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108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-696
======================================================================
 
                WORKING FAMILIES TAX RELIEF ACT OF 2004

                                _______
                                

               September 23, 2004.--Ordered to be printed

                                _______
                                

 Mr. Thomas, from the committee on conference, submitted the following

                           CONFERENCE REPORT

                        [To accompany H.R. 1308]

    The committee of conference on the disagreeing votes of the 
two Houses on the amendment of the House to the amendment of 
the Senate to the bill (H.R. 1308) to amend the Internal 
Revenue Code of 1986 to end certain abusive tax practices, to 
provide tax relief and simplification, and for other purposes, 
having met, after full and free conference, have agreed to 
recommend and do recommend to their respective Houses as 
follows:
    That the Senate recede from its disagreement to the 
amendments of the House to the amendments of the Senate to the 
text of the bill and agree to the same with an amendment as 
follows:
    In lieu of the matter proposed to be inserted by the House 
amendment, insert the following:

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

    (a) Short Title.--This Act may be cited as the ``Working 
Families Tax Relief Act of 2004''.
    (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.--The table of contents for this Act 
is as follows:

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

               TITLE I--EXTENSION OF FAMILY TAX PROVISIONS

Sec. 101. Repeal of scheduled reductions in child tax credit, marriage 
          penalty relief, and 10-percent rate bracket.
Sec. 102. Acceleration of increase in refundability of the child tax 
          credit.
Sec. 103. 1-year extension of minimum tax relief to individuals.
Sec. 104. Earned income includes combat pay.
Sec. 105. Application of EGTRRA sunset to this title.

                  TITLE II--UNIFORM DEFINITION OF CHILD

Sec. 201. Uniform definition of child, etc.
Sec. 202. Modifications of definition of head of household.
Sec. 203. Modifications of dependent care credit.
Sec. 204. Modifications of child tax credit.
Sec. 205. Modifications of earned income credit.
Sec. 206. Modifications of deduction for personal exemption for 
          dependents.
Sec. 207. Technical and conforming amendments.
Sec. 208. Effective date.

          TITLE III--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

Sec. 301. Research credit.
Sec. 302. Parity in the application of certain limits to mental health 
          benefits.
Sec. 303. Work opportunity credit and welfare-to-work credit.
Sec. 304. Qualified zone academy bonds.
Sec. 305. Cover over of tax on distilled spirits.
Sec. 306. Deduction for corporate donations of scientific property and 
          computer technology.
Sec. 307. Deduction for certain expenses of school teachers.
Sec. 308. Expensing of environmental remediation costs.
Sec. 309. Certain New York Liberty Zone benefits.
Sec. 310. Tax incentives for investment in the District of Columbia.
Sec. 311. Disclosure of tax information to facilitate combined 
          employment tax reporting.
Sec. 312. Allowance of nonrefundable personal credits against regular 
          and minimum tax liability.
Sec. 313. Credit for electricity produced from certain renewable 
          resources.
Sec. 314. Taxable income limit on percentage depletion for oil and 
          natural gas produced from marginal properties.
Sec. 315. Indian employment tax credit.
Sec. 316. Accelerated depreciation for business property on Indian 
          reservation.
Sec. 317. Disclosure of return information relating to student loans.
Sec. 318. Elimination of phaseout of credit for qualified electric 
          vehicles for 2004 and 2005.
Sec. 319. Elimination of phaseout for deduction for clean-fuel vehicle 
          property for 2004 and 2005.
Sec. 320. Disclosures relating to terrorist activities.
Sec. 321. Joint review of strategic plans and budget for the Internal 
          Revenue Service.
Sec. 322. Availability of medical savings accounts.

                   TITLE IV--TAX TECHNICAL CORRECTIONS

Sec. 401. Amendments related to Medicare Prescription Drug, Improvement, 
          and Modernization Act of 2003.
Sec. 402. Amendments related to Jobs and Growth Tax Relief 
          Reconciliation Act of 2003.
Sec. 403. Amendments related to Job Creation and Worker Assistance Act 
          of 2002.
Sec. 404. Amendments related to Economic Growth and Tax Relief 
          Reconciliation Act of 2001.
Sec. 405. Amendments related to Community Renewal Tax Relief Act of 
          2000.
Sec. 406. Amendments related to Taxpayer Relief Act of 1997.
Sec. 407. Amendments related to Small Business Job Protection Act of 
          1996.
Sec. 408. Clerical amendments.

              TITLE I--EXTENSION OF FAMILY TAX PROVISIONS

SEC. 101. REPEAL OF SCHEDULED REDUCTIONS IN CHILD TAX CREDIT, MARRIAGE 
                    PENALTY RELIEF, AND 10-PERCENT RATE BRACKET.

    (a) Child Tax Credit.--Subsection (a) of section 24 
(relating to child tax credit) is amended to read as follows:
    ``(a) Allowance of Credit.--There shall be allowed as a 
credit against the tax imposed by this chapter for the taxable 
year with respect to each qualifying child of the taxpayer an 
amount equal to $1,000.''.
    (b) Marriage Penalty Relief in Standard Deduction.--
            (1) In general.--Paragraph (2) of section 63(c) 
        (relating to basic standard deduction) is amended to 
        read as follows:
            ``(2) Basic standard deduction.--For purposes of 
        paragraph (1), the basic standard deduction is--
                    ``(A) 200 percent of the dollar amount in 
                effect under subparagraph (C) for the taxable 
                year in the case of--
                            ``(i) a joint return, or
                            ``(ii) a surviving spouse (as 
                        defined in section 2(a)),
                    ``(B) $4,400 in the case of a head of 
                household (as defined in section 2(b)), or
                    ``(C) $3,000 in any other case.''.
            (2) Conforming amendments.--
                    (A) Section 63(c)(4) is amended by striking 
                ``(2)(D)'' each place it occurs and inserting 
                ``(2)(C)''.
                    (B) Section 63(c) is amended by striking 
                paragraph (7).
    (c) Marriage Penalty Relief in 15-percent Income Tax 
Bracket.--Paragraph (8) of section 1(f) is amended to read as 
follows:
            ``(8) Elimination of marriage penalty in 15-percent 
        bracket.--With respect to taxable years beginning after 
        December 31, 2003, in prescribing the tables under 
        paragraph (1)--
                    ``(A) the maximum taxable income in the 15-
                percent rate bracket in the table contained in 
                subsection (a) (and the minimum taxable income 
                in the next higher taxable income bracket in 
                such table) shall be 200 percent of the maximum 
                taxable income in the 15-percent rate bracket 
                in the table contained in subsection (c) (after 
                any other adjustment under this subsection), 
                and
                    ``(B) the comparable taxable income amounts 
                in the table contained in subsection (d) shall 
                be \1/2\ of the amounts determined under 
                subparagraph (A).''.
    (d) 10-Percent Rate Bracket.--
            (1) In general.--Clause (i) of section 1(i)(1)(B) 
        is amended by striking ``($12,000 in the case of 
        taxable years beginning after December 31, 2004, and 
        before January 1, 2008)''.
            (2) Inflation adjustment.--Subparagraph (C) of 
        section 1(i)(1) is amended to read as follows:
                    ``(C) Inflation adjustment.--In prescribing 
                the tables under subsection (f) which apply 
                with respect to taxable years beginning in 
                calendar years after 2003--
                            ``(i) the cost-of-living adjustment 
                        shall be determined under subsection 
                        (f)(3) by substituting `2002' for 
                        `1992' in subparagraph (B) thereof, and
                            ``(ii) the adjustments under clause 
                        (i) shall not apply to the amount 
                        referred to in subparagraph (B)(iii).
                If any amount after adjustment under the 
                preceding sentence is not a multiple of $50, 
                such amount shall be rounded to the next lowest 
                multiple of $50.''.
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2003.

SEC. 102. ACCELERATION OF INCREASE IN REFUNDABILITY OF THE CHILD TAX 
                    CREDIT.

    (a) Acceleration of Refundability.--Section 24(d)(1)(B)(i) 
(relating to portion of credit refundable) is amended by 
striking ``(10 percent in the case of taxable years beginning 
before January 1, 2005)''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2003.

SEC. 103. EXTENSION OF MINIMUM TAX RELIEF TO INDIVIDUALS.

    (a) In General.--Subparagraphs (A) and (B) of section 
55(d)(1) of the Internal Revenue Code of 1986 (relating to 
exemption amount for taxpayers other than corporations) are 
each amended by striking ``2003 and 2004'' and inserting 
``2003, 2004, and 2005''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2004.

SEC. 104. EARNED INCOME INCLUDES COMBAT PAY.

    (a) Child Tax Credit.--Section 24(d)(1) (relating to 
portion of credit refundable) is amended by adding at the end 
the following new sentence: ``For purposes of subparagraph (B), 
any amount excluded from gross income by reason of section 112 
shall be treated as earned income which is taken into account 
in computing taxable income for the taxable year.''.
    (b) Earned Income Credit.--Subparagraph (B) of section 
32(c)(2) (relating to earned income) is amended--
            (1) by striking ``and'' at the end of clause (iv),
            (2) by striking the period at the end of clause (v) 
        and inserting ``, and'', and
            (3) by adding at the end the following:
                            ``(vi) in the case of any taxable 
                        year ending--
                                    ``(I) after the date of the 
                                enactment of this clause, and
                                    ``(II) before January 1, 
                                2006,
                        a taxpayer may elect to treat amounts 
                        excluded from gross income by reason of 
                        section 112 as earned income.''.
    (c) Effective Date.--
            (1) Child tax credit.--The amendment made by 
        subsection (a) shall apply to taxable years beginning 
        after December 31, 2003.
            (2) Earned income credit.--The amendments made by 
        subsection (b) shall apply to taxable years ending 
        after the date of the enactment of this Act.

SEC. 105. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.

    Each amendment made by this title shall be subject to title 
IX of the Economic Growth and Tax Relief Reconciliation Act of 
2001 to the same extent and in the same manner as the provision 
of such Act to which such amendment relates.

                 TITLE II--UNIFORM DEFINITION OF CHILD

SEC. 201. UNIFORM DEFINITION OF CHILD, ETC.

    Section 152 is amended to read as follows:

``SEC. 152. DEPENDENT DEFINED.

    ``(a) In General.--For purposes of this subtitle, the term 
`dependent' means--
            ``(1) a qualifying child, or
            ``(2) a qualifying relative.
    ``(b) Exceptions.--For purposes of this section--
            ``(1) Dependents ineligible.--If an individual is a 
        dependent of a taxpayer for any taxable year of such 
        taxpayer beginning in a calendar year, such individual 
        shall be treated as having no dependents for any 
        taxable year of such individual beginning in such 
        calendar year.
            ``(2) Married dependents.--An individual shall not 
        be treated as a dependent of a taxpayer under 
        subsection (a) if such individual has made a joint 
        return with the individual's spouse under section 6013 
        for the taxable year beginning in the calendar year in 
        which the taxable year of the taxpayer begins.
            ``(3) Citizens or nationals of other countries.--
                    ``(A) In general.--The term `dependent' 
                does not include an individual who is not a 
                citizen or national of the United States unless 
                such individual is a resident of the United 
                States or a country contiguous to the United 
                States.
                    ``(B) Exception for adopted child.--
                Subparagraph (A) shall not exclude any child of 
                a taxpayer (within the meaning of subsection 
                (f)(1)(B)) from the definition of `dependent' 
                if--
                            ``(i) for the taxable year of the 
                        taxpayer, the child has the same 
                        principal place of abode as the 
                        taxpayer and is a member of the 
                        taxpayer's household, and
                            ``(ii) the taxpayer is a citizen or 
                        national of the United States.
    ``(c) Qualifying Child.--For purposes of this section--
            ``(1) In general.--The term `qualifying child' 
        means, with respect to any taxpayer for any taxable 
        year, an individual--
                    ``(A) who bears a relationship to the 
                taxpayer described in paragraph (2),
                    ``(B) who has the same principal place of 
                abode as the taxpayer for more than one-half of 
                such taxable year,
                    ``(C) who meets the age requirements of 
                paragraph (3), and
                    ``(D) who has not provided over one-half of 
                such individual's own support for the calendar 
                year in which the taxable year of the taxpayer 
                begins.
            ``(2) Relationship.--For purposes of paragraph 
        (1)(A), an individual bears a relationship to the 
        taxpayer described in this paragraph if such individual 
        is--
                    ``(A) a child of the taxpayer or a 
                descendant of such a child, or
                    ``(B) a brother, sister, stepbrother, or 
                stepsister of the taxpayer or a descendant of 
                any such relative.
            ``(3) Age requirements.--
                    ``(A) In general.--For purposes of 
                paragraph (1)(C), an individual meets the 
                requirements of this paragraph if such 
                individual--
                            ``(i) has not attained the age of 
                        19 as of the close of the calendar year 
                        in which the taxable year of the 
                        taxpayer begins, or
                            ``(ii) is a student who has not 
                        attained the age of 24 as of the close 
                        of such calendar year.
                    ``(B) Special rule for disabled.--In the 
                case of an individual who is permanently and 
                totally disabled (as defined in section 
                22(e)(3)) at any time during such calendar 
                year, the requirements of subparagraph (A) 
                shall be treated as met with respect to such 
                individual.
            ``(4) Special rule relating to 2 or more claiming 
        qualifying child.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), if (but for this paragraph) 
                an individual may be and is claimed as a 
                qualifying child by 2 or more taxpayers for a 
                taxable year beginning in the same calendar 
                year, such individual shall be treated as the 
                qualifying child of the taxpayer who is--
                            ``(i) a parent of the individual, 
                        or
                            ``(ii) if clause (i) does not 
                        apply, the taxpayer with the highest 
                        adjusted gross income for such taxable 
                        year.
                    ``(B) More than 1 parent claiming 
                qualifying child.--If the parents claiming any 
                qualifying child do not file a joint return 
                together, such child shall be treated as the 
                qualifying child of--
                            ``(i) the parent with whom the 
                        child resided for the longest period of 
                        time during the taxable year, or
                            ``(ii) if the child resides with 
                        both parents for the same amount of 
                        time during such taxable year, the 
                        parent with the highest adjusted gross 
                        income.
    ``(d) Qualifying Relative.--For purposes of this section--
            ``(1) In general.--The term `qualifying relative' 
        means, with respect to any taxpayer for any taxable 
        year, an individual--
                    ``(A) who bears a relationship to the 
                taxpayer described in paragraph (2),
                    ``(B) whose gross income for the calendar 
                year in which such taxable year begins is less 
                than the exemption amount (as defined in 
                section 151(d)),
                    ``(C) with respect to whom the taxpayer 
                provides over one-half of the individual's 
                support for the calendar year in which such 
                taxable year begins, and
                    ``(D) who is not a qualifying child of such 
                taxpayer or of any other taxpayer for any 
                taxable year beginning in the calendar year in 
                which such taxable year begins.
            ``(2) Relationship.--For purposes of paragraph 
        (1)(A), an individual bears a relationship to the 
        taxpayer described in this paragraph if the individual 
        is any of the following with respect to the taxpayer:
                    ``(A) A child or a descendant of a child.
                    ``(B) A brother, sister, stepbrother, or 
                stepsister.
                    ``(C) The father or mother, or an ancestor 
                of either.
                    ``(D) A stepfather or stepmother.
                    ``(E) A son or daughter of a brother or 
                sister of the taxpayer.
                    ``(F) A brother or sister of the father or 
                mother of the taxpayer.
                    ``(G) A son-in-law, daughter-in-law, 
                father-in-law, mother-in-law, brother-in-law, 
                or sister-in-law.
                    ``(H) An individual (other than an 
                individual who at any time during the taxable 
                year was the spouse, determined without regard 
                to section 7703, of the taxpayer) who, for the 
                taxable year of the taxpayer, has the same 
                principal place of abode as the taxpayer and is 
                a member of the taxpayer's household.
            ``(3) Special rule relating to multiple support 
        agreements.--For purposes of paragraph (1)(C), over 
        one-half of the support of an individual for a calendar 
        year shall be treated as received from the taxpayer 
        if--
                    ``(A) no one person contributed over one-
                half of such support,
                    ``(B) over one-half of such support was 
                received from 2 or more persons each of whom, 
                but for the fact that any such person alone did 
                not contribute over one-half of such support, 
                would have been entitled to claim such 
                individual as a dependent for a taxable year 
                beginning in such calendar year,
                    ``(C) the taxpayer contributed over 10 
                percent of such support, and
                    ``(D) each person described in subparagraph 
                (B) (other than the taxpayer) who contributed 
                over 10 percent of such support files a written 
                declaration (in such manner and form as the 
                Secretary may by regulations prescribe) that 
                such person will not claim such individual as a 
                dependent for any taxable year beginning in 
                such calendar year.
            ``(4) Special rule relating to income of 
        handicapped dependents.--
                    ``(A) In general.--For purposes of 
                paragraph (1)(B), the gross income of an 
                individual who is permanently and totally 
                disabled (as defined in section 22(e)(3)) at 
                any time during the taxable year shall not 
                include income attributable to services 
                performed by the individual at a sheltered 
                workshop if--
                            ``(i) the availability of medical 
                        care at such workshop is the principal 
                        reason for the individual's presence 
                        there, and
                            ``(ii) the income arises solely 
                        from activities at such workshop which 
                        are incident to such medical care.
                    ``(B) Sheltered workshop defined.--For 
                purposes of subparagraph (A), the term 
                `sheltered workshop' means a school--
                            ``(i) which provides special 
                        instruction or training designed to 
                        alleviate the disability of the 
                        individual, and
                            ``(ii) which is operated by an 
                        organization described in section 
                        501(c)(3) and exempt from tax under 
                        section 501(a), or by a State, a 
                        possession of the United States, any 
                        political subdivision of any of the 
                        foregoing, the United States, or the 
                        District of Columbia.
            ``(5) Special rules for support.--For purposes of 
        this subsection--
                    ``(A) payments to a spouse which are 
                includible in the gross income of such spouse 
                under section 71 or 682 shall not be treated as 
                a payment by the payor spouse for the support 
                of any dependent, and
                    ``(B) in the case of the remarriage of a 
                parent, support of a child received from the 
                parent's spouse shall be treated as received 
                from the parent.
    ``(e) Special Rule for Divorced Parents.--
            ``(1) In general.--Notwithstanding subsection 
        (c)(1)(B), (c)(4), or (d)(1)(C), if--
                    ``(A) a child receives over one-half of the 
                child's support during the calendar year from 
                the child's parents--
                            ``(i) who are divorced or legally 
                        separated under a decree of divorce or 
                        separate maintenance,
                            ``(ii) who are separated under a 
                        written separation agreement, or
                            ``(iii) who live apart at all times 
                        during the last 6 months of the 
                        calendar year, and
                    ``(B) such child is in the custody of 1 or 
                both of the child's parents for more than one-
                half of the calendar year,
        such child shall be treated as being the qualifying 
        child or qualifying relative of the noncustodial parent 
        for a calendar year if the requirements described in 
        paragraph (2) are met.
            ``(2) Requirements.--For purposes of paragraph (1), 
        the requirements described in this paragraph are met 
        if--
                    ``(A) a decree of divorce or separate 
                maintenance or written separation agreement 
                between the parents applicable to the taxable 
                year beginning in such calendar year provides 
                that--
                            ``(i) the noncustodial parent shall 
                        be entitled to any deduction allowable 
                        under section 151 for such child, or
                            ``(ii) the custodial parent will 
                        sign a written declaration (in such 
                        manner and form as the Secretary may 
                        prescribe) that such parent will not 
                        claim such child as a dependent for 
                        such taxable year, or
                    ``(B) in the case of such an agreement 
                executed before January 1, 1985, the 
                noncustodial parent provides at least $600 for 
                the support of such child during such calendar 
                year.
        For purposes of subparagraph (B), amounts expended for 
        the support of a child or children shall be treated as 
        received from the noncustodial parent to the extent 
        that such parent provided amounts for such support.
            ``(3) Custodial parent and noncustodial parent.--
        For purposes of this subsection--
                    ``(A) Custodial parent.--The term 
                `custodial parent' means the parent with whom a 
                child shared the same principal place of abode 
                for the greater portion of the calendar year.
                    ``(B) Noncustodial parent.--The term 
                `noncustodial parent' means the parent who is 
                not the custodial parent.
            ``(4) Exception for multiple-support agreements.--
        This subsection shall not apply in any case where over 
        one-half of the support of the child is treated as 
        having been received from a taxpayer under the 
        provision of subsection (d)(3).
    ``(f) Other Definitions and Rules.--For purposes of this 
section--
            ``(1) Child defined.--
                    ``(A) In general.--The term `child' means 
                an individual who is--
                            ``(i) a son, daughter, stepson, or 
                        stepdaughter of the taxpayer, or
                            ``(ii) an eligible foster child of 
                        the taxpayer.
                    ``(B) Adopted child.--In determining 
                whether any of the relationships specified in 
                subparagraph (A)(i) or paragraph (4) exists, a 
                legally adopted individual of the taxpayer, or 
                an individual who is lawfully placed with the 
                taxpayer for legal adoption by the taxpayer, 
                shall be treated as a child of such individual 
                by blood.
                    ``(C) Eligible foster child.--For purposes 
                of subparagraph (A)(ii), the term `eligible 
                foster child' means an individual who is placed 
                with the taxpayer by an authorized placement 
                agency or by judgment, decree, or other order 
                of any court of competent jurisdiction.
            ``(2) Student defined.--The term `student' means an 
        individual who during each of 5 calendar months during 
        the calendar year in which the taxable year of the 
        taxpayer begins--
                    ``(A) is a full-time student at an 
                educational organization described in section 
                170(b)(1)(A)(ii), or
                    ``(B) is pursuing a full-time course of 
                institutional on-farm training under the 
                supervision of an accredited agent of an 
                educational organization described in section 
                170(b)(1)(A)(ii) or of a State or political 
                subdivision of a State.
            ``(3) Determination of household status.--An 
        individual shall not be treated as a member of the 
        taxpayer's household if at any time during the taxable 
        year of the taxpayer the relationship between such 
        individual and the taxpayer is in violation of local 
        law.
            ``(4) Brother and sister.--The terms `brother' and 
        `sister' include a brother or sister by the half blood.
            ``(5) Special support test in case of students.--
        For purposes of subsections (c)(1)(D) and (d)(1)(C), in 
        the case of an individual who is--
                    ``(A) a child of the taxpayer, and
                    ``(B) a student,
        amounts received as scholarships for study at an 
        educational organization described in section 
        170(b)(1)(A)(ii) shall not be taken into account.
            ``(6) Treatment of missing children.--
                    ``(A) In general.--Solely for the purposes 
                referred to in subparagraph (B), a child of the 
                taxpayer--
                            ``(i) who is presumed by law 
                        enforcement authorities to have been 
                        kidnapped by someone who is not a 
                        member of the family of such child or 
                        the taxpayer, and
                            ``(ii) who had, for the taxable 
                        year in which the kidnapping occurred, 
                        the same principal place of abode as 
                        the taxpayer for more than one-half of 
                        the portion of such year before the 
                        date of the kidnapping,
                shall be treated as meeting the requirement of 
                subsection (c)(1)(B) with respect to a taxpayer 
                for all taxable years ending during the period 
                that the child is kidnapped.
                    ``(B) Purposes.--Subparagraph (A) shall 
                apply solely for purposes of determining--
                            ``(i) the deduction under section 
                        151(c),
                            ``(ii) the credit under section 24 
                        (relating to child tax credit),
                            ``(iii) whether an individual is a 
                        surviving spouse or a head of a 
                        household (as such terms are defined in 
                        section 2), and
                            ``(iv) the earned income credit 
                        under section 32.
                    ``(C) Comparable treatment of certain 
                qualifying relatives.--For purposes of this 
                section, a child of the taxpayer--
                            ``(i) who is presumed by law 
                        enforcement authorities to have been 
                        kidnapped by someone who is not a 
                        member of the family of such child or 
                        the taxpayer, and
                            ``(ii) who was (without regard to 
                        this paragraph) a qualifying relative 
                        of the taxpayer for the portion of the 
                        taxable year before the date of the 
                        kidnapping,
                shall be treated as a qualifying relative of 
                the taxpayer for all taxable years ending 
                during the period that the child is kidnapped.
                    ``(D) Termination of treatment.--
                Subparagraphs (A) and (C) shall cease to apply 
                as of the first taxable year of the taxpayer 
                beginning after the calendar year in which 
                there is a determination that the child is dead 
                (or, if earlier, in which the child would have 
                attained age 18).
            ``(7) Cross references.--

        ``For provision treating child as dependent of both parents for 
        purposes of certain provisions, see sections 105(b), 
        132(h)(2)(B), and 213(d)(5).''.

SEC. 202. MODIFICATIONS OF DEFINITION OF HEAD OF HOUSEHOLD.

    (a) Head of Household.--Clause (i) of section 2(b)(1)(A) is 
amended to read as follows:
                            ``(i) a qualifying child of the 
                        individual (as defined in section 
                        152(c), determined without regard to 
                        section 152(e)), but not if such 
                        child--
                                    ``(I) is married at the 
                                close of the taxpayer's taxable 
                                year, and
                                    ``(II) is not a dependent 
                                of such individual by reason of 
                                section 152(b)(2) or 152(b)(3), 
                                or both, or''.
    (b) Conforming Amendments.--
            (1) Section 2(b)(2) is amended by striking 
        subparagraph (A) and by redesignating subparagraphs 
        (B), (C), and (D) as subparagraphs (A), (B), and (C), 
        respectively.
            (2) Clauses (i) and (ii) of section 2(b)(3)(B) are 
        amended to read as follows:
                            ``(i) subparagraph (H) of section 
                        152(d)(2), or
                            ``(ii) paragraph (3) of section 
                        152(d).''.

SEC. 203. MODIFICATIONS OF DEPENDENT CARE CREDIT.

    (a) In General.--Section 21(a)(1) is amended by striking 
``In the case of an individual who maintains a household which 
includes as a member one or more qualifying individuals (as 
defined in subsection (b)(1))'' and inserting ``In the case of 
an individual for which there are 1 or more qualifying 
individuals (as defined in subsection (b)(1)) with respect to 
such individual''.
    (b) Qualifying Individual.--Paragraph (1) of section 21(b) 
is amended to read as follows:
            ``(1) Qualifying individual.--The term `qualifying 
        individual' means--
                    ``(A) a dependent of the taxpayer (as 
                defined in section 152(a)(1)) who has not 
                attained age 13,
                    ``(B) a dependent of the taxpayer who is 
                physically or mentally incapable of caring for 
                himself or herself and who has the same 
                principal place of abode as the taxpayer for 
                more than one-half of such taxable year, or
                    ``(C) the spouse of the taxpayer, if the 
                spouse is physically or mentally incapable of 
                caring for himself or herself and who has the 
                same principal place of abode as the taxpayer 
                for more than one-half of such taxable year.''.
    (c) Conforming Amendment.--Paragraph (1) of section 21(e) 
is amended to read as follows:
            ``(1) Place of abode.--An individual shall not be 
        treated as having the same principal place of abode of 
        the taxpayer if at any time during the taxable year of 
        the taxpayer the relationship between the individual 
        and the taxpayer is in violation of local law.''.

SEC. 204. MODIFICATIONS OF CHILD TAX CREDIT.

    (a) In General.--Paragraph (1) of section 24(c) is amended 
to read as follows:
            ``(1) In general.--The term `qualifying child' 
        means a qualifying child of the taxpayer (as defined in 
        section 152(c)) who has not attained age 17.''.
    (b) Conforming Amendment.--Section 24(c)(2) is amended by 
striking ``the first sentence of section 152(b)(3)'' and 
inserting ``subparagraph (A) of section 152(b)(3)''.

SEC. 205. MODIFICATIONS OF EARNED INCOME CREDIT.

    (a) Qualifying Child.--Paragraph (3) of section 32(c) is 
amended to read as follows:
            ``(3) Qualifying child.--
                    ``(A) In general.--The term `qualifying 
                child' means a qualifying child of the taxpayer 
                (as defined in section 152(c), determined 
                without regard to paragraph (1)(D) thereof and 
                section 152(e)).
                    ``(B) Married individual.--The term 
                `qualifying child' shall not include an 
                individual who is married as of the close of 
                the taxpayer's taxable year unless the taxpayer 
                is entitled to a deduction under section 151 
                for such taxable year with respect to such 
                individual (or would be so entitled but for 
                section 152(e)).
                    ``(C) Place of abode.--For purposes of 
                subparagraph (A), the requirements of section 
                152(c)(1)(B) shall be met only if the principal 
                place of abode is in the United States.
                    ``(D) Identification requirements.--
                            ``(i) In general.--A qualifying 
                        child shall not be taken into account 
                        under subsection (b) unless the 
                        taxpayer includes the name, age, and 
                        TIN of the qualifying child on the 
                        return of tax for the taxable year.
                            ``(ii) Other methods.--The 
                        Secretary may prescribe other methods 
                        for providing the information described 
                        in clause (i).''.
    (b) Conforming Amendments.--
            (1) Section 32(c)(1) is amended by striking 
        subparagraph (C) and by redesignating subparagraphs 
        (D), (E), (F), and (G) as subparagraphs (C), (D), (E), 
        and (F), respectively.
            (2) Section 32(c)(4) is amended by striking 
        ``(3)(E)'' and inserting ``(3)(C)''.
            (3) Section 32(m) is amended by striking 
        ``subsections (c)(1)(F)'' and inserting ``subsections 
        (c)(1)(E)''.

SEC. 206. MODIFICATIONS OF DEDUCTION FOR PERSONAL EXEMPTION FOR 
                    DEPENDENTS.

    Subsection (c) of section 151 is amended to read as 
follows:
    ``(c) Additional Exemption for Dependents.--An exemption of 
the exemption amount for each individual who is a dependent (as 
defined in section 152) of the taxpayer for the taxable 
year.''.

SEC. 207. TECHNICAL AND CONFORMING AMENDMENTS.

            (1) Section 2(a)(1)(B)(i) is amended by inserting 
        ``, determined without regard to subsections (b)(1), 
        (b)(2), and (d)(1)(B) thereof'' after ``section 152''.
            (2) Section 21(e)(5) is amended--
                    (A) by striking ``paragraph (2) or (4) of'' 
                in subparagraph (A), and
                    (B) by striking ``within the meaning of 
                section 152(e)(1)'' and inserting ``as defined 
                in section 152(e)(3)(A)''.
            (3) Section 21(e)(6)(B) is amended by striking 
        ``section 151(c)(3)'' and inserting ``section 
        152(f)(1)''.
            (4) Section 25B(c)(2)(B) is amended by striking 
        ``151(c)(4)'' and inserting ``152(f)(2)''.
            (5)(A) Subparagraphs (A) and (B) of section 
        51(i)(1) are each amended by striking ``paragraphs (1) 
        through (8) of section 152(a)'' both places it appears 
        and inserting ``subparagraphs (A) through (G) of 
        section 152(d)(2)''.
            (B) Section 51(i)(1)(C) is amended by striking 
        ``152(a)(9)'' and inserting ``152(d)(2)(H)''.
            (6) Section 72(t)(2)(D)(i)(III) is amended by 
        inserting ``, determined without regard to subsections 
        (b)(1), (b)(2), and (d)(1)(B) thereof'' after ``section 
        152''.
            (7) Section 72(t)(7)(A)(iii) is amended by striking 
        ``151(c)(3)'' and inserting ``152(f)(1)''.
            (8) Section 42(i)(3)(D)(ii)(I) is amended by 
        inserting ``, determined without regard to subsections 
        (b)(1), (b)(2), and (d)(1)(B) thereof'' after ``section 
        152''.
            (9) Subsections (b) and (c)(1) of section 105 are 
        amended by inserting ``, determined without regard to 
        subsections (b)(1), (b)(2), and (d)(1)(B) thereof'' 
        after ``section 152''.
            (10) Section 120(d)(4) is amended by inserting 
        ``(determined without regard to subsections (b)(1), 
        (b)(2), and (d)(1)(B) thereof)'' after ``section 152''.
            (11) Section 125(e)(1)(D) is amended by inserting 
        ``, determined without regard to subsections (b)(1), 
        (b)(2), and (d)(1)(B) thereof'' after ``section 152''.
            (12) Section 129(c)(2) is amended by striking 
        ``151(c)(3)'' and inserting ``152(f)(1)''.
            (13) The first sentence of section 132(h)(2)(B) is 
        amended by striking ``151(c)(3)'' and inserting 
        ``152(f)(1)''.
            (14) Section 153 is amended by striking paragraph 
        (1) and by redesignating paragraphs (2), (3), and (4) 
        as paragraphs (1), (2), and (3), respectively.
            (15) Section 170(g)(1) is amended by inserting 
        ``(determined without regard to subsections (b)(1), 
        (b)(2), and (d)(1)(B) thereof)'' after ``section 152''.
            (16) Section 170(g)(3) is amended by striking 
        ``paragraphs (1) through (8) of section 152(a)'' and 
        inserting ``subparagraphs (A) through (G) of section 
        152(d)(2)''.
            (17) Section 213(a) is amended by inserting ``, 
        determined without regard to subsections (b)(1), 
        (b)(2), and (d)(1)(B) thereof'' after ``section 152''.
            (18) The second sentence of section 213(d)(11) is 
        amended by striking ``paragraphs (1) through (8) of 
        section 152(a)'' and inserting ``subparagraphs (A) 
        through (G) of section 152(d)(2)''.
            (19) Section 220(d)(2)(A) is amended by inserting 
        ``, determined without regard to subsections (b)(1), 
        (b)(2), and (d)(1)(B) thereof'' after ``section 152''.
            (20) Section 221(d)(4) is amended by inserting 
        ``(determined without regard to subsections (b)(1), 
        (b)(2), and (d)(1)(B) thereof)'' after ``section 152''.
            (21) Section 529(e)(2)(B) is amended by striking 
        ``paragraphs (1) through (8) of section 152(a)'' and 
        inserting ``subparagraphs (A) through (G) of section 
        152(d)(2)''.
            (22) Section 2032A(c)(7)(D) is amended by striking 
        ``section 151(c)(4)'' and inserting ``section 
        152(f)(2)''.
            (23) Section 2057(d)(2)(B) is amended by inserting 
        ``, determined without regard to subsections (b)(1), 
        (b)(2), and (d)(1)(B) thereof'' after ``section 152''.
            (24) Section 7701(a)(17) is amended by striking 
        ``152(b)(4), 682,'' and inserting ``682''.
            (25) Section 7702B(f)(2)(C)(iii) is amended by 
        striking ``paragraphs (1) through (8) of section 
        152(a)'' and inserting ``subparagraphs (A) through (G) 
        of section 152(d)(2)''.
            (26) Section 7703(b)(1) is amended--
                    (A) by striking ``151(c)(3)'' and inserting 
                ``152(f)(1)'', and
                    (B) by striking ``paragraph (2) or (4) 
                of''.

SEC. 208. EFFECTIVE DATE.

    The amendments made by this title shall apply to taxable 
years beginning after December 31, 2004.

          TITLE III--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

SEC. 301. RESEARCH CREDIT.

    (a) Extension.--
            (1) In general.--Section 41(h)(1)(B) (relating to 
        termination) is amended by striking ``June 30, 2004'' 
        and inserting ``December 31, 2005''.
            (2) Conforming amendment.--Section 45C(b)(1)(D) is 
        amended by striking ``June 30, 2004'' and inserting 
        ``December 31, 2005''.
    (b) Effective Date.--The amendments made by this section 
shall apply to amounts paid or incurred after June 30, 2004.

SEC. 302. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH 
                    BENEFITS.

    (a) In General.--Section 9812(f) is amended--
            (1) by striking ``and'' at the end of paragraph 
        (1), and
            (2) by striking paragraph (2) and inserting the 
        following new paragraphs:
            ``(2) on or after January 1, 2004, and before the 
        date of the enactment of the Working Families Tax 
        Relief Act of 2004, and
            ``(3) after December 31, 2005.''.
    (b) ERISA.--Section 712(f) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1185a(f)) is amended by 
striking ``on or after December 31, 2004'' and inserting 
``after December 31, 2005''.
    (c) PHSA.--Section 2705(f) of the Public Health Service Act 
(42 U.S.C. 300gg-5(f)) is amended by striking ``on or after 
December 31, 2004'' and inserting ``after December 31, 2005''.
    (d) Effective Dates.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 303. WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK CREDIT.

    (a) Extension of Credit.--
            (1) In general.--Section 51(c)(4) is amended by 
        striking ``December 31, 2003'' and inserting ``December 
        31, 2005''.
            (2) Long-term family assistance recipients.--
        Section 51A(f) is amended by striking ``December 31, 
        2003'' and inserting ``December 31, 2005''.
    (b) Effective Date.--The amendments made by this section 
shall apply to individuals who begin work for the employer 
after December 31, 2003.

SEC. 304. QUALIFIED ZONE ACADEMY BONDS.

    (a) In General.--Paragraph (1) of section 1397E(e) is 
amended by striking ``and 2003'' and inserting ``2003, 2004, 
and 2005''.
    (b) Effective Date.--The amendment made by this section 
shall apply to obligations issued after December 31, 2003.

SEC. 305. COVER OVER OF TAX ON DISTILLED SPIRITS.

    (a) In General.--Paragraph (1) of section 7652(f) is 
amended by striking ``January 1, 2004'' and inserting ``January 
1, 2006''.
    (b) Effective Date.--The amendment made by this section 
shall apply to articles brought into the United States after 
December 31, 2003.

SEC. 306. DEDUCTION FOR CORPORATE DONATIONS OF SCIENTIFIC PROPERTY AND 
                    COMPUTER TECHNOLOGY.

    (a) In General.--Section 170(e)(6)(G) is amended by 
striking ``2003'' and inserting ``2005''.
    (b) Effective Date.--The amendment made by this section 
shall apply to contributions made in taxable years beginning 
after December 31, 2003.

SEC. 307. DEDUCTION FOR CERTAIN EXPENSES OF SCHOOL TEACHERS.

    (a) In General.--Subparagraph (D) of section 62(a)(2) is 
amended by striking ``or 2003'' and inserting ``, 2003, 2004, 
or 2005''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to expenses paid or incurred in taxable years 
beginning after December 31, 2003.

SEC. 308. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

    (a) Extension of Termination Date.--Subsection (h) of 
section 198 is amended by striking ``December 31, 2003'' and 
inserting ``December 31, 2005''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to expenditures paid or incurred after December 31, 
2003.

SEC. 309. CERTAIN NEW YORK LIBERTY ZONE BENEFITS.

    (a) Extension of Tax-Exempt Bond Financing.--Subparagraph 
(D) of section 1400L(d)(2) is amended by striking ``2005'' and 
inserting ``2010''.
    (b) Extension of Advance Refundings.--Section 1400L(e)(1) 
is amended by striking ``2005'' and inserting ``2006''.
    (c) Clarification of Bonds Eligible for Advance 
Refunding.--Section 1400L(e)(2)(B) (relating to bonds 
described) is amended by striking ``, or'' and inserting ``or 
the Municipal Assistance Corporation, or''.
    (d) Effective date.--The amendment made by subsection (c) 
shall take effect as if included in the amendments made by 
section 301 of the Job Creation and Worker Assistance Act of 
2002.

SEC. 310. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF COLUMBIA.

    (a) Designation of Zone.--Subsection (f) of section 1400 is 
amended by striking ``December 31, 2003'' both places it 
appears and inserting ``December 31, 2005''.
    (b) Tax-Exempt Economic Development Bonds.--Subsection (b) 
of section 1400A is amended by striking ``December 31, 2003'' 
and inserting ``December 31, 2005''.
    (c) Zero Percent Capital Gains Rate.--
            (1) In general.--Subsection (b) of section 1400B is 
        amended by striking ``January 1, 2004'' each place it 
        appears and inserting ``January 1, 2006''.
            (2) Conforming amendments.--
                    (A) Section 1400B(e)(2) is amended--
                            (i) by striking ``December 31, 
                        2008'' and inserting ``December 31, 
                        2010'', and
                            (ii) by striking ``2008'' in the 
                        heading and inserting ``2010''.
                    (B) Section 1400B(g)(2) is amended by 
                striking ``December 31, 2008'' and inserting 
                ``December 31, 2010''.
                    (C) Section 1400F(d) is amended by striking 
                ``December 31, 2008'' and inserting ``December 
                31, 2010''.
    (d) First-Time Homebuyer Credit.--Subsection (i) of section 
1400C is amended by striking ``January 1, 2004'' and inserting 
``January 1, 2006''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall take 
        effect on January 1, 2004.
            (2) Tax-exempt economic development bonds.--The 
        amendment made by subsection (b) shall apply to 
        obligations issued after the date of the enactment of 
        this Act.

SEC. 311. DISCLOSURE OF TAX INFORMATION TO FACILITATE COMBINED 
                    EMPLOYMENT TAX REPORTING.

    (a) In General.--Paragraph (5) of section 6103(d) (relating 
to disclosure to State tax officials and State and local law 
enforcement agencies) is amended to read as follows:
            ``(5) Disclosure for combined employment tax 
        reporting.--
                    ``(A) In general.--The Secretary may 
                disclose taxpayer identity information and 
                signatures to any agency, body, or commission 
                of any State for the purpose of carrying out 
                with such agency, body, or commission a 
                combined Federal and State employment tax 
                reporting program approved by the Secretary. 
                Subsections (a)(2) and (p)(4) and sections 7213 
                and 7213A shall not apply with respect to 
                disclosures or inspections made pursuant to 
                this paragraph.
                    ``(B) Termination.--The Secretary may not 
                make any disclosure under this paragraph after 
                December 31, 2005.''.
    (b) Effective Date.--The amendment made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 312. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR 
                    AND MINIMUM TAX LIABILITY.

    (a) In General.--Paragraph (2) of section 26(a) is 
amended--
            (1) by striking ``rule for 2000, 2001, 2002, and 
        2003.--'' and inserting ``rule for taxable years 2000 
        through 2005.--'', and
            (2) by striking ``or 2003'' and inserting ``2003, 
        2004, or 2005''.
    (b) Conforming Provisions.--
            (1) Section 904(h) is amended by striking ``or 
        2003'' and inserting ``2003, 2004, or 2005''.
            (2) The amendments made by sections 201(b), 202(f), 
        and 618(b) of the Economic Growth and Tax Relief 
        Reconciliation Act of 2001 shall not apply to taxable 
        years beginning during 2004 or 2005.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2003.

SEC. 313. CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE 
                    RESOURCES.

    (a) In General.--Subparagraphs (A), (B), and (C) of section 
45(c)(3) are each amended by striking ``January 1, 2004'' and 
inserting ``January 1, 2006''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall apply to facilities placed in service after December 31, 
2003.

SEC. 314. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR OIL AND 
                    NATURAL GAS PRODUCED FROM MARGINAL PROPERTIES.

    (a) In General.--Subparagraph (H) of section 613A(c)(6) is 
amended by striking ``January 1, 2004'' and inserting ``January 
1, 2006''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 2003.

SEC. 315. INDIAN EMPLOYMENT TAX CREDIT.

    Section 45A(f) (relating to termination) is amended by 
striking ``December 31, 2004'' and inserting ``December 31, 
2005''.

SEC. 316. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON INDIAN 
                    RESERVATION.

    Section 168(j)(8) (relating to termination) is amended by 
striking ``December 31, 2004'' and inserting ``December 31, 
2005''.

SEC. 317. DISCLOSURE OF RETURN INFORMATION RELATING TO STUDENT LOANS.

    Section 6103(l)(13)(D) (relating to termination) is amended 
by striking ``December 31, 2004'' and inserting ``December 31, 
2005''.

SEC. 318. ELIMINATION OF PHASEOUT OF CREDIT FOR QUALIFIED ELECTRIC 
                    VEHICLES FOR 2004 AND 2005.

    (a) In General.--Paragraph (2) of section 30(b) is amended 
to read as follows:
            ``(2) Phaseout.--In the case of any qualified 
        electric vehicle placed in service after December 31, 
        2005, the credit otherwise allowable under subsection 
        (a) (determined after the application of paragraph (1)) 
        shall be reduced by 75 percent.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to property placed in service after December 31, 
2003.

SEC. 319. ELIMINATION OF PHASEOUT FOR DEDUCTION FOR CLEAN-FUEL VEHICLE 
                    PROPERTY FOR 2004 AND 2005.

    (a) In General.--Subparagraph (B) of section 179A(b)(1) is 
amended to read as follows:
                    ``(B) Phaseout.--In the case of any 
                qualified clean-fuel vehicle property placed in 
                service after December 31, 2005, the limit 
                otherwise allowable under subparagraph (A) 
                shall be reduced by 75 percent.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to property placed in service after December 31, 
2003.

SEC. 320. DISCLOSURES RELATING TO TERRORIST ACTIVITIES.

    (a) In General.--Clause (iv) of section 6103(i)(3)(C) and 
subparagraph (E) of section 6103(i)(7) are both amended by 
striking ``December 31, 2003'' and inserting ``December 31, 
2005''.
    (b) Disclosure of taxpayer identity to law enforcement 
agencies investigating terrorism.--Subparagraph (A) of section 
6103(i)(7) is amended by adding at the end the following new 
clause:
                            ``(v) Taxpayer identity.--For 
                        purposes of this subparagraph, a 
                        taxpayer's identity shall not be 
                        treated as taxpayer return 
                        information.''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by subsection 
        (a) shall apply to disclosures on or after the date of 
        the enactment of this Act.
            (2) Subsection (b).--The amendment made by 
        subsection (b) shall take effect as if included in 
        section 201 of the Victims of Terrorism Tax Relief Act 
        of 2001.

SEC. 321. JOINT REVIEW OF STRATEGIC PLANS AND BUDGET FOR THE INTERNAL 
                    REVENUE SERVICE.

    (a) In General.--Paragraph (2) of section 8021(f) (relating 
to joint reviews) is amended by striking ``2004'' and inserting 
``2005''.
    (b) Report.--Subparagraph (C) of section 8022(3) (regarding 
reports) is amended--
            (1) by striking ``2004'' and inserting ``2005'', 
        and
            (2) by striking ``with respect to--'' and all that 
        follows and inserting ``with respect to the matters 
        addressed in the joint review referred to in section 
        8021(f)(2).''.
    (c) Time for Joint Review.--The joint review required by 
section 8021(f)(2) of the Internal Revenue Code of 1986 to be 
made before June 1, 2004, shall be treated as timely if made 
before June 1, 2005.

SEC. 322. AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Paragraphs (2) and (3)(B) of section 
220(i) (defining cut-off year) are each amended by striking 
``2003'' each place it appears in the text and headings and 
inserting ``2005''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 220(j) is amended--
                    (A) in the text by striking ``or 2002'' 
                each place it appears and inserting ``2002, or 
                2004'', and
                    (B) in the heading by striking ``or 2002'' 
                and inserting ``2002, or 2004''.
            (2) Subparagraph (A) of section 220(j)(4) is 
        amended by striking ``and 2002'' and inserting ``2002, 
        and 2004''.
            (3) Subparagraph (C) of section 220(j)(2) is 
        amended to read as follows:
                    ``(C) No limitation for 2000 or 2003.--The 
                numerical limitation shall not apply for 2000 
                or 2003.''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 2004.
    (d) Time for Filing Reports, Etc.--
            (1) The report required by section 220(j)(4) of the 
        Internal Revenue Code of 1986 to be made on August 1, 
        2004, shall be treated as timely if made before the 
        close of the 90-day period beginning on the date of the 
        enactment of this Act.
            (2) The determination and publication required by 
        section 220(j)(5) of such Code with respect to calendar 
        year 2004 shall be treated as timely if made before the 
        close of the 120-day period beginning on the date of 
        the enactment of this Act. If the determination under 
        the preceding sentence is that 2004 is a cut-off year 
        under section 220(i) of such Code, the cut-off date 
        under such section 220(i) shall be the last day of such 
        120-day period.

                  TITLE IV--TAX TECHNICAL CORRECTIONS

SEC. 401. AMENDMENTS RELATED TO MEDICARE PRESCRIPTION DRUG, 
                    IMPROVEMENT, AND MODERNIZATION ACT OF 2003.

    (a) Amendments Related to Section 1201 of the Act.--
            (1) Paragraph (2) of section 26(b) is amended by 
        striking ``and'' at the end of subparagraph (Q), by 
        striking the period at the end of subparagraph (R) and 
        inserting ``, and'', and by adding at the end the 
        following new subparagraph:
                    ``(S) section 223(f)(4) (relating to 
                additional tax on health savings account 
                distributions not used for qualified medical 
                expenses).
            (2) Paragraph (3) of section 35(g) is amended to 
        read as follows:
            ``(3) Medical and health savings accounts.--Amounts 
        distributed from an Archer MSA (as defined in section 
        220(d)) or from a health savings account (as defined in 
        section 223(d)) shall not be taken into account under 
        subsection (a).''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall take effect as if included in section 1201 of the 
Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003.

SEC. 402. AMENDMENTS RELATED TO JOBS AND GROWTH TAX RELIEF 
                    RECONCILIATION ACT OF 2003.

    (a) Amendments Related to Section 302 of the Act.--
            (1) Clause (i) of section 1(h)(1)(D) is amended by 
        inserting ``(determined without regard to paragraph 
        (11))'' after ``net capital gain''.
            (2) Subclause (I) of section 1(h)(11)(B)(iii) is 
        amended--
                    (A) by striking ``section 246(c)(1)'' and 
                inserting ``section 246(c)'',
                    (B) by striking ``120-day period'' and 
                inserting ``121-day period'', and
                    (C) by striking ``90-day period'' and 
                inserting ``91-day period''.
            (3) Clause (ii) of section 1(h)(11)(D) is amended 
        by striking ``an individual'' and inserting ``a 
        taxpayer to whom this section applies''.
            (4) Paragraph (4) of section 691(c) is amended by 
        striking ``of any gain''.
            (5)(A) Subparagraph (B) of section 854(b)(1) is 
        amended--
                    (i) by striking clauses (iii) and (iv), and
                    (ii) by amending clause (i) to read as 
                follows:
                            ``(i) In general.--In any case in 
                        which--
                                    ``(I) a dividend is 
                                received from a regulated 
                                investment company (other than 
                                a dividend to which subsection 
                                (a) applies),
                                    ``(II) such investment 
                                company meets the requirements 
                                of section 852(a) for the 
                                taxable year during which it 
                                paid such dividend, and
                                    ``(III) the qualified 
                                dividend income of such 
                                investment company for such 
                                taxable year is less than 95 
                                percent of its gross income,
                        then, in computing qualified dividend 
                        income, there shall be taken into 
                        account only that portion of such 
                        dividend designated by the regulated 
                        investment company.''.
            (B) Subparagraph (C) of section 854(b)(1) is 
        amended to read as follows:
                    ``(C) Limitations.--
                            ``(i) Subparagraph (a).--The 
                        aggregate amount which may be 
                        designated as dividends under 
                        subparagraph (A) shall not exceed the 
                        aggregate dividends received by the 
                        company for the taxable year.
                            ``(ii) Subparagraph (b).--The 
                        aggregate amount which may be 
                        designated as qualified dividend income 
                        under subparagraph (B) shall not exceed 
                        the sum of--
                                    ``(I) the qualified 
                                dividend income of the company 
                                for the taxable year, and
                                    ``(II) the amount of any 
                                earnings and profits which were 
                                distributed by the company for 
                                such taxable year and 
                                accumulated in a taxable year 
                                with respect to which this part 
                                did not apply.''.
            (C) Paragraph (2) of section 854(b) is amended by 
        striking ``as a dividend for purposes of the maximum 
        rate under section 1(h)(11) and'' and inserting ``as 
        qualified dividend income for purposes of section 
        1(h)(11) and as dividends for purposes of''.
            (D) Paragraph (5) of section 854(b) is amended to 
        read as follows:
            ``(5) Qualified dividend income.--For purposes of 
        this subsection, the term `qualified dividend income' 
        has the meaning given such term by section 
        1(h)(11)(B).''.
            (E) Paragraph (2) of section 857(c) is amended to 
        read as follows:
            ``(2) Section (1)(h)(11).--
                    ``(A) In general.--In any case in which--
                            ``(i) a dividend is received from a 
                        real estate investment trust (other 
                        than a capital gain dividend), and
                            ``(ii) such trust meets the 
                        requirements of section 856(a) for the 
                        taxable year during which it paid such 
                        dividend,
                then, in computing qualified dividend income, 
                there shall be taken into account only that 
                portion of such dividend designated by the real 
                estate investment trust.
                    ``(B) Limitation.--The aggregate amount 
                which may be designated as qualified dividend 
                income under subparagraph (A) shall not exceed 
                the sum of--
                            ``(i) the qualified dividend income 
                        of the trust for the taxable year,
                            ``(ii) the excess of--
                                    ``(I) the sum of the real 
                                estate investment trust taxable 
                                income computed under section 
                                857(b)(2) for the preceding 
                                taxable year and the income 
                                subject to tax by reason of the 
                                application of the regulations 
                                under section 337(d) for such 
                                preceding taxable year, over
                                    ``(II) the sum of the taxes 
                                imposed on the trust for such 
                                preceding taxable year under 
                                section 857(b)(1) and by reason 
                                of the application of such 
                                regulations, and
                            ``(iii) the amount of any earnings 
                        and profits which were distributed by 
                        the trust for such taxable year and 
                        accumulated in a taxable year with 
                        respect to which this part did not 
                        apply.
                    ``(C) Notice to shareholders.--The amount 
                of any distribution by a real estate investment 
                trust which may be taken into account as 
                qualified dividend income shall not exceed the 
                amount so designated by the trust in a written 
                notice to its shareholders mailed not later 
                than 60 days after the close of its taxable 
                year.
                    ``(D) Qualified dividend income.--For 
                purposes of this paragraph, the term `qualified 
                dividend income' has the meaning given such 
                term by section 1(h)(11)(B).''.
            (F) With respect to any taxable year of a regulated 
        investment company or real estate investment trust 
        ending on or before November 30, 2003, the period for 
        providing notice of the qualified dividend amount to 
        shareholders under sections 854(b)(2) and 857(c)(2)(C) 
        of the Internal Revenue Code of 1986, as amended by 
        this section, shall not expire before the date on which 
        the statement under section 6042(c) of such Code is 
        required to be furnished with respect to the last 
        calendar year beginning in such taxable year.
            (6) Paragraph (2) of section 302(f) of the Jobs and 
        Growth Tax Relief Reconciliation Act of 2003 is amended 
        to read as follows:
            ``(2) Pass-thru entities.--In the case of a pass-
        thru entity described in subparagraph (A), (B), (C), 
        (D), (E), or (F) of section 1(h)(10) of the Internal 
        Revenue Code of 1986, as amended by this Act, the 
        amendments made by this section shall apply to taxable 
        years ending after December 31, 2002; except that 
        dividends received by such an entity on or before such 
        date shall not be treated as qualified dividend income 
        (as defined in section 1(h)(11)(B) of such Code, as 
        added by this Act).''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall take effect as if included in section 302 of the Jobs and 
Growth Tax Relief Reconciliation Act of 2003.

SEC. 403. AMENDMENTS RELATED TO JOB CREATION AND WORKER ASSISTANCE ACT 
                    OF 2002.

    (a) Amendments Related to Section 101 of the Act.--
            (1) Clause (i) of section 168(k)(2)(B) is amended 
        to read as follows:
                            ``(i) In general.--The term 
                        `qualified property' includes any 
                        property if such property--
                                    ``(I) meets the 
                                requirements of clauses (i), 
                                (ii), and (iii) of subparagraph 
                                (A),
                                    ``(II) has a recovery 
                                period of at least 10 years or 
                                is transportation property,
                                    ``(III) is subject to 
                                section 263A, and
                                    ``(IV) meets the 
                                requirements of clause (ii) or 
                                (iii) of section 263A(f)(1)(B) 
                                (determined as if such clauses 
                                also apply to property which 
                                has a long useful life (within 
                                the meaning of section 
                                263A(f))).''.
            (2)(A) Subparagraph (D) of section 168(k)(2) is 
        amended by adding at the end the following new clauses:
                            ``(iii) Syndication.--For purposes 
                        of subparagraph (A)(ii), if--
                                    ``(I) property is 
                                originally placed in service 
                                after September 10, 2001, by 
                                the lessor of such property,
                                    ``(II) such property is 
                                sold by such lessor or any 
                                subsequent purchaser within 3 
                                months after the date such 
                                property was originally placed 
                                in service, and
                                    ``(III) the user of such 
                                property after the last sale 
                                during such 3-month period 
                                remains the same as when such 
                                property was originally placed 
                                in service,
                        such property shall be treated as 
                        originally placed in service not 
                        earlier than the date of such last 
                        sale.
                            ``(iv) Limitations related to users 
                        and related parties.--The term 
                        `qualified property' shall not include 
                        any property if--
                                    ``(I) the user of such 
                                property (as of the date on 
                                which such property is 
                                originally placed in service) 
                                or a person which is related 
                                (within the meaning of section 
                                267(b) or 707(b)) to such user 
                                or to the taxpayer had a 
                                written binding contract in 
                                effect for the acquisition of 
                                such property at any time on or 
                                before September 10, 2001, or
                                    ``(II) in the case of 
                                property manufactured, 
                                constructed, or produced for 
                                such user's or person's own 
                                use, the manufacture, 
                                construction, or production of 
                                such property began at any time 
                                on or before September 10, 
                                2001.''.
            (B) Clause (ii) of section 168(k)(2)(D) is amended 
        by inserting ``clause (iii) and'' before ``subparagraph 
        (A)(ii)''.
    (b) Amendments Related to Section 102 of the Act.--
            (1) Subparagraph (H) of section 172(b)(1) is 
        amended by striking ``a taxpayer which has''.
            (2) In the case of a net operating loss for a 
        taxable year ending during 2001 or 2002--
                    (A) an application under section 6411(a) of 
                the Internal Revenue Code of 1986 with respect 
                to such loss shall not fail to be treated as 
                timely filed if filed before November 1, 2002,
                    (B) any election made under section 
                172(b)(3) of such Code may (notwithstanding 
                such section) be revoked before November 1, 
                2002, and
                    (C) any election made under section 172(j) 
                of such Code shall (notwithstanding such 
                section) be treated as timely made if made 
                before November 1, 2002.
            (3) 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''.
            (4)(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''.
    (c) Amendments Related to Section 301 of the Act.--
            (1) Subparagraph (D) of section 1400L(a)(2) is 
        amended--
                    (A) by striking ``subchapter B'' and 
                inserting ``subchapter A'', and
                    (B) in clause (ii), by striking 
                ``subparagraph (B)'' and inserting ``this 
                paragraph''.
            (2) Subparagraph (D) of section 1400L(b)(2) is 
        amended by inserting ``, and clause (iv) thereof shall 
        be applied by substituting `qualified New York Liberty 
        Zone property' for `qualified property' '' before the 
        period at the end.
            (3) Subsection (c) of section 1400L is amended by 
        adding at the end the following new paragraph:
            ``(5) Election out.--For purposes of this 
        subsection, rules similar to the rules of section 
        168(k)(2)(C)(iii) shall apply.''.
            (4) Paragraph (2) of section 1400L(f) is amended by 
        inserting before the period ``, determined without 
        regard to subparagraph (C)(i) thereof''.
    (d) Amendment Related to Section 405 of the Act.--The last 
sentence of section 4006(a)(3)(E)(iii)(IV) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(E)(iii)(IV)) is amended--
            (1) by inserting ``or this subparagraph'' after 
        ``this clause'' both places it appears, and
            (2) by inserting ``(other than sections 4005, 4010, 
        4011, and 4043)'' after ``subsections''.
    (e) Amendment Related to Section 411 of the Act.--
Subparagraph (B) of section 411(c)(2) of the Job Creation and 
Worker Assistance Act of 2002 is amended by striking 
``Paragraph (2)'' and inserting ``Paragraph (1)''.
    (f) Effective Date.--The amendments made by this section 
shall take effect as if included in the provisions of the Job 
Creation and Worker Assistance Act of 2002 to which they 
relate.

SEC. 404. AMENDMENTS RELATED TO ECONOMIC GROWTH AND TAX RELIEF 
                    RECONCILIATION ACT OF 2001.

    (a) Amendment Related to Section 401 of the Act.--Clause 
(i) of section 530(d)(2)(C) is amended by striking ``higher'' 
after ``qualified''.
    (b) Amendments Related to Section 611 of the Act.--
            (1) Paragraph (3) of section 45A(c) is amended by 
        inserting ``, except that the base period taken into 
        account for purposes of such adjustment shall be the 
        calendar quarter beginning October 1, 1993'' before the 
        period at the end.
            (2) Subparagraph (A) of section 415(d)(4) is 
        amended by adding at the end the following new 
        sentence: ``This subparagraph shall also apply for 
        purposes of any provision of this title that provides 
        for adjustments in accordance with the method contained 
        in this subsection, except to the extent provided in 
        such provision.''.
    (c) Amendment Related to Section 614 of the Act.--Clause 
(ii) of section 4972(c)(6)(A) is amended to read as follows:
                            ``(ii) the amount of contributions 
                        described in section 401(m)(4)(A), 
                        or''.
    (d) Amendment Related to Section 637 of the Act.--Clause 
(i) of section 408(p)(6)(A) is amended by adding at the end the 
following new sentence: ``For purposes of the preceding 
sentence, amounts described in section 6051(a)(3) shall be 
determined without regard to section 3401(a)(3).''.
    (e) Amendment Related to Section 641 of the Act.--
Subparagraph (B) of section 403(a)(4) is amended to read as 
follows:
                    ``(B) Certain rules made applicable.--The 
                rules of paragraphs (2) through (7) and (9) of 
                section 402(c) and section 402(f) shall apply 
                for purposes of subparagraph (A).''.
    (f) Effective Date.--The amendments made by this section 
shall take effect as if included in the provisions of the 
Economic Growth and Tax Relief Reconciliation Act of 2001 to 
which they relate.

SEC. 405. AMENDMENTS RELATED TO COMMUNITY RENEWAL TAX RELIEF ACT OF 
                    2000.

    (a) Amendments Related to Section 401 of the Act.--
            (1) Subsection (c) of section 1234B is amended by 
        adding at the end the following new sentence: ``The 
        Secretary may prescribe regulations regarding the 
        status of contracts the values of which are determined 
        directly or indirectly by reference to any index which 
        becomes (or ceases to be) a narrow-based security index 
        (as defined for purposes of section 1256(g)(6)).''.
            (2) Paragraph (6) of section 1256(g) is amended by 
        adding at the end the following new sentence: ``The 
        Secretary may prescribe regulations regarding the 
        status of options the values of which are determined 
        directly or indirectly by reference to any index which 
        becomes (or ceases to be) a narrow-based security index 
        (as so defined).''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall take effect as if included in section 401 of the 
Community Renewal Tax Relief Act of 2000.

SEC. 406. AMENDMENTS RELATED TO TAXPAYER RELIEF ACT OF 1997.

    (a) Amendment Related to Section 211 of the Act.--
Subparagraph (B) of section 529(c)(5) is amended to read as 
follows:
                    ``(B) Treatment of designation of new 
                beneficiary.--The taxes imposed by chapters 12 
                and 13 shall apply to a transfer by reason of a 
                change in the designated beneficiary under the 
                program (or a rollover to the account of a new 
                beneficiary) unless the new beneficiary is--
                            ``(i) assigned to the same 
                        generation as (or a higher generation 
                        than) the old beneficiary (determined 
                        in accordance with section 2651), and
                            ``(ii) a member of the family of 
                        the old beneficiary.''.
    (b) Amendment Related to Section 213 of the Act.--Clause 
(iii) of section 530(d)(4)(B) is amended by striking ``account 
holder'' and inserting ``designated beneficiary''.
    (c) Amendment Related to Section 226 of the Act.--Section 
1397E is amended by adding at the end the following new 
subsection:
    ``(i) S Corporations.--In the case of a qualified zone 
academy bond held by an S corporation which is an eligible 
taxpayer--
            ``(1) each shareholder shall take into account such 
        shareholder's pro rata share of the credit, and
            ``(2) no basis adjustments to the stock of the 
        corporation shall be made under section 1367 on account 
        of this section.''.
    (d) Amendment Related to Section 311 of the Act.--
Subparagraph (B) of section 55(b)(3) is amended by striking 
``the amount on which a tax is determined under'' and inserting 
``an amount equal to the excess described in''.
    (e) Amendments Related to Section 1001 of the Act.--
            (1) Paragraph (2) of section 1259(c) is amended by 
        striking ``The term `constructive sale' shall not 
        include any contract'' and inserting ``A taxpayer shall 
        not be treated as having made a constructive sale 
        solely because the taxpayer enters into a contract''.
            (2) Subparagraphs (A) and (B)(i) of section 
        1259(c)(3) are each amended by striking ``be treated as 
        a constructive sale'' and inserting ``cause a 
        constructive sale''.
            (3) Clause (i) of section 1259(c)(3)(A) is amended 
        by striking ``before the end of'' and inserting ``on or 
        before''.
            (4) Clause (ii) of section 1259(c)(3)(B) is amended 
        by striking ``substantially similar''.
            (5) Subclause (I) of section 1259(c)(3)(B)(ii) is 
        amended to read as follows:
                                    ``(I) which would (but for 
                                this subparagraph) cause the 
                                requirement of subparagraph 
                                (A)(iii) not to be met with 
                                respect to the transaction 
                                described in clause (i) of this 
                                subparagraph,''.
            (6) Subclause (II) of such section is amended by 
        inserting ``on or'' before ``before the 30th day''.
            (7) The heading for subparagraph (B) of section 
        1259(c)(3) is amended by striking ``positions which are 
        reestablished'' and inserting ``certain closed 
        transactions where risk of loss on appreciated 
        financial position diminished''.
    (f) Amendments Related to Section 1015 of the Act.--
            (1) Section 246(c)(1)(A) is amended by striking 
        ``90-day period'' and inserting ``91-day period''.
            (2) Section 246(c)(2)(B) is amended--
                    (A) by striking ``180-day period'' and 
                inserting ``181-day period'', and
                    (B) by striking ``90-day period'' and 
                inserting ``91-day period''.
    (g) Amendments Related to Section 1053 of the Act.--
            (1) Section 901(k)(1)(A)(i) is amended by striking 
        ``30-day period'' and inserting ``31-day period''.
            (2) Section 901(k)(3)(B) is amended--
                    (A) by striking ``90-day period'' and 
                inserting ``91-day period'', and
                    (B) by striking ``30-day period'' and 
                inserting ``31-day period''.
    (h) Effective Date.--The amendments made by this section 
shall take effect as if included in the provisions of the 
Taxpayer Relief Act of 1997 to which they relate.

SEC. 407. AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION ACT OF 
                    1996.

    (a) Amendment Related to Section 1307 of the Act.--
Subsection (b) of section 1377 (relating to post-termination 
transition period) is amended by adding at the end the 
following new paragraph:
            ``(3) Special rules for audit related post-
        termination transition periods.--
                    ``(A) No application to carryovers.--
                Paragraph (1)(B) shall not apply for purposes 
                of section 1366(d)(3).
                    ``(B) Limitation on application to 
                distributions.--Paragraph (1)(B) shall apply to 
                a distribution described in section 1371(e) 
                only to the extent that the amount of such 
                distribution does not exceed the aggregate 
                increase (if any) in the accumulated 
                adjustments account (within the meaning of 
                section 1368(e)) by reason of the adjustments 
                referred to in such paragraph.''.
    (b) Amendments Related to Section 1432 of the Act.--
Paragraph (26) of section 401(a) is amended by striking 
subparagraph (C) and by redesignating subparagraphs (D) through 
(I) as subparagraphs (C) through (H), respectively.
    (c) Effective Date.--The amendments made by this section 
shall take effect as if included in the provisions of the Small 
Business Job Protection Act of 1996 to which they relate.

SEC. 408. CLERICAL AMENDMENTS.

    (a) Internal Revenue Code of 1986.--
            (1) Subclause (II) of section 1(g)(7)(B)(ii) is 
        amended by striking ``10 percent.'' and inserting ``10 
        percent''.
            (2) Clause (ii) of section 1(h)(6)(A) is amended--
                    (A) in subclause (I), by striking 
                ``(5)(B)'' and inserting ``(4)(B)'', and
                    (B) in subclause (II), by striking 
                ``(5)(A)'' and inserting ``(4)(A)''.
            (3) Subclause (I) of section 42(d)(2)(D)(iii) is 
        amended by striking ``section 179(b)(7)'' and inserting 
        ``section 179(d)(7)''.
            (4) Subsection (f) of section 72 is amended by 
        striking ``Economic Growth and Tax Relief 
        Reconciliation Act of 2001'' and inserting ``Economic 
        Growth and Tax Relief Reconciliation Act of 2001)''.
            (5)(A) Section 138 and paragraph (2) of section 
        26(b) are each amended by striking ``Medicare+Choice 
        MSA'' each place it appears in the text and inserting 
        ``Medicare Advantage MSA''.
            (B) The heading for section 138 is amended to read 
        as follows:

``SEC. 138. MEDICARE ADVANTAGE MSA.''.

            (C) The heading for subsection (b) of section 138 
        is amended by striking ``Medicare+Choice MSA'' and 
        inserting ``Medicare Advantage MSA''.
            (D) The heading for paragraph (2) of section 138(c) 
        is amended by striking ``medicare+choice msa'' and 
        inserting ``medicare advantage msa''.
            (E) Clause (i) of section 138(c)(2)(C) is amended 
        by striking ``Medicare+Choice MSAs'' and inserting 
        ``Medicare Advantage MSAs''.
            (F) Subsection (f) of section 138 is amended by 
        striking ``Medicare+Choice MSA's'' and inserting 
        ``Medicare Advantage MSAs''.
            (G) The item relating to section 138 in the table 
        of sections for part III of subchapter B of chapter 1 
        is amended to read as follows:

``Sec. 138. Medicare Advantage MSA.''.

            (6) Clause (ii) of section 168(k)(2)(D) is 
        amended--
                    (A) by inserting ``is'' after ``if 
                property'', and
                    (B) by striking ``is'' in subclause (I).
            (7) Each of the following provisions is amended by 
        inserting ``Robert T. Stafford'' before ``Disaster 
        Relief and Emergency Assistance Act'':
                    (A) Section 165(i)(1).
                    (B) Section 165(k).
                    (C) Section 1033(h)(3).
                    (D) Section 5064(b)(3).
                    (E) Section 5708(a).
            (8) The heading for subparagraph (F) of section 
        168(k)(2) is amended by striking ``miniumum'' and 
        inserting ``minimum''.
            (9) Paragraph (1) of section 246A(b) is amended by 
        striking ``section 243(c)(4)'' and inserting ``section 
        243(d)(4)''.
            (10) Clause (ii) of section 263(g)(2)(B) is amended 
        by striking ``1278'' and inserting ``1276''.
            (11) Clause (ii) of section 403(b)(7)(A) is amended 
        by striking ``section 3121(a)(1)(D)'' and inserting 
        ``section 3121(a)(5)(D)''.
            (12) Paragraph (1) of section 408(a) is amended by 
        striking ``457(e)(16)'' and inserting ``457(e)(16),''.
            (13) Paragraph (2) of section 408(n) is amended by 
        striking ``section 101(6)'' and inserting ``paragraph 
        (6) or (7) of section 101''.
            (14) The table contained in section 411(a)(12)(B) 
        is amended by striking the last line and inserting the 
        following:

            ``6 or more.......................................  100.''.  
                                                                        

            (15) Paragraph (7) of section 414(q) is amended by 
        striking ``section'' and inserting ``subsection''.
            (16) Subparagraph (A) of section 416(i)(1) is 
        amended in the matter following clause (iii) by 
        striking ``in the case of plan years'' and inserting 
        ``In the case of plan years''.
            (17) Subparagraph (C) of section 415(c)(7) is 
        amended by striking ``subparagraph (D)'' and inserting 
        ``subparagraph (B)''.
            (18) The item relating to section 1234B in the 
        table of sections for part IV of subchapter P of 
        chapter 1 is amended to read as follows:

``Sec. 1234B. Gains or losses from securities futures contracts.''.

            (19) Subsection (h) of section 1296 is amended by 
        striking ``paragraphs (2) and (3) of section 851(b)'' 
        and inserting ``section 851(b)(2)''.
            (20) The table of sections for part II of 
        subchapter A of chapter 11 is amended by inserting 
        after the item relating to section 2010 the following 
        new item:

``Sec. 2011. Credit for State death taxes.''.

            (21) The table of sections for subchapter A of 
        chapter 13 is amended by inserting after the item 
        relating to section 2603 the following new item:

``Sec. 2604. Credit for certain State taxes.''.

            (22) Subsection (c) of section 4973 is amended by 
        striking ``subsection (a)(2)'' and inserting 
        ``subsection (a)(3)''.
            (23) Paragraph (2) of section 4978(a) is amended by 
        striking ``60 percent'' and inserting ``(60 percent''.
            (24) Paragraph (4) of section 6103(p) is amended by 
        striking ``subsection (l)(16) or (17)'' each place it 
        appears and inserting ``subsection (l)(16) or (18)''.
    (b) Other Laws.--
            (1) Subsection (c) of section 156 of the Community 
        Renewal Tax Relief Act of 2000 (114 Stat. 2763A-623) is 
        amended in the first sentence by inserting ``than'' 
        after ``not later''.
            (2) Paragraph (6) of section 1(a) of Public Law 
        107-22 shall be applied by substituting ``part VIII'' 
        for ``part VII'' in such paragraph.
            (3) Subparagraph (A) of section 1(b)(3) of Public 
        Law 107-22 shall be applied by substituting 
        ``educational'' for ``education'' in the matter 
        preceding subparagraph (A) in such section.
            (4) Paragraph (1) of section 204(e) of the Railroad 
        Retirement and Survivors' Improvement Act of 2001 shall 
        be applied by substituting ``Section 24(d)(2)(A)(iii)'' 
        for ``Section 24(d)(3)(A)(iii)'' in such paragraph.
            (5) Paragraph (2) of section 412(b) of the Economic 
        Growth and Tax Relief Reconciliation Act of 2001 shall 
        be applied by substituting ``Section 221(f)(1)'' for 
        ``Section 221(g)(1)'' in such paragraph.
            (6) Subsection (b) of section 531 of the Economic 
        Growth and Tax Relief Reconciliation Act of 2001 shall 
        be applied by substituting ``section'' for 
        ``subsection'' in such subsection.
            (7) Paragraph (3) of section 619(c) of the Economic 
        Growth and Tax Relief Reconciliation Act of 2001 shall 
        be applied by substituting ``after the item relating to 
        section 45D'' for ``at the end'' in such paragraph.
            (8) The table contained in section 203(a)(4)(B) of 
        the Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1053(a)(4)(B)) is amended by striking the last 
        line and inserting the following:

            ``6 or more.......................................  100.''.  
                                                                        

            (9) Paragraph (3) of section 652(b) of the Economic 
        Growth and Tax Relief Reconciliation Act of 2001 shall 
        be applied by inserting ``each place it appears'' 
        before ``in the next to last sentence'' in such 
        paragraph.
      And the House agree to the same.
      That the Senate recede from its disagreement to the 
amendment of the House to the title of the bill and agree to 
the same with an amendment as follows:
      In lieu of the matter proposed to be inserted by the 
House amendment to the title of the bill insert the following: 
``An Act to amend the Internal Revenue Code of 1986 to provide 
tax relief for working families, and for other purposes.''.
      And the House agree to the same.

                For consideration of the House amendment and 
                the Senate amendment, and modifications 
                committed to conference:
                                   William Thomas,
                                   Tom DeLay,
                                 Managers on the Part of the House.

                                   Chuck Grassley,
                                   Don Nickles,
                                   Trent Lott,
                                   Max Baucus,
                                   Blanche L. Lincoln,
                                Managers on the Part of the Senate.
       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

      The managers on the part of the House and the Senate at 
the conference on the disagreeing votes of the two Houses on 
the amendments of the House to the amendments of the Senate to 
the bill (H.R. 1308), to amend the Internal Revenue Code of 
1986 to end certain abusive tax practices, to provide tax 
relief and simplification, and for other purposes, submit the 
following joint statement to the House and the Senate in 
explanation of the effect of the action agreed upon by the 
managers and recommended in the accompanying conference report:
      The Senate amendment to the text of the bill struck out 
all of the House bill after the enacting clause and inserted a 
substitute text.
      The House amendment struck out all of the Senate 
amendment after the enacting clause and inserted a substitute 
text.
      The Senate recedes from its disagreement to the amendment 
of the House with an amendment which is a substitute for the 
House amendment and the Senate amendment. The differences 
between the Senate amendment, the House amendment, and the 
substitute agreed to in conference are noted below, except for 
clerical corrections, conforming changes made necessary by 
agreements reached by the conferees, and minor drafting and 
clarifying changes.

              I. EXTENSION OF CERTAIN EXPIRING PROVISIONS

A. Extension of the Child Tax Credit, Acceleration of Refundability of 
 the Child Tax Credit and Treatment of Combat Pay as Earned Income for 
       Purposes of the Child Tax Credit and Earned Income Credit

(Secs. 101-104 of the conference agreement, sec. 101 of the House bill, 
        secs. 101-103 of the Senate amendment, and sec. 24 and 32 of 
        the Code)

                              PRESENT LAW

In general
      For 2004, an individual may claim a $1,000 tax credit for 
each qualifying child under the age of 17. In general, a 
qualifying child is an individual for whom the taxpayer can 
claim a dependency exemption and who is the taxpayer's son or 
daughter (or descendent of either), stepson or stepdaughter (or 
descendent of either), or eligible foster child.
      The child tax credit is scheduled to revert to $700 in 
2005, and then, over several years, increase to $1,000.
      Table 1, below, shows the scheduled amount of the child 
tax credit.

           TABLE 1.--SCHEDULED AMOUNT OF THE CHILD TAX CREDIT
------------------------------------------------------------------------
                                                          Credit amount
                      Taxable year                          per child
------------------------------------------------------------------------
2003-2004..............................................           $1,000
2005-2008..............................................              700
2009...................................................              800
2010 \1\...............................................            1,000
------------------------------------------------------------------------
\1\ The credit reverts to $500 in taxable years beginning after December
  31, 2010, under the sunset provision of EGTRRA (the ``Economic Growth
  and Tax Relief Reconciliation Act of 2001,'' Pub. L. No. 107-16).

      The child tax credit is phased out for individuals with 
income over certain thresholds. Specifically, the otherwise 
allowable child tax credit is reduced by $50 for each $1,000 
(or fraction thereof) of modified adjusted gross income over 
$75,000 for single individuals or heads of households, $110,000 
for married individuals filing joint returns, and $55,000 for 
married individuals filing separate returns.\1\ The length of 
the phase-out range depends on the number of qualifying 
children. For example, the phase-out range for a single 
individual with one qualifying child is between $75,000 and 
$95,000 of modified adjusted gross income. The phase-out range 
for a single individual with two qualifying children is between 
$75,000 and $115,000.
---------------------------------------------------------------------------
    \1\ Modified adjusted gross income is the taxpayer's total gross 
income plus certain amounts excluded from gross income (i.e., excluded 
income of U.S. citizens or residents living abroad (sec. 911); 
residents of Guam, American Samoa, and the Northern Mariana Islands 
(sec. 931); and residents of Puerto Rico (sec. 933)).
---------------------------------------------------------------------------
      The amount of the tax credit and the phase-out ranges are 
not adjusted annually for inflation.
Refundability
      For 2004, the child credit is refundable to the extent of 
10 percent of the taxpayer's taxable earned income (which is 
taken into account in determining taxable income) in excess of 
$10,750.\2\ The percentage is increased to 15 percent for 
taxable years 2005 and thereafter. Families with three or more 
children are allowed a refundable credit for the amount by 
which the taxpayer's social security taxes exceed the 
taxpayer's earned income credit, if that amount is greater than 
the refundable credit based on the taxpayer's taxable earned 
income in excess of $10,750 (for 2004). The refundable portion 
of the child credit does not constitute income and is not 
treated as resources for purposes of determining eligibility or 
the amount or nature of benefits or assistance under any 
Federal program or any State or local program financed with 
Federal funds. For taxable years beginning after December 31, 
2010, the sunset provision of EGTRRA applies to the 15-percent 
rule for allowing refundable child credits.
---------------------------------------------------------------------------
    \2\ The $10,750 amount is indexed for inflation.
---------------------------------------------------------------------------
Alternative minimum tax liability
      The child credit is allowed against the individual's 
regular income tax and alternative minimum tax. For taxable 
years beginning after December 31, 2010, the sunset provision 
of EGTRRA applies to the rules allowing the child credit 
against the alternative minimum tax.

                               HOUSE BILL

      The bill increases the credit to $1,000 for taxable years 
2005-2009. Therefore, the maximum child credit is $1,000 per 
child for taxable years 2003-2010.\3\ The bill also accelerates 
to 2003 the increase in refundability of the child credit to 15 
percent of the taxpayer's earned income in excess of $10,500 
(with indexing). Finally, the bill provides that the beginning 
point of the phase-out range for the child credit is $150,000 
for married individuals filing joint returns ($75,000 for 
unmarried individuals and married individuals filing 
separately) for taxable years beginning after December 31, 
2002, and before January 1, 2011. All modifications to the 
child credit under the bill are subject to the sunset provision 
of EGTRRA.
---------------------------------------------------------------------------
    \3\ The credit reverts to $500 in taxable years beginning after 
December 31, 2010, under the sunset provision of EGTRRA.
---------------------------------------------------------------------------
      Effective date.--Taxable years beginning after December 
31, 2002.

                            SENATE AMENDMENT

      The Senate amendment accelerates to 2003 the increase in 
refundability of the child credit to 15 percent of the 
taxpayer's earned income in excess of $10,500 (with indexing). 
The Senate amendment also provides that taxpayers eligible for 
such additional refundable child credit amount will receive 
this additional amount as an advance payment. No advance 
payments may be made after December 31, 2003. Also, the Senate 
amendment provides that the beginning point of the phase-out 
range for the credit for married individuals filing joint 
returns is increased to $115,000 in 2008 and 2009 and $150,000 
in 2010. It also provides that the beginning point for such 
phase-out range in the case of unmarried individuals and 
married individuals filing separately will be one-half of the 
beginning point of the phase-out range for married individuals 
filing joint returns for taxable years beginning in 2008 
through 2010. Finally, the Senate amendment provides that any 
amount excluded from gross income under section 112 of the Code 
(relating to certain combat zone compensation) is treated as 
earned income for purposes of the calculation of the child tax 
credit. All modifications to the child credit under the Senate 
amendment are subject to the sunset provision of EGTRRA.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2002.

                          CONFERENCE AGREEMENT

In general
      The conference agreement increases the child credit to 
$1,000 for taxable years 2005-2009. Therefore, the maximum 
child tax credit is $1,000 per child for taxable years 2005-
2010. All modifications to the child credit under the 
conference agreement are subject to the sunset provision of 
EGTRRA.\4\
---------------------------------------------------------------------------
    \4\ The credit reverts to $500 in taxable years beginning after 
December 31, 2010, under the sunset provision of EGTRRA.
---------------------------------------------------------------------------
Refundability
      The conference agreement accelerates to 2004 the increase 
in refundability of the child credit to 15 percent of the 
taxpayer's earned income in excess of $10,750 (with indexing).
Combat pay treated as earned income
      The conference agreement provides that combat pay that is 
otherwise excluded from gross income under section 112 is 
treated as earned income which is taken into account in 
computing taxable income for purposes of calculating the 
refundable portion of the child credit.
      The conference agreement provides that any taxpayer may 
elect to treat combat pay that is otherwise excluded from gross 
income under section 112 as earned income for purposes of the 
earned income credit. This election is available with respect 
to any taxable year ending after the date of enactment and 
before January 1, 2006.
Effective dates
      The provision generally applies to taxable years 
beginning after December 31, 2004. The provision relating to 
the acceleration of the refundability of the child credit 
applies to taxable years beginning after December 31, 2003. The 
provision relating to the treatment of combat pay as earned 
income for purposes of the child credit is effective for 
taxable years beginning after December 31, 2003. The earned 
income credit election is effective for taxable years ending 
after the date of enactment and before January 1, 2006.

                   B. Extend Marriage Penalty Relief

(Sec. 101 of the conference agreement and secs. 1 and 63 of the Code)
1. Standard deduction marriage penalty relief (sec. 63 of the Code)

                              PRESENT LAW

Marriage penalty
      A married couple generally is treated as one tax unit 
that must pay tax on the couple's total taxable income. 
Although married couples may elect to file separate returns, 
the rate schedules and other provisions are structured so that 
filing separate returns usually results in a higher tax than 
filing a joint return. Other rate schedules apply to single 
persons and to single heads of households.
      A ``marriage penalty'' exists when the combined tax 
liability of a married couple filing a joint return is greater 
than the sum of the tax liabilities of each individual computed 
as if they were not married. A ``marriage bonus'' exists when 
the combined tax liability of a married couple filing a joint 
return is less than the sum of the tax liabilities of each 
individual computed as if they were not married.
Basic standard deduction
      Taxpayers who do not itemize deductions may choose the 
basic standard deduction (and additional standard deductions, 
if applicable),\5\ which is subtracted from adjusted gross 
income (``AGI'') in arriving at taxable income. The size of the 
basic standard deduction varies according to filing status and 
is adjusted annually for inflation.\6\ In general, two 
unmarried individuals have standard deductions whose sum 
exceeds the standard deduction for a married couple filing a 
joint return. EGTRRA increased the basic standard deduction for 
a married couple filing a joint return, providing for a phase-
in of the increase until the basic standard deduction for a 
married couple filing a joint return equaled twice the basic 
standard deduction for an unmarried individual filing a single 
return by 2009.\7\ The Jobs and Growth Tax Relief 
Reconciliation Act of 2003 (``JGTRRA'') accelerated the phase-
in, providing that the basic standard deduction for a married 
couple filing a joint return equaled twice the basic standard 
deduction for an unmarried individual filing a single return 
for 2003 and 2004, reverting to the phase-in schedule provided 
by EGTRAA for 2005-2009.
---------------------------------------------------------------------------
    \5\ Additional standard deductions are allowed with respect to any 
individual who is elderly (age 65 or over) or blind.
    \6\ For 2004 the basic standard deduction amounts are: (1) $4,850 
for unmarried individuals; (2) $9,700 for married individuals filing a 
joint return; (3) $7,150 for heads of households; and (4) $4,850 for 
married individuals filing separately.
    \7\ The basic standard deduction for a married taxpayer filing 
separately will continue to equal one-half of the basic standard 
deduction for a married couple filing jointly; thus, the basic standard 
deduction for unmarried individuals filing a single return and for 
married couples filing separately will be the same after the phase-in 
period.
---------------------------------------------------------------------------
      Table 2, below, shows the standard deduction for married 
couples filing a joint return as a percentage of the standard 
deduction for single individuals during the phase-in period.

 TABLE 2.--SCHEDULED AMOUNT OF THE BASIC STANDARD DEDUCTION FOR MARRIED
                      COUPLES FILING JOINT RETURNS
------------------------------------------------------------------------
                                                             Standard
                                                          deduction for
                                                         married couples
                                                           filing joint
                                                            returns as
                      Taxable year                        percentage of
                                                             standard
                                                          deduction for
                                                            unmarried
                                                           individuals
                                                             returns
------------------------------------------------------------------------
2005...................................................              174
2006...................................................              184
2007...................................................              187
2008...................................................              190
2009 and 2010 \1\......................................             200
------------------------------------------------------------------------
\1\ The basic standard deduction increases are repealed for taxable
  years beginning after December 31, 2010, under the sunset provision of
  EGTRRA.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement increases the basic standard 
deduction amount for joint returns to twice the basic standard 
deduction amount for single returns effective for 2005-2008. 
Therefore, the basic standard deduction for joint returns is 
twice the basic standard deduction for single returns for 
taxable years 2005-2010. All modifications to the basic 
standard deduction under the conference agreement are subject 
to the sunset provision of EGTRRA.
      Effective date.--The conference agreement provision is 
effective for taxable years beginning after December 31, 2004.
2. Increase the size of the 15-percent rate bracket for married couples 
        filing joint returns (sec. 1 of the Code)

                              PRESENT LAW

In general
      Under the Federal individual income tax system, an 
individual who is a citizen or resident of the United States 
generally is subject to tax on worldwide taxable income. 
Taxable income is total gross income less certain exclusions, 
exemptions, and deductions. An individual may claim either a 
standard deduction or itemized deductions.
      An individual's income tax liability is determined by 
computing his or her regular income tax liability and, if 
applicable, alternative minimum tax liability.
Regular income tax liability
      Regular income tax liability is determined by applying 
the regular income tax rate schedules (or tax tables) to the 
individual's taxable income and then is reduced by any 
applicable tax credits. The regular income tax rate schedules 
are divided into several ranges of income, known as income 
brackets, and the marginal tax rate increases as the 
individual's income increases. The income bracket amounts are 
adjusted annually for inflation. Separate rate schedules apply 
based on filing status: single individuals (other than heads of 
households and surviving spouses), heads of households, married 
individuals filing joint returns (including surviving spouses), 
married individuals filing separate returns, and estates and 
trusts. Lower rates may apply to capital gains.
      In general, the bracket breakpoints for single 
individuals are approximately 60 percent of the rate bracket 
breakpoints for married couples filing joint returns.\8\ The 
rate bracket breakpoints for married individuals filing 
separate returns are exactly one-half of the rate brackets for 
married individuals filing joint returns. A separate, 
compressed rate schedule applies to estates and trusts.
---------------------------------------------------------------------------
    \8\ Under present law, the rate bracket breakpoint for the 35-
percent marginal tax rate is the same for single individuals and 
married couples filing joint returns.
---------------------------------------------------------------------------
15-percent regular income tax rate bracket
      EGTRRA increased the size of the 15-percent regular 
income tax rate bracket for a married couple filing a joint 
return to twice the size of the corresponding rate bracket for 
a single individual filing a single return, phasing in the 
increase over four years, beginning in 2005. JGTRRA accelerated 
these increases, making the size of the 15-percent regular 
income tax rate bracket for a married couple filing a joint 
return equal to twice the size of the corresponding rate 
bracket for a single individual filing a single return for 
taxable years beginning in 2003 and 2004. For taxable years 
beginning after 2004, the applicable percentages will revert to 
those provided by EGTRRA. Table 3, below, shows the size of the 
15-percent bracket during the phase-in period.

   TABLE 3.--SCHEDULED SIZE OF THE 15-PERCENT RATE BRACKET FOR MARRIED
                      COUPLES FILING JOINT RETURNS
------------------------------------------------------------------------
                                                 End point of 15-percent
                                                rate bracket for married
                                                  couples filing joint
                 Taxable year                   returns as percentage of
                                                 end point of 15-percent
                                                    rate bracket for
                                                  unmarried individuals
------------------------------------------------------------------------
2005..........................................                      180
2006..........................................                      187
2007..........................................                      193
2008 through 2010\1\..........................                     200
------------------------------------------------------------------------
\1\ The increases in the 15-percent rate bracket for married couples
  filing a joint return are repealed for taxable years beginning after
  December 31, 2010, under the sunset provision of EGTRRA.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement increases the size of the 15-
percent rate bracket for joint returns to twice the size of the 
corresponding rate bracket for single returns effective for 
2005-2007. Therefore, the size of the 15-percent rate bracket 
for joint returns is twice the size of the corresponding rate 
bracket for single returns for taxable years 2005-2010. The 
modification to the 15-percent rate bracket under the 
conference agreement is subject to the sunset provision of 
EGTRRA.
      Effective date.--The conference agreement provision is 
effective for taxable years beginning after December 31, 2004.

       C. Extend Size of 10-Percent Rate Bracket for Individuals

(Sec. 101 of the conference agreement and sec. 1 of the Code)

                              PRESENT LAW

In general
      Under the Federal individual income tax system, an 
individual who is a citizen or a resident of the United States 
generally is subject to tax on worldwide taxable income. 
Taxable income is total gross income less certain exclusions, 
exemptions, and deductions. An individual may claim either a 
standard deduction or itemized deductions.
      An individual's income tax liability is determined by 
computing his or her regular income tax liability and, if 
applicable, alternative minimum tax liability.
Regular income tax liability
      Regular income tax liability is determined by applying 
the regular income tax rate schedules (or tax tables) to the 
individual's taxable income. This tax liability is then reduced 
by any applicable tax credits. The regular income tax rate 
schedules are divided into several ranges of income, known as 
income brackets, and the marginal tax rate increases as the 
individual's income increases. The income bracket amounts are 
adjusted annually for inflation. Separate rate schedules apply 
based on filing status: single individuals (other than heads of 
households and surviving spouses), heads of households, married 
individuals filing joint returns (including surviving spouses), 
married individuals filing separate returns, and estates and 
trusts. Lower rates may apply to capital gains.
Ten-percent regular income tax rate
      EGTRRA created a new 10-percent rate that applied to the 
first $6,000 of taxable income for single individuals, $10,000 
of taxable income for heads of households, and $12,000 for 
married couples filing joint returns, and provided a scheduled 
increase effective beginning in2008 under which the $6,000 
amount would increase to $7,000 and the $12,000 amount would increase 
to $14,000, with such amounts adjusted annually for inflation for 
taxable years beginning after December 31, 2008. JGTRRA accelerated the 
scheduled increases to 2003 and 2004 (with indexing). For 2004, the 
size of the 10-percent bracket for single individuals is $7,150 
($14,300 for married individuals filing a joint return). For 2005-2010, 
the size of the 10-percent bracket reverts to the levels provided under 
EGTRRA. Thus the amounts drop to $6,000 for single individuals, $10,000 
for heads of households and $12,000 for married individuals filing a 
joint return) for 2005-2007. In 2008, the amounts will increase to 
$7,000 ($14,000 for married individuals filing a joint return). These 
amounts ($7,000 for single individuals, $10,000 for heads of households 
and $14,000 for married individuals) are adjusted annually for 
inflation for taxable years beginning after December 31, 2008. The 10-
percent rate bracket will expire for taxable years beginning after 
December 31, 2010, under the sunset provision of EGTRRA.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the size of the 10-
percent rate bracket through 2010. Specifically, the size of 
the 10-percent rate bracket for 2005 through 2010 is set at the 
2003 level ($7,000 for single individuals, $10,000 for heads of 
households and $14,000 for married individuals) with annual 
indexing from 2003. The modifications to the 10-percent rate 
bracket under the conference agreement are subject to the 
sunset provision of EGTRRA.
      Effective date.--The conference agreement provision is 
effective for taxable years beginning after December 31, 2004.

      D. Extend Alternative Minimum Tax Exemption for Individuals

(Sec. 103 of the conference agreement and sec. 55 of the Code)

                              PRESENT LAW

      The alternative minimum tax is the amount by which the 
tentative minimum tax exceeds the regular income tax. An 
individual's tentative minimum tax is the sum of (1) 26 percent 
of so much of the taxable excess as does not exceed $175,000 
($87,500 in the case of a married individual filing a separate 
return) and (2) 28 percent of the remaining taxable excess. The 
taxable excess is so much of the alternative minimum taxable 
income (``AMTI'') as exceeds the exemption amount. The maximum 
tax rates on net capital gain and dividends used in computing 
the regular tax are used in computing the tentative minimum 
tax. AMTI is the individual's taxable income adjusted to take 
account of specified preferences and adjustments.
      The exemption amount is: (1) $45,000 ($58,000 for taxable 
years beginning before 2005) in the case of married individuals 
filing a joint return and surviving spouses; (2) $33,750 
($40,250 for taxable years beginning before 2005) in the case 
of other unmarried individuals; (3) $22,500 ($29,000 for 
taxable years beginning before 2005) in the case of married 
individuals filing a separate return; and (4) $22,500 in the 
case of an estate or trust. The exemption amount is phased out 
by an amount equal to 25 percent of the amount by which the 
individual's AMTI exceeds (1) $150,000 in the case of married 
individuals filing a joint return and surviving spouses, (2) 
$112,500 in the case of other unmarried individuals, and (3) 
$75,000 in the case of married individuals filing separate 
returns, an estate, or a trust. These amounts are not indexed 
for inflation.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the increased 
alternative minimum tax exemption amounts to taxable years 
beginning in 2005.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 2004.

                II. PROVISIONS RELATING TO THE MILITARY

 A. Exclusion of Gain on Sale of a Principal Residence by a Member of 
             the Uniformed Services or the Foreign Service

(Sec. 201 of the House bill and sec. 121 of the Code)

                            PRESENT LAW \9\

      Under present law, an individual taxpayer may exclude up 
to $250,000 ($500,000 if married filing a joint return) of gain 
realized on the sale or exchange of a principal residence. To 
be eligible for the exclusion, the taxpayer must have owned and 
used the residence as a principal residence for at least two of 
the five years ending on the sale or exchange. A taxpayer who 
fails to meet these requirements by reason of a change of place 
of employment, health, or, to the extent provided under 
regulations, unforeseen circumstances is able to exclude an 
amount equal to the fraction of the $250,000 ($500,000 if 
married filing a joint return) that is equal to the fraction of 
the two years that the ownership and use requirements are met. 
There are no special rules relating to members of the uniformed 
services or the Foreign Service of the United States.
---------------------------------------------------------------------------
    \9\ This description of present law refers to the law in effect at 
the time the bill passed the House of Representatives, which was prior 
to the enactment of Pub. L. No. 108-121.
---------------------------------------------------------------------------

                               HOUSE BILL

      Under the bill, an individual may elect to suspend for a 
maximum of five years the five-year test period for ownership 
and use during certain absences due to service in the uniformed 
services or the Foreign Service of the United States. The 
uniformed services include: (1) the Armed Forces (the Army, 
Navy, Air Force, Marine Corps, and Coast Guard); (2) the 
commissioned corps of the National Oceanic and Atmospheric 
Administration; and (3) the commissioned corps of the Public 
Health Service. If the election is made, the five-year period 
ending on the date of the sale or exchange of a principal 
residence does not include any period up to five years during 
which the taxpayer or the taxpayer's spouse is on qualified 
official extended duty as a member of the uniformed services or 
in the Foreign Service of the United States. For these 
purposes, qualified official extended duty is any period of 
extended duty while serving at a place of duty at least 150 
miles away from the taxpayer's principal residence or under 
orders compelling residence in Government furnished quarters. 
Extended duty is defined as any period of duty pursuant to a 
call or order to such duty for a period in excess of 180 days 
or for an indefinite period. The election may be made with 
respect to only one property for a suspension period.
      Effective date.--The provision is effective for sales or 
exchanges after May 6, 1997.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement does not include the House bill 
provision.\10\
---------------------------------------------------------------------------
    \10\ All of the House bill provisions relating to the military have 
been enacted prior to this conference agreement in separate legislation 
(Pub. L. No. 108-121).
---------------------------------------------------------------------------

   B. Exclusion From Gross Income of Certain Death Gratuity Payments

(Sec. 202 of the House bill and sec. 134 of the Code)

                            PRESENT LAW \11\

      Present law provides that qualified military benefits are 
not included in gross income. Generally, a qualified military 
benefit is any allowance or in-kind benefit (other than 
personal use of a vehicle) which: (1) is received by any member 
or former member of the uniformed services of the United States 
or any dependent of such member by reason of such member's 
status or service as a member of such uniformed services; and 
(2) was excludable from gross income on September 9, 1986, 
under any provision of law, regulation, or administrative 
practice which was in effect on such date. Generally, other 
than certain cost of living adjustments, no modification or 
adjustment of any qualified military benefit after September 9, 
1986, is taken into account for purposes of this exclusion from 
gross income. Qualified military benefits include certain death 
gratuities. The amount of the military death gratuity benefit 
has been increased since September 9, 1986 to $6,000 pursuant 
to Chapter 75 of Title 10 of the United States Code. However, 
the amount of the exclusion from gross income was not increased 
to take into account this change.
---------------------------------------------------------------------------
    \11\ This description of present law refers to the law in effect at 
the time the bill passed the House of Representatives, which was prior 
to the enactment of Pub. L. No. 108-121.
---------------------------------------------------------------------------

                               HOUSE BILL

      The bill extends the exclusion from gross income for 
military benefits to any adjustment to the amount of the death 
gratuity payable under Chapter 75 of Title 10 of the United 
States Code that is pursuant to a provision of law enacted 
before December 31, 1991, with respect to the death of certain 
members of the Armed services on active duty, inactive duty 
training, or engaged in authorized travel.
      Effective date.--The provision is effective with respect 
to deaths occurring after September 10, 2001.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement does not include the House bill 
provision.\12\
---------------------------------------------------------------------------
    \12\ All of the House bill provisions relating to the military have 
been enacted prior to this conference agreement in separate legislation 
(Pub. L. No. 108-121).
---------------------------------------------------------------------------

     C. Exclusion for Amounts Received Under Department of Defense 
                     Homeowners Assistance Program

(Sec. 203 of the House bill and sec. 132 of the Code)

                            PRESENT LAW \13\

Homeowners Assistance Program payment
      The Department of Defense Homeowners Assistance Program 
(``HAP'') provides payments to certain employees and members of 
the Armed Forces to offset the adverse effects on housing 
values that result from a military base realignment or 
closure.\14\
---------------------------------------------------------------------------
    \13\ This description of present law refers to the law in effect at 
the time the bill passed the House of Representatives, which was prior 
to the enactment of Pub. L. No. 108-121.
    \14\ The payments are authorized under the provisions of 42 U.S.C. 
section 3374.
---------------------------------------------------------------------------
      In general, under HAP, eligible individuals receive 
either: (1) a cash payment as compensation for losses that may 
be or have been sustained in a private sale, in an amount not 
to exceed the difference between (a) 95 percent of the fair 
market value of their property prior to public announcement of 
intention to close all or part of the military base or 
installation and (b) the fair market value of such property at 
the time of the sale; or (2) as the purchase price for their 
property, an amount not to exceed 90 percent of the prior fair 
market value as determined by the Secretary of Defense, or the 
amount of the outstanding mortgages.
Tax treatment
      Unless specifically excluded, gross income for Federal 
income tax purposes includes all income from whatever source 
derived. Amounts received under HAP are received in connection 
with the performance of services. These amounts are includible 
in gross income as compensation for services to the extent such 
payments exceed the fair market value of the property 
relinquished in exchange for such payments. Additionally, such 
payments are wages for Federal Insurance Contributions Act 
(``FICA'') tax purposes (including Medicare).

                               HOUSE BILL

      The bill generally exempts from gross income amounts 
received under the HAP (as in effect on the date of enactment 
of this bill). Amounts received under the program also are not 
considered wages for FICA tax purposes (including Medicare). 
The excludable amount is limited to the reduction in the fair 
market value of property.
      Effective date.--The provision is effective for payments 
made after the date of enactment.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement does not include the House bill 
provision.\15\
---------------------------------------------------------------------------
    \15\ All of the House bill provisions relating to the military have 
been enacted prior to this conference agreement in separate legislation 
(Pub. L. No. 108-121).
---------------------------------------------------------------------------

   D. Expansion of Combat Zone Filing Rules to Contingency Operations

(Sec. 204 of the House bill and sec. 7508 of the Code)

                            PRESENT LAW \16\

General time limits for filing tax returns
      Individuals generally must file their Federal income tax 
returns by April 15 of the year following the close of a 
taxable year. The Secretary may grant reasonable extensions of 
time for filing such returns. Treasury regulations provide an 
additional automatic two-month extension (until June 15 for 
calendar-year individuals) for United States citizens and 
residents in military or naval service on duty on April 15 of 
the following year (the otherwise applicable due date of the 
return) outside the United States. No action is necessary to 
apply for this extension, but taxpayers must indicate on their 
returns (when filed) that they are claiming this extension. 
Unlike most extensions of time to file, this extension applies 
to both filing returns and paying the tax due.
---------------------------------------------------------------------------
    \16\ This description of present law refers to the law in effect at 
the time the bill passed the House of Representatives, which was prior 
to the enactment of Pub. L. No. 108-121.
---------------------------------------------------------------------------
      Treasury regulations also provide, upon application on 
the proper form, an automatic four-month extension (until 
August 15 for calendar-year individuals) for any individual 
timely filing that form and paying the amount of tax estimated 
to be due.
      In general, individuals must make quarterly estimated tax 
payments by April 15, June 15, September 15, and January 15 of 
the following taxable year. Wage withholding is considered to 
be a payment of estimated taxes.
Suspension of time periods
      In general, the period of time for performing various 
acts under the Code, such as filing tax returns, paying taxes, 
or filing a claim for credit or refund of tax, is suspended for 
any individual serving in the Armed Forces of the United States 
in an area designated as a ``combat zone'' during the period of 
combatant activities. An individual who becomes a prisoner of 
war is considered to continue in active service and is 
therefore also eligible for these suspension of time 
provisions. The suspension of time also applies to an 
individual serving in support of such Armed Forces in the 
combat zone, such as Red Cross personnel, accredited 
correspondents, and civilian personnel acting under the 
direction of the Armed Forces in support of those Forces. The 
designation of a combat zone must be made by the President in 
an Executive Order. The President must also designate the 
period of combatant activities in the combat zone (the starting 
date and the termination date of combat).
      The suspension of time encompasses the period of service 
in the combat zone during the period of combatant activities in 
the zone, as well as (1) any time of continuous qualified 
hospitalization resulting from injury received in the combat 
zone \17\ or (2) time in missing in action status, plus the 
next 180 days.
---------------------------------------------------------------------------
    \17\ Two special rules apply to continuous hospitalization inside 
the United States. First, the suspension of time provisions based on 
continuous hospitalization inside the United States are applicable only 
to the hospitalized individual; they are not applicable to the spouse 
of such individual. Second, in no event do the suspension of time 
provisions based on continuous hospitalization inside the United States 
extend beyond five years from the date the individual returns to the 
United States. These two special rules do not apply to continuous 
hospitalization outside the United States.
---------------------------------------------------------------------------
      The suspension of time applies to the following acts:
            (1) Filing any return of income, estate, or gift 
        tax (except employment and withholding taxes);
            (2) Payment of any income, estate, or gift tax 
        (except employment and withholding taxes);
            (3) Filing a petition with the Tax Court for 
        redetermination of a deficiency, or for review of a 
        decision rendered by the Tax Court;
            (4) Allowance of a credit or refund of any tax;
            (5) Filing a claim for credit or refund of any tax;
            (6) Bringing suit upon any such claim for credit or 
        refund;
            (7) Assessment of any tax;
            (8) Giving or making any notice or demand for the 
        payment of any tax, or with respect to any liability to 
        the United States in respect of any tax;
            (9) Collection of the amount of any liability in 
        respect of any tax;
            (10) Bringing suit by the United States in respect 
        of any liability in respect of any tax; and
            (11) Any other act required or permitted under the 
        internal revenue laws specified by the Secretary of the 
        Treasury.
      Individuals may, if they choose, perform any of these 
acts during the period of suspension. Spouses of qualifying 
individuals are entitled to the same suspension of time, except 
that the spouse is ineligible for this suspension for any 
taxable year beginning more than two years after the date of 
termination of combatant activities in the combat zone.

                               HOUSE BILL

      The bill applies the special suspension of time period 
rules to persons deployed outside the United States away from 
the individual's permanent duty station while participating in 
an operation designated by the Secretary of Defense as a 
contingency operation or that becomes a contingency operation. 
A contingency operation is defined \18\ as a military operation 
that is designated by the Secretary of Defense as an operation 
in which members of the Armed Forces are or may become involved 
in military actions, operations, or hostilities against an 
enemy of the United States or against an opposing military 
force, or results in the call or order to (or retention of) 
active duty of members of the uniformed services during a war 
or a national emergency declared by the President or Congress.
---------------------------------------------------------------------------
    \18\ The definition is by cross-reference to 10 U.S.C. 101.
---------------------------------------------------------------------------
      Effective date.--The provision applies to any period for 
performing an act that has not expired before the date of 
enactment.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement does not include the House bill 
provision.\19\
---------------------------------------------------------------------------
    \19\ All of the House bill provisions relating to the military have 
been enacted prior to this conference agreement in separate legislation 
(Pub. L. No. 108-121).
---------------------------------------------------------------------------

 E. Modification of Membership Requirement for Exemption From Tax for 
                    Certain Veterans' Organizations

(Sec. 205 of the House bill and sec. 501(c)(19) of the Code)

                            PRESENT LAW \20\

      Under present law, a veterans' organization as described 
in section 501(c)(19) of the Code generally is exempt from 
taxation. The Code defines such an organization as a post or 
organization of past or present members of the Armed Forces of 
the United States: (1) that is organized in the United States 
or any of its possessions; (2) no part of the net earnings of 
which inures to the benefit of any private shareholder or 
individual; and (3) that meets certain membership requirements. 
The membership requirements are that (1) at least 75 percent of 
the organization's members are past or present members of the 
Armed Forces of the United States, and (2) substantially all of 
the remaining members are cadets or are spouses, widows, or 
widowers of past or present members of the Armed Forces of the 
United States or of cadets. No more than 2.5 percent of an 
organization's total members may consist of individuals who are 
not veterans, cadets, or spouses, widows, or widowers of such 
individuals.
---------------------------------------------------------------------------
    \20\ This description of present law refers to the law in effect at 
the time the bill passed the House of Representatives, which was prior 
to the enactment of Pub. L. No. 108-121.
---------------------------------------------------------------------------
      Contributions to an organization described in section 
501(c)(19) may be deductible for Federal income or gift tax 
purposes if the organization is a post or organization of war 
veterans.

                               HOUSE BILL

      The bill permits ancestors or lineal descendants of past 
or present members of the Armed Forces of the United States or 
of cadets to qualify as members for purposes of the 
``substantially all'' test. The bill does not change the 
requirement that 75 percent of the organization's members must 
be past or present members of the Armed Forces of the United 
States.
      Effective date.--The provision is effective for taxable 
years beginning after the date of enactment.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement does not include the House bill 
provision.\21\
---------------------------------------------------------------------------
    \21\ All of the House bill provisions relating to the military have 
been enacted prior to this conference agreement in separate legislation 
(Pub. L. No. 108-121).
---------------------------------------------------------------------------

  F. Clarification of Treatment of Certain Dependent Care Assistance 
 Programs Provided to Members of the Uniformed Services of the United 
                                 States

(Sec. 206 of the House bill and sec. 134 of the Code)

                            PRESENT LAW \22\

      Present law provides that qualified military benefits are 
not included in gross income. Generally, a qualified military 
benefit is any allowance or in-kind benefit (other than 
personal use of a vehicle) which: (1) is received by any member 
or former member of the uniformed services of the United States 
or any dependent of such member by reason of such member's 
status or service as a member of such uniformed services; and 
(2) was excludable from gross income on September 9, 1986, 
under any provision of law, regulation, or administrative 
practice which was in effect on such date. Generally, other 
than certain cost of living adjustments, no modification or 
adjustment of any qualified military benefit after September 9, 
1986, is taken into account for purposes of this exclusion from 
gross income.
---------------------------------------------------------------------------
    \22\ This description of present law refers to the law in effect at 
the time the bill passed the House of Representatives, which was prior 
to the enactment of Pub. L. No. 108-121.
---------------------------------------------------------------------------

                               HOUSE BILL

      The bill clarifies that dependent care assistance 
provided under a dependent care assistance program (as in 
effect on the date of enactment of this bill) for a member of 
the uniformed services by reason of such member's status or 
service as a member of the uniformed services is excludable 
from gross income as a qualified military benefit subject to 
the present-law rules. The uniformed services include: (1) the 
Armed Forces (the Army, Navy, Air Force, Marine Corps, and 
Coast Guard); (2) the commissioned corps of the National 
Oceanic and Atmospheric Administration; and (3) the 
commissioned corps of the Public Health Service. Amounts 
received under the program also are not considered wages for 
Federal Insurance Contributions Act tax purposes (including 
Medicare).
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2002. No inference is 
intended as to the tax treatment of such amounts for prior 
taxable years.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement does not include the House bill 
provision.\23\
---------------------------------------------------------------------------
    \23\ All of the House bill provisions relating to the military have 
been enacted prior to this conference agreement in separate legislation 
(Pub. L. No. 108-121).
---------------------------------------------------------------------------

   G. Treatment of Service Academy Appointments as Scholarships for 
Purposes of Qualified Tuition Programs and Coverdell Education Savings 
                                Accounts

(Sec. 207 of the House bill and secs. 529 and 530 of the Code)

                            PRESENT LAW \24\

      The Code provides tax-exempt status to qualified tuition 
programs, meaning programs established and maintained by a 
State or agency or instrumentality thereof or by one or more 
eligible educational institutions under which a person (1) may 
purchase tuition credits or certificates on behalf of a 
designated beneficiary which entitle the beneficiary to the 
waiver or payment of qualified higher education expenses of the 
beneficiary, or (2) in the case of a program established by and 
maintained by a State or agency or instrumentality thereof, may 
make contributions to an account which is established for the 
purpose of meeting the qualified higher education expenses of 
the designated beneficiary of the account. Contributions to 
qualified tuition programs may be made only in cash. Qualified 
tuition programs must have adequate safeguards to prevent 
contributions on behalf of a designated beneficiary in excess 
of amounts necessary to provide for the qualified higher 
education expenses of the beneficiary.
---------------------------------------------------------------------------
    \24\ This description of present law refers to the law in effect at 
the time the bill passed the House of Representatives, which was prior 
to the enactment of Pub. L. No. 108-121.
---------------------------------------------------------------------------
      The Code provides tax-exempt status to Coverdell 
education savings accounts (``ESAs''), meaning certain trusts 
or custodial accounts which are created or organized in the 
United States exclusively for the purpose of paying the 
qualified education expenses of a designated beneficiary. 
Contributions to ESAs may be made only in cash. Annual 
contributions to ESAs may not exceed $2,000 per beneficiary 
(except in cases involving certain tax-free rollovers) and may 
not be made after the designated beneficiary reaches age 18.
      Earnings on contributions to an ESA or a qualified 
tuition program generally are subject to tax when withdrawn. 
However, distributions from an ESA or qualified tuition program 
are excludable from the gross income of the distributee to the 
extent that the total distribution does not exceed the 
qualified education expenses incurred by the beneficiary during 
the year the distribution is made.
      If the qualified education expenses of the beneficiary 
for the year are less than the total amount of the distribution 
from an ESA or qualified tuition program, then the qualified 
education expenses are deemed to be paid from a pro-rata share 
of both the principal and earnings components of the 
distribution. In such a case, only a portion of the earnings is 
excludable (i.e., the portion of the earnings based on the 
ratio that the qualified education expenses bear to the total 
amount of the distribution) and the remaining portion of the 
earnings is includible in the beneficiary's gross income.
      The earnings portion of a distribution from an ESA or a 
qualified tuition program that is includible in income is 
generally subject to an additional 10-percent tax. The 10 
percent additional tax does not apply if a distribution is made 
on account of the death or disability of the designated 
beneficiary, or on account of a scholarship received by the 
designated beneficiary (to the extent it does not exceed the 
amount of the scholarship).
      Service obligations are required of recipients of 
appointments to the United States Military Academy, the United 
States Naval Academy, the United States Air Force Academy, the 
United States Coast Guard Academy, or the United States 
Merchant Marine Academy. Because of these service obligations, 
appointments to the Academies are not considered scholarships 
for purposes of the waiver of the additional 10 percent tax on 
withdrawals from ESAs and qualified tuition programs that are 
not used for qualified education purposes.

                               HOUSE BILL

      The bill permits penalty-free withdrawals from Coverdell 
education savings accounts and qualified tuition programs made 
on account of the attendance of the beneficiary at the United 
States Military Academy, the United States Naval Academy, the 
United States Air Force Academy, the United States Coast Guard 
Academy, or the United States Merchant Marine Academy.
      The amount of funds that can be withdrawn penalty free is 
limited to the costs of advanced education as defined in 10 
U.S.C. section 2005(e)(3) (as in effect on the date of the 
enactment of the bill) at such Academies.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 2002.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement does not include the House bill 
provision.\25\
---------------------------------------------------------------------------
    \25\ All of the House bill provisions relating to the military have 
been enacted prior to this conference agreement in separate legislation 
(Pub. L. No. 108-121).
---------------------------------------------------------------------------

 H. Above-the-Line Deduction for Overnight Travel Expenses of National 
                       Guard and Reserve Members

(Sec. 208 of the House bill and sec. 162 of the Code)

                            PRESENT LAW \26\

      National Guard and Reserve members may claim itemized 
deductions for their nonreimbursable expenses for 
transportation, meals, and lodging when they must travel away 
from home (and stay overnight) to attend National Guard and 
Reserve meetings. These overnight travel expenses are combined 
with other miscellaneous itemized deductions on Schedule A of 
the individual's income tax return and are deductible only to 
the extent that the aggregate of these deductions exceeds two 
percent of the taxpayer's adjusted gross income. No deduction 
is generally permitted for commuting expenses to and from drill 
meetings.
---------------------------------------------------------------------------
    \26\ This description of present law refers to the law in effect at 
the time the bill passed the House of Representatives, which was prior 
to the enactment of Pub. L. No. 108-121.
---------------------------------------------------------------------------

                               HOUSE BILL

      The bill provides an above-the-line deduction for the 
overnight transportation, meals, and lodging expenses of 
National Guard and Reserve members who must travel away from 
home more than 100 miles (and stay overnight) to attend 
National Guard and Reserve meetings. Accordingly, these 
individuals incurring these expenses can deduct them from gross 
income regardless of whether they itemize their deductions. The 
amount of the expenses that may be deducted may not exceed 
$1,500 per taxable year and is only available for any period 
during which the individual is more than 100 miles from home in 
connection with such services.
      Effective date.--The provision is effective with respect 
to amounts paid or incurred in taxable years beginning after 
December 31, 2002.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement does not include the House bill 
provision.\27\
---------------------------------------------------------------------------
    \27\ All of the House bill provisions relating to the military have 
been enacted prior to this conference agreement in separate legislation 
(Pub. L. No. 108-121).
---------------------------------------------------------------------------

     I. Suspension of Tax-Exempt Status of Terrorist Organizations

(Sec. 301 of the House bill and sec. 501 of the Code)

                            PRESENT LAW \28\
---------------------------------------------------------------------------

    \28\ This description of present law refers to the law in effect at 
the time the bill passed the House of Representatives, which was prior 
to the enactment of Pub. L. No. 108-121.
---------------------------------------------------------------------------
      Under present law, the Internal Revenue Service generally 
issues a letter revoking recognition of an organization's tax-
exempt status only after (1) conducting an examination of the 
organization, (2) issuing a letter to the organization 
proposing revocation, and (3) allowing the organization to 
exhaust the administrative appeal rights that follow the 
issuance of the proposed revocation letter. In the case of an 
organization described in section 501(c)(3), the revocation 
letter immediately is subject to judicial review under the 
declaratory judgment procedures of section 7428. To sustain a 
revocation of tax-exempt status under section 7428, the IRS 
must demonstrate that the organization is no longer entitled to 
exemption. There is no procedure under current law for the IRS 
to suspend the tax-exempt status of an organization.
      To combat terrorism, the Federal government has 
designated a number of organizations as terrorist organizations 
or supporters of terrorism under the Immigration and 
Nationality Act, the International Emergency Economic Powers 
Act, and the United Nations Participation Act of 1945.

                               HOUSE BILL

      The bill suspends the tax-exempt status of an 
organization that is exempt from tax under section 501(a) for 
any period during which the organization is designated or 
identified by U.S. Federal authorities as a terrorist 
organization or supporter of terrorism. The bill also makes 
such an organization ineligible to apply for tax exemption 
under section 501(a). The period of suspension runs from the 
date the organization is first designated or identified (or 
from the date of enactment of the bill, whichever is later) to 
the date when all designations or identifications with respect 
to the organization have been rescinded pursuant to the law or 
Executive order under which the designation or identification 
was made.
      The bill describes a terrorist organization as an 
organization that has been designated or otherwise individually 
identified (1) as a terrorist organization or foreign terrorist 
organization under the authority of section 
212(a)(3)(B)(vi)(II) or section 219 of the Immigration and 
Nationality Act; (2) in or pursuant to an Executive order that 
is related to terrorism and issued under the authority of the 
International Emergency Economic Powers Act or section 5 of the 
United Nations Participation Act for the purpose of imposing on 
such organization an economic or other sanction; or (3) in or 
pursuant to an Executive order that refers to the provision and 
is issued under the authority of any Federal law if the 
organization is designated or otherwise individually identified 
in or pursuant to such Executive order as supporting or 
engaging in terrorist activity (as defined in section 
212(a)(3)(B) of the Immigration and Nationality Act) or 
supporting terrorism (as defined in section 140(d)(2) of the 
Foreign Relations Authorization Act,Fiscal Years 1988 and 
1989). During the period of suspension, no deduction for any 
contribution to a terrorist organization is allowed under the Code, 
including under sections 170, 545(b)(2), 556(b)(2), 642(c), 2055, 
2106(a)(2), or 2522.
      No organization or other person may challenge, under 
section 7428 or any other provision of law, in any 
administrative or judicial proceeding relating to the Federal 
tax liability of such organization or other person, the 
suspension of tax-exemption, the ineligibility to apply for 
tax-exemption, a designation or identification described above, 
the timing of the period of suspension, or a denial of 
deduction described above. The suspended organization may 
maintain other suits or administrative actions against the 
agency or agencies that designated or identified the 
organization, for the purpose of challenging such designation 
or identification (but not the suspension of tax-exempt status 
under this provision).
      If the tax-exemption of an organization is suspended and 
each designation and identification that has been made with 
respect to the organization is determined to be erroneous 
pursuant to the law or Executive order making the designation 
or identification, and such erroneous designation results in an 
overpayment of income tax for any taxable year with respect to 
such organization, a credit or refund (with interest) with 
respect to such overpayment shall be made. If the operation of 
any law or rule of law (including res judicata) prevents the 
credit or refund at any time, the credit or refund may 
nevertheless be allowed or made if the claim for such credit or 
refund is filed before the close of the one-year period 
beginning on the date that the last remaining designation or 
identification with respect to the organization is determined 
to be erroneous.
      The bill directs the IRS to update the listings of tax-
exempt organizations to take account of organizations that have 
had their exemption suspended and to publish notice to 
taxpayers of the suspension of an organization's tax-exemption 
and the fact that contributions to such organization are not 
deductible during the period of suspension.
      Effective date.--The provision is effective for 
designations made before, on, or after the date of enactment.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement does not include the House bill 
provision.\29\
---------------------------------------------------------------------------
    \29\ All of the House bill provisions relating to the military have 
been enacted prior to this conference agreement in separate legislation 
(Pub. L. No. 108-121).
---------------------------------------------------------------------------

      J. Extension of Certain Tax Relief Provisions to Astronauts

(Sec. 401 of the House bill and secs. 101, 692, and 2201 of the Code)

                            PRESENT LAW \30\

In general
      The Victims of Terrorism Tax Relief Act of 2001 (the 
``Victims Act'') provided certain income and estate tax relief 
to individuals who die from wounds or injury incurred as a 
result of the terrorist attacks against the United States on 
September 11, 2001, and April 19, 1995 (the bombing of the 
Alfred P. Murrah Federal Building in Oklahoma City) or as a 
result of illness incurred due to an attack involving anthrax 
that occurred on or after September 11, 2001, and before 
January 1, 2002.
---------------------------------------------------------------------------
    \30\ This description of present law refers to the law in effect at 
the time the bill passed the House of Representatives, which was prior 
to the enactment of Pub. L. No. 108-121.
---------------------------------------------------------------------------
Income tax relief
      The Victims Act extended relief similar to the present-
law treatment of military or civilian employees of the United 
States who die as a result of terrorist or military activity 
outside the United States to individuals who die as a result of 
wounds or injury which were incurred as a result of the 
terrorist attacks that occurred on September 11, 2001, or April 
19, 1995, and individuals who die as a result of illness 
incurred due to an attack involving anthrax that occurs on or 
after September 11, 2001, and before January 1, 2002. Under the 
Victims Act, such individuals generally are exempt from income 
tax for the year of death and for prior taxable years beginning 
with the taxable year prior to the taxable year in which the 
wounds or injury occurred.\31\ The exemption applies to these 
individuals whether killed in an attack (e.g., in the case of 
the September 11, 2001, attack in one of the four airplanes or 
on the ground) or in rescue or recovery operations.
---------------------------------------------------------------------------
    \31\ Present law does not provide relief from self-employment tax 
liability.
---------------------------------------------------------------------------
      Present law provides tax relief of at least $10,000 to 
each eligible individual regardless of the income tax liability 
of the individual for the eligible tax years. If an eligible 
individual's income tax for years eligible for the exclusion 
under the provision is less than $10,000, the individual is 
treated as having made a tax payment for such individual's last 
taxable year in an amount equal to the excess of $10,000 over 
the amount of tax not imposed under the provision.
      Subject to rules prescribed by the Secretary, the 
exemption from tax does not apply to the tax attributable to 
(1) deferred compensation which would have been payable after 
death if the individual had died other than as a specified 
terrorist victim, or (2) amounts payable in the taxable year 
which would not have been payable in such taxable year but for 
an action taken after September 11, 2001. Thus, for example, 
the exemption does not apply to amounts payable from a 
qualified plan or individual retirement arrangement to the 
beneficiary or estate of the individual. Similarly, amounts 
payable only as death or survivor's benefits pursuant to 
deferredcompensation preexisting arrangements that would have 
been paid if the death had occurred for another reason are not covered 
by the exemption. In addition, if the individual's employer makes 
adjustments to a plan or arrangement to accelerate the vesting of 
restricted property or the payment of nonqualified deferred 
compensation after the date of the particular attack, the exemption 
does not apply to income received as a result of that action.\32\ Also, 
if the individual's beneficiary cashed in savings bonds of the 
decedent, the exemption does not apply. On the other hand, the 
exemption does apply, for example, to a final paycheck of the 
individual or dividends on stock held by the individual when paid to 
another person or the individual's estate after the date of death but 
before the end of the taxable year of the decedent (determined without 
regard to the death). The exemption also applies to payments of an 
individual's accrued vacation and accrued sick leave.
---------------------------------------------------------------------------
    \32\ Such amounts may, however, be excludable from gross income 
under the death benefit exclusion provided in section 102 of the 
Victims Act.
---------------------------------------------------------------------------
      The tax relief does not apply to any individual 
identified by the Attorney General to have been a participant 
or conspirator in any terrorist attack to which the provision 
applies, or a representative of such individual.
Exclusion of death benefits
      The Victims Act generally provides an exclusion from 
gross income for amounts received if such amounts are paid by 
an employer (whether in a single sum or otherwise \33\) by 
reason of the death of an employee who dies as a result of 
wounds or injury which were incurred as a result of the 
terrorist attacks that occurred on September 11, 2001, or April 
19, 1995, or as a result of illness incurred due to an attack 
involving anthrax that occurred on or after September 11, 2001, 
and before January 1, 2002. Subject to rules prescribed by the 
Secretary, the exclusion does not apply to amounts that would 
have been payable if the individual had died for a reason other 
than the attack. The exclusion does apply, however, to death 
benefits provided under a qualified plan that satisfy the 
incidental benefit rule.
---------------------------------------------------------------------------
    \33\ Thus, for example, payments made over a period of years could 
qualify for the exclusion.
---------------------------------------------------------------------------
      For purposes of the exclusion, self-employed individuals 
are treated as employees. Thus, for example, payments by a 
partnership to the surviving spouse of a partner who died as a 
result of the September 11, 2001, attacks may be excludable 
under the provision.
      The tax relief does not apply to any individual 
identified by the Attorney General to have been a participant 
or conspirator in any terrorist attack to which the provision 
applies, or a representative of such individual.
Estate tax relief
      Present law provides a reduction in Federal estate tax 
for taxable estates of U.S. citizens or residents who are 
active members of the U.S. Armed Forces and who are killed in 
action while serving in a combat zone (sec. 2201). This 
provision also applies to active service members who die as a 
result of wounds, disease, or injury suffered while serving in 
a combat zone by reason of a hazard to which the service member 
was subjected as an incident of such service.
      In general, the effect of section 2201 is to replace the 
Federal estate tax that would otherwise be imposed with a 
Federal estate tax equal to 125 percent of the maximum State 
death tax credit determined under section 2011(b). Credits 
against the tax, including the unified credit of section 2010 
and the State death tax credit of section 2011, then apply to 
reduce (or eliminate) the amount of the estate tax payable.
      Generally, the reduction in Federal estate taxes under 
section 2201 is equal in amount to the ``additional estate 
tax.'' The additional estate tax is the difference between the 
Federal estate tax imposed by section 2001 and 125 percent of 
the maximum State death tax credit determined under section 
2011(b) as in effect prior to its repeal by EGTRRA.
      The Victims Act generally treats individuals who die from 
wounds or injury incurred as a result of the terrorist attacks 
that occurred on September 11, 2001, or April 19, 1995, or as a 
result of illness incurred due to an attack involving anthrax 
that occurred on or after September 11, 2001, and before 
January 1, 2002, in the same manner as if they were active 
members of the U.S. Armed Forces killed in action while serving 
in a combat zone or dying as a result of wounds or injury 
suffered while serving in a combat zone for purposes of section 
2201. Consequently, the estates of these individuals are 
eligible for the reduction in Federal estate tax provided by 
section 2201. The tax relief does not apply to any individual 
identified by the Attorney General to have been a participant 
or conspirator in any terrorist attack to which the provision 
applies, or a representative of such individual.
      The Victims Act also changed the general operation of 
section 2201, as it applies to both the estates of service 
members who qualify for special estate tax treatment under 
present and prior law and to the estates of individuals who 
qualify for the special treatment only under the Act. Under the 
Victims Act, the Federal estate tax is determined in the same 
manner for all estates that are eligible for Federal estate tax 
reduction under section 2201. In addition, the executor of an 
estate that is eligible for special estate tax treatment under 
section 2201 may elect not to have section 2201 apply to the 
estate. Thus, in the event that an estate may receive more 
favorable treatment without the application of section 2201 in 
the year of death than it would under section 2201, the 
executor may elect not to apply the provisions of section 2201, 
and the estate tax owed (if any) would be determined pursuant 
to the generally applicable rules.
      Under the Victims Act, section 2201 no longer reduces 
Federal estate tax by the amount of the additional estate tax. 
Instead, the Victims Act provides that the Federal estate tax 
liability of eligible estates is determined under section 2001 
(or section 2101, in the case of decedents who were neither 
residents nor citizens of the United States), using a rate 
schedule that is equal to 125 percent of the pre-EGTRRA maximum 
State death tax credit amount. This rate schedule is used to 
compute the tax under section 2001(b) or section 2101(b) (i.e., 
both the tentative tax under section 2001(b)(1) and section 
2101(b), and the hypothetical gift tax under section 2001(b)(2) 
are computed using this rate schedule). As a result of this 
provision, the estate tax is unified with the gift tax for 
purposes of section 2201 so that a single graduated (but 
reduced) rate schedule applies to transfers made by the 
individual at death, based upon the cumulative taxable 
transfers made both during lifetime and at death.
      In addition, while the Victims Act provides an 
alternative reduced rate table for purposes of determining the 
tax under section 2001(b) or section 2101(b), the amount of the 
unified credit nevertheless is determined as if section 2201 
did not apply, based upon the unified credit as in effect on 
the date of death. For example, in the case of victims of the 
September 11, 2001, terrorist attack, the applicable unified 
credit amount under section 2010(c) would be determined by 
reference to the actual section 2001(c) rate table.

                               HOUSE BILL

      The bill extends the exclusion from income tax, the 
exclusion for death benefits, and the estate tax relief 
available under the Victims of Terrorism Tax Relief Act of 2001 
to astronauts who lose their lives on a space mission 
(including the individuals who lost their lives in the space 
shuttle Columbia disaster).
      Effective date.--The provision is generally effective for 
qualified individuals whose lives are lost on a space mission 
after December 31, 2002.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement does not include the House bill 
provision.\34\
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    \34\ All of the House bill provisions relating to the military have 
been enacted prior to this conference agreement in separate legislation 
(Pub. L. No. 108-121).
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                         III. OTHER PROVISIONS

         A. Establish Uniform Definition of a Qualifying Child

(Secs. 201-208 of the conference agreement, and secs. 2, 21, 24, 32, 
        151, and 152 of the Code)

                              PRESENT LAW

In general
      Present law contains five commonly used provisions that 
provide benefits to taxpayers with children: (1) the dependency 
exemption; (2) the child credit; (3) the earned income credit; 
(4) the dependent care credit; and (5) head of household filing 
status. Each provision has separate criteria for determining 
whether the taxpayer qualifies for the applicable tax benefit 
with respect to a particular child. The separate criteria 
include factors such as the relationship (if any) the child 
must bear to the taxpayer, the age of the child, and whether 
the child must live with the taxpayer. Thus, with respect to 
the same individual, a taxpayer is required to determine 
eligibility for each benefit separately, and an individual who 
qualifies a taxpayer for one provision does not automatically 
qualify the taxpayer for another provision.
Dependency exemption 35
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    \35\ Secs. 151 and 152. Under the statutory structure, section 151 
provides for the deduction for personal exemptions with respect to 
``dependents.'' The term ``dependent'' is defined in section 152. Most 
of the requirements regarding dependents are contained in section 152; 
section 151 contains additional requirements that must be satisfied in 
order to obtain a dependency exemption with respect to a dependent (as 
so defined). In particular, section 151 contains the gross income test, 
the rules relating to married dependents filing a joint return, and the 
requirement for a taxpayer identification number. The other rules 
discussed here are contained in section 151.
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            In general
      Taxpayers are entitled to a personal exemption deduction 
for the taxpayer, his or her spouse, and each dependent. For 
2004, the amount deductible for each personal exemption is 
$3,100. The deduction for personal exemptions is phased out for 
taxpayers with incomes above certain thresholds.\36\
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    \36\ Sec. 151(d)(3).
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      In general, a taxpayer is entitled to a dependency 
exemption for an individual if the individual: (1) satisfies a 
relationship test or is a member of the taxpayer's household 
for the entire taxable year; (2) satisfies a support test; (3) 
satisfies a gross income test or is a child of the taxpayer 
under a certain age; (4) is a citizen or resident of the U.S. 
or resident of Canada orMexico; \37\ and (5) did not file a 
joint return with his or her spouse for the year.\38\ In addition, the 
taxpayer identification number of the individual must be included on 
the taxpayer's return.
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    \37\ A legally adopted child who does not satisfy the residency or 
citizenship requirement may nevertheless qualify as a dependent 
(provided other applicable requirements are met) if (1) the child's 
principal place of abode is the taxpayer's home and (2) the taxpayer is 
a citizen or national of the United States. Sec. 152(b)(3).
    \38\ This restriction does not apply if the return was filed solely 
to obtain a refund and no tax liability would exist for either spouse 
if they filed separate returns. Rev. Rul. 54-567, 1954-2 C.B. 108.
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            Relationship or member of household test
      Relationship test.--The relationship test is satisfied if 
an individual is the taxpayer's (1) son or daughter or a 
descendant of either (e.g., grandchild or great-grandchild); 
(2) stepson or stepdaughter; (3) brother or sister (including 
half brother, half sister, stepbrother, or stepsister); (4) 
parent, grandparent, or other direct ancestor (but not foster 
parent); (5) stepfather or stepmother; (6) brother or sister of 
the taxpayer's father or mother; (7) son or daughter of the 
taxpayer's brother or sister; or (8) the taxpayer's father-in-
law, mother-in-law, son-in-law, daughter-in-law, brother-in-
law, or sister-in-law.
      An adopted child (or a child who is a member of the 
taxpayer's household and who has been placed with the taxpayer 
for adoption) is treated as a child of the taxpayer. A foster 
child is treated as a child of the taxpayer if the foster child 
is a member of the taxpayer's household for the entire taxable 
year.
      Member of household test.--If the relationship test is 
not satisfied, then the individual may be considered the 
dependent of the taxpayer if the individual is a member of the 
taxpayer's household for the entire year. Thus, a taxpayer may 
be eligible to claim a dependency exemption with respect to an 
unrelated child who lives with the taxpayer for the entire 
year.
      For the member of household test to be satisfied, the 
taxpayer must both maintain the household and occupy the 
household with the individual.\39\ A taxpayer or other 
individual does not fail to be considered a member of a 
household because of ``temporary'' absences due to special 
circumstances, including absences due to illness, education, 
business, vacation, and military service.\40\ Similarly, an 
individual does not fail to be considered a member of the 
taxpayer's household due to a custody agreement under which the 
individual is absent for less than six months.\41\ Indefinite 
absences that last for more than the taxable year may be 
considered ``temporary.'' For example, the IRS has ruled that 
an elderly woman who was indefinitely confined to a nursing 
home was temporarily absent from a taxpayer's household. Under 
the facts of the ruling, the woman had been an occupant of the 
household before being confined to a nursing home, the 
confinement had extended for several years, and it was possible 
that the woman would die before becoming well enough to return 
to the taxpayer's household. There was no intent on the part of 
the taxpayer or the woman to change her principal place of 
abode.\42\
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    \39\ Treas. Reg. sec. 1.152-1(b).
    \40\ Id.
    \41\ Id.
    \42\ Rev. Rul. 66-28, 1966-1 C.B. 31.
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            Support test
      In general.--The support test is satisfied if the 
taxpayer provides over one half of the support of the 
individual for the taxable year. To determine whether a 
taxpayer has provided more than one half of an individual's 
support, the amount the taxpayer contributed to the 
individual's support is compared with the entire amount of 
support the individual received from all sources, including the 
individual's own funds.\43\ Governmental payments and subsidies 
(e.g., Temporary Assistance to Needy Families, food stamps, and 
housing) generally are treated as support provided by a third 
party. Expenses that are not directly related to any one member 
of a household, such as the cost of food for the household, 
must be divided among the members of the household. If any 
person furnishes support in kind (e.g., in the form of 
housing), then the fair market value of that support must be 
determined.
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    \43\ In the case of a son, daughter, stepson, or stepdaughter of 
the taxpayer who is a full-time student, scholarships are not taken 
into account for purpose of the support test. Sec. 152(d).
---------------------------------------------------------------------------
      Multiple support agreements.--In some cases, no one 
taxpayer provides more than one half of the support of an 
individual. Instead, two or more taxpayers, each of whom would 
be able to claim a dependency exemption but for the support 
test, together provide more than one half of the individual's 
support. If this occurs, the taxpayers may agree to designate 
that one of the taxpayers who individually provides more than 
10 percent of the individual's support can claim a dependency 
exemption for the child. Each of the others must sign a written 
statement agreeing not to claim the exemption for that year. 
The statements must be filed with the income tax return of the 
taxpayer who claims the exemption.
      Special rules for divorced or legally separated 
parents.--Special rules apply in the case of a child of 
divorced or legally separated parents (or parents who live 
apart at all times during the last six months of the year) who 
provide over one half the child's support during the calendar 
year.\44\ If such a child is in the custody of one or both of 
the parents for more than one half of the year, then the parent 
having custody for the greater portion of the year is deemed to 
satisfy the support test; however, the custodial parent may 
release the dependency exemption to the noncustodial parent by 
filing a written declaration with the IRS.\45\
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    \44\ For purposes of this rule, a ``child'' means a son, daughter, 
stepson, or stepdaughter (including an adopted child or foster child, 
or child placed with the taxpayer for adoption). Sec. 152(e)(1)(A).
    \45\ Special support rules also apply in the case of certain pre-
1985 agreements between divorced or legally separated parents. Sec. 
152(e)(4).
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            Gross income test
      In general, an individual may not be claimed as a 
dependent of a taxpayer if the individual has gross income that 
is at least equal to the personal exemption amount for the 
taxable year.\46\ If the individual is the child of the 
taxpayer and under age 19 (or under age 24, if a full-time 
student), the gross income test does not apply.\47\ For 
purposes of this rule, a ``child'' means a son, daughter, 
stepson, or stepdaughter (including an adopted child of the 
taxpayer, a foster child who resides with the taxpayer for the 
entire year, or a child placed with the taxpayer for adoption 
by an authorized adoption agency).
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    \46\ Certain income from sheltered workshops is not taken into 
account in determining the gross income of permanently and totally 
disabled individuals. Sec. 151(c)(5).
    \47\ Sec. 151(c). The IRS has issued guidance stating that for 
purposes of the dependency exemption, an individual attains a specified 
age on the anniversary of the date that the child was born (e.g., a 
child born on January 1, 1987, attains the age of 17 on January 1, 
2004). Rev. Rul. 2003-72, 2003-33 I.R.B. 346.
---------------------------------------------------------------------------
Earned income credit 48
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    \48\ Sec. 32.
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            In general
      In general, the earned income credit is a refundable 
credit for low-income workers. The amount of the credit depends 
on the earned income of the taxpayer and whether the taxpayer 
has one, more than one, or no ``qualifying children.'' In order 
to be a qualifying child for the earned income credit, an 
individual must satisfy a relationship test, a residency test, 
and an age test. In addition, the name, age, and taxpayer 
identification number of the qualifying child must be included 
on the return.
            Relationship test
      An individual satisfies the relationship test under the 
earned income credit if the individual is the taxpayer's: (1) 
son, daughter, stepson, or stepdaughter, or a descendant of any 
such individual; \49\ (2) brother, sister, stepbrother, or 
stepsister, or a descendant of any such individual, who the 
taxpayer cares for as the taxpayer's own child; or (3) eligible 
foster child.
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    \49\ A child who is legally adopted or placed with the taxpayer for 
adoption by an authorized adoption agency is treated as the taxpayer's 
own child. Sec. 32(c)(3)(B)(iv).
---------------------------------------------------------------------------
      An eligible foster child is an individual (1) who is 
placed with the taxpayer by an authorized placement agency, and 
(2) who the taxpayer cares for as her or his own child. A 
married child of the taxpayer is not treated as meeting the 
relationship test unless the taxpayer is entitled to a 
dependency exemption with respect to the married child (e.g., 
the support test is satisfied) or would be entitled to the 
exemption if the taxpayer had not waived the exemption to the 
noncustodial parent.\50\
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    \50\ Sec. 32(c)(3)(B)(ii).
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            Residency test
      The residency test is satisfied if the individual has the 
same principal place of abode as the taxpayer for more than one 
half of the taxable year. The residence must be in the United 
States.\51\ As under the dependency exemption (and head of 
household filing status), temporary absences due to special 
circumstances, including absences due to illness, education, 
business, vacation, and military service are not treated as 
absences for purposes of determining whether the residency test 
is satisfied.\52\ Under the earned income credit, there is no 
requirement that the taxpayer maintain the household in which 
the taxpayer and the qualifying individual reside.
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    \51\ The principal place of abode of a member of the Armed Services 
is treated as in the United States during any period during which the 
individual is stationed outside the United States on active duty. Sec. 
32(c)(4).
    \52\ IRS Publication 596, Earned Income Credit (EIC), at 14. H. 
Rep. 101-964 (October 27, 1990), at 1037.
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            Age test
      In general, the age test is satisfied if the individual 
has not attained age 19 as of the close of the calendar 
year.\53\ In the case of a full-time student, the age test is 
satisfied if the individual has not attained age 24 as of the 
close of the calendar year. In the case of an individual who is 
permanently and totally disabled, no age limit applies.
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    \53\ The IRS has issued guidance stating that for purposes of the 
earned income credit, an individual attains a specified age on the 
anniversary of the date that the child was born (e.g., a child born on 
January 1, 1987, attains the age of 17 on January 1, 2004). Rev. Rul. 
2003-72, 2003-33 I.R.B. 346.
---------------------------------------------------------------------------
Child credit 54
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    \54\ Sec. 24.
---------------------------------------------------------------------------
      Taxpayers with incomes below certain amounts are eligible 
for a child credit for each qualifying child of the taxpayer. 
The amount of the child credit is up to $1,000, in the case of 
taxable years beginning in 2003 or 2004. The child credit 
reverts to $700 for taxable years beginning in 2005 through 
2008, $800 for taxable years beginning in 2009, and $1,000 for 
taxable years beginning in 2010. The credit declines to $500 in 
taxable year 2011.\55\ For purposes of this credit, a 
qualifying child is an individual: (1) with respect to whom the 
taxpayer is entitled to a dependency exemption for the year; 
(2) who satisfies the same relationship test applicable to the 
earned income credit; and (3) who has not attained age 17 as of 
the close of the calendar year.\56\ In addition, the child must 
be a citizen or resident of the United States.\57\ A portion of 
the child credit is refundable under certain circumstances.\58\
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    \55\ EGTRRA, Pub. L. No. 107-16, sec. 901(a) (2001).
    \56\ The IRS has issued guidance stating that for purposes of the 
child credit, an individual attains a specified age on the anniversary 
of the date that the child was born (e.g., a child born on January 1, 
1987, attains the age of 17 on January 1, 2004). Rev. Rul. 2003-72, 
2003-33 I.R.B. 346.
    \57\ The child credit does not apply with respect to a child who is 
a resident of Canada or Mexico and is not a U.S. citizen, even if a 
dependency exemption is available with respect to the child. Sec. 
24(c)(2). The child credit is, however, available with respect to a 
child dependent who is not a resident or citizen of the United States 
if: (1) the child has been legally adopted by the taxpayer; (2) the 
child's principal place of abode is the taxpayer's home; and (3) the 
taxpayer is a U.S. citizen or national. See sec. 24(c)(2) and sec. 
152(b)(3).
    \58\ Sec. 24(d).
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Dependent care credit 59
      The dependent care credit may be claimed by a taxpayer 
who maintains a household that includes one or more qualifying 
individuals and who has employment-related expenses. A 
qualifying individual means (1) a dependent of the taxpayer 
under age 13 for whom the taxpayer is entitled to a dependency 
exemption,\60\ (2) a dependent of the taxpayer who is 
physically or mentally incapable of caring for himself or 
herself,\61\ or (3) the spouse of the taxpayer, if the spouse 
is physically or mentally incapable of caring for himself or 
herself. In addition, a taxpayer identification number for the 
qualifying individual must be included on the return.
---------------------------------------------------------------------------
    \59\ Sec. 21.
    \60\ The IRS has issued guidance stating that for purposes of the 
dependent care credit, an individual attains a specified age on the 
anniversary of the date that the child was born (e.g., a child born on 
January 1, 1987, attains the age of 17 on January 1, 2004). Rev. Rul. 
2003-72, 2003-33 I.R.B. 346.
    \61\ Although such an individual must be a dependent of the 
taxpayer as defined in section 152, it is not required that the 
taxpayer be entitled to a dependency exemption with respect to the 
individual under section 151. Thus, such an individual may be a 
qualifying individual for purposes of the dependent care credit, even 
though the taxpayer is not entitled to a dependency exemption because 
the individual does not meet the gross income test.
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      A taxpayer is considered to maintain a household for a 
period if over one half the cost of maintaining the household 
for the period is furnished by the taxpayer (or, if married, 
the taxpayer and his or her spouse). Costs of maintaining the 
household include expenses such as rent, mortgage interest (but 
not principal), real estate taxes, insurance on the home, 
repairs (but not home improvements), utilities, and food eaten 
in the home.
      A special rule applies in the case of a child who is 
under age 13 or is physically or mentally incapable of caring 
for himself or herself if the custodial parent has waived his 
or her dependency exemption to the noncustodial parent.\62\ For 
the dependent care credit, the child is treated as a qualifying 
individual with respect to the custodial parent, not the parent 
entitled to claim the dependency exemption.
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    \62\ Sec. 21(e)(5).
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Head of household filing status 63
      A taxpayer may claim head of household filing status if 
the taxpayer is unmarried (and not a surviving spouse) and pays 
more than one half of the cost of maintaining as his or her 
home a household which is the principal place of abode for more 
than one half of the year of (1) an unmarried son, daughter, 
stepson or stepdaughter of the taxpayer or an unmarried 
descendant of the taxpayer's son or daughter, (2) an individual 
described in (1) who is married, if the taxpayer may claim a 
dependency exemption with respect to the individual (or could 
claim the exemption if the taxpayer had not waived the 
exemption to the noncustodial parent), or (3) a relative with 
respect to whom the taxpayer may claim a dependency 
exemption.\64\ If certain other requirements are satisfied, 
head of household filing status also may be claimed if the 
taxpayer is entitled to a dependency exemption with respect to 
one of the taxpayer's parents.
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    \63\ Sec. 2(b).
    \64\ Sec. 2(b)(1)(A)(ii), as qualified by sec. 2(b)(3)(B). An 
individual for whom the taxpayer is entitled to claim a dependency 
exemption by reason of a multiple support agreement does not qualify 
the taxpayer for head of household filing status.
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                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

In general
            In general
      The Senate amendment establishes a uniform definition of 
qualifying child for purposes of the dependency exemption, the 
child credit, the earned income credit, the dependent care 
credit, and head of household filing status. A taxpayer 
generally may claim an individual who does not meet the uniform 
definition of qualifying child (with respect to any taxpayer) 
as a dependent if the present-law dependency requirements are 
satisfied. The Senate amendment generally does not modify other 
parameters of each tax benefit (e.g., the earned income 
requirements of the earned income credit) or the rules for 
determining whether individuals other than children of the 
taxpayer qualify for each tax benefit.
      Under the uniform definition, in general, a child is a 
qualifying child of a taxpayer if the child satisfies each of 
three tests: (1) the child has the same principal place of 
abode as the taxpayer for more than one half the taxable year; 
(2) the child has a specified relationship to the taxpayer; and 
(3) the child has not yet attained a specified age. A tie-
breaking rule applies if more than one taxpayer claims a child 
as a qualifying child.
      Under the Senate amendment, the present-law support and 
gross income tests for determining whether an individual is a 
dependent generally do not apply to a child who meets the 
requirements of the uniform definition of qualifying child.
            Residency test
      Under the uniform definition's residency test, a child 
must have the same principal place of abode as the taxpayer for 
more than one half of the taxable year. It is intended that, as 
is the case under present law, temporary absences due to 
special circumstances, including absences due to illness, 
education, business, vacation, or military service, are not 
treated as absences.
            Relationship test
      In order to be a qualifying child under the Senate 
amendment, the child must be the taxpayer's son, daughter, 
stepson, stepdaughter, brother, sister, stepbrother, 
stepsister, or a descendant of any such individual. An 
individual legally adopted by the taxpayer, or an individual 
who is placed with the taxpayer by an authorized placement 
agency for adoption by the taxpayer, is treated as a child of 
such taxpayer by blood. A foster child who is placed with the 
taxpayer by an authorized placement agency or by judgment, 
decree, or other order of any court of competent jurisdiction 
is treated as the taxpayer's child.\65\
---------------------------------------------------------------------------
    \65\ The provision eliminates the present-law rule requiring that 
if a child is the taxpayer's sibling or stepsibling or a descendant of 
any such individual, the taxpayer must care for the child as if the 
child were his or her own child.
---------------------------------------------------------------------------
            Age test
      Under the Senate amendment, the age test varies depending 
upon the tax benefit involved. In general, a child must be 
under age 19 (or under age 24 in the case of a full-time 
student) in order to be a qualifying child.\66\ In general, no 
age limit applies with respect to individuals who are totally 
and permanently disabled within the meaning of section 22(e)(3) 
at any time during the calendar year. The Senate amendment 
retains the present-law requirements that a child must be under 
age 13 (if he or she is not disabled) for purposes of the 
dependent care credit, and under age 17 (whether or not 
disabled) for purposes of the child credit.
---------------------------------------------------------------------------
    \66\ The provision retains the present-law definition of full-time 
student set forth in section 151(c)(4).
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            Children who support themselves
      Under the Senate amendment, a child who provides over one 
half of his or her own support generally is not considered a 
qualifying child of another taxpayer. The Senate amendment 
retains the present-law rule, however, that a child who 
provides over one half of his or her own support may constitute 
a qualifying child of another taxpayer for purposes of the 
earned income credit.
            Tie-breaking rules
      If a child would be a qualifying child with respect to 
more than one individual (e.g., a child lives with his or her 
mother and grandmother in the same residence) and more than one 
person claims a benefit with respect to that child, then the 
following ``tie-breaking'' rules apply. First, if only one of 
the individuals claiming the child as a qualifying child is the 
child's parent, the child is deemed the qualifying child of the 
parent. Second, if both parents claim the child and the parents 
do not file a joint return, then the child is deemed a 
qualifying child first with respect to the parent with whom the 
child resides for the longest period of time, and second with 
respect to the parent with the highest adjusted gross income. 
Third, if the child's parents do not claim the child, then the 
child is deemed a qualifying child with respect to the claimant 
with the highest adjusted gross income.
            Interaction with present-law rules
      Taxpayers generally may claim an individual who does not 
meet the uniform definition of qualifying child with respect to 
any taxpayer as a dependent if the present-law dependency 
requirements (including the gross income and support tests) are 
satisfied.\67\ Thus, for example, as under present law, a 
taxpayer may claim a parent as a dependent if the taxpayer 
provides more than one half of the support of the parent and 
the parent's gross income is less than the exemption amount. As 
another example, under the Senate amendment a grandparent may 
claim a dependency exemption with respect to a grandson who 
does not reside with any taxpayer for over one half the year, 
if the grandparent provides more than one half of the support 
of the grandson and the grandson's gross income is less than 
the exemption amount.
---------------------------------------------------------------------------
    \67\ Individuals who satisfy the present-law dependency tests and 
who are not qualifying children are referred to as ``qualifying 
relatives'' under the provision.
---------------------------------------------------------------------------
            Citizenship and residency
      Children who are U.S. citizens living abroad or non-U.S. 
citizens living in Canada or Mexico may qualify as a qualifying 
child, as is the case under the present-law dependency tests. A 
legally adopted child who does not satisfy the residency or 
citizenship requirement may nevertheless qualify as a 
qualifying child (provided other applicable requirements are 
met) if (1)the child's principal place of abode is the 
taxpayer's home and (2) the taxpayer is a citizen or national of the 
United States.
            Children of divorced or legally separated parents
      The Senate amendment retains the present-law rule that 
allows a custodial parent to release the claim to a dependency 
exemption (and, therefore, the child credit) to a noncustodial 
parent. Thus, under the Senate amendment, custodial waivers 
that are in place and effective on the date of enactment will 
continue to be effective after the date of enactment if they 
continue to satisfy the waiver rule. In addition, the Senate 
amendment retains the custodial waiver rule for purposes of the 
dependency exemption (and, therefore, the child credit) for 
decrees of divorce or separate maintenance or written 
separation agreements that become effective after the date of 
enactment. Under the Senate amendment, as under present law, 
the custodial waiver rules do not affect eligibility with 
respect to children of divorced or legally separated parents 
for purposes of the earned income credit, the dependent care 
credit, and head of household filing status.
      While retaining the substantive effect of the present-law 
waiver provisions, the Senate amendment modifies the mechanical 
structure of the rules. Under present law, a waiver may be made 
with respect to the dependency exemption. The waiver then 
automatically carries over to the child credit, because in 
order to claim the child credit, the taxpayer must be allowed 
the dependency exemption with respect to the child. Thus, if 
the dependency exemption is waived, the child credit applies to 
the taxpayer who is allowed the dependency exemption under the 
waiver.
      The Senate amendment obtains the same result, but through 
a slightly modified statutory structure. Under the Senate 
amendment, if a waiver is made, the waiver applies for purposes 
of determining whether a child meets the definition of a 
qualifying child or a qualifying relative under section 152(c) 
or 152(d) as amended by the provision. While the definition of 
qualifying child is generally uniform, for purposes of the 
earned income credit, head of household status, and the 
dependent care credit, the definition of qualifying child is 
made without regard to the waiver provision.\68\ Thus, as under 
present law, a waiver that applies for the dependency exemption 
will also apply for the child credit, and the waiver will not 
apply for purposes of the other provisions.
---------------------------------------------------------------------------
    \68\ See secs. 2(b)(1)(A)(i) and 32(c)(3)(A) as amended by the 
provision, and sec. 21(e)(5).
---------------------------------------------------------------------------
            Other provisions
      The Senate amendment retains the applicable present-law 
requirements that a taxpayer identification number for a child 
be provided on the taxpayer's return. For purposes of the 
earned income credit, a qualifying child is required to have a 
social security number that is valid for employment in the 
United States (that is, the child must be a U.S. citizen, 
permanent resident, or have a certain type of temporary visa).
Effect of Senate amendment on particular tax benefits
            Dependency exemption
      For purposes of the dependency exemption, the Senate 
amendment defines a dependent as a qualifying child or a 
qualifying relative. The qualifying child test eliminates the 
support test (other than in the case of a child who provides 
more than one half of his or her own support), and replaces it 
with the residency requirement described above. Further, the 
present-law gross income test does not apply to a qualifying 
child. The rules relating to multiple support agreements do not 
apply with respect to qualifying children because the support 
test does not apply to them. Special tie-breaking rules 
(described above) apply if more than one taxpayer claims a 
qualifying child under the Senate amendment. These tie-breaking 
rules do not apply if a child constitutes a qualifying child 
with respect to multiple taxpayers, but only one eligible 
taxpayer actually claims the qualifying child.
      The Senate amendment generally permits taxpayers to 
continue to apply the present-law dependency exemption rules to 
claim a dependency exemption for a qualifying relative who does 
not satisfy the qualifying child definition. In such cases, the 
present-law gross income and support tests, including the 
special rules for multiple support agreements, the special 
rules relating to income of handicapped dependents, and the 
special support test in case of students, continue to apply for 
purposes of the dependency exemption.
      As is the case under present law, a child who provides 
over half of his or her own support is not considered a 
dependent of another taxpayer under the Senate amendment. 
Further, an individual shall not be treated as a dependent of 
any taxpayer if such individual has filed a joint return with 
the individual's spouse for the taxable year.
            Earned income credit
      In general, the Senate amendment adopts a definition of 
qualifying child that is similar to the present-law definition 
under the earned income credit. The present-law requirement 
that a foster child and certain other children be cared for as 
the taxpayer's own child is eliminated. The present-law tie-
breaker rule applicable to the earned income credit is used for 
purposes of the uniform definition of qualifying child. The 
Senate amendment retains the present-law requirement that the 
taxpayer's principal place of abode must be in the United 
States.
            Child credit
      The present-law child credit generally uses the same 
relationships to define an eligible child as the uniform 
definition. The present-law requirement that a foster child and 
certain other children be cared for as the taxpayer's own child 
is eliminated. The age limitation under the Senate amendment 
retains the present-law requirement that the child must be 
under age 17, regardless of whether the child is disabled.
            Dependent care credit
      The present-law requirement that a taxpayer maintain a 
household in order to claim the dependent care credit is 
eliminated. Thus, if other applicable requirements are 
satisfied, a taxpayer may claim the dependent care credit with 
respect to a child who lives with the taxpayer for more than 
one half the year, even if the taxpayer does not provide more 
than one half of the cost of maintaining the household.
      The rules for determining eligibility for the credit with 
respect to an individual who is physically or mentally 
incapable of caring for himself or herself are amended to 
include a requirement that the taxpayer and the dependent have 
the same principal place of abode for more than one half the 
taxable year.
            Head of household filing status
      Under the Senate amendment, a taxpayer is eligible for 
head of household filing status only with respect to a 
qualifying child or an individual for whom the taxpayer is 
entitled to a dependency exemption. Under the Senate amendment, 
a taxpayer may claim head of household filing status if the 
taxpayer is unmarried (and not a surviving spouse) and pays 
more than one half of the cost of maintaining as his or her 
home a household which is the principal place of abode for more 
than one half the year of (1) a qualifying child, or (2) an 
individual for whom the taxpayer may claim a dependency 
exemption. As under present law, a taxpayer may claim head of 
household status with respect to a parent for whom the taxpayer 
may claim a dependency exemption and who does not live with the 
taxpayer, if certain requirements are satisfied.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2003.

                          CONFERENCE AGREEMENT

      The conference agreement includes the Senate amendment 
provision with the following modifications. The conference 
agreement modifies the definition of adopted child, for 
purposes of determining whether an adopted child is treated as 
a child by blood, to mean an individual who is legally adopted 
by the taxpayer, or an individual who is lawfully placed with 
the taxpayer for legal adoption by the taxpayer.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2004.

                         IV. REVENUE PROVISIONS

                   A. Extension of Customs User Fees

(Sec. 301 of the Senate amendment)

                              PRESENT LAW

      Section 13031 of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 (COBRA) (Pub. L. No. 99-272), 
authorized the Secretary of the Treasury to collect certain 
service fees. Section 412 (Pub. L. No. 107-296) of the Homeland 
Security Act of 2002 authorized the Secretary of the Treasury 
to delegate such authority to the Secretary of Homeland 
Security. Provided for under 19 U.S.C. 58c, these fees include: 
processing fees for air and sea passengers, commercial trucks, 
rail cars, private aircraft and vessels, commercial vessels, 
dutiable mail packages, barges and bulk carriers, merchandise, 
and Customs broker permits. COBRA was amended on several 
occasions but most recently by Pub. L. No. 108-121, which 
extended authorization for the collection of these fees through 
March 1, 2005.\69\
---------------------------------------------------------------------------
    \69\ Sec. 201; 117 Stat. 1335.
---------------------------------------------------------------------------

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      The Senate amendment extends the fees authorized under 
the Consolidated Omnibus Budget Reconciliation Act of 1985 
through March 31, 2010.
      Effective date.--The provision is effective on the date 
of enactment.

                          CONFERENCE AGREEMENT

      The conference agreement does not include the Senate 
amendment provision.

                          V. OTHER PROVISIONS

                  A. Extension of the Research Credit

(Sec. 301 of the conference agreement and sec. 41 of the Code)

                              PRESENT LAW

      Section 41 provided a research tax credit equal to 20 
percent of the amount by which a taxpayer's qualified research 
expenses for a taxable year exceeded its base amount for that 
year. Taxpayers were permitted to elect an alternative 
incremental research credit regime in which the taxpayer was 
assigned a three-tiered fixed-base percentage and the credit 
rate likewise is reduced. Under the alternative credit regime, 
a credit rate of 2.65 percent applied to the extent that a 
taxpayer's current-year research expenses exceed a base amount 
computed by using a fixed-base percentage of one percent but do 
not exceed a base amount computed by using a fixed-base 
percentage of 1.5 percent. A credit rate of 3.2 percent applied 
to the extent that a taxpayer's current-year research expenses 
exceeded a base amount computed by using a fixed-base 
percentage of 1.5 percent but did not exceed a base amount 
computed by using a fixed-base percentage of two percent. A 
credit rate of 3.75 percent applied to the extent that a 
taxpayer's current-year research expenses exceeded a base 
amount computed by using a fixed-base percentage of two 
percent.
      A 20-percent research tax credit also applied to the 
excess of (1) 100 percent of corporate cash expenses (including 
grants or contributions) paid for basic research conducted by 
universities (and certain nonprofit scientific research 
organizations) over (2) the sum of (a) the greater of two 
minimum basic research floors plus (b) an amount reflecting any 
decrease in nonresearch giving to universities by the 
corporation as compared to such giving during a fixed-base 
period, as adjusted for inflation.
      The research tax credit expired and generally does not 
apply to amounts paid or incurred after June 30, 2004.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the present-law research 
credit to qualified amounts paid or incurred before January 1, 
2006.
      Effective date.--Effective for amounts paid or incurred 
after June 30, 2004.

 B. Extension of Parity in the Application of Certain Limits to Mental 
                            Health Benefits

(Sec. 302 of the conference agreement, sec. 9812 of the Code, sec. 712 
        of ERISA, and section 2705 of the PHSA)

                              PRESENT LAW

      The Mental Health Parity Act of 1996 amended the Employee 
Retirement Income Security Act of 1974 (``ERISA'') and the 
Public Health Service Act (``PHSA'') to provide that group 
health plans that provide both medical and surgical benefits 
and mental health benefits cannot impose aggregate lifetime or 
annual dollar limits on mental health benefits that are not 
imposed on substantially all medical and surgical benefits. The 
provisions of the Mental Health Parity Act were initially 
effective with respect to plan years beginning on or after 
January 1, 1998, for a temporary period. Since enactment, the 
mental health parity requirements in ERISA and the PHSA have 
been extended on more than one occasion and currently are 
scheduled to expire with respect to benefits for services 
furnished on or after December 31, 2004.
      The Taxpayer Relief Act of 1997 added to the Code the 
requirements imposed under the Mental Health Parity Act, and 
imposed an excise tax on group health plans that fail to meet 
the requirements. The excise tax is equal to $100 per day 
during the period of noncompliance and is generally imposed on 
the employer sponsoring the plan if the plan fails to meet the 
requirements. The maximum tax that can be imposed during a 
taxable year cannot exceed the lesser of 10 percent of the 
employer's group health plan expenses for the prior year or 
$500,000. No tax is imposed if the Secretary determines that 
the employer did not know, and exercising reasonable diligence 
would not have known, that the failure existed.
      The Code provisions were initially effective with respect 
to plan years beginning on or after January 1, 1998, for a 
temporary period.\70\ The Code provisions have been extended on 
a number of occasions, and expired with respect to benefits for 
services furnished after December 31, 2003.
---------------------------------------------------------------------------
    \70\ The excise tax does not apply to benefits for services 
furnished on or after September 30, 2001, and before January 10, 2002.
---------------------------------------------------------------------------

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the ERISA and PHSA 
provisions relating to mental health parity to benefits for 
services furnished before January 1, 2006. The conference 
agreement also extends the Code provisions relating to mental 
health parity to benefits for services furnished on or after 
the date of enactment and before January 1, 2006. Thus, the 
excise tax on failures to meet the requirements imposed by the 
Code provisions does not apply after December 31, 2003, and 
before the date of enactment.
      Effective date.--The provision is effective on the date 
of enactment.

            C. Extension of the Work Opportunity Tax Credit

(Sec. 303 of the conference agreement and sec. 51 of the Code)

                              PRESENT LAW

Work opportunity tax credit
            Targeted groups eligible for the credit
      The work opportunity tax credit is available on an 
elective basis for employers hiring individuals from one or 
more of eight targeted groups. The eight targeted groups are: 
(1) certain families eligible to receive benefits under the 
Temporary Assistance for Needy Families Program; (2) high-risk 
youth; (3) qualified ex-felons; (4) vocational rehabilitation 
referrals; (5) qualified summer youth employees; (6) qualified 
veterans; (7) families receiving food stamps; and (8) persons 
receiving certain Supplemental Security Income (SSI) benefits.
      A qualified ex-felon is an individual certified as: (1) 
having been convicted of a felony under State or Federal law; 
(2) being a member of an economically disadvantaged family; and 
(3) having a hiring date within one year of release from prison 
or conviction.
            Qualified wages
      Generally, qualified wages are defined as cash wages paid 
by the employer to a member of a targeted group. The employer's 
deduction for wages is reduced by the amount of the credit.
            Calculation of the credit
      The credit equals 40 percent (25 percent for employment 
of 400 hours or less) of qualified first-year wages. Generally, 
qualified first-year wages are qualified wages (not in excess 
of $6,000) attributable to service rendered by a member of a 
targeted group during the one-year period beginning with the 
day the individual began work for the employer. Therefore, the 
maximum credit per employee is $2,400 (40 percent of the first 
$6,000 of qualified first-year wages). With respect to 
qualified summer youth employees, the maximum credit is $1,200 
(40 percent of the first $3,000 of qualified first-year wages).
            Minimum employment period
      No credit is allowed for qualified wages paid to 
employees who work less than 120 hours in the first year of 
employment.
Coordination of the work opportunity tax credit and the welfare-to-work 
        tax credit
      An employer cannot claim the work opportunity tax credit 
with respect to wages of any employee on which the employer 
claims the welfare-to-work tax credit.
Other rules
      The work opportunity tax credit is not allowed for wages 
paid to a relative or dependent of the taxpayer. Similarly 
wages paid to replacement workers during a strike or lockout 
are not eligible for the work opportunity tax credit. Wages 
paid to any employee during any period for which the employer 
received on-the-job training program payments with respect to 
that employee are not eligible for the work opportunity tax 
credit. The work opportunity tax credit generally is not 
allowed for wages paid to individuals who had previously been 
employed by the employer. In addition, many other technical 
rules apply.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the work opportunity tax 
credit for two years (through December 31, 2005).
      Effective date.--The extension of the work opportunity 
tax credit is effective for wages paid or incurred for 
individuals beginning work after December 31, 2003.

             D. Extension of the Welfare-to-Work Tax Credit

(Sec. 303 of the conference agreement and sec. 51A of the Code)

                              PRESENT LAW

Welfare-to-work tax credit
            Targeted group eligible for the credit
      The welfare-to-work tax credit is available on an 
elective basis to employers of qualified long-term family 
assistance recipients. Qualified long-term family assistance 
recipients are: (1) members of a family that has received 
family assistance for at least 18 consecutive months ending on 
the hiring date; (2) members of a family that has received such 
family assistance for a total of at least 18 months (whether or 
not consecutive) after August 5, 1997 (the date of enactment of 
the welfare-to-work tax credit) if they are hired within 2 
years after the date that the 18-month total is reached; and 
(3) members of a family who are no longer eligible for family 
assistance because of either Federal or State time limits, if 
they are hired within 2 years after the Federal or State time 
limits made the family ineligible for family assistance.
            Qualified wages
      Qualified wages for purposes of the welfare-to-work tax 
credit are defined more broadly than the work opportunity tax 
credit. Unlike the definition of wages for the work opportunity 
tax credit which includes simply cash wages, the definition of 
wages for the welfare-to-work tax credit includes cash wages 
paid to an employee plus amounts paid by the employer for: (1) 
educational assistance excludable under a section 127 program 
(or that would be excludable but for the expiration of sec. 
127); (2) health plan coverage for the employee, but not more 
than the applicable premium defined under section 4980B(f)(4); 
and (3) dependent care assistance excludable under section 129. 
The employer's deduction for wages is reduced by the amount of 
the credit.
            Calculation of the credit
      The welfare-to-work tax credit is available on an 
elective basis to employers of qualified long-term family 
assistance recipients during the first two years of employment. 
The maximum credit is 35 percent of the first $10,000 of 
qualified first-year wages and 50 percent of the first $10,000 
of qualified second-year wages. Qualified first-year wages are 
defined as qualified wages (not in excess of $10,000) 
attributable to service rendered by a member of the targeted 
group during the one-year period beginning with the day the 
individual began work for the employer. Qualified second-year 
wages are defined as qualified wages (not in excess of $10,000) 
attributable to service rendered by a member of the targeted 
group during the one-year period beginning immediately after 
the first year of that individual's employment for the 
employer. The maximum credit is $8,500 per qualified employee.
            Minimum employment period
      No credit is allowed for qualified wages paid to a member 
of the targeted group unless they work at least 400 hours or 
180 days in the first year of employment.
Coordination of the work opportunity tax credit and the welfare-to-work 
        tax credit
      An employer cannot claim the work opportunity tax credit 
with respect to wages of any employee on which the employer 
claims the welfare-to-work tax credit.
Other rules
      The welfare-to-work tax credit incorporates directly or 
by reference many of these other rules contained on the work 
opportunity tax credit.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the welfare-to-work tax 
credit for two years (through December 31, 2005).
      Effective date.--The extension of the welfare-to-work tax 
credit is effective for wages paid or incurred for individuals 
beginning work after December 31, 2003.

                    E. Qualified Zone Academy Bonds

(Sec. 304 of the conference agreement and sec. 1397E of the Code)

                              PRESENT LAW

      Generally, ``qualified zone academy bonds'' are bonds 
issued by a State or local government, provided that at least 
95 percent of the proceeds are used for one or more qualified 
purposes with respect to a ``qualified zone academy'' and 
private entities have promised to contribute to the qualified 
zone academy certain equipment, technical assistance or 
training, employee services, or other property or services with 
a value equal to at least 10 percent of the bond proceeds. 
Qualified purposes with respect to any qualified zone academy 
are (1) rehabilitating or repairing the public school facility 
in which the academy is established, (2) providing equipment 
for use at such academy, (3) developing course materials for 
education at such academy, and (4) training teachers and other 
school personnel. A total of $400 million of qualified zone 
academy bonds was authorized to be issued annually in calendar 
years 1998 through 2003.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the authority to issue 
qualified zone academy bonds through 2005.
      Effective date.--The authority to issue qualified zone 
academy bonds is effective for obligations issued after 
December 31, 2003.

F. Extension of Cover Over of Excise Tax on Distilled Spirits to Puerto 
                        Rico and Virgin Islands

(Sec. 305 of the conference agreement and sec. 7652 of the Code)

                              PRESENT LAW

      A $13.50 per proof gallon (a proof gallon is a liquid 
gallon consisting of 50 percent alcohol) excise tax is imposed 
on distilled spirits produced in or imported into the United 
States.
      The Code provides for cover over (payment) to Puerto Rico 
and the Virgin Islands of the excise tax imposed on rum 
imported into the United States, without regard to the country 
of origin. The amount of the cover over is limited under 
section 7652(f) to $10.50 per proof gallon ($13.25 per proof 
gallon during the period July 1, 1999 through December 31, 
2003).
      Thus, tax amounts attributable to rum produced in Puerto 
Rico are covered over to Puerto Rico. Tax amounts attributable 
to rum produced in the Virgin Islands are covered over to the 
Virgin Islands. Tax amounts attributable to rum produced in 
neither Puerto Rico nor the Virgin Islands are divided and 
covered over to the two possessions under a formula. All of the 
amounts covered over are subject to the limitation.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement temporarily suspends the $10.50 
per proof gallon limitation on the amount of excise taxes on 
rum covered over to Puerto Rico and the Virgin Islands. Under 
the conference agreement, the cover over amount of $13.25 per 
proof gallon is extended for rum brought into the United States 
after December 31, 2003 and before January 1, 2006. After 
December 31, 2005, the cover over amount reverts to $10.50 per 
proof gallon.
      Effective date.--The provision is effective for articles 
brought into the United States after December 31, 2003.

 G. Charitable Contributions of Computer Technology and Equipment Used 
                        for Educational Purposes

(Sec. 306 of the conference agreement and sec. 170 of the Code)

                              PRESENT LAW

      A deduction by a corporation for charitable contributions 
of computer technology and equipment generally is limited to 
the corporation's basis in the property. However, certain 
corporations may claim a deduction in excess of basis for a 
qualified computer contribution.Such enhanced deduction for 
qualified computer contributions expired for contributions made during 
any taxable year beginning after December 31, 2003.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the enhanced deduction 
for qualified computer contributions to contributions made 
during any taxable year beginning before January 1, 2006.
      Effective date.--Taxable years beginning after December 
31, 2003.

    H. Certain Expenses of Elementary and Secondary School Teachers

(Sec. 307 of the conference agreement and sec. 62 of the Code)

                              PRESENT LAW

      In general, ordinary and necessary business expenses are 
deductible (sec. 162). However, in general, unreimbursed 
employee business expenses are deductible only as an itemized 
deduction and only to the extent that the individual's total 
miscellaneous deductions (including employee business expenses) 
exceed two percent of adjusted gross income. An individual's 
otherwise allowable itemized deductions may be further limited 
by the overall limitation on itemized deductions, which reduces 
itemized deductions for taxpayers with adjusted gross income in 
excess of $142,700 (for 2004). In addition, miscellaneous 
itemized deductions are not allowable under the alternative 
minimum tax.
      Certain expenses of eligible educators are allowed an 
above-the-line deduction. Specifically, for taxable years 
beginning in 2002 and 2003, an above-the-line deduction is 
allowed for up to $250 annually of expenses paid or incurred by 
an eligible educator for books, supplies (other than 
nonathletic supplies for courses of instruction in health or 
physical education), computer equipment (including related 
software and services) and other equipment, and supplementary 
materials used by the eligible educator in the classroom. To be 
eligible for this deduction, the expenses must be otherwise 
deductible under 162 as a trade or business expense. A 
deduction is allowed only to the extent the amount of expenses 
exceeds the amount excludable from income under section 135 
(relating to education savings bonds), 529(c)(1) (relating to 
qualified tuition programs), and section 530(d)(2) (relating to 
Coverdell education savings accounts).
      An eligible educator is a kindergarten through grade 12 
teacher, instructor, counselor, principal, or aide in a school 
for at least 900 hours during a school year. A school means any 
school which provides elementary education or secondary 
education, as determined under State law.
      The above-the-line deduction for eligible educators is 
not allowed for taxable years beginning after December 31, 
2003.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the above-the-line 
deduction for two years, i.e., for taxable years beginning in 
2004 and 2005.
      Effective date.--The conference agreement is effective 
for taxable years beginning in 2004 and 2005.

            I. Expensing of Environmental Remediation Costs

(Sec. 308 of the conference agreement and sec. 198 of the Code)

                              PRESENT LAW

      Taxpayers can elect to treat certain environmental 
remediation expenditures that would otherwise be chargeable to 
capital account as deductible in the year paid or incurred 
(sec. 198). The deduction applies for both regular and 
alternative minimum tax purposes. The expenditure must be 
incurred in connection with the abatement or control of 
hazardous substances at a qualified contaminated site.
      A ``qualified contaminated site'' generally is any 
property that (1) is held for use in a trade or business, for 
the production of income, or as inventory and (2) is at a site 
on which there has been a release (or threat of release) or 
disposal of certain hazardous substances as certified by the 
appropriate State environmental agency (so called 
``brownfields''). However, sites that are identified on the 
national priorities list under the Comprehensive Environmental 
Response, Compensation, and Liability Act of 1980 cannot 
qualify as targeted areas.
      Eligible expenditures were those paid or incurred before 
January 1, 2004.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the present law 
expensing provision for two years (through December 31, 2005).
      Effective date.--Effective for expenses paid or incurred 
after December 31, 2003.

                  J. New York Liberty Zone Provisions

(Sec. 309 of the conference agreement and sec. 1400L of the Code)

                              PRESENT LAW

      An aggregate of $8 billion in tax-exempt private activity 
bonds is authorized for the purpose of financing the 
construction and repair of infrastructure in New York City 
(``Liberty Zone bonds''). The bonds must be issued before 
January 1, 2005.
      Certain bonds used to fund facilities located in New York 
City are permitted one additional advance refunding before 
January 1, 2005 (``advance refunding bonds''). In addition to 
satisfying other requirements, the bond refunded must be (1) a 
State or local bond that is a general obligation of New York 
City, (2) a State or local bond issued by the New York 
Municipal Water Finance Authority or Metropolitan 
Transportation Authority of the City of New York, or (3) a 
qualified 501(c)(3) bond which is a qualified hospital bond 
issued by or on behalf of the State of New York or the City of 
New York. The maximum amount of advance refunding bonds is $9 
billion.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends authority to issue 
Liberty Zone bonds through December 31, 2009. The conference 
agreement also extends the additional advance refunding 
authority through December 31, 2005. In addition, the 
conference agreement provides that bonds of the Municipal 
Assistance Corporation are eligible for advance refunding.
      The purpose in extending the New York Liberty Bond 
program through December 31, 2009, is to facilitate the full 
designation of New York Liberty Bond authority. Congress could 
consider a further extension of the New York Liberty Bond 
program beyond 2009 if circumstances justify such an extension.
      Effective date.--The Liberty Zone bonds and general 
additional advance refunding provisions are effective on the 
date of enactment. The provision relating to the advance 
refunding of bonds of the Municipal Assistance Corporation is 
effective as if included in the amendments made by section 301 
of the Job Creation and Worker Assistance Act of 2002.

      K. Tax Incentives for Investment in the District of Columbia

(Sec. 310 of the conference agreement and secs. 1400, 1400A, 1400B, 
        1400C, and 1400F of the Code)

                              PRESENT LAW

      Certain economically depressed census tracts within the 
District of Columbia are designated as the District of Columbia 
Enterprise Zone (the ``D.C. Zone'') within which businesses and 
individual residents are eligible for special tax incentives. 
The designation expired on December 31, 2003.
      First-time homebuyers of a principal residence in the 
District of Columbia are eligible for a nonrefundable tax 
credit of up to $5,000 of the amount of the purchase price. The 
credit expired for property purchased after December 31, 2003.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the D.C. Zone 
designation and related tax incentives for two years. The 
conference agreement extends the first-time homebuyer credit 
for two years.
      Effective date.--The extension of the D.C. Zone 
designation and related tax incentives is generally effective 
on January 1, 2004, except that the provision relating to tax-
exempt financing incentives applies to obligations issued after 
the date of enactment.

                  L. Combined Employment Tax Reporting

(Sec. 311 of the conference agreement and sec. 6103 of the Code)

                              PRESENT LAW

      Traditionally, Federal tax forms are filed with the 
Federal government and State tax forms are filed with 
individual States. This necessitates duplication of items 
common to both returns.
      The Taxpayer Relief Act of 1997 permitted implementation 
of a limited demonstration project to assess the feasibility 
and desirability of expanding combined Federal and State 
reporting. First, it was limited to the sharing of information 
between the State of Montana and the IRS. Second, it was 
limited to employment tax reporting. Third, it was limited to 
disclosureof the name, address, TIN, and signature of the 
taxpayer, which is information common to both the Montana and Federal 
portions of the combined form. Fourth, it was limited to a period of 
five years (expiring August 5, 2002).

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement provides authority through 
December 31, 2005, for any State to participate in a combined 
Federal and State employment tax reporting program, provided 
that the program has been approved by the Secretary.
      Effective date.--The provision takes effect on the date 
of enactment.

   M. Nonrefundable Personal Credits Allowed Against the Alternative 
                              Minimum Tax

(Sec. 312 of the conference agreement and sec. 26 of the Code)

                              PRESENT LAW

      Present law provides for certain nonrefundable personal 
tax credits (i.e., the dependent care credit, the credit for 
the elderly and disabled, the adoption credit, the child tax 
credit,\71\ the credit for interest on certain home mortgages, 
the HOPE Scholarship and Lifetime Learning credits, the credit 
for savers, and the D.C. first-time homebuyer credit).
---------------------------------------------------------------------------
    \71\ A portion of the child credit may be refundable.
---------------------------------------------------------------------------
      For taxable years beginning in 2003, all the 
nonrefundable personal credits are allowed to the extent of the 
full amount of the individual's regular tax and alternative 
minimum tax.
      For taxable years beginning after 2003, the credits 
(other than the adoption credit, child credit and credit for 
savers) are allowed only to the extent that the individual's 
regular income tax liability exceeds the individual's tentative 
minimum tax, determined without regard to the minimum tax 
foreign tax credit. The adoption credit, child credit, and IRA 
credit are allowed to the full extent of the individual's 
regular tax and alternative minimum tax.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the provision allowing 
the nonrefundable personal credits to the full extent of the 
regular tax and the alternative minimum tax for taxable years 
beginning in 2004 and 2005.
      Effective date.--Taxable years beginning after December 
31, 2003.

N. Extension of Credit for Electricity Produced From Certain Renewable 
                               Resources

(Sec. 313 of the conference agreement and sec. 45 of the Code)

                              PRESENT LAW

      An income tax credit is allowed for the production of 
electricity from either qualified wind energy, qualified 
``closed-loop'' biomass, or qualified poultry waste facilities. 
The amount of the credit is 1.8 cents per kilowatt hour for 
2004. The credit amount is indexed for inflation.
      The credit applies to electricity produced by a wind 
energy facility placed in service after December 31, 1993, and 
before January 1, 2004, to electricity produced by a closed-
loop biomass facility placed in service after December 31, 
1992, and before January 1, 2004, and to a poultry waste 
facility placed in service after December 31, 1999, and before 
January 1, 2004. The credit is allowable for production during 
the 10-year period after a facility is originally placed in 
service.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the placed in service 
date for wind energy facilities, ``closed-loop'' biomass 
facilities, and poultry waste facilities to include facilities 
placed in service prior to January 1, 2006.
      Effective date.--Effective for facilities placed in 
service after December 31, 2003.

  O. Suspension of 100-Percent-of-Net-Income Limitation on Percentage 
             Depletion for Oil and Gas From Marginal Wells

(Sec. 314 of the conference agreement and sec. 613A of the Code)

                              PRESENT LAW

      Percentage depletion method for oil and gas properties 
applies to independent producers and royalty owners. Generally, 
under the percentage depletion method, 15 percent of the 
taxpayer's gross income from an oil- or gas-producing property 
is allowed as a deduction in each taxable year. The amount 
deducted generally may not exceed 100 percent of the net income 
from the property in any year (the ``net-income limitation''). 
The 100-percent net-income limitation for marginal wells is 
suspended for taxable years beginning after December 31, 1997, 
and before January 1, 2004.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the suspension of the 
net-income limitation for marginal wells for taxable years 
beginning before January 1, 2006.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2003.

                    P. Indian Employment Tax Credit

(Sec. 315 of the conference agreement and sec. 45A of the Code)

                              PRESENT LAW

      In general, a credit against income tax liability is 
allowed to employers for the first $20,000 of qualified wages 
and qualified employee health insurance costs paid or incurred 
by the employer with respect to certain employees (sec. 45A). 
The credit is equal to 20 percent of the excess of eligible 
employee qualified wages and health insurance costs during the 
current year over the amount of such wages and costs incurred 
by the employer during 1993. The credit is an incremental 
credit, such that an employer's current-year qualified wages 
and qualified employee health insurance costs (up to $20,000 
per employee) are eligible for the credit only to the extent 
that the sum of such costs exceeds the sum of comparable costs 
paid during 1993. No deduction is allowed for the portion of 
the wages equal to the amount of the credit.
      The wage credit is available for wages paid or incurred 
on or after January 1, 1994, in taxable years that begin before 
January 1, 2005.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the Indian employment 
credit incentive for one year (to taxable years beginning 
before January 1, 2006).
      Effective date.--The provision is effective on the date 
of enactment.

      Q. Accelerated Depreciation for Business Property on Indian 
                              Reservations

(Sec. 316 of the conference agreement and sec. 168(j) of the Code)

                              PRESENT LAW

      With respect to certain property used in connection with 
the conduct of a trade or business within an Indian 
reservation, depreciation deductions under section 168(j) will 
be determined using the following recovery periods:

                                                                   Years
3-year property...................................................     2
5-year property...................................................     3
7-year property...................................................     4
10-year property..................................................     6
15-year property..................................................     9
20-year property..................................................    12
Nonresidential real property......................................    22

      ``Qualified Indian reservation property'' eligible for 
accelerated depreciation includes property which is (1) used by 
the taxpayer predominantly in the active conduct of a trade or 
business within an Indian reservation, (2) not used or located 
outside the reservation on a regular basis, (3) not acquired 
(directly or indirectly) by the taxpayer from a person who is 
related to the taxpayer (within the meaning of section 
465(b)(3)(C)), and (4) described in the recovery-period table 
above. In addition, property is not ``qualified Indian 
reservation property'' if it is placed in service for purposes 
of conducting gaming activities. Certain ``qualified 
infrastructure property'' may be eligible for the accelerated 
depreciation even if located outside an Indian reservation, 
provided that the purpose of such property is to connect with 
qualified infrastructure property located within the 
reservation (e.g., roads, power lines, water systems, railroad 
spurs, and communications facilities).
      The depreciation deduction allowed for regular tax 
purposes is also allowed for purposes of the alternative 
minimum tax. The accelerated depreciation for Indian 
reservations is available with respect to property placed in 
service on or after January 1, 1994, and before January 1, 
2005.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends eligibility for the 
special depreciation periods to property placed in service 
before January 1, 2006.
      Effective date.--The provision is effective on the date 
of enactment.

     R. Disclosure of Return Information Relating to Student Loans

(Sec. 317 of the conference agreement and sec. 6103(l)(13) of the Code)

                              PRESENT LAW

      An exception to the general rule prohibiting disclosure 
is provided for disclosure to the Department of Education (but 
not to contractors thereof) to establish an appropriate 
repayment amount for an applicable student loan. The Department 
of Education disclosure authority is scheduled to expire after 
December 31, 2004.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the disclosure authority 
relating to the disclosure of return information to carry out 
income-contingent repayment of student loans. Under the 
conference agreement, no disclosures can be made after December 
31, 2005.
      Effective date.--The provision is effective on the date 
of enactment.

               S. Credit for Qualified Electric Vehicles

(Sec. 318 of the conference agreement and sec. 30 of the Code)

                              PRESENT LAW

      A 10-percent tax credit is provided for the cost of a 
qualified electric vehicle, up to a maximum credit of $4,000. A 
qualified electric vehicle generally is a motor vehicle that is 
powered primarily by an electric motor drawing current from 
rechargeable batteries, fuel cells, or other portable sources 
of electrical current. The full amount of the credit is 
available for purchases prior to 2004. The credit phases down 
in the years 2004 through 2006, and is unavailable for 
purchases after December 31, 2006. Under the phase down, the 
credit for 2004 is 75 percent of the otherwise allowable 
credit.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      Repeals the phase down of the allowable tax credit for 
electric vehicles in 2004 and 2005. Thus, a taxpayer who 
purchases a qualifying vehicle may claim 100 percent of the 
otherwise allowable credit for vehicles purchased in 2004 and 
2005. For vehicles purchased in 2006 the credit remains at 25 
percent of the otherwise allowable amount as under present law.
      Effective date.--Effective for vehicles placed in service 
after December 31, 2003.

         T. Deduction for Qualified Clean-Fuel Vehicle Property

(Sec. 319 of the conference agreement and sec. 179A of the Code)

                              PRESENT LAW

      Certain costs of qualified clean-fuel vehicle may be 
expensed and deducted when such property is placed in service. 
Qualified clean-fuel vehicle property includes motor vehicles 
that use certain clean-burning fuels (natural gas, liquefied 
natural gas, liquefied petroleum gas, hydrogen, electricity and 
any other fuel at least 85 percent of which is methanol, 
ethanol, any other alcohol or ether). The maximum amount of the 
deduction is $50,000 for a truck or van with a gross vehicle 
weight over 26,000 pounds or a bus with seating capacities of 
at least 20 adults; $5,000 in the case of a truck or van with a 
gross vehicle weight between 10,000 and 26,000 pounds; and 
$2,000 in the case of any other motor vehicle. The deduction 
phases down in the years 2004 through 2006, and is unavailable 
for purchases after December 31, 2006. Under the phase down, 
the deduction permitted for 2004 is 75 percent of the otherwise 
allowable amount.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      Repeals the phase down of the allowable deduction for 
clean-fuel vehicles in 2004 and 2005. Thus, a taxpayer who 
purchases a qualifying vehicle may claim 100 percent of the 
otherwise allowable deduction for vehicles purchased in 2004 
and 2005. For vehicles purchased in 2006 the deduction remains 
at 25 percent of the otherwise allowable amount as under 
present law.
      Effective date.--Effective for vehicles placed in service 
after December 31, 2003.

            U. Disclosures Relating to Terrorist Activities

(Sec. 320 of the conference agreement and sec. 6103 of the Code)

                              PRESENT LAW

      In connection with terrorist activities, the IRS was 
permitted to disclose return information, other than taxpayer 
return information, to officers and employees of Federal law 
enforcement upon a written request. The Code required the 
request to be made by the head of the Federal law enforcement 
agency (or his delegate) involved in the response to or 
investigation of terrorist incidents, threats, or activities, 
and set forth the specific reason or reasons why such 
disclosure may be relevant to a terrorist incident, threat, or 
activity. Disclosure of the information was permitted to 
officers and employees of the Federal law enforcement agency 
who were personally and directly involved in the response to or 
investigation of terrorist incidents, threats, or activities. 
The information was to be used by such officers and employees 
solely for such response or investigation.\72\
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    \72\ Sec. 6103(i)(7)(A).
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      The Code permitted the head of the Federal law 
enforcement agency to redisclose the information to officers 
and employees of State and local law enforcement personally and 
directly engaged in the response to or investigation of the 
terrorist incident, threat, or activity. The State or local law 
enforcement agency was required to be part of an investigative 
or response team with the Federal law enforcement agency for 
these disclosures to be made.\73\
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    \73\ Sec. 6103(i)(7)(A)(ii).
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      Return information includes a taxpayer's identity.\74\ If 
a taxpayer's identity is taken from a return or other 
information filed with or furnished to the IRS by or on behalf 
of the taxpayer, it is taxpayer return information. Since 
taxpayer return information was not covered by this disclosure 
authorization, taxpayer identity so obtained could not be 
disclosed under this authority and thus associated with the 
other information being provided.
---------------------------------------------------------------------------
    \74\ Sec. 6103(b)(2)(A).
---------------------------------------------------------------------------
      The Code also allowed the IRS to disclose return 
information (other than taxpayer return information) upon the 
written request of an officer or employee of the Department of 
Justice or Treasury who is appointed by the President with the 
advice and consent of the Senate, or who is the Director of the 
U.S. Secret Service, if such individual is responsible for the 
collection and analysis of intelligence and counterintelligence 
concerning any terrorist incident, threat, or activity.\75\ 
Taxpayer identity information for this purpose was not 
considered taxpayer return information. Such written request 
was required to set forth the specific reason or reasons why 
such disclosure may be relevant to a terrorist incident, 
threat, or activity. Disclosures under this authority were 
permitted to be made to those officers and employees of the 
Department of Justice, Treasury, and Federal intelligence 
agencies who were personally and directly engaged in the 
collection or analysis of intelligence and counterintelligence 
information or investigation concerning any terrorist incident, 
threat, or activity. Such disclosures were permitted solely for 
the use of such officers and employees in such investigation, 
collection, or analysis.
---------------------------------------------------------------------------
    \75\ Sec. 6103(i)(7)(B).
---------------------------------------------------------------------------
      The IRS, on its own initiative, was permitted to disclose 
in writing return information (other than taxpayer return 
information) that may be related to a terrorist incident, 
threat, or activity to the extent necessary to apprise the head 
of the appropriate investigating Federal law enforcement 
agency.\76\ Taxpayer identity information for this purpose was 
not considered taxpayer return information. The head of the 
agency was permitted to redisclose such information to officers 
and employees of such agency to the extent necessary to 
investigate or respond to the terrorist incident, threat, or 
activity.
---------------------------------------------------------------------------
    \76\ Sec. 6103(i)(3)(C).
---------------------------------------------------------------------------
      If taxpayer return information was sought, the disclosure 
was required to be made pursuant to the ex parte order of a 
Federal district court judge or magistrate.
      No disclosures may be made under these provisions after 
December 31, 2003.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends the disclosure authority 
relating to terrorist activities. Under the conference 
agreement, no disclosures can be made after December 31, 2005.
      The conference agreement also makes a technical change to 
clarify that a taxpayer's identity is not treated as taxpayer 
return information for purposes of disclosures to law 
enforcement agencies regarding terrorist activities.
      Effective date.--The provision extending authority is 
effective for disclosures made on or after the date of 
enactment. The technical change is effective as if included in 
section 201 of the Victims of Terrorism Tax Relief Act of 2001.

       V. Extension of Archer Medical Savings Accounts (``MSAs'')

(Sec. 322 of the conference agreement and sec. 220 of the Code)

                              PRESENT LAW

In general
      Within limits, contributions to an Archer MSA are 
deductible in determining adjusted gross income if made by an 
eligible individual and are excludable from gross income and 
wages for employment tax purposes if made by the employer of an 
eligible individual. Earnings on amounts in an Archer MSA are 
not currently taxable. Distributions from an Archer MSA for 
medical expenses are not includible in gross income. 
Distributions not used for medical expenses are includible in 
gross income. In addition, distributions not used for medical 
expenses are subject to an additional 15-percent tax unless the 
distribution is made after age 65, death, or disability.
Eligible individuals
      Archer MSAs are available to employees covered under an 
employer-sponsored high deductible plan of a small employer and 
self-employed individuals covered under a high deductible 
health plan.\77\ An employer is a small employer if it 
employed, on average, no more than 50 employees on business 
days during either the preceding or the second preceding year. 
An individual is not eligible for an Archer MSA if he or she is 
covered under any other health plan in addition to the high 
deductible plan.
---------------------------------------------------------------------------
    \77\ Self-employed individuals include more than two-percent 
shareholders of S corporations who are treated as partners for purposes 
of fringe benefit rules pursuant to section 1372.
---------------------------------------------------------------------------
Tax treatment of and limits on contributions
      Individual contributions to an Archer MSA are deductible 
(within limits) in determining adjusted gross income (i.e., 
``above-the-line''). In addition, employer contributions are 
excludable from gross income and wages for employment tax 
purposes (within the same limits), except that this exclusion 
does not apply to contributions made through a cafeteria plan. 
In the case of an employee, contributions can be made to an 
Archer MSA either by the individual or by the individual's 
employer.
      The maximum annual contribution that can be made to an 
Archer MSA for a year is 65 percent of the deductible under the 
high deductible plan in the case of individual coverage and 75 
percent of the deductible in the case of family coverage.
Definition of high deductible plan
      A high deductible plan is a health plan with an annual 
deductible of at least $1,700 and no more than $2,600 in the 
case of individual coverage and at least $3,450 and no more 
than $5,150 in the case of family coverage. In addition, the 
maximum out-of-pocket expenses with respect to allowed costs 
(including the deductible) must be no more than $3,450 in the 
case of individual coverage and no more than $6,300 in the case 
of family coverage.\78\ A plan does not fail to qualify as a 
high deductible plan merely because it does not have a 
deductible for preventive care as required by State law. A plan 
does not qualify as a high deductible health plan if 
substantially all of the coverage under the plan is for 
permitted coverage (as described above). In the case of a self-
insured plan, the plan must in fact be insurance (e.g., there 
must be appropriate risk shifting) and not merely a 
reimbursement arrangement.
---------------------------------------------------------------------------
    \78\ These dollar amounts are for 2004. These amounts are indexed 
for inflation, rounded to the nearest $50.
---------------------------------------------------------------------------
Cap on taxpayers utilizing Archer MSAs and expiration of pilot program
      The number of taxpayers benefiting annually from an 
Archer MSA contribution is limited to a threshold level 
(generally 750,000 taxpayers). The number of Archer MSAs 
established has not exceeded the threshold level.
      After 2003, no new contributions may be made to Archer 
MSAs except by or on behalf of individuals who previously had 
Archer MSA contributions and employees who are employed by a 
participating employer.
      Trustees of Archer MSAs are generally required to make 
reports to the Treasury by August 1 regarding Archer MSAs 
established by July 1 of that year. If any year is a cut-off 
year, the Secretary is required to make and publish such 
determination by October 1 of such year.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement extends Archer MSAs through 
December 31, 2005. The conference agreement also provides that 
the reports required by MSA trustees for 2004 are treated as 
timely if made within 90 days after the date of enactment. In 
addition, the determination of whether 2004 is a cut-off year 
and the publication of such determination is to be made within 
120 days of the date of enactment. If 2004 is a cut-off year, 
the cut-off date will be the last day of such 120-day period.
      Effective date.--The provision is generally effective on 
January 1, 2004. The provisions relating to reports and the 
determination by the Secretary are effective on the date of 
enactment.

  W. Extension of Joint Review of Strategic Plans and Budget for the 
                        Internal Revenue Service

(Sec. 321 of the conference agreement and secs. 8021 and 8022 of the 
        Code)

                              PRESENT LAW

      The Code required the Joint Committee on Taxation to 
conduct a joint review \79\ of the strategic plans and budget 
of the IRS from 1999 through 2003.\80\ The Code also required 
the Joint Committee to provide an annual report \81\ from 1999 
through 2003 with respect to:
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    \79\ The joint review was required to include two members of the 
majority and one member of the minority of the Senate Committees on 
Finance, Appropriations, and Governmental Affairs, and of the House 
Committees on Ways and Means, Appropriations, and Government Reform and 
Oversight.
    \80\ Sec. 8021(f).
    \81\ Sec. 8022(3)(C).
---------------------------------------------------------------------------
            Strategic and business plans for the IRS;
            Progress of the IRS in meeting its objectives;
            The budget for the IRS and whether it supports its 
        objectives;
            Progress of the IRS in improving taxpayer service 
        and compliance;
            Progress of the IRS on technology modernization; 
        and
            The annual filing season.

                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement requires that the Joint 
Committee conduct a joint review before June 1, 2005. The 
conference agreement also requires that the Joint Committee 
provide an annual report with respect to such joint review, and 
specifies that the content of the annual report is the matters 
addressed in the joint review.\82\
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    \82\ Accordingly, the provision deletes the specific list of 
matters required to be covered in the annual report.
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      Effective date.--The conference agreement is effective on 
the date of enactment.

                     VI. TAX TECHNICAL CORRECTIONS

(Secs. 401-408 of the conference agreement)

                              PRESENT LAW

      Certain recently enacted tax legislation needs technical, 
conforming, and clerical amendments in order to properly carry 
out the intention of the Congress.\83\
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    \83\ Tax technical corrections legislation, the ``Tax Technical 
Corrections Act of 2003,'' was introduced in the House of 
Representatives (H.R. 3654) on December 8, 2003, and in the Senate (S. 
1984) on December 9, 2003.
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                               HOUSE BILL

      No provision.

                            SENATE AMENDMENT

      No provision.

                          CONFERENCE AGREEMENT

      The conference agreement includes technical corrections 
to recently enacted tax legislation. Except as otherwise 
provided, the amendments made by the technical corrections 
contained in the conference agreement take effect as if 
included in the original legislation to which each amendment 
relates. The following is a description of the provisions 
contained in the technical corrections title:
Amendments related to the Medicare Prescription Drug, Improvement, and 
        Modernization Act of 2003
      Additional tax relating to health savings accounts.--
Under present law, section 26(b) provides that ``regular tax 
liability'' does not include certain ``additional taxes'' and 
similar amounts. Under present law, regular tax liability does 
not include the additional tax on Archer MSA distributions not 
used for qualified medical expenses (sec. 220(f)(4)). The 
provision adds to the list of such amounts the additional tax 
on distributions not used for qualified medical expenses (sec. 
223(f)(4)) under the rules relating to health savings accounts.
      Health coverage tax credit.--Under present law, section 
35(g)(3) provides that any amount distributed from an Archer 
MSA will not be taken into account for purposes of determining 
the amount of health coverage tax credit (``HCTC'') an 
individual is eligible to receive. Under the provision, section 
35(g)(3) is amended to provide that amounts distributed from 
health savings accounts are not to be taken into account for 
purposes of determining the amount of HCTC an individual is 
entitled to receive.
Amendments related to the Jobs and Growth Tax Relief Reconciliation Act 
        of 2003
      Dividends taxed at capital gain rates.--Section 302 of 
the Jobs and Growth Tax Relief Reconciliation Act of 2003 
(``JGTRRA'') generally provides that qualified dividend income 
of taxpayers other than corporations is taxed at the same tax 
rates as the net capital gain. The conference agreement makes 
the following amendments to the provisions adopted by that 
section: \84\
---------------------------------------------------------------------------
    \84\ IR-2004-22 (Feb. 19, 2004) announced that the IRS agreed to 
make the technical correction provisions relating to dividends 
contained in the Technical Corrections Act of 2003, as introduced, 
available to taxpayers in advance of their passage.
---------------------------------------------------------------------------
      The provision clarifies that the determination of net 
capital gain, for purposes of determining the amount taxed at 
the 25-percent rate (section 1(h)(1)(D)(i)), is made without 
regard to qualified dividend income.
      Under present law, the deduction for estate taxes paid on 
gain that is income in respect of a decedent reduces the amount 
of gain otherwise taken into account in computing the amount 
eligible for the lower tax rates on net capital gain (sec. 
691(c)(4)). Since it is not entirely clear under present law 
whether this provision also applies to qualified dividends 
eligible for the lower tax rates on net capital gain, the 
conference agreement clarifies that the provision does so 
apply.
      The provision clarifies that the extraordinary dividend 
rule applies to trusts and estates as well as individuals.
      The provision rewrites portions of the provisions 
relating to the treatment of dividends received from a 
regulated investment company (``RIC'') or a real estate 
investment trust (``REIT'') to set forth the rules directly 
rather than be reference to rules applicable to dividends 
received by corporate shareholders.
      The provision provides that all distributions by a RIC or 
REIT of the earnings and profits from C corporation years can 
be treated as qualifying dividends eligible for the lower rate.
      The provision extends the 60-day period for notifying 
shareholders of the amount of the qualified dividend income 
distributed by a RIC or REIT for taxable years ending on or 
before November 30, 2003, to the date the 1099-DIV for 2003 is 
required.
      The provision provides that, in the case of partnerships, 
S corporations, common trust funds, trusts, and estates, 
section 302 of JGTRRA applies to taxable years ending after 
December 31, 2002, except that dividends received by the entity 
prior to January 1, 2003, are not treated as qualified dividend 
income. JGTRRA provided a similar rule in the case of RICs and 
REITs.
      Satisfaction of certain holding period requirements if 
stock is acquired on the day before ex-dividend date.--Under 
several similar holding period requirements relating to the tax 
consequences of receiving dividends, a taxpayer who acquires 
stock the day before the ex-dividend date cannot satisfy these 
holding period requirements with respect to the dividend. The 
conference agreement modifies the stock holding period 
requirements to permit taxpayers to satisfy the requirements 
when they acquire stock on the day before the ex-dividend date 
of the stock. Specifically, the conference agreement modifies 
the holding period requirement for the dividends-received 
deduction under section 246(c) (as modified by section 1015 of 
the Taxpayer Relief Act of 1997) by changing from 90 days to 91 
days (and from 180 days to 181 days in the case of certain 
dividends on preferred stock) the period within which a 
taxpayer may satisfy the requirement. In addition, the 
conference agreement modifies the holding period requirement 
for foreign tax credits with respect to dividends under section 
901(k) (enacted in section 1053 of the Taxpayer Relief Act of 
1997) by changing from 30 days to 31 days (and from 90 days to 
91 days in the case of certain dividends on preferred stock) 
the period within which a taxpayer may satisfy the requirement. 
The conference agreement modifies the holding period 
requirement for dividends to be taxed at the tax rates 
applicable to net capital gain under section 1(h)(11) (enacted 
in section 302 of JGTRRA) by changing from 120 days to 121 days 
(and from 180 days to 181 days in the case of certain dividends 
on preferred stock) the period within which a taxpayer may 
satisfy the requirement.
Amendments related to the Job Creation and Worker Assistance Act of 
        2002
      Bonus depreciation.--Section 101 of the Job Creation and 
Worker Assistance Act of 2002 (``JCWA'') provides generally for 
30-percent additional first-year depreciation for qualifying 
property. Qualifying property is defined to include certain 
property subject to the capitalization rules of section 263A by 
reason of having an estimated production period exceeding 2 
years or an estimated production period exceeding 1 year and a 
cost exceeding $1 million (secs. 168(k)(2)(B)(i)(III) and 
263A(f)(1)(B)(ii) or (iii)). An unintended interpretation of 
this rule could preclude property from qualifying for bonus 
depreciation if it meets this description but is subject to the 
capitalization rules of section 263A by reason of section 
263A(f)(1)(B)(i) (having a long useful life). The provision 
clarifies that qualifying property includes such property that 
is subject to the capitalization rules of section 263A and is 
described in the provisions requiring an estimated production 
period exceeding 2 years or an estimated production period 
exceeding 1 year and a cost exceeding $1 million.
      Section 101 of JCWA provides a binding contract rule in 
determining property that qualifies for it. The requirements 
that must be satisfied in order for property to qualify include 
that (1) the original use of the property must commence with 
the taxpayer on or after September 11, 2001, (2) the taxpayer 
must purchase the property after September 10, 2001, and before 
September 11, 2004, and (3) no binding written contract for the 
acquisition of the property is in effect before September 11, 
2001 (or, in the case of self-constructed property, 
manufacture, construction, or production of the property does 
not begin before September 11, 2001). In addition, JCWA 
provides a special rule in the case of certain leased property. 
In the case of any property that is originally placed in 
service by a person and that is sold to the taxpayer and leased 
back to such person by the taxpayer within three months after 
the date that the property was placed in service, the property 
is treated as originally placed in service by the taxpayer not 
earlier than the date that the property is used under the 
leaseback. JCWA did not specifically address the syndication of 
a lease by the lessor.
      The provision clarifies that property qualifying for 
additional first-year depreciation does not include any 
property if the user or a related party to the user or owner of 
such property had awritten binding contract in effect for the 
acquisition of the property at any time on or before September 10, 2001 
(or, in the case of self-constructed property, the manufacture, 
construction, or production of the property began on or before 
September 10, 2001). For example, if a taxpayer sells to a related 
party property that was under construction on or prior to September 10, 
2001, the property does not qualify for the additional first-year 
depreciation deduction. Similarly, if a taxpayer sells to a related 
party property that was subject to a binding written contract on or 
prior to September 10, 2001, the property does not qualify for the 
additional first-year depreciation deduction. As a further example, if 
a taxpayer sells property and leases the property back in a sale-
leaseback arrangement, and the lessee had a binding written contract in 
effect for the acquisition of such property on or prior to September 
10, 2001, then the lessor is not entitled to the additional first-year 
depreciation deduction.
      In addition, the provision provides that if property is 
originally placed in service by a lessor (including by 
operation of section Code 168(k)(2)(D)(i)), such property is 
sold within three months after the date that the property was 
placed in service, and the user of such property does not 
change, then the property is treated as originally placed in 
service by the taxpayer not earlier than the date of such sale.
      Five-year carryback of net operating losses (``NOLs'').--
Section 102 of JCWA temporarily extends the NOL carryback 
period to five years (from two years, or three years in certain 
cases) for NOLs arising in taxable years ending in 2001 and 
2002. The Act was enacted in March 2002, after some taxpayers 
had filed returns for 2001.
      The provision (1) clarifies that only the NOLs arising in 
taxable years ending in 2001 and 2002 qualify for the 5-year 
period, and (2) provides that any election to forego any 
carrybacks of NOLs arising in 2001 or 2002 can be revoked prior 
to November 1, 2002. The provision also allows taxpayers until 
November 1, 2002, to use the tentative carryback adjustment 
procedures of section 6411 for NOLs arising in 2001 and 2002 
(without regard to the 12-month limitation in section 6411). In 
addition, the provision clarifies that an election to disregard 
the 5-year carryback for certain NOLs is treated as timely made 
if made before November 1, 2002 (notwithstanding that section 
172(j) requires the election to be made by the due date 
(including extensions) for filing the taxpayer's return for the 
year of the loss).\85\
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    \85\ The corrections are consistent with the guidance issued by the 
IRS (Rev. Proc. 2002-40, 2002-1 C. B. 1096).
---------------------------------------------------------------------------
      The provision also makes several clerical changes to the 
NOL provisions relating to the alternative minimum tax.
      New York Liberty Zone bonus depreciation.--Section 301 of 
JCWA provides tax benefits for the area of New York City 
damaged in terrorist attacks on September 11, 2001 (an area 
defined in the provision and named the New York Liberty Zone). 
Under these rules, an additional first-year depreciation 
deduction is allowed equal to 30 percent of the adjusted basis 
of qualified New York Liberty Zone (``Liberty Zone'') property. 
A taxpayer is allowed to elect out of the additional first-year 
depreciation for any class of property for any taxable year. In 
addition, the Act provides a special rule in the case of 
certain leased property. In the case of any property that is 
originally placed in service by a person and that is sold to 
the taxpayer and leased back to such person by the taxpayer 
within three months after the date that the property was placed 
in service, the property would be treated as originally placed 
in service by the taxpayer not earlier than the date that the 
property is used under the leaseback. JCWA did not specifically 
address the syndication of a lease by the lessor.
      The provision clarifies that property qualifying for 
additional first-year depreciation does not include any 
property if the user or a related party to the user or owner of 
such property had a written binding contract in effect for the 
acquisition of the property at any time before September 11, 
2001 (or in the case of self constructed property the 
manufacture, construction, or production of the property began 
before September 11, 2001). In addition, the provision provides 
that if property is originally placed in service by a lessor 
(including by operation of section 168(k)(2)(D)(i)), such 
property is sold within three months after the date that the 
property was placed in service, and the user of such property 
does not change, then the property is treated as originally 
placed in service by the taxpayer not earlier than the date of 
such sale.
      New York Liberty Zone expensing.--Section 301 of JCWA 
increases the amount a taxpayer may expense under section 179 
to the lesser of $35,000 or the amount of Liberty Zone property 
placed in service for the year. In addition, section 301(a) of 
the Act states that if property qualifies for both the general 
additional first-year depreciation and Liberty Zone additional 
first-year depreciation, it is deemed to be eligible for the 
general additional first-year depreciation and is not 
considered Liberty Zone property (i.e., only one 30-percent 
additional first-year depreciation deduction is allowed). 
Because only Liberty Zone property is eligible for the 
increased section 179 expensing amount, this rule has the 
unintended consequence of denying the increased section 179 
expensing to Liberty Zone property. The provision corrects this 
unintended result (such that qualifying Liberty Zone property 
qualifies for both the 30-percent additional first-year 
depreciation and the additional section 179 expensing).
      Provide election out of Liberty Zone five-year 
depreciation for leasehold improvements.--Section 1400L(c), as 
added by section 301 of JCWA, provides for a 5-year recovery 
period for depreciation of qualified New York Liberty Zone 
leasehold improvement property that is placed in service after 
September 10, 2001, and before January 1, 2007 (and meets 
certain other requirements). Unlike the rules relating to bonus 
depreciation and to Liberty Zone bonus depreciation property 
(see Code sections 168(k)(2)(C)(iii) and 1400L(b)(2)(C)(iv)), 
which permit a taxpayer to elect out, this 5-year depreciation 
rule is not elective. The provision adds a rule permitting 
taxpayers to elect out of the 5-year recovery period.
      Interest rate for defined benefit plan funding 
requirements.--Section 405(c) of JCWA increases the interest 
rate used in determining the amount of unfunded vested benefits 
for PBGC variable rate premium purposes for plan years 
beginning in 2002 or 2003 from 85 percent to 100 percent of the 
interest rate on 30-year Treasury securities for the month 
preceding the month in which the applicable plan year begins. 
The provision makes conforming changes so that this rule 
applies for purposes of notices and reporting required under 
Title IV of ERISA with respect to underfunded plans.
      Exclusion for employer-provided adoption assistance.--The 
provision corrects an incorrect reference in a technical 
correction to a provision relating to the exclusion for 
employer-provided adoption assistance.
Amendments related to the Economic Growth and Tax Relief Reconciliation 
        Act of 2001
      Coverdell education savings accounts.--The provision 
corrects the application of a conforming change to the rule 
coordinating Coverdell education savings accounts with Hope and 
Lifetime Learning credits and qualified tuition programs. The 
conforming change was made in connection with the expansion of 
Coverdell education savings accounts to elementary and 
secondary education expenses in section 401 of the Economic 
Growth and Tax Relief Reconciliation Act of 2001 ``(EGTRRA'').
      Base period for cost-of-living adjustments to Indian 
employment credit rule.--The Indian employment credit is not 
available with respect to an employee whose wages exceed 
$30,000 (sec. 45A). For years after 1994, this $30,000 amount 
is adjusted for cost-of-living increases at the same time, and 
in the same manner, as cost-of-living adjustments to the dollar 
limits on qualified retirement plan benefits and contributions 
under section 415. Section 611 of EGTRAA increases the dollar 
limits under section 415 and adds a new base period for making 
cost-of-living adjustments. The provision clarifies that the 
pre-existing base period applies for purposes of the Indian 
employment credit.
      Rounding rule for retirement plan benefit and 
contribution limits.--Section 611 of EGTRRA increases the 
dollar limits on qualified retirement plan benefits and 
contributions under Code section 415, and adds a new rounding 
rule for cost-of-living adjustments to the dollar limit on 
annual additions to defined contribution plans. This new 
rounding rule is in addition to a pre-existing rounding rule 
that applies to benefits payable under defined benefit plans. 
The provision clarifies that the pre-existing rounding rule 
applies for purposes of other Code provisions that refer to 
Code section 415 and do not contain a specific rounding rule.
      Excise tax on nondeductible contributions.--Under section 
614 of EGTRRA, the limits on deductions for employer 
contributions to qualified retirement plans do not apply to 
elective deferrals, and elective deferrals are not taken into 
account in applying the deduction limits to other 
contributions. The provision makes a conforming change to the 
Code provision that applies an excise tax to nondeductible 
contributions.
      SIMPLE plan contributions for domestic or similar 
workers.--Section 637 of EGTRRA provides an exception to the 
application of the excise tax on nondeductible retirement plan 
contributions in the case of contributions to a SIMPLE IRA or 
SIMPLE section 401(k) plan that are nondeductible solely 
because they are not made in connection with a trade or 
business of the employer (e.g., contributions on behalf of a 
domestic worker). Section 637 of EGTRRA did not specifically 
modify the present-law requirement that compensation for 
purposes of determining contributions to a SIMPLE plan must be 
wages subject to income tax withholding, even though wages paid 
to domestic workers are not subject to income tax withholding. 
The provision revises the definition of compensation for 
purposes of determining contributions to a SIMPLE plan to 
include wages paid to domestic workers, even though such 
amounts are not subject to income tax withholding.
      Rollovers among various types of retirement plans.--
Section 641 of EGTRRA expanded the rollover rules to allow 
rollovers among various types of tax-favored retirement plans. 
The provision makes a conforming change to the cross-reference 
to the rollovers rules in the Code provision relating to 
qualified retirement annuities.
Amendment related to the Community Renewal Tax Relief Act of 2000
      Tax treatment of options and securities futures 
contracts.--The provision clarifies that the Secretary of the 
Treasury has the authority to prescribe regulations regarding 
the status of an option or a contract the value of which is 
determined directly or indirectly by reference to an index 
which becomes (or ceases to be) a narrow-based security index 
(as defined in section 1256(g)(6)). This authority includes, 
but is not limited to, regulations that provide for preserving 
the status of such an option or contract as appropriate.
Amendments related to the Taxpayer Relief Act of 1997
      Qualified tuition programs.--Section 211 of the Taxpayer 
Relief Act of 1997 modified section 529(c)(5), relating to gift 
tax rules for qualified tuition programs, but did not include 
in the statutory language the requirement that, upon a change 
in the designated beneficiary of the program, the new 
beneficiary must be a member of the family of the old 
beneficiary for gift taxes not to apply. The legislative 
history for the provision stated that the new beneficiary had 
to be of the same generation as the old beneficiary and a 
member of the family of the old beneficiary for gift taxes not 
to apply. The provision clarifies that the gift taxes apply 
unless the new beneficiary is of the same (or higher) 
generation than the old beneficiary and is a member of the 
family of the old beneficiary.
      Coverdell education savings accounts.--The provision 
corrects section 530(d)(4)(B)(iii), relating to Coverdell 
education savings accounts, by substituting for the undefined 
term ``account holder'' the defined term ``designated 
beneficiary.''
      Constructive sale exception.--Section 1001(a) of the 
Taxpayer Relief Act of 1997 provides an exception from 
constructive sale treatment for any transaction that is closed 
before the end of the thirtieth day after the close of the 
taxable year in which the transaction was entered into, 
provided certain requirements are met after closing the 
transaction (section 1259(c)(3)). In the case of positions that 
are reestablished following a closed transaction but prior to 
satisfying the requirements for the exception from constructive 
sale treatment, the exception applies in a similar manner if 
the reestablished position itself is closed and similar 
requirements are met after closing the reestablished position. 
The provision clarifies that the exception applies in the same 
manner to all closed transactions, including reestablished 
positions that are closed.
      Basis adjustments for QZAB held by S corporation.--Under 
present law, a shareholder of an S corporation that is an 
eligible financial institution may claim a credit with respect 
to a qualified zone academy bond (``QZAB'') held by the S 
corporation. The amount of the credit is included in gross 
income of the shareholder. An unintended interpretation of 
these rules would be that the shareholder's basis in the stock 
of the S corporation is increased by the amount of the income 
inclusion, notwithstanding that the benefit of the credit flows 
directly to the shareholder rather than to the corporation, and 
the corporation has no additional assets to support the 
basisincrease. The provision clarifies that the basis of stock in an S 
corporation is not affected by the QZAB credit.
      Capital gains and AMT.--The provision provides that the 
maximum amount of adjusted net capital gain eligible for the 
five-percent rate under the alternative minimum tax is the 
excess of the maximum amount of taxable income that may be 
taxed at a rate of less than 25 percent under the regular tax 
(for example, $56,800 for a joint return in 2003)) over the 
taxable income reduced by the adjusted net capital gain.
      The provision may be illustrated by the following 
example:
      For example, assume that a married couple with no 
dependents in 2003 has $32,100 of salary, $82,000 of long-term 
capital gain from the sale of stock, $73,000 of itemized 
deductions consisting entirely of state and local taxes and 
allowable miscellaneous itemized deductions. For purposes of 
the regular tax, the taxable income is $35,000 ($32,100 plus 
$82,000 minus $73,000 minus $6,100 deduction for personal 
exemptions). For purposes of the alternative minimum tax, the 
taxable excess is $56,100 ($32,100 plus $82,000 less the 
$58,000 exemption amount).
      Under present law, the amount taxed under the regular tax 
at five percent is $35,000 (the lesser of (i) taxable income 
($35,000), (ii) adjusted net capital gain ($82,000), or (iii) 
the excess of the maximum amount taxed at the 10- and 15-
percent rates ($56,800 in 2003) over the ordinary taxable 
income (zero)). Thus, the regular tax is $1,750.
      Under present law, $35,000 is taxed at five percent in 
computing the alternative minimum tax (the lesser of (i) amount 
of the adjusted net capital gain which is taxed at the five 
percent under the regular tax ($35,000), or (ii) the taxable 
excess ($56,100)). The remaining $21,100 of taxable excess is 
taxed at 15 percent, for a total tentative minimum tax of 
$4,915.
      Under the provision, in computing the alternative minimum 
tax, $56,100 is taxed at five percent (the lesser of (i) the 
taxable excess ($56,100), (ii) the adjusted net capital gain 
($82,000), or (iii) the excess of the maximum amount taxed at 
the 10- and 15-percent rates under the regular tax ($56,800) 
over the ordinary taxable income (zero)). The tentative minimum 
tax is $2,805.
Amendment related to the Small Business Job Protection Act of 1996
      S corporation post-termination transition period.--
Shareholders of an S corporation whose status as an S 
corporation terminates are allowed a period of time after the 
termination (the post-termination transition period (``PTTP'')) 
to utilize certain of the benefits of S corporation status. The 
shareholders may claim losses and deductions previously 
suspended due to lack of stock or debt basis up to the amount 
of the stock basis as of the last day of the PTTP (sec. 
1366(d)). Also, shareholders may receive cash distributions 
from the corporation during the PTTP that are treated as 
returns of capital to the extent of any balance in the S 
corporation's accumulated adjustments account (``AAA'') (sec. 
1371(e)).
      The PTTP generally begins on the day after the last day 
of the corporation's last tax year as an S corporation and ends 
on the later of the day which is one year after such last day 
or the due date for filing the return for such last year as an 
S corporation (including extensions). Section 1307 of the Small 
Business Job Protection Act of 1996 added a new 120-day PTTP 
following an audit of the corporation that adjusts an S 
corporation item of income, loss, or deduction arising during 
the most recent period while the corporation was an S 
corporation. This provision was enacted to allow the tax-free 
distribution of any additional income determined in the audit.
      As a result of the 1996 legislation, an S corporation 
shareholder might take the position that an audit adjustment 
allows the shareholder to utilize suspended losses and 
deductions in excess of the amount of the audit deficiency. For 
example, assume that, at the end of the one-year PTTP following 
the termination of a corporation's S corporation status, a 
shareholder has $1 million of suspended losses in the 
corporation. Later, the shareholder purchases additional stock 
in the corporation for $1 million. The corporation's audit 
determines a $25,000 increase in the S corporation's income. 
Although the $25,000 increase in income would allow $25,000 of 
suspended losses to be allowed, the shareholder might take the 
position that the entire $1,000,000 of suspended losses could 
be utilized during the 120-day PTTP following the end of the 
audit. Similarly, an S corporation that had failed to 
distribute the entire amount in its AAA during the one-year 
PTTP following the loss of S corporation status might argue 
that it could distribute that amount, in addition to the amount 
determined in the audit, during the 120-day period following 
the audit.
      The provision provides that the 120-day PTTP added by the 
1996 Act does not apply for purposes of allowing suspended 
losses to be deducted (since the increased income determined in 
the audit can be offset with the losses), and allows tax-free 
distributions of money by the corporation during the 120-day 
period only to the extent of any increase in the AAA by reason 
of adjustments from the audit.
      Defined contribution plans.--The Small Business Job 
Protection Act of 1996 amended section 401(a)(26) (generally 
requiring that a qualified retirement plan benefit the lesser 
of 50 employees or 40 percent of the employer's workforce) so 
that it no longer applies to defined contribution plans. 
Section 401(a)(26)(C) (which treats employees as benefiting in 
certain circumstances) was not repealed even though it relates 
only to defined contribution plans. The provision repeals 
section 401(a)(26)(C).
Clerical amendments
      The conference agreement makes a number of clerical and 
typographical amendments.

                      VII. TAX COMPLEXITY ANALYSIS

      The following tax complexity analysis is provided 
pursuant to section 4022(b) of the Internal Revenue Service 
Reform and Restructuring Act of 1998, which requires the staff 
of the Joint Committee on Taxation (in consultation with the 
Internal Revenue Service (``IRS'') and the Treasury Department) 
to provide a complexity analysis of tax legislation reported by 
the House Committee on Ways and Means, the Senate Committee on 
Finance, or a Conference Report containing tax provisions. The 
complexity analysis is required to report on the complexity and 
administrative issues raised by provisions that directly or 
indirectly amend the Internal Revenue Code and that have 
widespread applicability to individuals or small businesses. 
For each such provision identified by the staff of the Joint 
Committee on Taxation, a summary description of the provision 
is provided along with an estimate of the number and type of 
affected taxpayers, and a discussion regarding the relevant 
complexity and administrative issues.
1. Modifications to the child tax credit and earned income credit 
        (secs. 101, 102, 103, and 104 of the conference agreement)
Summary description of provision
      The amount of the child credit is increased to $1,000 for 
2005-2009. The conference agreement also accelerates to 2004 
the increase in refundability of the child credit to 15 percent 
of the taxpayer's earned income in excess of $10,750.
      The conference agreement provides that combat pay that is 
otherwise excluded from gross income under section 112 is 
treated as earned income which is taken into account in 
computing taxable income for purposes of calculating the 
refundable portion of the child credit.
      The conference agreement provides that any taxpayer may 
elect to treat combat pay that is otherwise excluded from gross 
income under section 112 as earned income for purposes of the 
earned income credit. This election is available with respect 
to any taxable year ending after the date of enactment and 
before January 1, 2006.
      All modifications to the child credit and earned income 
credit under the conference agreement are subject to the sunset 
provision of EGTRRA.
Number of affected taxpayers
      It is estimated that the provisions will affect 
approximately 28 million individual tax returns.
Discussion
      Individuals should not have to keep additional records 
due to this provision, nor will additional regulatory guidance 
be necessary to implement this provision.
2. Standard deduction tax relief (sec. 101 of the conference agreement)
Summary description of provision
      The conference agreement accelerates the increase in the 
basic standard deduction amount for joint returns to twice the 
basic standard deduction amount for unmarried individual 
returns effective for 2005-2008. All modifications to the basic 
standard deduction under the conference agreement are subject 
to the sunset provision of EGTRRA.
Number of affected taxpayers
      It is estimated that the provision will affect 
approximately 22 million individual returns.
Discussion
      It is not anticipated that individuals will need to keep 
additional records due to this provision. The higher basic 
standard deduction should not result in an increase in disputes 
with the IRS, nor will regulatory guidance be necessary to 
implement this provision. In addition, the provision should not 
increase individuals' tax preparation costs.
      Some taxpayers who currently itemize deductions may 
respond to the provision by claiming the increased standard 
deduction in lieu of itemizing. According to estimates by the 
staff of the Joint Committee on Taxation, approximately three 
million individual tax returns will realize greater tax savings 
from the increased standard deduction than from itemizing their 
deductions. In addition to the tax savings, such taxpayers will 
no longer have to file Schedule A to Form 1040 and a 
significant number of them will no longer need to engage in the 
record keeping inherent in itemizing below-the-line deductions. 
Moreover, by claiming the standard deduction, such taxpayers 
may qualify to use simpler versions of the Form 1040 (i.e., 
Form 1040EZ or Form 1040A) that are not available to 
individuals who itemize their deductions. These forms simplify 
the return preparation process by eliminating from the Form 
1040 those items that do not apply to particular taxpayers.
      This reduction in complexity and record keeping also may 
result in a decline in the number of individuals using a tax 
preparation service or a decline in the cost of using such a 
service. Furthermore, if the provision results in a taxpayer 
qualifying to use one of the simpler versions of the Form 1040, 
the taxpayer may be eligible to file a paperless Federal tax 
return by telephone. The provision also should reduce the 
number of disputes between taxpayers and the IRS regarding 
substantiation of itemized deductions.
3. Expansion of the 15-percent rate bracket (sec. 101 of the conference 
        agreement)
Summary description of provision
      The bill accelerates the increase of the size of the 15-
percent regular income tax rate bracket for married individuals 
filing joint returns to twice the width of the 15-percent 
regular income tax rate bracket for unmarried individual 
returns effective for 2005-2007. All modifications to the 15-
percent rate bracket under the conference agreement are subject 
to the sunset provision of EGTRRA.
Number of affected taxpayers
      It is estimated that the provision will affect 
approximately 19 million individual tax returns.
Discussion
      It is not anticipated that individuals will need to keep 
additional records due to this provision. The increased size of 
the 15-percent regular income tax rate bracket for married 
individuals filing joint returns should not result in an 
increase in disputes with the IRS, nor will regulatory guidance 
be necessary to implement this provision.
4. Ten-percent income tax rate for individuals (sec. 101 of the 
        conference agreement)
Summary description of provision
      The conference agreement extends the size of the 10-
percent rate bracket through 2010. Specifically, the size of 
the 10-percent rate bracket for 2005 through 2010 is set at the 
2003 level ($7,000 for single individuals, $10,000 for heads of 
households and $14,000 for married individuals) with annual 
indexing from 2003. The modifications to the 10-percent rate 
bracket under the conference agreement are subject to the 
sunset provision of EGTRRA.
Number of affected taxpayers
      It is estimated that the provision will affect 
approximately 73 million individual tax returns.
Discussion
      It is not anticipated that individuals will need to keep 
additional records due to this provision. It should not result 
in an increase in disputes with the IRS, nor will regulatory 
guidance be necessary to implement this provision. In addition, 
the provision should not increase the tax preparation costs for 
most individuals. Reductions in the regular income tax as a 
result of these rate reductions will cause some taxpayers to 
become subject to the alternative minimum tax.
5. Uniform definition of qualifying child (secs. 201-207 of the 
        conference agreement)
Summary description of provision
      The bill creates a uniform definition of qualifying child 
for purposes of the dependency exemption, child credit, earned 
income credit, dependent care credit, and head of household 
filing status. The bill is effective for taxable years 
beginning after December 31, 2004.
Number of affected taxpayers
      It is estimated that the provisions will affect over 40 
million individual tax returns.
Discussion
      Adopting a uniform definition of qualifying child will 
make it easier for taxpayers to determine whether they qualify 
for various tax benefits for children and reduce inadvertent 
errors arising from confusion due to different definitions of 
qualifying child. The use of a residency test for the uniform 
definition should be easier to apply than a support test.
      The bill will provide simplification to substantial 
numbers of taxpayers. However, the transition from the present-
law system to a uniform definition of child will add temporary 
complexity from the tax administration perspective. The IRS 
will be required to modify forms and instructions to implement 
the uniform definition of child, and taxpayers will be required 
to learn a new set of rules. There may be confusion for 
taxpayers who may no longer be eligible to claim a child for 
certain purposes under the Code. These changes could lead to 
increased taxpayer errors in filing. In the long run, these 
effects will be mitigated and the benefits of making the 
uniform definition will result in less complexity and better 
tax administration.


                For consideration of the House amendment and 
                the Senate amendment, and modifications 
                committed to conference:
                                   William Thomas,
                                   Tom DeLay,
                                 Managers on the Part of the House.

                                   Chuck Grassley,
                                   Don Nickles,
                                   Trent Lott,
                                   Max Baucus,
                                   Blanche L. Lincoln,
                                Managers on the Part of the Senate.