) The head of an executive agency entering into a 
     contract shall give preference to a company submitting an 
     offer on the contract that manufactures in the United States 
     the article, material, or supply for which the offer is 
     solicited, if--
       ``(1) that company's offer is substantially the same as an 
     offer made by a company that does not manufacture the 
     article, material, or supply in the United States; or
       ``(2) that company is the only company that manufactures in 
     the United States the article, material, or supply for which 
     the offer is solicited.
       ``(b)(1) Not later than 60 days after the end of each 
     fiscal year, the head of each executive agency shall submit 
     to Congress a report on the acquisitions that were made of 
     articles, materials, or supplies by such executive agency in 
     that fiscal year from entities that manufacture the articles, 
     materials, or supplies outside the United States.
       ``(2) The report for a fiscal year under paragraph (1) 
     shall separately indicate the following information:
       ``(A) The dollar value of any articles, materials, or 
     supplies that were manufactured outside the United States.
       ``(B) An itemized list of all waivers granted with respect 
     to such articles, materials, or supplies under the Buy 
     American Act (41 U.S.C. 10a et seq.).
       ``(C) A summary of--
       ``(i) the total procurement funds expended on articles, 
     materials, and supplies manufactured inside the United 
     States; and
       ``(ii) the total procurement funds expended on articles, 
     materials, and supplies manufactured outside the United 
     States.
       ``(3) The head of each executive agency submitting a report 
     under paragraph (1) shall make the report publicly available 
     by posting on an Internet website.''.

[[Page S5167]]

     SEC. 902. REQUIREMENTS FOR WAIVERS.

       (a) Public Interest Waiver Under Buy American Act.--Section 
     18 of the Office of Federal Procurement Policy Act (41 U.S.C. 
     416) is amended by adding at the end the following new 
     subsection (e):
       ``(e) Limitation on Public Interest Waiver Under Buy 
     American Act.--A determination under section 2(a) of the Buy 
     American Act (41 U.S.C. 10a(a)) that it is not in the public 
     interest to enter into a contract in accordance with such Act 
     may not be made after a notice of solicitation of offers for 
     the contract is published in accordance with this section and 
     section 8(e) of the Small Business Act (15 U.S.C. 637(e)).''.
       (b) Requirements Under Buy American Act.--The Office of 
     Federal Procurement Policy Act (41 U.S.C. 403 et seq.), as 
     amended by this Act, is further amended by adding at the end 
     the following new section:

     ``SEC. 44. REQUIREMENTS UNDER BUY AMERICAN ACT.

       ``(a) Use Outside the United States.--(1) Section 2(a) of 
     the Buy American Act (41 U.S.C. 10a(a)) shall apply without 
     regard to whether the articles, materials, or supplies to be 
     acquired are for use outside the United States if the 
     articles, materials, or supplies are not needed on an urgent 
     basis or if they are acquired on a regular basis.
       ``(2) In any case in which the articles, materials, or 
     supplies are to be acquired for use outside the United States 
     and are not needed on an urgent basis, before entering into a 
     contract an analysis shall be made of the difference in the 
     cost for acquiring the articles, materials, or supplies from 
     a company manufacturing the articles, materials, or supplies 
     in the United States (including the cost of shipping) and the 
     cost for acquiring the articles, materials, or supplies from 
     a company manufacturing the articles, materials, or supplies 
     outside the United States (including the cost of shipping).
       ``(b) Domestic Availability.--The head of an executive 
     agency may not make a determination under section 2(a) of the 
     Buy American Act (41 U.S.C. 10a) that an article, material, 
     or supply is not mined, produced, or manufactured, as the 
     case may be, in the United States in sufficient and 
     reasonably available commercial quantities and of 
     satisfactory quality, unless the head of that executive 
     agency has conducted a study and, on the basis of such study, 
     determined that--
       ``(1) domestic production cannot be initiated to meet the 
     procurement needs; and
       ``(2) a comparable article, material, or supply is not 
     available from a company in the United States.''.

     SEC. 903. DUAL-USE TECHNOLOGIES.

       The head of an executive agency (as defined in section 4(1) 
     of the Office of Federal Procurement Policy Act (41 U.S.C. 
     403(1)) may not enter into a contract, nor permit a 
     subcontract under a contract of the executive agency, with a 
     foreign entity that involves giving the foreign entity plans, 
     manuals, or other information related to a dual-use item or 
     technology on the Commerce Control List unless approval for 
     providing such plans, manuals, or information has been 
     obtained in accordance with the provisions of the Export 
     Administration Act of 1979 (50 U.S.C. App. 2401 et seq.) and 
     the Export Administration Regulations (15 C.F.R. part 730 et 
     seq.).

     SEC. 904. CLERICAL AMENDMENT.

       The table of contents in section 1(b) of the Office of 
     Federal Procurement Policy Act is amended by adding at the 
     end the following new items:

``Sec. 43. Preference for domestic bidders.
``Sec. 44. Requirements under Buy American Act.''.
                                 ______
                                 
  SA 3141. Mr. KYL submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       On page 557, between lines 9 and 10, insert the following:

     SEC. 660. SENSE OF CONGRESS REGARDING THE WORLD TRADE 
                   ORGANIZATION DECISION ON INTERNET GAMBLING.

       (a) Findings.--Congress finds the following:
       (1) Gambling through the Internet, which has grown rapidly, 
     opens up the possibility of immediate, individual, 24-hour 
     access in every home to the full range of wagering 
     opportunities on sporting events or casino-like contests.
       (2) The number of Internet gambling websites has increased 
     from about 2 dozen to over 2,000 in the last 9 years, with an 
     estimated $5,000,000,000 wagered over the Internet in 2003 
     alone.
       (3) Internet gambling fosters criminal activity, as up to 
     90 percent of pathological gamblers commit crimes to pay off 
     their wagering debts.
       (4) The Department of State has noted that Internet 
     gambling ``represents yet another powerful vehicle for 
     criminals to launder funds from illicit sources as well as to 
     evade taxes'' and the chief of the Federal Bureau of 
     Investigation's Financial Crimes Section has testified that 
     Internet gambling is a ``haven for money laundering 
     activities''.
       (5) There are Federal and State laws in the United States 
     which restrict Internet gambling services, and these laws are 
     consistent with the World Trade Organization obligations of 
     the United States.
       (6) The United States is currently involved in World Trade 
     Organization proceedings in which the nation of Antigua and 
     Barbuda has challenged these laws.
       (7) A World Trade Organization panel has ruled, as a result 
     of these proceedings, that the United States must allow 
     access to the United States market by foreign Internet 
     gambling businesses.
       (8) The World Trade Organization is likely to authorize 
     Antigua and Barbuda to impose tariffs on products from the 
     United States unless the United States agrees to change its 
     antigambling laws.
       (9) The United States benefits from participating in 
     international organizations such as the World Trade 
     Organization, but the United States must also be vigilant 
     about protecting American interests when decisions by such 
     organizations encroach upon United States sovereignty.
       (b) Sense of Congress.--It is the sense of Congress that--
       (1) the United States disagrees with the decision of the 
     World Trade Organization panel regarding the Internet 
     gambling laws of the United States, and
       (2) the United States should vigorously defend its right to 
     enact legislation protecting United States interests against 
     organized crime and money laundering and protecting the 
     integrity of United States sporting events.

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