[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