[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3827 Introduced in House (IH)]







108th CONGRESS
  2d Session
                                H. R. 3827

  To amend the Internal Revenue Code of 1986 to protect American jobs.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           February 25, 2004

  Mr. Rangel introduced the following bill; which was referred to the 
                      Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to protect American jobs.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE, ETC.

    (a) Short Title.--This Act may be cited as the ``Job Protection Act 
of 2004''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--

Sec. 1. Short title, etc.
 TITLE I--TRANSITION FROM FSC/ETI BENEFITS TO UNITED STATES PRODUCTION 
                                BENEFITS

Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to United States 
                            production activities.
     TITLE II--EXTENSION OF INCREASED EXPENSING FOR SMALL BUSINESS

Sec. 201. 2-year extension of increased expensing for small business.
            TITLE III--ENRON-RELATED TAX SHELTER PROVISIONS

Sec. 301. Limitation on transfer or importation of built-in losses.
Sec. 302. No reduction of basis under section 734 in stock held by 
                            partnership in corporate partner.
Sec. 303. Repeal of special rules for FASITS, etc.
Sec. 304. Expanded disallowance of deduction for interest on 
                            convertible debt.
Sec. 305. Expanded authority to disallow tax benefits under section 
                            269.
Sec. 306. Modifications of certain rules relating to controlled foreign 
                            corporations.
                   TITLE IV--EXTENSION OF COBRA FEES

Sec. 401. Cobra fees.

 TITLE I--TRANSITION FROM FSC/ETI BENEFITS TO UNITED STATES PRODUCTION 
                                BENEFITS

SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

    (a) In General.--Section 114 of the Internal Revenue Code of 1986 
is hereby repealed.
    (b) Conforming Amendments.--
            (1)(A) Subpart E of part III of subchapter N of chapter 1 
        (relating to qualifying foreign trade income) is hereby 
        repealed.
            (B) The table of subparts for such part III is amended by 
        striking the item relating to subpart E.
            (2) The table of sections for part III of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        114.
            (3) The second sentence of section 56(g)(4)(B)(i) is 
        amended by striking ``or under section 114''.
            (4) Section 275(a) is amended--
                    (A) by inserting ``or'' at the end of paragraph 
                (4)(A), by striking ``or'' at the end of paragraph 
                (4)(B) and inserting a period, and by striking 
                subparagraph (C), and
                    (B) by striking the last sentence.
            (5) Paragraph (3) of section 864(e) is amended--
                    (A) by striking:
            ``(3) Tax-exempt assets not taken into account.--
                    ``(A) In general.--For purposes of''; and 
                inserting:
            ``(3) Tax-exempt assets not taken into account.--For 
        purposes of'', and
                    (B) by striking subparagraph (B).
            (6) Section 903 is amended by striking ``114, 164(a),'' and 
        inserting ``164(a)''.
            (7) Section 999(c)(1) is amended by striking 
        ``941(a)(5),''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to transactions occurring after the date of the enactment 
        of this Act.
            (2) Binding contracts.--The amendments made by this section 
        shall not apply to any transaction in the ordinary course of a 
        trade or business which occurs pursuant to a binding contract--
                    (A) which is between the taxpayer and a person who 
                is not a related person (as defined in section 
                943(b)(3) of such Code, as in effect on the day before 
                the date of the enactment of this Act), and
                    (B) which is in effect on September 17, 2003, and 
                at all times thereafter.
    (d) Revocation of Section 943(e) Elections.--
            (1) In general.--In the case of a corporation that elected 
        to be treated as a domestic corporation under section 943(e) of 
        the Internal Revenue Code of 1986 (as in effect on the day 
        before the date of the enactment of this Act)--
                    (A) the corporation may revoke such election, 
                effective as of the date of the enactment of this Act, 
                and
                    (B) if the corporation does revoke such election--
                            (i) such corporation shall be treated as a 
                        domestic corporation transferring (as of the 
                        date of the enactment of this Act) all of its 
                        property to a foreign corporation in connection 
                        with an exchange described in section 354 of 
                        the Internal Revenue Code of 1986, and
                            (ii) no gain or loss shall be recognized on 
                        such transfer.
            (2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall 
        not apply to gain on any asset held by the revoking corporation 
        if--
                    (A) the basis of such asset is determined in whole 
                or in part by reference to the basis of such asset in 
                the hands of the person from whom the revoking 
                corporation acquired such asset,
                    (B) the asset was acquired by transfer (not as a 
                result of the election under section 943(e) of such 
                Code) occurring on or after the 1st day on which its 
                election under section 943(e) of such Code was 
                effective, and
                    (C) a principal purpose of the acquisition was the 
                reduction or avoidance of tax (other than a reduction 
                in tax under section 114 of such Code, as in effect on 
                the day before the date of the enactment of this Act).
    (e) General Transition.--
            (1) In general.--In the case of a taxable year ending after 
        the date of the enactment of this Act and beginning before 
        January 1, 2007, for purposes of chapter 1 of such Code, each 
        current FSC/ETI beneficiary shall be allowed a deduction equal 
        to the transition amount determined under this subsection with 
        respect to such beneficiary for such year.
            (2) Current fsc/eti beneficiary.--The term ``current FSC/
        ETI beneficiary'' means any corporation which entered into one 
        or more transactions during its taxable year beginning in 
        calendar year 2001 with respect to which FSC/ETI benefits were 
        allowable.
            (3) Transition amount.--For purposes of this subsection--
                    (A) In general.--The transition amount applicable 
                to any current FSC/ETI beneficiary for any taxable year 
                is the phaseout percentage of the base period amount.
                    (B) Phaseout percentage.--
                            (i) In general.--In the case of a taxpayer 
                        using the calendar year as its taxable year, 
                        the phaseout percentage shall be determined 
                        under the following table:

                                                           The phaseout
``Years:                                                 percentage is:
        2004 and 2005..........................................     80 
        2006...................................................     60 
        2007 and thereafter....................................      0.
                            (ii) Special rule for 2004.--The phaseout 
                        percentage for 2004 shall be the amount that 
                        bears the same ratio to 80 percent as the 
                        number of days after the date of the enactment 
                        of this Act bears to 365.
                            (iii) Special rule for fiscal year 
                        taxpayers.--In the case of a taxpayer not using 
                        the calendar year as its taxable year, the 
                        phaseout percentage is the weighted average of 
                        the phaseout percentages determined under the 
                        preceding provisions of this paragraph with 
                        respect to calendar years any portion of which 
                        is included in the taxpayer's taxable year. The 
                        weighted average shall be determined on the 
                        basis of the respective portions of the taxable 
                        year in each calendar year.
            (4) Base period amount.--For purposes of this subsection, 
        the base period amount is the aggregate FSC/ETI benefits for 
        the taxpayer's taxable year beginning in calendar year 2001.
            (5) FSC/ETI benefit.--For purposes of this subsection, the 
        term `FSC/ETI benefit' means--
                    (A) amounts excludable from gross income under 
                section 114 of such Code, and
                    (B) the exempt foreign trade income of related 
                foreign sales corporations from property acquired from 
                the taxpayer (determined without regard to section 
                923(a)(5) of such Code (relating to special rule for 
                military property), as in effect on the day before the 
                date of the enactment of the FSC Repeal and 
                Extraterritorial Income Exclusion Act of 2000).
        In determining the FSC/ETI benefit there shall be excluded any 
        amount attributable to a transaction with respect to which the 
        taxpayer is the lessor unless the leased property was 
        manufactured or produced in whole or in significant part by the 
        taxpayer.
            (6) Special rule for farm and horticultural cooperatives.--
        Determinations under this subsection with respect to an 
        organization described in section 943(g)(1) of such Code, as in 
        effect on the day before the date of the enactment of this Act, 
        shall be made at the cooperative level and the purposes of this 
        subsection shall be carried out in a manner similar to section 
        199(h)(2) of such Code, as added by this Act. Such 
        determinations shall be in accordance with such requirements 
        and procedures as the Secretary may prescribe.
            (7) Certain rules to apply.--Rules similar to the rules of 
        section 41(f) of such Code shall apply for purposes of this 
        subsection.
            (8) Coordination with binding contract rule.--The deduction 
        determined under paragraph (1) for any taxable year shall be 
        reduced by the phaseout percentage of any FSC/ETI benefit 
        realized for the taxable year by reason of subsection (c)(2) or 
        section 5(c)(1)(B) of the FSC Repeal and Extraterritorial 
        Income Exclusion Act of 2000.
            (9) Special rule for taxable year which includes date of 
        enactment.--In the case of a taxable year which includes the 
        date of the enactment of this Act, the deduction allowed under 
        this subsection to any current FSC/ETI beneficiary shall in no 
        event exceed--
                    (A) 100 percent of such beneficiary's base period 
                amount, reduced by
                    (B) the aggregate FSC/ETI benefits of such 
                beneficiary with respect to transactions occurring 
                during the portion of the taxable year ending on the 
                date of the enactment of this Act.

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

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

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

    ``(a) In General.--There shall be allowed as a deduction an amount 
equal to 10 percent of the qualified production activities income of 
the taxpayer for the taxable year.
    ``(b) Phasein.--In the case of taxable years beginning in 2004, 
2005, 2006, or 2007, subsection (a) shall be applied by substituting 
for the percentage contained therein the transition percentage 
determined under the following table:

                                                         The transition
``Taxable years beginning in:                            percentage is:
        2004...................................................      1 
        2005...................................................      3 
        2006...................................................      6 
        2007...................................................      9.
    ``(c) Qualified Production Activities Income.--For purposes of this 
section, the term `qualified production activities income' means the 
product of--
            ``(1) the portion of the modified taxable income of the 
        taxpayer which is attributable to domestic production 
        activities, and
            ``(2) the domestic/worldwide fraction.
    ``(d) Determination of Income Attributable to Domestic Production 
Activities.--For purposes of this section--
            ``(1) In general.--The portion of the modified taxable 
        income which is attributable to domestic production activities 
        is so much of the modified taxable income for the taxable year 
        as does not exceed--
                    ``(A) the taxpayer's domestic production gross 
                receipts for such taxable year, reduced by
                    ``(B) the sum of--
                            ``(i) the costs of goods sold that are 
                        allocable to such receipts,
                            ``(ii) other deductions, expenses, or 
                        losses directly allocable to such receipts, and
                            ``(iii) a proper share of other deductions, 
                        expenses, and losses that are not directly 
                        allocable to such receipts or another class of 
                        income.
            ``(2) Allocation method.--The Secretary shall prescribe 
        rules for the proper allocation of items of income, deduction, 
        expense, and loss for purposes of determining income 
        attributable to domestic production activities.
            ``(3) Special rule for determining costs.--
                    ``(A) For purposes of determining costs under 
                clause (i) of paragraph (1)(B), any item or service 
                brought into the United States shall be treated as 
                acquired by purchase, and its cost shall be treated as 
                not less than its value in the United States, 
                determined immediately after it was brought into the 
                United States. A similar rule shall apply in 
                determining the adjusted basis of leased or rented 
                property where the lease or rental gives rise to 
                domestic production gross receipts.
                    ``(B) In the case of any property described in 
                subparagraph (A) that had been exported by the taxpayer 
                for further manufacture, the increase in cost (or 
                adjusted basis) under subparagraph (A) shall not exceed 
                the difference between the value of the property when 
                exported and the value of the property when brought 
                back into the United States after the further 
                manufacture.
            ``(4) Modified taxable income.--The term `modified taxable 
        income' means taxable income computed without regard to the 
        deduction allowable under this section.
    ``(e) Domestic Production Gross Receipts.--For purposes of this 
section--
            ``(1) In general.--The term `domestic production gross 
        receipts' means the gross receipts of the taxpayer which are 
        derived from--
                    ``(A) any sale, exchange, or other disposition of, 
                or
                    ``(B) any lease, rental or license of--
        qualifying production property which was manufactured, 
        produced, grown, or extracted in whole or in significant part 
        by the taxpayer within the United States.
            ``(2) Special rules for certain property.--In the case of 
        any qualifying production property described in subsection 
        (f)(1)(C)--
                    (A) such property shall be treated for purposes of 
                paragraph (1) as produced in significant part by the 
                taxpayer within the United States if more than 50 
                percent of the aggregate development and production 
                costs are incurred by the taxpayer within the United 
                States, and
                    (B) if a taxpayer acquires such property before 
                such property begins to generate substantial gross 
                receipts, any development or production costs incurred 
                before the acquisition shall be treated as incurred by 
                the taxpayer for purposes of subparagraph (A) and 
                paragraph (1).
    ``(f) Qualifying Production Property.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `qualifying production property' means--
                    ``(A) any tangible personal property,
                    ``(B) any computer software, and
                    ``(C) any property described in paragraph (3) or 
                (4) of section 168(f), including any underlying 
                copyright or trademark.
        Subparagraph (C) shall not apply to any property with respect 
        to which records are required to be maintained under section 
        2257 of title 18, United States Code.
            ``(2) Exclusions from qualifying production property.--The 
        term `qualifying production property' shall not include--
                    ``(A) consumable property that is sold, leased, or 
                licensed by the taxpayer as an integral part of the 
                provision of services,
                    ``(B) oil or gas (or any primary product thereof),
                    ``(C) electricity,
                    ``(D) water supplied by pipeline to the consumer,
                    ``(E) utility services, or
                    ``(F) any property (not described in paragraph 
                (1)(B)) which is a film, tape, recording, book, 
                magazine, newspaper, or similar property the market for 
                which is primarily topical or otherwise essentially 
                transitory in nature.
            ``(3) Special rule for noncorporate taxpayers.--In the case 
        of a taxpayer other than a corporation subject to tax under 
        section 11, the term `qualifying production property' only 
        includes--
            ``(A) agricultural or horticultural products, including 
        timber, and
            ``(B) other tangible personal property not described in 
        subparagraph (B) or (C) of paragraph (1) and not described in 
        section 1221(a)(3).
    ``(g) Domestic/Worldwide Fraction.--For purposes of this section--
            ``(1) In general.--The term `domestic/worldwide fraction' 
        means a fraction (not greater than 1)--
                    ``(A) the numerator of which is the value of the 
                domestic production of the taxpayer, and
                    ``(B) the denominator of which is the value of the 
                worldwide production of the taxpayer.
            ``(2) Value of domestic production.--The value of domestic 
        production is the excess (if any) of--
                    ``(A) the domestic production gross receipts, over
                    ``(B) the cost of purchased inputs allocable to 
                such receipts that are deductible under this chapter 
                for the taxable year.
            ``(3) Purchased inputs.--
                    ``(A) In general.--Purchased inputs are any of the 
                following items acquired by purchase:
                            ``(i) Services (other than services of 
                        employees) used in manufacture, production, 
                        growth, or extraction activities.
                            ``(ii) Items consumed in connection with 
                        such activities.
                            ``(iii) Items incorporated as part of the 
                        property being manufactured, produced, grown, 
                        or extracted.
                    ``(B) Special rule.--Rules similar to the rules of 
                subsection (d)(3) shall apply for purposes of this 
                subsection.
            ``(4) Value of worldwide production.--
                    ``(A) In general.--The value of worldwide 
                production shall be determined under the principles of 
                paragraph (2), except that--
                            ``(i) worldwide production gross receipts 
                        shall be taken into account, and
                            ``(ii) paragraph (3)(B) shall not apply.
                    ``(B) Worldwide production gross receipts.--The 
                worldwide production gross receipts is the amount that 
                would be determined under subsection (e) if such 
                subsection were applied without any reference to the 
                United States.
    ``(h) Definitions and Special Rules.--
            ``(1) United states.--For purposes of this section, the 
        term `United States' includes the Commonwealth of Puerto Rico 
        and any other possession of the United States.
            ``(2) Exclusion for patrons of agricultural and 
        horticultural cooperatives.--
                    ``(A) In general.--If any amount described in 
                paragraph (1) or (3) of section 1385 (a)--
                            ``(i) is received by a person from an 
                        organization to which part I of subchapter T 
                        applies which is engaged in the marketing of 
                        agricultural or horticultural products, and
                            ``(ii) is allocable to the portion of the 
                        qualified production activities income of the 
                        organization which is deductible under 
                        subsection (a) (determined as if the 
                        organization were a corporation if it is not) 
                        and designated as such by the organization in a 
                        written notice mailed to its patrons during the 
                        payment period described in section 1382(a),
                then such person shall be allowed an exclusion from 
                gross income with respect to such amount. The taxable 
                income of the organization shall not be reduced under 
                section 1382 by the portion of any such amount with 
                respect to which an exclusion is allowable to a person 
                by reason of this paragraph.
                    ``(B) Special rules.--For purposes of applying 
                subparagraph (A), in determining the qualified 
                production activities income of the organization under 
                this section--
                            ``(i) there shall not be taken into account 
                        in computing the organization's modified 
                        taxable income any deduction allowable under 
                        subsection (b) or (c) of section 1382 (relating 
                        to patronage dividends, per-unit retain 
                        allocations, and nonpatronage distributions), 
                        and
                            ``(ii) the organization shall be treated as 
                        having manufactured, produced, grown, or 
                        extracted in whole or significant part any 
                        qualifying production property marketed by the 
                        organization which its patrons have so 
                        manufactured, produced, grown, or extracted.
            ``(3) Special rules for partnerships and s corporations.--
        For purposes of this section, a partner's distributive share of 
        any partnership item shall be taken into account as if directly 
        realized by the partner. A rule similar to the rule of the 
        preceding sentence shall apply in the case of a shareholder in 
        an S Corporation.
            ``(4) Special rule for affiliated groups.--
                    ``(A) In general.--All members of an expanded 
                affiliated group shall be treated as a single 
                corporation for purposes of this section.
                    ``(B) Expanded affiliated group.--The term 
                `expanded affiliated group' means an affiliated group 
                as defined in section 1504(a), determined--
                            ``(i) by substituting `50 percent' for `80 
                        percent' each place it appears, and
                            ``(ii) without regard to paragraphs (2) and 
                        (4) of section 1504(b).
                For purposes of determining the domestic/worldwide 
                fraction under subsection (g), clause (ii) shall be 
                applied by also disregarding paragraphs (3) and (8) of 
                section 1504(b).
            ``(5) Coordination with minimum tax.--The deduction under 
        this section shall be allowed for purposes of the tax imposed 
        by section 55; except that for purposes of section 55, 
        alternative minimum taxable income shall be taken into account 
        in determining the deduction under this section.
            ``(6) Ordering rule.--The amount of any other deduction 
        allowable under this chapter shall be determined as if this 
        section had not been enacted.
            ``(7) Trade or business requirement.--This section shall be 
        applied by only taking into account items which are 
        attributable to the actual conduct of a trade or business.
            ``(8) Coordination with transition rules.--For purposes of 
        this section--
                    ``(A) domestic production gross receipts shall not 
                include gross receipts from any transaction if the 
                binding contract transition relief of section 2(c)(2) 
                of the Job Protection Act of 2003 applies to such 
                transaction, and
                    ``(B) any deduction allowed under section 2(e) of 
                such Act shall be disregarded in determining the 
                portion of the taxable income which is attributable to 
                domestic production gross receipts.''.
    (b) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 is amended by adding at the end the following 
new item:

                              ``Sec. 199. Income attributable to 
                                        domestic production 
                                        activities.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years ending after 2003.
            (2) Application of section 15.--Section 15 of the Internal 
        Revenue Code of 1986 shall apply to the amendments made by this 
        section as if they were changes in a rate of tax.

     TITLE II--EXTENSION OF INCREASED EXPENSING FOR SMALL BUSINESS

SEC. 201. 2-YEAR EXTENSION OF INCREASED EXPENSING FOR SMALL BUSINESS.

    Subsections (b), (c), and (d) of section 179 (as amended by the 
Jobs and Growth Tax Relief Reconciliation Act of 2003) are each amended 
by striking ``2006'' each place it appears and inserting ``2008''.

            TITLE III--ENRON-RELATED TAX SHELTER PROVISIONS

SEC. 301. 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 the date of the enactment of this Act.

SEC. 302. 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 the date of the enactment of this Act.

SEC. 303. REPEAL OF SPECIAL RULES FOR FASITS, ETC.

    (a) In General.--Part V of subchapter M of chapter 1 (relating to 
financial asset securitization investment trusts) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Paragraph (6) of section 56(g) is amended by striking 
        ``REMIC, or FASIT'' and inserting ``or REMIC''.
            (2) Clause (ii) of section 382(l)(4)(B) is amended by 
        striking ``a REMIC to which part IV of subchapter M applies, or 
        a FASIT to which part V of subchapter M applies,'' and 
        inserting ``or a REMIC to which part IV of subchapter M 
        applies,'.
            (3) Paragraph (1) of section 582(c) is amended by striking 
        ``, and any regular interest in a FASIT,''.
            (4) Subparagraph (E) of section 856(c)(5) is amended by 
        striking the last sentence.
            (5)(A) Section 860G(a)(1) is amended by adding at the end 
        the following new sentence: ``An interest shall not fail to 
        qualify as a regular interest solely because the specified 
        principal amount of the regular interest (or the amount of 
        interest accrued on the regular interest) can be reduced as a 
        result of the nonoccurrence of 1 or more contingent payments 
        with respect to any reverse mortgage loan held by the REMIC if, 
        on the startup day for the REMIC, the sponsor reasonably 
        believes that all principal and interest due under the regular 
        interest will be paid at or prior to the liquidation of the 
        REMIC.''.
            (B) The last sentence of section 860G(a)(3) is amended by 
        inserting ``, and any reverse mortgage loan (and each balance 
        increase on such loan meeting the requirements of subparagraph 
        (A)(iii)) shall be treated as an obligation secured by an 
        interest in real property'' before the period at the end.
            (6) Paragraph (3) of section 860G(a) is amended by adding 
        ``and'' at the end of subparagraph (B), by striking ``, and'' 
        at the end of subparagraph (C) and inserting a period, and by 
        striking subparagraph (D).
            (7) Section 860G(a)(3), as amended by paragraph (6), is 
        amended by adding at the end the following new sentence: ``For 
        purposes of subparagraph (A), if more than 50 percent of the 
        obligations transferred to, or purchased by, the REMIC are 
        originated by the United States or any State (or any political 
        subdivision, agency, or instrumentality of the United States or 
        any State) and are principally secured by an interest in real 
        property, then each obligation transferred to, or purchased by, 
        the REMIC shall be treated as secured by an interest in real 
        property.''.
            (8)(A) Section 860G(a)(3)(A) is amended by striking ``or'' 
        at the end of clause (i), by inserting ``or'' at the end of 
        clause (ii), and by inserting after clause (ii) the following 
        new clause:
                            ``(iii) represents an increase in the 
                        principal amount under the original terms of an 
                        obligation described in clause (i) or (ii) if 
                        such increase--
                                    ``(I) is attributable to an advance 
                                made to the obligor pursuant to the 
                                original terms of the obligation,
                                    ``(II) occurs after the startup 
                                day, and
                                    ``(III) is purchased by the REMIC 
                                pursuant to a fixed price contract in 
                                effect on the startup day.''.
            (B) Section 860G(a)(7)(B) is amended to read as follows:
                    ``(B) Qualified reserve fund.--For purposes of 
                subparagraph (A), the term `qualified reserve fund' 
                means any reasonably required reserve to--
                            ``(i) provide for full payment of expenses 
                        of the REMIC or amounts due on regular 
                        interests in the event of defaults on qualified 
                        mortgages or lower than expected returns on 
                        cash flow investments, or
                            ``(ii) provide a source of funds for the 
                        purchase of obligations described in clause 
                        (ii) or (iii) of paragraph (3)(A).
                The aggregate fair market value of the assets held in 
                any such reserve shall not exceed 50 percent of the 
                aggregate fair market value of all of the assets of the 
                REMIC on the startup day, and the amount of any such 
                reserve shall be promptly and appropriately reduced to 
                the extent the amount held in such reserve is no longer 
                reasonably required for purposes specified in clause 
                (i) or (ii) of paragraph (3)(A).''.
            (9) Subparagraph (C) of section 1202(e)(4) is amended by 
        striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
            (10) Section 1272(a)(6)(B) is amended by adding at the end 
        the following new flush sentence:
                ``For purposes of clause (iii), the Secretary shall 
                prescribe regulations permitting the use of a current 
                prepayment assumption, determined as of the close of 
                the accrual period (or such other time as the Secretary 
                may prescribe during the taxable year in which the 
                accrual period ends).''.
            (11) Subparagraph (C) of section 7701(a)(19) is amended by 
        adding ``and'' at the end of clause (ix), by striking ``, and'' 
        at the end of clause (x) and inserting a period, and by 
        striking clause (xi).
            (12) The table of parts for subchapter M of chapter 1 is 
        amended by striking the item relating to part V.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on the date 
        of the enactment of this Act.
            (2) Exception for existing fasits.--
                    (A) In general.--Paragraph (1) shall not apply to 
                any FASIT in existence on the date of the enactment of 
                this Act to the extent that regular interests issued by 
                the FASIT before such date continue to remain 
                outstanding in accordance with the original terms of 
                issuance.
                    (B) Transfer of additional assets not permitted.--
                Except as provided in regulations prescribed by the 
                Secretary of the Treasury or the Secretary's delegate, 
                subparagraph (A) shall cease to apply as of the 
                earliest date after the date of the enactment of this 
                Act that any property is transferred to the FASIT.

SEC. 304. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON 
              CONVERTIBLE DEBT.

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

SEC. 305. 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 the date of the enactment of this 
Act.

SEC. 306. 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 the 
date of the enactment of this Act, and to taxable years of United 
States shareholder in which or with which such taxable years of 
controlled foreign corporations end.

                   TITLE IV--EXTENSION OF COBRA FEES

SEC. 401. COBRA FEES.

    (a) Use of Merchandise Processing Fee.--Section 13031(f) of the 
Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 
58c(f)) is amended--
            (1) in paragraph (1), by aligning subparagraph (B) with 
        subparagraph (A); and
            (2) in paragraph (2), by striking ``commercial operations'' 
        and all that follows through ``processing'' and inserting 
        ``customs revenue functions as defined in section 415 of the 
        Homeland Security Act of 2002 (other than functions performed 
        by the Office of International Affairs referred to in section 
        415(8) of that Act), and for automation (including the 
        Automation Commercial Environment computer system), and for no 
        other purpose. To the extent that funds in the Customs User Fee 
        Account are insufficient to pay the costs of such customs 
        revenue functions, customs duties in an amount equal to the 
        amount of such insufficiency shall be available, to the extent 
        provided for in appropriations Acts, to pay the costs of such 
        customs revenue functions in the amount of such insufficiency, 
        and shall be available for no other purpose. The provisions of 
        the first and second sentences of this paragraph specifying the 
        purposes for which amounts in the Customs User Fee Account may 
        be made available shall not be superseded except by a provision 
        of law which specifically modifies or supersedes such 
        provisions.''.
    (b) Reimbursement of Appropriations From COBRA Fees.--Section 
13031(f)(3) of the Consolidated Omnibus Budget Reconciliation Act of 
1985 (19 U.S.C. 58c(f)(3)) is amended by adding at the end the 
following:
    ``(E) Nothing in this paragraph shall be construed to preclude the 
use of appropriated funds, from sources other than the fees collected 
under subsection (a), to pay the costs set forth in clauses (i), (ii), 
and (iii) of subparagraph (A).''.
    (c) Sense of Congress; Effective Period for Collecting Fees; 
Standard for Setting Fees.--
            (1) Sense of congress.--The Congress finds that--
                    (A) the fees set forth in paragraphs (1) through 
                (8) of subsection (a) of section 13031 of the 
                Consolidated Omnibus Budget Reconciliation Act of 1985 
                have been reasonably related to the costs of providing 
                customs services in connection with the activities or 
                items for which the fees have been charged under such 
                paragraphs; and
                    (B) the fees collected under such paragraphs have 
                not exceeded, in the aggregate, the amounts paid for 
                the costs described in subsection (f)(3)(A) incurred in 
                providing customs services in connection with the 
                activities or items for which the fees were charged 
                under such paragraphs.
            (2) Effective period; standard for setting fees.--Section 
        13031(j)(3) of the Consolidated Omnibus Budget Reconciliation 
        Act of 1985 is amended to read as follows:
    ``(3)(A) Fees may not be charged under paragraphs (9) and (10) of 
subsection (a) after September 30, 2013.
    ``(B)(i) Subject to clause (ii), fees may not be charged under 
paragraphs (1) through (8) of subsection (a) after September 30, 2006.
    ``(ii) In fiscal year 2006 and in each succeeding fiscal year for 
which fees under paragraphs (1) through (8) of subsection (a) are 
authorized--
            ``(I) the Secretary of the Treasury shall charge fees under 
        each such paragraph in amounts that are reasonably related to 
        the costs of providing customs services in connection with the 
        activity or item for which the fee is charged under such 
        paragraph;
            ``(II) the amount of fees collected under such paragraphs 
        may not exceed, in the aggregate, the amounts paid in that 
        fiscal year for the costs described in subsection (f)(3)(A) 
        incurred in providing customs services in connection with the 
        activity or item for which the fees are charged under such 
        paragraphs;
            ``(III) a fee may not be collected under any such paragraph 
        except to the extent such fee will be expended to pay the costs 
        described in subsection (f)(3)(A) incurred in providing customs 
        services in connection with the activity or item for which the 
        fee is charged under such paragraph; and
            ``(IV) any fee collected under any such paragraph shall be 
        available for expenditure only to pay the costs described in 
        subsection (f)(3)(A) incurred in providing customs services in 
        connection with the activity or item for which the fee is 
        charged under such paragraph.''.
    (d) Clerical Amendments.--Section 13031 of the Consolidated Omnibus 
Budget Reconciliation Act of 1985 is amended--
            (1) in subsection (a)(5)(B), by striking ``$1.75'' and 
        inserting ``$1.75.'';
            (2) in subsection (b)--
                    (A) in paragraph (1)(A), by aligning clause (iii) 
                with clause (ii);
                    (B) in paragraph (7), by striking ``paragraphs'' 
                and inserting ``paragraph''; and
                    (C) in paragraph (9), by aligning subparagraph (B) 
                with subparagraph (A); and
            (3) in subsection (e)(2), by aligning subparagraph (B) with 
        subparagraph (A).
                                 <all>