[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2 Engrossed Amendment Senate (EAS)]
In the Senate of the United States,
May 15, 2003.
Resolved, That the bill from the House of Representatives (H.R. 2)
entitled ``An Act to provide for reconciliation pursuant to section 201
of the concurrent resolution on the budget for fiscal year 2004.'', do
pass with the following
AMENDMENT:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Jobs and Growth
Tax Relief Reconciliation Act of 2003''.
(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 of this Act is as
follows:
Sec. 1. Short title; references; table of contents.
TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS;
INCREASED EXPENSING FOR SMALL BUSINESSES
Sec. 101. Acceleration of 10-percent individual income tax rate bracket
expansion.
Sec. 102. Acceleration of reduction in individual income tax rates.
Sec. 103. Minimum tax relief to individuals.
Sec. 104. Acceleration of increase in standard deduction for married
taxpayers filing joint returns.
Sec. 105. Acceleration of 15-percent individual income tax rate bracket
expansion for married taxpayers filing
joint returns.
Sec. 106. Acceleration of increase in, and refundability of, child tax
credit.
Sec. 107. Increased expensing for small business.
Sec. 108. Application of EGTRRA sunset to this title.
TITLE II--PARTIAL EXCLUSION OF DIVIDENDS
Sec. 201. Partial exclusion of dividends received by individuals.
TITLE III--REVENUE PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
Sec. 301. Clarification of economic substance doctrine.
Sec. 302. Penalty for failing to disclose reportable transaction.
Sec. 303. Accuracy-related penalty for listed transactions and other
reportable transactions having a
significant tax avoidance purpose.
Sec. 304. Penalty for understatements attributable to transactions
lacking economic substance, etc.
Sec. 305. Modifications of substantial understatement penalty for
nonreportable transactions.
Sec. 306. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 307. Disclosure of reportable transactions.
Sec. 308. Modifications to penalty for failure to register tax
shelters.
Sec. 309. Modification of penalty for failure to maintain lists of
investors.
Sec. 310. Modification of actions to enjoin certain conduct related to
tax shelters and reportable transactions.
Sec. 311. Understatement of taxpayer's liability by income tax return
preparer.
Sec. 312. Penalty on failure to report interests in foreign financial
accounts.
Sec. 313. Frivolous tax submissions.
Sec. 314. Penalty on promoters of tax shelters.
Sec. 315. Statute of limitations for taxable years for which listed
transactions not reported.
Sec. 316. Denial of deduction for interest on underpayments
attributable to nondisclosed reportable and
noneconomic substance transactions.
Subtitle B--Enron-Related Tax Shelter Provisions
Sec. 321. Limitation on transfer or importation of built-in losses.
Sec. 322. No reduction of basis under section 734 in stock held by
partnership in corporate partner.
Sec. 323. Repeal of special rules for FASITs.
Sec. 324. Expanded disallowance of deduction for interest on
convertible debt.
Sec. 325. Expanded authority to disallow tax benefits under section
269.
Sec. 326. Modifications of certain rules relating to controlled foreign
corporations.
Sec. 327. Controlled entities ineligible for REIT status.
Subtitle C--Other Corporate Governance Provisions
Part I--General Provisions
Sec. 331. Affirmation of consolidated return regulation authority.
Sec. 332. Signing of corporate tax returns by chief executive officer.
Sec. 333. Denial of deduction for certain fines, penalties, and other
amounts.
Sec. 334. Disallowance of deduction for punitive damages.
Sec. 335. Increase in criminal monetary penalty limitation for the
underpayment or overpayment of tax due to
fraud.
Part II--Executive Compensation Reform
Sec. 336. Treatment of nonqualified deferred compensation funded with
assets located outside the United States.
Sec. 337. Inclusion in gross income of funded deferred compensation of
corporate insiders.
Sec. 338. Prohibition on deferral of gain from the exercise of stock
options and restricted stock gains through
deferred compensation arrangements.
Sec. 339. Increase in withholding from supplemental wage payments in
excess of $1,000,000.
Subtitle D--International Provisions
Part I--Provisions to Discourage Expatriation
Sec. 340. Revision of tax rules on expatriation.
Sec. 341. Tax treatment of inverted corporate entities.
Sec. 342. Excise tax on stock compensation of insiders in inverted
corporations.
Sec. 343. Reinsurance of United States risks in foreign jurisdictions.
Part II--Other Provisions
Sec. 344. Doubling of certain penalties, fines, and interest on
underpayments related to certain offshore
financial arrangement.
Sec. 345. Effectively connected income to include certain foreign
source income.
Sec. 346. Determination of basis of amounts paid from foreign pension
plans.
Sec. 347. Recapture of overall foreign losses on sale of controlled
foreign corporation.
Sec. 348. Prevention of mismatching of interest and original issue
discount deductions and income inclusions
in transactions with related foreign
persons.
Sec. 349. Sale of gasoline and diesel fuel at duty-free sales
enterprises.
Sec. 350. Repeal of earned income exclusion of citizens or residents
living abroad.
Subtitle E--Other Revenue Provisions
Sec. 351. Extension of Internal Revenue Service user fees.
Sec. 352. Addition of vaccines against hepatitis A to list of taxable
vaccines.
Sec. 353. Disallowance of certain partnership loss transfers.
Sec. 354. Treatment of stripped interests in bond and preferred stock
funds, etc.
Sec. 355. Reporting of taxable mergers and acquisitions.
Sec. 356. Minimum holding period for foreign tax credit on withholding
taxes on income other than dividends.
Sec. 357. Qualified tax collection contracts.
Sec. 358. Extension of customs user fees.
Sec. 359. Clarification of exemption from tax for small property and
casualty insurance companies.
Sec. 360. Partial payment of tax liability in installment agreements.
Sec. 361. Extension of amortization of intangibles to sports
franchises.
Sec. 362. Deposits made to suspend running of interest on potential
underpayments.
Sec. 363. Clarification of rules for payment of estimated tax for
certain deemed asset sales.
Sec. 364. Limitation on deduction for charitable contributions of
patents and similar property.
Sec. 365. Extension of transfers of excess pension assets to retiree
health accounts.
Sec. 366. Proration rules for life insurance business of property and
casualty insurance companies.
Sec. 367. Modification of treatment of transfers to creditors in
divisive reorganizations.
Sec. 368. Increase in age of minor children whose unearned income is
taxed as if parent's income.
Sec. 369. Consistent amortization of periods for intangibles.
Sec. 370. Clarification of definition of nonqualified preferred stock.
Sec. 371. Class lives for utility grading costs.
Sec. 372. Prohibition on nonrecognition of gain through complete
liquidation of holding company.
Sec. 373. Lease term to include certain service contracts.
Sec. 374. Recognition of gain from the sale of a principal residence
acquired in a like-kind exchange within 5
years of sale.
Subtitle F--Other Provisions
Sec. 381. Temporary State and local fiscal relief.
Sec. 382. Review of State agency blindness and disability
determinations.
Sec. 383. Prohibition on use of SCHIP funds to provide coverage for
childless adults.
Sec. 384. Medicaid DSH allotments.
TITLE IV--SMALL BUSINESS AND AGRICULTURAL PROVISIONS
Subtitle A--Small Business Provisions
Sec. 401. Exclusion of certain indebtedness of small business
investment companies from acquisition
indebtedness.
Sec. 402. Repeal of occupational taxes relating to distilled spirits,
wine, and beer.
Sec. 403. Custom gunsmiths.
Sec. 404. Simplification of excise tax imposed on bows and arrows.
Subtitle B--Agricultural Provisions
Sec. 411. Capital gain treatment under section 631(b) to apply to
outright sales by landowners.
Sec. 412. Special rules for livestock sold on account of weather-
related conditions.
Sec. 413. Exclusion for loan payments under national health service
corps loan repayment program.
Sec. 414. Payment of dividends on stock of cooperatives without
reducing patronage dividends.
TITLE V--SIMPLIFICATION AND OTHER PROVISIONS
Subtitle A--Uniform Definition of Child
Sec. 501. Uniform definition of child, etc.
Sec. 502. Modifications of definition of head of household.
Sec. 503. Modifications of dependent care credit.
Sec. 504. Modifications of child tax credit.
Sec. 505. Modifications of earned income credit.
Sec. 506. Modifications of deduction for personal exemption for
dependents.
Sec. 507. Technical and conforming amendments.
Sec. 508. Effective date.
Subtitle B--Simplification
Sec. 511. Consolidation of life and non-life company returns.
Sec. 512. Special rules for taxation of life insurance companies.
Sec. 513. Modification of active business definition under section 355.
Subtitle C--Other Provisions
Sec. 521. Civil rights tax relief.
Sec. 522. Increase in section 382 limitation for companies emerging
from bankruptcy.
Sec. 523. Increase in historic rehabilitation credit for certain low-
income housing for the elderly.
Sec. 524. Modification of application of income forecast method of
depreciation.
Sec. 525. Additional advance refundings of certain governmental bonds.
Sec. 526. Exclusion of income derived from certain wagers on horse
races from gross income of nonresident
alien individuals.
Sec. 527. Federal reimbursement of emergency health services furnished
to undocumented aliens.
Sec. 528. Premiums for mortgage insurance.
Sec. 529. Sense of the Senate on repealing the 1993 tax hike on social
security benefits section.
Sec. 530. Flat tax.
Sec. 531. Toll tax on excess qualified foreign distribution amount.
Sec. 532. Child support enforcement.
Sec. 533. Low-income housing tax credit.
Sec. 534. Expensing of broadband internet access expenditures.
Sec. 535. Income tax credit for distilled spirits wholesalers and for
distilled spirits in control state bailment
warehouses for costs of carrying Federal
excise taxes on bottled distilled spirits.
Sec. 536. Clarification of contribution in aid of construction for
water and sewerage disposal utilities.
Sec. 537. Restoration of deduction for travel expenses of spouse, etc.
accompanying taxpayer on business travel.
Sec. 538. Certain sightseeing flights exempt from taxes on air
transportation.
Sec. 539. Conforming the Internal Revenue Code of 1986 to requirements
imposed by the Women's Health and Cancer
Rights Act of 1998.
Sec. 540. Expansion of designated renewal community area based on 2000
census data.
Sec. 541. Renewal community employers may qualify for employment credit
by employing residents of certain other
renewal communities.
Sec. 542. Expansion of income tax exclusion for combat zone service.
Sec. 543. Availability of certain tax benefits for members of the armed
forces performing services at Guantanamo
Bay Naval Station, Cuba, and on the island
of Diego Garcia.
Sec. 544. Citrus canker tree relief.
Sec. 545. Exclusion of certain punitive damage awards.
Sec. 546. Reatment of certain imported recycled halons.
Sec. 547. Modification of involuntary conversion rules for businesses
affected by the September 11th terrorist
attacks.
Subtitle D--Medicare Provisions.
Sec. 561. Equalizing urban and rural standardized payment amounts under
the medicare inpatient hospital prospective
payment system.
Sec. 562. Fairness in the Medicare Disproportionate Share Hospital
(DSH) adjustment for rural hospitals.
Sec. 563. Medicare inpatient hospital payment adjustment for low-volume
hospitals.
Sec. 564. Adjustment to the medicare inpatient hospital PPS wage index
to revise the labor-related share of such
index.
Sec. 565. One-year extension of hold harmless provisions for small
rural hospitals and temporary treatment of
certain sole community hospitals to limit
decline in payment under the OPD PPS.
Sec. 566. Critical access hospital (CAH) improvements.
Sec. 567. Temporary increase for home health services furnished in a
rural area.
Sec. 568. Temporary increase in payments for certain services furnished
by small rural hospitals under medicare
prospective payment system for hospital
outpatient department services.
Sec. 569. Temporary increase for ground ambulance services furnished in
a rural area.
Sec. 570. Exclusion of certain rural health clinic and federally
qualified health center services from the
medicare pps for skilled nursing
facilities.
Sec. 571. Medicare incentive payment program improvements.
Sec. 572. Two-year treatment of certain clinical diagnostic laboratory
tests furnished by a sole community
hospital.
Sec. 573. Establishment of floor on geographic adjustments of payments
for physicians' services.
Sec. 574. Freeze in payments for items of durable medical equipment and
orthotics and prosthetics.
Sec. 575. Application of coinsurance and deductible for clinical
diagnostic laboratory tests.
Sec. 576. Revision in payments for covered outpatient drugs.
Sec. 577. Inapplicability of sunset.
Subtitle E--Provisions Relating To S Corporation Reform and
Simplification
Part I--Maximum Number of Shareholders of an S Corporation
Sec. 581. Members of family treated as 1 shareholder.
Sec. 582. Increase in number of eligible shareholders to 100.
Sec. 583. Nonresident aliens allowed as beneficiaries of an electing
small business trust.
Part II--Termination of Election and additions to Tax Due to Passive
Investment Income
Sec. 584. Modifications to passive income rules.
Part III--Treatment of S Corporation Shareholders
Sec. 585. Transfer of suspended losses incident to divorce.
Sec. 586. Use of passive activity loss and at-risk amounts by qualified
subchapter S trust income beneficiaries.
Sec. 587. Disregard of unexercised powers of appointment in determining
potential current beneficiaries of ESBT.
Sec. 588. Clarification of electing small business trust distribution
rules.
Part IV--Provisions Relating to Banks
Sec. 589. Sale of stock in IRA relating to S corporation election
exempt from prohibited transaction rules.
Sec. 590. Exclusion of investment securities income from passive income
test for bank S corporations.
Sec. 591. Treatment of qualifying director shares.
Part V--Qualified Subchapter S Subsidiaries
Sec. 592. Relief from inadvertently invalid qualified subchapter S
subsidiary elections and terminations.
Sec. 593. Information returns for qualified subchapter S subsidiaries.
Part VI--Additional Provisions
Sec. 594. Elimination of all earnings and profits attributable to pre-
1983 years.
TITLE VI--BLUE RIBBON COMMISSION ON COMPREHENSIVE TAX REFORM
Sec. 601. Short title.
Sec. 602. Establishmment of Commission.
Sec. 603. Duties of the Commission.
Sec. 604. Powers of the Commission.
Sec. 605. Commission personnel matters.
Sec. 606. Termination of the Commission.
Sec. 607. Authorization of appropriations.
TITLE VII--REAL ESTATE INVESTMENT TRUSTS
Subtitle A--REIT Corrections
Sec. 701. Revisions to REIT asset test.
Sec. 702. Clarification of application of limited rental exception.
Sec. 703. Deletion of customary services exception.
Sec. 704. Conformity with general hedging definition.
Sec. 705. Conformity with regulated investment company rules.
Sec. 706. Prohibited transactions provisions.
Sec. 707. Effective dates.
Subtitle B--REIT Savings Provisions
Sec. 711. Revisions to REIT provisions.
TITLE VIII--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS
Subtitle A--Extensions of Expiring Provisions
Sec. 801. Parity in the application of certain limits to mental health
benefits.
Sec. 802. Allowance of nonrefundable personal credits against regular
and minimum tax liability.
Sec. 803. Credit for electricity produced from certain renewable
resources.
Sec. 804. Work opportunity credit.
Sec. 805. Welfare-to-work credit.
Sec. 806. Taxable income limit on percentage depletion for oil and
natural gas produced from marginal
properties.
Sec. 807. Qualified zone academy bonds.
Sec. 808. Cover over of tax on distilled spirits.
Sec. 809. Deduction for corporate donations of computer technology.
Sec. 810. Credit for qualified electric vehicles.
Sec. 811. Deduction for clean-fuel vehicles and certain refueling
property.
Sec. 812. Deduction for certain expenses of school teachers.
Sec. 813. Availability of medical savings accounts.
Sec. 814. Expensing of environmental remediation costs.
TITLE IX--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL
Sec. 900. Short title.
Sec. 901. Exclusion of gain from sale of a principal residence by a
member of the uniformed services or the
foreign service.
Sec. 902. Exclusion from gross income of certain death gratuity
payments.
Sec. 903. Exclusion for amounts received under Department of Defense
Homeowners Assistance Program.
Sec. 904. Expansion of combat zone filing rules to contingency
operations.
Sec. 905. Modification of membership requirement for exemption from tax
for certain veterans' organizations.
Sec. 906. Clarification of the treatment of certain dependent care
assistance programs.
Sec. 907. Clarification relating to exception from additional tax on
certain distributions from qualified
tuition programs, etc. on account of
attendance at military academy.
Sec. 908. Suspension of tax-exempt status of terrorist organizations.
Sec. 909. Above-the-line deduction for overnight travel expenses of
national guard and reserve members.
Sec. 910. Tax relief and assistance for families of Space Shuttle
Columbia heroes.
TITLE X--SUNSET
Sec. 1001. Sunset.
TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS;
INCREASED EXPENSING FOR SMALL BUSINESSES
SEC. 101. ACCELERATION OF 10-PERCENT INDIVIDUAL INCOME TAX RATE BRACKET
EXPANSION.
(a) In General.--Clause (i) of section 1(i)(1)(B) (relating to the
initial bracket amount) is amended by striking ``($12,000 in the case
of taxable years beginning before January 1, 2008)''.
(b) Inflation Adjustment Beginning in 2004.--Subparagraph (C) of
section 1(i)(1) (relating to inflation adjustment) 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 used in
making adjustments to the initial bracket
amount shall be determined under subsection
(f)(3) by substituting `2002' for `1992' in
subparagraph (B) thereof, and
``(ii) such adjustment 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.''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 2002.
(2) Subsection (b).--The amendment made by subsection (b)
shall apply to taxable years beginning after December 31, 2003.
(3) Tables for 2003.--The Secretary of the Treasury shall
modify each table which has been prescribed for taxable years
beginning in 2003 and which relates to the amendment made by
subsection (a), section 102, or section 103 to reflect each
such amendment.
SEC. 102. ACCELERATION OF REDUCTION IN INDIVIDUAL INCOME TAX RATES.
(a) In General.--The table in paragraph (2) of section 1(i)
(relating to reductions in rates after June 30, 2001) is amended to
read as follows:
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
``In the case of taxable years The corresponding percentages shall be substituted for the following percentages:
beginning during calendar ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
year: 28% 31% 36% 39.6%
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2001.......................... 27.5% 30.5% 35.5% 39.1%
2002.......................... 27.0% 30.0% 35.0% 38.6%
2003 and thereafter........... 25.0% 28.0% 33.0% 35.0%''.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2002.
SEC. 103. MINIMUM TAX RELIEF TO INDIVIDUALS.
(a) In General.--So much of paragraph (1) of section 55(d)
(relating to exemption amount for taxpayers other than corporations) as
precedes subparagraph (C) thereof is amended to read as follows:
``(1) Exemption amount for taxpayers other than
corporations.--In the case of a taxpayer other than a
corporation, the term `exemption amount' means as follows:
``(A) Joint return and surviving spouse.--In the
case of a joint return or a surviving spouse, the
amount under the following table:
``In the case of taxable years The exemption
beginning: amount is:
Before 2001........................................ $45,000
In 2001 and 2002................................... $49,000
In 2003............................................ $60,500
In 2004............................................ $60,500
In 2005............................................ $60,500
After 2005......................................... $45,000.
``(B) Individual not married and not a surviving
spouse.--In the case of an individual who is not a
married individual and is not a surviving spouse, the
amount under the following table:
``In the case of taxable years The exemption
beginning: amount is:
Before 2001........................................ $33,750
In 2001 and 2002................................... $35,750
In 2003............................................ $41,500
In 2004............................................ $41,500
In 2005............................................ $41,500
After 2005......................................... $33,750.''.
(b) Conforming Amendments.--
(1) Section 55(d)(1)(C) is amended--
(A) by striking ``, and'' and inserting a period,
and
(B) by striking ``50 percent'' and inserting
``Married individual filing a separate return.--50
percent''.
(2) Section 55(d)(1)(D) is amended by striking ``$22,500''
and inserting ``Estate and trust.--$22,500''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 104. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR MARRIED
TAXPAYERS FILING JOINT RETURNS.
(a) In General.--Paragraph (7) of section 63(c) (relating to
standard deduction) is amended to read as follows:
``(7) Applicable percentage.--For purposes of paragraph
(2), the applicable percentage shall be determined in
accordance with the following table:
``For taxable years beginning
The applicable
in calendar year--
percentage is--
2003................................... 195
2004................................... 200
2005................................... 174
2006................................... 184
2007................................... 187
2008................................... 190
2009 and thereafter.................... 200.''.
(b) Conforming Amendment.--Section 301(d) of the Economic Growth
and Tax Relief Reconciliation Act of 2001 is amended by striking
``2004'' and inserting ``2002''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 105. ACCELERATION OF 15-PERCENT INDIVIDUAL INCOME TAX RATE BRACKET
EXPANSION FOR MARRIED TAXPAYERS FILING JOINT RETURNS.
(a) In General.--Subparagraph (B) of section 1(f)(8) (relating to
phaseout of marriage penalty in 15-percent bracket) is amended to read
as follows:
``(B) Applicable percentage.--For purposes of
subparagraph (A), the applicable percentage shall be
determined in accordance with the following table:
``For taxable years beginning
The applicable
in calendar year--
percentage is--
2003................................... 195
2004................................... 200
2005................................... 180
2006................................... 187
2007................................... 193
2008 and thereafter.................... 200.''.
(b) Conforming Amendment.--Section 302(c) of the Economic Growth
and Tax Relief Reconciliation Act of 2001 is amended by striking
``2004'' and inserting ``2002''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 106. ACCELERATION OF INCREASE IN, AND REFUNDABILITY OF, CHILD TAX
CREDIT.
(a) Acceleration of Increase in 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) Expansion of Credit 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)''.
(c) Advance Payment of Portion of Increased Credit in 2003.--
(1) In general.--Subchapter B of chapter 65 (relating to
abatements, credits, and refunds) is amended by adding at the
end the following new section:
``SEC. 6429. ADVANCE PAYMENT OF PORTION OF INCREASED CHILD CREDIT FOR
2003.
``(a) In General.--Each taxpayer who claimed a credit under section
24 on the return for the taxpayer's first taxable year beginning in
2002 shall be treated as having made a payment against the tax imposed
by chapter 1 for such taxable year in an amount equal to the child tax
credit refund amount (if any) for such taxable year.
``(b) Child Tax Credit Refund Amount.--For purposes of this
section, the child tax credit refund amount is the amount by which the
aggregate credits allowed under part IV of subchapter A of chapter 1
for such first taxable year would have been increased if--
``(1) the per child amount under section 24(a)(2) for such
year were $1,000,
``(2) only qualifying children (as defined in section
24(c)) of the taxpayer for such year who had not attained age
17 as of December 31, 2003, were taken into account, and
``(3) section 24(d)(1)(B)(ii) did not apply.
``(c) Timing of Payments.--In the case of any overpayment
attributable to this section, the Secretary shall, subject to the
provisions of this title, refund or credit such overpayment as rapidly
as possible and, to the extent practicable, before October 1, 2003. No
refund or credit shall be made or allowed under this section after
December 31, 2003.
``(d) Coordination with Child Tax Credit.--
``(1) In general.--The amount of credit which would (but
for this subsection and section 26) be allowed under section 24
for the taxpayer's first taxable year beginning in 2003 shall
be reduced (but not below zero) by the payments made to the
taxpayer under this section. Any failure to so reduce the
credit shall be treated as arising out of a mathematical or
clerical error and assessed according to section 6213(b)(1).
``(2) Joint returns.--In the case of a payment under this
section with respect to a joint return, half of such payment
shall be treated as having been made to each individual filing
such return.
``(e) No Interest.--No interest shall be allowed on any overpayment
attributable to this section.''.
(2) Clerical amendment.--The table of sections for
subchapter B of chapter 65 is amended by adding at the end the
following new item:
``Sec. 6429. Advance payment of portion of increased child
credit for 2003.''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2002.
(2) Subsection (c).--The amendments made by subsection (c)
shall take effect on the date of the enactment of this Act.
SEC. 107. INCREASED EXPENSING FOR SMALL BUSINESS.
(a) In General.--Paragraph (1) of section 179(b) (relating to
dollar limitation) is amended to read as follows:
``(1) Dollar limitation.--The aggregate cost which may be
taken into account under subsection (a) for any taxable year
shall not exceed $25,000 ($100,000 in the case of taxable years
beginning after 2002 and before 2008).''.
(b) Increase in Qualifying Investment at Which Phaseout Begins.--
Paragraph (2) of section 179(b) (relating to reduction in limitation)
is amended by inserting ``($400,000 in the case of taxable years
beginning after 2002 and before 2008)'' after ``$200,000''.
(c) Off-the-Shelf Computer Software.--Paragraph (1) of section
179(d) (defining section 179 property) is amended to read as follows:
``(1) Section 179 property.--For purposes of this section,
the term `section 179 property' means property--
``(A) which is--
``(i) tangible property (to which section
168 applies), or
``(ii) computer software (as defined in
section 197(e)(3)(B)) which is described in
section 197(e)(3)(A)(i), to which section 167
applies, and which is placed in service in a
taxable year beginning after 2002 and before
2008,
``(B) which is section 1245 property (as defined in
section 1245(a)(3)), and
``(C) which is acquired by purchase for use in the
active conduct of a trade or business.
Such term shall not include any property described in section
50(b) and shall not include air conditioning or heating
units.''.
(d) Adjustment of Dollar Limit and Phaseout Threshold for
Inflation.--Subsection (b) of section 179 (relating to limitations) is
amended by adding at the end the following new paragraph:
``(5) Inflation adjustments.--
``(A) In general.--In the case of any taxable year
beginning in a calendar year after 2003 and before
2008, the $100,000 and $400,000 amounts in paragraphs
(1) and (2) shall each be increased by an amount equal
to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(f)(3) for the
calendar year in which the taxable year begins,
by substituting `calendar year 2002' for
`calendar year 1992' in subparagraph (B)
thereof.
``(B) Rounding.--
``(i) Dollar limitation.--If the amount in
paragraph (1) as increased under subparagraph
(A) is not a multiple of $1,000, such amount
shall be rounded to the nearest multiple of
$1,000.
``(ii) Phaseout amount.--If the amount in
paragraph (2) as increased under subparagraph
(A) is not a multiple of $10,000, such amount
shall be rounded to the nearest multiple of
$10,000.''.
(e) Revocation of Election.--Paragraph (2) of section 179(c)
(relating to election irrevocable) is amended to read as follows:
``(2) Revocation of election.--An election under paragraph
(1) with respect to any taxable year beginning after 2002 and
before 2008, and any specification contained in any such
election, may be revoked by the taxpayer with respect to any
property. Such revocation, once made, shall be irrevocable.''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 108. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.
Each amendment made by this title (other than section 107) 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--PARTIAL EXCLUSION OF DIVIDENDS
SEC. 201. PARTIAL EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.
(a) General Rule.--Part III of subchapter B of chapter 1 is amended
by inserting after section 115 the following new section:
``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.
``(a) Exclusion From Gross Income.--
``(1) In general.--Gross income does not include the
applicable percentage of qualified dividend income received
during the taxable year by an individual.
``(2) Applicable percentage.--For purposes of this
subsection, the applicable percentage is--
``(A) 50 percent in the case of taxable years
beginning in 2003,
``(B) 100 percent in the case of taxable years
beginning in 2004, 2005, and 2006, and
``(C) zero percent in the case of any other taxable
year.
``(b) Qualified Dividend Income.--For purposes of this subsection--
``(1) In general.--The term `qualified dividend income'
means dividends received with respect to any share of stock
of--
``(A) any domestic corporation, or
``(B) any foreign corporation but only if such
share of stock is readily tradable on an established
securities market.
``(2) Certain dividends excluded.--Such term shall not
include--
``(A) any dividend from a corporation which for the
taxable year of the corporation in which the
distribution is made, or the preceding taxable year, is
a corporation exempt from tax under section 501 or 521,
``(B) any amount allowed as a deduction under
section 591 (relating to deduction for dividends paid
by mutual savings banks, etc.), and
``(C) any dividend described in section 404(k).
``(3) Exclusion of dividends of certain foreign
corporations.--Such term shall not include any dividend from a
foreign corporation which for the taxable year of the
corporation in which the distribution was made, or the
preceding taxable year, is a foreign personal holding company
(as defined in section 552), a foreign investment company (as
defined in section 1246(b)), or a passive foreign investment
company (as defined in section 1297).
``(4) Coordination with section 246(c).--Such term shall
not include any dividend on any share of stock--
``(A) with respect to which the holding period
requirements of section 246(c) are not met, or
``(B) to the extent that the taxpayer is under an
obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to
positions in substantially similar or related property.
``(c) Special Rules.--
``(1) Amounts taken into account as investment income.--
Qualified dividend income shall not include any amount which
the taxpayer takes into account as investment income under
section 163(d)(4)(B).
``(2) Coordination with foreign tax credit and deduction.--
No credit shall be allowed under section 901, and no deduction
shall be allowed under this chapter, for any taxes paid or
accrued with respect to any income excludable under this
section.
``(3) Certain nonresident aliens ineligible for
exclusion.--In the case of a nonresident alien individual,
subsection (a) shall apply only in determining the tax imposed
for the taxable year by sections 871(b)(1) and 877(b).
``(4) Exclusion disregarded in determining income for
certain purposes.--Subsection (a) shall not apply for purposes
of determining amounts of income under sections 32(i), 86(b),
135(b), 137(b), 219(g), 221(b), 222(b), 408A(c)(3), 469(i), and
530(c), or subpart A of part IV of subchapter A.
``(5) Treatment of dividends from regulated investment
companies and real estate investment trusts.--A dividend from a
regulated investment company or real estate investment trust
shall be subject to the limitations prescribed in sections 854
and 857.''.
(b) Exclusion of Dividends From Investment Income.--Subparagraph
(B) of section 163(d)(4) (defining net investment income) is amended by
adding at the end the following flush sentence:
``Such term shall include qualified dividend income (as
defined in section 116(b)) only to the extent the
taxpayer elects to treat such income as investment
income for purposes of this subsection.''.
(c) Treatment of Dividends From Regulated Investment Companies.--
(1) Subsection (a) of section 854 (relating to dividends
received from regulated investment companies) is amended by
inserting ``section 116 (relating to partial exclusion of
dividends received by individuals) and'' after ``For purposes
of''.
(2) Paragraph (1) of section 854(b) (relating to other
dividends) is amended by redesignating subparagraph (B) as
subparagraph (C) and by inserting after subparagraph (A) the
following new subparagraph:
``(B) Exclusion under section 116.--
``(i) In general.--If the aggregate
dividends received by a regulated investment
company during any taxable year are less than
95 percent of its gross income, then, in
computing the exclusion under section 116,
rules similar to the rules of subparagraph (A)
shall apply.
``(ii) Gross income.--For purposes of
clause (i), in the case of 1 or more sales or
other dispositions of stock or securities, the
term `gross income' includes only the excess
of--
``(I) the net short-term capital
gain from such sales or dispositions,
over
``(II) the net long-term capital
loss from such sales or
dispositions.''.
(3) Subparagraph (C) of section 854(b)(1), as redesignated
by paragraph (2), is amended by striking ``subparagraph (A)''
and inserting ``subparagraph (A) or (B)''.
(4) Paragraph (2) of section 854(b) is amended by inserting
``the exclusion under section 116 and'' after ``for purposes
of''.
(5) Subsection (b) of section 854 is amended by adding at
the end the following new paragraph:
``(5) Coordination with section 116.--For purposes of
paragraph (1)(B), an amount shall be treated as a dividend only
if the amount is qualified dividend income (within the meaning
of section 116(b)).''.
(d) Treatment of Dividends Received From Real Estate Investment
Trusts.--Section 857(c) (relating to restrictions applicable to
dividends received from real estate investment trusts) is amended to
read as follows:
``(c) Restrictions Applicable To Dividends Received From Real
Estate Investment Trusts.--
``(1) Section 243.--For purposes of section 243 (relating
to deductions for dividends received by corporations), a
dividend received from a real estate investment trust which
meets the requirements of this part shall not be considered a
dividend.
``(2) Section 116.--For purposes of section 116 (relating
to exclusion of dividends), rules similar to the rules of
section 854(b)(1)(B) shall apply to dividends received from a
real estate trust which meets the requirements of this part.''.
(e) Conforming Amendments.--
(1) Subsection (f) of section 301 is amended adding at the
end the following new paragraph:
``(4) For partial exclusion from gross income of dividends
received by individuals, see section 116.''.
(2) Paragraph (1) of section 306(a) is amended by adding at
the end the following new subparagraph:
``(D) Treatment as dividend.--For purposes of
section 116, any amount treated as ordinary income
under this paragraph shall be treated as a dividend
received from the corporation.''.
(3)(A) Subpart C of part II of subchapter C of chapter 1
(relating to collapsible corporations) is repealed.
(B)(i) Section 338(h) is amended by striking paragraph
(14).
(ii) Sections 467(c)(5)(C), 1255(b)(2), and 1257(d) are
each amended by striking ``, 341(e)(12),''.
(iii) The table of subparts for part II of subchapter C of
chapter 1 is amended by striking the item related to subpart C.
(4) Section 531 is amended--
(A) by inserting ``the taxable percentage of''
after ``equal to'', and
(B) by adding at the end the following: ``For
purposes of this section, the taxable percentage is 100
percent minus the applicable percentage (as defined in
section 116(a)(2)).''
(5) Section 541 is amended--
(A) by inserting ``the taxable percentage of''
after ``equal to'', and
(B) by adding at the end the following: ``For
purposes of this section, the taxable percentage is 100
percent minus the applicable percentage (as defined in
section 116(a)(2)).''
(6) Section 584(c) is amended by adding at the end the
following new flush sentence:
``The proportionate share of each participant in the amount of
dividends received by the common trust fund and to which section 116
applies shall be considered for purposes of such paragraph as having
been received by such participant.''.
(7) Section 643(a) is amended by redesignating paragraph
(7) as paragraph (8) and by inserting after paragraph (6) the
following new paragraph:
``(7) Excluded dividends.--There shall be included the
amount of any dividends excluded from gross income under
section 116 (relating to partial exclusion of dividends).''.
(8) Paragraph (5) of section 702(a) is amended to read as
follows:
``(5) dividends with respect to which section 116 or part
VII of subchapter B applies,''.
(9)(A) Section 1059(a) is amended by striking
``corporation'' each place it appears and inserting
``taxpayer''.
(B)(i) The heading for section 1059 is amended by striking
``corporate''.
(ii) The item relating to section 1059 in the table of
sections for part IV of subchapter O of chapter 1 is amended by
striking ``Corporate shareholder's'' and inserting
``Shareholder's''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
TITLE III--REVENUE PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
SEC. 301. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.
(a) In General.--Section 7701 is amended by redesignating
subsection (n) as subsection (o) and by inserting after subsection (m)
the following new subsection:
``(n) Clarification of Economic Substance Doctrine; Etc.--
``(1) General rules.--
``(A) In general.--In applying the economic
substance doctrine, the determination of whether a
transaction has economic substance shall be made as
provided in this paragraph.
``(B) Definition of economic substance.--For
purposes of subparagraph (A)--
``(i) In general.--A transaction has
economic substance only if--
``(I) the transaction changes in a
meaningful way (apart from Federal tax
effects) the taxpayer's economic
position, and
``(II) the taxpayer has a
substantial nontax purpose for entering
into such transaction and the
transaction is a reasonable means of
accomplishing such purpose.
In applying subclause (II), a purpose of
achieving a financial accounting benefit shall
not be taken into account in determining
whether a transaction has a substantial nontax
purpose if the origin of such financial
accounting benefit is a reduction of income
tax.
``(ii) Special rule where taxpayer relies
on profit potential.--A transaction shall not
be treated as having economic substance by
reason of having a potential for profit
unless--
``(I) the present value of the
reasonably expected pre-tax profit from
the transaction is substantial in
relation to the present value of the
expected net tax benefits that would be
allowed if the transaction were
respected, and
``(II) the reasonably expected pre-
tax profit from the transaction exceeds
a risk-free rate of return.
``(C) Treatment of fees and foreign taxes.--Fees
and other transaction expenses and foreign taxes shall
be taken into account as expenses in determining pre-
tax profit under subparagraph (B)(ii).
``(2) Special rules for transactions with tax-indifferent
parties.--
``(A) Special rules for financing transactions.--
The form of a transaction which is in substance the
borrowing of money or the acquisition of financial
capital directly or indirectly from a tax-indifferent
party shall not be respected if the present value of
the deductions to be claimed with respect to the
transaction is substantially in excess of the present
value of the anticipated economic returns of the person
lending the money or providing the financial capital. A
public offering shall be treated as a borrowing, or an
acquisition of financial capital, from a tax-
indifferent party if it is reasonably expected that at
least 50 percent of the offering will be placed with
tax-indifferent parties.
``(B) Artificial income shifting and basis
adjustments.--The form of a transaction with a tax-
indifferent party shall not be respected if--
``(i) it results in an allocation of income
or gain to the tax-indifferent party in excess
of such party's economic income or gain, or
``(ii) it results in a basis adjustment or
shifting of basis on account of overstating the
income or gain of the tax-indifferent party.
``(3) Definitions and special rules.--For purposes of this
subsection--
``(A) Economic substance doctrine.--The term
`economic substance doctrine' means the common law
doctrine under which tax benefits under subtitle A with
respect to a transaction are not allowable if the
transaction does not have economic substance or lacks a
business purpose.
``(B) Tax-indifferent party.--The term `tax-
indifferent party' means any person or entity not
subject to tax imposed by subtitle A. A person shall be
treated as a tax-indifferent party with respect to a
transaction if the items taken into account with
respect to the transaction have no substantial impact
on such person's liability under subtitle A.
``(C) Exception for personal transactions of
individuals.--In the case of an individual, this
subsection shall apply only to transactions entered
into in connection with a trade or business or an
activity engaged in for the production of income.
``(D) Treatment of lessors.--A lessor of tangible
property subject to a lease shall be treated as
satisfying the requirements of paragraph (1)(B)(ii)
with respect to the leased property if such lease
satisfies such requirements as provided by the
Secretary.
``(4) Other common law doctrines not affected.--Except as
specifically provided in this subsection, the provisions of
this subsection shall not be construed as altering or
supplanting any other rule of law, and the requirements of this
subsection shall be construed as being in addition to any such
other rule of law.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this subsection. Such regulations may include
exemptions from the application of this subsection.''.
(b) Effective Date.--The amendments made by this section shall
apply to transactions entered into on or after May 8, 2003.
SEC. 302. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.
(a) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties) is amended by inserting after section 6707 the
following new section:
``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION
INFORMATION WITH RETURN OR STATEMENT.
``(a) Imposition of Penalty.--Any person who fails to include on
any return or statement any information with respect to a reportable
transaction which is required under section 6011 to be included with
such return or statement shall pay a penalty in the amount determined
under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraphs (2) and
(3), the amount of the penalty under subsection (a) shall be
$50,000.
``(2) Listed transaction.--The amount of the penalty under
subsection (a) with respect to a listed transaction shall be
$100,000.
``(3) Increase in penalty for large entities and high net
worth individuals.--
``(A) In general.--In the case of a failure under
subsection (a) by--
``(i) a large entity, or
``(ii) a high net worth individual,
the penalty under paragraph (1) or (2) shall be twice
the amount determined without regard to this paragraph.
``(B) Large entity.--For purposes of subparagraph
(A), the term `large entity' means, with respect to any
taxable year, a person (other than a natural person)
with gross receipts in excess of $10,000,000 for the
taxable year in which the reportable transaction occurs
or the preceding taxable year. Rules similar to the
rules of paragraph (2) and subparagraphs (B), (C), and
(D) of paragraph (3) of section 448(c) shall apply for
purposes of this subparagraph.
``(C) High net worth individual.--For purposes of
subparagraph (A), the term `high net worth individual'
means, with respect to a reportable transaction, a
natural person whose net worth exceeds $2,000,000
immediately before the transaction.
``(c) Definitions.--For purposes of this section--
``(1) Reportable transaction.--The term `reportable
transaction' means any transaction with respect to which
information is required to be included with a return or
statement because, as determined under regulations prescribed
under section 6011, such transaction is of a type which the
Secretary determines as having a potential for tax avoidance or
evasion.
``(2) Listed transaction.--Except as provided in
regulations, the term `listed transaction' means a reportable
transaction which is the same as, or substantially similar to,
a transaction specifically identified by the Secretary as a tax
avoidance transaction for purposes of section 6011.
``(d) Authority To Rescind Penalty.--
``(1) In general.--The Commissioner of Internal Revenue may
rescind all or any portion of any penalty imposed by this
section with respect to any violation if--
``(A) the violation is with respect to a reportable
transaction other than a listed transaction,
``(B) the person on whom the penalty is imposed has
a history of complying with the requirements of this
title,
``(C) it is shown that the violation is due to an
unintentional mistake of fact;
``(D) imposing the penalty would be against equity
and good conscience, and
``(E) rescinding the penalty would promote
compliance with the requirements of this title and
effective tax administration.
``(2) Discretion.--The exercise of authority under
paragraph (1) shall be at the sole discretion of the
Commissioner and may be delegated only to the head of the
Office of Tax Shelter Analysis. The Commissioner, in the
Commissioner's sole discretion, may establish a procedure to
determine if a penalty should be referred to the Commissioner
or the head of such Office for a determination under paragraph
(1).
``(3) No appeal.--Notwithstanding any other provision of
law, any determination under this subsection may not be
reviewed in any administrative or judicial proceeding.
``(4) Records.--If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the Office of
the Commissioner the opinion of the Commissioner or the head of
the Office of Tax Shelter Analysis with respect to the
determination, including--
``(A) the facts and circumstances of the
transaction,
``(B) the reasons for the rescission, and
``(C) the amount of the penalty rescinded.
``(5) Report.--The Commissioner shall each year report to
the Committee on Ways and Means of the House of Representatives
and the Committee on Finance of the Senate--
``(A) a summary of the total number and aggregate
amount of penalties imposed, and rescinded, under this
section, and
``(B) a description of each penalty rescinded under
this subsection and the reasons therefor.
``(e) Penalty Reported to SEC.--In the case of a person--
``(1) which is required to file periodic reports under
section 13 or 15(d) of the Securities Exchange Act of 1934 or
is required to be consolidated with another person for purposes
of such reports, and
``(2) which--
``(A) is required to pay a penalty under this
section with respect to a listed transaction,
``(B) is required to pay a penalty under section
6662A with respect to any reportable transaction at a
rate prescribed under section 6662A(c), or
``(C) is required to pay a penalty under section
6662B with respect to any noneconomic substance
transaction,
the requirement to pay such penalty shall be disclosed in such reports
filed by such person for such periods as the Secretary shall specify.
Failure to make a disclosure in accordance with the preceding sentence
shall be treated as a failure to which the penalty under subsection
(b)(2) applies.
``(f) Coordination With Other Penalties.--The penalty imposed by
this section is in addition to any penalty imposed under this title.''.
(b) Conforming Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by inserting after the item
relating to section 6707 the following:
``Sec. 6707A. Penalty for failure to
include reportable transaction
information with return or
statement.''.
(c) Effective Date.--The amendments made by this section shall
apply to returns and statements the due date for which is after the
date of the enactment of this Act.
SEC. 303. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER
REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX
AVOIDANCE PURPOSE.
(a) In General.--Subchapter A of chapter 68 is amended by inserting
after section 6662 the following new section:
``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS
WITH RESPECT TO REPORTABLE TRANSACTIONS.
``(a) Imposition of Penalty.--If a taxpayer has a reportable
transaction understatement for any taxable year, there shall be added
to the tax an amount equal to 20 percent of the amount of such
understatement.
``(b) Reportable Transaction Understatement.--For purposes of this
section--
``(1) In general.--The term `reportable transaction
understatement' means the sum of--
``(A) the product of--
``(i) the amount of the increase (if any)
in taxable income which results from a
difference between the proper tax treatment of
an item to which this section applies and the
taxpayer's treatment of such item (as shown on
the taxpayer's return of tax), and
``(ii) the highest rate of tax imposed by
section 1 (section 11 in the case of a taxpayer
which is a corporation), and
``(B) the amount of the decrease (if any) in the
aggregate amount of credits determined under subtitle A
which results from a difference between the taxpayer's
treatment of an item to which this section applies (as
shown on the taxpayer's return of tax) and the proper
tax treatment of such item.
For purposes of subparagraph (A), any reduction of the excess
of deductions allowed for the taxable year over gross income
for such year, and any reduction in the amount of capital
losses which would (without regard to section 1211) be allowed
for such year, shall be treated as an increase in taxable
income.
``(2) Items to which section applies.--This section shall
apply to any item which is attributable to--
``(A) any listed transaction, and
``(B) any reportable transaction (other than a
listed transaction) if a significant purpose of such
transaction is the avoidance or evasion of Federal
income tax.
``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance
Transactions.--
``(1) In general.--Subsection (a) shall be applied by
substituting `30 percent' for `20 percent' with respect to the
portion of any reportable transaction understatement with
respect to which the requirement of section 6664(d)(2)(A) is
not met.
``(2) Rules applicable to compromise of penalty.--
``(A) In general.--If the 1st letter of proposed
deficiency which allows the taxpayer an opportunity for
administrative review in the Internal Revenue Service
Office of Appeals has been sent with respect to a
penalty to which paragraph (1) applies, only the
Commissioner of Internal Revenue may compromise all or
any portion of such penalty.
``(B) Applicable rules.--The rules of paragraphs
(2), (3), (4), and (5) of section 6707A(d) shall apply
for purposes of subparagraph (A).
``(d) Definitions of Reportable and Listed Transactions.--For
purposes of this section, the terms `reportable transaction' and
`listed transaction' have the respective meanings given to such terms
by section 6707A(c).
``(e) Special Rules.--
``(1) Coordination with penalties, etc., on other
understatements.--In the case of an understatement (as defined
in section 6662(d)(2))--
``(A) the amount of such understatement (determined
without regard to this paragraph) shall be increased by
the aggregate amount of reportable transaction
understatements and noneconomic substance transaction
understatements for purposes of determining whether
such understatement is a substantial understatement
under section 6662(d)(1), and
``(B) the addition to tax under section 6662(a)
shall apply only to the excess of the amount of the
substantial understatement (if any) after the
application of subparagraph (A) over the aggregate
amount of reportable transaction understatements and
noneconomic substance transaction understatements.
``(2) Coordination with other penalties.--
``(A) Application of fraud penalty.--References to
an underpayment in section 6663 shall be treated as
including references to a reportable transaction
understatement and a noneconomic substance transaction
understatement.
``(B) No double penalty.--This section shall not
apply to any portion of an understatement on which a
penalty is imposed under section 6662B or 6663.
``(3) Special rule for amended returns.--Except as provided
in regulations, in no event shall any tax treatment included
with an amendment or supplement to a return of tax be taken
into account in determining the amount of any reportable
transaction understatement or noneconomic substance transaction
understatement if the amendment or supplement is filed after
the earlier of the date the taxpayer is first contacted by the
Secretary regarding the examination of the return or such other
date as is specified by the Secretary.
``(4) Noneconomic substance transaction
understatement.--For purposes of this subsection, the
term `noneconomic substance transaction understatement'
has the meaning given such term by section 6662B(c).
``(5) Cross reference.--
``For reporting of section 6662A(c)
penalty to the Securities and Exchange Commission, see section
6707A(e).''.
(b) Determination of Other Understatements.--Subparagraph (A) of
section 6662(d)(2) is amended by adding at the end the following flush
sentence:
``The excess under the preceding sentence shall be
determined without regard to items to which section
6662A applies and without regard to items with respect
to which a penalty is imposed by section 6662B.''.
(c) Reasonable Cause Exception.--
(1) In general.--Section 6664 is amended by adding at the
end the following new subsection:
``(d) Reasonable Cause Exception for Reportable Transaction
Understatements.--
``(1) In general.--No penalty shall be imposed under
section 6662A with respect to any portion of a reportable
transaction understatement if it is shown that there was a
reasonable cause for such portion and that the taxpayer acted
in good faith with respect to such portion.
``(2) Special rules.--Paragraph (1) shall not apply to any
reportable transaction understatement unless--
``(A) the relevant facts affecting the tax
treatment of the item are adequately disclosed in
accordance with the regulations prescribed under
section 6011,
``(B) there is or was substantial authority for
such treatment, and
``(C) the taxpayer reasonably believed that such
treatment was more likely than not the proper
treatment.
A taxpayer failing to adequately disclose in accordance with
section 6011 shall be treated as meeting the requirements of
subparagraph (A) if the penalty for such failure was rescinded
under section 6707A(d).
``(3) Rules relating to reasonable belief.--For purposes of
paragraph (2)(C)--
``(A) In general.--A taxpayer shall be treated as
having a reasonable belief with respect to the tax
treatment of an item only if such belief--
``(i) is based on the facts and law that
exist at the time the return of tax which
includes such tax treatment is filed, and
``(ii) relates solely to the taxpayer's
chances of success on the merits of such
treatment and does not take into account the
possibility that a return will not be audited,
such treatment will not be raised on audit, or
such treatment will be resolved through
settlement if it is raised.
``(B) Certain opinions may not be relied upon.--
``(i) In general.--An opinion of a tax
advisor may not be relied upon to establish the
reasonable belief of a taxpayer if--
``(I) the tax advisor is described
in clause (ii), or
``(II) the opinion is described in
clause (iii).
``(ii) Disqualified tax advisors.--A tax
advisor is described in this clause if the tax
advisor--
``(I) is a material advisor (within
the meaning of section 6111(b)(1)) who
participates in the organization,
management, promotion, or sale of the
transaction or who is related (within
the meaning of section 267(b) or
707(b)(1)) to any person who so
participates,
``(II) is compensated directly or
indirectly by a material advisor with
respect to the transaction,
``(III) has a fee arrangement with
respect to the transaction which is
contingent on all or part of the
intended tax benefits from the
transaction being sustained, or
``(IV) as determined under
regulations prescribed by the
Secretary, has a continuing financial
interest with respect to the
transaction.
``(iii) Disqualified opinions.--For
purposes of clause (i), an opinion is
disqualified if the opinion--
``(I) is based on unreasonable
factual or legal assumptions (including
assumptions as to future events),
``(II) unreasonably relies on
representations, statements, findings,
or agreements of the taxpayer or any
other person,
``(III) does not identify and
consider all relevant facts, or
``(IV) fails to meet any other
requirement as the Secretary may
prescribe.''.
(2) Conforming amendment.--The heading for subsection (c)
of section 6664 is amended by inserting ``for Underpayments''
after ``Exception''.
(d) Conforming Amendments.--
(1) Subparagraph (C) of section 461(i)(3) is amended by
striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(2) Paragraph (3) of section 1274(b) is amended--
(A) by striking ``(as defined in section
6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
(B) by adding at the end the following new
subparagraph:
``(C) Tax shelter.--For purposes of subparagraph
(B), the term `tax shelter' means--
``(i) a partnership or other entity,
``(ii) any investment plan or arrangement,
or
``(iii) any other plan or arrangement,
if a significant purpose of such partnership, entity,
plan, or arrangement is the avoidance or evasion of
Federal income tax.''.
(3) Section 6662(d)(2) is amended by striking subparagraphs
(C) and (D).
(4) Section 6664(c)(1) is amended by striking ``this part''
and inserting ``section 6662 or 6663''.
(5) Subsection (b) of section 7525 is amended by striking
``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(6)(A) The heading for section 6662 is amended to read as
follows:
``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERPAYMENTS.''.
(B) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to section
6662 and inserting the following new items:
``Sec. 6662. Imposition of accuracy-
related penalty on
underpayments.
``Sec. 6662A. Imposition of accuracy-
related penalty on
understatements with respect to
reportable transactions.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.
SEC. 304. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS
LACKING ECONOMIC SUBSTANCE, ETC.
(a) In General.--Subchapter A of chapter 68 is amended by inserting
after section 6662A the following new section:
``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS
LACKING ECONOMIC SUBSTANCE, ETC.
``(a) Imposition of Penalty.--If a taxpayer has an noneconomic
substance transaction understatement for any taxable year, there shall
be added to the tax an amount equal to 40 percent of the amount of such
understatement.
``(b) Reduction of Penalty for Disclosed Transactions.--Subsection
(a) shall be applied by substituting `20 percent' for `40 percent' with
respect to the portion of any noneconomic substance transaction
understatement with respect to which the relevant facts affecting the
tax treatment of the item are adequately disclosed in the return or a
statement attached to the return.
``(c) Noneconomic Substance Transaction Understatement.--For
purposes of this section--
``(1) In general.--The term `noneconomic substance
transaction understatement' means any amount which would be an
understatement under section 6662A(b)(1) if section 6662A were
applied by taking into account items attributable to
noneconomic substance transactions rather than items to which
section 6662A would apply without regard to this paragraph.
``(2) Noneconomic substance transaction.--The term
`noneconomic substance transaction' means any transaction if--
``(A) there is a lack of economic substance (within
the meaning of section 7701(n)(1)) for the transaction
giving rise to the claimed benefit or the transaction
was not respected under section 7701(n)(2), or
``(B) the transaction fails to meet the
requirements of any similar rule of law.
``(d) Rules Applicable To Compromise of Penalty.--
``(1) In general.--If the 1st letter of proposed deficiency
which allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of Appeals has
been sent with respect to a penalty to which this section
applies, only the Commissioner of Internal Revenue may
compromise all or any portion of such penalty.
``(2) Applicable rules.--The rules of paragraphs (2), (3),
(4), and (5) of section 6707A(d) shall apply for purposes of
paragraph (1).
``(e) Coordination With Other Penalties.--Except as otherwise
provided in this part, the penalty imposed by this section shall be in
addition to any other penalty imposed by this title.
``(f) Cross References.--
``(1) For coordination of penalty with
understatements under section 6662 and other special rules, see section
6662A(e).
``(2) For reporting of penalty imposed
under this section to the Securities and Exchange Commission, see
section 6707A(e).''.
(b) Clerical Amendment.--The table of sections for part II of
subchapter A of chapter 68 is amended by inserting after the item
relating to section 6662A the following new item:
``Sec. 6662B. Penalty for understatements
attributable to transactions
lacking economic substance,
etc.''.
(c) Effective Date.--The amendments made by this section shall
apply to transactions entered into on or after May 8, 2003.
SEC. 305. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR
NONREPORTABLE TRANSACTIONS.
(a) Substantial Understatement of Corporations.--Section
6662(d)(1)(B) (relating to special rule for corporations) is amended to
read as follows:
``(B) Special rule for corporations.--In the case
of a corporation other than an S corporation or a
personal holding company (as defined in section 542),
there is a substantial understatement of income tax for
any taxable year if the amount of the understatement
for the taxable year exceeds the lesser of--
``(i) 10 percent of the tax required to be
shown on the return for the taxable year (or,
if greater, $10,000), or
``(ii) $10,000,000.''.
(b) Reduction for Understatement of Taxpayer Due to Position of
Taxpayer or Disclosed Item.--
(1) In general.--Section 6662(d)(2)(B)(i) (relating to
substantial authority) is amended to read as follows:
``(i) the tax treatment of any item by the
taxpayer if the taxpayer had reasonable belief
that the tax treatment was more likely than not
the proper treatment, or''.
(2) Conforming amendment.--Section 6662(d) is amended by
adding at the end the following new paragraph:
``(3) Secretarial list.--For purposes of this subsection,
section 6664(d)(2), and section 6694(a)(1), the Secretary may
prescribe a list of positions for which the Secretary believes
there is not substantial authority or there is no reasonable
belief that the tax treatment is more likely than not the
proper tax treatment. Such list (and any revisions thereof)
shall be published in the Federal Register or the Internal
Revenue Bulletin.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 306. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING
TO TAXPAYER COMMUNICATIONS.
(a) In General.--Section 7525(b) (relating to section not to apply
to communications regarding corporate tax shelters) is amended to read
as follows:
``(b) Section Not To Apply to Communications Regarding Tax
Shelters.--The privilege under subsection (a) shall not apply to any
written communication which is--
``(1) between a federally authorized tax practitioner and--
``(A) any person,
``(B) any director, officer, employee, agent, or
representative of the person, or
``(C) any other person holding a capital or profits
interest in the person, and
``(2) in connection with the promotion of the direct or
indirect participation of the person in any tax shelter (as
defined in section 1274(b)(3)(C)).''.
(b) Effective Date.--The amendment made by this section shall apply
to communications made on or after the date of the enactment of this
Act.
SEC. 307. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) In General.--Section 6111 (relating to registration of tax
shelters) is amended to read as follows:
``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
``(a) In General.--Each material advisor with respect to any
reportable transaction shall make a return (in such form as the
Secretary may prescribe) setting forth--
``(1) information identifying and describing the
transaction,
``(2) information describing any potential tax benefits
expected to result from the transaction, and
``(3) such other information as the Secretary may
prescribe.
Such return shall be filed not later than the date specified by the
Secretary.
``(b) Definitions.--For purposes of this section--
``(1) Material advisor.--
``(A) In general.--The term `material advisor'
means any person--
``(i) who provides any material aid,
assistance, or advice with respect to
organizing, promoting, selling, implementing,
or carrying out any reportable transaction, and
``(ii) who directly or indirectly derives
gross income in excess of the threshold amount
for such aid, assistance, or advice.
``(B) Threshold amount.--For purposes of
subparagraph (A), the threshold amount is--
``(i) $50,000 in the case of a reportable
transaction substantially all of the tax
benefits from which are provided to natural
persons, and
``(ii) $250,000 in any other case.
``(2) Reportable transaction.--The term `reportable
transaction' has the meaning given to such term by section
6707A(c).
``(c) Regulations.--The Secretary may prescribe regulations which
provide--
``(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2 or more
persons would otherwise be required to meet such requirements,
``(2) exemptions from the requirements of this section, and
``(3) such rules as may be necessary or appropriate to
carry out the purposes of this section.''.
(b) Conforming Amendments.--
(1) The item relating to section 6111 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6111. Disclosure of reportable
transactions.''.
(2)(A) So much of section 6112 as precedes subsection (c)
thereof is amended to read as follows:
``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP
LISTS OF ADVISEES.
``(a) In General.--Each material advisor (as defined in section
6111) with respect to any reportable transaction (as defined in section
6707A(c)) shall maintain, in such manner as the Secretary may by
regulations prescribe, a list--
``(1) identifying each person with respect to whom such
advisor acted as such a material advisor with respect to such
transaction, and
``(2) containing such other information as the Secretary
may by regulations require.
This section shall apply without regard to whether a material advisor
is required to file a return under section 6111 with respect to such
transaction.''.
(B) Section 6112 is amended by redesignating subsection (c)
as subsection (b).
(C) Section 6112(b), as redesignated by subparagraph (B),
is amended--
(i) by inserting ``written'' before ``request'' in
paragraph (1)(A), and
(ii) by striking ``shall prescribe'' in paragraph
(2) and inserting ``may prescribe''.
(D) The item relating to section 6112 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6112. Material advisors of
reportable transactions must
keep lists of advisees.''.
(3)(A) The heading for section 6708 is amended to read as
follows:
``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO
REPORTABLE TRANSACTIONS.''.
(B) The item relating to section 6708 in the table of
sections for part I of subchapter B of chapter 68 is amended to
read as follows:
``Sec. 6708. Failure to maintain lists of
advisees with respect to
reportable transactions.''.
(c) Effective Date.--The amendments made by this section shall
apply to transactions with respect to which material aid, assistance,
or advice referred to in section 6111(b)(1)(A)(i) of the Internal
Revenue Code of 1986 (as added by this section) is provided after the
date of the enactment of this Act.
SEC. 308. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX
SHELTERS.
(a) In General.--Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as follows:
``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE
TRANSACTIONS.
``(a) In General.--If a person who is required to file a return
under section 6111(a) with respect to any reportable transaction--
``(1) fails to file such return on or before the date
prescribed therefor, or
``(2) files false or incomplete information with the
Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the
amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
penalty imposed under subsection (a) with respect to any
failure shall be $50,000.
``(2) Listed transactions.--The penalty imposed under
subsection (a) with respect to any listed transaction shall be
an amount equal to the greater of--
``(A) $200,000, or
``(B) 50 percent of the gross income derived by
such person with respect to aid, assistance, or advice
which is provided with respect to the listed
transaction before the date the return including the
transaction is filed under section 6111.
Subparagraph (B) shall be applied by substituting `75 percent'
for `50 percent' in the case of an intentional failure or act
described in subsection (a).
``(c) Rescission Authority.--The provisions of section 6707A(d)
(relating to authority of Commissioner to rescind penalty) shall apply
to any penalty imposed under this section.
``(d) Reportable and Listed Transactions.--The terms `reportable
transaction' and `listed transaction' have the respective meanings
given to such terms by section 6707A(c).''.
(b) Clerical Amendment.--The item relating to section 6707 in the
table of sections for part I of subchapter B of chapter 68 is amended
by striking ``tax shelters'' and inserting ``reportable transactions''.
(c) Effective Date.--The amendments made by this section shall
apply to returns the due date for which is after the date of the
enactment of this Act.
SEC. 309. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF
INVESTORS.
(a) In General.--Subsection (a) of section 6708 is amended to read
as follows:
``(a) Imposition of Penalty.--
``(1) In general.--If any person who is required to
maintain a list under section 6112(a) fails to make such list
available upon written request to the Secretary in accordance
with section 6112(b)(1)(A) within 20 business days after the
date of the Secretary's request, such person shall pay a
penalty of $10,000 for each day of such failure after such 20th
day.
``(2) Reasonable cause exception.--No penalty shall be
imposed by paragraph (1) with respect to the failure on any day
if such failure is due to reasonable cause.''.
(b) Effective Date.--The amendment made by this section shall apply
to requests made after the date of the enactment of this Act.
SEC. 310. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.
(a) In General.--Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by redesignating
subsection (c) as subsection (d) and by striking subsections (a) and
(b) and inserting the following new subsections:
``(a) Authority To Seek Injunction.--A civil action in the name of
the United States to enjoin any person from further engaging in
specified conduct may be commenced at the request of the Secretary. Any
action under this section shall be brought in the district court of the
United States for the district in which such person resides, has his
principal place of business, or has engaged in specified conduct. The
court may exercise its jurisdiction over such action (as provided in
section 7402(a)) separate and apart from any other action brought by
the United States against such person.
``(b) Adjudication and Decree.--In any action under subsection (a),
if the court finds--
``(1) that the person has engaged in any specified conduct,
and
``(2) that injunctive relief is appropriate to prevent
recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in
any other activity subject to penalty under this title.
``(c) Specified Conduct.--For purposes of this section, the term
`specified conduct' means any action, or failure to take action,
subject to penalty under section 6700, 6701, 6707, or 6708.''.
(b) Conforming Amendments.--
(1) The heading for section 7408 is amended to read as
follows:
``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX
SHELTERS AND REPORTABLE TRANSACTIONS.''.
(2) The table of sections for subchapter A of chapter 67 is
amended by striking the item relating to section 7408 and
inserting the following new item:
``Sec. 7408. Actions to enjoin specified conduct related to tax
shelters and reportable transactions.''.
(c) Effective Date.--The amendment made by this section shall take
effect on the day after the date of the enactment of this Act.
SEC. 311. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN
PREPARER.
(a) Standards Conformed to Taxpayer Standards.--Section 6694(a)
(relating to understatements due to unrealistic positions) is amended--
(1) by striking ``realistic possibility of being sustained
on its merits'' in paragraph (1) and inserting ``reasonable
belief that the tax treatment in such position was more likely
than not the proper treatment'',
(2) by striking ``or was frivolous'' in paragraph (3) and
inserting ``or there was no reasonable basis for the tax
treatment of such position'', and
(3) by striking ``Unrealistic'' in the heading and
inserting ``Improper''.
(b) Amount of Penalty.--Section 6694 is amended--
(1) by striking ``$250'' in subsection (a) and inserting
``$1,000'', and
(2) by striking ``$1,000'' in subsection (b) and inserting
``$5,000''.
(c) Effective Date.--The amendments made by this section shall
apply to documents prepared after the date of the enactment of this
Act.
SEC. 312. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL
ACCOUNTS.
(a) In General.--Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
``(5) Foreign financial agency transaction violation.--
``(A) Penalty authorized.--The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
``(B) Amount of penalty.--
``(i) In general.--Except as provided in
subparagraph (C), the amount of any civil
penalty imposed under subparagraph (A) shall
not exceed $5,000.
``(ii) Reasonable cause exception.--No
penalty shall be imposed under subparagraph (A)
with respect to any violation if--
``(I) such violation was due to
reasonable cause, and
``(II) the amount of the
transaction or the balance in the
account at the time of the transaction
was properly reported.
``(C) Willful violations.--In the case of any
person willfully violating, or willfully causing any
violation of, any provision of section 5314--
``(i) the maximum penalty under
subparagraph (B)(i) shall be increased to the
greater of--
``(I) $25,000, or
``(II) the amount (not exceeding
$100,000) determined under subparagraph
(D), and
``(ii) subparagraph (B)(ii) shall not
apply.
``(D) Amount.--The amount determined under this
subparagraph is--
``(i) in the case of a violation involving
a transaction, the amount of the transaction,
or
``(ii) in the case of a violation involving
a failure to report the existence of an account
or any identifying information required to be
provided with respect to an account, the
balance in the account at the time of the
violation.''.
(b) Effective Date.--The amendment made by this section shall apply
to violations occurring after the date of the enactment of this Act.
SEC. 313. FRIVOLOUS TAX SUBMISSIONS.
(a) Civil Penalties.--Section 6702 is amended to read as follows:
``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.
``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay
a penalty of $5,000 if--
``(1) such person files what purports to be a return of a
tax imposed by this title but which--
``(A) does not contain information on which the
substantial correctness of the self-assessment may be
judged, or
``(B) contains information that on its face
indicates that the self-assessment is substantially
incorrect; and
``(2) the conduct referred to in paragraph (1)--
``(A) is based on a position which the Secretary
has identified as frivolous under subsection (c), or
``(B) reflects a desire to delay or impede the
administration of Federal tax laws.
``(b) Civil Penalty for Specified Frivolous Submissions.--
``(1) Imposition of penalty.--Except as provided in
paragraph (3), any person who submits a specified frivolous
submission shall pay a penalty of $5,000.
``(2) Specified frivolous submission.--For purposes of this
section--
``(A) Specified frivolous submission.--The term
`specified frivolous submission' means a specified
submission if any portion of such submission--
``(i) is based on a position which the
Secretary has identified as frivolous under
subsection (c), or
``(ii) reflects a desire to delay or impede
the administration of Federal tax laws.
``(B) Specified submission.--The term `specified
submission' means--
``(i) a request for a hearing under--
``(I) section 6320 (relating to
notice and opportunity for hearing upon
filing of notice of lien), or
``(II) section 6330 (relating to
notice and opportunity for hearing
before levy), and
``(ii) an application under--
``(I) section 6159 (relating to
agreements for payment of tax liability
in installments),
``(II) section 7122 (relating to
compromises), or
``(III) section 7811 (relating to
taxpayer assistance orders).
``(3) Opportunity to withdraw submission.--If the Secretary
provides a person with notice that a submission is a specified
frivolous submission and such person withdraws such submission
within 30 days after such notice, the penalty imposed under
paragraph (1) shall not apply with respect to such submission.
``(c) Listing of Frivolous Positions.--The Secretary shall
prescribe (and periodically revise) a list of positions which the
Secretary has identified as being frivolous for purposes of this
subsection. The Secretary shall not include in such list any position
that the Secretary determines meets the requirement of section
6662(d)(2)(B)(ii)(II).
``(d) Reduction of Penalty.--The Secretary may reduce the amount of
any penalty imposed under this section if the Secretary determines that
such reduction would promote compliance with and administration of the
Federal tax laws.
``(e) Penalties in Addition to Other Penalties.--The penalties
imposed by this section shall be in addition to any other penalty
provided by law.''.
(b) Treatment of Frivolous Requests for Hearings Before Levy.--
(1) Frivolous requests disregarded.--Section 6330 (relating
to notice and opportunity for hearing before levy) is amended
by adding at the end the following new subsection:
``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding any
other provision of this section, if the Secretary determines that any
portion of a request for a hearing under this section or section 6320
meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A),
then the Secretary may treat such portion as if it were never submitted
and such portion shall not be subject to any further administrative or
judicial review.''.
(2) Preclusion from raising frivolous issues at hearing.--
Section 6330(c)(4) is amended--
(A) by striking ``(A)'' and inserting ``(A)(i)'';
(B) by striking ``(B)'' and inserting ``(ii)'';
(C) by striking the period at the end of the first
sentence and inserting ``; or''; and
(D) by inserting after subparagraph (A)(ii) (as so
redesignated) the following:
``(B) the issue meets the requirement of clause (i)
or (ii) of section 6702(b)(2)(A).''.
(3) Statement of grounds.--Section 6330(b)(1) is amended by
striking ``under subsection (a)(3)(B)'' and inserting ``in
writing under subsection (a)(3)(B) and states the grounds for
the requested hearing''.
(c) Treatment of Frivolous Requests for Hearings Upon Filing of
Notice of Lien.--Section 6320 is amended--
(1) in subsection (b)(1), by striking ``under subsection
(a)(3)(B)'' and inserting ``in writing under subsection
(a)(3)(B) and states the grounds for the requested hearing'',
and
(2) in subsection (c), by striking ``and (e)'' and
inserting ``(e), and (g)''.
(d) Treatment of Frivolous Applications for Offers-in-Compromise
and Installment Agreements.--Section 7122 is amended by adding at the
end the following new subsection:
``(e) Frivolous Submissions, Etc.--Notwithstanding any other
provision of this section, if the Secretary determines that any portion
of an application for an offer-in-compromise or installment agreement
submitted under this section or section 6159 meets the requirement of
clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may
treat such portion as if it were never submitted and such portion shall
not be subject to any further administrative or judicial review.''.
(e) Clerical Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by striking the item relating to
section 6702 and inserting the following new item:
``Sec. 6702. Frivolous tax
submissions.''.
(f) Effective Date.--The amendments made by this section shall
apply to submissions made and issues raised after the date on which the
Secretary first prescribes a list under section 6702(c) of the Internal
Revenue Code of 1986, as amended by subsection (a).
SEC. 314. PENALTY ON PROMOTERS OF TAX SHELTERS.
(a) Penalty on Promoting Abusive Tax Shelters.--Section 6700(a) is
amended by adding at the end the following new sentence:
``Notwithstanding the first sentence, if an activity with respect to
which a penalty imposed under this subsection involves a statement
described in paragraph (2)(A), the amount of the penalty shall be equal
to 50 percent of the gross income derived (or to be derived) from such
activity by the person on which the penalty is imposed.''.
(b) Effective Date.--The amendment made by this section shall apply
to activities after the date of the enactment of this Act.
SEC. 315. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH LISTED
TRANSACTIONS NOT REPORTED.
(a) In General.--Section 6501(e)(1) (relating to substantial
omission of items for income taxes) is amended by adding at the end the
following new subparagraph:
``(C) Listed transactions.--If a taxpayer fails to
include on any return or statement for any taxable year
any information with respect to a listed transaction
(as defined in section 6707A(c)(2)) which is required
under section 6011 to be included with such return or
statement, the tax for such taxable year may be
assessed, or a proceeding in court for collection of
such tax may be begun without assessment, at any time
within 6 years after the time the return is filed. This
subparagraph shall not apply to any taxable year if the
time for assessment or beginning the proceeding in
court has expired before the time a transaction is
treated as a listed transaction under section 6011.''.
(b) Effective Date.--The amendment made by this section shall apply
to transactions in taxable years beginning after the date of the
enactment of this Act.
SEC. 316. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND NONECONOMIC
SUBSTANCE TRANSACTIONS.
(a) In General.--Section 163 (relating to deduction for interest)
is amended by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following new subsection:
``(m) Interest on Unpaid Taxes Attributable To Nondisclosed
Reportable Transactions and Noneconomic Substance Transactions.--No
deduction shall be allowed under this chapter for any interest paid or
accrued under section 6601 on any underpayment of tax which is
attributable to--
``(1) the portion of any reportable transaction
understatement (as defined in section 6662A(b)) with respect to
which the requirement of section 6664(d)(2)(A) is not met, or
``(2) any noneconomic substance transaction understatement
(as defined in section 6662B(c)).''.
(b) Effective Date.--The amendments made by this section shall
apply to transactions in taxable years beginning after the date of the
enactment of this Act.
Subtitle B--Enron-Related Tax Shelter Provisions
SEC. 321. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN LOSSES.
(a) In General.--Section 362 (relating to basis to corporations) is
amended by adding at the end the following new subsection:
``(e) Limitations on Built-In Losses.--
``(1) Limitation on importation of built-in losses.--
``(A) In general.--If in any transaction described
in subsection (a) or (b) there would (but for this
subsection) be an importation of a net built-in loss,
the basis of each property described in subparagraph
(B) which is acquired in such transaction shall
(notwithstanding subsections (a) and (b)) be its fair
market value immediately after such transaction.
``(B) Property described.--For purposes of
subparagraph (A), property is described in this
subparagraph if--
``(i) gain or loss with respect to such
property is not subject to tax under this
subtitle in the hands of the transferor
immediately before the transfer, and
``(ii) gain or loss with respect to such
property is subject to such tax in the hands of
the transferee immediately after such transfer.
In any case in which the transferor is a partnership,
the preceding sentence shall be applied by treating
each partner in such partnership as holding such
partner's proportionate share of the property of such
partnership.
``(C) Importation of net built-in loss.--For
purposes of subparagraph (A), there is an importation
of a net built-in loss in a transaction if the
transferee's aggregate adjusted bases of property
described in subparagraph (B) which is transferred in
such transaction would (but for this paragraph) exceed
the fair market value of such property immediately
after such transaction.''.
``(2) Limitation on transfer of built-in losses in section
351 transactions.--
``(A) In general.--If--
``(i) property is transferred by a
transferor in any transaction which is
described in subsection (a) and which is not
described in paragraph (1) of this subsection,
and
``(ii) the transferee's aggregate adjusted
bases of such property so transferred would
(but for this paragraph) exceed the fair market
value of such property immediately after such
transaction,
then, notwithstanding subsection (a), the transferee's
aggregate adjusted bases of the property so transferred
shall not exceed the fair market value of such property
immediately after such transaction.
``(B) Allocation of basis reduction.--The aggregate
reduction in basis by reason of subparagraph (A) shall
be allocated among the property so transferred in
proportion to their respective built-in losses
immediately before the transaction.
``(C) Exception for transfers within affiliated
group.--Subparagraph (A) shall not apply to any
transaction if the transferor owns stock in the
transferee meeting the requirements of section
1504(a)(2). In the case of property to which
subparagraph (A) does not apply by reason of the
preceding sentence, the transferor's basis in the stock
received for such property shall not exceed its fair
market value immediately after the transfer.''.
(b) Comparable Treatment Where Liquidation.--Paragraph (1) of
section 334(b) (relating to liquidation of subsidiary) is amended to
read as follows:
``(1) In general.--If property is received by a corporate
distributee in a distribution in a complete liquidation to
which section 332 applies (or in a transfer described in
section 337(b)(1)), the basis of such property in the hands of
such distributee shall be the same as it would be in the hands
of the transferor; except that the basis of such property in
the hands of such distributee shall be the fair market value of
the property at the time of the distribution--
``(A) in any case in which gain or loss is
recognized by the liquidating corporation with respect
to such property, or
``(B) in any case in which the liquidating
corporation is a foreign corporation, the corporate
distributee is a domestic corporation, and the
corporate distributee's aggregate adjusted bases of
property described in section 362(e)(1)(B) which is
distributed in such liquidation would (but for this
subparagraph) exceed the fair market value of such
property immediately after such liquidation.''.
(c) Effective Date.--The amendments made by this section shall
apply to transactions after February 13, 2003.
SEC. 322. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK HELD BY
PARTNERSHIP IN CORPORATE PARTNER.
(a) In General.--Section 755 is amended by adding at the end the
following new subsection:
``(c) No Allocation of Basis Decrease to Stock of Corporate
Partner.--In making an allocation under subsection (a) of any decrease
in the adjusted basis of partnership property under section 734(b)--
``(1) no allocation may be made to stock in a corporation
(or any person which is related (within the meaning of section
267(b) or 707(b)(1)) to such corporation) which is a partner in
the partnership, and
``(2) any amount not allocable to stock by reason of
paragraph (1) shall be allocated under subsection (a) to other
partnership property.
Gain shall be recognized to the partnership to the extent that the
amount required to be allocated under paragraph (2) to other
partnership property exceeds the aggregate adjusted basis of such other
property immediately before the allocation required by paragraph
(2).''.
(b) Effective Date.--The amendment made by this section shall apply
to distributions after February 13, 2003.
SEC. 323. REPEAL OF SPECIAL RULES FOR FASITS.
(a) In General.--Part V of subchapter M of chapter 1 (relating to
financial asset securitization investment trusts) is hereby repealed.
(b) Conforming Amendments.--
(1) Paragraph (6) of section 56(g) is amended by striking
``REMIC, or FASIT'' and inserting ``or REMIC''.
(2) Clause (ii) of section 382(l)(4)(B) is amended by
striking ``a REMIC to which part IV of subchapter M applies, or
a FASIT to which part V of subchapter M applies,'' and
inserting ``or a REMIC to which part IV of subchapter M
applies,''.
(3) Paragraph (1) of section 582(c) is amended by striking
``, and any regular interest in a FASIT,''.
(4) Subparagraph (E) of section 856(c)(5) is amended by
striking the last sentence.
(5) Paragraph (5) of section 860G(a) is amended by adding
``and'' at the end of subparagraph (B), by striking ``, and''
at the end of subparagraph (C) and inserting a period, and by
striking subparagraph (D).
(6) Subparagraph (C) of section 1202(e)(4) is amended by
striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
(7) Subparagraph (C) of section 7701(a)(19) is amended by
adding ``and'' at the end of clause (ix), by striking ``, and''
at the end of clause (x) and inserting a period, and by
striking clause (xi).
(8) The table of parts for subchapter M of chapter 1 is
amended by striking the item relating to part V.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall take effect on February
14, 2003.
(2) Exception for existing fasits.--The amendments made by
this section shall not apply to any FASIT in existence on the
date of the enactment of this Act to the extent that regular
interests issued by the FASIT before such date continue to
remain outstanding in accordance with the original terms of
issuance of such interests.
SEC. 324. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON
CONVERTIBLE DEBT.
(a) In General.--Paragraph (2) of section 163(l) is amended by
striking ``or a related party'' and inserting ``or equity held by the
issuer (or any related party) in any other person''.
(b) Exception for Certain Instruments Issued By Dealers In
Securities.--Section 163(l) is amended by redesignating paragraphs (4)
and (5) as paragraphs (5) and (6) and by inserting after paragraph (3)
the following new paragraph:
``(4) Exception for certain instruments issued by dealers
in securities.--For purposes of this subsection, the term
`disqualified debt instrument' does not include indebtedness
issued by a dealer in securities (or a related party) which is
payable in, or by reference to, equity (other than equity of
the issuer or a related party) held by such dealer in its
capacity as a dealer in securities. For purposes of this
paragraph, the term `dealer in securities' has the meaning
given such term by section 475.''.
(c) Conforming Amendment.--Paragraph (3) of section 163(l) is
amended by striking ``or a related party'' in the material preceding
subparagraph (A) and inserting ``or any other person''.
(d) Effective Date.--The amendments made by this section shall
apply to debt instruments issued after February 13, 2003.
SEC. 325. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER SECTION
269.
(a) In General.--Subsection (a) of section 269 (relating to
acquisitions made to evade or avoid income tax) is amended to read as
follows:
``(a) In General.--If--
``(1)(A) any person acquires stock in a corporation, or
``(B) any corporation acquires, directly or indirectly,
property of another corporation and the basis of such property,
in the hands of the acquiring corporation, is determined by
reference to the basis in the hands of the transferor
corporation, and
``(2) the principal purpose for which such acquisition was
made is evasion or avoidance of Federal income tax by securing
the benefit of a deduction, credit, or other allowance,
then the Secretary may disallow such deduction, credit, or other
allowance.''.
(b) Effective Date.--The amendment made by this section shall apply
to stock and property acquired after February 13, 2003.
SEC. 326. MODIFICATIONS OF CERTAIN RULES RELATING TO CONTROLLED FOREIGN
CORPORATIONS.
(a) Limitation on Exception From PFIC Rules for United States
Shareholders of Controlled Foreign Corporations.--Paragraph (2) of
section 1297(e) (relating to passive investment company) is amended by
adding at the end the following flush sentence:
``Such term shall not include any period if there is only a
remote likelihood of an inclusion in gross income under section
951(a)(1)(A)(i) of subpart F income of such corporation for
such period.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years on controlled foreign corporation beginning after
February 13, 2003, and to taxable years of United States shareholder in
which or with which such taxable years of controlled foreign
corporations end.
SEC. 327. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS.
(a) In General.--Subsection (a) of section 856 (relating to
definition of real estate investment trust) is amended by striking
``and'' at the end of paragraph (6), by redesignating paragraph (7) as
paragraph (8), and by inserting after paragraph (6) the following new
paragraph:
``(7) which is not a controlled entity (as defined in
subsection (l)); and''.
(b) Controlled Entity.--Section 856 is amended by adding at the end
the following new subsection:
``(l) Controlled Entity.--
``(1) In general.--For purposes of subsection (a)(7), an
entity is a controlled entity if, at any time during the
taxable year, one person (other than a qualified entity)--
``(A) in the case of a corporation, owns stock--
``(i) possessing at least 50 percent of the
total voting power of the stock of such
corporation, or
``(ii) having a value equal to at least 50
percent of the total value of the stock of such
corporation, or
``(B) in the case of a trust, owns beneficial
interests in the trust which would meet the
requirements of subparagraph (A) if such interests were
stock.
``(2) Qualified entity.--For purposes of paragraph (1), the
term `qualified entity' means--
``(A) any real estate investment trust, and
``(B) any partnership in which one real estate
investment trust owns at least 50 percent of the
capital and profits interests in the partnership.
``(3) Attribution rules.--For purposes of this paragraphs
(1) and (2)--
``(A) In general.--Rules similar to the rules of
subsections (d)(5) and (h)(3) shall apply; except that
section 318(a)(3)(C) shall not be applied under such
rules to treat stock owned by a qualified entity as
being owned by a person which is not a qualified
entity.
``(B) Stapled entities.--A group of entities which
are stapled entities (as defined in section 269B(c)(2))
shall be treated as one person.
``(4) Exception for certain new reits.--
``(A) In general.--The term `controlled entity'
shall not include an incubator REIT.
``(B) Incubator reit.--A corporation shall be
treated as an incubator REIT for any taxable year
during the eligibility period if it meets all the
following requirements for such year:
``(i) The corporation elects to be treated
as an incubator REIT.
``(ii) The corporation has only voting
common stock outstanding.
``(iii) Not more than 50 percent of the
corporation's real estate assets consist of
mortgages.
``(iv) From not later than the beginning of
the last half of the second taxable year, at
least 10 percent of the corporation's capital
is provided by lenders or equity investors who
are unrelated to the corporation's largest
shareholder.
``(v) The corporation annually increases
the value of its real estate assets by at least
10 percent.
``(vi) The directors of the corporation
adopt a resolution setting forth an intent to
engage in a going public transaction.
No election may be made with respect to any REIT if an
election under this subsection was in effect for any
predecessor of such REIT.
``(C) Eligibility period.--
``(i) In general.--The eligibility period
(for which an incubator REIT election can be
made) begins with the REIT's second taxable
year and ends at the close of the REIT's third
taxable year, except that the REIT may, subject
to clauses (ii), (iii), and (iv), elect to
extend such period for an additional 2 taxable
years.
``(ii) Going public transaction.--A REIT
may not elect to extend the eligibility period
under clause (i) unless it enters into an
agreement with the Secretary that if it does
not engage in a going public transaction by the
end of the extended eligibility period, it
shall pay Federal income taxes for the 2 years
of the extended eligibility period as if it had
not made an incubator REIT election and had
ceased to qualify as a REIT for those 2 taxable
years.
``(iii) Returns, interest, and notice.--
``(I) Returns.--In the event the
corporation ceases to be treated as a
REIT by operation of clause (ii), the
corporation shall file any appropriate
amended returns reflecting the change
in status within 3 months of the close
of the extended eligibility period.
``(II) Interest.--Interest shall be
payable on any tax imposed by reason of
clause (ii) for any taxable year but,
unless there was a finding under
subparagraph (D), no substantial
underpayment penalties shall be
imposed.
``(III) Notice.--The corporation
shall, at the same time it files its
returns under subclause (I), notify its
shareholders and any other persons
whose tax position is, or may
reasonably be expected to be, affected
by the change in status so they also
may file any appropriate amended
returns to conform their tax treatment
consistent with the corporation's loss
of REIT status.
``(IV) Regulations.--The Secretary
shall provide appropriate regulations
setting forth transferee liability and
other provisions to ensure collection
of tax and the proper administration of
this provision.
``(iv) Clauses (ii) and (iii) shall not
apply if the corporation allows its incubator
REIT status to lapse at the end of the initial
2-year eligibility period without engaging in a
going public transaction if the corporation is
not a controlled entity as of the beginning of
its fourth taxable year. In such a case, the
corporation's directors may still be liable for
the penalties described in subparagraph (D)
during the eligibility period.
``(D) Special penalties.--If the Secretary
determines that an incubator REIT election was filed
for a principal purpose other than as part of a
reasonable plan to undertake a going public
transaction, an excise tax of $20,000 shall be imposed
on each of the corporation's directors for each taxable
year for which an election was in effect.
``(E) Going public transaction.--For purposes of
this paragraph, a going public transaction means--
``(i) a public offering of shares of the
stock of the incubator REIT;
``(ii) a transaction, or series of
transactions, that results in the stock of the
incubator REIT being regularly traded on an
established securities market and that results
in at least 50 percent of such stock being held
by shareholders who are unrelated to persons
who held such stock before it began to be so
regularly traded; or
``(iii) any transaction resulting in
ownership of the REIT by 200 or more persons
(excluding the largest single shareholder) who
in the aggregate own at least 50 percent of the
stock of the REIT.
For the purposes of this subparagraph, the rules of
paragraph (3) shall apply in determining the ownership
of stock.
``(F) Definitions.--The term `established
securities market' shall have the meaning set forth in
the regulations under section 897.''.
(c) Conforming Amendment.--Paragraph (2) of section 856(h) is
amended by striking ``and (6)'' each place it appears and inserting ``,
(6), and (7)''.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after May 8, 2003.
(2) Exception for existing controlled entities.--The
amendments made by this section shall not apply to any entity
which is a controlled entity (as defined in section 856(l) of
the Internal Revenue Code of 1986, as added by this section) as
of May 8, 2003, which is a real estate investment trust for the
taxable year which includes such date, and which has
significant business assets or activities as of such date. For
purposes of the preceding sentence, an entity shall be treated
as such a controlled entity on May 8, 2003, if it becomes such
an entity after such date in a transaction--
(A) made pursuant to a written agreement which was
binding on such date and at all times thereafter, or
(B) described on or before such date in a filing
with the Securities and Exchange Commission required
solely by reason of the transaction.
Subtitle C--Other Corporate Governance Provisions
PART I--GENERAL PROVISIONS
SEC. 331. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.
(a) In General.--Section 1502 (relating to consolidated return
regulations) is amended by adding at the end the following new
sentence: ``In prescribing such regulations, the Secretary may
prescribe rules applicable to corporations filing consolidated returns
under section 1501 that are different from other provisions of this
title that would apply if such corporations filed separate returns.''.
(b) Result Not Overturned.--Notwithstanding subsection (a), the
Internal Revenue Code of 1986 shall be construed by treating Treasury
regulation Sec. 1.1502-20(c)(1)(iii) (as in effect on January 1, 2001)
as being inapplicable to the type of factual situation in 255 F.3d 1357
(Fed. Cir. 2001).
(c) Effective Date.--The provisions of this section shall apply to
taxable years beginning before, on, or after the date of the enactment
of this Act.
SEC. 332. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE OFFICER.
(a) In General.--Section 6062 (relating to signing of corporation
returns) is amended by striking the first sentence and inserting the
following new sentence: ``The return of a corporation with respect to
income shall be signed by the chief executive officer of such
corporation (or other such officer of the corporation as the Secretary
may designate if the corporation does not have a chief executive
officer). The preceding sentence shall not apply to any return of a
regulated investment company (within the meaning of section 851).''.
(b) Effective Date.--The amendment made by this section shall apply
to returns filed after the date of the enactment of this Act.
SEC. 333. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER
AMOUNTS.
(a) In General.--Subsection (f) of section 162 (relating to trade
or business expenses) is amended to read as follows:
``(f) Fines, Penalties, and Other Amounts.--
``(1) In general.--Except as provided in paragraph (2), no
deduction otherwise allowable shall be allowed under this
chapter for any amount paid or incurred (whether by suit,
agreement, or otherwise) to, or at the direction of, a
government or entity described in paragraph (3) in relation to
the violation of any law or the investigation or inquiry into
the potential violation of any law.
``(2) Exception for amounts constituting restitution.--
Paragraph (1) shall not apply to any amount which the taxpayer
establishes constitutes restitution for damage or harm caused
by the violation of any law or the potential violation of any
law. This paragraph shall not apply to any amount paid or
incurred as reimbursement to the government or entity for the
costs of any investigation or litigation.
``(3) Certain nongovernmental regulatory entities.--An
entity is described in this paragraph if it is--
``(A) a nongovernmental entity which exercises
self-regulatory powers (including imposing sanctions)
in connection with a qualified board or exchange (as
defined in section 1256(g)(7)), or
``(B) to the extent provided in regulations, a
nongovernmental entity which exercises self-regulatory
powers (including imposing sanctions) as part of
performing an essential governmental function.''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid or incurred after April 27, 2003, except that such
amendment shall not apply to amounts paid or incurred under any binding
order or agreement entered into on or before April 27, 2003. Such
exception shall not apply to an order or agreement requiring court
approval unless the approval was obtained on or before April 27, 2003.
SEC. 334. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.
(a) Disallowance of Deduction.--
(1) In general.--Section 162(g) (relating to treble damage
payments under the antitrust laws) is amended by adding at the
end the following new paragraph:
``(2) Punitive damages.--No deduction shall be allowed
under this chapter for any amount paid or incurred for punitive
damages in connection with any judgment in, or settlement of,
any action. This paragraph shall not apply to punitive damages
described in section 104(c).''.
(2) Conforming amendments.--
(A) Section 162(g) is amended--
(i) by striking ``If'' and inserting:
``(1) Treble damages.--If'', and
(ii) by redesignating paragraphs (1) and
(2) as subparagraphs (A) and (B), respectively.
(B) The heading for section 162(g) is amended by
inserting ``or Punitive Damages'' after ``Laws''.
(b) Inclusion in Income of Punitive Damages Paid by Insurer or
Otherwise.--
(1) In general.--Part II of subchapter B of chapter 1
(relating to items specifically included in gross income) is
amended by adding at the end the following new section:
``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.
``Gross income shall include any amount paid to or on behalf of a
taxpayer as insurance or otherwise by reason of the taxpayer's
liability (or agreement) to pay punitive damages.''.
(2) Reporting requirements.--Section 6041 (relating to
information at source) is amended by adding at the end the
following new subsection:
``(f) Section To Apply to Punitive Damages Compensation.--This
section shall apply to payments by a person to or on behalf of another
person as insurance or otherwise by reason of the other person's
liability (or agreement) to pay punitive damages.''.
(3) Conforming amendment.--The table of sections for part
II of subchapter B of chapter 1 is amended by adding at the end
the following new item:
``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
(c) Effective Date.--The amendments made by this section shall
apply to damages paid or incurred on or after the date of the enactment
of this Act.
SEC. 335. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION FOR THE
UNDERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.
(a) In General.--Section 7206 (relating to fraud and false
statements) is amended--
(1) by striking ``Any person who--'' and inserting ``(a) In
General.--Any person who--'', and
(2) by adding at the end the following new subsection:
``(b) Increase in Monetary Limitation for Underpayment or
Overpayment of Tax Due To Fraud.--If any portion of any underpayment
(as defined in section 6664(a)) or overpayment (as defined in section
6401(a)) of tax required to be shown on a return is attributable to
fraudulent action described in subsection (a), the applicable dollar
amount under subsection (a) shall in no event be less than an amount
equal to such portion. A rule similar to the rule under section 6663(b)
shall apply for purposes of determining the portion so attributable.''.
(b) Increase in Penalties.--
(1) Attempt to evade or defeat tax.--Section 7201 is
amended--
(A) by striking ``$100,000'' and inserting
``$250,000'',
(B) by striking ``$500,000'' and inserting
``$1,000,000'', and
(C) by striking ``5 years'' and inserting ``10
years''.
(2) Willful failure to file return, supply information, or
pay tax.--Section 7203 is amended--
(A) in the first sentence--
(i) by striking ``misdemeanor'' and
inserting ``felony'', and
(ii) by striking ``1 year'' and inserting
``10 years'', and
(B) by striking the third sentence.
(3) Fraud and false statements.--Section 7206(a) (as
redesignated by subsection (a)) is amended--
(A) by striking ``$100,000'' and inserting
``$250,000'',
(B) by striking ``$500,000'' and inserting
``$1,000,000'', and
(C) by striking ``3 years'' and inserting ``5
years''.
(c) Effective Date.--The amendments made by this section shall
apply to underpayments and overpayments attributable to actions
occurring after the date of the enactment of this Act.
PART II--EXECUTIVE COMPENSATION REFORM
SEC. 336. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION FUNDED WITH
ASSETS LOCATED OUTSIDE THE UNITED STATES.
(a) In General.--Section 83(c) (relating to special rules for
property transferred in connection with performance of services) is
amended by adding at the end the following new paragraph:
``(4) Foreign assets funding nonqualified deferred
compensation arrangements.--
``(A) In general.--In determining whether there is
a transfer of property for purposes of subsection (a),
if assets are--
``(i) designated or otherwise available for
the payment of nonqualified deferred
compensation, and
``(ii) located outside the United States,
such assets shall not be treated as subject to the
claims of creditors.
``(B) Compensation for services performed in
foreign jurisdiction.--Subparagraph (A) shall not apply
to assets located in a foreign jurisdiction if
substantially all of the services to which the
nonqualified deferred compensation relates are
performed in such jurisdiction.
``(C) Regulations.--The Secretary shall prescribe
such regulations as are necessary to carry out the
provisions of this paragraph, including regulations to
exempt arrangements from the application of this
paragraph if--
``(i) the arrangement will not result in an
improper deferral of United States tax, and
``(ii) the assets involved in the
arrangement will be readily accessible in any
insolvency or bankruptcy proceeding.''.
(b) Effective Date.--The amendments made by this section shall
apply to amounts deferred in taxable years beginning after December 31,
2003.
SEC. 337. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED COMPENSATION OF
CORPORATE INSIDERS.
(a) In General.--Subpart A of part I of subchapter D of chapter 1
is amended by adding at the end the following new section:
``SEC. 409A. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED COMPENSATION
OF CORPORATE INSIDERS.
``(a) In General.--If an employer maintains a funded deferred
compensation plan--
``(1) compensation of any disqualified individual which is
deferred under such funded deferred compensation plan shall be
included in the gross income of the disqualified individual or
beneficiary for the 1st taxable year in which there is no
substantial risk of forfeiture of the rights to such
compensation, and
``(2) the tax treatment of any amount made available under
the plan to a disqualified individual or beneficiary shall be
determined under section 72 (relating to annuities, etc.).
``(b) Funded Deferred Compensation Plan.--For purposes of this
section--
``(1) In general.--The term `funded deferred compensation
plan' means any plan providing for the deferral of compensation
unless--
``(A) the employee's rights to the compensation
deferred under the plan are no greater than the rights
of a general creditor of the employer, and
``(B) all amounts set aside (directly or
indirectly) for purposes of paying the deferred
compensation, and all income attributable to such
amounts, remain (until made available to the
participant or other beneficiary) solely the property
of the employer (without being restricted to the
provision of benefits under the plan),
``(C) the amounts referred to in subparagraph (B)
are available to satisfy the claims of the employer's
general creditors at all times (not merely after
bankruptcy or insolvency), and
``(D) the investment options which a participant
may elect under the plan are the same as the investment
options which a participant may elect under the
qualified employer plan of the employer which has the
fewest investment options.
Such term shall not include a qualified employer plan.
``(2) Special rules.--
``(A) Employee's rights.--A plan shall be treated
as failing to meet the requirements of paragraph (1)(A)
unless--
``(i) the compensation deferred under the
plan is payable only upon separation from
service, death, disability (within the meaning
of section 1614(a)(3) of the Social Security
Act (42 U.S.C. 1382c(a)(3))), or at a specified
time (or pursuant to a fixed schedule), and
``(ii) the plan does not permit the
acceleration of the time such deferred
compensation is payable by reason of any event.
If the employer and employee agree to a modification of
the plan that accelerates the time for payment of any
deferred compensation, then all compensation previously
deferred under the plan shall be includible in gross
income for the taxable year during which such
modification takes effect and the taxpayer shall pay
interest at the underpayment rate on the underpayments
that would have occurred had the deferred compensation
been includible in gross income on the earliest date
that there is no substantial risk of forfeiture of the
rights to such compensation.
``(B) Creditor's rights.--A plan shall be treated
as failing to meet the requirements of paragraph (1)(B)
with respect to amounts set aside in a trust unless--
``(i) the employee has no beneficial
interest in the trust,
``(ii) assets in the trust are available to
satisfy claims of general creditors at all
times (not merely after bankruptcy or
insolvency), and
``(iii) there is no factor that would make
it more difficult for general creditors to
reach the assets in the trust than it would be
if the trust assets were held directly by the
employer in the United States.
Except as provided in regulations prescribed by the
Secretary, such a factor shall include the location of
the trust outside the United States unless
substantially all of the services to which the
nonqualified deferred compensation relates are
performed outside the United States. Such regulations
may exempt any such trust if the trust will not result
in an improper deferral of United States tax, and the
assets involved in the trust will be readily accessible
in any insolvency or bankruptcy proceeding.
``(c) Disqualified Individual.--For purposes of this section, the
term `disqualified individual' means, with respect to a corporation,
any individual--
``(1) who is subject to the requirements of section 16(a)
of the Securities Exchange Act of 1934 with respect to such
corporation, or
``(2) who would be subject to such requirements if such
corporation were an issuer of equity securities referred to in
such section.
``(d) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Qualified employer plan.--The term `qualified
employer plan' means--
``(A) any plan, contract, pension, account, or
trust described in subparagraph (A) or (B) of section
219(g)(5), and
``(B) any other plan of an organization exempt from
tax under subtitle A.
``(2) Plan includes arrangements, etc.--The term `plan'
includes any agreement or arrangement.
``(3) Substantial risk of forfeiture.--The rights of a
person to compensation are subject to a substantial risk of
forfeiture if such person's rights to such compensation are
conditioned upon the future performance of substantial services
by any individual.
``(4) Treatment of earnings.--References to deferred
compensation shall be treated as including references to income
attributable to such compensation or such income.''.
(b) Clerical Amendment.--The table of sections for such subpart A
is amended by adding at the end the following new item:
``Sec. 409A. Inclusion in gross income of
funded deferred compensation of
corporate insiders.''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts deferred in taxable years beginning after December 31,
2003.
SEC. 338. PROHIBITION ON DEFERRAL OF GAIN FROM THE EXERCISE OF STOCK
OPTIONS AND RESTRICTED STOCK GAINS THROUGH DEFERRED
COMPENSATION ARRANGEMENTS.
(a) In General.--Section 83 (relating to property transferred in
connection with performance of services) is amending by adding at the
end the following new subsection:
``(i) Prohibition on Additional Deferral Through Deferred
Compensation Arrangements.--If a taxpayer elects to exchange an option
to purchase employer securities--
``(1) to which subsection (a) applies, or
``(2) which is described in subsection (e)(3),
or any other compensation based on employer securities, for a right to
receive future payments, then, notwithstanding any other provision of
this title, there shall be included in gross income for the taxable
year of the exchange an amount equal to the present value of such right
(or such other amount as the Secretary may by regulations specify). For
purposes of this subsection, the term `employer securities' has the
meaning given such term by section 409(l).''.
(b) Effective Date.--The amendment made by this section shall apply
to any exchange after December 31, 2003.
SEC. 339. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE PAYMENTS IN
EXCESS OF $1,000,000.
(a) In General.--If an employer elects under Treasury Regulation
31.3402(g)-1 to determine the amount to be deducted and withheld from
any supplemental wage payment by using a flat percentage rate, the rate
to be used in determining the amount to be so deducted and withheld
shall not be less than 28 percent (or the corresponding rate in effect
under section 1(i)(2) of the Internal Revenue Code of 1986 for taxable
years beginning in the calendar year in which the payment is made).
(b) Special Rule for Large Payments.--
(1) In general.--Notwithstanding subsection (a), if the
supplemental wage payment, when added to all such payments
previously made by the employer to the employee during the
calendar year, exceeds $1,000,000, the rate used with respect
to such excess shall be equal to the maximum rate of tax in
effect under section 1 of such Code for taxable years beginning
in such calendar year.
(2) Aggregation.--All persons treated as a single employer
under subsection (a) or (b) of section 52 of the Internal
Revenue Code of 1986 shall be treated as a single employer for
purposes of this subsection.
(c) Conforming Amendment.--Section 13273 of the Revenue
Reconciliation Act of 1993 (Public Law 103-66) is repealed.
(d) Effective Date.--The provisions of, and the amendment made by,
this section shall apply to payments made after December 31, 2003.
Subtitle D--International Provisions
PART I--PROVISIONS TO DISCOURAGE EXPATRIATION
SEC. 340. REVISION OF TAX RULES ON EXPATRIATION.
(a) In General.--Subpart A of part II of subchapter N of chapter 1
is amended by inserting after section 877 the following new section:
``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
``(a) General Rules.--For purposes of this subtitle--
``(1) Mark to market.--Except as provided in subsections
(d) and (f), all property of a covered expatriate to whom this
section applies shall be treated as sold on the day before the
expatriation date for its fair market value.
``(2) Recognition of gain or loss.--In the case of any sale
under paragraph (1)--
``(A) notwithstanding any other provision of this
title, any gain arising from such sale shall be taken
into account for the taxable year of the sale, and
``(B) any loss arising from such sale shall be
taken into account for the taxable year of the sale to
the extent otherwise provided by this title, except
that section 1091 shall not apply to any such loss.
Proper adjustment shall be made in the amount of any gain or
loss subsequently realized for gain or loss taken into account
under the preceding sentence.
``(3) Exclusion for certain gain.--
``(A) In general.--The amount which, but for this
paragraph, would be includible in the gross income of
any individual by reason of this section shall be
reduced (but not below zero) by $600,000. For purposes
of this paragraph, allocable expatriation gain taken
into account under subsection (f)(2) shall be treated
in the same manner as an amount required to be
includible in gross income.
``(B) Cost-of-living adjustment.--
``(i) In general.--In the case of an
expatriation date occurring in any calendar
year after 2003, the $600,000 amount under
subparagraph (A) shall be increased by an
amount equal to--
``(I) such dollar amount,
multiplied by
``(II) the cost-of-living
adjustment determined under section
1(f)(3) for such calendar year,
determined by substituting `calendar
year 2002' for `calendar year 1992' in
subparagraph (B) thereof.
``(ii) Rounding rules.--If any amount after
adjustment under clause (i) is not a multiple
of $1,000, such amount shall be rounded to the
next lower multiple of $1,000.
``(4) Election to continue to be taxed as united states
citizen.--
``(A) In general.--If a covered expatriate elects
the application of this paragraph--
``(i) this section (other than this
paragraph and subsection (i)) shall not apply
to the expatriate, but
``(ii) in the case of property to which
this section would apply but for such election,
the expatriate shall be subject to tax under
this title in the same manner as if the
individual were a United States citizen.
``(B) Requirements.--Subparagraph (A) shall not
apply to an individual unless the individual--
``(i) provides security for payment of tax
in such form and manner, and in such amount, as
the Secretary may require,
``(ii) consents to the waiver of any right
of the individual under any treaty of the
United States which would preclude assessment
or collection of any tax which may be imposed
by reason of this paragraph, and
``(iii) complies with such other
requirements as the Secretary may prescribe.
``(C) Election.--An election under subparagraph (A)
shall apply to all property to which this section would
apply but for the election and, once made, shall be
irrevocable. Such election shall also apply to property
the basis of which is determined in whole or in part by
reference to the property with respect to which the
election was made.
``(b) Election To Defer Tax.--
``(1) In general.--If the taxpayer elects the application
of this subsection with respect to any property treated as sold
by reason of subsection (a), the payment of the additional tax
attributable to such property shall be postponed until the due
date of the return for the taxable year in which such property
is disposed of (or, in the case of property disposed of in a
transaction in which gain is not recognized in whole or in
part, until such other date as the Secretary may prescribe).
``(2) Determination of tax with respect to property.--For
purposes of paragraph (1), the additional tax attributable to
any property is an amount which bears the same ratio to the
additional tax imposed by this chapter for the taxable year
solely by reason of subsection (a) as the gain taken into
account under subsection (a) with respect to such property
bears to the total gain taken into account under subsection (a)
with respect to all property to which subsection (a) applies.
``(3) Termination of postponement.--No tax may be postponed
under this subsection later than the due date for the return of
tax imposed by this chapter for the taxable year which includes
the date of death of the expatriate (or, if earlier, the time
that the security provided with respect to the property fails
to meet the requirements of paragraph (4), unless the taxpayer
corrects such failure within the time specified by the
Secretary).
``(4) Security.--
``(A) In general.--No election may be made under
paragraph (1) with respect to any property unless
adequate security is provided to the Secretary with
respect to such property.
``(B) Adequate security.--For purposes of
subparagraph (A), security with respect to any property
shall be treated as adequate security if--
``(i) it is a bond in an amount equal to
the deferred tax amount under paragraph (2) for
the property, or
``(ii) the taxpayer otherwise establishes
to the satisfaction of the Secretary that the
security is adequate.
``(5) Waiver of certain rights.--No election may be made
under paragraph (1) unless the taxpayer consents to the waiver
of any right under any treaty of the United States which would
preclude assessment or collection of any tax imposed by reason
of this section.
``(6) Elections.--An election under paragraph (1) shall
only apply to property described in the election and, once
made, is irrevocable. An election may be made under paragraph
(1) with respect to an interest in a trust with respect to
which gain is required to be recognized under subsection
(f)(1).
``(7) Interest.--For purposes of section 6601--
``(A) the last date for the payment of tax shall be
determined without regard to the election under this
subsection, and
``(B) section 6621(a)(2) shall be applied by
substituting `5 percentage points' for `3 percentage
points' in subparagraph (B) thereof.
``(c) Covered Expatriate.--For purposes of this section--
``(1) In general.--Except as provided in paragraph (2), the
term `covered expatriate' means an expatriate.
``(2) Exceptions.--An individual shall not be treated as a
covered expatriate if--
``(A) the individual--
``(i) became at birth a citizen of the
United States and a citizen of another country
and, as of the expatriation date, continues to
be a citizen of, and is taxed as a resident of,
such other country, and
``(ii) has not been a resident of the
United States (as defined in section
7701(b)(1)(A)(ii)) during the 5 taxable years
ending with the taxable year during which the
expatriation date occurs, or
``(B)(i) the individual's relinquishment of United
States citizenship occurs before such individual
attains age 18\1/2\, and
``(ii) the individual has been a resident of the
United States (as so defined) for not more than 5
taxable years before the date of relinquishment.
``(d) Exempt Property; Special Rules for Pension Plans.--
``(1) Exempt property.--This section shall not apply to the
following:
``(A) United states real property interests.--Any
United States real property interest (as defined in
section 897(c)(1)), other than stock of a United States
real property holding corporation which does not, on
the day before the expatriation date, meet the
requirements of section 897(c)(2).
``(B) Specified property.--Any property or interest
in property not described in subparagraph (A) which the
Secretary specifies in regulations.
``(2) Special rules for certain retirement plans.--
``(A) In general.--If a covered expatriate holds on
the day before the expatriation date any interest in a
retirement plan to which this paragraph applies--
``(i) such interest shall not be treated as
sold for purposes of subsection (a)(1), but
``(ii) an amount equal to the present value
of the expatriate's nonforfeitable accrued
benefit shall be treated as having been
received by such individual on such date as a
distribution under the plan.
``(B) Treatment of subsequent distributions.--In
the case of any distribution on or after the
expatriation date to or on behalf of the covered
expatriate from a plan from which the expatriate was
treated as receiving a distribution under subparagraph
(A), the amount otherwise includible in gross income by
reason of the subsequent distribution shall be reduced
by the excess of the amount includible in gross income
under subparagraph (A) over any portion of such amount
to which this subparagraph previously applied.
``(C) Treatment of subsequent distributions by
plan.--For purposes of this title, a retirement plan to
which this paragraph applies, and any person acting on
the plan's behalf, shall treat any subsequent
distribution described in subparagraph (B) in the same
manner as such distribution would be treated without
regard to this paragraph.
``(D) Applicable plans.--This paragraph shall apply
to--
``(i) any qualified retirement plan (as
defined in section 4974(c)),
``(ii) an eligible deferred compensation
plan (as defined in section 457(b)) of an
eligible employer described in section
457(e)(1)(A), and
``(iii) to the extent provided in
regulations, any foreign pension plan or
similar retirement arrangements or programs.
``(e) Definitions.--For purposes of this section--
``(1) Expatriate.--The term `expatriate' means--
``(A) any United States citizen who relinquishes
citizenship, and
``(B) any long-term resident of the United States
who--
``(i) ceases to be a lawful permanent
resident of the United States (within the
meaning of section 7701(b)(6)), or
``(ii) commences to be treated as a
resident of a foreign country under the
provisions of a tax treaty between the United
States and the foreign country and who does not
waive the benefits of such treaty applicable to
residents of the foreign country.
``(2) Expatriation date.--The term `expatriation date'
means--
``(A) the date an individual relinquishes United
States citizenship, or
``(B) in the case of a long-term resident of the
United States, the date of the event described in
clause (i) or (ii) of paragraph (1)(B).
``(3) Relinquishment of citizenship.--A citizen shall be
treated as relinquishing United States citizenship on the
earliest of--
``(A) the date the individual renounces such
individual's United States nationality before a
diplomatic or consular officer of the United States
pursuant to paragraph (5) of section 349(a) of the
Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
``(B) the date the individual furnishes to the
United States Department of State a signed statement of
voluntary relinquishment of United States nationality
confirming the performance of an act of expatriation
specified in paragraph (1), (2), (3), or (4) of section
349(a) of the Immigration and Nationality Act (8 U.S.C.
1481(a)(1)-(4)),
``(C) the date the United States Department of
State issues to the individual a certificate of loss of
nationality, or
``(D) the date a court of the United States cancels
a naturalized citizen's certificate of naturalization.
Subparagraph (A) or (B) shall not apply to any individual
unless the renunciation or voluntary relinquishment is
subsequently approved by the issuance to the individual of a
certificate of loss of nationality by the United States
Department of State.
``(4) Long-term resident.--The term `long-term resident'
has the meaning given to such term by section 877(e)(2).
``(f) Special Rules Applicable to Beneficiaries' Interests in
Trust.--
``(1) In general.--Except as provided in paragraph (2), if
an individual is determined under paragraph (3) to hold an
interest in a trust on the day before the expatriation date--
``(A) the individual shall not be treated as having
sold such interest,
``(B) such interest shall be treated as a separate
share in the trust, and
``(C)(i) such separate share shall be treated as a
separate trust consisting of the assets allocable to
such share,
``(ii) the separate trust shall be treated as
having sold its assets on the day before the
expatriation date for their fair market value and as
having distributed all of its assets to the individual
as of such time, and
``(iii) the individual shall be treated as having
recontributed the assets to the separate trust.
Subsection (a)(2) shall apply to any income, gain, or loss of
the individual arising from a distribution described in
subparagraph (C)(ii). In determining the amount of such
distribution, proper adjustments shall be made for liabilities
of the trust allocable to an individual's share in the trust.
``(2) Special rules for interests in qualified trusts.--
``(A) In general.--If the trust interest described
in paragraph (1) is an interest in a qualified trust--
``(i) paragraph (1) and subsection (a)
shall not apply, and
``(ii) in addition to any other tax imposed
by this title, there is hereby imposed on each
distribution with respect to such interest a
tax in the amount determined under subparagraph
(B).
``(B) Amount of tax.--The amount of tax under
subparagraph (A)(ii) shall be equal to the lesser of--
``(i) the highest rate of tax imposed by
section 1(e) for the taxable year which
includes the day before the expatriation date,
multiplied by the amount of the distribution,
or
``(ii) the balance in the deferred tax
account immediately before the distribution
determined without regard to any increases
under subparagraph (C)(ii) after the 30th day
preceding the distribution.
``(C) Deferred tax account.--For purposes of
subparagraph (B)(ii)--
``(i) Opening balance.--The opening balance
in a deferred tax account with respect to any
trust interest is an amount equal to the tax
which would have been imposed on the allocable
expatriation gain with respect to the trust
interest if such gain had been included in
gross income under subsection (a).
``(ii) Increase for interest.--The balance
in the deferred tax account shall be increased
by the amount of interest determined (on the
balance in the account at the time the interest
accrues), for periods after the 90th day after
the expatriation date, by using the rates and
method applicable under section 6621 for
underpayments of tax for such periods, except
that section 6621(a)(2) shall be applied by
substituting `5 percentage points' for `3
percentage points' in subparagraph (B) thereof.
``(iii) Decrease for taxes previously
paid.--The balance in the tax deferred account
shall be reduced--
``(I) by the amount of taxes
imposed by subparagraph (A) on any
distribution to the person holding the
trust interest, and
``(II) in the case of a person
holding a nonvested interest, to the
extent provided in regulations, by the
amount of taxes imposed by subparagraph
(A) on distributions from the trust
with respect to nonvested interests not
held by such person.
``(D) Allocable expatriation gain.--For purposes of
this paragraph, the allocable expatriation gain with
respect to any beneficiary's interest in a trust is the
amount of gain which would be allocable to such
beneficiary's vested and nonvested interests in the
trust if the beneficiary held directly all assets
allocable to such interests.
``(E) Tax deducted and withheld.--
``(i) In general.--The tax imposed by
subparagraph (A)(ii) shall be deducted and
withheld by the trustees from the distribution
to which it relates.
``(ii) Exception where failure to waive
treaty rights.--If an amount may not be
deducted and withheld under clause (i) by
reason of the distributee failing to waive any
treaty right with respect to such
distribution--
``(I) the tax imposed by
subparagraph (A)(ii) shall be imposed
on the trust and each trustee shall be
personally liable for the amount of
such tax, and
``(II) any other beneficiary of the
trust shall be entitled to recover from
the distributee the amount of such tax
imposed on the other beneficiary.
``(F) Disposition.--If a trust ceases to be a
qualified trust at any time, a covered expatriate
disposes of an interest in a qualified trust, or a
covered expatriate holding an interest in a qualified
trust dies, then, in lieu of the tax imposed by
subparagraph (A)(ii), there is hereby imposed a tax
equal to the lesser of--
``(i) the tax determined under paragraph
(1) as if the day before the expatriation date
were the date of such cessation, disposition,
or death, whichever is applicable, or
``(ii) the balance in the tax deferred
account immediately before such date.
Such tax shall be imposed on the trust and each trustee
shall be personally liable for the amount of such tax
and any other beneficiary of the trust shall be
entitled to recover from the covered expatriate or the
estate the amount of such tax imposed on the other
beneficiary.
``(G) Definitions and special rules.--For purposes
of this paragraph--
``(i) Qualified trust.--The term `qualified
trust' means a trust which is described in
section 7701(a)(30)(E).
``(ii) Vested interest.--The term `vested
interest' means any interest which, as of the
day before the expatriation date, is vested in
the beneficiary.
``(iii) Nonvested interest.--The term
`nonvested interest' means, with respect to any
beneficiary, any interest in a trust which is
not a vested interest. Such interest shall be
determined by assuming the maximum exercise of
discretion in favor of the beneficiary and the
occurrence of all contingencies in favor of the
beneficiary.
``(iv) Adjustments.--The Secretary may
provide for such adjustments to the bases of
assets in a trust or a deferred tax account,
and the timing of such adjustments, in order to
ensure that gain is taxed only once.
``(v) Coordination with retirement plan
rules.--This subsection shall not apply to an
interest in a trust which is part of a
retirement plan to which subsection (d)(2)
applies.
``(3) Determination of beneficiaries' interest in trust.--
``(A) Determinations under paragraph (1).--For
purposes of paragraph (1), a beneficiary's interest in
a trust shall be based upon all relevant facts and
circumstances, including the terms of the trust
instrument and any letter of wishes or similar
document, historical patterns of trust distributions,
and the existence of and functions performed by a trust
protector or any similar adviser.
``(B) Other determinations.--For purposes of this
section--
``(i) Constructive ownership.--If a
beneficiary of a trust is a corporation,
partnership, trust, or estate, the
shareholders, partners, or beneficiaries shall
be deemed to be the trust beneficiaries for
purposes of this section.
``(ii) Taxpayer return position.--A
taxpayer shall clearly indicate on its income
tax return--
``(I) the methodology used to
determine that taxpayer's trust
interest under this section, and
``(II) if the taxpayer knows (or
has reason to know) that any other
beneficiary of such trust is using a
different methodology to determine such
beneficiary's trust interest under this
section.
``(g) Termination of Deferrals, etc.--In the case of any covered
expatriate, notwithstanding any other provision of this title--
``(1) any period during which recognition of income or gain
is deferred shall terminate on the day before the expatriation
date, and
``(2) any extension of time for payment of tax shall cease
to apply on the day before the expatriation date and the unpaid
portion of such tax shall be due and payable at the time and in
the manner prescribed by the Secretary.
``(h) Imposition of Tentative Tax.--
``(1) In general.--If an individual is required to include
any amount in gross income under subsection (a) for any taxable
year, there is hereby imposed, immediately before the
expatriation date, a tax in an amount equal to the amount of
tax which would be imposed if the taxable year were a short
taxable year ending on the expatriation date.
``(2) Due date.--The due date for any tax imposed by
paragraph (1) shall be the 90th day after the expatriation
date.
``(3) Treatment of tax.--Any tax paid under paragraph (1)
shall be treated as a payment of the tax imposed by this
chapter for the taxable year to which subsection (a) applies.
``(4) Deferral of tax.--The provisions of subsection (b)
shall apply to the tax imposed by this subsection to the extent
attributable to gain includible in gross income by reason of
this section.
``(i) Special Liens for Deferred Tax Amounts.--
``(1) Imposition of lien.--
``(A) In general.--If a covered expatriate makes an
election under subsection (a)(4) or (b) which results
in the deferral of any tax imposed by reason of
subsection (a), the deferred amount (including any
interest, additional amount, addition to tax,
assessable penalty, and costs attributable to the
deferred amount) shall be a lien in favor of the United
States on all property of the expatriate located in the
United States (without regard to whether this section
applies to the property).
``(B) Deferred amount.--For purposes of this
subsection, the deferred amount is the amount of the
increase in the covered expatriate's income tax which,
but for the election under subsection (a)(4) or (b),
would have occurred by reason of this section for the
taxable year including the expatriation date.
``(2) Period of lien.--The lien imposed by this subsection
shall arise on the expatriation date and continue until--
``(A) the liability for tax by reason of this
section is satisfied or has become unenforceable by
reason of lapse of time, or
``(B) it is established to the satisfaction of the
Secretary that no further tax liability may arise by
reason of this section.
``(3) Certain rules apply.--The rules set forth in
paragraphs (1), (3), and (4) of section 6324A(d) shall apply
with respect to the lien imposed by this subsection as if it
were a lien imposed by section 6324A.
``(j) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(b) Inclusion in Income of Gifts and Bequests Received by United
States Citizens and Residents From Expatriates.--Section 102 (relating
to gifts, etc. not included in gross income) is amended by adding at
the end the following new subsection:
``(d) Gifts and Inheritances From Covered Expatriates.--
``(1) In general.--Subsection (a) shall not exclude from
gross income the value of any property acquired by gift,
bequest, devise, or inheritance from a covered expatriate after
the expatriation date. For purposes of this subsection, any
term used in this subsection which is also used in section 877A
shall have the same meaning as when used in section 877A.
``(2) Exceptions for transfers otherwise subject to estate
or gift tax.--Paragraph (1) shall not apply to any property if
either--
``(A) the gift, bequest, devise, or inheritance
is--
``(i) shown on a timely filed return of tax
imposed by chapter 12 as a taxable gift by the
covered expatriate, or
``(ii) included in the gross estate of the
covered expatriate for purposes of chapter 11
and shown on a timely filed return of tax
imposed by chapter 11 of the estate of the
covered expatriate, or
``(B) no such return was timely filed but no such
return would have been required to be filed even if the
covered expatriate were a citizen or long-term resident
of the United States.''.
(c) Definition of Termination of United States Citizenship.--
Section 7701(a) is amended by adding at the end the following new
paragraph:
``(48) Termination of united states citizenship.--
``(A) In general.--An individual shall not cease to
be treated as a United States citizen before the date
on which the individual's citizenship is treated as
relinquished under section 877A(e)(3).
``(B) Dual citizens.--Under regulations prescribed
by the Secretary, subparagraph (A) shall not apply to
an individual who became at birth a citizen of the
United States and a citizen of another country.''.
(d) Ineligibility for Visa or Admission to United States.--
(1) In general.--Section 212(a)(10)(E) of the Immigration
and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to
read as follows:
``(E) Former citizens not in compliance with
expatriation revenue provisions.--Any alien who is a
former citizen of the United States who relinquishes
United States citizenship (within the meaning of
section 877A(e)(3) of the Internal Revenue Code of
1986) and who is not in compliance with section 877A of
such Code (relating to expatriation).''.
(2) Availability of information.--
(A) In general.--Section 6103(l) (relating to
disclosure of returns and return information for
purposes other than tax administration) is amended by
adding at the end the following new paragraph:
``(19) Disclosure to deny visa or admission to certain
expatriates.--Upon written request of the Attorney General or
the Attorney General's delegate, the Secretary shall disclose
whether an individual is in compliance with section 877A (and
if not in compliance, any items of noncompliance) to officers
and employees of the Federal agency responsible for
administering section 212(a)(10)(E) of the Immigration and
Nationality Act solely for the purpose of, and to the extent
necessary in, administering such section 212(a)(10)(E).''.
(B) Safeguards.--
(i) Technical amendments.--Paragraph (4) of
section 6103(p) of the Internal Revenue Code of
1986, as amended by section 202(b)(2)(B) of the
Trade Act of 2002 (Public Law 107-210; 116
Stat. 961), is amended by striking ``or (17)''
after ``any other person described in
subsection (l)(16)'' each place it appears and
inserting ``or (18)''.
(ii) Conforming amendments.--Section
6103(p)(4) (relating to safeguards), as amended
by clause (i), is amended by striking ``or
(18)'' after ``any other person described in
subsection (l)(16)'' each place it appears and
inserting ``(18), or (19)''.
(3) Effective dates.--
(A) In general.--Except as provided in subparagraph
(B), the amendments made by this subsection shall apply
to individuals who relinquish United States citizenship
on or after the date of the enactment of this Act.
(B) Technical amendments.--The amendments made by
paragraph (2)(B)(i) shall take effect as if included in
the amendments made by section 202(b)(2)(B) of the
Trade Act of 2002 (Public Law 107-210; 116 Stat. 961).
(e) Conforming Amendments.--
(1) Section 877 is amended by adding at the end the
following new subsection:
``(g) Application.--This section shall not apply to an expatriate
(as defined in section 877A(e)) whose expatriation date (as so defined)
occurs on or after February 5, 2003.''.
(2) Section 2107 is amended by adding at the end the
following new subsection:
``(f) Application.--This section shall not apply to any expatriate
subject to section 877A.''.
(3) Section 2501(a)(3) is amended by adding at the end the
following new subparagraph:
``(F) Application.--This paragraph shall not apply
to any expatriate subject to section 877A.''.
(4)(A) Paragraph (1) of section 6039G(d) is amended by
inserting ``or 877A'' after ``section 877''.
(B) The second sentence of section 6039G(e) is amended by
inserting ``or who relinquishes United States citizenship
(within the meaning of section 877A(e)(3))'' after ``877(a))''.
(C) Section 6039G(f) is amended by inserting ``or
877A(e)(2)(B)'' after ``877(e)(1)''.
(f) Clerical Amendment.--The table of sections for subpart A of
part II of subchapter N of chapter 1 is amended by inserting after the
item relating to section 877 the following new item:
``Sec. 877A. Tax responsibilities of
expatriation.''.
(g) Effective Date.--
(1) In general.--Except as provided in this subsection, the
amendments made by this section shall apply to expatriates
(within the meaning of section 877A(e) of the Internal Revenue
Code of 1986, as added by this section) whose expatriation date
(as so defined) occurs on or after February 5, 2003.
(2) Gifts and bequests.--Section 102(d) of the Internal
Revenue Code of 1986 (as added by subsection (b)) shall apply
to gifts and bequests received on or after February 5, 2003,
from an individual or the estate of an individual whose
expatriation date (as so defined) occurs after such date.
(3) Due date for tentative tax.--The due date under section
877A(h)(2) of the Internal Revenue Code of 1986, as added by
this section, shall in no event occur before the 90th day after
the date of the enactment of this Act.
SEC. 341. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.
(a) In General.--Subchapter C of chapter 80 (relating to provisions
affecting more than one subtitle) is amended by adding at the end the
following new section:
``SEC. 7874. RULES RELATING TO INVERTED CORPORATE ENTITIES.
``(a) Inverted Corporations Treated as Domestic Corporations.--
``(1) In general.--If a foreign incorporated entity is
treated as an inverted domestic corporation, then,
notwithstanding section 7701(a)(4), such entity shall be
treated for purposes of this title as a domestic corporation.
``(2) Inverted domestic corporation.--For purposes of this
section, a foreign incorporated entity shall be treated as an
inverted domestic corporation if, pursuant to a plan (or a
series of related transactions)--
``(A) the entity completes after March 20, 2002,
the direct or indirect acquisition of substantially all
of the properties held directly or indirectly by a
domestic corporation or substantially all of the
properties constituting a trade or business of a
domestic partnership,
``(B) after the acquisition at least 80 percent of
the stock (by vote or value) of the entity is held--
``(i) in the case of an acquisition with
respect to a domestic corporation, by former
shareholders of the domestic corporation by
reason of holding stock in the domestic
corporation, or
``(ii) in the case of an acquisition with
respect to a domestic partnership, by former
partners of the domestic partnership by reason
of holding a capital or profits interest in the
domestic partnership, and
``(C) the expanded affiliated group which after the
acquisition includes the entity does not have
substantial business activities in the foreign country
in which or under the law of which the entity is
created or organized when compared to the total
business activities of such expanded affiliated group.
Except as provided in regulations, an acquisition of properties
of a domestic corporation shall not be treated as described in
subparagraph (A) if none of the corporation's stock was readily
tradeable on an established securities market at any time
during the 4-year period ending on the date of the acquisition.
``(b) Preservation of Domestic Tax Base In Certain Inversion
Transactions To Which Subsection (a) Does Not Apply.--
``(1) In general.--If a foreign incorporated entity would
be treated as an inverted domestic corporation with respect to
an acquired entity if either--
``(A) subsection (a)(2)(A) were applied by
substituting `after December 31, 1996, and on or before
March 20, 2002' for `after March 20, 2002' and
subsection (a)(2)(B) were applied by substituting `more
than 50 percent' for `at least 80 percent', or
``(B) subsection (a)(2)(B) were applied by
substituting `more than 50 percent' for `at least 80
percent',
then the rules of subsection (c) shall apply to any inversion
gain of the acquired entity during the applicable period and
the rules of subsection (d) shall apply to any related party
transaction of the acquired entity during the applicable
period. This subsection shall not apply for any taxable year if
subsection (a) applies to such foreign incorporated entity for
such taxable year.
``(2) Acquired entity.--For purposes of this section--
``(A) In general.--The term `acquired entity' means
the domestic corporation or partnership substantially
all of the properties of which are directly or
indirectly acquired in an acquisition described in
subsection (a)(2)(A) to which this subsection applies.
``(B) Aggregation rules.--Any domestic person
bearing a relationship described in section 267(b) or
707(b) to an acquired entity shall be treated as an
acquired entity with respect to the acquisition
described in subparagraph (A).
``(3) Applicable period.--For purposes of this section--
``(A) In general.--The term `applicable period'
means the period--
``(i) beginning on the first date
properties are acquired as part of the
acquisition described in subsection (a)(2)(A)
to which this subsection applies, and
``(ii) ending on the date which is 10 years
after the last date properties are acquired as
part of such acquisition.
``(B) Special rule for inversions occurring before
march 21, 2002.--In the case of any acquired entity to
which paragraph (1)(A) applies, the applicable period
shall be the 10-year period beginning on January 1,
2003.
``(c) Tax on Inversion Gains May Not Be Offset.--If subsection (b)
applies--
``(1) In general.--The taxable income of an acquired entity
(or any expanded affiliated group which includes such entity)
for any taxable year which includes any portion of the
applicable period shall in no event be less than the inversion
gain of the entity for the taxable year.
``(2) Credits not allowed against tax on inversion gain.--
Credits shall be allowed against the tax imposed by this
chapter on an acquired entity for any taxable year described in
paragraph (1) only to the extent such tax exceeds the product
of--
``(A) the amount of the inversion gain for the
taxable year, and
``(B) the highest rate of tax specified in section
11(b)(1).
For purposes of determining the credit allowed by section 901
inversion gain shall be treated as from sources within the
United States.
``(3) Special rules for partnerships.--In the case of an
acquired entity which is a partnership--
``(A) the limitations of this subsection shall
apply at the partner rather than the partnership level,
``(B) the inversion gain of any partner for any
taxable year shall be equal to the sum of--
``(i) the partner's distributive share of
inversion gain of the partnership for such
taxable year, plus
``(ii) income or gain required to be
recognized for the taxable year by the partner
under section 367(a), 741, or 1001, or under
any other provision of chapter 1, by reason of
the transfer during the applicable period of
any partnership interest of the partner in such
partnership to the foreign incorporated entity,
and
``(C) the highest rate of tax specified in the rate
schedule applicable to the partner under chapter 1
shall be substituted for the rate of tax under
paragraph (2)(B).
``(4) Inversion gain.--For purposes of this section, the
term `inversion gain' means any income or gain required to be
recognized under section 304, 311(b), 367, 1001, or 1248, or
under any other provision of chapter 1, by reason of the
transfer during the applicable period of stock or other
properties by an acquired entity--
``(A) as part of the acquisition described in
subsection (a)(2)(A) to which subsection (b) applies,
or
``(B) after such acquisition to a foreign related
person.
The Secretary may provide that income or gain from the sale of
inventories or other transactions in the ordinary course of a
trade or business shall not be treated as inversion gain under
subparagraph (B) to the extent the Secretary determines such
treatment would not be inconsistent with the purposes of this
section.
``(5) Coordination with section 172 and minimum tax.--Rules
similar to the rules of paragraphs (3) and (4) of section
860E(a) shall apply for purposes of this section.
``(6) Statute of limitations.--
``(A) In general.--The statutory period for the
assessment of any deficiency attributable to the
inversion gain of any taxpayer for any pre-inversion
year shall not expire before the expiration of 3 years
from the date the Secretary is notified by the taxpayer
(in such manner as the Secretary may prescribe) of the
acquisition described in subsection (a)(2)(A) to which
such gain relates and such deficiency may be assessed
before the expiration of such 3-year period
notwithstanding the provisions of any other law or rule
of law which would otherwise prevent such assessment.
``(B) Pre-inversion year.--For purposes of
subparagraph (A), the term `pre-inversion year' means
any taxable year if--
``(i) any portion of the applicable period
is included in such taxable year, and
``(ii) such year ends before the taxable
year in which the acquisition described in
subsection (a)(2)(A) is completed.
``(d) Special Rules Applicable to Related Party Transactions.--
``(1) Annual application for agreements on return
positions.--
``(A) In general.--Each acquired entity to which
subsection (b) applies shall file with the Secretary an
application for an approval agreement under
subparagraph (D) for each taxable year which includes a
portion of the applicable period. Such application
shall be filed at such time and manner, and shall
contain such information, as the Secretary may
prescribe.
``(B) Secretarial action.--Within 90 days of
receipt of an application under subparagraph (A) (or
such longer period as the Secretary and entity may
agree upon), the Secretary shall--
``(i) enter into an agreement described in
subparagraph (D) for the taxable year covered
by the application,
``(ii) notify the entity that the Secretary
has determined that the application was filed
in good faith and substantially complies with
the requirements for the application under
subparagraph (A), or
``(iii) notify the entity that the
Secretary has determined that the application
was not filed in good faith or does not
substantially comply with such requirements.
If the Secretary fails to act within the time
prescribed under the preceding sentence, the entity
shall be treated for purposes of this paragraph as
having received notice under clause (ii).
``(C) Failures to comply.--If an acquired entity
fails to file an application under subparagraph (A), or
the acquired entity receives a notice under
subparagraph (B)(iii), for any taxable year, then for
such taxable year--
``(i) there shall not be allowed any
deduction, or addition to basis or cost of
goods sold, for amounts paid or incurred, or
losses incurred, by reason of a transaction
between the acquired entity and a foreign
related person,
``(ii) any transfer or license of
intangible property (as defined in section
936(h)(3)(B)) between the acquired entity and a
foreign related person shall be disregarded,
and
``(iii) any cost-sharing arrangement
between the acquired entity and a foreign
related person shall be disregarded.
``(D) Approval agreement.--For purposes of
subparagraph (A), the term `approval agreement' means a
prefiling, advance pricing, or other agreement
specified by the Secretary which contains such
provisions as the Secretary determines necessary to
ensure that the requirements of sections 163(j),
267(a)(3), 482, and 845, and any other provision of
this title applicable to transactions between related
persons and specified by the Secretary, are met.
``(E) Tax court review.--
``(i) In general.--The Tax Court shall have
jurisdiction over any action brought by an
acquired entity receiving a notice under
subparagraph (B)(iii) to determine whether the
issuance of the notice was an abuse of
discretion, but only if the action is brought
within 30 days after the date of the mailing
(determined under rules similar to section
6213) of the notice.
``(ii) Court action.--The Tax Court shall
issue its decision within 30 days after the
filing of the action under clause (i) and may
order the Secretary to issue a notice described
in subparagraph (B)(ii).
``(iii) Review.--An order of the Tax Court
under this subparagraph shall be reviewable in
the same manner as any other decision of the
Tax Court.
``(2) Modifications of limitation on interest deduction.--
In the case of an acquired entity to which subsection (b)
applies, section 163(j) shall be applied--
``(A) without regard to paragraph (2)(A)(ii)
thereof, and
``(B) by substituting `25 percent' for `50 percent'
each place it appears in paragraph (2)(B) thereof.
``(e) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Rules for application of subsection (a)(2).--In
applying subsection (a)(2) for purposes of subsections (a) and
(b), the following rules shall apply:
``(A) Certain stock disregarded.--There shall not
be taken into account in determining ownership for
purposes of subsection (a)(2)(B)--
``(i) stock held by members of the expanded
affiliated group which includes the foreign
incorporated entity, or
``(ii) stock of such entity which is sold
in a public offering or private placement
related to the acquisition described in
subsection (a)(2)(A).
``(B) Plan deemed in certain cases.--If a foreign
incorporated entity acquires directly or indirectly
substantially all of the properties of a domestic
corporation or partnership during the 4-year period
beginning on the date which is 2 years before the
ownership requirements of subsection (a)(2)(B) are met
with respect to such domestic corporation or
partnership, such actions shall be treated as pursuant
to a plan.
``(C) Certain transfers disregarded.--The transfer
of properties or liabilities (including by contribution
or distribution) shall be disregarded if such transfers
are part of a plan a principal purpose of which is to
avoid the purposes of this section.
``(D) Special rule for related partnerships.--For
purposes of applying subsection (a)(2) to the
acquisition of a domestic partnership, except as
provided in regulations, all partnerships which are
under common control (within the meaning of section
482) shall be treated as 1 partnership.
``(E) Treatment of certain rights.--The Secretary
shall prescribe such regulations as may be necessary--
``(i) to treat warrants, options, contracts
to acquire stock, convertible debt instruments,
and other similar interests as stock, and
``(ii) to treat stock as not stock.
``(2) Expanded affiliated group.--The term `expanded
affiliated group' means an affiliated group as defined in
section 1504(a) but without regard to section 1504(b)(3),
except that section 1504(a) shall be applied by substituting
`more than 50 percent' for `at least 80 percent' each place it
appears.
``(3) Foreign incorporated entity.--The term `foreign
incorporated entity' means any entity which is, or but for
subsection (a)(1) would be, treated as a foreign corporation
for purposes of this title.
``(4) Foreign related person.--The term `foreign related
person' means, with respect to any acquired entity, a foreign
person which--
``(A) bears a relationship to such entity described
in section 267(b) or 707(b), or
``(B) is under the same common control (within the
meaning of section 482) as such entity.
``(5) Subsequent acquisitions by unrelated domestic
corporations.--
``(A) In general.--Subject to such conditions,
limitations, and exceptions as the Secretary may
prescribe, if, after an acquisition described in
subsection (a)(2)(A) to which subsection (b) applies, a
domestic corporation stock of which is traded on an
established securities market acquires directly or
indirectly any properties of one or more acquired
entities in a transaction with respect to which the
requirements of subparagraph (B) are met, this section
shall cease to apply to any such acquired entity with
respect to which such requirements are met.
``(B) Requirements.--The requirements of the
subparagraph are met with respect to a transaction
involving any acquisition described in subparagraph (A)
if--
``(i) before such transaction the domestic
corporation did not have a relationship
described in section 267(b) or 707(b), and was
not under common control (within the meaning of
section 482), with the acquired entity, or any
member of an expanded affiliated group
including such entity, and
``(ii) after such transaction, such
acquired entity--
``(I) is a member of the same
expanded affiliated group which
includes the domestic corporation or
has such a relationship or is under
such common control with any member of
such group, and
``(II) is not a member of, and does
not have such a relationship and is not
under such common control with any
member of, the expanded affiliated
group which before such acquisition
included such entity.
``(f) Regulations.--The Secretary shall provide such regulations as
are necessary to carry out this section, including regulations
providing for such adjustments to the application of this section as
are necessary to prevent the avoidance of the purposes of this section,
including the avoidance of such purposes through--
``(1) the use of related persons, pass-through or other
noncorporate entities, or other intermediaries, or
``(2) transactions designed to have persons cease to be (or
not become) members of expanded affiliated groups or related
persons.''.
(b) Treatment of Agreements.--
(1) Confidentiality.--
(A) Treatment as return information.--Section
6103(b)(2) (relating to return information) is amended
by striking ``and'' at the end of subparagraph (C), by
inserting ``and'' at the end of subparagraph (D), and
by inserting after subparagraph (D) the following new
subparagraph:
``(E) any approval agreement under section
7874(d)(1) to which any preceding subparagraph does not
apply and any background information related to the
agreement or any application for the agreement,''.
(B) Exception from public inspection as written
determination.--Section 6110(b)(1)(B) is amended by
striking ``or (D)'' and inserting ``, (D), or (E)''.
(2) Reporting.--The Secretary of the Treasury shall include
with any report on advance pricing agreements required to be
submitted after the date of the enactment of this Act under
section 521(b) of the Ticket to Work and Work Incentives
Improvement Act of 1999 (Public Law 106-170) a report regarding
approval agreements under section 7874(d)(1) of the Internal
Revenue Code of 1986. Such report shall include information
similar to the information required with respect to advance
pricing agreements and shall be treated for confidentiality
purposes in the same manner as the reports on advance pricing
agreements are treated under section 521(b)(3) of such Act.
(c) Information Reporting.--The Secretary of the Treasury shall
exercise the Secretary's authority under the Internal Revenue Code of
1986 to require entities involved in transactions to which section 7874
of such Code (as added by subsection (a)) applies to report to the
Secretary, shareholders, partners, and such other persons as the
Secretary may prescribe such information as is necessary to ensure the
proper tax treatment of such transactions.
(d) Conforming Amendment.--The table of sections for subchapter C
of chapter 80 is amended by adding at the end the following new item:
``Sec. 7874. Rules relating to inverted
corporate entities.''.
(e) Transition Rule for Certain Regulated Investment Companies and
Unit Investment Trusts.--Notwithstanding section 7874 of the Internal
Revenue Code of 1986 (as added by subsection (a)), a regulated
investment company, or other pooled fund or trust specified by the
Secretary of the Treasury, may elect to recognize gain by reason of
section 367(a) of such Code with respect to a transaction under which a
foreign incorporated entity is treated as an inverted domestic
corporation under section 7874(a) of such Code by reason of an
acquisition completed after March 20, 2002, and before January 1, 2004.
SEC. 342. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN INVERTED
CORPORATIONS.
(a) In General.--Subtitle D is amended by adding at the end the
following new chapter:
``CHAPTER 48--STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS
``Sec. 5000A. Stock compensation of
insiders in inverted
corporations entities.
``SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS.
``(a) Imposition of Tax.--In the case of an individual who is a
disqualified individual with respect to any inverted corporation, there
is hereby imposed on such person a tax equal to 20 percent of the value
(determined under subsection (b)) of the specified stock compensation
held (directly or indirectly) by or for the benefit of such individual
or a member of such individual's family (as defined in section 267) at
any time during the 12-month period beginning on the date which is 6
months before the inversion date.
``(b) Value.--For purposes of subsection (a)--
``(1) In general.--The value of specified stock
compensation shall be--
``(A) in the case of a stock option (or other
similar right) or any stock appreciation right, the
fair value of such option or right, and
``(B) in any other case, the fair market value of
such compensation.
``(2) Date for determining value.--The determination of
value shall be made--
``(A) in the case of specified stock compensation
held on the inversion date, on such date,
``(B) in the case of such compensation which is
canceled during the 6 months before the inversion date,
on the day before such cancellation, and
``(C) in the case of such compensation which is
granted after the inversion date, on the date such
compensation is granted.
``(c) Tax To Apply Only If Shareholder Gain Recognized.--Subsection
(a) shall apply to any disqualified individual with respect to an
inverted corporation only if gain (if any) on any stock in such
corporation is recognized in whole or part by any shareholder by reason
of the acquisition referred to in section 7874(a)(2)(A) (determined by
substituting `July 10, 2002' for `March 20, 2002') with respect to such
corporation.
``(d) Exception Where Gain Recognized on Compensation.--Subsection
(a) shall not apply to--
``(1) any stock option which is exercised on the inversion
date or during the 6-month period before such date and to the
stock acquired in such exercise, and
``(2) any specified stock compensation which is sold,
exchanged, or distributed during such period in a transaction
in which gain or loss is recognized in full.
``(e) Definitions.--For purposes of this section--
``(1) Disqualified individual.--The term `disqualified
individual' means, with respect to a corporation, any
individual who, at any time during the 12-month period
beginning on the date which is 6 months before the inversion
date--
``(A) is subject to the requirements of section
16(a) of the Securities Exchange Act of 1934 with
respect to such corporation or any member of the
expanded affiliated group which includes such
corporation, or
``(B) would be subject to such requirements if such
corporation or member were an issuer of equity
securities referred to in such section.
``(2) Inverted corporation; inversion date.--
``(A) Inverted corporation.--The term `inverted
corporation' means any corporation to which subsection
(a) or (b) of section 7874 applies determined--
``(i) by substituting `July 10, 2002' for
`March 20, 2002' in section 7874(a)(2)(A), and
``(ii) without regard to subsection
(b)(1)(A).
Such term includes any predecessor or successor of such
a corporation.
``(B) Inversion date.--The term `inversion date'
means, with respect to a corporation, the date on which
the corporation first becomes an inverted corporation.
``(3) Specified stock compensation.--
``(A) In general.--The term `specified stock
compensation' means payment (or right to payment)
granted by the inverted corporation (or by any member
of the expanded affiliated group which includes such
corporation) to any person in connection with the
performance of services by a disqualified individual
for such corporation or member if the value of such
payment or right is based on (or determined by
reference to) the value (or change in value) of stock
in such corporation (or any such member).
``(B) Exceptions.--Such term shall not include--
``(i) any option to which part II of
subchapter D of chapter 1 applies, or
``(ii) any payment or right to payment from
a plan referred to in section 280G(b)(6).
``(4) Expanded affiliated group.--The term `expanded
affiliated group' means an affiliated group (as defined in
section 1504(a) without regard to section 1504(b)(3)); except
that section 1504(a) shall be applied by substituting `more
than 50 percent' for `at least 80 percent' each place it
appears.
``(f) Special Rules.--For purposes of this section--
``(1) Cancellation of restriction.--The cancellation of a
restriction which by its terms will never lapse shall be
treated as a grant.
``(2) Payment or reimbursement of tax by corporation
treated as specified stock compensation.--Any payment of the
tax imposed by this section directly or indirectly by the
inverted corporation or by any member of the expanded
affiliated group which includes such corporation--
``(A) shall be treated as specified stock
compensation, and
``(B) shall not be allowed as a deduction under any
provision of chapter 1.
``(3) Certain restrictions ignored.--Whether there is
specified stock compensation, and the value thereof, shall be
determined without regard to any restriction other than a
restriction which by its terms will never lapse.
``(4) Property transfers.--Any transfer of property shall
be treated as a payment and any right to a transfer of property
shall be treated as a right to a payment.
``(5) Other administrative provisions.--For purposes of
subtitle F, any tax imposed by this section shall be treated as
a tax imposed by subtitle A.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(b) Denial of Deduction.--
(1) In general.--Paragraph (6) of section 275(a) is amended
by inserting ``48,'' after ``46,''.
(2) $1,000,000 limit on deductible compensation reduced by
payment of excise tax on specified stock compensation.--
Paragraph (4) of section 162(m) is amended by adding at the end
the following new subparagraph:
``(G) Coordination with excise tax on specified
stock compensation.--The dollar limitation contained in
paragraph (1) with respect to any covered employee
shall be reduced (but not below zero) by the amount of
any payment (with respect to such employee) of the tax
imposed by section 5000A directly or indirectly by the
inverted corporation (as defined in such section) or by
any member of the expanded affiliated group (as defined
in such section) which includes such corporation.''.
(c) Conforming Amendments.--
(1) The last sentence of section 3121(v)(2)(A) is amended
by inserting before the period ``or to any specified stock
compensation (as defined in section 5000A) on which tax is
imposed by section 5000A''.
(2) The table of chapters for subtitle D is amended by
adding at the end the following new item:
``Chapter 48. Stock compensation of
insiders in inverted
corporations.''.
(d) Effective Date.--The amendments made by this section shall take
effect on July 11, 2002; except that periods before such date shall not
be taken into account in applying the periods in subsections (a) and
(e)(1) of section 5000A of the Internal Revenue Code of 1986, as added
by this section.
SEC. 343. REINSURANCE OF UNITED STATES RISKS IN FOREIGN JURISDICTIONS.
(a) In General.--Section 845(a) (relating to allocation in case of
reinsurance agreement involving tax avoidance or evasion) is amended by
striking ``source and character'' and inserting ``amount, source, or
character''.
(b) Effective Date.--The amendments made by this section shall
apply to any risk reinsured after April 11, 2002.
PART II--OTHER PROVISIONS
SEC. 344. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST ON
UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE FINANCIAL
ARRANGEMENT.
(a) General Rule.--If--
(1) a taxpayer eligible to participate in--
(A) the Department of the Treasury's Offshore
Voluntary Compliance Initiative, or
(B) the Department of the Treasury's voluntary
disclosure initiative which applies to the taxpayer by
reason of the taxpayer's underreporting of United
States income tax liability through financial
arrangements which rely on the use of offshore
arrangements which were the subject of the initiative
described in subparagraph (A), and
(2) any interest or applicable penalty is imposed with
respect to any arrangement to which any initiative described in
paragraph (1) applied or to any underpayment of Federal income
tax attributable to items arising in connection with any
arrangement described in paragraph (1),
then, notwithstanding any other provision of law, the amount of such
interest or penalty shall be equal to twice that determined without
regard to this section.
(b) Definitions and Rules.--For purposes of this section--
(1) Applicable penalty.--The term ``applicable penalty''
means any penalty, addition to tax, or fine imposed under
chapter 68 of the Internal Revenue Code of 1986.
(2) Voluntary offshore compliance initiative.--The term
``Voluntary Offshore Compliance Initiative'' means the program
established by the Department of the Treasury in January of
2003 under which any taxpayer was eligible to voluntarily
disclose previously undisclosed income on assets placed in
offshore accounts and accessed through credit card and other
financial arrangements.
(3) Participation.--A taxpayer shall be treated as having
participated in the Voluntary Offshore Compliance Initiative if
the taxpayer submitted the request in a timely manner and all
information requested by the Secretary of the Treasury or his
delegate within a reasonable period of time following the
request.
(c) Effective Date.--The provisions of this section shall apply to
interest penalties, additions to tax, and fines with respect to any
taxable year if as of May 8, 2003, the assessment of any tax, penalty,
or interest with respect to such taxable year is not prevented by the
operation of any law or rule of law.
SEC. 345. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN FOREIGN
SOURCE INCOME.
(a) In General.--Section 864(c)(4)(B) (relating to treatment of
income from sources without the United States as effectively connected
income) is amended by adding at the end the following new flush
sentence:
``Any income or gain which is equivalent to any item of
income or gain described in clause (i), (ii), or (iii)
shall be treated in the same manner as such item for
purposes of this subparagraph.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 346. DETERMINATION OF BASIS OF AMOUNTS PAID FROM FOREIGN PENSION
PLANS.
(a) In General.--Section 72 (relating to annuities and certain
proceeds of endowment and life insurance contracts) is amended by
redesignating subsection (w) as subsection (x) by inserting subsection
(v) the following new subsection:
``(w) Determination of Basis of Foreign Pension Plans.--
Notwithstanding any other provision of this section, for purposes of
determining the portion of any distribution from a foreign pension plan
which is includible in gross income of the distributee, the investment
in the contract with respect to the plan shall not include employer or
employee contributions to the plan (or any earnings on such
contributions) unless such contributions or earnings were subject to
taxation by the United States or any foreign government.''.
(b) Effective Date.--The amendments made by this section shall
apply to distributions on or after the date of the enactment of this
Act.
SEC. 347. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF CONTROLLED
FOREIGN CORPORATION.
(a) In General.--Section 904(f)(3) (relating to dispositions) is
amending by adding at the end the following new subparagraph:
``(D) Application to dispositions of stock in
controlled foreign corporations.--In the case of any
disposition by a taxpayer of any share of stock in a
controlled foreign corporation (as defined in section
957), this paragraph shall apply to such disposition in
the same manner as if it were a disposition of property
described in subparagraph (A), except that the
exception contained in subparagraph (C)(i) shall not
apply.''.
(b) Effective Date.--The amendment made by this section shall apply
to dispositions after the date of the enactment of this Act.
SEC. 348. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL ISSUE
DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS IN TRANSACTIONS
WITH RELATED FOREIGN PERSONS.
(a) Original Issue Discount.--Section 163(e)(3) (relating to
special rule for original issue discount on obligation held by related
foreign person) is amended by redesignating subparagraph (B) as
subparagraph (C) and by inserting after subparagraph (A) the following
new subparagraph:
``(B) Special rule for certain foreign entities.--
Notwithstanding subparagraph (A) (and any regulations
thereunder), in the case of any debt instrument having
original issue discount which is held by a related
foreign person which is a foreign personal holding
company (as defined in section 552), a controlled
foreign corporation (as defined in section 957), or a
passive foreign investment company (as defined in
section 1297), a deduction shall be allowable to the
issuer with respect to such original issue discount for
any taxable year only to the extent such original issue
discount is included during such taxable year in the
gross income of a United States person who owns (within
the meaning of section 958(a)) stock in such
corporation. For purposes of this subparagraph, the
determination as to the proper allocation of the
original issue discount to shareholders shall be made
in such manner as the Secretary may prescribe.''.
(b) Interest and Other Deductible Amounts.--Section 267(a)(3) is
amended--
(1) by striking ``The Secretary'' and inserting:
``(A) In general.--The Secretary'', and
(2) by adding at the end the following new subparagraph:
``(B) Special rule for certain foreign entities.--
Notwithstanding any regulations issued under
subparagraph (A), in the case of any amount payable to
a foreign personal holding company (as defined in
section 552), a controlled foreign corporation (as
defined in section 957), or a passive foreign
investment company (as defined in section 1297), a
deduction shall be allowable to the payor with respect
to such amount for any taxable year only to the extent
such amount is included during such taxable year in the
gross income of a United States person who owns (within
the meaning of section 958(a)) stock in such
corporation. For purposes of this subparagraph, the
determination as to the proper allocation of such
amount to shareholders shall be made in such manner as
the Secretary may prescribe.''.
(c) Effective Date.--The amendments made by this section shall
apply to payments accrued on or after May 8, 2003.
SEC. 349. SALE OF GASOLINE AND DIESEL FUEL AT DUTY-FREE SALES
ENTERPRISES.
(a) Prohibition.--Section 555(b) of the Tariff Act of 1930 (19
U.S.C. 1555(b)) is amended--
(1) by redesignating paragraphs (6) through (8) as
paragraphs (7) through (9), respectively; and
(2) by inserting after paragraph (5) the following:
``(6) Any gasoline or diesel fuel sold at a duty-free sales
enterprise shall be considered to be entered for consumption
into the customs territory of the United States.''.
(b) Construction.--The amendments made by this section shall not be
construed to create any inference with respect to the interpretation of
any provision of law as such provision was in effect on the day before
the date of enactment of this Act.
(c) Effective date.--The amendments made by this section shall take
effect on the date of enactment of this Act.
SEC. 350. REPEAL OF EARNED INCOME EXCLUSION OF CITIZENS OR RESIDENTS
LIVING ABROAD.
(a) Repeal.--Section 911 (relating to citizens or residents living
abroad) is amended by adding at the end the following new subsection:
``(g) Termination.--This section shall not apply to any taxable
year beginning after December 31, 2003.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
Subtitle E--Other Revenue Provisions
SEC. 351. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.
(a) In General.--Chapter 77 (relating to miscellaneous provisions)
is amended by adding at the end the following new section:
``SEC. 7528. INTERNAL REVENUE SERVICE USER FEES.
``(a) General Rule.--The Secretary shall establish a program
requiring the payment of user fees for--
``(1) requests to the Internal Revenue Service for ruling
letters, opinion letters, and determination letters, and
``(2) other similar requests.
``(b) Program Criteria.--
``(1) In general.--The fees charged under the program
required by subsection (a)--
``(A) shall vary according to categories (or
subcategories) established by the Secretary,
``(B) shall be determined after taking into account
the average time for (and difficulty of) complying with
requests in each category (and subcategory), and
``(C) shall be payable in advance.
``(2) Exemptions, etc.--
``(A) In general.--The Secretary shall provide for
such exemptions (and reduced fees) under such program
as the Secretary determines to be appropriate.
``(B) Exemption for certain requests regarding
pension plans.--The Secretary shall not require payment
of user fees under such program for requests for
determination letters with respect to the qualified
status of a pension benefit plan maintained solely by 1
or more eligible employers or any trust which is part
of the plan. The preceding sentence shall not apply to
any request--
``(i) made after the later of--
``(I) the fifth plan year the
pension benefit plan is in existence,
or
``(II) the end of any remedial
amendment period with respect to the
plan beginning within the first 5 plan
years, or
``(ii) made by the sponsor of any prototype
or similar plan which the sponsor intends to
market to participating employers.
``(C) Definitions and special rules.--For purposes
of subparagraph (B)--
``(i) Pension benefit plan.--The term
`pension benefit plan' means a pension, profit-
sharing, stock bonus, annuity, or employee
stock ownership plan.
``(ii) Eligible employer.--The term
`eligible employer' means an eligible employer
(as defined in section 408(p)(2)(C)(i)(I))
which has at least 1 employee who is not a
highly compensated employee (as defined in
section 414(q)) and is participating in the
plan. The determination of whether an employer
is an eligible employer under subparagraph (B)
shall be made as of the date of the request
described in such subparagraph.
``(iii) Determination of average fees
charged.--For purposes of any determination of
average fees charged, any request to which
subparagraph (B) applies shall not be taken
into account.
``(3) Average fee requirement.--The average fee charged
under the program required by subsection (a) shall not be less
than the amount determined under the following table:
Average
``Category Fee
Employee plan ruling and opinion.............. $250
Exempt organization ruling.................... $350
Employee plan determination................... $300
Exempt organization determination............. $275
Chief counsel ruling.......................... $200.
``(c) Termination.--No fee shall be imposed under this section with
respect to requests made after September 30, 2013.''.
(b) Conforming Amendments.--
(1) The table of sections for chapter 77 is amended by
adding at the end the following new item:
``Sec. 7528. Internal Revenue Service
user fees.''.
(2) Section 10511 of the Revenue Act of 1987 is repealed.
(3) Section 620 of the Economic Growth and Tax Relief
Reconciliation Act of 2001 is repealed.
(c) Limitations.--Notwithstanding any other provision of law, any
fees collected pursuant to section 7528 of the Internal Revenue Code of
1986, as added by subsection (a), shall not be expended by the Internal
Revenue Service unless provided by an appropriations Act.
(d) Effective Date.--The amendments made by this section shall
apply to requests made after the date of the enactment of this Act.
SEC. 352. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF TAXABLE
VACCINES.
(a) In General.--Section 4132(a)(1) (defining taxable vaccine) is
amended by redesignating subparagraphs (I), (J), (K), and (L) as
subparagraphs (J), (K), (L), and (M), respectively, and by inserting
after subparagraph (H) the following new subparagraph:
``(I) Any vaccine against hepatitis A.''.
(b) Conforming Amendment.--Section 9510(c)(1)(A) is amended by
striking ``October 18, 2000'' and inserting ``May 8, 2003''.
(c) Effective Date.--
(1) Sales, etc.--The amendments made by this section shall
apply to sales and uses on or after the first day of the first
month which begins more than 4 weeks after the date of the
enactment of this Act.
(2) Deliveries.--For purposes of paragraph (1) and section
4131 of the Internal Revenue Code of 1986, in the case of sales
on or before the effective date described in such paragraph for
which delivery is made after such date, the delivery date shall
be considered the sale date.
SEC. 353. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANSFERS.
(a) Treatment of Contributed Property With Built-In Loss.--
Paragraph (1) of section 704(c) is amended by striking ``and'' at the
end of subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by adding at the end the
following:
``(C) if any property so contributed has a built-in
loss--
``(i) such built-in loss shall be taken
into account only in determining the amount of
items allocated to the contributing partner,
and
``(ii) except as provided in regulations,
in determining the amount of items allocated to
other partners, the basis of the contributed
property in the hands of the partnership shall
be treated as being equal to its fair market
value immediately after the contribution.
For purposes of subparagraph (C), the term `built-in loss'
means the excess of the adjusted basis of the property
(determined without regard to subparagraph (C)(ii)) over its
fair market value immediately after the contribution.''.
(b) Adjustment to Basis of Partnership Property on Transfer of
Partnership Interest if There Is Substantial Built-In Loss.--
(1) Adjustment required.--Subsection (a) of section 743
(relating to optional adjustment to basis of partnership
property) is amended by inserting before the period ``or unless
the partnership has a substantial built-in loss immediately
after such transfer''.
(2) Adjustment.--Subsection (b) of section 743 is amended
by inserting ``or with respect to which there is a substantial
built-in loss immediately after such transfer'' after ``section
754 is in effect''.
(3) Substantial built-in loss.--Section 743 is amended by
adding at the end the following new subsection:
``(d) Substantial Built-In Loss.--
``(1) In general.--For purposes of this section, a
partnership has a substantial built-in loss with respect to a
transfer of an interest in a partnership if the transferee
partner's proportionate share of the adjusted basis of the
partnership property exceeds by more than $250,000 the basis of
such partner's interest in the partnership.
``(2) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes of
paragraph (1) and section 734(d), including regulations
aggregating related partnerships and disregarding property
acquired by the partnership in an attempt to avoid such
purposes.''.
(4) Clerical amendments.--
(A) The section heading for section 743 is amended
to read as follows:
``SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY WHERE SECTION
754 ELECTION OR SUBSTANTIAL BUILT-IN LOSS.''.
(B) The table of sections for subpart C of part II
of subchapter K of chapter 1 is amended by striking the
item relating to section 743 and inserting the
following new item:
``Sec. 743. Adjustment to basis of
partnership property where
section 754 election or
substantial built-in loss.''.
(c) Adjustment to Basis of Undistributed Partnership Property if
There Is Substantial Basis Reduction.--
(1) Adjustment required.--Subsection (a) of section 734
(relating to optional adjustment to basis of undistributed
partnership property) is amended by inserting before the period
``or unless there is a substantial basis reduction''.
(2) Adjustment.--Subsection (b) of section 734 is amended
by inserting ``or unless there is a substantial basis
reduction'' after ``section 754 is in effect''.
(3) Substantial basis reduction.--Section 734 is amended by
adding at the end the following new subsection:
``(d) Substantial Basis Reduction.--
``(1) In general.--For purposes of this section, there is a
substantial basis reduction with respect to a distribution if
the sum of the amounts described in subparagraphs (A) and (B)
of subsection (b)(2) exceeds $250,000.
``(2) Regulations.--
``For regulations to carry out this
subsection, see section 743(d)(2).''.
(4) Clerical amendments.--
(A) The section heading for section 734 is amended
to read as follows:
``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY
WHERE SECTION 754 ELECTION OR SUBSTANTIAL BASIS
REDUCTION.''.
(B) The table of sections for subpart B of part II
of subchapter K of chapter 1 is amended by striking the
item relating to section 734 and inserting the
following new item:
``Sec. 734. Adjustment to basis of
undistributed partnership
property where section 754
election or substantial basis
reduction.''.
(d) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to contributions made after the date of the
enactment of this Act.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to transfers after the date of the enactment of
this Act.
(3) Subsection (c).--The amendments made by subsection (c)
shall apply to distributions after the date of the enactment of
this Act.
SEC. 354. TREATMENT OF STRIPPED INTERESTS IN BOND AND PREFERRED STOCK
FUNDS, ETC.
(a) In General.--Section 1286 (relating to tax treatment of
stripped bonds) is amended by redesignating subsection (f) as
subsection (g) and by inserting after subsection (e) the following new
subsection:
``(f) Treatment of Stripped Interests in Bond and Preferred Stock
Funds, Etc.--In the case of an account or entity substantially all of
the assets of which consist of bonds, preferred stock, or a combination
thereof, the Secretary may by regulations provide that rules similar to
the rules of this section and 305(e), as appropriate, shall apply to
interests in such account or entity to which (but for this subsection)
this section or section 305(e), as the case may be, would not apply.''.
(b) Cross Reference.--Subsection (e) of section 305 is amended by
adding at the end the following new paragraph:
``(7) Cross reference.--
``For treatment of stripped interests
in certain accounts or entities holding preferred stock, see section
1286(f).''.
(c) Effective Date.--The amendments made by this section shall
apply to purchases and dispositions after the date of the enactment of
this Act.
SEC. 355. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.
(a) In General.--Subpart B of part III of subchapter A of chapter
61 is amended by inserting after section 6043 the following new
section:
``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.
``(a) In General.--The acquiring corporation in any taxable
acquisition shall make a return (according to the forms or regulations
prescribed by the Secretary) setting forth--
``(1) a description of the acquisition,
``(2) the name and address of each shareholder of the
acquired corporation who is required to recognize gain (if any)
as a result of the acquisition,
``(3) the amount of money and the fair market value of
other property transferred to each such shareholder as part of
such acquisition, and
``(4) such other information as the Secretary may
prescribe.
To the extent provided by the Secretary, the requirements of this
section applicable to the acquiring corporation shall be applicable to
the acquired corporation and not to the acquiring corporation.
``(b) Nominee Reporting.--Any person who holds stock as a nominee
for another person shall furnish in the manner prescribed by the
Secretary to such other person the information provided by the
corporation under subsection (d).
``(c) Taxable Acquisition.--For purposes of this section, the term
`taxable acquisition' means any acquisition by a corporation of stock
in or property of another corporation if any shareholder of the
acquired corporation is required to recognize gain (if any) as a result
of such acquisition.
``(d) Statements to Be Furnished to Shareholders.--Every person
required to make a return under subsection (a) shall furnish to each
shareholder whose name is required to be set forth in such return a
written statement showing--
``(1) the name, address, and phone number of the
information contact of the person required to make such return,
``(2) the information required to be shown on such return
with respect to such shareholder, and
``(3) such other information as the Secretary may
prescribe.
The written statement required under the preceding sentence shall be
furnished to the shareholder on or before January 31 of the year
following the calendar year during which the taxable acquisition
occurred.''.
(b) Assessable Penalties.--
(1) Subparagraph (B) of section 6724(d)(1) (relating to
definitions) is amended by redesignating clauses (ii) through
(xvii) as clauses (iii) through (xviii), respectively, and by
inserting after clause (i) the following new clause:
``(ii) section 6043A(a) (relating to
returns relating to taxable mergers and
acquisitions),''.
(2) Paragraph (2) of section 6724(d) is amended by
redesignating subparagraphs (F) through (AA) as subparagraphs
(G) through (BB), respectively, and by inserting after
subparagraph (E) the following new subparagraph:
``(F) subsections (b) and (d) of section 6043A
(relating to returns relating to taxable mergers and
acquisitions).''.
(c) Clerical Amendment.--The table of sections for subpart B of
part III of subchapter A of chapter 61 is amended by inserting after
the item relating to section 6043 the following new item:
``Sec. 6043A. Returns relating to taxable
mergers and acquisitions.''.
(d) Effective Date.--The amendments made by this section shall
apply to acquisitions after the date of the enactment of this Act.
SEC. 356. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON WITHHOLDING
TAXES ON INCOME OTHER THAN DIVIDENDS.
(a) In General.--Section 901 is amended by redesignating subsection
(l) as subsection (m) and by inserting after subsection (k) the
following new subsection:
``(l) Minimum Holding Period for Withholding Taxes on Gain and
Income Other than Dividends Etc.--
``(1) In general.--In no event shall a credit be allowed
under subsection (a) for any withholding tax (as defined in
subsection (k)) on any item of income or gain with respect to
any property if--
``(A) such property is held by the recipient of the
item for 15 days or less during the 30-day period
beginning on the date which is 15 days before the date
on which the right to receive payment of such item
arises, or
``(B) to the extent that the recipient of the item
is under an obligation (whether pursuant to a short
sale or otherwise) to make related payments with
respect to positions in substantially similar or
related property.
This paragraph shall not apply to any dividend to which
subsection (k) applies.
``(2) Exception for taxes paid by dealers.--
``(A) In general.--Paragraph (1) shall not apply to
any qualified tax with respect to any property held in
the active conduct in a foreign country of a business
as a dealer in such property.
``(B) Qualified tax.--For purposes of subparagraph
(A), the term `qualified tax' means a tax paid to a
foreign country (other than the foreign country
referred to in subparagraph (A)) if--
``(i) the item to which such tax is
attributable is subject to taxation on a net
basis by the country referred to in
subparagraph (A), and
``(ii) such country allows a credit against
its net basis tax for the full amount of the
tax paid to such other foreign country.
``(C) Dealer.--For purposes of subparagraph (A),
the term `dealer' means--
``(i) with respect to a security, any
person to whom paragraphs (1) and (2) of
subsection (k) would not apply by reason of
paragraph (4) thereof if such security were
stock, and
``(ii) with respect to any other property,
any person with respect to whom such property
is described in section 1221(a)(1).
``(D) Regulations.--The Secretary may prescribe
such regulations as may be appropriate to carry out
this paragraph, including regulations to prevent the
abuse of the exception provided by this paragraph and
to treat other taxes as qualified taxes.
``(3) Exceptions.--The Secretary may by regulation provide
that paragraph (1) shall not apply to property where the
Secretary determines that the application of paragraph (1) to
such property is not necessary to carry out the purposes of
this subsection.
``(4) Certain rules to apply.--Rules similar to the rules
of paragraphs (5), (6), and (7) of subsection (k) shall apply
for purposes of this subsection.
``(5) Determination of holding period.--Holding periods
shall be determined for purposes of this subsection without
regard to section 1235 or any similar rule.''.
(b) Conforming Amendment.--The heading of subsection (k) of section
901 is amended by inserting ``on Dividends'' after ``Taxes''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or accrued more than 30 days after the date of
the enactment of this Act.
SEC. 357. QUALIFIED TAX COLLECTION CONTRACTS.
(a) Contract Requirements.--
(1) In general.--Subchapter A of chapter 64 (relating to
collection) is amended by adding at the end the following new
section:
``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.
``(a) In General.--Nothing in any provision of law shall be
construed to prevent the Secretary from entering into a qualified tax
collection contract.
``(b) Qualified Tax Collection Contract.--For purposes of this
section, the term `qualified tax collection contract' means any
contract which--
``(1) is for the services of any person (other than an
officer or employee of the Treasury Department) to locate and
contact any taxpayer specified by the Secretary, to request
payment from such taxpayer of an amount of Federal tax
specified by the Secretary, and to obtain financial information
specified by the Secretary with respect to such taxpayer, and
``(2) prohibits each person providing such services under
such contract from committing any act or omission which
employees of the Internal Revenue Service are prohibited from
committing in the performance of similar services.
``(c) Fees.--The Secretary may retain and use an amount not in
excess of 25 percent of the amount collected under any qualified tax
collection contract for the costs of services performed under such
contract. The Secretary shall keep adequate records regarding amounts
so retained and used. The amount credited as paid by any taxpayer shall
be determined without regard to this subsection.
``(d) No Federal Liability.--The United States shall not be liable
for any act or omission of any person performing services under a
qualified tax collection contract.
``(e) Application of Fair Debt Collection Practices Act.--The
provisions of the Fair Debt Collection Practices Act (15 U.S.C. 1692 et
seq.) shall apply to any qualified tax collection contract, except to
the extent superseded by any provision of this title.
``(f) Cross References.--
``(1) For damages for certain unauthorized collection
actions by persons performing services under a qualified tax
collection contract, see section 7433A.
``(2) For application of Taxpayer Assistance Orders to
persons performing services under a qualified tax collection
contract, see section 7811(a)(4).''.
(2) Conforming amendments.--
(A) Section 7809(a) is amended by inserting
``6306,'' before ``7651''.
(B) The table of sections for subchapter A of
chapter 64 is amended by adding at the end the
following new item:
``Sec. 6306. Qualified Tax Collection
Contracts.''.
(b) Civil Damages for Certain Unauthorized Collection Actions by
Persons Performing Services Under Qualified Tax Collection Contracts.--
(1) In general.--Subchapter B of chapter 76 (relating to
proceedings by taxpayers and third parties) is amended by
inserting after section 7433 the following new section:
``SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS
BY PERSONS PERFORMING SERVICES UNDER QUALIFIED TAX
COLLECTION CONTRACTS.
``(a) In General.--Subject to the modifications provided by
subsection (b), section 7433 shall apply to the acts and omissions of
any person performing services under a qualified tax collection
contract (as defined in section 6306(b)) to the same extent and in the
same manner as if such person were an employee of the Internal Revenue
Service.
``(b) Modifications.--For purposes of subsection (a)--
``(1) Any civil action brought under section 7433 by reason
of this section shall be brought against the person who entered
into the qualified tax collection contract with the Secretary
and shall not be brought against the United States.
``(2) Such person and not the United States shall be liable
for any damages and costs determined in such civil action.
``(3) Such civil action shall not be an exclusive remedy
with respect to such person.
``(4) Subsections (c) and (d)(1) of section 7433 shall not
apply.''.
(2) Clerical amendment.--The table of sections for
subchapter B of chapter 76 is amended by inserting after the
item relating to section 7433 the following new item:
``Sec. 7433A. Civil damages for certain
unauthorized collection actions
by persons performing services
under a qualified tax
collection contract.''.
(c) Application of Taxpayer Assistance Orders to Persons Performing
Services Under a Qualified Tax Collection Contract.--Section 7811
(relating to taxpayer assistance orders) is amended by adding at the
end the following new subsection:
``(g) Application to Persons Performing Services Under a Qualified
Tax Collection Contract.--Any order issued or action taken by the
National Taxpayer Advocate pursuant to this section shall apply to
persons performing services under a qualified tax collection contract
(as defined in section 6306(b)) to the same extent and in the same
manner as such order or action applies to the Secretary.''.
(d) Ineligibility of Individuals who Commit Misconduct to Perform
Under Contract.--Section 1203 of the Internal Revenue Service
Restructuring Act of 1998 (relating to termination of employment for
misconduct) is amended by adding at the end the following new
subsection:
``(e) Individuals Performing Services Under a Qualified Tax
Collection Contract.-- An individual shall cease to be permitted to
perform any services under any qualified tax collection contract (as
defined in section 6306(b) of the Internal Revenue Code of 1986) if
there is a final determination by the Secretary of the Treasury under
such contract that such individual committed any act or omission
described under subsection (b) in connection with the performance of
such services.''.
(e) Effective Date.--The amendments made to this section shall take
effect on the date of the enactment of this Act.
SEC. 358. EXTENSION OF CUSTOMS USER FEES.
Section 13031(j)(3) of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended by striking
``September 30, 2003'' and inserting ``September 30, 2013''.
SEC. 359. CLARIFICATION OF EXEMPTION FROM TAX FOR SMALL PROPERTY AND
CASUALTY INSURANCE COMPANIES.
(a) In General.--Section 501(c)(15)(A) is amended to read as
follows:
``(A) Insurance companies or associations other
than life (including interinsurers and reciprocal
underwriters) if--
``(i) the gross receipts for the taxable
year do not exceed $600,000, and
``(ii) more than 50 percent of such gross
receipts consist of premiums.''.
(b) Controlled Group Rule.--Section 501(c)(15)(C) is amended by
inserting ``, except that in applying section 1563 for purposes of
section 831(b)(2)(B)(ii), subparagraphs (B) and (C) of section
1563(b)(2) shall be disregarded'' before the period at the end.
(c) Conforming Amendment.--Clause (i) of section 831(b)(2)(A) is
amended by striking ``exceed $350,000 but''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 360. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT AGREEMENTS.
(a) In General.--
(1) Section 6159(a) (relating to authorization of
agreements) is amended--
(A) by striking ``satisfy liability for payment
of'' and inserting ``make payment on'', and
(B) by inserting ``full or partial'' after
``facilitate''.
(2) Section 6159(c) (relating to Secretary required to
enter into installment agreements in certain cases) is amended
in the matter preceding paragraph (1) by inserting ``full''
before ``payment''.
(b) Requirement To Review Partial Payment Agreements Every Two
Years.--Section 6159 is amended by redesignating subsections (d) and
(e) as subsections (e) and (f), respectively, and inserting after
subsection (c) the following new subsection:
``(d) Secretary Required To Review Installment Agreements for
Partial Collection Every Two Years.--In the case of an agreement
entered into by the Secretary under subsection (a) for partial
collection of a tax liability, the Secretary shall review the agreement
at least once every 2 years.''.
(c) Effective Date.--The amendments made by this section shall
apply to agreements entered into on or after the date of the enactment
of this Act.
SEC. 361. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS
FRANCHISES.
(a) In General.--Section 197(e) (relating to exceptions to
definition of section 197 intangible) is amended by striking paragraph
(6) and by redesignating paragraphs (7) and (8) as paragraphs (6) and
(7), respectively.
(b) Conforming Amendments.--
(1)(A) Section 1056 (relating to basis limitation for
player contracts transferred in connection with the sale of a
franchise) is repealed.
(B) The table of sections for part IV of subchapter O of
chapter 1 is amended by striking the item relating to section
1056.
(2) Section 1253 (relating to transfers of franchises,
trademarks, and trade names) is amended by striking subsection
(e).
(c) Effective Date.--The amendments made by this section shall
apply to property acquired after the date of the enactment of this Act.
SEC. 362. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL
UNDERPAYMENTS.
(a) In General.--Subchapter A of chapter 67 (relating to interest
on underpayments) is amended by adding at the end the following new
section:
``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL
UNDERPAYMENTS, ETC.
``(a) Authority To Make Deposits Other Than As Payment of Tax.--A
taxpayer may make a cash deposit with the Secretary which may be used
by the Secretary to pay any tax imposed under subtitle A or B or
chapter 41, 42, 43, or 44 which has not been assessed at the time of
the deposit. Such a deposit shall be made in such manner as the
Secretary shall prescribe.
``(b) No Interest Imposed.--To the extent that such deposit is used
by the Secretary to pay tax, for purposes of section 6601 (relating to
interest on underpayments), the tax shall be treated as paid when the
deposit is made.
``(c) Return of Deposit.--Except in a case where the Secretary
determines that collection of tax is in jeopardy, the Secretary shall
return to the taxpayer any amount of the deposit (to the extent not
used for a payment of tax) which the taxpayer requests in writing.
``(d) Payment of Interest.--
``(1) In general.--For purposes of section 6611 (relating
to interest on overpayments), a deposit which is returned to a
taxpayer shall be treated as a payment of tax for any period to
the extent (and only to the extent) attributable to a
disputable tax for such period. Under regulations prescribed by
the Secretary, rules similar to the rules of section 6611(b)(2)
shall apply.
``(2) Disputable tax.--
``(A) In general.--For purposes of this section,
the term `disputable tax' means the amount of tax
specified at the time of the deposit as the taxpayer's
reasonable estimate of the maximum amount of any tax
attributable to disputable items.
``(B) Safe harbor based on 30-day letter.--In the
case of a taxpayer who has been issued a 30-day letter,
the maximum amount of tax under subparagraph (A) shall
not be less than the amount of the proposed deficiency
specified in such letter.
``(3) Other definitions.--For purposes of paragraph (2)--
``(A) Disputable item.--The term `disputable item'
means any item of income, gain, loss, deduction, or
credit if the taxpayer--
``(i) has a reasonable basis for its
treatment of such item, and
``(ii) reasonably believes that the
Secretary also has a reasonable basis for
disallowing the taxpayer's treatment of such
item.
``(B) 30-day letter.--The term `30-day letter'
means the first letter of proposed deficiency which
allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of
Appeals.
``(4) Rate of interest.--The rate of interest allowable
under this subsection shall be the Federal short-term rate
determined under section 6621(b), compounded daily.
``(e) Use of Deposits.--
``(1) Payment of tax.--Except as otherwise provided by the
taxpayer, deposits shall be treated as used for the payment of
tax in the order deposited.
``(2) Returns of deposits.--Deposits shall be treated as
returned to the taxpayer on a last-in, first-out basis.''.
(b) Clerical Amendment.--The table of sections for subchapter A of
chapter 67 is amended by adding at the end the following new item:
``Sec. 6603. Deposits made to suspend
running of interest on
potential underpayments,
etc.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to deposits made after the date of the enactment of this
Act.
(2) Coordination with deposits made under revenue procedure
84-58.--In the case of an amount held by the Secretary of the
Treasury or his delegate on the date of the enactment of this
Act as a deposit in the nature of a cash bond deposit pursuant
to Revenue Procedure 84-58, the date that the taxpayer
identifies such amount as a deposit made pursuant to section
6603 of the Internal Revenue Code (as added by this Act) shall
be treated as the date such amount is deposited for purposes of
such section 6603.
SEC. 363. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX FOR
CERTAIN DEEMED ASSET SALES.
(a) In General.--Paragraph (13) of section 338(h) (relating to tax
on deemed sale not taken into account for estimated tax purposes) is
amended by adding at the end the following: ``The preceding sentence
shall not apply with respect to a qualified stock purchase for which an
election is made under paragraph (10).''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to transactions occurring after the date of the enactment of this
Act.
SEC. 364. LIMITATION OF DEDUCTION FOR CHARITABLE CONTRIBUTIONS OF
PATENTS AND SIMILAR PROPERTY.
(a) In General.--Section 170(e)(1)(B) (relating to certain
contributions of ordinary income and capital gain property) is amended
by striking ``or'' at the end of clause (i), by adding ``or'' at the
end of clause (ii), and by inserting after clause (ii) the following
new clause:
``(iii) of any patent, copyright,
trademark, trade name, trade secret, know-how,
software, or similar property, or applications
or registrations of such property,''.
(b) Anti-Abuse Rules.--The Secretary of the Treasury may prescribe
such regulations or other administrative guidance as may be necessary
or appropriate to prevent the avoidance of the purposes of section
170(e)(1)(B)(iii) of the Internal Revenue Code of 1986 (as added by
subsection (a)), including preventing--
(1) the circumvention of the reduction of the charitable
deduction by embedding or bundling the patent or similar
property as part of a charitable contribution of property that
includes the patent or similar property,
(2) the manipulation of the basis of the property to
increase the amount of the charitable deduction through the use
of related persons, pass-thru entities, or other
intermediaries, or through the use of any provision of law or
regulation (including the consolidated return regulations), and
(3) a donor from changing the form of the patent or similar
property to property of a form for which different deduction
rules would apply.
(c) Effective Date.--The amendments made by this section shall
apply to contributions made after May 7, 2003.
SEC. 365. EXTENSION OF TRANSFERS OF EXCESS PENSION ASSETS TO RETIREE
HEALTH ACCOUNTS.
(a) Amendment of Internal Revenue Code of 1986.--Paragraph (5) of
section 420(b) (relating to expiration) is amended by striking
``December 31, 2005'' and inserting ``December 31, 2013''.
(b) Amendments of ERISA.--
(1) Section 101(e)(3) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by
striking ``Tax Relief Extension Act of 1999'' and inserting
``Jobs and Growth Tax Relief Reconciliation Act of 2003''.
(2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is
amended by striking ``Tax Relief Extension Act of 1999'' and
inserting ``Jobs and Growth Tax Relief Reconciliation Act of
2003''.
(3) Paragraph (13) of section 408(b) of such Act (29 U.S.C.
1108(b)(3)) is amended--
(A) by striking ``January 1, 2006'' and inserting
``January 1, 2014'', and
(B) by striking ``Tax Relief Extension Act of
1999'' and inserting ``Jobs and Growth Tax Relief
Reconciliation Act of 2003''.
SEC. 366. PRORATION RULES FOR LIFE INSURANCE BUSINESS OF PROPERTY AND
CASUALTY INSURANCE COMPANIES.
(a) In General.--Section 832(b)(4) (defining premiums earned) is
amended--
(1) by inserting ``, except that any deduction attributable
to such reserves shall be reduced in the same manner as the
deductions provided by sections 243, 244, and 245 for a life
insurance company are reduced under section 805(a)(4)'' before
the period at the end of the first sentence following
subparagraph (C), and
(2) by adding at the end the following new sentence: ``In
applying section 812(d) for purposes of the reduction under the
third preceding sentence, only gross investment income
attributable to the reserves described in such sentence shall
be taken into account.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 367. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS IN
DIVISIVE REORGANIZATIONS.
(a) In General.--Section 361(b)(3) (relating to treatment of
transfers to creditors) is amended by adding at the end the following
new sentence: ``In the case of a reorganization described in section
368(a)(1)(D) with respect to which stock or securities of the
corporation to which the assets are transferred are distributed in a
transaction which qualifies under section 355, this paragraph shall
apply only to the extent that the money or other property transferred
to such creditors does not exceed the adjusted bases of such assets
transferred.''.
(b) Liabilities in Excess of Basis.--Section 357(c)(1)(B) is
amended by inserting ``with respect to which stock or securities of the
corporation to which the assets are transferred are distributed in a
transaction which qualifies under section 355'' after ``section
368(a)(1)(D)''.
(c) Effective Date.--The amendments made by this section shall
apply to transfers of money or other property, or liabilities assumed,
in connection with a reorganization occurring on or after the date of
the enactment of this Act.
SEC. 368. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED INCOME IS
TAXED AS IF PARENT'S INCOME.
(a) In General.--Section 1(g)(2)(A) (relating to child to whom
subsection applies) is amended by striking ``age 14'' and inserting
``age 18''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2003.
SEC. 369. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.
(a) Start-Up Expenditures.--
(1) Allowance of deduction.--Paragraph (1) of section
195(b) (relating to start-up expenditures) is amended to read
as follows:
``(1) Allowance of deduction.--If a taxpayer elects the
application of this subsection with respect to any start-up
expenditures--
``(A) the taxpayer shall be allowed a deduction for
the taxable year in which the active trade or business
begins in an amount equal to the lesser of--
``(i) the amount of start-up expenditures
with respect to the active trade or business,
or
``(ii) $5,000, reduced (but not below zero)
by the amount by which such start-up
expenditures exceed $50,000, and
``(B) the remainder of such start-up expenditures
shall be allowed as a deduction ratably over the 180-
month period beginning with the month in which the
active trade or business begins.''.
(2) Conforming amendment.--Subsection (b) of section 195 is
amended by striking ``Amortize'' and inserting ``Deduct'' in
the heading.
(b) Organizational Expenditures.--Subsection (a) of section 248
(relating to organizational expenditures) is amended to read as
follows:
``(a) Election to Deduct.--If a corporation elects the application
of this subsection (in accordance with regulations prescribed by the
Secretary) with respect to any organizational expenditures--
``(1) the corporation shall be allowed a deduction for the
taxable year in which the corporation begins business in an
amount equal to the lesser of--
``(A) the amount of organizational expenditures
with respect to the taxpayer, or
``(B) $5,000, reduced (but not below zero) by the
amount by which such organizational expenditures exceed
$50,000, and
``(2) the remainder of such organizational expenditures
shall be allowed as a deduction ratably over the 180-month
period beginning with the month in which the corporation begins
business.''.
(c) Treatment of Organizational and Syndication Fees or
Partnerships.--
(1) In general.--Section 709(b) (relating to amortization
of organization fees) is amended by redesignating paragraph (2)
as paragraph (3) and by amending paragraph (1) to read as
follows:
``(1) Allowance of deduction.--If a taxpayer elects the
application of this subsection (in accordance with regulations
prescribed by the Secretary) with respect to any organizational
expenses--
``(A) the taxpayer shall be allowed a deduction for
the taxable year in which the partnership begins
business in an amount equal to the lesser of--
``(i) the amount of organizational expenses
with respect to the partnership, or
``(ii) $5,000, reduced (but not below zero)
by the amount by which such organizational
expenses exceed $50,000, and
``(B) the remainder of such organizational expenses
shall be allowed as a deduction ratably over the 180-
month period beginning with the month in which the
partnership begins business.
``(2) Dispositions before close of amortization period.--In
any case in which a partnership is liquidated before the end of
the period to which paragraph (1)(B) applies, any deferred
expenses attributable to the partnership which were not allowed
as a deduction by reason of this section may be deducted to the
extent allowable under section 165.''.
(2) Conforming amendment.--Subsection (b) of section 709 is
amended by striking ``Amortization'' and inserting
``Deduction'' in the heading.
(d) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred after the date of the enactment of
this Act.
SEC. 370. CLARIFICATION OF DEFINITION OF NONQUALIFIED PREFERRED STOCK.
(a) In General.--Section 351(g)(3)(A) is amended by adding at the
end the following: ``Stock shall not be treated as participating in
corporate growth to any significant extent unless there is a real and
meaningful likelihood of the shareholder actually participating in the
earnings and growth of the corporation.''
(b) Effective Date.--The amendment made by this section shall apply
to transactions after May 14, 2003.
SEC. 371. CLASS LIVES FOR UTILITY GRADING COSTS.
(a) Gas Utility Property.--Section 168(e)(3)(E) (defining 15-year
property) is amended by striking ``and'' at the end of clause (ii), by
striking the period at the end of clause (iii) and inserting ``, and'',
and by adding at the end the following new clause:
``(iv) initial clearing and grading land
improvements with respect to gas utility
property.''
(b) Electric Utility Property.--Section 168(e)(3) is amended by
adding at the end the following new subparagraph:
``(F) 20-year property.--The term `20-year
property' means initial clearing and grading land
improvements with respect to any electric utility
transmission and distribution plant.''
(c) Conforming Amendments.--The table contained in section
168(g)(3)(B) is amended--
(1) by inserting ``or (E)(iv)'' after ``(E)(iii)'', and
(2) by adding at the end the following new item:
``(F)......................................... 25''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act.
SEC. 372. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH COMPLETE
LIQUIDATION OF HOLDING COMPANY.
(a) In General.--Section 332 is amended by adding at the end the
following new subsection:
``(d) Recognition of Gain on Liquidation of Certain Holding
Companies.--
``(1) In general.--Subsection (a) and section 331 shall not
apply to any distribution in complete liquidation of an
applicable holding company to the extent of the earnings and
profits of such company.
``(2) Applicable holding company.--For purposes of this
subsection--
``(A) In general.--The term `applicable holding
company' means any corporation--
``(i) which is a member of a chain of
includible corporations with a common parent
which is a foreign corporation,
``(ii) the stock of which is directly owned
by such common parent or another foreign
corporation,
``(iii) substantially all of the assets of
which consist of stock in other members of such
chain of corporations, and
``(iv) which has not been in existence at
least 5 years as of the date of the
liquidation.
``(B) Includible corporation.--The term `includible
corporation' has the meaning given such term under
section 1504(b) (without regard to paragraph (3)
thereof).''
(b) Effective Date.--The amendment made by this section shall apply
to distributions in complete liquidation occurring after the date of
the enactment of this Act.
SEC. 373. LEASE TERM TO INCLUDE CERTAIN SERVICE CONTRACTS.
(a) In General.--Section 168(i)(3) (relating to lease term) is
amended by adding at the end the following new subparagraph:
``(C) Special rule for service contracts.--In
determining a lease term, there shall be taken into
account any optional service contract or other similar
arrangement.''
(b) Effective Date.--The amendment made by this section shall apply
to leases entered into after the date of the enactment of this Act.
SEC. 374. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL RESIDENCE
ACQUIRED IN A LIKE-KIND EXCHANGE WITHIN 5 YEARS OF SALE.
(a) In General.--Section 121(d) (relating to special rules for
exclusion of gain from sale of principal residence) is amended by
adding at the end the following new paragraph:
``(10) Property acquired in like-kind exchange.--If a
taxpayer acquired property in an exchange to which section 1031
applied, subsection (a) shall not apply to the sale or exchange
of such property if it occurs during the 5-year period
beginning with the exchange to which section 1031 applied.''
(b) Effective Date.--The amendment made by this section shall apply
to sales or exchanges after the date of the enactment of this Act.
Subtitle F--Other Provisions
SEC. 381. TEMPORARY STATE AND LOCAL FISCAL RELIEF.
(a) $10,000,000,000 for a Temporary Increase of the Medicaid
FMAP.--
(1) Permitting maintenance of fiscal year 2002 fmap for
last 2 calendar quarters of fiscal year 2003.--Subject to
paragraph (5), if the FMAP determined without regard to this
subsection for a State for fiscal year 2003 is less than the
FMAP as so determined for fiscal year 2002, the FMAP for the
State for fiscal year 2002 shall be substituted for the State's
FMAP for the third and fourth calendar quarters of fiscal year
2003, before the application of this subsection.
(2) Permitting maintenance of fiscal year 2003 fmap for
first 3 quarters of fiscal year 2004.--Subject to paragraph
(5), if the FMAP determined without regard to this subsection
for a State for fiscal year 2004 is less than the FMAP as so
determined for fiscal year 2003, the FMAP for the State for
fiscal year 2003 shall be substituted for the State's FMAP for
the first, second, and third calendar quarters of fiscal year
2004, before the application of this subsection.
(3) General 2.95 percentage points increase for last 2
calendar quarters of fiscal year 2003 and first 3 calendar
quarters of fiscal year 2004.--Subject to paragraphs (5), (6),
and (7), for each State for the third and fourth calendar
quarters of fiscal year 2003 and for the first, second, and
third calendar quarters of fiscal year 2004, the FMAP (taking
into account the application of paragraphs (1) and (2)) shall
be increased by 2.95 percentage points.
(4) Increase in cap on medicaid payments to territories.--
Subject to paragraphs (6) and (7), with respect to the third
and fourth calendar quarters of fiscal year 2003 and the first,
second, and third calendar quarters of fiscal year 2004, the
amounts otherwise determined for Puerto Rico, the Virgin
Islands, Guam, the Northern Mariana Islands, and American Samoa
under subsections (f) and (g) of section 1108 of the Social
Security Act (42 U.S.C. 1308) shall each be increased by an
amount equal to 5.90 percent of such amounts.
(5) Scope of application.--The increases in the FMAP for a
State under this subsection shall apply only for purposes of
title XIX of the Social Security Act and shall not apply with
respect to--
(A) disproportionate share hospital payments
described in section 1923 of such Act (42 U.S.C. 1396r-
4);
(B) payments under title IV or XXI of such Act (42
U.S.C. 601 et seq. and 1397aa et seq.); or
(C) any payments under XIX of such Act that are
based on the enhanced FMAP described in section 2105(b)
of such Act (42 U.S.C. 1397ee(b)).
(6) State eligibility.--
(A) In general.--Subject to subparagraph (B), a
State is eligible for an increase in its FMAP under
paragraph (3) or an increase in a cap amount under
paragraph (4) only if the eligibility under its State
plan under title XIX of the Social Security Act
(including any waiver under such title or under section
1115 of such Act (42 U.S.C. 1315)) is no more
restrictive than the eligibility under such plan (or
waiver) as in effect on September 2, 2003.
(B) State reinstatement of eligibility permitted.--
A State that has restricted eligibility under its State
plan under title XIX of the Social Security Act
(including any waiver under such title or under section
1115 of such Act (42 U.S.C. 1315)) after September 2,
2003, is eligible for an increase in its FMAP under
paragraph (3) or an increase in a cap amount under
paragraph (4) in the first calendar quarter (and
subsequent calendar quarters) in which the State has
reinstated eligibility that is no more restrictive than
the eligibility under such plan (or waiver) as in
effect on September 2, 2003.
(C) Rule of construction.--Nothing in subparagraph
(A) or (B) shall be construed as affecting a State's
flexibility with respect to benefits offered under the
State medicaid program under title XIX of the Social
Security Act (42 U.S.C. 1396 et seq.) (including any
waiver under such title or under section 1115 of such
Act (42 U.S.C. 1315)).
(7) Requirement for certain states.--In the case of a State
that requires political subdivisions within the State to
contribute toward the non-Federal share of expenditures under
the State medicaid plan required under section 1902(a)(2) of
the Social Security Act (42 U.S.C. 1396a(a)(2)), the State
shall not require that such political subdivisions pay a
greater percentage of the non-Federal share of such
expenditures for the third and fourth calendar quarters of
fiscal year 2003 and the first, second and third calendar
quarters of fiscal year 2004, than the percentage that was
required by the State under such plan on April 1, 2003, prior
to application of this subsection.
(8) Definitions.--In this subsection:
(A) FMAP.--The term ``FMAP'' means the Federal
medical assistance percentage, as defined in section
1905(b) of the Social Security Act (42 U.S.C.
1396d(b)).
(B) State.--The term ``State'' has the meaning
given such term for purposes of title XIX of the Social
Security Act (42 U.S.C. 1396 et seq.).
(9) Repeal.--Effective as of October 1, 2004, this
subsection is repealed.
(b) $10,000,000,000 for Assistance in Providing Government
Services.--
(1) Establishment.--
(A) In general.--Not later than 45 days after the
date of enactment of this Act, the Secretary shall
establish a program under which the Secretary shall
make a payment to each State in accordance with
paragraph (2) and each unit of general local government
which qualifies for a payment under paragraph (3).
(B) Requirement.--In making payments under this
subsection, the Secretary shall ensure that not more
than 72.70 percent of the amount appropriated under
subparagraph (C) is paid in fiscal year 2003.
(C) Appropriation.--There is authorized to be
appropriated and is appropriated for making payments
under this subsection, $10,000,000,000. Amounts
appropriated under this subparagraph shall remain
available for expenditure through September 30, 2004.
(2) $6,000,000,000 paid to states.--
(A) Amount of payment.--
(i) Based on population.--Subject to clause
(ii), $6,000,000,000 of the amount appropriated
under paragraph (1)(C) shall be used to pay
each State an amount equal to the relative
population proportion amount described in
clause (iii).
(ii) Minimum payment.--
(I) In general.--No State shall
receive a payment under this paragraph
that is less than--
(aa) in the case of any of
the several States or the
District of Columbia,
$30,000,000; and
(bb) in the case of the
Commonwealth of Puerto Rico,
the United States Virgin
Islands, Guam, the Commonwealth
of the Northern Mariana
Islands, or American Samoa,
$6,000,000.
(II) Pro rata adjustments.--The
Secretary shall adjust on a pro rata
basis the amount of the payments to
States determined under this
subparagraph to the extent necessary to
comply with the requirements of
subclause (I).
(iii) Relative population proportion
amount.--The relative population proportion
amount described in this clause is the product
of--
(I) $6,000,000,000; and
(II) the relative State population
proportion (defined in clause (iv)).
(iv) Relative state population proportion
defined.--For purposes of clause (iii)(II), the
term ``relative State population proportion''
means, with respect to a State, the amount
equal to the quotient of--
(I) the population of the State (as
reported in the most recent decennial
census); and
(II) the total population of all
States (as reported in the most recent
decennial census).
(B) Use of payment.--
(i) In general.--Subject to clause (ii), a
State shall use the funds provided under a
payment made under this paragraph to fund 1 or
more of the following activities:
(I) Education or job training.
(II) Health care or other social
services.
(III) Transportation or other
infrastructure.
(IV) Law enforcement or public
safety.
(V) Essential government services.
(ii) Limitation.--A State may only use
funds provided under a payment made under this
paragraph for types of expenditures permitted
under the most recently approved budget for the
State.
(C) Certification.--In order to receive a payment
under this paragraph for a fiscal year, the State shall
provide the Secretary with a certification that the
State's proposed uses of the funds are consistent with
subparagraph (B).
(3) $4,000,000,000 paid to units of general local
government.--
(A) Eligibility.--The Secretary shall, by
regulation, establish procedures under which units of
general local government may qualify for the payments
provided under this paragraph. Such procedures shall
include a requirement that no unit of general local
government shall be eligible for a payment under this
paragraph unless the unit provides the Secretary with a
certification that the unit's proposed uses of the
funds are consistent with subparagraph (C).
(B) Amount of payment.--
(i) In general.--Subject to clause (ii),
the Secretary shall pay each unit of general
local government that qualifies for a payment
under the regulation required under
subparagraph (A), an amount equal to the same
ratio to $4,000,000,000 as the population of
such unit of general local government (as
reported in the most recent decennial census)
bears to the total population of all such units
that qualify for a payment under this paragraph
(as so reported).
(ii) Adjustments.--The Secretary may adjust
the amount of the payment otherwise determined
for a unit of general local government under
this subparagraph to the extent the Secretary
determines necessary to ensure that all such
units that would qualify for a payment under
this paragraph receive a payment.
(C) Use of payment.--
(i) In general.--Subject to clause (ii), a
unit of general local government shall use the
funds provided under a payment made under this
paragraph to fund 1 or more of the following
activities:
(I) Education or job training.
(II) Health care or other social
services.
(III) Transportation or other
infrastructure.
(IV) Law enforcement or public
safety.
(V) Essential government services.
(ii) Limitation.--A unit of general local
government may only use funds provided under a
payment made under this paragraph for types of
expenditures permitted under the most recently
approved budget for the unit.
(4) Definitions.--In this subsection:
(A) Secretary.--The term ``Secretary'' means the
Secretary of the Treasury.
(B) State.--The term ``State'' means the 50 States,
the District of Columbia, the Commonwealth of Puerto
Rico, the United States Virgin Islands, Guam, the
Commonwealth of the Northern Mariana Islands, and
American Samoa.
(C) Unit of general local government.--
(i) In general.--The term ``unit of general
local government'' means--
(I) a county, parish, township,
city, or political subdivision of a
county, parish, township, or city, that
is a unit of general local government
as determined by the Secretary of
Commerce for general statistical
purposes; and
(II) the recognized governing body
of an Indian tribe or Alaskan native
village that carries out substantial
governmental duties and powers.
(ii) Treatment of subsumed areas.--For
purposes of determining a unit of general local
government under this subsection, the rules
under section 6720(c) of title 31, United
States Code, shall apply.
(5) Repeal.--Effective as of October 1, 2004, this
subsection is repealed.
SEC. 382. REVIEW OF STATE AGENCY BLINDNESS AND DISABILITY
DETERMINATIONS.
Section 1633 of the Social Security Act (42 U.S.C. 1383b) is
amended by adding at the end the following:
``(e)(1) The Commissioner of Social Security shall review
determinations, made by State agencies pursuant to subsection (a) in
connection with applications for benefits under this title on the basis
of blindness or disability, that individuals who have attained 18 years
of age are blind or disabled as of a specified onset date. The
Commissioner of Social Security shall review such a determination
before any action is taken to implement the determination.
``(2)(A) In carrying out paragraph (1), the Commissioner of Social
Security shall review--
``(i) at least 25 percent of all determinations referred to
in paragraph (1) that are made in fiscal year 2004; and
``(ii) at least 50 percent of all such determinations that
are made in fiscal year 2005 or thereafter.
``(B) In carrying out subparagraph (A), the Commissioner of Social
Security shall, to the extent feasible, select for review the
determinations which the Commissioner of Social Security identifies as
being the most likely to be incorrect.''.
SEC. 383. PROHIBITION ON USE OF SCHIP FUNDS TO PROVIDE COVERAGE FOR
CHILDLESS ADULTS.
(a) General Limitations on Payments.--Section 2105(c)(1) of the
Social Security Act (42 U.S.C. 1397ee(c)(1)) is amended by inserting
before the period the following: ``and may not include coverage of a
childless adult unless the childless adult is a pregnant woman. For
purposes of the preceding sentence, a caretaker relative (as such term
is defined for purposes of carrying out section 1931) shall not be
considered a childless adult.''.
(b) Limitation on Waiver Authority.--Section 2107 of the Social
Security Act (42 U.S.C. 1397gg) is amended by adding at the end the
following:
``(f) Limitation of Waiver Authority.--Notwithstanding subsection
(e)(2)(A) and section 1115(a), the Secretary may not approve a waiver,
experimental, pilot, or demonstration project, or an amendment to such
a project that has been approved as of the date of enactment of this
subsection, that would allow funds made available under this title to
be used to provide child health assistance or other health benefits
coverage to a childless adult, other than a childless adult who is a
pregnant woman. For purposes of the preceding sentence, a caretaker
relative (as such term is defined for purposes of carrying out section
1931) shall not be considered a childless adult.''.
(c) Effective Date.--The amendments made by this section take
effect on the date of enactment of this Act and apply to proposals to
conduct a waiver, experimental, pilot, or demonstration project
affecting the State children's health insurance program under title XXI
of such Act, and to any proposals to amend such a project, that are
approved or extended on or after such date of enactment.
(d) Rule of Construction.--Nothing in this section or the
amendments made by this section shall be construed to--
(1) authorize the waiver of any provision of title XXI of
the Social Security Act (42 U.S.C. 1397aa et seq.) that is not
otherwise authorized to be waived under such title or under
title XI of such Act (42 U.S.C. 1301 et seq.) as of the date of
enactment of this Act; or
(2) imply congressional approval of any waiver,
experimental, pilot, or demonstration project affecting the
State children's health insurance program under title XXI of
such Act that has been approved as of such date of enactment.
SEC. 384. MEDICAID DSH ALLOTMENTS.
(a) Temporary Increase in Floor for Treatment as an Extremely Low
DSH State under the Medicaid Program.--
(1) In general.--Section 1923(f)(5) of the Social Security
Act (42 U.S.C. 1396r-4(f)(5)) is amended--
(A) by striking ``In the case of'' and inserting
the following:
``(A) In general.--In the case of''; and
(B) by adding at the end the following:
``(B) Temporary increase in floor for fiscal year
2004.--During the period that begins on October 1,
2003, and ends on September 30, 2004, subparagraph (A)
shall be applied--
``(i) by substituting `fiscal year 2002'
for `fiscal year 1999';
``(iii) by substituting `Centers for
Medicare & Medicaid Services' for `Health Care
Financing Administration';
``(ii) by substituting `August 31, 2003'
for `August 31, 2000';
``(iv) by substituting `3 percent' for `1
percent' each place it appears;
``(v) by substituting `fiscal year 2004'
for `fiscal year 2001'; and
``(vi) without regard to the second
sentence.''.
(2) Effective date.--The amendments made by paragraph (1)
take effect on October 1, 2003, and apply to DSH allotments
under title XIX of the Social Security Act only with respect to
fiscal year 2004.
(b) Allotment Adjustment for Certain States.--
(1) In general.--Section 1923(f) of the Social Security Act
(42 U.S.C. 1396r-4(f)) is amended--
(A) by redesignating paragraph (6) as paragraph
(7); and
(B) by inserting after paragraph (5) the following:
``(6) Allotment adjustment for certain states.--
``(A) Tennessee.--Only with respect to fiscal year
2004, if the statewide waiver approved under section
1115 for the State of Tennessee with respect to the
requirements of this title (as in effect on the date of
enactment of this paragraph) is revoked or terminated,
the Secretary shall--
``(i) permit the State of Tennessee to
submit an amendment to its State plan that
would describe the methodology to be used by
the State (after the effective date of such
revocation or termination) to identify and make
payments to disproportionate share hospitals,
including children's hospitals and institutions
for mental diseases or other mental health
facilities (other than State-owned institutions
or facilities), on the basis of the proportion
of patients served by such hospitals that are
low-income patients with special needs; and
``(ii) provide for purposes of this
subsection for computation of an appropriate
DSH allotment for the State for fiscal year
2004 that provides for the maximum amount
(permitted consistent with paragraph
(3)(B)(ii)) that does not result in greater
expenditures under this title than would have
been made if such waiver had not been revoked
or terminated.
``(B) Hawaii.--The Secretary shall compute a DSH
allotment for the State of Hawaii for fiscal year 2004
in the same manner as DSH allotments are determined
with respect to those States to which paragraph (5)
applies (but without regard to the requirement under
such paragraph that total expenditures under the State
plan for disproportionate share hospital adjustments
for any fiscal year exceeds 0).''.
(2) Treatment of institutions for mental diseases.--Section
1923(h)(1) of the Social Security Act (42 U.S.C. 1396r-4(h)(1))
is amended--
(A) in paragraph (1), in the matter preceding
subparagraph (A), by striking ``Payment'' and inserting
``Subject to paragraph (3), payment''; and
(B) by adding at the end the following:
``(3) Special rule.--The limitation of paragraph (1) shall
not apply in the case of Tennessee with respect to fiscal year
2004 in the case of a revocation or termination of its
statewide waiver described in subsection (f)(6)(A).''.
(3) Effective date.--The amendments made by this subsection
shall take effect as if enacted on October 1, 2002.
TITLE IV--SMALL BUSINESS AND AGRICULTURAL PROVISIONS
Subtitle A--Small Business Provisions
SEC. 401. EXCLUSION OF CERTAIN INDEBTEDNESS OF SMALL BUSINESS
INVESTMENT COMPANIES FROM ACQUISITION INDEBTEDNESS.
(a) In General.--Section 514(c) (relating to acquisition
indebtedness) is amended by adding at the end the following new
paragraph:
``(10) Certain indebtedness of small business investment
companies.--For purposes of this section, the term `acquisition
indebtedness' does not include any indebtedness incurred by a
small business investment company licensed under the Small
Business Investment Act of 1958 which is evidenced by a
debenture--
``(A) issued by such company under section 303(a)
of such Act, or
``(B) held or guaranteed by the Small Business
Administration.''.
(b) Effective Date.--The amendment made by this section shall apply
to any indebtedness incurred after December 31, 2002, by a small
business investment company described in section 514(c)(10) of the
Internal Revenue Code of 1986 (as added by this section) with respect
to property acquired by such company after such date.
SEC. 402. REPEAL OF OCCUPATIONAL TAXES RELATING TO DISTILLED SPIRITS,
WINE, AND BEER.
(a) Repeal of Occupational Taxes.--
(1) In general.--The following provisions of part II of
subchapter A of chapter 51 (relating to occupational taxes) are
hereby repealed:
(A) Subpart A (relating to proprietors of distilled
spirits plants, bonded wine cellars, etc.).
(B) Subpart B (relating to brewer).
(C) Subpart D (relating to wholesale dealers)
(other than sections 5114 and 5116).
(D) Subpart E (relating to retail dealers) (other
than section 5124).
(E) Subpart G (relating to general provisions)
(other than sections 5142, 5143, 5145, and 5146).
(2) Nonbeverage domestic drawback.--Section 5131 is amended
by striking ``, on payment of a special tax per annum,''.
(3) Industrial use of distilled spirits.--Section 5276 is
hereby repealed.
(b) Conforming Amendments.--
(1)(A) The heading for part II of subchapter A of chapter
51 and the table of subparts for such part are amended to read
as follows:
``PART II--MISCELLANEOUS PROVISIONS
``Subpart A. Manufacturers of stills.
``Subpart B. Nonbeverage domestic
drawback claimants.
``Subpart C. Recordkeeping by dealers.
``Subpart D. Other provisions.''.
(B) The table of parts for such subchapter A is amended by
striking the item relating to part II and inserting the
following new item:
``Part II. Miscellaneous provisions.''.
(2) Subpart C of part II of such subchapter (relating to
manufacturers of stills) is redesignated as subpart A.
(3)(A) Subpart F of such part II (relating to nonbeverage
domestic drawback claimants) is redesignated as subpart B and
sections 5131 through 5134 are redesignated as sections 5111
through 5114, respectively.
(B) The table of sections for such subpart B, as so
redesignated, is amended--
(i) by redesignating the items relating to sections
5131 through 5134 as relating to sections 5111 through
5114, respectively, and
(ii) by striking ``and rate of tax'' in the item
relating to section 5111, as so redesignated.
(C) Section 5111, as redesignated by subparagraph (A), is
amended--
(i) by striking ``and rate of tax'' in the section
heading,
(ii) by striking the subsection heading for
subsection (a), and
(iii) by striking subsection (b).
(4) Part II of subchapter A of chapter 51 is amended by
adding after subpart B, as redesignated by paragraph (3), the
following new subpart:
``Subpart C--Recordkeeping by Dealers
``Sec. 5121. Recordkeeping by wholesale
dealers.
``Sec. 5122. Recordkeeping by retail
dealers.
``Sec. 5123. Preservation and inspection
of records, and entry of
premises for inspection.''.
(5)(A) Section 5114 (relating to records) is moved to
subpart C of such part II and inserted after the table of
sections for such subpart.
(B) Section 5114 is amended--
(i) by striking the section heading and inserting
the following new heading:
``SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.'',
and
(ii) by redesignating subsection (c) as subsection
(d) and by inserting after subsection (b) the following
new subsection:
``(c) Wholesale Dealers.--For purposes of this part--
``(1) Wholesale dealer in liquors.--The term `wholesale
dealer in liquors' means any dealer (other than a wholesale
dealer in beer) who sells, or offers for sale, distilled
spirits, wines, or beer, to another dealer.
``(2) Wholesale dealer in beer.--The term `wholesale dealer
in beer' means any dealer who sells, or offers for sale, beer,
but not distilled spirits or wines, to another dealer.
``(3) Dealer.--The term `dealer' means any person who
sells, or offers for sale, any distilled spirits, wines, or
beer.
``(4) Presumption in case of sale of 20 wine gallons or
more.--The sale, or offer for sale, of distilled spirits,
wines, or beer, in quantities of 20 wine gallons or more to the
same person at the same time, shall be presumptive evidence
that the person making such sale, or offer for sale, is engaged
in or carrying on the business of a wholesale dealer in liquors
or a wholesale dealer in beer, as the case may be. Such
presumption may be overcome by evidence satisfactorily showing
that such sale, or offer for sale, was made to a person other
than a dealer.''.
(C) Paragraph (3) of section 5121(d), as so redesignated,
is amended by striking ``section 5146'' and inserting ``section
5123''.
(6)(A) Section 5124 (relating to records) is moved to
subpart C of part II of subchapter A of chapter 51 and inserted
after section 5121.
(B) Section 5124 is amended--
(i) by striking the section heading and inserting
the following new heading:
``SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.'',
(ii) by striking ``section 5146'' in subsection (c)
and inserting ``section 5123'', and
(iii) by redesignating subsection (c) as subsection
(d) and inserting after subsection (b) the following
new subsection:
``(c) Retail Dealers.--For purposes of this section--
``(1) Retail dealer in liquors.--The term `retail dealer in
liquors' means any dealer (other than a retail dealer in beer)
who sells, or offers for sale, distilled spirits, wines, or
beer, to any person other than a dealer.
``(2) Retail dealer in beer.--The term `retail dealer in
beer' means any dealer who sells, or offers for sale, beer, but
not distilled spirits or wines, to any person other than a
dealer.
``(3) Dealer.--The term `dealer' has the meaning given such
term by section 5121(c)(3).''.
(7) Section 5146 is moved to subpart C of part II of
subchapter A of chapter 51, inserted after section 5122, and
redesignated as section 5123.
(8) Part II of subchapter A of chapter 51 is amended by
inserting after subpart C the following new subpart:
``Subpart D--Other Provisions
``Sec. 5131. Packaging distilled spirits
for industrial uses.
``Sec. 5132. Prohibited purchases by
dealers.''.
(9) Section 5116 is moved to subpart D of part II of
subchapter A of chapter 51, inserted after the table of
sections, redesignated as section 5131, and amended by
inserting ``(as defined in section 5121(c))'' after ``dealer''
in subsection (a).
(10) Subpart D of part II of subchapter A of chapter 51 is
amended by adding at the end thereof the following new section:
``SEC. 5132. PROHIBITED PURCHASES BY DEALERS.
``(a) In General.--Except as provided in regulations prescribed by
the Secretary, it shall be unlawful for a dealer to purchase distilled
spirits for resale from any person other than a wholesale dealer in
liquors who is required to keep the records prescribed by section 5121.
``(b) Penalty and Forfeiture.--
``For penalty and forfeiture provisions
applicable to violations of subsection (a), see sections 5687 and
7302.''.
(11) Subsection (b) of section 5002 is amended--
(A) by striking ``section 5112(a)'' and inserting
``section 5121(c)(3)'',
(B) by striking ``section 5112'' and inserting
``section 5121(c)'',
(C) by striking ``section 5122'' and inserting
``section 5122(c)''.
(12) Subparagraph (A) of section 5010(c)(2) is amended by
striking ``section 5134'' and inserting ``section 5114''.
(13) Subsection (d) of section 5052 is amended to read as
follows:
``(d) Brewer.--For purposes of this chapter, the term `brewer'
means any person who brews beer or produces beer for sale. Such term
shall not include any person who produces only beer exempt from tax
under section 5053(e).''.
(14) The text of section 5182 is amended to read as
follows:
``For provisions requiring recordkeeping by wholesale
liquor dealers, see section 5121, and by retail liquor dealers,
see section 5122.''.
(15) Subsection (b) of section 5402 is amended by striking
``section 5092'' and inserting ``section 5052(d)''.
(16) Section 5671 is amended by striking ``or 5091''.
(17)(A) Part V of subchapter J of chapter 51 is hereby
repealed.
(B) The table of parts for such subchapter J is amended by
striking the item relating to part V.
(18)(A) Sections 5142, 5143, and 5145 are moved to
subchapter D of chapter 52, inserted after section 5731,
redesignated as sections 5732, 5733, and 5734, respectively,
and amended by striking ``this part'' each place it appears and
inserting ``this subchapter''.
(B) Section 5732, as redesignated by subparagraph (A), is
amended by striking ``(except the tax imposed by section
5131)'' each place it appears.
(C) Paragraph (2) of section 5733(c), as redesignated by
subparagraph (A), is amended by striking ``liquors'' both
places it appears and inserting ``tobacco products and
cigarette papers and tubes''.
(D) The table of sections for subchapter D of chapter 52 is
amended by adding at the end thereof the following:
``Sec. 5732. Payment of tax.
``Sec. 5733. Provisions relating to
liability for occupational
taxes.
``Sec. 5734. Application of State
laws.''.
(E) Section 5731 is amended by striking subsection (c) and
by redesignating subsection (d) as subsection (c).
(19) Subsection (c) of section 6071 is amended by striking
``section 5142'' and inserting ``section 5732''.
(20) Paragraph (1) of section 7652(g) is amended--
(A) by striking ``subpart F'' and inserting
``subpart B'', and
(B) by striking ``section 5131(a)'' and inserting
``section 5111''.
(c) Effective Date.--The amendments made by this section shall take
effect on July 1, 2003, but shall not apply to taxes imposed for
periods before such date.
SEC. 403. CUSTOM GUNSMITHS.
(a) Small Manufacturers Exempt From Firearms Excise Tax.--Section
4182 (relating to exemptions) is amended by redesignating subsection
(c) as subsection (d) and by inserting after subsection (b) the
following new subsection:
``(c) Small Manufacturers, Etc.--
``(1) In general.--The tax imposed by section 4181 shall
not apply to any article described in such section if
manufactured, produced, or imported by a person who
manufactures, produces, and imports less than 50 of such
articles during the calendar year.
``(2) Controlled groups.--All persons treated as a single
employer for purposes of subsection (a) or (b) of section 52
shall be treated as one person for purposes of paragraph
(1).''.
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to articles sold by the manufacturer, producer, or
importer on or after the date which is the first day of the
month beginning at least 2 weeks after the date of the
enactment of this Act.
(2) No inference.--Nothing in the amendments made by this
section shall be construed to create any inference with respect
to the proper tax treatment of any sales before the effective
date of such amendments.
SEC. 404. SIMPLIFICATION OF EXCISE TAX IMPOSED ON BOWS AND ARROWS.
(a) Bows.--Section 4161(b)(1) (relating to bows) is amended to read
as follows:
``(1) Bows.--
``(A) In general.--There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
bow which has a draw weight of 30 pounds or more, a tax
equal to 11 percent of the price for which so sold.
``(B) Archery equipment.--There is hereby imposed
on the sale by the manufacturer, producer, or
importer--
``(i) of any part or accessory suitable for
inclusion in or attachment to a bow described
in subparagraph (A), and
``(ii) of any quiver or broadhead suitable
for use with an arrow described in paragraph
(3),
a tax equal to 11 percent of the price for which so
sold.''.
(b) Arrows.--Section 4161(b) (relating to bows and arrows, etc.) is
amended by redesignating paragraph (3) as paragraph (4) and inserting
after paragraph (2) the following:
``(3) Arrows.--
``(A) In general.--There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
arrow, a tax equal to 12 percent of the price for which
so sold.
``(B) Exception.--The tax imposed by subparagraph
(A) on an arrow shall not apply if the arrow contains
an arrow shaft subject to the tax imposed by paragraph
(2).
``(C) Arrow.--For purposes of this paragraph, the
term `arrow' means any shaft described in paragraph (2)
to which additional components are attached.''.
(c) Conforming Amendment.--The heading of section 4161(b)(2)
(relating to arrows) is amended by striking ``Arrows.--'' and inserting
``Arrow Components.--''.
(d) Effective Date.--The amendments made by this section shall
apply to articles sold by the manufacturer, producer, or importer after
the date of the enactment of this Act.
Subtitle B--Agricultural Provisions
SEC. 411. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO APPLY TO
OUTRIGHT SALES BY LANDOWNERS.
(a) In General.--The first sentence of section 631(b) (relating to
disposal of timber with a retained economic interest) is amended by
striking ``retains an economic interest in such timber'' and inserting
``either retains an economic interest in such timber or makes an
outright sale of such timber''.
(b) Conforming Amendment.--The third sentence of section 631(b) is
amended by striking ``The date of disposal'' and inserting ``In the
case of disposal of timber with a retained economic interest, the date
of disposal''.
(c) Effective Date.--The amendments made by this section shall
apply to sales after the date of the enactment of this Act.
SEC. 412. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF WEATHER-
RELATED CONDITIONS.
(a) Rules for Replacement of Involuntarily Converted Livestock.--
Subsection (e) of section 1033 (relating to involuntary conversions) is
amended--
(1) by striking ``Conditions.--For purposes'' and inserting
``Conditions.--
``(1) In general.--For purposes'', and
(2) by adding at the end the following new paragraph:
``(2) Extension of replacement period.--
``(A) In general.--In the case of drought, flood,
or other weather-related conditions described in
paragraph (1) which result in the area being designated
as eligible for assistance by the Federal Government,
subsection (a)(2)(B) shall be applied with respect to
any converted property by substituting `4 years' for `2
years'.
``(B) Further extension by secretary.--The
Secretary may extend on a regional basis the period for
replacement under this section (after the application
of subparagraph (A)) for such additional time as the
Secretary determines appropriate if the weather-related
conditions which resulted in such application continue
for more than 3 years.''.
(b) Income Inclusion Rules.--Section 451(e) (relating to special
rule for proceeds from livestock sold on account of drought, flood, or
other weather-related conditions) is amended by adding at the end the
following new paragraph:
``(3) Special election rules.--If section 1033(e)(2)
applies to a sale or exchange of livestock described in
paragraph (1), the election under paragraph (1) shall be deemed
valid if made during the replacement period described in such
section.''.
(c) Effective Date.--The amendments made by this section shall
apply to any taxable year with respect to which the due date of the
return is after December 31, 2002.
SEC. 413. EXCLUSION FOR LOAN PAYMENTS UNDER NATIONAL HEALTH SERVICE
CORPS LOAN REPAYMENT PROGRAM.
(a) In General.--Section 108(f) (relating to student loans) is
amended by adding at the end the following new paragraph:
``(4) Loan payments under national health service corps
loan repayment program.--In the case of an individual, gross
income shall not include any amount received under section
338B(g) of the Public Health Service Act.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to amounts received by an individual in taxable years beginning
after December 31, 2002.
SEC. 414. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITHOUT
REDUCING PATRONAGE DIVIDENDS.
(a) In General.--Subsection (a) of section 1388 (relating to
patronage dividend defined) is amended by adding at the end the
following: ``For purposes of paragraph (3), net earnings shall not be
reduced by amounts paid during the year as dividends on capital stock
or other proprietary capital interests of the organization to the
extent that the articles of incorporation or bylaws of such
organization or other contract with patrons provide that such dividends
are in addition to amounts otherwise payable to patrons which are
derived from business done with or for patrons during the taxable
year.''.
(b) Effective Date.--The amendment made by this section shall apply
to distributions in taxable years ending after the date of the
enactment of this Act.
TITLE V--SIMPLIFICATION AND OTHER PROVISIONS
Subtitle A--Uniform Definition of Child
SEC. 501. 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's principal place of abode is the
home of the taxpayer, 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 test.--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) and subsection (e), 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 as such individual's principal place of abode the
home of 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 support test in case of students.--For
purposes of paragraph (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 in determining whether such individual
received more than one-half of such individual's support from
the taxpayer.
``(6) 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,
``(B) amounts expended for the support of a child
or children shall be treated as received from the
noncustodial parent (as defined in subsection
(e)(3)(B)) to the extent that such parent provided
amounts for such support, and
``(C) 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)(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 \1/2\ 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 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 that such parent will not
claim such child as a dependent for such
taxable year, and
``(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.
``(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 placed with the
taxpayer by an authorized placement agency for 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) 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.
``(4) Brother and sister.--The terms `brother' and `sister'
include a brother or sister by the half blood.
``(5) 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
individual 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).
``(6) 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. 502. 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. 503. 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. 504. 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. 505. 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. 506. 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. 507. TECHNICAL AND CONFORMING AMENDMENTS.
(1) 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)''.
(2) Section 21(e)(6)(B) is amended by striking ``section
151(c)(3)'' and inserting ``section 152(f)(1)''.
(3) Section 25B(c)(2)(B) is amended by striking
``151(c)(4)'' and inserting ``152(f)(2)''.
(4)(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)''.
(5) Section 72(t)(7)(A)(iii) is amended by striking
``151(c)(3)'' and inserting ``152(f)(1)''.
(6) Section 129(c)(2) is amended by striking ``151(c)(3)''
and inserting ``152(f)(1)''.
(7) The first sentence of section 132(h)(2)(B) is amended
by striking ``151(c)(3)'' and inserting ``152(f)(1)''.
(8) Section 153 is amended by striking paragraph (1) and by
redesignating paragraphs (2), (3), and (4) as paragraphs (1),
(2), and (3), respectively.
(9) 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)''.
(10) 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)''.
(11) 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)''.
(12) Section 2032A(c)(7)(D) is amended by striking
``section 151(c)(4)'' and inserting ``section 152(f)(2)''.
(13) Section 7701(a)(17) is amended by striking
``152(b)(4), 682,'' and inserting ``682''.
(14) 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)''.
(15) 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. 508. EFFECTIVE DATE.
The amendments made by this subtitle shall apply to taxable years
beginning after December 31, 2003.
Subtitle B--Simplification
SEC. 511. CONSOLIDATION OF LIFE AND NON-LIFE COMPANY RETURNS.
(a) In General.--Section 1504 (relating to definition of affiliated
group) is amended by striking subsection (c) and by redesignating
subsections (d), (e), and (f) as subsections (c), (d), and (e),
respectively.
(b) Conforming Amendments.--
(1) Section 243(b)(2)(A) is amended by striking ``,
1504(b)(4), and 1504(c)'' and inserting ``and 1504(b)(4)''.
(2) Section 818(e)(1) is amended by striking ``If an
election under section 1504(c)(2) is effect with respect to an
affiliated group for the taxable year'' and inserting ``If an
affiliated group includes members which are, and which are not,
life insurance companies for any taxable year''.
(3) Section 1503(c)(1) is amended by striking ``an election
under section 1504(c)(2) is in effect for the taxable year''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2009.
(d) Waiver of 5-Year Waiting Period.--Under regulations prescribed
by the Secretary of the Treasury or his delegate, an automatic waiver
from the 5-year waiting period for reconsolidation provided in section
1504(a)(3) of the Internal Revenue Code of 1986 shall be granted to any
corporation which was previously an includible corporation but was
subsequently deemed a nonincludible corporation as a result of becoming
a subsidiary of a corporation which was not an includible corporation
solely by operation of section 1504(c)(2) of such Code (as in effect on
the day before the date of the enactment of this Act).
(e) Nontermination of Group.--No affiliated group shall terminate
solely as a result of the amendments made by this section.
SEC. 512. SPECIAL RULES FOR TAXATION OF LIFE INSURANCE COMPANIES.
(a) Reduction in Mutual Life Insurance Company Deductions Not To
Apply.--
(1) In general.--Section 809 (relating to reduction in
certain deductions of material life insurance companies) is
amended by adding at the end the following:
``(j) Differential Earnings Rate Treated as Zero.--Notwithstanding
subsection (c) or (f), the differential earnings rate shall be treated
as zero for purposes of computing both the differential earnings amount
and the recomputed differential earnings amount for any taxable year of
a mutual life insurance company beginning after December 31, 2003, and
before January 1, 2009.''.
(2) Effective date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 2003.
(b) Distributions To Shareholders From Pre-1984 Policyholders
Surplus Account.--
(1) In general.--Section 815 (relating to distributions to
shareholders from pre-1984 policyholders surplus account) is
amended by adding at the end the following:
``(g) Special Rules Applicable During 2004 Through 2008.--In the
case of any taxable year of a stock life insurance company beginning
after December 31, 2003, and before January 1, 2009--
``(1) the amount under subsection (a)(2) for such taxable
year shall be treated as zero, and
``(2) notwithstanding subsection (b), in determining any
subtractions from an account under subsections (c)(3) and
(d)(3), any distribution to shareholders during such taxable
year shall be treated as made first out of the policyholders
surplus account, then out of the shareholders surplus account,
and finally out of other accounts.''.
(2) Effective date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 513. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER SECTION 355.
(a) In General.--Section 355(b) (defining active conduct of a trade
or business) is amended by adding at the end the following new
paragraph:
``(3) Special rules relating to active business
requirement.--
``(A) In general.--For purposes of determining
whether a corporation meets the requirement of
paragraph (2)(A), all members of such corporation's
separate affiliated group shall be treated as one
corporation. For purposes of the preceding sentence, a
corporation's separate affiliated group is the
affiliated group which would be determined under
section 1504(a) if such corporation were the common
parent and section 1504(b) did not apply.
``(B) Control.--For purposes of paragraph (2)(D),
all distributee corporations which are members of the
same affiliated group (as defined in section 1504(a)
without regard to section 1504(b)) shall be treated as
one distributee corporation.''.
(b) Conforming Amendments.--
(1) Subparagraph (A) of section 355(b)(2) is amended to
read as follows:
``(A) it is engaged in the active conduct of a
trade or business,''.
(2) Section 355(b)(2) is amended by striking the last
sentence.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply--
(A) to distributions after the date of the
enactment of this Act, and
(B) for purposes of determining the continued
qualification under section 355(b)(2)(A) of the
Internal Revenue Code of 1986 (as amended by subsection
(b)(1)) of distributions made before such date, as a
result of an acquisition, disposition, or other
restructuring after such date.
(2) Transition rule.--The amendments made by this section
shall not apply to any distribution pursuant to a transaction
which is--
(A) made pursuant to an agreement which was binding
on such date of enactment and at all times thereafter,
(B) described in a ruling request submitted to the
Internal Revenue Service on or before such date, or
(C) described on or before such date in a public
announcement or in a filing with the Securities and
Exchange Commission.
(3) Election to have amendments apply.--Paragraph (2) shall
not apply if the distributing corporation elects not to have
such paragraph apply to distributions of such corporation. Any
such election, once made, shall be irrevocable.
Subtitle C--Other Provisions
SEC. 521. CIVIL RIGHTS TAX RELIEF.
(a) Deduction Allowed Whether or Not Taxpayer Itemizes Other
Deductions.--Subsection (a) of section 62 (defining adjusted gross
income) is amended by inserting after paragraph (18) the following new
item:
``(19) Costs involving discrimination suits, etc.--Any
deduction allowable under this chapter for attorney fees and
court costs paid by, or on behalf of, the taxpayer in
connection with any action involving a claim of unlawful
discrimination (as defined in subsection (e)) or a claim of a
violation of subchapter III of chapter 37 of title 31, United
States Code. The preceding sentence shall not apply to any
deduction in excess of the amount includible in the taxpayer's
gross income for the taxable year on account of a judgment or
settlement (whether by suit or agreement and whether as lump
sum or periodic payments) resulting from such claim.''.
(b) Unlawful Discrimination Defined.--Section 62 is amended by
adding at the end the following new subsection:
``(e) Unlawful discrimination defined.--For purposes of subsection
(a)(19), the term `unlawful discrimination' means an act that is
unlawful under any of the following:
``(1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C.
1202).
``(2) Section 201, 202, 203, 204, 205, 206, or 207 of the
Congressional Accountability Act of 1995 (2 U.S.C. 1311, 1312,
1313, 1314, 1315, 1316, or 1317).
``(3) The National Labor Relations Act (29 U.S.C. 151 et
seq.).
``(4) The Fair Labor Standards Act of 1938 (29 U.S.C. 201
et seq.).
``(5) Section 4 or 15 of the Age Discrimination in
Employment Act of 1967 (29 U.S.C. 623 or 633a).
``(6) Section 501 or 504 of the Rehabilitation Act of 1973
(29 U.S.C. 791 or 794).
``(7) Section 510 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1140).
``(8) Title IX of the Education Amendments of 1972 (29
U.S.C. 1681 et seq.).
``(9) The Employee Polygraph Protection Act of 1988 (29
U.S.C. 201 et seq.).
``(10) The Worker Adjustment and Retraining Notification
Act (29 U.S.C. 2102 et seq.).
``(11) Section 105 of the Family and Medical Leave Act of
1993 (29 U.S.C. 2615).
``(12) Chapter 43 of title 38, United States Code (relating
to employment and reemployment rights of members of the
uniformed services).
``(13) Section 1977, 1979, or 1980 of the Revised Statutes
(42 U.S.C. 1981, 1983, or 1985).
``(14) Section 703, 704, or 717 of the Civil Rights Act of
1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
``(15) Section 804, 805, 806, 808, or 818 of the Fair
Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
``(16) Section 102, 202, 302, or 503 of the Americans with
Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or
12203).
``(17) Any provision of Federal law (popularly known as
whistleblower protection provisions) prohibiting the discharge
of an employee, the discrimination against an employee, or any
other form of retaliation or reprisal against an employee for
asserting rights or taking other actions permitted under
Federal law.
``(18) Any provision of State or local law, or common law
claims permitted under Federal, State, or local law--
``(i) providing for the enforcement of
civil rights, or
``(ii) regulating any aspect of the
employment relationship, including prohibiting
the discharge of an employee, the
discrimination against an employee, or any
other form of retaliation or reprisal against
an employee for asserting rights or taking
other actions permitted by law.''.
(c) Effective Date.--The amendments made by this section shall
apply to fees and costs paid after the date of the enactment of this
Act with respect to any judgment or settlement occurring after such
date.
SEC. 522. INCREASE IN SECTION 382 LIMITATION FOR COMPANIES EMERGING
FROM BANKRUPTCY.
(a) In General.--Section 382(b) (relating to section 382
limitation) is amended by adding at the end the following new
paragraph:
``(4) Increase in section 382 limitation for companies
emerging from bankruptcy.--In the case of any new loss
corporation which immediately before any ownership change was
an old loss corporation under the jurisdiction of the court in
a title 11 or similar case (as defined in subsection
(l)(5)(G)), the section 382 limitation for any post-change year
beginning in 2004 or 2005 shall be an amount equal to 200
percent of the amount otherwise determined under paragraph (1)
for such year.''.
(b) Effective Date.--The amendment made by this section shall apply
to ownership changes after December 31, 2002.
SEC. 523. INCREASE IN HISTORIC REHABILITATION CREDIT FOR CERTAIN LOW-
INCOME HOUSING FOR THE ELDERLY.
(a) In General.--Section 47 (relating to rehabilitation credit) is
amended by adding at the end the following new subsection:
``(e) Special Rule Regarding Certain Historic Structures.--In the
case of any qualified rehabilitation expenditure with respect to any
certified historic structure--
``(1) which is placed in service after the date of the
enactment of this subsection,
``(2) which is part of a qualified low-income building with
respect to which a credit under section 42 is allowed, and
``(3) substantially all of the residential rental units of
which are used for tenants who have attained the age of 65,
subsection (a)(2) shall be applied by substituting `25 percent' for `20
percent'.''.
(b) Application of MACRS.--The Internal Revenue Code of 1986 shall
be applied and administered as if paragraph (4)(X) of section 251(d) of
the Tax Reform Act of 1986 as applied to the amendments made by section
201 of such Act had not been enacted with respect to any property
described in such paragraph and placed in service after the date of the
enactment of this Act.
(c) Effective Date.--The amendment made by subsection (a) shall
apply to property placed in service after the date of the enactment of
this Act.
SEC. 524. MODIFICATION OF APPLICATION OF INCOME FORECAST METHOD OF
DEPRECIATION.
(a) In General.--Section 167(g) (relating to depreciation under
income forecast method) is amended by adding at the end the following
new paragraph:
``(7) Treatment of participations and residuals.--
``(A) In general.--For purposes of determining the
depreciation deduction allowable with respect to a
property under this subsection, the taxpayer may
include participations and residuals with respect to
such property in the adjusted basis of such property
for the taxable year in which the property is placed in
service, but only to the extent that such
participations and residuals relate to income estimated
(for purposes of this subsection) to be earned in
connection with the property before the close of the
10th taxable year referred to in paragraph (1)(A).
``(B) Participations and residuals.--For purposes
of this paragraph, the term `participations and
residuals' means, with respect to any property, costs
the amount of which by contract varies with the amount
of income earned in connection with such property.
``(C) Special rules relating to recomputation
years.--If the adjusted basis of any property is
determined under this paragraph, paragraph (4) shall be
applied by substituting `for each taxable year in such
period' for `for such period'.
``(D) Coordination with other rules.--
``(i) Notwithstanding subparagraph (A), the
taxpayer may exclude participations and
residuals from the adjusted basis of such
property and deduct such participations and
residuals in the taxable year that such
participations and residuals are paid.
``(ii) Deductions computed in accordance
with this paragraph shall be allowable
notwithstanding paragraph (1)(B) or sections
263, 263A, 404, 419, or 461(h).
``(E) Authority to make adjustments.--The Secretary
shall prescribe appropriate adjustments to the basis of
property and to the look-back method for the additional
amounts allowable as a deduction solely by reason of
this paragraph.''.
(b) Determination of Income.--Section 167(g)(5) (relating to
special rules) is amended by redesignating subparagraphs (E) and (F) as
subparagraphs (F) and (G), respectively, and inserting after
subparagraph (D) the following new subparagraph:
``(E) Treatment of distribution costs.--For
purposes of this subsection, the income with respect to
any property shall be the taxpayer's gross income from
such property.''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act.
SEC. 525. ADDITIONAL ADVANCE REFUNDINGS OF CERTAIN GOVERNMENTAL BONDS.
(a) In General.--Section 149(d)(3)(A)(i) (relating to advance
refundings of other bonds) is amended--
(1) by striking ``or'' at the end of subclause (I),
(2) by adding ``or'' at the end of subclause (II), and
(3) by inserting after subclause (II) the following:
``(III) the 2nd advance refunding
of the original bond if the original
bond was issued after 1985 or the 3rd
advance refunding of the original bond
if the original bond was issued before
1986, if, in either case, the refunding
bond is issued before the date which is
2 years after the date of the enactment
of this subclause and the original bond
was issued as part of an issue 90
percent or more of the net proceeds of
which were used to finance a public
elementary or secondary school in any
State in which the State's highest
court ruled by opinion issued on
November 21, 2002, that the State
school funding system violated the
State constitution and was
constitutionally inadequate,''.
(b) Effective Date.--The amendments made by this section shall
apply to refunding bonds issued on or after the date of the enactment
of this Act.
SEC. 526. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON HORSE
RACES FROM GROSS INCOME OF NONRESIDENT ALIEN INDIVIDUALS.
(a) In General.--Subsection (b) of section 872 (relating to
exclusions) is amended by redesignating paragraphs (5), (6), and (7) as
paragraphs (6), (7), and (8), respectively, and inserting after
paragraph (4) the following new paragraph:
``(5) Income derived from wagering transactions in certain
parimutuel pools.--Gross income derived by a nonresident alien
individual from a legal wagering transaction initiated outside
the United States in a parimutuel pool with respect to a live
horse race in the United States.''.
(b) Conforming Amendment.--Section 883(a)(4) is amended by striking
``(5), (6), and (7)'' and inserting ``(6), (7), and (8)''.
(c) Effective Date.--The amendments made by this section shall
apply to proceeds from wagering transactions after September 30, 2003.
SEC. 527. FEDERAL REIMBURSEMENT OF EMERGENCY HEALTH SERVICES FURNISHED
TO UNDOCUMENTED ALIENS.
(a) Total Amount Available for Allotment.--There is appropriated,
out of any funds in the Treasury not otherwise appropriated,
$48,000,000 for fiscal year 2004, for the purpose of making allotments
under this section to States described in paragraph (1) or (2) of
subsection (b). Funds appropriated under the preceding sentence shall
remain available until expended.
(b) State Allotments.--
(1) Based on percentage of undocumented aliens.--
(A) In general.--Out of the amount appropriated
under subsection (a) for fiscal year 2004, the
Secretary shall use $32,000,000 of such amount to make
allotments for such fiscal year in accordance with
subparagraph (B).
(B) Formula.--The amount of the allotment for each
State for fiscal year 2004 shall be equal to the
product of--
(i) the total amount available for
allotments under this paragraph for the fiscal
year; and
(ii) the percentage of undocumented aliens
residing in the State with respect to the total
number of such aliens residing in all States,
as determined by the Statistics Division of the
Immigration and Naturalization Service, as of
January 2003, based on the 2000 decennial
census.
(2) Based on number of undocumented alien apprehension
states.--
(A) In general.--Out of the amount appropriated
under subsection (a) for fiscal year 2004, the
Secretary shall use $16,000,000 of such amount to make
allotments for such fiscal year for each of the 6
States with the highest number of undocumented alien
apprehensions for such fiscal year.
(B) Determination of allotments.--The amount of the
allotment for each State described in subparagraph (A)
for fiscal year 2004 shall bear the same ratio to the
total amount available for allotments under this
paragraph for the fiscal year as the ratio of the
number of undocumented alien apprehensions in the State
in that fiscal year bears to the total of such numbers
for all such States for such fiscal year.
(C) Data.--For purposes of this paragraph, the
highest number of undocumented alien apprehensions for
fiscal year 2004 shall be based on the 4 most recent
quarterly apprehension rates for undocumented aliens in
such States, as reported by the Immigration and
Naturalization Service.
(3) Rule of construction.--Nothing in this section shall be
construed as prohibiting a State that is described in both of
paragraphs (1) and (2) from receiving an allotment under both
paragraphs for fiscal year 2004.
(c) Use of Funds.--
(1) Authority to make payments.--From the allotments made
for a State under subsection (b) for fiscal year 2004, the
Secretary shall pay directly to local governments, hospitals,
or other providers located in the State (including providers of
services received through an Indian Health Service facility
whether operated by the Indian Health Service or by an Indian
tribe or tribal organization) that provide uncompensated
emergency health services furnished to undocumented aliens
during that fiscal year, and to the State, such amounts
(subject to the total amount available from such allotments) as
the local governments, hospitals, providers, or State
demonstrate were incurred for the provision of such services
during that fiscal year.
(2) Limitation on state use of funds.--Funds paid to a
State from allotments made under subsection (b) for fiscal year
2004 may only be used for making payments to local governments,
hospitals, or other providers for costs incurred in providing
emergency health services to undocumented aliens or for State
costs incurred with respect to the provision of emergency
health services to such aliens.
(3) Inclusion of costs incurred with respect to certain
aliens.--Uncompensated emergency health services furnished to
aliens who have been allowed to enter the United States for the
sole purpose of receiving emergency health services may be
included in the determination of costs incurred by a State,
local government, hospital, or other provider with respect to
the provision of such services.
(d) Applications; Advance Payments.--
(1) Deadline for establishment of application process.--
(A) In general.--Not later than September 1, 2003,
the Secretary shall establish a process under which
States, local governments, hospitals, or other
providers located in the State may apply for payments
from allotments made under subsection (b) for fiscal
year 2004 for uncompensated emergency health services
furnished to undocumented aliens during that fiscal
year.
(B) Inclusion of measures to combat fraud.--The
Secretary shall include in the process established
under subparagraph (A) measures to ensure that
fraudulent payments are not made from the allotments
determined under subsection (b).
(2) Advance payment; Retrospective adjustment.--The process
established under paragraph (1) shall allow for making payments
under this section for each quarter of fiscal year 2004 on the
basis of advance estimates of expenditures submitted by
applicants for such payments and such other investigation as
the Secretary may find necessary, and for making reductions or
increases in the payments as necessary to adjust for any
overpayment or underpayment for prior quarters of such fiscal
year.
(e) Definitions.--In this section:
(1) Hospital.--The term ``hospital'' has the meaning given
such term in section 1861(e) of the Social Security Act (42
U.S.C. 1395x(e)).
(2) Indian tribe; tribal organization.--The terms ``Indian
tribe'' and ``tribal organization'' have the meanings given
such terms in section 4 of the Indian Health Care Improvement
Act (25 U.S.C. 1603).
(3) Provider.--The term ``provider'' includes a physician,
any other health care professional licensed under State law,
and any other entity that furnishes emergency health services,
including ambulance services.
(4) Secretary.--The term ``Secretary'' means the Secretary
of Health and Human Services.
(5) State.--The term ``State'' means the 50 States and the
District of Columbia.
(f) Entitlement.--This section constitutes budget authority in
advance of appropriations Acts and represents the obligation of the
Federal Government to provide for the payment of amounts provided under
this section.
SEC. 528. PREMIUMS FOR MORTGAGE INSURANCE.
(a) Mortgage Insurance Premiums Treated as Interest.--
(1) In general.--Paragraph (3) of section 163(h) (relating
to qualified residence interest) is amended by adding after
subparagraph (D) the following new subparagraph:
``(E) Mortgage insurance premiums treated as
interest.--
``(i) In general.--Premiums paid or accrued
for qualified mortgage insurance by a taxpayer
during the taxable year in connection with
acquisition indebtedness with respect to a
qualified residence of the taxpayer shall be
treated for purposes of this subsection as
qualified residence interest.
``(ii) Phaseout.--The amount otherwise
allowable as a deduction under clause (i) shall
be reduced (but not below zero) by 10 percent
of such amount for each $1,000 ($500 in the
case of a married individual filing a separate
return) (or fraction thereof) that the
taxpayer's adjusted gross income for the
taxable year exceeds $100,000 ($50,000 in the
case of a married individual filing a separate
return).''.
(2) Definition and special rules.--Paragraph (4) of section
163(h) (relating to other definitions and special rules) is
amended by adding at the end the following new subparagraphs:
``(E) Qualified mortgage insurance.--The term
`qualified mortgage insurance' means--
``(i) mortgage insurance provided by the
Veterans Administration, the Federal Housing
Administration, or the Rural Housing
Administration, and
``(ii) private mortgage insurance (as
defined by section 2 of the Homeowners
Protection Act of 1998 (12 U.S.C. 4901), as in
effect on the date of the enactment of this
subparagraph).
``(F) Special rules for prepaid qualified mortgage
insurance.--Any amount paid by the taxpayer for
qualified mortgage insurance that is properly allocable
to any mortgage the payment of which extends to periods
that are after the close of the taxable year in which
such amount is paid shall be chargeable to capital
account and shall be treated as paid in such periods to
which so allocated. No deduction shall be allowed for
the unamortized balance of such account if such
mortgage is satisfied before the end of its term. The
preceding sentences shall not apply to amounts paid for
qualified mortgage insurance provided by the Veterans
Administration or the Rural Housing Administration.''.
(b) Information Returns Relating to Mortgage Insurance.--Section
6050H (relating to returns relating to mortgage interest received in
trade or business from individuals) is amended by adding at the end the
following new subsection:
``(h) Returns Relating to Mortgage Insurance Premiums.--
``(1) In general.--The Secretary may prescribe, by
regulations, that any person who, in the course of a trade or
business, receives from any individual premiums for mortgage
insurance aggregating $600 or more for any calendar year, shall
make a return with respect to each such individual. Such return
shall be in such form, shall be made at such time, and shall
contain such information as the Secretary may prescribe.
``(2) Statement to be furnished to individuals with respect
to whom information is required.--Every person required to make
a return under paragraph (1) shall furnish to each individual
with respect to whom a return is made a written statement
showing such information as the Secretary may prescribe. Such
written statement shall be furnished on or before January 31 of
the year following the calendar year for which the return under
paragraph (1) was required to be made.
``(3) Special rules.--For purposes of this subsection--
``(A) rules similar to the rules of subsection (c)
shall apply, and
``(B) the term `mortgage insurance' means--
``(i) mortgage insurance provided by the
Veterans Administration, the Federal Housing
Administration, or the Rural Housing
Administration, and
``(ii) private mortgage insurance (as
defined by section 2 of the Homeowners
Protection Act of 1998 (12 U.S.C. 4901), as in
effect on the date of the enactment of this
subparagraph).''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or accrued after the date of enactment of this
section in taxable years ending after such date.
SEC. 529. SENSE OF THE SENATE ON REPEALING THE 1993 TAX HIKE ON SOCIAL
SECURITY BENEFITS SECTION.
(a) Findings.--(1) The 1993 tax on social security benefits was
imposed as part of President Clinton's agenda to raise taxes.
(2) The original 1993 tax hike on social security benefits was to
raise income taxes on social security retirees with as little as
$25,000 of income.
(3) Repeated efforts to repeal the 1993 tax hike on social security
benefits have failed.
(4) Seniors rely on social security benefits as well as dividend
income to fund their retirement and they should have taxes reduced on
both sources of income.
(b) Sense of the Senate.--It is the sense of the Senate that the
Senate Finance Committee should report out the Social Security Benefits
Tax Relief Act of 2003, S. 514, to repeal the tax on seniors not later
than July 31, 2003, and the Senate shall consider such bill not later
than September 30, 2003, in a manner consistent with the preservation
of the Medicare Trust Fund.
SEC. 530. FLAT TAX.
(a) Findings.--The Senate finds the following:
(1) The current Internal Revenue Code, with its myriad
deductions, credits and schedules, and over 17,000 pages of
rules and regulations, is long overdue for an overhaul.
(2) The current Internal Revenue Code has over
6,900,000,000 words compared to the bible at 1,773,000 words,
the Declaration of Independence at 1,300 words, The Gettysburg
Address at 267 words, and the Pledge of Allegiance at only 31
words.
(3) It is an unacceptable waste of our Nation's precious
resources when Americans spend more than 5,800,000,000 hours
every year compiling information and filling out Internal
Revenue Code tax forms. In addition, taxpayers spend
$194,000,000,000 each year in tax code compliance. America's
resources could be dedicated to far more productive pursuits.
(4) The primary goal of any tax reform is to promote growth
and remove the inefficiencies of the current tax code. The flat
tax will expand the economy by an estimated $2,000,000,000,000
over seven years.
(5) Another important goal of the flat tax is to achieve
fairness, with a single low flat tax rate for all individuals
and businesses.
(6) Simplicity is another critically important goal of the
flat tax, and it is in the public interest to have a ten-lined
tax form that fits on a postcard and takes 10 minutes to fill
out.
(7) A comprehensive analyses of our tax structure has
concluded that a flat tax of 19 percent could be imposed upon
individuals and be revenue neutral.
(8) If the decision is made to include deductibility on
items such as interest on home mortgages and charitable
contributions, the flat tax would be raised from a 19 percent
to a 20 percent rate to accommodate the deductions and remain
revenue neutral.
(9) The flat tax would tax business at a 20 percent rate on
net profits and be revenue neutral and lead to investment
decisions being made on the basis of productivity rather than
for tax avoidance.
(10) The flat tax would lead to the elimination of the
capital gains tax. This would become a powerful incentive for
savings and investment--which translates into economic growth
and expansion, more and better jobs, and raising the standard
of living for all Americans.
(11) The flat tax would lower the cost of capital by
allowing businesses to write off the cost of capital purchase
in the same year the purchase was made as opposed to complying
with complicated depreciation schedules.
(12) By eliminating the double tax on dividends, the flat
tax eliminates the distortions in the tax code favoring debt
over equity financing by businesses.
(13) The flat tax would eliminate the estate and gift tax.
With the elimination of the estate and gift tax, family-held
businesses will be much more stable under the flat tax system.
(14) As tax loopholes are eliminated and the tax code is
simplified, there will be far less opportunity for tax
avoidance and fraud, which now amounts to over $120,000,000,000
in uncollected revenue annually.
(b) Sense of the Senate.--It is the sense of the Senate that the
Senate Finance Committee and the Joint Economic Committee should
undertake a comprehensive analysis of simplification including flat tax
proposals, including appropriate hearings and consider legislation
providing for a flat tax.
SEC. 531. TOLL TAX ON EXCESS QUALIFIED FOREIGN DISTRIBUTION AMOUNT.
(a) In General.--Subpart F of part III of subchapter N of chapter 1
is amended by adding at the end the following new section:
``SEC. 965. TOLL TAX IMPOSED ON EXCESS QUALIFIED FOREIGN DISTRIBUTION
AMOUNT.
``(a) Toll Tax Imposed on Excess Qualified Foreign Distribution
Amount.--If a corporation elects the application of this section, a tax
shall be imposed on the taxpayer in an amount equal to 5.25 percent
of--
``(1) the taxpayer's excess qualified foreign distribution
amount, and
``(2) the amount determined under section 78 which is
attributable to such excess qualified foreign distribution
amount.
Such tax shall be imposed in lieu of the tax imposed under section 11
or 55 on the amounts described in paragraphs (1) and (2) for such
taxable year.
``(b) Excess Qualified Foreign Distribution Amount.--For purposes
of this section--
``(1) In general.--The term `excess qualified foreign
distribution amount' means the excess (if any) of--
``(A) dividends received by the taxpayer during the
taxable year which are--
``(i) from 1 or more corporations which are
controlled foreign corporations in which the
taxpayer is a United States shareholder on the
date such dividends are paid, and
``(ii) described in a domestic reinvestment
plan approved by the taxpayer's president,
chief executive officer, or comparable official
before the payment of such dividends and
subsequently approved by the taxpayer's board
of directors, management committee, executive
committee, or similar body, which plan shall
provide for the reinvestment of such dividends
in the United States, including as a source for
the funding of worker hiring and training;
infrastructure; research and development;
capital investments; or the financial
stabilization of the corporation for the
purposes of job retention or creation, over
``(B) the base dividend amount.
``(2) Base dividend amount.--The term `base dividend
amount' means an amount designated under subsection (c)(7), but
not less than the average amount of dividends received during
the fixed base period from 1 or more corporations which are
controlled foreign corporations in which the taxpayer is a
United States shareholder on the date such dividends are paid.
``(3) Fixed base period.--
``(A) In general.--The term `fixed base period'
means each of 3 taxable years which are among the 5
most recent taxable years of the taxpayer ending on or
before December 31, 2002, determined by disregarding--
``(i) the 1 taxable year for which the
taxpayer had the highest amount of dividends
from 1 or more corporations which are
controlled foreign corporations relative to the
other 4 taxable years, and
``(ii) the 1 taxable year for which the
taxpayer had the lowest amount of dividends
from such corporations relative to the other 4
taxable years.
``(B) Shorter period.--If the taxpayer has fewer
than 5 taxable years ending on or before December 31,
2002, then in lieu of applying subparagraph (A), the
fixed base period shall mean such shorter period
representing all of the taxable years of the taxpayer
ending on or before December 31, 2002.
``(c) Definitions and Special Rules.--For purposes of this
section--
``(1) Dividends.--The term `dividend' means a dividend as
defined in section 316, except that the term shall also include
amounts described in section 951(a)(1)(B), and shall exclude
amounts described in sections 78 and 959.
``(2) Controlled foreign corporations and united states
shareholders.--The term `controlled foreign corporation' shall
have the same meaning as under section 957(a) and the term
`United States shareholder' shall have the same meaning as
under section 951(b).
``(3) Foreign tax credits.--The amount of any income, war,
profits, or excess profit taxes paid (or deemed paid under
sections 902 and 960) or accrued by the taxpayer with respect
to the excess qualified foreign distribution amount for which a
credit would be allowable under section 901 in the absence of
this section, shall be reduced by 85 percent.
``(4) Foreign tax credit limitation.--For all purposes of
section 904, there shall be disregarded 85 percent of--
``(A) the excess qualified foreign distribution
amount,
``(B) the amount determined under section 78 which
is attributable to such excess qualified foreign
distribution amount, and
``(C) the amounts (including assets, gross income,
and other relevant bases of apportionment) which are
attributable to the excess qualified foreign
distribution amount which would, determined without
regard to this section, be used to apportion the
expenses, losses, and deductions of the taxpayer under
section 861 and 864 in determining its taxable income
from sources without the United States.
For purposes of applying subparagraph (C), the principles of
section 864(e)(3)(A) shall apply.
``(5) Treatment of acquisitions and dispositions.--Rules
similar to the rules of section 41(f)(3) shall apply in the
case of acquisitions or dispositions of controlled foreign
corporations occurring on or after the first day of the
earliest taxable year taken into account in determining the
fixed base period.
``(6) Treatment of consolidated groups.--Members of an
affiliated group of corporations filing a consolidated return
under section 1501 shall be treated as a single taxpayer in
applying the rules of this section.
``(7) Designation of dividends.--Subject to subsection
(b)(2), the taxpayer shall designate the particular dividends
received during the taxable year from 1 or more corporations
which are controlled foreign corporations in which it is a
United States shareholder which are dividends excluded from the
excess qualified foreign distribution amount. The total amount
of such designated dividends shall equal the base dividend
amount.
``(8) Treatment of expenses, losses, and deductions.--Any
expenses, losses, or deductions of the taxpayer allowable under
subchapter B--
``(A) shall not be applied to reduce the amounts
described in subsection (a)(1), and
``(B) shall be applied to reduce other income of
the taxpayer (determined without regard to the amounts
described in subsection (a)(1)).
``(d) Election.--
``(1) In general.--An election under this section shall be
made on the taxpayer's timely filed income tax return for the
taxable year (determined by taking extensions into account)
ending 120 days or more after the date of the enactment of this
section, and, once made, may be revoked only with the consent
of the Secretary.
``(2) All controlled foreign corporations.--The election
shall apply to all corporations which are controlled foreign
corporations in which the taxpayer is a United States
shareholder during the taxable year.
``(3) Consolidated groups.--If a taxpayer is a member of an
affiliated group of corporations filing a consolidated return
under section 1501 for the taxable year, an election under this
section shall be made by the common parent of the affiliated
group which includes the taxpayer, and shall apply to all
members of the affiliated group.
``(e) Regulations.--The Secretary shall prescribe such regulations
as may be necessary and appropriate to carry out the purposes of this
section, including regulations under section 55 and regulations
addressing corporations which, during the fixed base period or
thereafter, join or leave an affiliated group of corporations filing a
consolidated return.''.
(b) Conforming Amendment.--The table of sections for subpart F of
part III of subchapter N of chapter 1 is amended by adding at the end
the following new item:
``Sec. 965. Toll tax imposed on excess
qualified foreign distribution
amount.''.
(c) Effective Date.--Except as otherwise provided, the amendments
made by this section, other than the amendment made by subsection (d),
shall apply only to the first taxable year of the electing taxpayer
ending 120 days or more after the date of the enactment of this Act.
(d) Termination of Rehabilitation Credit for Buildings Other Than
Certified Historic Structures.--Section 47 (relating to rehabilitation
credit) is amended by adding at the end the following new subsection:
``(e) Termination of Credit for Buildings Other Than Certified
Historic Structures.--No credit shall be allowed under subsection
(a)(1) with respect to expenditures incurred after December 31,
2003.''.
SEC. 532. CHILD SUPPORT ENFORCEMENT.
(a) Inclusion in Income of Amount of Unpaid Child Support.--Section
108 (relating to discharge of indebtedness income) is amended by adding
at the end the following new subsection:
``(h) Unpaid Child Support.--
``(1) In general.--For purposes of this chapter, any unpaid
child support of a delinquent debtor for any taxable year shall
be treated as amounts includible in gross income of the
delinquent debtor for the taxable year.
``(2) Definitions.--For the purposes of this subsection--
``(A) Child support.--The term `child support'
means--
``(i) any periodic payment of a fixed
amount, or
``(ii) any payment of a medical expense,
education expense, insurance premium, or other
similar item,
which is required to be paid to a custodial parent by
an individual under a support instrument for the
support of any qualifying child of such individual.
`Child support' does not include any amount which is
described in section 408(a)(3) of the Social Security
Act and which has been assigned to a State.
``(B) Custodial parent.--The term `custodial
parent' means an individual who is entitled to receive
child support and who has registered with the
appropriate State office of child support enforcement
charged with implementing section 454 of the Social
Security Act.
``(C) Delinquent debtor.--The term `delinquent
debtor' means a taxpayer who owes unpaid child support
to a custodial parent.
``(D) Qualifying child.--The term `qualifying
child' means a child of a custodial parent with respect
to whom a dependent deduction is allowable under
section 151 for the taxable year (or would be so
allowable but for paragraph (2) or (4) of section
152(e)).
``(E) Support instrument.--The term `support
instrument' means--
``(i) a decree of divorce or separate
maintenance or a written instrument incident to
such a decree,
``(ii) a written separation agreement, or
``(iii) a decree (not described in clause
(i)) of a court or administrative agency
requiring a parent to make payments for the
support or maintenance of 1 or more children of
such parent.
``(F) Unpaid child support.--The term `unpaid child
support' means child support that is payable for months
during a custodial parent's taxable year and unpaid as
of the last day of such taxable year, provided that
such unpaid amount as of such day equals or exceeds
one-half of the total amount of child support due to
the custodial parent for such year.
``(3) Coordination with other laws.--Amounts treated as
income by paragraph (1) shall not be treated as income by
reason of paragraph (1) for the purposes of any provision of
law which is not an internal revenue law.''.
(b) Effective Date; Implementation.--The amendments made by is
section shall apply to taxable years beginning after December 31, 2002.
The Secretary of the Treasury shall publish Form 1099-CS (or such other
form that may be prescribed to comply with the amendment made by
subsection (b)(1)) and regulations, if any, that may be deemed
necessary to carry out the purposes of this Act, not later than 90 days
after the date of enactment of this Act.
SEC. 533. LOW-INCOME HOUSING TAX CREDIT.
(a) Findings.--The Senate finds the following:
(1) The low-income housing tax credit is the Nation's
primary program for producing affordable rental housing.
(2) Each year, the low-income housing tax credit produces
over 115,000 affordable apartments.
(3) Since Congress created the low-income housing tax
credit in 1986, the credit has created 1,500,000 units of
affordable housing for about 3,500,000 Americans.
(4) Analyses have found that certain approaches to reducing
or eliminating the taxation of dividends have the potential to
reduce the value of the low-income housing tax credit and so
reduce the amount of affordable housing available.
(5) As of 2001, over 7,000,000 American renter families (1
in 5) suffer severe housing affordability problems, meaning
that the family spends more than half of its income on rent or
lives in substandard housing.
(6) More than 150,000 apartments in the low-cost rental
housing inventory are lost each year due to rent increases,
abandonment, and deterioration.
(b) Sense of the Senate.--It is the sense of the Senate that any
reduction or elimination of the taxation on dividends should include
provisions to preserve the success of the low-income housing tax
credit.
SEC. 534. EXPENSING OF BROADBAND INTERNET ACCESS EXPENDITURES.
(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations) is amended by
inserting after section 190 the following new section:
``SEC. 191. BROADBAND EXPENDITURES.
``(a) Treatment of Expenditures.--
``(1) In general.--A taxpayer may elect to treat any
qualified broadband expenditure which is paid or incurred by
the taxpayer as an expense which is not chargeable to capital
account. Any expenditure which is so treated shall be allowed
as a deduction.
``(2) Election.--An election under paragraph (1) shall be
made at such time and in such manner as the Secretary may
prescribe by regulation.
``(b) Qualified Broadband Expenditures.--For purposes of this
section--
``(1) In general.--The term `qualified broadband
expenditure' means, with respect to any taxable year, any
direct or indirect costs incurred and properly taken into
account with respect to the purchase or installation of
qualified equipment (including any upgrades thereto), together
with any direct or indirect costs incurred and properly taken
into account with respect to the connection of such qualified
equipment to any qualified subscriber, but only if such costs
are incurred after December 31, 2003, and before January 1,
2005.
``(2) Certain satellite expenditures excluded.--Such term
shall not include any costs incurred with respect to the
launching of any satellite equipment.
``(3) Leased equipment.--Such term shall include so much of
the purchase price paid by the lessor of equipment subject to a
lease described in subsection (c)(2)(B) as is attributable to
expenditures incurred by the lessee which would otherwise be
described in paragraph (1).
``(4) Limitation with regard to current generation
broadband services.--Only 50 percent of the amounts taken into
account under paragraph (1) with respect to qualified equipment
through which current generation broadband services are
provided shall be treated as qualified broadband expenditures.
``(c) When Expenditures Taken Into Account.--For purposes of this
section--
``(1) In general.--Qualified broadband expenditures with
respect to qualified equipment shall be taken into account with
respect to the first taxable year in which--
``(A) current generation broadband services are
provided through such equipment to qualified
subscribers, or
``(B) next generation broadband services are
provided through such equipment to qualified
subscribers.
``(2) Limitation.--
``(A) In general.--Qualified expenditures shall be
taken into account under paragraph (1) only with
respect to qualified equipment--
``(i) the original use of which commences
with the taxpayer, and
``(ii) which is placed in service,
after December 31, 2003.
``(B) Sale-leasebacks.--For purposes of
subparagraph (A), if property--
``(i) is originally placed in service after
December 31, 2003, by any person, and
``(ii) sold and leased back by such person
within 3 months after the date such property
was originally placed in service,
such property shall be treated as originally placed in
service not earlier than the date on which such
property is used under the leaseback referred to in
clause (ii).
``(d) Special Allocation Rules.--
``(1) Current generation broadband services.--For purposes
of determining the amount of qualified broadband expenditures
under subsection (a)(1) with respect to qualified equipment
through which current generation broadband services are
provided, if the qualified equipment is capable of serving both
qualified subscribers and other subscribers, the qualified
broadband expenditures shall be multiplied by a fraction--
``(A) the numerator of which is the sum of the
number of potential qualified subscribers within the
rural areas and the underserved areas which the
equipment is capable of serving with current generation
broadband services, and
``(B) the denominator of which is the total
potential subscriber population of the area which the
equipment is capable of serving with current generation
broadband services.
``(2) Next generation broadband services.--For purposes of
determining the amount of qualified broadband expenditures
under subsection (a)(1) with respect to qualified equipment
through which next generation broadband services are provided,
if the qualified equipment is capable of serving both qualified
subscribers and other subscribers, the qualified expenditures
shall be multiplied by a fraction--
``(A) the numerator of which is the sum of--
``(i) the number of potential qualified
subscribers within the rural areas and
underserved areas, plus
``(ii) the number of potential qualified
subscribers within the area consisting only of
residential subscribers not described in clause
(i),
which the equipment is capable of serving with next
generation broadband services, and
``(B) the denominator of which is the total
potential subscriber population of the area which the
equipment is capable of serving with next generation
broadband services.
``(e) Definitions.--For purposes of this section--
``(1) Antenna.--The term `antenna' means any device used to
transmit or receive signals through the electromagnetic
spectrum, including satellite equipment.
``(2) Cable operator.--The term `cable operator' has the
meaning given such term by section 602(5) of the Communications
Act of 1934 (47 U.S.C. 522(5)).
``(3) Commercial mobile service carrier.--The term
`commercial mobile service carrier' means any person authorized
to provide commercial mobile radio service as defined in
section 20.3 of title 47, Code of Federal Regulations.
``(4) Current generation broadband service.--The term
`current generation broadband service' means the transmission
of signals at a rate of at least 1,000,000 bits per second to
the subscriber and at least 128,000 bits per second from the
subscriber.
``(5) Multiplexing or demultiplexing.--The term
`multiplexing' means the transmission of 2 or more signals over
a single channel, and the term `demultiplexing' means the
separation of 2 or more signals previously combined by
compatible multiplexing equipment.
``(6) Next generation broadband service.--The term `next
generation broadband service' means the transmission of signals
at a rate of at least 22,000,000 bits per second to the
subscriber and at least 5,000,000 bits per second from the
subscriber.
``(7) Nonresidential subscriber.--The term `nonresidential
subscriber' means any person who purchases broadband services
which are delivered to the permanent place of business of such
person.
``(8) Open video system operator.--The term `open video
system operator' means any person authorized to provide service
under section 653 of the Communications Act of 1934 (47 U.S.C.
573).
``(9) Other wireless carrier.--The term `other wireless
carrier' means any person (other than a telecommunications
carrier, commercial mobile service carrier, cable operator,
open video system operator, or satellite carrier) providing
current generation broadband services or next generation
broadband service to subscribers through the radio transmission
of energy.
``(10) Packet switching.--The term `packet switching' means
controlling or routing the path of any digitized transmission
signal which is assembled into packets or cells.
``(11) Provider.--The term `provider' means, with respect
to any qualified equipment--
``(A) a cable operator,
``(B) a commercial mobile service carrier,
``(C) an open video system operator,
``(D) a satellite carrier,
``(E) a telecommunications carrier, or
``(F) any other wireless carrier,
providing current generation broadband services or next
generation broadband services to subscribers through such
qualified equipment.
``(12) Provision of services.--A provider shall be treated
as providing services to 1 or more subscribers if--
``(A) such a subscriber has been passed by the
provider's equipment and can be connected to such
equipment for a standard connection fee,
``(B) the provider is physically able to deliver
current generation broadband services or next
generation broadband services, as applicable, to such a
subscriber without making more than an insignificant
investment with respect to such subscriber,
``(C) the provider has made reasonable efforts to
make such subscribers aware of the availability of such
services,
``(D) such services have been purchased by 1 or
more such subscribers, and
``(E) such services are made available to such
subscribers at average prices comparable to those at
which the provider makes available similar services in
any areas in which the provider makes available such
services.
``(13) Qualified equipment.--
``(A) In general.--The term `qualified equipment'
means equipment which provides current generation
broadband services or next generation broadband
services--
``(i) at least a majority of the time
during periods of maximum demand to each
subscriber who is utilizing such services, and
``(ii) in a manner substantially the same
as such services are provided by the provider
to subscribers through equipment with respect
to which no deduction is allowed under
subsection (a)(1).
``(B) Only certain investment taken into account.--
Except as provided in subparagraph (C) or (D),
equipment shall be taken into account under
subparagraph (A) only to the extent it--
``(i) extends from the last point of
switching to the outside of the unit, building,
dwelling, or office owned or leased by a
subscriber in the case of a telecommunications
carrier,
``(ii) extends from the customer side of
the mobile telephone switching office to a
transmission/receive antenna (including such
antenna) owned or leased by a subscriber in the
case of a commercial mobile service carrier,
``(iii) extends from the customer side of
the headend to the outside of the unit,
building, dwelling, or office owned or leased
by a subscriber in the case of a cable operator
or open video system operator, or
``(iv) extends from a transmission/receive
antenna (including such antenna) which
transmits and receives signals to or from
multiple subscribers, to a transmission/receive
antenna (including such antenna) on the outside
of the unit, building, dwelling, or office
owned or leased by a subscriber in the case of
a satellite carrier or other wireless carrier,
unless such other wireless carrier is also a
telecommunications carrier.
``(C) Packet switching equipment.--Packet switching
equipment, regardless of location, shall be taken into
account under subparagraph (A) only if it is deployed
in connection with equipment described in subparagraph
(B) and is uniquely designed to perform the function of
packet switching for current generation broadband
services or next generation broadband services, but
only if such packet switching is the last in a series
of such functions performed in the transmission of a
signal to a subscriber or the first in a series of such
functions performed in the transmission of a signal
from a subscriber.
``(D) Multiplexing and demultiplexing equipment.--
Multiplexing and demultiplexing equipment shall be
taken into account under subparagraph (A) only to the
extent it is deployed in connection with equipment
described in subparagraph (B) and is uniquely designed
to perform the function of multiplexing and
demultiplexing packets or cells of data and making
associated application adaptions, but only if such
multiplexing or demultiplexing equipment is located
between packet switching equipment described in
subparagraph (C) and the subscriber's premises.
``(14) Qualified subscriber.--The term `qualified
subscriber' means--
``(A) with respect to the provision of current
generation broadband services--
``(i) any nonresidential subscriber
maintaining a permanent place of business in a
rural area or underserved area, or
``(ii) any residential subscriber residing
in a dwelling located in a rural area or
underserved area which is not a saturated
market, and
``(B) with respect to the provision of next
generation broadband services--
``(i) any nonresidential subscriber
maintaining a permanent place of business in a
rural area or underserved area, or
``(ii) any residential subscriber.
``(15) Residential subscriber.--The term `residential
subscriber' means any individual who purchases broadband
services which are delivered to such individual's dwelling.
``(16) Rural area.--The term `rural area' means any census
tract which--
``(A) is not within 10 miles of any incorporated or
census designated place containing more than 25,000
people, and
``(B) is not within a county or county equivalent
which has an overall population density of more than
500 people per square mile of land.
``(17) Rural subscriber.--The term `rural subscriber' means
any residential subscriber residing in a dwelling located in a
rural area or nonresidential subscriber maintaining a permanent
place of business located in a rural area.
``(18) Satellite carrier.--The term `satellite carrier'
means any person using the facilities of a satellite or
satellite service licensed by the Federal Communications
Commission and operating in the Fixed-Satellite Service under
part 25 of title 47 of the Code of Federal Regulations or the
Direct Broadcast Satellite Service under part 100 of title 47
of such Code to establish and operate a channel of
communications for distribution of signals, and owning or
leasing a capacity or service on a satellite in order to
provide such point-to-multipoint distribution.
``(19) Saturated market.--The term `saturated market' means
any census tract in which, as of the date of the enactment of
this section--
``(A) current generation broadband services have
been provided by a single provider to 85 percent or
more of the total number of potential residential
subscribers residing in dwellings located within such
census tract, and
``(B) such services can be utilized--
``(i) at least a majority of the time
during periods of maximum demand by each such
subscriber who is utilizing such services, and
``(ii) in a manner substantially the same
as such services are provided by the provider
to subscribers through equipment with respect
to which no deduction is allowed under
subsection (a)(1).
``(20) Subscriber.--The term `subscriber' means any person
who purchases current generation broadband services or next
generation broadband services.
``(21) Telecommunications carrier.--The term
`telecommunications carrier' has the meaning given such term by
section 3(44) of the Communications Act of 1934 (47 U.S.C.
153(44)), but--
``(A) includes all members of an affiliated group
of which a telecommunications carrier is a member, and
``(B) does not include a commercial mobile service
carrier.
``(22) Total potential subscriber population.--The term
`total potential subscriber population' means, with respect to
any area and based on the most recent census data, the total
number of potential residential subscribers residing in
dwellings located in such area and potential nonresidential
subscribers maintaining permanent places of business located in
such area.
``(23) Underserved area.--The term `underserved area' means
any census tract which is located in--
``(A) an empowerment zone or enterprise community
designated under section 1391,
``(B) the District of Columbia Enterprise Zone
established under section 1400,
``(C) a renewal community designated under section
1400E, or
``(D) a low-income community designated under
section 45D.
``(24) Underserved subscriber.--The term `underserved
subscriber' means any residential subscriber residing in a
dwelling located in an underserved area or nonresidential
subscriber maintaining a permanent place of business located in
an underserved area.
``(f) Special Rules.--
``(1) Property used outside the united states, etc., not
qualified.--No expenditures shall be taken into account under
subsection (a)(1) with respect to the portion of the cost of
any property referred to in section 50(b) or with respect to
the portion of the cost of any property taken into account
under section 179.
``(2) Basis reduction.--
``(A) In general.--For purposes of this title, the
basis of any property shall be reduced by the portion
of the cost of such property taken into account under
subsection (a)(1).
``(B) Ordinary income recapture.--For purposes of
section 1245, the amount of the deduction allowable
under subsection (a)(1) with respect to any property
which is of a character subject to the allowance for
depreciation shall be treated as a deduction allowed
for depreciation under section 167.
``(3) Coordination with section 38.--No credit shall be
allowed under section 38 with respect to any amount for which a
deduction is allowed under subsection (a)(1).''.
(b) Special Rule for Mutual or Cooperative Telephone Companies.--
Section 501(c)(12)(B) (relating to list of exempt organizations) is
amended by striking ``or'' at the end of clause (iii), by striking the
period at the end of clause (iv) and inserting ``, or'', and by adding
at the end the following:
``(v) from the sale of property subject to
a lease described in section 191(c)(2)(B), but
only to the extent such income does not in any
year exceed an amount equal to the qualified
broadband expenditures which would be taken
into account under section 191 for such year if
the mutual or cooperative telephone company was
not exempt from taxation and was treated as the
owner of the property subject to such lease.''.
(c) Conforming Amendments.--
(1) Section 263(a)(1) (relating to capital expenditures) is
amended by striking ``or'' at the end of subparagraph (G), by
striking the period at the end of subparagraph (H) and
inserting ``, or'', and by adding at the end the following new
subparagraph:
``(I) expenditures for which a deduction is allowed
under section 191.''.
(2) Section 1016(a) of such Code is amended by striking
``and'' at the end of paragraph (27), by striking the period at
the end of paragraph (28) and inserting ``, and'', and by
adding at the end the following new paragraph:
``(29) to the extent provided in section 191(f)(2).''.
(3) The table of sections for part VI of subchapter A of
chapter 1 of such Code is amended by inserting after the item
relating to section 190 the following new item:
``Sec. 191. Broadband expenditures.''.
(d) Designation of Census Tracts.--
(1) In general.--The Secretary of the Treasury shall, not
later than 90 days after the date of the enactment of this Act,
designate and publish those census tracts meeting the criteria
described in paragraphs (16), (22), and (23) of section 191(e)
of the Internal Revenue Code of 1986 (as added by this
section). In making such designations, the Secretary of the
Treasury shall consult with such other departments and agencies
as the Secretary determines appropriate.
(2) Saturated market.--
(A) In general.--For purposes of designating and
publishing those census tracts meeting the criteria
described in subsection (e)(19) of such section 191--
(i) the Secretary of the Treasury shall
prescribe not later than 30 days after the date
of the enactment of this Act the form upon
which any provider which takes the position
that it meets such criteria with respect to any
census tract shall submit a list of such census
tracts (and any other information required by
the Secretary) not later than 60 days after the
date of the publication of such form, and
(ii) the Secretary of the Treasury shall
publish an aggregate list of such census tracts
and the applicable providers not later than 30
days after the last date such submissions are
allowed under clause (i).
(B) No subsequent lists required.--The Secretary of
the Treasury shall not be required to publish any list
of census tracts meeting such criteria subsequent to
the list described in subparagraph (A)(ii).
(C) Authority to disregard false submissions.--In
addition to imposing any other applicable penalties,
the Secretary of the Treasury shall have the discretion
to disregard any form described in subparagraph (A)(i)
on which a provider knowingly submitted false
information.
(e) Other Regulatory Matters.--
(1) Prohibition.--No Federal or State agency or
instrumentality shall adopt regulations or ratemaking
procedures that would have the effect of confiscating any
deduction or portion thereof allowed under section 191 of the
Internal Revenue Code of 1986 (as added by this section) or
otherwise subverting the purpose of this section.
(2) Treasury regulatory authority.--It is the intent of
Congress in providing the election to deduct qualified
broadband expenditures under section 191 of the Internal
Revenue Code of 1986 (as added by this section) to provide
incentives for the purchase, installation, and connection of
equipment and facilities offering expanded broadband access to
the Internet for users in certain low income and rural areas of
the United States, as well as to residential users nationwide,
in a manner that maintains competitive neutrality among the
various classes of providers of broadband services.
Accordingly, the Secretary of the Treasury shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of section 191 of such Code, including--
(A) regulations to determine how and when a
taxpayer that incurs qualified broadband expenditures
satisfies the requirements of section 191 of such Code
to provide broadband services, and
(B) regulations describing the information,
records, and data taxpayers are required to provide the
Secretary to substantiate compliance with the
requirements of section 191 of such Code.
(f) Effective Date.--The amendments made by this section shall
apply to expenditures incurred after December 31, 2003.
SEC. 535. INCOME TAX CREDIT FOR DISTILLED SPIRITS WHOLESALERS AND FOR
DISTILLED SPIRITS IN CONTROL STATE BAILMENT WAREHOUSES
FOR COSTS OF CARRYING FEDERAL EXCISE TAXES ON BOTTLED
DISTILLED SPIRITS.
(a) In General.--Subpart A of part I of subchapter A of chapter 51
(relating to gallonage and occupational taxes) is amended by adding at
the end the following new section:
``SEC. 5011. INCOME TAX CREDIT FOR AVERAGE COST OF CARRYING EXCISE TAX.
``(a) In General.--For purposes of section 38, the amount of the
distilled spirits credit for any taxable year is the amount equal to
the product of--
``(1) in the case of--
``(A) any eligible wholesaler--
``(i) the number of cases of bottled
distilled spirits--
``(I) which were bottled in the
United States, and
``(II) which are purchased by such
wholesaler during the taxable year
directly from the bottler of such
spirits, or
``(B) any person which is subject to section 5005
and which is not an eligible wholesaler, the number of
cases of bottled distilled spirits which are stored in
a warehouse operated by, or on behalf of, a State, or
agency or political subdivision thereof, on which title
has not passed on an unconditional sale basis, and
``(2) the average tax-financing cost per case for the most
recent calendar year ending before the beginning of such
taxable year.
``(b) Eligible Wholesaler.--For purposes of this section, the term
`eligible wholesaler' means any person which holds a permit under the
Federal Alcohol Administration Act as a wholesaler of distilled spirits
which is not a State, or agency or political subdivision thereof.
``(c) Average Tax-Financing Cost.--
``(1) In general.--For purposes of this section, the
average tax-financing cost per case for any calendar year is
the amount of interest which would accrue at the deemed
financing rate during a 60-day period on an amount equal to the
deemed Federal excise tax per case.
``(2) Deemed financing rate.--For purposes of paragraph
(1), the deemed financing rate for any calendar year is the
average of the corporate overpayment rates under paragraph (1)
of section 6621(a) (determined without regard to the last
sentence of such paragraph) for calendar quarters of such year.
``(3) Deemed federal excise tax per case.--For purposes of
paragraph (1), the deemed Federal excise tax per case is
$25.68.
``(d) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Case.--The term `case' means 12 80-proof 750
milliliter bottles.
``(2) Number of cases in lot.--The number of cases in any
lot of distilled spirits shall be determined by dividing the
number of liters in such lot by 9.''.
(b) Conforming Amendments.--
(1) Subsection (b) of section 38 is amended by striking
``plus'' at the end of paragraph (14), by striking the period
at the end of paragraph (15) and inserting ``, plus'', and by
adding at the end the following new paragraph:
``(16) the distilled spirits credit determined under
section 5011(a).''.
(2) Subsection (d) of section 39 (relating to carryback and
carryforward of unused credits) is amended by adding at the end
the following new paragraph:
``(11) No carryback of section 5011 credit before january
1, 2003.--No portion of the unused business credit for any
taxable year which is attributable to the credit determined
under section 5011(a) may be carried back to a taxable year
beginning before January 1, 2003.''.
(3) The table of sections for subpart A of part I of
subchapter A of chapter 51 is amended by adding at the end the
following new item:
``Sec. 5011. Income tax credit for
average cost of carrying excise
tax.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 536. CLARIFICATION OF CONTRIBUTION IN AID OF CONSTRUCTION FOR
WATER AND SEWERAGE DISPOSAL UTILITIES.
(a) In General.--Subparagraph (A) of section 118(c)(3) (relating to
definitions) is amended to read as follows:
``(A) Contribution in aid of construction.--The
term `contribution in aid of construction' shall be
defined by regulations prescribed by the Secretary,
except that such term--
``(i) shall include amounts paid as
customer connection fees (including amounts
paid to connect the customer's water service
line or sewer lateral line to the utility's
distribution or collection system or extend a
main water or sewer line to provide service to
a customer), and
``(ii) shall not include amounts paid as
service charges for starting or stopping
services.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to contributions made after the date of the enactment of this
Act.
SEC. 537. RESTORATION OF DEDUCTION FOR TRAVEL EXPENSES OF SPOUSE, ETC.
ACCOMPANYING TAXPAYER ON BUSINESS TRAVEL.
(a) In General.--Subsection (m) of section 274 (relating to
additional limitations on travel expenses) is amended by striking
paragraph (3)(A).
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid or incurred after the date of the enactment of this
Act, and on or before December 31, 2004.
SEC. 538. CERTAIN SIGHTSEEING FLIGHTS EXEMPT FROM TAXES ON AIR
TRANSPORTATION.
(a) In General.--Section 4281 (relating to small aircraft on
nonestablished lines) is amended by adding at the end the following new
sentence: ``For purposes of this section, an aircraft shall not be
considered as operated on an established line if such aircraft is
operated on a flight the sole purpose of which is sightseeing.''.
(b) Effective Date.--The amendment made by this section shall apply
with respect to transportation beginning on or after the date of the
enactment of this Act, but shall not apply to any amount paid before
such date.
SEC. 539. CONFORMING THE INTERNAL REVENUE CODE OF 1986 TO REQUIREMENTS
IMPOSED BY THE WOMEN'S HEALTH AND CANCER RIGHTS ACT OF
1998.
(a) In General.--Subchapter B of chapter 100 (relating to other
requirements) is amended by inserting after section 9812 the following
new section:
``SEC. 9813. REQUIRED COVERAGE FOR RECONSTRUCTIVE SURGERY FOLLOWING
MASTECTOMIES.
``(a) In General.--A group health plan that provides medical and
surgical benefits with respect to a mastectomy shall provide, in a case
of a participant or beneficiary who is receiving benefits in connection
with a mastectomy and who elects breast reconstruction in connection
with such mastectomy, coverage for--
``(1) all stages of reconstruction of the breast on which
the mastectomy has been performed,
``(2) surgery and reconstruction of the other breast to
produce a symmetrical appearance, and
``(3) prostheses and physical complications of mastectomy,
including lymphedemas,
in a manner determined in consultation with the attending physician and
the patient. Such coverage may be subject to annual deductibles and
coinsurance provisions as may be deemed appropriate and as are
consistent with those established for other benefits under the plan.
Written notice of the availability of such coverage shall be delivered
to the participant upon enrollment and annually thereafter.
``(b) Prohibitions.--A group health plan may not--
``(1) deny to a patient eligibility, or continued
eligibility, to enroll or to renew coverage under the terms of
the plan, solely for the purpose of avoiding the requirements
of this section, and
``(2) penalize or otherwise reduce or limit the
reimbursement of an attending provider, or provide incentives
(monetary or otherwise) to an attending provider, to induce
such provider to provide care to an individual participant or
beneficiary in a manner inconsistent with this section.
``(c) Rule of Construction.--Nothing in this section shall be
construed to prevent a group health plan from negotiating the level and
type of reimbursement with a provider for care provided in accordance
with this section.''
(b) Clerical Amendment.--The table of sections for chapter 100 of
such Code is amended inserting after the item relating to section 9812
the following new item:
``Sec. 9813. Required coverage for
reconstructive surgery
following mastectomies.''
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply with respect to plan years beginning on or after the date
of enactment of this Act.
(2) Special rule for collective bargaining agreements.--In
the case of a group health plan maintained pursuant to 1 or
more collective bargaining agreements between employee
representatives and 1 or more employers, any plan amendment
made pursuant to a collective bargaining agreement relating to
the plan which amends the plan solely to conform to any
requirement added by this section shall not be treated as a
termination of such collective bargaining agreement.
SEC. 540. EXPANSION OF DESIGNATED RENEWAL COMMUNITY AREA BASED ON 2000
CENSUS DATA.
(a) Renewal Communities.--Section 1400E (relating to designation of
renewal communities) is amended by adding at the end the following new
subsection:
``(g) Expansion of Designated Areas.--
``(1) Expansion based on 2000 Census.--At the request of
the nominating entity with respect to a renewal community, the
Secretary of Housing and Urban Development may expand the area
of a renewal community to include any census tract--
``(A) which, at the time such community was
nominated, met the requirements of this section for
inclusion in such community but for the failure of such
tract to meet 1 or more of the population and poverty
rate requirements of this section using 1990 census
data, and
``(B) which meets all failed population and poverty
rate requirements of this section using 2000 census
data.
``(2) Expansion to certain areas which do not meet
population requirements.--
``(A) In general.--At the request of 1 or more
local governments and the State or States in which an
area described in subparagraph (B) is located, the
Secretary of Housing and Urban Development may expand a
designated area to include such area.
``(B) Area.--An area is described in this
subparagraph if--
``(i) the area is adjacent to at least 1
other area designated as a renewal community,
``(ii) the area has a population less than
the population required under subsection
(c)(2)(C), and
``(iii)(I) the area meets the requirements
of subparagraphs (A) and (B) of subsection
(c)(2) and subparagraph (A) of subsection
(c)(3), or
``(II) the area contains a population of
less than 100 people.
``(3) Applicability.--Any expansion of a renewal community
under this section shall take effect as provided in subsection
(b).''.
(b) Effective Date.--The amendment made by this subsection shall
take effect as if included in the amendments made by section 101 of the
Community Renewal Tax Relief Act of 2000.
SEC. 541. RENEWAL COMMUNITY EMPLOYERS MAY QUALIFY FOR EMPLOYMENT CREDIT
BY EMPLOYING RESIDENTS OF CERTAIN OTHER RENEWAL
COMMUNITIES.
(a) In General.--Section 1400H(b)(2) (relating to modification) is
amended by striking ``and'' at the end of paragraph (1), by striking
the period at the end of paragraph (2) and inserting ``, and'', and by
adding at the end the following new paragraph:
``(3) subsection (d)(1)(B) thereof shall be applied by
substituting `such renewal community, an adjacent renewal
community within the same State as such renewal community, or a
renewal community within such State which is within 5 miles of
any border of such renewal community' for `such empowerment
zone'.''.
(b) Effective Date.--The amendments made by subsection (a) shall
take effect as if included in the amendment made by section 101(a) of
the Community Renewal Tax Relief Act of 2000.
SEC. 542. EXPANSION OF INCOME TAX EXCLUSION FOR COMBAT ZONE SERVICE.
(a) Combat Zone Service To Include Transit to Zone.--Section
112(c)(3) of the Internal Revenue Code of 1986 (relating to
definitions) is amended by adding at the end the following new
sentence: ``Such service shall include any period (not to exceed 14
days) of direct transit to the combat zone.''.
(b) Removal of Limitation on Exclusion for Commissioned Officers.--
(1) In general.--Subsection (b) of section 112 of the
Internal Revenue Code of 1986 (relating to certain combat zone
compensation of members of the Armed Forces) is repealed.
(2) Conforming amendments.--
(A) Section 112(a) of such Code is amended--
(i) by striking ``below the grade of
commissioned officer'', and
(ii) by striking ``Enlisted Personnel'' in
the heading and inserting ``In General''.
(B) Section 112(c) of such Code is amended by
striking paragraphs (1) and (5) and by redesignating
paragraphs (2), (3), and (4) as paragraphs (1), (2),
and (3), respectively.
(c) Effective Date.--The amendments made by this section shall
apply to months beginning after December 31, 2002.
SEC. 543. AVAILABILITY OF CERTAIN TAX BENEFITS FOR MEMBERS OF THE ARMED
FORCES PERFORMING SERVICES AT GUANTANAMO BAY NAVAL
STATION, CUBA, AND ON THE ISLAND OF DIEGO GARCIA.
(a) General Rule.--In the case of a member of the Armed Forces of
the United States who is entitled to special pay under section 305 of
title 37, United States Code (relating to special pay: hardship duty
pay), for services performed as a member of the Joint Task Force
Guantanamo at Guantanamo Bay Naval Station, Cuba, or for services
performed on the Island of Diego Garcia as part of Operation Iraqi
Freedom, such member shall be treated in the same manner as if such
services were in a combat zone (as determined under section 112 of the
Internal Revenue Code of 1986) for purposes of the following provisions
of such Code:
(1) Section 2(a)(3) (relating to special rule where
deceased spouse was in missing status).
(2) Section 112 (relating to the exclusion of certain
combat pay of members of the Armed Forces).
(3) Section 692 (relating to income taxes of members of
Armed Forces on death).
(4) Section 2201 (relating to members of the Armed Forces
dying in combat zone or by reason of combat-zone-incurred
wounds, etc.).
(5) Section 3401(a)(1) (defining wages relating to combat
pay for members of the Armed Forces).
(6) Section 4253(d) (relating to the taxation of phone
service originating from a combat zone from members of the
Armed Forces).
(7) Section 6013(f)(1) (relating to joint return where
individual is in missing status).
(8) Section 7508 (relating to time for performing certain
acts postponed by reason of service in combat zone).
(b) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), this
section shall take effect on January 1, 2003.
(2) Withholding.--Subsection (a)(5) shall apply to
remuneration paid after December 31, 2002.
SEC. 544. CITRUS CANKER TREE RELIEF.
(a) Ratable Inclusion.--
(1) In general.--Part I of subchapter Q of chapter 1
(relating to income averaging) is amended by inserting after
section 1301 the following new section:
``SEC. 1302. RATABLE INCOME INCLUSION FOR CITRUS CANKER TREE PAYMENTS.
``(a) In General.--At the election of the taxpayer, any amount
taken into account as income or gain by reason of receiving a citrus
canker tree payment shall be included in the income of the taxpayer
ratably over the 10-year period beginning with the taxable year in
which the payment is received or accrued by the taxpayer. Such election
shall be made on the return of tax for such taxable year in such manner
as the Secretary prescribes, and, once made shall be irrevocable.
``(b) Citrus Canker Tree Payment.--For purposes of subsection (a),
the term `citrus canker tree payment' means a payment made to an owner
of a commercial citrus grove to recover income that was lost as a
result of the removal of commercial citrus trees to control canker
under the amendments to the citrus canker regulations (7 C.F.R. 301)
made by the final rule published in the Federal Register by the
Secretary of Agriculture on June 18, 2001 (66 Fed. Reg. 32713, Docket
No. 00-37-4).''.
(2) Clerical amendment.--The table of sections for part I
of subchapter Q of chapter 1 is amended by inserting after the
item relating to section 1301 the following new item:
Sec. 1302. Ratable income inclusion for citrus canker tree payments.''.
(b) Expansion of Period Within Which Converted Citrus Tree Property
Must Be Replaced.--Section 1033 (relating to period within which
property must be replaced) is amended by redesignating subsection (k)
as subsection (l) and by inserting after subsection (j) the following
new subsection:
``(k) Commercial Trees Destroyed Because of Citrus Tree Canker.--In
the case of commercial citrus trees which are compulsorily or
involuntarily converted under a public order as a result of the citrus
tree canker, clause (i) of subsection (a)(2)(B) shall be applied as if
such clause reads: `4 years after the close of the first taxable year
in which any part of the gain upon conversion is realized, or such
additional period after the close of such taxable year as determined
appropriate by the Secretary on a regional basis if a State or Federal
plant health authority determines with respect to such region that the
land on which such trees grew is not free from the bacteria that causes
citrus tree canker'.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning before, on, or after the date of the
enactment of this Act.
SEC. 545. EXCLUSION OF CERTAIN PUNITIVE DAMAGE AWARDS.
(a) In General.--Section 104 (relating to compensation for injuries
or sickness) is amended by redesignating subsection (d) as subsection
(e), and by inserting after subsection (c) the following new
subsection:
``(d) Exclusion of Punitive Damages Paid to a State Under a Split-
Award Statute.--
``(1) In general.--The phrase `(other than punitive
damages)' in subsection (a) shall not apply to--
``(A) any portion of an award of punitive damages
in a civil action which is paid to a State under a
split-award statute, or
``(B) any attorneys' fees or other costs incurred
by the taxpayer in connection with obtaining an award
of punitive damages to which subparagraph (A) is
applicable.
``(2) Split-Award Statute.--For purposes of this
subsection, the term `split-award statute' means a State law
that requires a fixed portion of an award of punitive damages
in a civil action to be paid to the State.''.
(b) Effective Date.--The amendment made by this section shall apply
to awards made in taxable years ending after the date of the enactment
of this Act.
SEC. 546. TREATMENT OF CERTAIN IMPORTED RECYCLED HALONS.
(a) In General.--Section 1803(c) of the Small Business Job
Protection Act of 1986 (Public Law 104-188) is amended by striking
``1997'' and ``1998'' and inserting ``1994''.
(b) Waiver of Limitations.--If refund or credit of any overpayment
of tax resulting from the amendment made by this section is prevented
at any time before the close of the 1-year period beginning on the date
of the enactment of this Act by the operation of any law or rule of law
(including res judicata), such refund or credit may nevertheless be
made or allowed if claim therefor is filed before the close of such
period.
SEC. 547. MODIFICATION OF INVOLUNTARY CONVERSION RULES FOR BUSINESSES
AFFECTED BY THE SEPTEMBER 11TH TERRORIST ATTACKS.
(a) In General.--Subsection (g) of section 1400L is amended to read
as follows:
``(g) Modification of Rules Applicable to Nonrecognition of Gain.--
In the case of property which is compulsorily or involuntarily
converted as a result of the terrorist attacks on September 11, 2001,
in the New York Liberty Zone--
``(1) which was held by a corporation which is a member of
an affiliated group filing a consolidated return, such
corporation shall be treated as satisfying the purchase
requirement of section 1033(a)(2) with respect to such property
to the extent such requirement is satisfied by another member
of the group, and
``(2) notwithstanding subsections (g) and (h) of section
1033, clause (i) of section 1033(a)(2)(B) shall be applied by
substituting `5 years' for `2 years' with respect to property
which is compulsorily or involuntarily converted as a result of
the terrorist attacks on September 11, 2001, in the New York
Liberty Zone but only if substantially all of the use of the
replacement property is in the City of New York, New York.''.
(b) Effective Date.--The amendments made by this Act shall apply to
involuntary conversions occurring on or after September 11, 2001.
Subtitle D--Medicare Provisions
SEC. 561. EQUALIZING URBAN AND RURAL STANDARDIZED PAYMENT AMOUNTS UNDER
THE MEDICARE INPATIENT HOSPITAL PROSPECTIVE PAYMENT
SYSTEM.
(a) In General.--Section 1886(d)(3)(A)(iv) of the Social Security
Act (42 U.S.C. 1395ww(d)(3)(A)(iv)) is amended--
(1) by striking ``(iv) For discharges'' and inserting
``(iv)(I) Subject to subclause (II), for discharges''; and
(2) by adding at the end the following new subclause:
``(II) For discharges occurring in a fiscal year beginning
with fiscal year 2004, the Secretary shall compute a
standardized amount for hospitals located in any area within
the United States and within each region equal to the
standardized amount computed for the previous fiscal year under
this subparagraph for hospitals located in a large urban area
(or, beginning with fiscal year 2005, for hospitals located in
any area) increased by the applicable percentage increase under
subsection (b)(3)(B)(i) for the fiscal year involved.''.
(b) Conforming Amendments.--
(1) Computing drg-specific rates.--Section 1886(d)(3)(D) of
the Social Security Act (42 U.S.C. 1395ww(d)(3)(D)) is
amended--
(A) in the heading, by striking ``in different
areas'';
(B) in the matter preceding clause (i), by striking
``, each of'';
(C) in clause (i)--
(i) in the matter preceding subclause (I),
by inserting ``for fiscal years before fiscal
year 2004,'' before ``for hospitals''; and
(ii) in subclause (II), by striking ``and''
after the semicolon at the end;
(D) in clause (ii)--
(i) in the matter preceding subclause (I),
by inserting ``for fiscal years before fiscal
year 2004,'' before ``for hospitals''; and
(ii) in subclause (II), by striking the
period at the end and inserting ``; and''; and
(E) by adding at the end the following new clause:
``(iii) for a fiscal year beginning after fiscal
year 2003, for hospitals located in all areas, to the
product of--
``(I) the applicable standardized amount
(computed under subparagraph (A)), reduced
under subparagraph (B), and adjusted or reduced
under subparagraph (C) for the fiscal year; and
``(II) the weighting factor (determined
under paragraph (4)(B)) for that diagnosis-
related group.''.
(2) Technical conforming sunset.--Section 1886(d)(3) of the
Social Security Act (42 U.S.C. 1395ww(d)(3)) is amended--
(A) in the matter preceding subparagraph (A), by
inserting ``, for fiscal years before fiscal year
1997,'' before ``a regional adjusted DRG prospective
payment rate''; and
(B) in subparagraph (D), in the matter preceding
clause (i), by inserting ``, for fiscal years before
fiscal year 1997,'' before ``a regional DRG prospective
payment rate for each region,''.
SEC. 562. FAIRNESS IN THE MEDICARE DISPROPORTIONATE SHARE HOSPITAL
(DSH) ADJUSTMENT FOR RURAL HOSPITALS.
(a) Equalizing DSH Payment Amounts.--
(1) In general.--Section 1886(d)(5)(F)(vii) of the Social
Security Act (42 U.S.C. 1395ww(d)(5)(F)(vii)) is amended by
inserting ``, and, after October 1, 2003, for any other
hospital described in clause (iv),'' after ``clause (iv)(I)''
in the matter preceding subclause (I).
(2) Conforming amendments.--Section 1886(d)(5)(F) of the
Social Security Act (42 U.S.C. 1395ww(d)(5)(F)) is amended--
(A) in clause (iv)--
(i) in subclause (II)--
(I) by inserting ``and before
October 1, 2003,'' after ``April 1,
2001,''; and
(II) by inserting ``or, for
discharges occurring on or after
October 1, 2003, is equal to the
percent determined in accordance with
the applicable formula described in
clause (vii)'' after ``clause (xiii)'';
(ii) in subclause (III)--
(I) by inserting ``and before
October 1, 2003,'' after ``April 1,
2001,''; and
(II) by inserting ``or, for
discharges occurring on or after
October 1, 2003, is equal to the
percent determined in accordance with
the applicable formula described in
clause (vii)'' after ``clause (xii)'';
(iii) in subclause (IV)--
(I) by inserting ``and before
October 1, 2003,'' after ``April 1,
2001,''; and
(II) by inserting ``or, for
discharges occurring on or after
October 1, 2003, is equal to the
percent determined in accordance with
the applicable formula described in
clause (vii)'' after ``clause (x) or
(xi)'';
(iv) in subclause (V)--
(I) by inserting ``and before
October 1, 2003,'' after ``April 1,
2001,''; and
(II) by inserting ``or, for
discharges occurring on or after
October 1, 2003, is equal to the
percent determined in accordance with
the applicable formula described in
clause (vii)'' after ``clause (xi)'';
and
(v) in subclause (VI)--
(I) by inserting ``and before
October 1, 2003,'' after ``April 1,
2001,''; and
(II) by inserting ``or, for
discharges occurring on or after
October 1, 2003, is equal to the
percent determined in accordance with
the applicable formula described in
clause (vii)'' after ``clause (x)'';
(B) in clause (viii), by striking ``The formula''
and inserting ``For discharges occurring before October
1, 2003, the formula''; and
(C) in each of clauses (x), (xi), (xii), and
(xiii), by striking ``For purposes'' and inserting
``With respect to discharges occurring before October
1, 2003, for purposes''.
(b) Effective Date.--The amendments made by this section shall
apply with respect to discharges occurring on or after October 1, 2003.
SEC. 563. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT FOR LOW-VOLUME
HOSPITALS.
Section 1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)) is
amended by adding at the end the following new paragraph:
``(12) Payment adjustment for low-volume hospitals.--
``(A) Payment adjustment.--
``(i) In general.--Notwithstanding any
other provision of this section, for each cost
reporting period (beginning with the cost
reporting period that begins in fiscal year
2005), the Secretary shall provide for an
additional payment amount to each low-volume
hospital (as defined in clause (iii)) for
discharges occurring during that cost reporting
period to increase the amount paid to such
hospital under this section for such discharges
by the applicable percentage increase
determined under clause (ii).
``(ii) Applicable percentage increase.--The
Secretary shall determine a percentage increase
applicable under this paragraph that ensures
that--
``(I) no percentage increase in
payments under this paragraph exceeds
25 percent of the amount of payment
that would otherwise be made to a low-
volume hospital under this section for
each discharge (but for this
paragraph);
``(II) low-volume hospitals that
have the lowest number of discharges
during a cost reporting period receive
the highest percentage increase in
payments due to the application of this
paragraph; and
``(III) the percentage increase in
payments due to the application of this
paragraph is reduced as the number of
discharges per cost reporting period
increases.
``(iii) Low-volume hospital defined.--For
purposes of this paragraph, the term `low-
volume hospital' means, for a cost reporting
period, a subsection (d) hospital (as defined
in paragraph (1)(B)) other than a critical
access hospital (as defined in section
1861(mm)(1)) that--
``(I) the Secretary determines had
an average of less than 2,000
discharges (determined with respect to
all patients and not just individuals
receiving benefits under this title)
during the 3 most recent cost reporting
periods for which data are available
that precede the cost reporting period
to which this paragraph applies; and
``(II) is located at least 15 miles
from a similar hospital (or is deemed
by the Secretary to be so located by
reason of such factors as the Secretary
determines appropriate, including the
time required for an individual to
travel to the nearest alternative
source of appropriate inpatient care
(taking into account the location of
such alternative source of inpatient
care and any weather or travel
conditions that may affect such travel
time)).
``(B) Prohibiting certain reductions.--
Notwithstanding subsection (e), the Secretary shall not
reduce the payment amounts under this section to offset
the increase in payments resulting from the application
of subparagraph (A).''.
SEC. 564. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL PPS WAGE INDEX
TO REVISE THE LABOR-RELATED SHARE OF SUCH INDEX.
(a) In General.--Section 1886(d)(3)(E) of the Social Security Act
(42 U.S.C. 1395ww(d)(3)(E)) is amended--
(1) by striking ``wage levels.--The Secretary'' and
inserting ``wage levels.--
``(i) In general.--Except as provided in clause
(ii), the Secretary''; and
(2) by adding at the end the following new clause:
``(ii) Alternative proportion to be adjusted
beginning in fiscal year 2004.--
``(I) In general.--Except as provided in
subclause (II), for discharges occurring on or
after October 1, 2003, the Secretary shall
substitute `62 percent' for the proportion
described in the first sentence of clause (i).
``(II) Hold harmless for certain
hospitals.--If the application of subclause (I)
would result in lower payments to a hospital
than would otherwise be made, then this
subparagraph shall be applied as if this clause
had not been enacted.''.
(b) Waiving Budget Neutrality.--Section 1886(d)(3)(E) of the Social
Security Act (42 U.S.C. 1395ww(d)(3)(E)), as amended by subsection (a),
is amended by adding at the end of clause (i) the following new
sentence: ``The Secretary shall apply the previous sentence for any
period as if the amendments made by section 564(a) of the Jobs and
Growth Tax Relief Reconciliation Act of 2003 had not been enacted.''.
SEC. 565. ONE-YEAR EXTENSION OF HOLD HARMLESS PROVISIONS FOR SMALL
RURAL HOSPITALS AND TEMPORARY TREATMENT OF CERTAIN SOLE
COMMUNITY HOSPITALS TO LIMIT DECLINE IN PAYMENT UNDER THE
OPD PPS.
(a) Hold Harmless Provisions.--Section 1833(t)(7)(D)(i) of the
Social Security Act (42 U.S.C. 1395l(t)(7)(D)(i)) is amended--
(1) in the heading, by striking ``small'' and inserting
``certain'';
(2) by inserting ``or a sole community hospital (as defined
in section 1886(d)(5)(D)(iii)) located in a rural area'' after
``100 beds''; and
(3) by striking ``2004'' and inserting ``2005''.
(b) Effective Date.--The amendment made by subsection (a)(2) shall
apply with respect to payment for OPD services furnished on and after
January 1, 2004.
SEC. 566. CRITICAL ACCESS HOSPITAL (CAH) IMPROVEMENTS.
(a) Permitting Hospitals To Allocate Swing Beds and Acute Care
Inpatient Beds Subject to a Total Limit of 25 Beds.--
(1) In general.--Section 1820(c)(2)(B)(iii) of the Social
Security Act (42 U.S.C. 1395i-4(c)(2)(B)(iii)) is amended to
read as follows:
``(iii) provides not more than a total of
25 extended care service beds (pursuant to an
agreement under subsection (f)) or acute care
inpatient beds (meeting such standards as the
Secretary may establish) for providing
inpatient care for a period that does not
exceed, as determined on an annual, average
basis, 96 hours per patient;''.
(2) Conforming amendment.--Section 1820(f) of the Social
Security Act (42 U.S.C. 1395i-4(f)) is amended by striking
``and the number of beds used at any time for acute care
inpatient services does not exceed 15 beds''.
(b) Elimination of the Isolation Test for Cost-Based CAH Ambulance
Services.--
(1) In general.--Section 1834(l)(8) of the Social Security
Act (42 U.S.C. 1395m(l)(8)), as added by section 205(a) of the
Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 (114 Stat. 2763A-482), as enacted into
law by section 1(a)(6) of Public Law 106-554 (114 Stat. 2763),
is amended by striking the comma at the end of subparagraph (B)
and all that follows and inserting a period.
(2) Technical correction.--Section 1834(l) of the Social
Security Act (42 U.S.C. 1395m(l)) is amended by redesignating
paragraph (8), as added by section 221(a) of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of
2000 (114 Stat. 2763A-486), as enacted into law by section
1(a)(6) of Public Law 106-554 (114 Stat. 2763), as paragraph
(9).
(c) Coverage of Costs for Certain Emergency Room On-Call
Providers.--
(1) In general.--Section 1834(g)(5) of the Social Security
Act (42 U.S.C. 1395m(g)(5)) is amended--
(A) in the heading--
(i) by inserting ``certain'' before
``emergency''; and
(ii) by striking ``physicians'' and
inserting ``providers'';
(B) by striking ``emergency room physicians who are
on-call (as defined by the Secretary)'' and inserting
``physicians, physician assistants, nurse
practitioners, and clinical nurse specialists who are
on-call (as defined by the Secretary) to provide
emergency services''; and
(C) by striking ``physicians' services'' and
inserting ``services covered under this title''.
(2) Effective date.--The amendments made by paragraph (1)
shall apply with respect to costs incurred for services
provided on or after January 1, 2004.
(d) Authorization of Periodic Interim Payment (PIP).--
(1) In general.--Section 1815(e)(2) of the Social Security
Act (42 U.S.C. 1395g(e)(2)) is amended--
(A) in subparagraph (C), by striking ``and'' after
the semicolon at the end;
(B) in subparagraph (D), by adding ``and'' after
the semicolon at the end; and
(C) by inserting after subparagraph (D) the
following new subparagraph:
``(E) inpatient critical access hospital services,''.
(2) Effective date.--The amendments made by paragraph (1)
shall apply with respect to payments for inpatient critical
access hospital services furnished on or after January 1, 2004.
(e) Exclusion of New CAHs From PPS Hospital Wage Index
Calculation.--Section 1886(d)(3)(E)(i) of the Social Security Act (42
U.S.C. 1395ww(d)(3)(E)(i)), as amended by section 564, is amended by
inserting after the first sentence the following new sentence: ``In
calculating the hospital wage levels under the preceding sentence
applicable with respect to cost reporting periods beginning on or after
January 1, 2004, the Secretary shall exclude the wage levels of any
hospital that became a critical access hospital prior to the cost
reporting period for which such hospital wage levels are calculated.''.
SEC. 567. TEMPORARY INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A
RURAL AREA.
(a) In General.--In the case of home health services furnished in a
rural area (as defined in section 1886(d)(2)(D) of the Social Security
Act (42 U.S.C. 1395ww(d)(2)(D))) on or after October 1, 2003, and
before October 1, 2005, the Secretary of Health and Human Services
shall increase the payment amount otherwise made under section 1895 of
such Act (42 U.S.C. 1395fff) for such services by 10 percent.
(b) Waiving Budget Neutrality.--The Secretary of Health and Human
Services shall not reduce the standard prospective payment amount (or
amounts) under section 1895 of the Social Security Act (42 U.S.C.
1395fff) applicable to home health services furnished during a period
to offset the increase in payments resulting from the application of
subsection (a).
(c) No Effect on Subsequent Periods.--The payment increase provided
under subsection (a) for a period under such subsection, shall not
apply to episodes and visits ending after such period, and shall not be
taken into account in calculating the payment amounts applicable for
episodes and visits occurring after such period.
SEC. 568. TEMPORARY INCREASE IN PAYMENTS FOR CERTAIN SERVICES FURNISHED
BY SMALL RURAL HOSPITALS UNDER MEDICARE PROSPECTIVE
PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT DEPARTMENT
SERVICES.
(a) Increase.--
(1) In general.--In the case of an applicable covered OPD
service (as defined in paragraph (2)) that is furnished by a
hospital described in paragraph (7)(D)(i) of section 1833(t) of
the Social Security Act (42 U.S.C. 1395l(t)) on or after
January 1, 2004, and before January 1, 2007, the Secretary of
Health and Human Services (in this section referred to as the
``Secretary'') shall increase the medicare OPD fee schedule
amount (as determined under paragraph (4)(A) of such section)
that is applicable for such service in that year (determined
without regard to any increase under this section in a previous
year) by 5 percent.
(2) Applicable covered opd services defined.--For purposes
of this section, the term ``applicable covered OPD service''
means a covered clinic or emergency room visit that is
classified within the groups of covered OPD services (as
defined in paragraph (1)(B) of section 1833(t) of the Social
Security Act (42 U.S.C. 1395l(t))) established under paragraph
(2)(B) of such section.
(b) No Effect on Copayment Amount.--The Secretary shall compute the
copayment amount for applicable covered OPD services under section
1833(t)(8)(A) of the Social Security Act (42 U.S.C. 1395l(t)(8)(A)) as
if this section had not been enacted.
(c) No Effect on Increase Under Hold Harmless or Outlier
Provisions.--The Secretary shall apply the temporary hold harmless
provision under paragraph (7)(D)(i) of section 1833(t) of the Social
Security Act (42 U.S.C. 1395l(t)) and the outlier provision under
paragraph (5) of such section as if this section had not been enacted.
(d) Waiving Budget Neutrality and No Revision or Adjustments.--The
Secretary shall not make any revision or adjustment under subparagraph
(A), (B), or (C) of section 1833(t)(9) of the Social Security Act (42
U.S.C. 1395l(t)(9)) because of the application of subsection (a)(1).
(e) No Effect on Payments After Increase Period Ends.--The
Secretary shall not take into account any payment increase provided
under subsection (a)(1) in determining payments for covered OPD
services (as defined in paragraph (1)(B) of section 1833(t) of the
Social Security Act (42 U.S.C. 1395l(t))) under such section that are
furnished after January 1, 2007.
(f) Findings.--The Senate finds the following:
(1) The medicare program has a responsibility to pay enough
for beneficial new technologies in order to ensure that
medicare beneficiaries have access to care; however, such
program must also be a prudent purchaser of health care items
and services.
(2) The 2003 Medicare Hospital Outpatient Prospective
Payment System Regulation may have resulted in limiting
beneficiary access to care.
(3) A methodology should be developed under the medicare
outpatient prospective payment system under section 1833(t) of
the Social Security Act (42 U.S.C. 1395l(t)) with appropriate
resources and such methodology should be implemented January 1,
2004. This will ensure that all hospitals are appropriately
reimbursed for the drugs and biologics that are used in the
outpatient setting which in turn will ensure patient access to
new technologies.
(g) Technical Amendment.--Section 1833(t)(2)(B) (42 U.S.C.
1395l(t)(2)(B)) is amended by inserting ``(and periodically revise such
groups pursuant to paragraph (9)(A))'' after ``establish groups''.
SEC. 569 TEMPORARY INCREASE FOR GROUND AMBULANCE SERVICES FURNISHED IN
A RURAL AREA.
Section 1834(l) of the Social Security Act (42 U.S.C. 1395m(l)), as
amended by section 566(b)(2), is amended by adding at the end the
following new paragraph:
``(10) Temporary increase for ground ambulance services
furnished in a rural area.--
``(A) In general.--Notwithstanding any other
provision of this subsection, in the case of ground
ambulance services furnished on or after January 1,
2004, and before January 1, 2007, for which the
transportation originates in a rural area described in
paragraph (9) or in a rural census tract described in
such paragraph, the fee schedule established under this
section shall provide that the rate for the service
otherwise established, after application of any
increase under such paragraph, shall be increased by 5
percent.
``(B) Application of increased payments after
2006.--The increased payments under subparagraph (A)
shall not be taken into account in calculating payments
for services furnished on or after the period specified
in such subparagraph.''.
SEC. 570. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC AND FEDERALLY
QUALIFIED HEALTH CENTER SERVICES FROM THE MEDICARE PPS
FOR SKILLED NURSING FACILITIES.
(a) In General.--Section 1888(e) of the Social Security Act (42
U.S.C. 1395yy(e)) is amended--
(1) in paragraph (2)(A)(i)(II), by striking ``clauses (ii)
and (iii)'' and inserting ``clauses (ii), (iii), and (iv)'';
and
(2) by adding at the end of paragraph (2)(A) the following
new clause:
``(iv) Exclusion of certain rural health
clinic and federally qualified health center
services.--Services described in this clause
are--
``(I) rural health clinic services
(as defined in paragraph (1) of section
1861(aa)); and
``(II) Federally qualified health
center services (as defined in
paragraph (3) of such section);
that would be described in clause (ii) if such
services were furnished by a physician or
practitioner not affiliated with a rural health
clinic or a Federally qualified health
center.''.
(b) Effective Date.--The amendments made by subsection (a) shall
apply to services furnished on or after January 1, 2004.
SEC. 571. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS.
(a) Procedures for Secretary, and Not Physicians, To Determine When
Bonus Payments Under Medicare Incentive Payment Program Should Be
Made.--Section 1833(m) of the Social Security Act (42 U.S.C. 1395l(m))
is amended--
(1) by inserting ``(1)'' after ``(m)''; and
(2) by adding at the end the following new paragraph:
``(2) The Secretary shall establish procedures under which the
Secretary, and not the physician furnishing the service, is responsible
for determining when a payment is required to be made under paragraph
(1).''.
(b) Educational Program Regarding the Medicare Incentive Payment
Program.--The Secretary shall establish and implement an ongoing
educational program to provide education to physicians under the
medicare program on the medicare incentive payment program under
section 1833(m) of the Social Security Act (42 U.S.C. 1395l(m)).
(c) Ongoing Study and Annual Report on the Medicare Incentive
Payment Program.--
(1) Ongoing study.--The Secretary shall conduct an ongoing
study on the medicare incentive payment program under section
1833(m) of the Social Security Act (42 U.S.C. 1395l(m)). Such
study shall focus on whether such program increases the access
of medicare beneficiaries who reside in an area that is
designated (under section 332(a)(1)(A) of the Public Health
Service Act (42 U.S.C. 254e(a)(1)(A))) as a health professional
shortage area to physicians' services under the medicare
program.
(2) Annual reports.--Not later than 1 year after the date
of enactment of this Act, and annually thereafter, the
Secretary shall submit to Congress a report on the study
conducted under paragraph (1), together with recommendations
for such legislation and administrative action as the Secretary
considers appropriate.
SEC. 572. TWO-YEAR TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC LABORATORY
TESTS FURNISHED BY A SOLE COMMUNITY HOSPITAL.
Notwithstanding subsections (a)(1)(D) and (h) of section 1833 of
the Social Security Act (42 U.S.C. 1395l) and section 1834(d)(1) of
such Act (42 U.S.C. 1395m(d)(1)), in the case of a clinical diagnostic
laboratory test covered under part B of title XVIII of such Act that is
furnished in 2004 or 2005 by a sole community hospital (as defined in
section 1886(d)(5)(D)(iii) of such Act (42 U.S.C.
1395ww(d)(5)(D)(iii))) as part of services provided to patients of the
hospital, the following rules shall apply:
(1) Payment based on reasonable costs.--The amount of
payment for such test shall be 100 percent of the reasonable
costs of the hospital in furnishing such test.
(2) No beneficiary cost-sharing.--No coinsurance,
deductible, copayment, or other cost-sharing otherwise
applicable under such part B shall apply with respect to such
test.
SEC. 573. ESTABLISHMENT OF FLOOR ON GEOGRAPHIC ADJUSTMENTS OF PAYMENTS
FOR PHYSICIANS' SERVICES.
Section 1848(e)(1) of the Social Security Act (42 U.S.C. 1395w-
4(e)(1)) is amended--
(1) in subparagraph (A), by striking ``subparagraphs (B)
and (C)'' and inserting ``subparagraphs (B), (C), and (E)'';
and
(2) by adding at the end the following new subparagraph:
``(E) Floor for practice expense, malpractice, and
work geographic indices.--For purposes of payment for
services furnished on or after January 1, 2004, after
calculating the practice expense, malpractice, and work
geographic indices in clauses (i), (ii), and (iii) of
subparagraph (A) and in subparagraph (B), the Secretary
shall increase any such index to 1.00 for any locality
for which such index is less than 1.00.''.
SEC. 574. FREEZE IN PAYMENTS FOR ITEMS OF DURABLE MEDICAL EQUIPMENT AND
ORTHOTICS AND PROSTHETICS.
(a) DME.--Section 1834(a)(14) of the Social Security Act (42 U.S.C.
1395m(a)(14)) is amended--
(1) in subparagraph (E), by striking ``and'' at the end;
(2) in subparagraph (F)--
(A) by striking ``a subsequent year'' and inserting
``2003''; and
(B) by striking ``the previous year.'' and
inserting ``2002;''; and
(3) by adding at the end the following new subparagraphs:
``(G) for each of the years 2004 through 2013, 0
percentage points; and
``(H) for a subsequent year, the percentage
increase in the consumer price index for all urban
consumers (U.S. urban average) for the 12-month period
ending with June of the previous year.''.
(b) Orthotics and Prosthetics.--Section 1834(h)(4)(A) of the Social
Security Act (42 U.S.C. 1395m(h)(4)(A)) is amended--
(1) in clause (vii), by striking ``and'' at the end;
(2) in clause (viii)--
(A) by striking ``a subsequent year'' and inserting
``2003''; and
(B) by striking ``the previous year'' and inserting
``2002''; and
(3) by adding at the end the following new clauses:
``(ix) for each of the years 2004 through
2013, 0 percent; and
``(x) for a subsequent year, the percentage
increase in the consumer price index for all
urban consumers (U.S. urban average) for the
12-month period ending with June of the
previous year;''.
SEC. 575. APPLICATION OF COINSURANCE AND DEDUCTIBLE FOR CLINICAL
DIAGNOSTIC LABORATORY TESTS.
(a) Coinsurance.--
(1) In general.--Section 1833(a) of the Social Security Act
(42 U.S.C. 1395l(a)) is amended--
(A) in paragraph (1)(D)--
(i) in clause (i), by striking ``(or 100
percent, in the case of such tests for which
payment is made on an assignment-related
basis)''; and
(ii) in clause (ii), by striking ``100
percent'' and inserting ``80 percent''; and
(B) in paragraph (2)(D)--
(i) in clause (i), by striking ``(or 100
percent, in the case of such tests for which
payment is made on an assignment-related basis
or to a provider having an agreement under
section 1866)''; and
(ii) in clause (ii), by striking ``100
percent'' and inserting ``80 percent''.
(2) Conforming amendment.--The third sentence of section
1866(a)(2)(A) of the Social Security Act (42 U.S.C.
1395cc(a)(2)(A) is amended by striking ``and with respect to
clinical diagnostic laboratory tests for which payment is made
under part B''.
(b) Deductible.--Section 1833(b) of the Social Security Act (42
U.S.C. 1395l(b)) is amended--
(1) by striking paragraph (3); and
(2) by redesignating paragraphs (4), (5), and (6) as
paragraphs (3), (4), and (5), respectively.
(c) Effective Date.--The amendments made by this section shall
apply to tests furnished on or after January 1, 2004.
SEC. 576. REVISION IN PAYMENTS FOR COVERED OUTPATIENT DRUGS.
Section 1842(o)(1) of the Social Security Act (42 U.S.C.
1395u(o)(1)) is amended by striking ``equal to 95 percent of the
average wholesale price.'' and inserting ``equal to--
``(A) in the case of drugs furnished prior to January 1,
2004, 95 percent of the average wholesale price; and
``(B) in the case of drugs furnished on or after January 1,
2004, the lesser of--
``(i) 85 percent of the average wholesale price; or
``(ii) the amount payable for the drug or
biological during the last quarter of the previous year
(as determined under this subparagraph, or, in the case
of 2004, under subparagraph (A) using the second
quarter of 2003) increased by the percentage increase
in the consumer price index for all urban consumers
(U.S. urban average) for the 12-month period ending
with June of the previous year.''.
SEC. 577. INAPPLICABILITY OF SUNSET.
The provisions of section 1001(a) of this Act shall not apply to
the provisions of, and amendments made by, this subtitle.
Subtitle E--Provisions Relating To S Corporation Reform and
Simplification
PART I--MAXIMUM NUMBER OF SHAREHOLDERS OF AN S CORPORATION
SEC. 581. MEMBERS OF FAMILY TREATED AS 1 SHAREHOLDER.
(a) In General.--Paragraph (1) of section 1361(c) (relating to
special rules for applying subsection (b)) is amended to read as
follows:
``(1) Members of family treated as 1 shareholder.--
``(A) In general.--For purpose of subsection
(b)(1)(A)--
``(i) except as provided in clause (ii), a
husband and wife (and their estates) shall be
treated as 1 shareholder, and
``(ii) in the case of a family with respect
to which an election is in effect under
subparagraph (E), all members of the family
shall be treated as 1 shareholder.
``(B) Members of the family.--For purpose of
subparagraph (A)(ii), the term `members of the family'
means the common ancestor, lineal descendants of the
common ancestor and the spouses of such lineal
descendants or common ancestor.
``(C) Common ancestor.--For purposes of this
paragraph, an individual shall not be considered a
common ancestor if, as of the later of the effective
date of this paragraph or the time the election under
section 1362(a) is made, the individual is more than 6
generations removed from the youngest generation of
shareholders.
``(D) Effect of adoption, etc.--In determining
whether any relationship specified in subparagraph (B)
or (C) exists, the rules of section 152(b)(2) shall
apply.
``(E) Election.--An election under subparagraph
(A)(ii)--
``(i) must be made with the consent of all
persons who are shareholders (including those
that are family members) in the corporation on
the day the election is made,
``(ii) in the case of--
``(I) an electing small business
trust, shall be made by the trustee of
the trust, and
``(II) a qualified subchapter S
trust, shall be made by the beneficiary
of the trust,
``(iii) under regulations, shall remain in
effect until terminated, and
``(iv) shall apply only with respect to 1
family in any corporation.''.
(b) Relief From Inadvertent Invalid Election or Termination.--
Section 1362(f) (relating to inadvertent invalid elections or
terminations), as amended by this Act, is amended--
(1) by inserting ``or under section 1361(c)(1)(A)(ii)''
after ``section 1361(b)(3)(B)(ii)'' in paragraph (1), and
(2) by inserting ``or under section 1361(c)(1)(E)(iii)''
after ``section 1361(b)(3)(C)'' in paragraph (1)(B).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 582. INCREASE IN NUMBER OF ELIGIBLE SHAREHOLDERS TO 100.
(a) In General.--Section 1361(b)(1)(A) (defining small business
corporation) is amended by striking ``75'' and inserting ``100''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2003.
SEC. 583. NONRESIDENT ALIENS ALLOWED AS BENEFICIARIES OF AN ELECTING
SMALL BUSINESS TRUST.
(a) In General.--Section 1361(e)(1)(A)(i)(I) is amended by
inserting ``(including a nonresident alien individual)'' after
``individual''.
(b) Conforming Amendment.--Clause (v) of section 1361(c)(2)(B) is
amended by adding at the end the following new sentence: ``This clause
shall not apply for purposes of subsection (b)(1)(C).''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
PART II--TERMINATION OF ELECTION AND ADDITIONS TO TAX DUE TO PASSIVE
INVESTMENT INCOME
SEC. 584. MODIFICATIONS TO PASSIVE INCOME RULES.
(a) Increased Percentage Limit.--
(1) In general.--Subsection (a)(2) of section 1375
(relating to tax imposed when passive investment income of
corporation having accumulated earnings and profits exceeds 25
percent of gross receipts) is amended by striking ``25
percent'' and inserting ``60 percent''.
(2) Conforming amendments.--
(A) Section 26(b)(2)(J) is amended by striking ``25
percent'' and inserting ``60 percent''.
(B) Section 1362(d)(3)(A)(i)(II) is amended by
striking ``25 percent'' and inserting ``60 percent''.
(C) The heading for paragraph (3) of section
1362(d) is amended by striking ``25 percent'' and
inserting ``60 percent''.
(D) Section 1375(b)(1)(A)(i) is amended by striking
``25 percent'' and inserting ``60 percent''.
(E) The heading for section 1375 is amended by
striking ``25 percent'' and inserting ``60 percent''.
(F) The table of sections for part III of
subchapter S of chapter 1 is amended by striking ``25
percent'' in the item relating to section 1375 and
inserting ``60 percent''.
(b) Capital Gain Not Treated as Passive Investment Income.--Section
1362(d)(3) is amended--
(1) by striking ``annuities,'' and all that follows in
subparagraph (C)(i) and inserting ``and annuities.'', and
(2) by striking subparagraphs (C)(iv) and (D) and by
redesignating subparagraph (E) as subparagraph (D).
(c) Conforming amendments.--Section 1375(d) is amended by striking
``subchapter C'' both places it appears and inserting ``accumulated''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
PART III--TREATMENT OF S CORPORATION SHAREHOLDERS
SEC. 585. TRANSFER OF SUSPENDED LOSSES INCIDENT TO DIVORCE.
(a) In General.--Section 1366(d) (relating to special rules for
losses and deductions) is amended by adding at the end the following
new paragraph:
``(4) Transfer of suspended losses and deductions when
stock is transferred incident to divorce.--For purposes of
paragraph (2), the transfer of any shareholder's stock in an S
corporation incident to a decree of divorce shall include any
loss or deduction described in such paragraph attributable to
such stock.''.
(b) Effective Date.--The amendment made by this section shall apply
to transfers in taxable years beginning after December 31, 2003.
SEC. 586. USE OF PASSIVE ACTIVITY LOSS AND AT-RISK AMOUNTS BY QUALIFIED
SUBCHAPTER S TRUST INCOME BENEFICIARIES.
(a) In General.--Section 1361(d)(1) (relating to special rule for
qualified subchapter S trust) is amended--
(1) by striking ``and'' at the end of subparagraph (A),
(2) by striking the period at the end of subparagraph (B)
and inserting ``, and'', and
(3) by adding at the end the following new subparagraph:
``(C) for purposes of applying sections 465 and
469(g) to the beneficiary of the trust, the disposition
of the S corporation stock by the trust shall be
treated as a disposition by such beneficiary.''.
(b) Effective Date.--The amendments made by this section shall
apply to transfers in taxable years beginning after December 31, 2003.
SEC. 587. DISREGARD OF UNEXERCISED POWERS OF APPOINTMENT IN DETERMINING
POTENTIAL CURRENT BENEFICIARIES OF ESBT.
(a) In General.--Section 1361(e)(2) (defining potential current
beneficiary) is amended by inserting ``(determined without regard to
any unexercised (in whole or in part) power of appointment during such
period)'' after ``of the trust'' in the first sentence.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2003.
SEC. 588. CLARIFICATION OF ELECTING SMALL BUSINESS TRUST DISTRIBUTION
RULES.
(a) In General.--Section 641(c)(1) (relating to special rules for
taxation of electing small business trusts) is amended--
(1) by striking ``and'' at the end of subparagraph (A),
(2) by redesignating subparagraph (B) as subparagraph (C),
and
(3) by inserting after subparagraph (A) the following new
subparagraph:
``(B) any distribution attributable to the portion
treated as a separate trust shall be treated separately
from any distribution attributable to the portion not
so treated, and''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
PART IV--PROVISIONS RELATING TO BANKS
SEC. 589. SALE OF STOCK IN IRA RELATING TO S CORPORATION ELECTION
EXEMPT FROM PROHIBITED TRANSACTION RULES.
(a) In General.--Section 4975(d) (relating to exemptions) is
amended by striking ``or'' at the end of paragraph (14), by striking
the period at the end of paragraph (15) and inserting ``; or'', and by
adding at the end the following new paragraph:
``(16) a sale of stock held by a trust which constitutes an
individual retirement account under section 408(a) to the
individual for whose benefit such account is established if
such sale is pursuant to an election under section 1362(a).''.
(b) Effective Date.--The amendments made by this section shall
apply to sales of stock held by individual retirement accounts on the
date of the enactment of this Act.
SEC. 590. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM PASSIVE INCOME
TEST FOR BANK S CORPORATIONS.
(a) In General.--Section 1362(d)(3) (relating to where passive
investment income exceeds certain percentage of gross receipts for 3
consecutive taxable years and corporation has accumulated earnings and
profits), as amended by this Act, is amended by adding at the end the
following new subparagraph:
``(E) Exception for banks; etc.--In the case of a
bank (as defined in section 581), a bank holding
company (as defined in section 246A(c)(3)(B)(ii)), or a
qualified subchapter S subsidiary which is a bank, the
term `passive investment income' shall not include--
``(i) interest income earned by such bank,
bank holding company, or qualified subchapter S
subsidiary, or
``(ii) dividends on assets required to be
held by such bank, bank holding company, or
qualified subchapter S subsidiary to conduct a
banking business, including stock in the
Federal Reserve Bank, the Federal Home Loan
Bank, or the Federal Agricultural Mortgage Bank
or participation certificates issued by a
Federal Intermediate Credit Bank.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2003.
SEC. 591. TREATMENT OF QUALIFYING DIRECTOR SHARES.
(a) In General.--Section 1361 (defining S corporation) is amended
by adding at the end the following new subsection:
``(f) Treatment of Qualifying Director Shares.--
``(1) In general.--For purposes of this subchapter--
``(A) qualifying director shares shall not be
treated as a second class of stock, and
``(B) no person shall be treated as a shareholder
of the corporation by reason of holding qualifying
director shares.
``(2) Qualifying director shares defined.--For purposes of
this subsection, the term `qualifying director shares' means
any shares of stock in a bank (as defined in section 581) or in
a bank holding company registered as such with the Federal
Reserve System--
``(i) which are held by an individual
solely by reason of status as a director of
such bank or company or its controlled
subsidiary; and
``(ii) which are subject to an agreement
pursuant to which the holder is required to
dispose of the shares of stock upon termination
of the holder's status as a director at the
same price as the individual acquired such
shares of stock.
``(3) Distributions.--A distribution (not in part or full
payment in exchange for stock) made by the corporation with
respect to qualifying director shares shall be includible as
ordinary income of the holder and deductible to the corporation
as an expense in computing taxable income under section 1363(b)
in the year such distribution is received.''.
(b) Conforming Amendment.--Section 1366(a) is amended by adding at
the end the following new paragraph:
``(3) Allocation with respect to qualifying director
shares.--The holders of qualifying director shares (as defined
in section 1361(f)) shall not, with respect to such shares of
stock, be allocated any of the items described in paragraph
(1).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
PART V--QUALIFIED SUBCHAPTER S SUBSIDIARIES
SEC. 592. RELIEF FROM INADVERTENTLY INVALID QUALIFIED SUBCHAPTER S
SUBSIDIARY ELECTIONS AND TERMINATIONS.
(a) In General.--Section 1362(f) (relating to inadvertent invalid
elections or terminations) is amended--
(1) by inserting ``or under section 1361(b)(3)(B)(ii)''
after ``subsection (a)''in paragraph (1),
(2) by inserting ``or under section 1361(b)(3)(C)'' after
``subsection (d)'' in paragraph (1)(B),
(3) by inserting ``or a qualified subchapter S subsidiary,
as the case may be'' after ``small business corporation'' in
paragraph (3)(A),
(4) by inserting ``or a qualified subchapter S subsidiary,
as the case may be'' after ``S corporation'' in paragraph (4),
and
(5) by inserting ``or a qualified subchapter S subsidiary,
as the case may be'' after ``S corporation'' in the matter
following paragraph (4).
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 593. INFORMATION RETURNS FOR QUALIFIED SUBCHAPTER S SUBSIDIARIES.
(a) In General.--Section 1361(b)(3)(A) (relating to treatment of
certain wholly owned subsidiaries) is amended by inserting ``and in the
case of information returns required under part III of subchapter A of
chapter 61'' after ``Secretary''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2003.
PART VI--ADDITIONAL PROVISIONS
SEC. 594. ELIMINATION OF ALL EARNINGS AND PROFITS ATTRIBUTABLE TO PRE-
1983 YEARS.
(a) In General.--Subsection (a) of section 1311 of the Small
Business Job Protection Act of 1996 is amended to read as follows:
``(a) In General.--If a corporation was an electing small business
corporation under subchapter S of chapter 1 of the Internal Revenue
Code of 1986 for any taxable year beginning before January 1, 1983, the
amount of such corporation's accumulated earnings and profits (as of
the beginning of the first taxable year beginning after December 31,
2003) shall be reduced by an amount equal to the portion (if any) of
such accumulated earnings and profits which were accumulated in any
taxable year beginning before January 1, 1983, for which such
corporation was an electing small business corporation under such
subchapter S.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2003.
TITLE VI--BLUE RIBBON COMMISSION ON COMPREHENSIVE TAX REFORM
SEC. 601. SHORT TITLE.
This Act may be cited as the ``Fundamental Tax Reform Commission
Act of 2003''.
SEC. 602. ESTABLISHMENT OF COMMISSION.
(a) Establishment.--There is established the ``Blue Ribbon
Commission on Comprehensive Tax Reform'' (in this Act referred to as
the ``Commission'').
(b) Membership.--
(1) Composition.--The Commission shall be composed of 12
members of whom--
(A) 1 shall be the Chairman of the Board of
Governors of the Federal Reserve System;
(B) 2 shall be appointed by the majority leader of
the Senate;
(C) 2 shall be appointed by the minority leader of
the Senate;
(D) 2 shall be appointed by the Speaker of the
House of Representatives;
(E) 2 shall be appointed by the minority leader of
the House of Representatives; and
(F) 3 shall be appointed by the President, of which
no more than 2 shall be of the same party as the
President.
(2) Federal employees.--The members of the Commission may
be employees or former employees of the Federal Government.
(3) Date.--The appointments of the members of the
Commission shall be made not later than July 30, 2003.
(c) Period of Appointment; Vacancies.--Members shall be appointed
for the life of the Commission. Any vacancy in the Commission shall not
affect its powers, but shall be filled in the same manner as the
original appointment.
(d) Initial Meeting.--Not later than 30 days after the date on
which all members of the Commission have been appointed, the Commission
shall hold its first meeting.
(e) Meetings.--The Commission shall meet at the call of the
Chairman.
(f) Quorum.--A majority of the members of the Commission shall
constitute a quorum, but a lesser number of members may hold hearings.
(g) Chairman and Vice Chairman.--The President shall select a
Chairman and Vice Chairman from among its members.
SEC. 603. DUTIES OF THE COMMISSION.
(a) Study.--The Commission shall conduct a thorough study of all
matters relating to a comprehensive reform of the Federal tax system,
including the reform of the Internal Revenue Code of 1986 and the
implementation (if appropriate) of other types of tax systems.
(b) Recommendations.--The Commission shall develop recommendations
on how to comprehensively reform the Federal tax system in a manner
that generates appropriate revenue for the Federal Government.
(c) Report.--Not later than 18 months after the date on which all
initial members of the commission have been appointed pursuant to
section 602(b), the Commission shall submit a report to the President
and Congress which shall contain a detailed statement of the findings
and conclusions of the Commission, together with its recommendations
for such legislation and administrative actions as it considers
appropriate.
SEC. 604. POWERS OF THE COMMISSION.
(a) Hearings.--The Commission may hold such hearings, sit and act
at such times and places, take such testimony, and receive such
evidence as the Commission considers advisable to carry out this Act.
(b) Information From Federal Agencies.--The Commission may secure
directly from any Federal department or agency such information as the
Commission considers necessary to carry out this Act. Upon request of
the Chairman of the Commission, the head of such department or agency
shall furnish such information to the Commission.
(c) Postal Services.--The Commission may use the United States
mails in the same manner and under the same conditions as other
departments and agencies of the Federal Government.
(d) Gifts.--The Commission may accept, use, and dispose of gifts or
donations of services or property.
SEC. 605. COMMISSION PERSONNEL MATTERS.
(a) Compensation of Members.--Each member of the Commission who is
not an officer or employee of the Federal Government shall be
compensated at a rate equal to the daily equivalent of the annual rate
of basic pay prescribed for level IV of the Executive Schedule under
section 5315 of title 5, United States Code, for each day (including
travel time) during which such member is engaged in the performance of
the duties of the Commission. All members of the Commission who are
officers or employees of the United States shall serve without
compensation in addition to that received for their services as
officers or employees of the United States.
(b) Travel Expenses.--The members of the Commission shall be
allowed travel expenses, including per diem in lieu of subsistence, at
rates authorized for employees of agencies under subchapter I of
chapter 57 of title 5, United States Code, while away from their homes
or regular places of business in the performance of services for the
Commission.
(c) Staff.--
(1) In general.--The Chairman of the Commission may,
without regard to the civil service laws and regulations,
appoint and terminate an executive director and such other
additional personnel as may be necessary to enable the
Commission to perform its duties. The employment of an
executive director shall be subject to confirmation by the
Commission.
(2) Compensation.--The Chairman of the Commission may fix
the compensation of the executive director and other personnel
without regard to chapter 51 and subchapter III of chapter 53
of title 5, United States Code, relating to classification of
positions and General Schedule pay rates, except that the rate
of pay for the executive director and other personnel may not
exceed the rate payable for level V of the Executive Schedule
under section 5316 of such title.
(d) Detail of Government Employees.--Any Federal Government
employee may be detailed to the Commission without reimbursement, and
such detail shall be without interruption or loss of civil service
status or privilege.
(e) Procurement of Temporary and Intermittent Services.--The
Chairman of the Commission may procure temporary and intermittent
services under section 3109(b) of title 5, United States Code, at rates
for individuals which do not exceed the daily equivalent of the annual
rate of basic pay prescribed for level V of the Executive Schedule
under section 5316 of such title.
SEC. 606. TERMINATION OF THE COMMISSION.
The Commission shall terminate 90 days after the date on which the
Commission submits its report under section 603.
SEC. 607. AUTHORIZATION OF APPROPRIATIONS.
There are authorized to be appropriated such sums as are necessary
to the Commission to carry out this Act.
TITLE VII--REAL ESTATE INVESTMENT TRUSTS
Subtitle A--REIT Corrections
SEC. 701. REVISIONS TO REIT ASSET TEST.
(a) Expansion of Straight Debt Safe Harbor.--Section 856 (defining
real estate investment trust) is amended--
(1) in subsection (c) by striking paragraph (7), and
(2) by adding at the end the following new subsection:
``(m) Safe Harbor in Applying Subsection (c)(4).--
``(1) In general.--In applying subclause (III) of
subsection (c)(4)(B)(iii), except as otherwise determined by
the Secretary in regulations, the following shall not be
considered securities held by the trust:
``(A) Straight debt securities of an issuer which
meet the requirements of paragraph (2).
``(B) Any loan to an individual or an estate.
``(C) Any section 467 rental agreement (as defined
in section 467(d)), other than with a person described
in subsection (d)(2)(B).
``(D) Any obligation to pay rents from real
property (as defined in subsection (d)(1)).
``(E) Any security issued by a State or any
political subdivision thereof, the District of
Columbia, a foreign government or any political
subdivision thereof, or the Commonwealth of Puerto
Rico, but only if the determination of any payment
received or accrued under such security does not depend
in whole or in part on the profits of any entity not
described in this subparagraph or payments on any
obligation issued by such an entity.
``(F) Any security issued by a real estate
investment trust.
``(G) Any other arrangement as determined by the
Secretary.
``(2) Special rules relating to straight debt securities.--
``(A) In general.--For purposes of paragraph
(1)(A), securities meet the requirements of this
paragraph if such securities are straight debt, as
defined in section 1361(c)(5) (without regard to
subparagraph (B)(iii) thereof).
``(B) Special rules relating to certain
contingencies.--For purposes of subparagraph (A), any
interest or principal shall not be treated as failing
to satisfy section 1361(c)(5)(B)(i) solely by reason of
the fact that the time of payment of such interest or
principal is subject to a contingency, but only if--
``(i) any such contingency does not have
the effect of changing the effective yield to
maturity, as determined under section 1272,
other than a change in the annual yield to
maturity which either--
``(I) does not exceed the greater
of \1/4\ of 1 percent or 5 percent of
the annual yield to maturity, or
``(II) results solely from a
default or the exercise of a prepayment
right by the issuer of the debt, or
``(ii) neither the aggregate issue price
nor the aggregate face amount of the issuer's
debt instruments held by the trust,
exceeds $1,000,000 and not more than 12 months of
unaccrued interest can be required to be prepaid
thereunder.
``(C) Special rules relating to corporate or
partnership issuers.--In the case of an issuer which is
a corporation or a partnership, securities that
otherwise would be described in paragraph (1)(A) shall
be considered not to be so described if the trust
holding such securities and any of its controlled
taxable REIT subsidiaries (as defined in subsection
(d)(8)(A)(iv)) hold any securities of the issuer
which--
``(i) are not described in paragraph (1)
(prior to the application of paragraph (1)(C)),
and
``(ii) have an aggregate value greater than
1 percent of the issuer's outstanding
securities.
``(3) Look-through rule for partnership securities.--
``(A) In general.--For purposes of applying
subclause (III) of subsection (c)(4)(B)(iii)--
``(i) a trust's interest as a partner in a
partnership (as defined in section 7701(a)(2))
shall not be considered a security, and
``(ii) the trust shall be deemed to own its
proportionate share of each of the assets of
the partnership.
``(B) Determination of trust's interest in
partnership assets.--For purposes of subparagraph (A),
with respect to any taxable year beginning after the
date of the enactment of this subparagraph--
``(i) the trust's interest in the
partnership assets shall be the trust's
proportionate interest in any securities issued
by the partnership (determined without regard
to subparagraph (A)(i) and paragraph (4), but
not including securities described in paragraph
(1)), and
``(ii) the value of any debt instrument
shall be the adjusted issue price thereof, as
defined in section 1272(a)(4).
``(4) Certain partnership debt instruments not treated as a
security.--For purposes of applying subclause (III) of
subsection (c)(4)(B)(iii)--
``(A) any debt instrument issued by a partnership
and not described in paragraph (1) shall not be
considered a security to the extent of the trust's
interest as a partner in the partnership, and
``(B) any debt instrument issued by a partnership
and not described in paragraph (1) shall not be
considered a security if at least 75 percent of the
partnership's gross income (excluding gross income from
prohibited transactions) is derived from sources
referred to in subsection (c)(3).
``(5) Secretarial guidance.--The Secretary is authorized to
provide guidance (including through the issuance of a written
determination, as defined in section 6110(b)) that an
arrangement shall not be considered a security held by the
trust for purposes of applying subclause (III) of subsection
(c)(4)(B)(iii) notwithstanding that such arrangement otherwise
could be considered a security under subparagraph (F) of
subsection (c)(5).''.
SEC. 702. CLARIFICATION OF APPLICATION OF LIMITED RENTAL EXCEPTION.
Subparagraph (A) of section 856(d)(8) (relating to special rules
for taxable REIT subsidiaries) is amended to read as follows:
``(A) Limited rental exception.--
``(i) In general.--The requirements of this
subparagraph are met with respect to any
property if at least 90 percent of the leased
space of the property is rented to persons
other than taxable REIT subsidiaries of such
trust and other than persons described in
paragraph (2)(B).
``(ii) Rents must be substantially
comparable.--Clause (i) shall apply only to the
extent that the amounts paid to the trust as
rents from real property (as defined in
paragraph (1) without regard to paragraph
(2)(B)) from such property are substantially
comparable to such rents paid by the other
tenants of the trust's property for comparable
space.
``(iii) Times for testing rent
comparability.--The substantial comparability
requirement of clause (ii) shall be treated as
met with respect to a lease to a taxable REIT
subsidiary of the trust if such requirement is
met under the terms of the lease--
``(I) at the time such lease is
entered into,
``(II) at the time of each
extension of the lease, including a
failure to exercise a right to
terminate, and
``(III) at the time of any
modification of the lease between the
trust and the taxable REIT subsidiary
if the rent under such lease is
effectively increased pursuant to such
modification.
With respect to subclause (III), if the taxable
REIT subsidiary of the trust is a controlled
taxable REIT subsidiary of the trust, the term
`rents from real property' shall not in any
event include rent under such lease to the
extent of the increase in such rent on account
of such modification.
``(iv) Controlled taxable reit
subsidiary.--For purposes of clause (iii), the
term `controlled taxable REIT subsidiary'
means, with respect to any real estate
investment trust, any taxable REIT subsidiary
of such trust if such trust owns directly or
indirectly--
``(I) stock possessing more than 50
percent of the total voting power of
the outstanding stock of such
subsidiary, or
``(II) stock having a value of more
than 50 percent of the total value of
the outstanding stock of such
subsidiary.
``(v) Continuing qualification based on
third party actions.--If the requirements of
clause (i) are met at a time referred to in
clause (iii), such requirements shall continue
to be treated as met so long as there is no
increase in the space leased to any taxable
REIT subsidiary of such trust or to any person
described in paragraph (2)(B).
``(vi) Correction period.--If there is an
increase referred to in clause (v) during any
calendar quarter with respect to any property,
the requirements of clause (iii) shall be
treated as met during the quarter and the
succeeding quarter if such requirements are met
at the close of such succeeding quarter.''.
SEC. 703. DELETION OF CUSTOMARY SERVICES EXCEPTION.
Subparagraph (B) of section 857(b)(7) (relating to redetermined
rents) is amended by striking clause (ii) and by redesignating clauses
(iii), (iv), (v), (vi), and (vii) as clauses (ii), (iii), (iv), (v),
and (vi), respectively.
SEC. 704. CONFORMITY WITH GENERAL HEDGING DEFINITION.
(a) Definition.--Subparagraph (G) of section 856(c)(5) (relating to
treatment of certain hedging instruments) is amended to read as
follows:
``(G) Treatment of certain hedging instruments.--
Except to the extent provided by regulations, any
income of a real estate investment trust from a hedging
transaction (as defined in clause (ii) or (iii) of
section 1221(b)(2)(A)) which is clearly identified
pursuant to section 1221(a)(7), including gain from the
sale or disposition of such a transaction, shall not
constitute gross income under paragraph (2) to the
extent that the transaction hedges any indebtedness
incurred or to be incurred by the trust to acquire or
carry real estate assets.''.
SEC. 705. CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES.
Clause (i) of section 857(b)(5)(A) (relating to imposition of tax
in case of failure to meet certain requirements) is amended by striking
``90 percent'' and inserting ``95 percent''.
SEC. 706. PROHIBITED TRANSACTIONS PROVISIONS.
(a) Expansion of Prohibited Transaction Safe Harbor.--Section
857(b)(6) (relating to income from prohibited transactions) is amended
by redesignating subparagraphs (D) and (E) as subparagraphs (E) and
(F), respectively, and by inserting after subparagraph (C) the
following new subparagraph:
``(D) Certain sales not to constitute prohibited
transactions.--For purposes of this part, the term
`prohibited transaction' does not include a sale of
property which is a real estate asset (as defined in
section 856(c)(5)(B)) if--
``(i) the trust held the property for not
less than 4 years in connection with the trade
or business of producing timber,
``(ii) the aggregate expenditures made by
the trust, or a partner of the trust, during
the 4-year period preceding the date of sale
which--
``(I) are includible in the basis
of the property (other than timberland
acquisition expenditures), and
``(II) are directly related to
operation of the property for the
production of timber or for the
preservation of the property for use as
timberland,
do not exceed 30 percent of the net selling
price of the property,
``(iii) the aggregate expenditures made by
the trust, or a partner of the trust, during
the 4-year period preceding the date of sale
which--
``(I) are includible in the basis
of the property (other than timberland
acquisition expenditures), and
``(II) are not directly related to
operation of the property for the
production of timber, or for the
preservation of the property for use as
timberland,
do not exceed 5 percent of the net selling
price of the property,
``(iv)(I) during the taxable year the trust
does not make more than 7 sales of property
(other than sales of foreclosure property or
sales to which section 1033 applies), or
``(II) the aggregate adjusted bases (as
determined for purposes of computing earnings
and profits) of property (other than sales of
foreclosure property or sales to which section
1033 applies) sold during the taxable year does
not exceed 10 percent of the aggregate bases
(as so determined) of all of the assets of the
trust as of the beginning of the taxable year,
``(v) in the case that the requirement of
clause (iv)(I) is not satisfied, substantially
all of the marketing expenditures with respect
to the property were made through an
independent contractor (as defined in section
856(d)(3)) from whom the trust itself does not
derive or receive any income, and
``(vi) the sales price of the property sold
by the trust to its taxable REIT subsidiary is
not based in whole or in part on the income or
profits of the subsidiary or the income or
profits that the subsidiary derives from the
sale or operation of such property.''.
SEC. 707. EFFECTIVE DATES.
(a) In General.--Except as provided in subsection (b), the
amendments made by this title shall apply to taxable years beginning
after December 31, 2000.
(b) Sections 703 Through 706.--The amendments made by sections 703,
704, 705 and 706 shall apply to taxable years beginning after the date
of the enactment of this Act.
Subtitle B--REIT Savings Provisions
SEC. 711. REVISIONS TO REIT PROVISIONS.
(a) Rules of Application for Failure To Satisfy Section
856(c)(4).--Section 856(c) (relating to definition of real estate
investment trust), as amended by section 701, is amended by inserting
after paragraph (6) the following new paragraph:
``(7) Rules of application for failure to satisfy paragraph
(4).--
``(A) De minimis failure.--A corporation, trust, or
association that fails to meet the requirements of
paragraph (4)(B)(iii) for a particular quarter shall
nevertheless be considered to have satisfied the
requirements of such paragraph for such quarter if--
``(i) such failure is due to the ownership
of assets the total value of which does not
exceed the lesser of--
``(I) 1 percent of the total value
of the trust's assets at the end of the
quarter for which such measurement is
done, and
``(II) $10,000,000, and
``(ii)(I) the corporation, trust, or
association, following the identification of
such failure, disposes of assets in order to
meet the requirements of such paragraph within
6 months after the last day of the quarter in
which the corporation, trust or association's
identification of the failure to satisfy the
requirements of such paragraph occurred or such
other time period prescribed by the Secretary
and in the manner prescribed by the Secretary,
or
``(II) the requirements of such paragraph
are otherwise met within the time period
specified in subclause (I).
``(B) Failures exceeding de minimis amount.--A
corporation, trust, or association that fails to meet
the requirements of paragraph (4) for a particular
quarter shall nevertheless be considered to have
satisfied the requirements of such paragraph for such
quarter if--
``(i) such failure involves the ownership
of assets the total value of which exceeds the
de minimis standard described in subparagraph
(A)(i) at the end of the quarter for which such
measurement is done,
``(ii) following the corporation, trust, or
association's identification of the failure to
satisfy the requirements of such paragraph for
a particular quarter, a description of each
asset that causes the corporation, trust, or
association to fail to satisfy the requirements
of such paragraph at the close of such quarter
of any taxable year is set forth in a schedule
for such quarter filed in accordance with
regulations prescribed by the Secretary,
``(iii) the failure to meet the
requirements of such paragraph for a particular
quarter is due to reasonable cause and not due
to willful neglect,
``(iv) the corporation, trust, or
association pays a tax computed under
subparagraph (C), and
``(v)(I) the corporation, trust, or
association disposes of the assets set forth on
the schedule specified in clause (ii) within 6
months after the last day of the quarter in
which the corporation, trust or association's
identification of the failure to satisfy the
requirements of such paragraph occurred or such
other time period prescribed by the Secretary
and in the manner prescribed by the Secretary,
or
``(II) the requirements of such paragraph
are otherwise met within the time period
specified in subclause (I).
``(C) Tax.--For purposes of subparagraph (B)(iv)--
``(i) Tax imposed.--If a corporation,
trust, or association elects the application of
this subparagraph, there is hereby imposed a
tax on the failure described in subparagraph
(B) of such corporation, trust, or association.
Such tax shall be paid by the corporation,
trust, or association.
``(ii) Tax computed.--The amount of the tax
imposed by clause (i) shall be the greater of--
``(I) $50,000, or
``(II) the amount determined
(pursuant to regulations promulgated by
the Secretary) by multiplying the net
income generated by the assets
described in the schedule specified in
subparagraph (B)(ii) for the period
specified in clause (iii) by the
highest rate of tax specified in
section 11.
``(iii) Period.--For purposes of clause
(ii)(II), the period described in this clause
is the period beginning on the first date that
the failure to satisfy the requirements of such
paragraph (4) occurs as a result of the
ownership of such assets and ending on the
earlier of the date on which the trust disposes
of such assets or the end of the first quarter
when there is no longer a failure to satisfy
such paragraph (4).
``(iv) Administrative provisions.--For
purposes of subtitle F, the taxes imposed by
this subparagraph shall be treated as excise
taxes with respect to which the deficiency
procedures of such subtitle apply.''.
(b) Modification of Rules of Application for Failure To Satisfy
Sections 856(c)(2) or 856(c)(3).--Paragraph (6) of section 856(c)
(relating to definition of real estate investment trust) is amended by
striking subparagraphs (A) and (B), by redesignating subparagraph (C)
as subparagraph (B), and by inserting before subparagraph (B) (as so
redesignated) the following new subparagraph:
``(A) following the corporation, trust, or
association's identification of the failure to meet the
requirements of paragraph (2) or (3), or of both such
paragraphs, for any taxable year, a description of each
item of its gross income described in such paragraphs
is set forth in a schedule for such taxable year filed
in accordance with regulations prescribed by the
Secretary, and''.
(c) Reasonable Cause Exception To Loss of REIT Status if Failure To
Satisfy Requirements.--Subsection (g) of section 856 (relating to
termination of election) is amended--
(1) in paragraph (1) by inserting before the period at the
end of the first sentence the following: ``unless paragraph (5)
applies'', and
(2) by adding at the end the following new paragraph:
``(5) Entities to which paragraph applies.--This paragraph
applies to a corporation, trust, or association--
``(A) which is not a real estate investment trust
to which the provisions of this part apply for the
taxable year due to one or more failures to comply with
one or more of the provisions of this part (other than
subsection (c)(6) or (c)(7) of section 856),
``(B) such failures are due to reasonable cause and
not due to willful neglect, and
``(C) if such corporation, trust, or association
pays (as prescribed by the Secretary in regulations and
in the same manner as tax) a penalty of $50,000 for
each failure to satisfy a provision of this part due to
reasonable cause and not willful neglect.''.
(d) Deduction of Tax Paid From Amount Required To Be Distributed.--
Subparagraph (E) of section 857(b)(2) is amended by striking ``(7)''
and inserting ``(7) of this subsection, section 856(c)(7)(B)(iii), and
section 856(g)(1).''.
(e) Expansion of Deficiency Dividend Procedure.--Subsection (e) of
section 860 is amended by striking ``or'' at the end of paragraph (2),
by striking the period at the end of paragraph (3) and inserting ``;
or'', and by adding at the end the following new paragraph:
``(4) a statement by the taxpayer attached to its amendment
or supplement to a return of tax for the relevant tax year.''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after date of enactment.
TITLE VIII--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS
Subtitle A--Extensions of Expiring Provisions
SEC. 801. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH
BENEFITS.
(a) In General.--Subsection (f) of section 9812 is amended by
striking ``2003'' and inserting ``2004''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to plan years beginning after December 31, 2002.
SEC. 802. 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 2000, 2001, 2002, 2003, and 2004.--'',
and
(2) by striking ``during 2000, 2001, 2002, or 2003,'' and
inserting ``during 2000, 2001, 2002, 2003, or 2004''.
(b) Conforming Amendments.--
(1) Section 904(h) is amended by striking ``during 2000,
2001, 2002, or 2003'' and inserting ``during 2000, 2001, 2002,
2003, or 2004''.
(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.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 803. 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 ``2004'' and inserting ``2005''.
(b) Effective Date.--The amendments made by subsection (a) shall
apply to facilities placed in service after December 31, 2002.
SEC. 804. WORK OPPORTUNITY CREDIT.
(a) In General.--Subparagraph (B) of section 51(c)(4) is amended by
striking ``2003'' and inserting ``2004''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to individuals who begin work for the employer after December 31,
2002.
SEC. 805. WELFARE-TO-WORK CREDIT.
(a) In General.--Subsection (f) of section 51A is amended by
striking ``2003'' and inserting ``2004''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to individuals who begin work for the employer after December 31,
2002.
SEC. 806. 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 ``2004'' and inserting ``2005''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2002.
SEC. 807. QUALIFIED ZONE ACADEMY BONDS.
(a) In General.--Paragraph (1) of section 1397E(e) is amended by
striking ``2000, 2001, 2002, and 2003'' and inserting ``2000, 2001,
2002, 2003, and 2004''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to obligations issued after the date of the enactment of this
Act.
SEC. 808. 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, 2005''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to articles brought into the United States after December 31,
2002.
SEC. 809. DEDUCTION FOR CORPORATE DONATIONS OF COMPUTER TECHNOLOGY.
(a) Extension of Deduction.--Section 170(e)(6)(G) (relating to
termination) is amended by striking ``December 31, 2003'' and inserting
``December 31, 2004''.
(b) Effective Date.--The amendments made by this section shall
apply to contributions made after December 31, 2002.
SEC. 810. CREDIT FOR QUALIFIED ELECTRIC VEHICLES.
(a) In General.--Section 30 is amended--
(1) in subsection (b)(2)--
(A) by striking ``December 31, 2003,'' and
inserting ``December 31, 2004,'', and
(B) in subparagraphs (A), (B), and (C), by striking
``2004'', ``2005'', and ``2006'', respectively, and
inserting ``2005'', ``2006'', and ``2007'',
respectively.
(2) in subsection (e), by striking ``December 31, 2006''
and inserting ``December 31, 2007''.
(b) Conforming Amendments.--Clause (iii) of section 280F(a)(1)(C)
is amended by striking ``2007'' and inserting ``2008''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2002.
SEC. 811. DEDUCTION FOR CLEAN-FUEL VEHICLES AND CERTAIN REFUELING
PROPERTY.
(a) In General.--Section 179A is amended--
(1) in subsection (b)(1)(B)--
(A) by striking ``December 31, 2003,'' and
inserting ``December 31, 2004,'', and
(B) in clauses (i), (ii), and (iii), by striking
``2004'', ``2005'', and ``2006'', respectively, and
inserting ``2005'', ``2006'', and ``2007'',
respectively, and
(2) in subsection (f), by striking ``December 31, 2006''
and inserting ``December 31, 2007''.
(b) Effective Date.--The amendments made by subsection (a) shall
apply to property placed in service after December 31, 2002.
SEC. 812. DEDUCTION FOR CERTAIN EXPENSES OF SCHOOL TEACHERS.
(a) In General.--Subparagraph (D) of section 62(a)(2) is amended by
striking ``during 2002 or 2003'' and inserting ``during 2002, 2003, or
2004''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2002.
SEC. 813. 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 and inserting ``2004''.
(b) Conforming Amendments.--
(1) Paragraph (2) of section 220(j) is amended by striking
``1998, 1999, 2001, or 2002'' each place it appears and
inserting ``1998, 1999, 2001, 2002, or 2003''.
(2) Subparagraph (A) of section 220(j)(4) is amended by
striking ``and 2002'' and inserting ``2002, and 2003''.
(c) Effective Date.--The amendments made by this section shall take
effect on January 1, 2003.
SEC. 814. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.
(a) Extension of Termination Date.--Subsection (h) of section 198
is amended by striking ``2003'' and inserting ``2004''.
(b) Effective Date.--The amendments made by this section shall
apply to expenditures paid or incurred after December 31, 2002.
TITLE IX--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL
SEC. 900. SHORT TITLE.
This title may be cited as the ``Armed Forces Tax Fairness Act of
2003''.
SEC. 901. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL RESIDENCE BY A
MEMBER OF THE UNIFORMED SERVICES OR THE FOREIGN SERVICE.
(a) In General.--Subsection (d) of section 121 (relating to
exclusion of gain from sale of principal residence) is amended by
redesignating paragraph (9) as paragraph (10) and by inserting after
paragraph (8) the following new paragraph:
``(9) Members of uniformed services and foreign service.--
``(A) In general.--At the election of an individual
with respect to a property, the running of the 5-year
period described in subsections (a) and (c)(1)(B) and
paragraph (7) of this subsection with respect to such
property shall be suspended during any period that such
individual or such individual's spouse is serving on
qualified official extended duty as a member of the
uniformed services or of the Foreign Service of the
United States.
``(B) Maximum period of suspension.--The 5-year
period described in subsection (a) shall not be
extended more than 10 years by reason of subparagraph
(A).
``(C) Qualified official extended duty.--For
purposes of this paragraph--
``(i) In general.--The term `qualified
official extended duty' means any extended duty
while serving at a duty station which is at
least 50 miles from such property or while
residing under Government orders in Government
quarters.
``(ii) Uniformed services.--The term
`uniformed services' has the meaning given such
term by section 101(a)(5) of title 10, United
States Code, as in effect on the date of the
enactment of this paragraph.
``(iii) Foreign service of the united
states.--The term `member of the Foreign
Service of the United States' has the meaning
given the term `member of the Service' by
paragraph (1), (2), (3), (4), or (5) of section
103 of the Foreign Service Act of 1980, as in
effect on the date of the enactment of this
paragraph.
``(iv) Extended duty.--The term `extended
duty' means any period of active duty pursuant
to a call or order to such duty for a period in
excess of 90 days or for an indefinite period.
``(D) Special rules relating to election.--
``(i) Election limited to 1 property at a
time.--An election under subparagraph (A) with
respect to any property may not be made if such
an election is in effect with respect to any
other property.
``(ii) Revocation of election.--An election
under subparagraph (A) may be revoked at any
time.''.
(b) Effective Date; Special Rule.--
(1) Effective date.--The amendments made by this section
shall take effect as if included in the amendments made by
section 312 of the Taxpayer Relief Act of 1997.
(2) Waiver of limitations.--If refund or credit of any
overpayment of tax resulting from the amendments made by this
section is prevented at any time before the close of the 1-year
period beginning on the date of the enactment of this Act by
the operation of any law or rule of law (including res
judicata), such refund or credit may nevertheless be made or
allowed if claim therefor is filed before the close of such
period.
SEC. 902. EXCLUSION FROM GROSS INCOME OF CERTAIN DEATH GRATUITY
PAYMENTS.
(a) In General.--Subsection (b)(3) of section 134 (relating to
certain military benefits) is amended by adding at the end the
following new subparagraph:
``(C) Exception for death gratuity adjustments made
by law.--Subparagraph (A) shall not apply to any
adjustment to the amount of death gratuity payable
under chapter 75 of title 10, United States Code, which
is pursuant to a provision of law enacted after
September 9, 1986.''.
(b) Conforming Amendment.--Subparagraph (A) of section 134(b)(3) is
amended by striking ``subparagraph (B)'' and inserting ``subparagraphs
(B) and (C)''.
(c) Effective Date.--The amendments made by this section shall
apply with respect to deaths occurring after September 10, 2001.
SEC. 903. EXCLUSION FOR AMOUNTS RECEIVED UNDER DEPARTMENT OF DEFENSE
HOMEOWNERS ASSISTANCE PROGRAM.
(a) In General.--Section 132(a) (relating to the exclusion from
gross income of certain fringe benefits) is amended by striking ``or''
at the end of paragraph (6), by striking the period at the end of
paragraph (7) and inserting ``, or'', and by adding at the end the
following new paragraph:
``(8) qualified military base realignment and closure
fringe.''.
(b) Qualified Military Base Realignment and Closure Fringe.--
Section 132 is amended by redesignating subsection (n) as subsection
(o) and by inserting after subsection (m) the following new subsection:
``(n) Qualified Military Base Realignment and Closure Fringe.--For
purposes of this section--
``(1) In general.--The term `qualified military base
realignment and closure fringe' means 1 or more payments under
the authority of section 1013 of the Demonstration Cities and
Metropolitan Development Act of 1966 (42 U.S.C. 3374) (as in
effect on the date of the enactment of this subsection) to
offset the adverse effects on housing values as a result of a
military base realignment or closure.
``(2) Limitation.--With respect to any property, such term
shall not include any payment referred to in paragraph (1) to
the extent that the sum of all of such payments related to such
property exceeds the maximum amount described in clause (1) of
subsection (c) of such section (as in effect on such date).''.
(c) Effective Date.--The amendments made by this section shall
apply to payments made after the date of the enactment of this Act.
SEC. 904. EXPANSION OF COMBAT ZONE FILING RULES TO CONTINGENCY
OPERATIONS.
(a) In General.--Section 7508(a) (relating to time for performing
certain acts postponed by reason of service in combat zone) is
amended--
(1) by inserting ``, or when 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 (as defined in section
101(a)(13) of title 10, United States Code) or which became
such a contingency operation by operation of law'' after
``section 112'',
(2) by inserting in the first sentence ``or at any time
during the period of such contingency operation'' after ``for
purposes of such section'',
(3) by inserting ``or operation'' after ``such an area'',
and
(4) by inserting ``or operation'' after ``such area''.
(b) Conforming Amendments.--
(1) Section 7508(d) is amended by inserting ``or
contingency operation'' after ``area''.
(2) The heading for section 7508 is amended by inserting
``or contingency operation'' after ``combat zone''.
(3) The item relating to section 7508 in the table of
sections for chapter 77 is amended by inserting ``or
contingency operation'' after ``combat zone''.
(c) Effective Date.--The amendments made by this section shall
apply to any period for performing an act which has not expired before
the date of the enactment of this Act.
SEC. 905. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR EXEMPTION FROM TAX
FOR CERTAIN VETERANS' ORGANIZATIONS.
(a) In General.--Subparagraph (B) of section 501(c)(19) (relating
to list of exempt organizations) is amended by striking ``or widowers''
and inserting ``, widowers, ancestors, or lineal descendants''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 906. CLARIFICATION OF THE TREATMENT OF CERTAIN DEPENDENT CARE
ASSISTANCE PROGRAMS.
(a) In General.--Section 134(b) (defining qualified military
benefit) is amended by adding at the end the following new paragraph:
``(4) Clarification of certain benefits.--For purposes of
paragraph (1), such term includes any dependent care assistance
program (as in effect on the date of the enactment of this
paragraph) for any individual described in paragraph (1)(A).''.
(b) Conforming Amendments.--
(1) Section 134(b)(3)(A), as amended by section 102, is
amended by inserting ``and paragraph (4)'' after
``subparagraphs (B) and (C)''.
(2) Section 3121(a)(18) is amended by striking ``or 129''
and inserting ``, 129, or 134(b)(4)''.
(3) Section 3306(b)(13) is amended by striking ``or 129''
and inserting ``, 129, or 134(b)(4)''.
(4) Section 3401(a)(18) is amended by striking ``or 129''
and inserting ``, 129, or 134(b)(4)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
(d) No Inference.--No inference may be drawn from the amendments
made by this section with respect to the tax treatment of any amounts
under the program described in section 134(b)(4) of the Internal
Revenue Code of 1986 (as added by this section) for any taxable year
beginning before January 1, 2003.
SEC. 907. CLARIFICATION RELATING TO EXCEPTION FROM ADDITIONAL TAX ON
CERTAIN DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS,
ETC. ON ACCOUNT OF ATTENDANCE AT MILITARY ACADEMY.
(a) In General.--Subparagraph (B) of section 530(d)(4) (relating to
exceptions from additional tax for distributions not used for
educational purposes) is amended by striking ``or'' at the end of
clause (iii), by redesignating clause (iv) as clause (v), and by
inserting after clause (iii) the following new clause:
``(iv) made on account of the attendance of
the designated 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, to the
extent that the amount of the payment or
distribution does not exceed the costs of
advanced education (as defined by section
2005(e)(3) of title 10, United States Code, as
in effect on the date of the enactment of this
section) attributable to such attendance, or''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 908. SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST ORGANIZATIONS.
(a) In General.--Section 501 (relating to exemption from tax on
corporations, certain trusts, etc.) is amended by redesignating
subsection (p) as subsection (q) and by inserting after subsection (o)
the following new subsection:
``(p) Suspension of Tax-Exempt Status of Terrorist Organizations.--
``(1) In general.--The exemption from tax under subsection
(a) with respect to any organization described in paragraph
(2), and the eligibility of any organization described in
paragraph (2) to apply for recognition of exemption under
subsection (a), shall be suspended during the period described
in paragraph (3).
``(2) Terrorist organizations.--An organization is
described in this paragraph if such organization is designated
or otherwise individually identified--
``(A) under section 212(a)(3)(B)(vi)(II) or 219 of
the Immigration and Nationality Act as a terrorist
organization or foreign terrorist organization,
``(B) in or pursuant to an Executive order which 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 of
1945 for the purpose of imposing on such organization
an economic or other sanction, or
``(C) in or pursuant to an Executive order issued
under the authority of any Federal law if--
``(i) 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); and
``(ii) such Executive order refers to this
subsection.
``(3) Period of suspension.--With respect to any
organization described in paragraph (2), the period of
suspension--
``(A) begins on the later of--
``(i) the date of the first publication of
a designation or identification described in
paragraph (2) with respect to such
organization, or
``(ii) the date of the enactment of this
subsection, and
``(B) ends on the first date that all designations
and identifications described in paragraph (2) with
respect to such organization are rescinded pursuant to
the law or Executive order under which such designation
or identification was made.
``(4) Denial of deduction.--No deduction shall be allowed
under any provision of this title, including sections 170,
545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), and 2522, with
respect to any contribution to an organization described in
paragraph (2) during the period described in paragraph (3).
``(5) Denial of administrative or judicial challenge of
suspension or denial of deduction.--Notwithstanding section
7428 or any other provision of law, no organization or other
person may challenge a suspension under paragraph (1), a
designation or identification described in paragraph (2), the
period of suspension described in paragraph (3), or a denial of
a deduction under paragraph (4) in any administrative or
judicial proceeding relating to the Federal tax liability of
such organization or other person.
``(6) Erroneous designation.--
``(A) In general.--If--
``(i) the tax exemption of any organization
described in paragraph (2) is suspended under
paragraph (1),
``(ii) each designation and identification
described in paragraph (2) which has been made
with respect to such organization is determined
to be erroneous pursuant to the law or
Executive order under which such designation or
identification was made, and
``(iii) the erroneous designations and
identifications result in an overpayment of
income tax for any taxable year by such
organization,
credit or refund (with interest) with respect to such
overpayment shall be made.
``(B) Waiver of limitations.--If the credit or
refund of any overpayment of tax described in
subparagraph (A)(iii) is prevented at any time by the
operation of any law or rule of law (including res
judicata), such credit or refund may nevertheless be
allowed or made if the claim therefor is filed before
the close of the 1-year period beginning on the date of
the last determination described in subparagraph
(A)(ii).
``(7) Notice of Suspensions.--If the tax exemption of any
organization is suspended under this subsection, the Internal
Revenue Service shall update the listings of tax-exempt
organizations and shall publish appropriate notice to taxpayers
of such suspension and of the fact that contributions to such
organization are not deductible during the period of such
suspension.''.
(b) Effective Date.--The amendments made by this section shall
apply to designations made before, on, or after the date of the
enactment of this Act.
SEC. 909. ABOVE-THE-LINE DEDUCTION FOR OVERNIGHT TRAVEL EXPENSES OF
NATIONAL GUARD AND RESERVE MEMBERS.
(a) Deduction Allowed.--Section 162 (relating to certain trade or
business expenses) is amended by redesignating subsection (p) as
subsection (q) and inserting after subsection (o) the following new
subsection:
``(p) Treatment of Expenses of Members of Reserve Component of
Armed Forces of the United States.--For purposes of subsection (a)(2),
in the case of an individual who performs services as a member of a
reserve component of the Armed Forces of the United States at any time
during the taxable year, such individual shall be deemed to be away
from home in the pursuit of a trade or business for any period during
which such individual is away from home in connection with such
service.''.
(b) Deduction Allowed Whether or Not Taxpayer Elects To Itemize.--
Section 62(a)(2) (relating to certain trade and business deductions of
employees) is amended by adding at the end the following new
subparagraph:
``(E) Certain expenses of members of reserve
components of the armed forces of the united states.--
The deductions allowed by section 162 which consist of
expenses, determined at a rate not in excess of the
rates for travel expenses (including per diem in lieu
of subsistence) authorized for employees of agencies
under subchapter I of chapter 57 of title 5, United
States Code, paid or incurred by the taxpayer in
connection with the performance of services by such
taxpayer as a member of a reserve component of the
Armed Forces of the United States for any period during
which such individual is more than 100 miles away from
home in connection with such services.''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred in taxable years beginning after
December 31, 2002.
SEC. 910. TAX RELIEF AND ASSISTANCE FOR FAMILIES OF SPACE SHUTTLE
COLUMBIA HEROES.
(a) Income Tax Relief.--
(1) In general.--Subsection (d) of section 692 (relating to
income taxes of members of Armed Forces and victims of certain
terrorist attacks on death) is amended by adding at the end the
following new paragraph:
``(5) Relief with respect to astronauts.--The provisions of
this subsection shall apply to any astronaut whose death occurs
in the line of duty, except that paragraph (3)(B) shall be
applied by using the date of the death of the astronaut rather
than September 11, 2001.''.
(2) Conforming amendments.--
(A) Section 5(b)(1) is amended by inserting ``,
astronauts,'' after ``Forces''.
(B) Section 6013(f)(2)(B) is amended by inserting
``, astronauts,'' after ``Forces''.
(3) Clerical amendments.--
(A) The heading of section 692 is amended by
inserting ``, astronauts,'' after ``forces''.
(B) The item relating to section 692 in the table
of sections for part II of subchapter J of chapter 1 is
amended by inserting ``, astronauts,'' after
``Forces''.
(4) Effective date.--The amendments made by this subsection
shall apply with respect to any astronaut whose death occurs
after December 31, 2002.
(b) Death Benefit Relief.--
(1) In general.--Subsection (i) of section 101 (relating to
certain death benefits) is amended by adding at the end the
following new paragraph:
``(4) Relief with respect to astronauts.--The provisions of
this subsection shall apply to any astronaut whose death occurs
in the line of duty.''.
(2) Clerical amendment.--The heading for subsection (i) of
section 101 is amended by inserting ``or Astronauts'' after
``Victims''.
(3) Effective date.--The amendments made by this subsection
shall apply to amounts paid after December 31, 2002, with
respect to deaths occurring after such date.
(c) Estate Tax Relief.--
(1) In general.--Section 2201(b) (defining qualified
decedent) is amended by striking ``and'' at the end of
paragraph (1)(B), by striking the period at the end of
paragraph (2) and inserting ``, and'', and by adding at the end
the following new paragraph:
``(3) any astronaut whose death occurs in the line of
duty.''.
(2) Clerical amendments.--
(A) The heading of section 2201 is amended by
inserting ``, deaths of astronauts,'' after ``forces''.
(B) The item relating to section 2201 in the table
of sections for subchapter C of chapter 11 is amended
by inserting ``, deaths of astronauts,'' after
``Forces''.
(3) Effective date.--The amendments made by this subsection
shall apply to estates of decedents dying after December 31,
2002.
TITLE X--SUNSET
SEC. 1001. SUNSET.
(a) In General.--Except as otherwise provided, the provisions of,
and amendments made, by this Act shall not apply to taxable years
beginning after December 31, 2012, and the Internal Revenue Code of
1986 shall be applied and administered to such years as if such
amendments had never been enacted.
(b) Exceptions.--Subsection (a) shall not apply to the following
provisions of, and amendments made by, this Act:
(1) Title I (other than section 107).
(2) Title III (other than section 362).
Attest:
Secretary.
108th CONGRESS
1st Session
H. R. 2
_______________________________________________________________________
AMENDMENT