[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4520 Engrossed Amendment Senate (EAS)]
In the Senate of the United States,
July 15, 2004.
Resolved, That the bill from the House of Representatives (H.R.
4520) entitled ``An Act to amend the Internal Revenue Code of 1986 to
comply with the World Trade Organization rulings on the FSC/ETI benefit
in a manner that preserves jobs and production activities in the United
States, to reform and simplify the international taxation rules of the
United States, and for other purposes.'', do pass with the following
AMENDMENT:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Jumpstart Our
Business Strength (JOBS) Act''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR
EXTRATERRITORIAL INCOME
Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to United States
production activities.
Sec. 103. Deduction for United States production activities includes
income related to certain architectural and
engineering services.
TITLE II--INTERNATIONAL TAX PROVISIONS
Subtitle A--International Tax Reform
Sec. 201. 20-year foreign tax credit carryover; 1-year foreign tax
credit carryback.
Sec. 202. Look-thru rules to apply to dividends from noncontrolled
section 902 corporations.
Sec. 203. Foreign tax credit under alternative minimum tax.
Sec. 204. Recharacterization of overall domestic loss.
Sec. 205. Interest expense allocation rules.
Sec. 206. Determination of foreign personal holding company income with
respect to transactions in commodities.
Subtitle B--International Tax Simplification
Sec. 211. Repeal of foreign personal holding company rules and foreign
investment company rules.
Sec. 212. Expansion of de minimis rule under subpart F.
Sec. 213. Attribution of stock ownership through partnerships to apply
in determining section 902 and 960 credits.
Sec. 214. Application of uniform capitalization rules to foreign
persons.
Sec. 215. Repeal of withholding tax on dividends from certain foreign
corporations.
Sec. 216. Repeal of special capital gains tax on aliens present in the
United States for 183 days or more.
Subtitle C--Additional International Tax Provisions
Sec. 221. Active leasing income from aircraft and vessels.
Sec. 222. Look-thru treatment of payments between related controlled
foreign corporations under foreign personal
holding company income rules.
Sec. 223. Look-thru treatment for sales of partnership interests.
Sec. 224. Election not to use average exchange rate for foreign tax
paid other than in functional currency.
Sec. 225. Treatment of income tax base differences.
Sec. 226. Modification of exceptions under subpart F for active
financing.
Sec. 227. United States property not to include certain assets of
controlled foreign corporation.
Sec. 228. Provide equal treatment for interest paid by foreign
partnerships and foreign corporations.
Sec. 229. Clarification of treatment of certain transfers of intangible
property.
Sec. 230. Modification of the treatment of certain REIT distributions
attributable to gain from sales or
exchanges of United States real property
interests.
Sec. 231. Toll tax on excess qualified foreign distribution amount.
Sec. 232. Exclusion of income derived from certain wagers on horse
races and dog races from gross income of
nonresident alien individuals.
Sec. 233. Limitation of withholding tax for Puerto Rico corporations.
Sec. 234. Report on WTO dispute settlement panels and the appellate
body.
Sec. 235. Study of impact of international tax laws on taxpayers other
than large corporations.
Sec. 236. Delay in effective date of final regulations governing
exclusion of income from international
operation of ships or aircraft.
Sec. 237. Interest payments deductible where disqualified guarantee has
no economic effect.
TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS
Subtitle A--General Provisions
Sec. 301. Expansion of qualified small-issue bond program.
Sec. 302. Expensing of broadband Internet access expenditures.
Sec. 303. Exemption of natural aging process in determination of
production period for distilled spirits
under section 263A.
Sec. 304. Modification of active business definition under section 355.
Sec. 305. Modified taxation of imported archery products.
Sec. 306. Modification to cooperative marketing rules to include value
added processing involving animals.
Sec. 307. Extension of declaratory judgment procedures to farmers'
cooperative organizations.
Sec. 308. Temporary suspension of personal holding company tax.
Sec. 309. Increase in section 179 expensing.
Sec. 310. Five-year carryback of net operating losses.
Sec. 311. Extension and modification of research credit.
Sec. 312. Expansion of research credit.
Sec. 313. Manufacturer's jobs credit.
Sec. 314. Brownfields Demonstration Program for qualified green
building and sustainable design projects.
Subtitle B--Manufacturing Relating to Films
Sec. 321. Special rules for certain film and television productions.
Sec. 322. Modification of application of income forecast method of
depreciation.
Subtitle C--Manufacturing Relating to Timber
Sec. 331. Expensing of certain reforestation expenditures.
Sec. 332. Election to treat cutting of timber as a sale or exchange.
Sec. 333. Capital gain treatment under section 631(b) to apply to
outright sales by landowners.
Sec. 334. Modification of safe harbor rules for timber REITS.
TITLE IV--ADDITIONAL PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
Sec. 401. Clarification of economic substance doctrine.
Sec. 402. Penalty for failing to disclose reportable transaction.
Sec. 403. Accuracy-related penalty for listed transactions and other
reportable transactions having a
significant tax avoidance purpose.
Sec. 404. Penalty for understatements attributable to transactions
lacking economic substance, etc.
Sec. 405. Modifications of substantial understatement penalty for
nonreportable transactions.
Sec. 406. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 407. Disclosure of reportable transactions.
Sec. 408. Modifications to penalty for failure to register tax
shelters.
Sec. 409. Modification of penalty for failure to maintain lists of
investors.
Sec. 410. Modification of actions to enjoin certain conduct related to
tax shelters and reportable transactions.
Sec. 411. Understatement of taxpayer's liability by income tax return
preparer.
Sec. 412. Penalty on failure to report interests in foreign financial
accounts.
Sec. 413. Frivolous tax submissions.
Sec. 414. Regulation of individuals practicing before the Department of
Treasury.
Sec. 415. Penalty for promoting abusive tax shelters.
Sec. 416. Statute of limitations for taxable years for which required
listed transactions not reported.
Sec. 417. Denial of deduction for interest on underpayments
attributable to nondisclosed reportable and
noneconomic substance transactions.
Sec. 418. Authorization of appropriations for tax law enforcement.
Sec. 419. Penalty for aiding and abetting the understatement of tax
liability.
Sec. 420. Study on information sharing among law enforcement agencies.
Subtitle B--Other Corporate Governance Provisions
Sec. 421. Affirmation of consolidated return regulation authority.
Sec. 422. Declaration by chief executive officer relating to Federal
annual income tax return of a corporation.
Sec. 423. Denial of deduction for certain fines, penalties, and other
amounts.
Sec. 424. Disallowance of deduction for punitive damages.
Sec. 425. Increase in criminal monetary penalty limitation for the
underpayment or overpayment of tax due to
fraud.
Subtitle C--Enron-Related Tax Shelter Provisions
Sec. 431. Limitation on transfer or importation of built-in losses.
Sec. 432. No reduction of basis under section 734 in stock held by
partnership in corporate partner.
Sec. 433. Repeal of special rules for FASITs.
Sec. 434. Expanded disallowance of deduction for interest on
convertible debt.
Sec. 435. Expanded authority to disallow tax benefits under section
269.
Sec. 436. Modification of interaction between subpart F and passive
foreign investment company rules.
Subtitle D--Provisions To Discourage Expatriation
Sec. 441. Tax treatment of inverted corporate entities.
Sec. 442. Imposition of mark-to-market tax on individuals who
expatriate.
Sec. 443. Excise tax on stock compensation of insiders of inverted
corporations.
Sec. 444. Reinsurance of United States risks in foreign jurisdictions.
Sec. 445. Reporting of taxable mergers and acquisitions.
Subtitle E--International Tax
Sec. 451. Clarification of banking business for purposes of determining
investment of earnings in United States
property.
Sec. 452. Prohibition on nonrecognition of gain through complete
liquidation of holding company.
Sec. 453. Prevention of mismatching of interest and original issue
discount deductions and income inclusions
in transactions with related foreign
persons.
Sec. 454. Effectively connected income to include certain foreign
source income.
Sec. 455. Recapture of overall foreign losses on sale of controlled
foreign corporation.
Sec. 456. Minimum holding period for foreign tax credit on withholding
taxes on income other than dividends.
Subtitle F--Other Revenue Provisions
Part I--Financial Instruments
Sec. 461. Treatment of stripped interests in bond and preferred stock
funds, etc.
Sec. 462. Application of earnings stripping rules to partners which are
C corporations.
Sec. 463. Recognition of cancellation of indebtedness income realized
on satisfaction of debt with partnership
interest.
Sec. 464. Modification of straddle rules.
Sec. 465. Denial of installment sale treatment for all readily
tradeable debt.
Part II--Corporations and Partnerships
Sec. 466. Modification of treatment of transfers to creditors in
divisive reorganizations.
Sec. 467. Clarification of definition of nonqualified preferred stock.
Sec. 468. Modification of definition of controlled group of
corporations.
Sec. 469. Mandatory basis adjustments in connection with partnership
distributions and transfers of partnership
interests.
Part III--Depreciation and Amortization
Sec. 471. Extension of amortization of intangibles to sports
franchises.
Sec. 472. Class lives for utility grading costs.
Sec. 473. Expansion of limitation on depreciation of certain passenger
automobiles.
Sec. 474. Consistent amortization of periods for intangibles.
Sec. 475. Reform of tax treatment of leasing operations.
Sec. 476. Limitation on deductions allocable to property used by
governments or other tax-exempt entities.
Part IV--Administrative Provisions
Sec. 481. Clarification of rules for payment of estimated tax for
certain deemed asset sales.
Sec. 482. Extension of IRS user fees.
Sec. 483. Doubling of certain penalties, fines, and interest on
underpayments related to certain offshore
financial arrangement.
Sec. 484. Partial payment of tax liability in installment agreements.
Sec. 485. Extension of customs user fees.
Sec. 486. Deposits made to suspend running of interest on potential
underpayments.
Sec. 487. Qualified tax collection contracts.
Sec. 488. Whistleblower reforms.
Sec. 489. Protection of overtime pay.
Sec. 490. Protection of overtime pay.
Part V--Miscellaneous Provisions
Sec. 491. Addition of vaccines against hepatitis A to list of taxable
vaccines.
Sec. 492. Recognition of gain from the sale of a principal residence
acquired in a like-kind exchange within 5
years of sale.
Sec. 493. Modification of exemption from tax for small property and
casualty insurance companies.
Sec. 494. Treatment of charitable contributions of patents and similar
property.
Sec. 495. Increase in age of minor children whose unearned income is
taxed as if parent's income.
Sec. 496. Holding period for preferred stock.
Sec. 497. Substantial presence test required to determine bona fide
residence in United States possessions.
TITLE V--PROTECTION OF UNITED STATES WORKERS FROM COMPETITION OF
FOREIGN WORKFORCES
Sec. 501. Limitations on off-shore performance of contracts.
Sec. 502. Repeal of superseded law.
Sec. 503. Effective date and applicability.
TITLE VI--OTHER PROVISIONS
Subtitle A--Provisions Relating to Housing
Sec. 601. Treatment of qualified mortgage bonds.
Sec. 602. Premiums for mortgage insurance.
Sec. 603. Increase in historic rehabilitation credit for certain low-
income housing for the elderly.
Subtitle B--Provisions Relating to Bonds
Sec. 611. Expansion of New York Liberty Zone tax benefits.
Sec. 612. Modifications of treatment of qualified zone academy bonds.
Sec. 613. Modifications of authority of Indian tribal governments to
issue tax-exempt bonds.
Sec. 614. Definition of manufacturing facility for small issue bonds.
Sec. 615. Conservation bonds.
Sec. 616. Indian school construction.
Subtitle C--Provisions Relating to Depreciation
Sec. 621. Special placed in service rule for bonus depreciation
property.
Sec. 622. Modification of depreciation allowance for aircraft.
Sec. 623. Modification of class life for certain track facilities.
Sec. 624. Minimum tax relief for certain taxpayers.
Subtitle D--Expansion of Business Credit
Sec. 631. New markets tax credit for Native American reservations.
Sec. 632. Ready Reserve-National Guard employee credit and Ready
Reserve-National Guard replacement employee
credit.
Sec. 633. Rural investment tax credit.
Sec. 634. Qualified rural small business investment credit.
Sec. 635. Credit for maintenance of railroad track.
Sec. 636. Railroad revitalization and security investment credit.
Sec. 637. Modification of targeted areas designated for new markets tax
credit.
Sec. 638. Modification of income requirement for census tracts within
high migration rural counties.
Sec. 639. Credit for investment in technology to make motion pictures
more accessible to the deaf and hard of
hearing.
Subtitle E--Miscellaneous Provisions
Sec. 641. Exclusion of gain or loss on sale or exchange of certain
brownfield sites from unrelated business
taxable income.
Sec. 642. Modification of unrelated business income limitation on
investment in certain debt-financed
properties.
Sec. 643. Civil rights tax relief.
Sec. 644. Exclusion for payments to individuals under National Health
Service Corps loan repayment program and
certain State loan repayment programs.
Sec. 645. Certain expenses of rural letter carriers.
Sec. 646. Method of accounting for naval shipbuilders.
Sec. 647. Suspension of policyholders surplus account provisions.
Sec. 648. Payment of dividends on stock of cooperatives without
reducing patronage dividends.
Sec. 649. Special rules for livestock sold on account of weather-
related conditions.
Sec. 650. Motor vehicle dealer transitional assistance.
Sec. 651. Expansion of designated renewal community area based on 2000
census data.
Sec. 652. Reduction of holding period to 12 months for purposes of
determining whether horses are section 1231
assets.
Sec. 653. Blue Ribbon Commission on Comprehensive Tax Reform.
Sec. 654. Treatment of distributions by ESOPs with respect to S
corporation stock.
Sec. 655. Clarification of working capital for reasonably anticipated
needs of a business for purposes of
accumulated earnings tax.
Sec. 656. Tax treatment of State ownership of railroad real estate
investment trust.
Sec. 657. Clarification of contribution in aid of construction for
water and sewerage disposal utilities.
Sec. 658. Credit for purchase and installation of agricultural water
conservation systems.
Sec. 659. Modification of involuntary conversion rules for businesses
affected by the September 11th terrorist
attacks.
Sec. 660. Repeal of application of below-market loan rules to amounts
paid to certain continuing care facilities.
Sec. 661. Gold, silver, platinum, and palladium treated in the same
manner as stocks and bonds for maximum
capital gains rate for individuals.
Sec. 662. Inclusion of primary and secondary medical strategies for
children and adults with sickle cell
disease as medical assistance under the
Medicaid program.
Subtitle F--Revenue Provisions
Part I--General Revenue Provisions
Sec. 661A. Treasury regulations on foreign tax credit.
Sec. 662B. Freeze of provisions regarding suspension of interest where
Secretary fails to contact taxpayer.
Part II--Pension and Deferred Compensation
Sec. 671. Treatment of nonqualified deferred compensation plans.
Sec. 672. Prohibition on deferral of gain from the exercise of stock
options and restricted stock gains through
deferred compensation arrangements.
Sec. 673. Increase in withholding from supplemental wage payments in
excess of $1,000,000.
Sec. 674. Treatment of sale of stock acquired pursuant to exercise of
stock options to comply with conflict-of-
interest requirements.
Sec. 675. Application of basis rules to employer and employee
contributions on behalf of nonresident
aliens.
TITLE VII--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS
Subtitle A--Extensions
Sec. 701. Parity in the application of certain limits to mental health
benefits.
Sec. 702. Modifications to work opportunity credit and welfare-to-work
credit.
Sec. 703. Consolidation of work opportunity credit with welfare-to-work
credit.
Sec. 704. Qualified zone academy bonds.
Sec. 705. Cover over of tax on distilled spirits.
Sec. 706. Deduction for corporate donations of scientific property and
computer technology.
Sec. 707. Deduction for certain expenses of school teachers.
Sec. 708. Expensing of environmental remediation costs.
Sec. 709. Expansion of certain New York Liberty Zone benefits.
Sec. 710. Repeal of reduction of deductions for mutual life insurance
companies.
Sec. 711. Tax incentives for investment in the District of Columbia.
Sec. 712.Disclosure of tax information to facilitate combined
employment tax reporting.
Sec. 713. Allowance of nonrefundable personal credits against regular
and minimum tax liability.
Sec. 714. Credit for electricity produced from certain renewable
resources.
Sec. 715. Taxable income limit on percentage depletion for oil and
natural gas produced from marginal
properties.
Sec. 716. Indian employment tax credit.
Sec. 717. Accelerated depreciation for business property on Indian
reservation.
Sec. 718. Disclosure of return information relating to student loans.
Sec. 719. Extension of transfers of excess pension assets to retiree
health accounts.
Sec. 720. Elimination of phaseout of credit for qualified electric
vehicles.
Sec. 721. Elimination of phaseout for deduction for clean-fuel vehicle
property.
Subtitle B--Revenue Provisions
Sec. 731. Donations of motor vehicles, boats, and airplanes.
Sec. 732. Addition of vaccines against influenza to list of taxable
vaccines.
Sec. 733. Treatment of contingent payment convertible debt instruments.
Sec. 734. Modification of continuing levy on payments to Federal
venders.
TITLE VIII--ENERGY TAX INCENTIVES
Sec. 800. Short title.
Subtitle A--Renewable Electricity Production Tax Credit
Sec. 801. Extension and expansion of credit for electricity produced
from certain renewable resources.
Subtitle B--Alternative Motor Vehicles and Fuels Incentives
Sec. 811. Alternative motor vehicle credit.
Sec. 812. Modification of credit for qualified electric vehicles.
Sec. 813. Credit for installation of alternative fueling stations.
Sec. 814. Credit for retail sale of alternative fuels as motor vehicle
fuel.
Sec. 815. Small ethanol producer credit.
Subtitle C--Conservation and Energy Efficiency Provisions
Sec. 821. Credit for construction of new energy efficient home.
Sec. 822. Credit for energy efficient appliances.
Sec. 823. Credit for residential energy efficient property.
Sec. 824. Credit for business installation of qualified fuel cells and
stationary microturbine power plants.
Sec. 825. Energy efficient commercial buildings deduction.
Sec. 826. Three-year applicable recovery period for depreciation of
qualified energy management devices.
Sec. 827. Three-year applicable recovery period for depreciation of
qualified water submetering devices.
Sec. 828. Energy credit for combined heat and power system property.
Sec. 829. Credit for energy efficiency improvements to existing homes.
Subtitle D--Clean Coal Incentives
Part I--Credit for Emission Reductions and Efficiency Improvements in
Existing Coal-Based Electricity Generation Facilities
Sec. 831. Credit for production from a qualifying clean coal technology
unit.
Part II--Incentives for Early Commercial Applications of Advanced Clean
Coal Technologies
Sec. 832. Credit for investment in qualifying advanced clean coal
technology.
Sec. 833. Credit for production from a qualifying advanced clean coal
technology unit.
Part III--Treatment of Persons Not Able To Use Entire Credit
Sec. 834. Treatment of persons not able to use entire credit.
Subtitle E--Oil and Gas Provisions
Sec. 841. Oil and gas from marginal wells.
Sec. 842. Natural gas gathering lines treated as 7-year property.
Sec. 843. Expensing of capital costs incurred in complying with
Environmental Protection Agency sulfur
regulations.
Sec. 844. Credit for production of low sulfur diesel fuel.
Sec. 845. Determination of small refiner exception to oil depletion
deduction.
Sec. 846. Marginal production income limit extension.
Sec. 847. Amortization of delay rental payments.
Sec. 848. Amortization of geological and geophysical expenditures.
Sec. 849. Extension and modification of credit for producing fuel from
a nonconventional source.
Sec. 850. Natural gas distribution lines treated as 15-year property.
Sec. 851. Credit for Alaska natural gas.
Sec. 852. Certain Alaska natural gas pipeline property treated as 7-
year property.
Sec. 853. Extension of enhanced oil recovery credit to certain Alaska
facilities.
Sec. 854. Arbitrage rules not to apply to prepayments for natural gas.
Subtitle F--Electric Utility Restructuring Provisions
Sec. 855. Modifications to special rules for nuclear decommissioning
costs.
Sec. 856. Treatment of certain income of cooperatives.
Sec. 857. Sales or dispositions to implement Federal Energy Regulatory
Commission or State electric restructuring
policy.
Subtitle G--Volumetric Ethanol Excise Tax Credit
Sec. 860. Short title.
Sec. 861. Alcohol and biodiesel excise tax credit and extension of
alcohol fuels income tax credit.
Sec. 862. Biodiesel income tax credit.
Subtitle H--Fuel Fraud Prevention
Sec. 870. Short title.
Part I--Aviation Jet Fuel
Sec. 871. Taxation of aviation-grade kerosene.
Sec. 872. Transfer of certain amounts from the Airport and Airway Trust
Fund to the Highway Trust Fund to reflect
highway use of jet fuel.
Part II--Dyed Fuel
Sec. 873. Dye injection equipment.
Sec. 874. Elimination of administrative review for taxable use of dyed
fuel.
Sec. 875. Penalty on untaxed chemically altered dyed fuel mixtures.
Sec. 876. Termination of dyed diesel use by intercity buses.
Part III--Modification of Inspection of Records Provisions
Sec. 877. Authority to inspect on-site records.
Sec. 878. Assessable penalty for refusal of entry.
Part IV--Registration and Reporting Requirements
Sec. 879. Registration of pipeline or vessel operators required for
exemption of bulk transfers to registered
terminals or refineries.
Sec. 880. Display of registration.
Sec. 881. Registration of persons within foreign trade zones.
Sec. 882. Penalties for failure to register and failure to report.
Sec. 883. Information reporting for persons claiming certain tax
benefits.
Part V--Imports
Sec. 884. Tax at point of entry where importer not registered.
Sec. 885. Reconciliation of on-loaded cargo to entered cargo.
Part VI--Miscellaneous Provisions
Sec. 886. Tax on sale of diesel fuel whether suitable for use or not in
a diesel-powered vehicle or train.
Sec. 887. Modification of ultimate vendor refund claims with respect to
farming.
Sec. 888. Taxable fuel refunds for certain ultimate vendors.
Sec. 889. Two-party exchanges.
Sec. 890. Modifications of tax on use of certain vehicles.
Sec. 891. Dedication of revenues from certain penalties to the Highway
Trust Fund.
Sec. 892. Nonapplication of export exemption to delivery of fuel to
motor vehicles removed from United States.
Part VII--Total Accountability
Sec. 893. Total accountability.
Sec. 894. Excise tax reporting.
Sec. 895. Information reporting.
Subtitle I--Mobile Machinery
Sec. 896. Treatment of mobile machinery.
Subtitle J--Additional Provisions
Sec. 897. Study of effectiveness of certain provisions by GAO.
Sec. 898. Repeal of 4.3-cent motor fuel excise taxes on railroads and
inland waterway transportation which remain
in general fund.
Sec. 899. Distributions from publicly traded partnerships treated as
qualifying income of regulated investment
companies.
Sec. 899A. Certain business related credits allowed against regular and
minimum tax.
Sec. 899B. Credit for qualifying pollution control equipment.
Sec. 899C. Electric transmission property treated as 15-year property.
TITLE IX--HOMESTEAD PRESERVATION ACT
Sec. 901. Short Title.
Sec. 902. Mortgage payment assistance.
TITLE X--OFFICE OF FEDERAL PROCUREMENT POLICY ACT IMPROVEMENTS
Sec. 1001. Report on acquisitions of goods from foreign sources.
TITLE XI--PROVISIONS RELATING TO TOBACCO
Subtitle A--Family Smoking Prevention and Tobacco Control
Sec. 1101. Short title.
Sec. 1102. Findings.
Sec. 1103. Purpose.
Sec. 1104. Scope and effect.
Sec. 1105. Severability.
CHAPTER 1--AUTHORITY OF THE FOOD AND DRUG ADMINISTRATION
Sec. 1111. Amendment of Federal Food, Drug, and Cosmetic Act.
Sec. 1112. Interim final rule.
Sec. 1113. Conforming and other amendments to general provisions.
CHAPTER 2--TOBACCO PRODUCT WARNINGS; CONSTITUENT AND SMOKE CONSTITUENT
DISCLOSURE
Sec. 1121. Cigarette label and advertising warnings.
Sec. 1122. Authority to revise cigarette warning label statements.
Sec. 1123. State regulation of cigarette advertising and promotion.
Sec. 1124. Smokeless tobacco labels and advertising warnings.
Sec. 1125. Authority to revise smokeless tobacco product warning label
statements.
Sec. 1126. Tar, nicotine, and other smoke constituent disclosure to the
public.
CHAPTER 3--PREVENTION OF ILLICIT TRADE IN TOBACCO PRODUCTS
Sec. 1131. Labeling, recordkeeping, records inspection.
Sec. 1132. Study and report.
Subtitle B--Tobacco Market Transition
Sec. 1140. Short title of subtitle.
CHAPTER 1--TERMINATION OF CURRENT TOBACCO PROGRAMS
Sec. 1141. Termination of Tobacco Production Adjustment Programs.
Sec. 1142. Termination of Tobacco Price Support Program.
Sec. 1143. Liability.
CHAPTER 2--TOBACCO ASSISTANCE
Sec. 1151. Tobacco assistance.
Sec. 1152. Tobacco insurance research and development.
Sec. 1153. Conforming amendments.
CHAPTER 3--IMPLEMENTATION
Sec. 1161. Regulations.
Sec. 1162. Effective Date.
TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR
EXTRATERRITORIAL INCOME
SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.
(a) In General.--Section 114 is hereby repealed.
(b) Conforming Amendments.--
(1)(A) Subpart E of part III of subchapter N of chapter 1
(relating to qualifying foreign trade income) is hereby
repealed.
(B) The table of subparts for such part III is amended by
striking the item relating to subpart E.
(2) The table of sections for part III of subchapter B of
chapter 1 is amended by striking the item relating to section
114.
(3) The second sentence of section 56(g)(4)(B)(i) is
amended by striking ``114 or''.
(4) Section 275(a) is amended--
(A) by inserting ``or'' at the end of paragraph
(4)(A), by striking ``or'' at the end of paragraph
(4)(B) and inserting a period, and by striking
subparagraph (C), and
(B) by striking the last sentence.
(5) Paragraph (3) of section 864(e) is amended--
(A) by striking:
``(3) Tax-exempt assets not taken into account.--
``(A) In general.--For purposes of''; and
inserting:
``(3) Tax-exempt assets not taken into account.--For
purposes of'', and
(B) by striking subparagraph (B).
(6) Section 903 is amended by striking ``114, 164(a),'' and
inserting ``164(a)''.
(7) Section 999(c)(1) is amended by striking
``941(a)(5),''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to transactions occurring after the date of the enactment
of this Act.
(2) Binding contracts.--The amendments made by this section
shall not apply to any transaction in the ordinary course of a
trade or business which occurs pursuant to a binding contract--
(A) which is between the taxpayer and a person who
is not a related person (as defined in section
943(b)(3) of the Internal Revenue Code of 1986, as in
effect on the day before the date of the enactment of
this Act), and
(B) which is in effect on September 17, 2003, and
at all times thereafter.
(d) Revocation of Section 943(e) Elections.--
(1) In general.--In the case of a corporation that elected
to be treated as a domestic corporation under section 943(e) of
the Internal Revenue Code of 1986 (as in effect on the day
before the date of the enactment of this Act)--
(A) the corporation may, during the 1-year period
beginning on the date of the enactment of this Act,
revoke such election, effective as of such date of
enactment, and
(B) if the corporation does revoke such election--
(i) such corporation shall be treated as a
domestic corporation transferring (as of such
date of enactment) all of its property to a
foreign corporation in connection with an
exchange described in section 354 of such Code,
and
(ii) no gain or loss shall be recognized on
such transfer.
(2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall
not apply to gain on any asset held by the revoking corporation
if--
(A) the basis of such asset is determined in whole
or in part by reference to the basis of such asset in
the hands of the person from whom the revoking
corporation acquired such asset,
(B) the asset was acquired by transfer (not as a
result of the election under section 943(e) of such
Code) occurring on or after the 1st day on which its
election under section 943(e) of such Code was
effective, and
(C) a principal purpose of the acquisition was the
reduction or avoidance of tax (other than a reduction
in tax under section 114 of such Code, as in effect on
the day before the date of the enactment of this Act).
(e) General Transition.--
(1) In general.--In the case of a taxable year ending after
the date of the enactment of this Act and beginning before
January 1, 2007, for purposes of chapter 1 of such Code, a
current FSC/ETI beneficiary shall be allowed a deduction equal
to the transition amount determined under this subsection with
respect to such beneficiary for such year.
(2) Current fsc/eti beneficiary.--The term ``current FSC/
ETI beneficiary'' means any corporation which entered into one
or more transactions during its taxable year beginning in
calendar year 2002 with respect to which FSC/ETI benefits were
allowable.
(3) Transition amount.--For purposes of this subsection--
(A) In general.--The transition amount applicable
to any current FSC/ETI beneficiary for any taxable year
is the phaseout percentage of the base period amount.
(B) Phaseout percentage.--
(i) In general.--In the case of a taxpayer
using the calendar year as its taxable year,
the phaseout percentage shall be determined
under the following table:
The phaseout
Years: percentage is:
2005...............
80
2006...............
60.
(ii) Special rule for 2004.--The phaseout
percentage for 2004 shall be the amount that
bears the same ratio to 80 percent as the
number of days after the date of the enactment
of this Act bears to 366.
(iii) Special rule for fiscal year
taxpayers.--In the case of a taxpayer not using
the calendar year as its taxable year, the
phaseout percentage is the weighted average of
the phaseout percentages determined under the
preceding provisions of this paragraph with
respect to calendar years any portion of which
is included in the taxpayer's taxable year. The
weighted average shall be determined on the
basis of the respective portions of the taxable
year in each calendar year.
(C) Short taxable year.--The Secretary shall
prescribe guidance for the computation of the
transition amount in the case of a short taxable year.
(4) Base period amount.--For purposes of this subsection,
the base period amount is the average FSC/ETI benefit for the
taxpayer's taxable years beginning in calendar years 2000,
2001, and 2002.
(5) FSC/ETI benefit.--For purposes of this subsection, the
term ``FSC/ETI benefit'' means--
(A) amounts excludable from gross income under
section 114 of such Code, and
(B) the exempt foreign trade income of related
foreign sales corporations from property acquired from
the taxpayer (determined without regard to section
923(a)(5) of such Code (relating to special rule for
military property), as in effect on the day before the
date of the enactment of the FSC Repeal and
Extraterritorial Income Exclusion Act of 2000).
In determining the FSC/ETI benefit there shall be excluded any
amount attributable to a transaction with respect to which the
taxpayer is the lessor unless the leased property was
manufactured or produced in whole or in significant part by the
taxpayer.
(6) Special rule for agricultural and horticultural
cooperatives.--Determinations under this subsection with
respect to an organization described in section 943(g)(1) of
such Code, as in effect on the day before the date of the
enactment of this Act, shall be made at the cooperative level
and the purposes of this subsection shall be carried out in a
manner similar to section 199(h)(2) of such Code, as added by
this Act. Such determinations shall be in accordance with such
requirements and procedures as the Secretary may prescribe.
(7) Certain rules to apply.--Rules similar to the rules of
section 41(f) of such Code shall apply for purposes of this
subsection.
(8) Coordination with binding contract rule.--The deduction
determined under paragraph (1) for any taxable year shall be
reduced by the phaseout percentage of any FSC/ETI benefit
realized for the taxable year by reason of subsection (c)(2) or
section 5(c)(1)(B) of the FSC Repeal and Extraterritorial
Income Exclusion Act of 2000, except that for purposes of this
paragraph the phaseout percentage for 2004 shall be treated as
being equal to 100 percent.
(9) Special rule for taxable year which includes date of
enactment.--In the case of a taxable year which includes the
date of the enactment of this Act, the deduction allowed under
this subsection to any current FSC/ETI beneficiary shall in no
event exceed--
(A) 100 percent of such beneficiary's base period
amount for calendar year 2004, reduced by
(B) the FSC/ETI benefit of such beneficiary with
respect to transactions occurring during the portion of
the taxable year ending on the date of the enactment of
this Act.
SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED STATES
PRODUCTION ACTIVITIES.
(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations) is amended by
adding at the end the following new section:
``SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.
``(a) Allowance of Deduction.--
``(1) In general.--There shall be allowed as a deduction an
amount equal to 9 percent of the qualified production
activities income of the taxpayer for the taxable year.
``(2) Phasein.--In the case of taxable years beginning in
2004, 2005, 2006, 2007, or 2008, paragraph (1) shall be applied
by substituting for the percentage contained therein the
transition percentage determined under the following table:
``Taxable years The transition
beginning in: percentage is:
2004, 2005, or 2006
5
2007...............
6
2008...............
7.
``(b) Deduction Limited to Wages Paid.--
``(1) In general.--The amount of the deduction allowable
under subsection (a) for any taxable year shall not exceed 50
percent of the W-2 wages of the employer for the taxable year.
``(2) W-2 wages.--For purposes of paragraph (1), the term
`W-2 wages' means the sum of the aggregate amounts the taxpayer
is required to include on statements under paragraphs (3) and
(8) of section 6051(a) with respect to employment of employees
of the taxpayer during the taxpayer's taxable year.
``(3) Special rules.--
``(A) Pass-thru entities.--In the case of an S
corporation, partnership, estate or trust, or other
pass-thru entity, the limitation under this subsection
shall apply at the entity level. The preceding sentence
shall not apply to any entity all of the ownership
interests of which are held directly or indirectly by
members of the same expanded affiliated group.
``(B) Acquisitions and dispositions.--The Secretary
shall provide for the application of this subsection in
cases where the taxpayer acquires, or disposes of, the
major portion of a trade or business or the major
portion of a separate unit of a trade or business
during the taxable year.
``(c) Qualified Production Activities Income.--For purposes of this
section--
``(1) In general.--The term `qualified production
activities income' means an amount equal to the portion of the
modified taxable income of the taxpayer which is attributable
to domestic production activities.
``(2) Reduction for taxable years beginning before 2013.--
The amount otherwise determined under paragraph (1) (the
`unreduced amount') shall not exceed--
``(A) in the case of taxable years beginning before
2010, the product of the unreduced amount and the
domestic/worldwide fraction, and
``(B) in the case of taxable years beginning in
2010, 2011, or 2012, an amount equal to the sum of--
``(i) the product of the unreduced amount
and the domestic/worldwide fraction, plus
``(ii) the applicable percentage of an
amount equal to the unreduced amount minus the
amount determined under clause (i).
For purposes of subparagraph (B)(ii), the applicable percentage
is 25 percent for 2010, 50 percent for 2011, and 75 percent for
2012.
``(d) Determination of Income Attributable to Domestic Production
Activities.--For purposes of this section--
``(1) In general.--The portion of the modified taxable
income which is attributable to domestic production activities
is so much of the modified taxable income for the taxable year
as does not exceed--
``(A) the taxpayer's domestic production gross
receipts for such taxable year, reduced by
``(B) the sum of--
``(i) the costs of goods sold that are
allocable to such receipts,
``(ii) other deductions, expenses, or
losses directly allocable to such receipts, and
``(iii) a proper share of other deductions,
expenses, and losses that are not directly
allocable to such receipts or another class of
income.
``(2) Allocation method.--The Secretary shall prescribe
rules for the proper allocation of items of income, deduction,
expense, and loss for purposes of determining income
attributable to domestic production activities.
``(3) Special rules for determining costs.--
``(A) In general.--For purposes of determining
costs under clause (i) of paragraph (1)(B), any item or
service brought into the United States shall be treated
as acquired by purchase, and its cost shall be treated
as not less than its fair market value immediately
after it entered the United States. A similar rule
shall apply in determining the adjusted basis of leased
or rented property where the lease or rental gives rise
to domestic production gross receipts.
``(B) Exports for further manufacture.--In the case
of any property described in subparagraph (A) that had
been exported by the taxpayer for further manufacture,
the increase in cost or adjusted basis under
subparagraph (A) shall not exceed the difference
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).
``(3) Gross receipts from use of films and video tape.--In
the case of any qualifying production property which is
property described in section 168(f)(3) produced in whole or in
significant part by the taxpayer within the United States
(determined after application of paragraph (2)), domestic
production gross receipts shall include gross receipts derived
by the taxpayer from the use of the property by the taxpayer.
``(f) Qualifying Production Property.--For purposes of this
section--
``(1) In general.--Except as otherwise provided in this
paragraph, the term `qualifying production property' means--
``(A) any tangible personal property,
``(B) any computer software, and
``(C) any property described in section 168(f) (3)
or (4), including any underlying copyright or
trademark.
``(2) Exclusions from qualifying production property.--The
term `qualifying production property' shall not include--
``(A) consumable property that is sold, leased, or
licensed by the taxpayer as an integral part of the
provision of services,
``(B) oil or gas,
``(C) electricity,
``(D) water supplied by pipeline to the consumer,
``(E) utility services, or
``(F) any film, tape, recording, book, magazine,
newspaper, or similar property the market for which is
primarily topical or otherwise essentially transitory
in nature.
Subparagraph (F) shall not apply to property described in section
168(f)(3) to the extent of the gross receipts from the use of the
property to which subsection (e)(3) applies (determined after
application of this sentence).
``(g) Domestic/Worldwide Fraction.--For purposes of this section--
``(1) In general.--The term `domestic/worldwide fraction'
means a fraction (not greater than 1)--
``(A) the numerator of which is the value of the
domestic production of the taxpayer, and
``(B) the denominator of which is the value of the
worldwide production of the taxpayer.
``(2) Value of domestic production.--The value of domestic
production is the excess (if any) of--
``(A) the domestic production gross receipts, over
``(B) the cost of purchased inputs allocable to
such receipts that are deductible under this chapter
for the taxable year.
``(3) Purchased inputs.--
``(A) In general.--Purchased inputs are any of the
following items acquired by purchase:
``(i) Services (other than services of
employees) used in manufacture, production,
growth, or extraction activities.
``(ii) Items consumed in connection with
such activities.
``(iii) Items incorporated as part of the
property being manufactured, produced, grown,
or extracted.
``(B) Special rule.--Rules similar to the rules of
subsection (d)(3) shall apply for purposes of this
subsection.
``(4) Value of worldwide production.--
``(A) In general.--The value of worldwide
production shall be determined under the principles of
paragraph (2), except that--
``(i) worldwide production gross receipts
shall be taken into account, and
``(ii) paragraph (3)(B) shall not apply.
``(B) Worldwide production gross receipts.--The
worldwide production gross receipts is the amount that
would be determined under subsection (e) if such
subsection were applied without any reference to the
United States.
``(h) Definitions and Special Rules.--
``(1) Application of section to pass-thru entities.--In the
case of an S corporation, partnership, estate or trust, or
other pass-thru entity--
``(A) subject to the provisions of paragraph (2)
and subsection (b)(3)(A), this section shall be applied
at the shareholder, partner, or similar level, and
``(B) the Secretary shall prescribe rules for the
application of this section, including rules relating
to--
``(i) restrictions on the allocation of the
deduction to taxpayers at the partner or
similar level, and
``(ii) additional reporting requirements.
``(2) 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--
``(I) in the manufacturing,
production, growth, or extraction in
whole or significant part of any
agricultural or horticultural product,
or
``(II) 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, but for this paragraph,
would be deductible under subsection (a) by the
organization and is designated as such by the
organization in a written notice mailed to its
patrons during the payment period described in
section 1382(d),
then such person shall be allowed a deduction under
subsection (a) with respect to such amount. The taxable
income of the organization shall not be reduced under
section 1382 by reason of any amount to which the
preceding sentence applies.
``(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) in the case of an organization
described in subparagraph (A)(i)(II), the
organization shall be treated as having
manufactured, produced, grown, or extracted in
whole or significant part any qualifying
production property marketed by the
organization which its patrons have so
manufactured, produced, grown, or extracted.
``(3) Special rule for affiliated groups.--
``(A) In general.--All members of an expanded
affiliated group shall be treated as a single
corporation for purposes of this section.
``(B) Expanded affiliated group.--The term
`expanded affiliated group' means an affiliated group
as defined in section 1504(a), determined--
``(i) by substituting `50 percent' for `80
percent' each place it appears, and
``(ii) without regard to paragraphs (2) and
(4) of section 1504(b).
For purposes of determining the domestic/worldwide
fraction under subsection (g), clause (ii) shall be
applied by also disregarding paragraphs (3) and (8) of
section 1504(b).
``(4) Coordination with minimum tax.--The deduction under
this section shall be allowed for purposes of the tax imposed
by section 55; except that for purposes of section 55,
alternative minimum taxable income shall be taken into account
in determining the deduction under this section.
``(5) Ordering rule.--The amount of any other deduction
allowable under this chapter shall be determined as if this
section had not been enacted.
``(6) Trade or business requirement.--This section shall be
applied by only taking into account items which are
attributable to the actual conduct of a trade or business.
``(7) Possessions, etc.--
``(A) In general.--For purposes of subsections (d)
and (e), the term `United States' includes the
Commonwealth of Puerto Rico, Guam, American Samoa, the
Commonwealth of the Northern Mariana Islands, and the
Virgin Islands of the United States.
``(B) Special rules for applying wage limitation.--
For purposes of applying the limitation under
subsection (b) for any taxable year--
``(i) the determination of W-2 wages of a
taxpayer shall be made without regard to any
exclusion under section 3401(a)(8) for
remuneration paid for services performed in a
jurisdiction described in subparagraph (A), and
``(ii) in determining the amount of any
credit allowable under section 30A or 936 for
the taxable year, there shall not be taken into
account any wages which are taken into account
in applying such limitation.
``(8) Coordination with transition rules.--For purposes of
this section--
``(A) domestic production gross receipts shall not
include gross receipts from any transaction if the
binding contract transition relief of section 101(c)(2)
of the Jumpstart Our Business Strength (JOBS) Act
applies to such transaction, and
``(B) any deduction allowed under section 101(e) of
such Act shall be disregarded in determining the
portion of the taxable income which is attributable to
domestic production gross receipts.
``(9) Separate application to films and videotape.--
``(A) In general.--In the case of qualifying
production property described in section 168(f)(3), the
deduction under this section shall be determined
separately with respect to qualified production
activities income of the taxpayer allocable to each of
the following markets with respect to such property:
``(i) Theatrical.
``(ii) Broadcast television (including
cable, foreign, pay-per-view, and syndication).
``(iii) Home video.
``(B) Rules for separate determination.--Except as
provided in subparagraph (C)--
``(i) any computation required to determine
the amount of the deduction with respect to any
of the markets described in subparagraph (A)
shall be made by only taking into account items
properly allocable to such market, including
the computation of qualified production
activities income, modified taxable income, and
the domestic/worldwide fraction, and
``(ii) such items shall not be taken into
account in determining the deduction with
respect to either of the other 2 markets or
with respect to qualified production activities
income of the taxpayer not allocable to any of
such markets.
``(C) Wage limitation.--This paragraph shall not
apply for purposes of subsection (b) and subsection (b)
shall be applied after the application of this
paragraph.''
(b) Minimum Tax.--Section 56(g)(4)(C) (relating to disallowance of
items not deductible in computing earnings and profits) is amended by
adding at the end the following new clause:
``(v) Deduction for domestic production.--
Clause (i) shall not apply to any amount
allowable as a deduction under section 199.''.
(c) Clerical Amendment.--The table of sections for part VI of
subchapter B of chapter 1 is amended by adding at the end the following
new item:
``Sec. 199. Income attributable to
domestic production
activities.''.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment
of this Act.
(2) Application of section 15.--Section 15 of the Internal
Revenue Code of 1986 shall apply to the amendments made by this
section as if they were changes in a rate of tax.
SEC. 103. DEDUCTION FOR UNITED STATES PRODUCTION ACTIVITIES INCLUDES
INCOME RELATED TO CERTAIN ARCHITECTURAL AND ENGINEERING
SERVICES.
(a) In General.--Paragraph (1) of section 199(e) (relating to
domestic production gross receipts), as added by section 102, is
amended to read as follows:
``(1) In general.--
``(A) Receipts from qualifying production
property.--The term `domestic production gross
receipts' means the gross receipts of the taxpayer
which are derived from--
``(i) any sale, exchange, or other
disposition of, or
``(ii) any lease, rental, or license of,
qualifying production property which was manufactured,
produced, grown, or extracted in whole or in
significant part by the taxpayer within the United
States.
``(B) Receipts from certain services.--
``(i) In general.--Such term also includes
the applicable percentage of gross receipts of
the taxpayer which are derived from any
engineering or architectural services performed
in the United States for construction projects
in the United States.
``(ii) Applicable percentage.--For purposes
of clause (i), the applicable percentage shall
be determined under the following table:
``In the case of any taxable year The applicable percentage is--
beginning in--
2004, 2005, 2006, 2007, or 2008............... 25
2009, 2010, 2011, or 2012..................... 50
2013 or thereafter............................ 100.
(b) Limitation of Employer Deduction for Certain Entertainment
Expenses with Respect to Covered Employees.--Paragraph (2) of section
274(e) (relating to expenses treated as compensation) is amended to
read as follows:
``(2) Expenses treated as compensation.--Expenses for
goods, services, and facilities--
``(A) in the case of a covered employee (within the
meaning of section 162(m)(3)), to the extent that the
expenses do not exceed the amount of the expenses
treated by the taxpayer, with respect to the recipient
of the entertainment, amusement, or recreation, as
compensation to such covered employee on the taxpayer's
return of tax under this chapter and as wages to such
covered employee for purposes of chapter 24 (relating
to withholding of income tax at source on wages), and
``(B) in the case of any other employee, to the
extent that the expenses are treated by the taxpayer,
with respect to the recipient of the entertainment,
amusement, or recreation, as compensation to such
employee on the taxpayer's return of tax under this
chapter and as wages to such employee for purposes of
chapter 24 (relating to withholding of income tax at
source on wages).''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to taxable years ending after the date of the
enactment of this Act, and section 15 of the Internal Revenue
Code of 1986 shall apply to the amendment made by this
subsection as if it were a change in the rate of tax.
(2) Subsection (b).--The amendment made by subsection (b)
shall apply to expenses incurred after the date of the
enactment of this Act and before January 1, 2006.
TITLE II--INTERNATIONAL TAX PROVISIONS
Subtitle A--International Tax Reform
SEC. 201. 20-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-YEAR FOREIGN TAX
CREDIT CARRYBACK.
(a) General Rule.--Section 904(c) (relating to carryback and
carryover of excess tax paid) is amended--
(1) by striking ``in the second preceding taxable year,'',
and
(2) by striking ``, and in the first, second, third,
fourth, or fifth'' and inserting ``and in any of the first
20''.
(b) Excess Extraction Taxes.--Paragraph (1) of section 907(f) is
amended--
(1) by striking ``in the second preceding taxable year,'',
(2) by striking ``, and in the first, second, third,
fourth, or fifth'' and inserting ``and in any of the first
20'', and
(3) by striking the last sentence.
(c) Effective Date.--
(1) Carryback.--The amendments made by subsections (a)(1)
and (b)(1) shall apply to excess foreign taxes arising in
taxable years beginning after the date of the enactment of this
Act.
(2) Carryover.--The amendments made by subsections (a)(2)
and (b)(2) shall apply to excess foreign taxes which (without
regard to the amendments made by this section) may be carried
to any taxable year ending after the date of the enactment of
this Act.
SEC. 202. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED
SECTION 902 CORPORATIONS.
(a) In General.--Section 904(d)(4) (relating to look-thru rules
apply to dividends from noncontrolled section 902 corporations) is
amended to read as follows:
``(4) Look-thru applies to dividends from noncontrolled
section 902 corporations.--
``(A) In general.--For purposes of this subsection,
any dividend from a noncontrolled section 902
corporation with respect to the taxpayer shall be
treated as income described in a subparagraph of
paragraph (1) in proportion to the ratio of--
``(i) the portion of earnings and profits
attributable to income described in such
subparagraph, to
``(ii) the total amount of earnings and
profits.
``(B) Earnings and profits of controlled foreign
corporations.--In the case of any distribution from a
controlled foreign corporation to a United States
shareholder, rules similar to the rules of subparagraph
(A) shall apply in determining the extent to which
earnings and profits of the controlled foreign
corporation which are attributable to dividends
received from a noncontrolled section 902 corporation
may be treated as income in a separate category.
``(C) Special rules.--For purposes of this
paragraph--
``(i) Earnings and profits.--
``(I) In general.--The rules of
section 316 shall apply.
``(II) Regulations.--The Secretary
may prescribe regulations regarding the
treatment of distributions out of
earnings and profits for periods before
the taxpayer's acquisition of the stock
to which the distributions relate.
``(ii) Inadequate substantiation.--If the
Secretary determines that the proper
subparagraph of paragraph (1) in which a
dividend is described has not been
substantiated, such dividend shall be treated
as income described in paragraph (1)(A).
``(iii) Coordination with high-taxed income
provisions.--Rules similar to the rules of
paragraph (3)(F) shall apply for purposes of
this paragraph.
``(iv) Look-thru with respect to carryover
of credit.--Rules similar to subparagraph (A)
also shall apply to any carryforward under
subsection (c) from a taxable year beginning
before January 1, 2003, of tax allocable to a
dividend from a noncontrolled section 902
corporation with respect to the taxpayer. The
Secretary may by regulations provide for the
allocation of any carryback of tax allocable to
a dividend from a noncontrolled section 902
corporation to such a taxable year for purposes
of allocating such dividend among the separate
categories in effect for such taxable year.''.
(b) Conforming Amendments.--
(1) Subparagraph (E) of section 904(d)(1) is hereby
repealed.
(2) Section 904(d)(2)(C)(iii) is amended by adding ``and''
at the end of subclause (I), by striking subclause (II), and by
redesignating subclause (III) as subclause (II).
(3) The last sentence of section 904(d)(2)(D) is amended to
read as follows: ``Such term does not include any financial
services income.''.
(4) Section 904(d)(2)(E) is amended--
(A) by inserting ``or (4)'' after ``paragraph (3)''
in clause (i), and
(B) by striking clauses (ii) and (iv) and by
redesignating clause (iii) as clause (ii).
(5) Section 904(d)(3)(F) is amended by striking ``(D), or
(E)'' and inserting ``or (D)''.
(6) Section 864(d)(5)(A)(i) is amended by striking
``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 203. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.
(a) In General.--
(1) Subsection (a) of section 59 is amended by striking
paragraph (2) and by redesignating paragraphs (3) and (4) as
paragraphs (2) and (3), respectively.
(2) Section 53(d)(1)(B)(i)(II) is amended by striking ``and
if section 59(a)(2) did not apply''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 204. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.
(a) General Rule.--Section 904 is amended by redesignating
subsections (g), (h), (i), (j), and (k) as subsections (h), (i), (j),
(k), and (l) respectively, and by inserting after subsection (f) the
following new subsection:
``(g) Recharacterization of Overall Domestic Loss.--
``(1) General rule.--For purposes of this subpart and
section 936, in the case of any taxpayer who sustains an
overall domestic loss for any taxable year beginning after
December 31, 2006, that portion of the taxpayer's taxable
income from sources within the United States for each
succeeding taxable year which is equal to the lesser of--
``(A) the amount of such loss (to the extent not
used under this paragraph in prior taxable years), or
``(B) 50 percent of the taxpayer's taxable income
from sources within the United States for such
succeeding taxable year,
shall be treated as income from sources without the United
States (and not as income from sources within the United
States).
``(2) Overall domestic loss defined.--For purposes of this
subsection--
``(A) In general.--The term `overall domestic loss'
means any domestic loss to the extent such loss offsets
taxable income from sources without the United States
for the taxable year or for any preceding taxable year
by reason of a carryback. For purposes of the preceding
sentence, the term `domestic loss' means the amount by
which the gross income for the taxable year from
sources within the United States is exceeded by the sum
of the deductions properly apportioned or allocated
thereto (determined without regard to any carryback
from a subsequent taxable year).
``(B) Taxpayer must have elected foreign tax credit
for year of loss.--The term `overall domestic loss'
shall not include any loss for any taxable year unless
the taxpayer chose the benefits of this subpart for
such taxable year.
``(3) Characterization of subsequent income.--
``(A) In general.--Any income from sources within
the United States that is treated as income from
sources without the United States under paragraph (1)
shall be allocated among and increase the income
categories in proportion to the loss from sources
within the United States previously allocated to those
income categories.
``(B) Income category.--For purposes of this
paragraph, the term `income category' has the meaning
given such term by subsection (f)(5)(E)(i).
``(4) Coordination with subsection (f).--The Secretary
shall prescribe such regulations as may be necessary to
coordinate the provisions of this subsection with the
provisions of subsection (f).''.
(b) Conforming Amendments.--
(1) Section 535(d)(2) is amended by striking ``section
904(g)(6)'' and inserting ``section 904(h)(6)''.
(2) Subparagraph (A) of section 936(a)(2) is amended by
striking ``section 904(f)'' and inserting ``subsections (f) and
(g) of section 904''.
(c) Effective Date.--The amendments made by this section shall
apply to losses for taxable years beginning after December 31, 2006.
SEC. 205. INTEREST EXPENSE ALLOCATION RULES.
(a) Election To Allocate on Worldwide Basis.--Section 864 is
amended by redesignating subsection (f) as subsection (g) and by
inserting after subsection (e) the following new subsection:
``(f) Election To Allocate Interest, etc. on Worldwide Basis.--For
purposes of this subchapter, at the election of the worldwide
affiliated group--
``(1) Allocation and apportionment of interest expense.--
``(A) In general.--The taxable income of each
domestic corporation which is a member of a worldwide
affiliated group shall be determined by allocating and
apportioning interest expense of each member as if all
members of such group were a single corporation.
``(B) Treatment of worldwide affiliated group.--The
taxable income of the domestic members of a worldwide
affiliated group from sources outside the United States
shall be determined by allocating and apportioning the
interest expense of such domestic members to such
income in an amount equal to the excess (if any) of--
``(i) the total interest expense of the
worldwide affiliated group multiplied by the
ratio which the foreign assets of the worldwide
affiliated group bears to all the assets of the
worldwide affiliated group, over
``(ii) the interest expense of all foreign
corporations which are members of the worldwide
affiliated group to the extent such interest
expense of such foreign corporations would have
been allocated and apportioned to foreign
source income if this subsection were applied
to a group consisting of all the foreign
corporations in such worldwide affiliated
group.
``(C) Worldwide affiliated group.--For purposes of
this paragraph, the term `worldwide affiliated group'
means a group consisting of--
``(i) the includible members of an
affiliated group (as defined in section
1504(a), determined without regard to
paragraphs (2) and (4) of section 1504(b)), and
``(ii) all controlled foreign corporations
in which such members in the aggregate meet the
ownership requirements of section 1504(a)(2)
either directly or indirectly through applying
paragraph (2) of section 958(a) or through
applying rules similar to the rules of such
paragraph to stock owned directly or indirectly
by domestic partnerships, trusts, or estates.
``(2) Allocation and apportionment of other expenses.--
Expenses other than interest which are not directly allocable
or apportioned to any specific income producing activity shall
be allocated and apportioned as if all members of the
affiliated group were a single corporation. For purposes of the
preceding sentence, the term `affiliated group' has the meaning
given such term by section 1504 (determined without regard to
paragraph (4) of section 1504(b)).
``(3) Treatment of tax-exempt assets; basis of stock in
nonaffiliated 10-percent owned corporations.--The rules of
paragraphs (3) and (4) of subsection (e) shall apply for
purposes of this subsection, except that paragraph (4) shall be
applied on a worldwide affiliated group basis.
``(4) Treatment of certain financial institutions.--
``(A) In general.--For purposes of paragraph (1),
any corporation described in subparagraph (B) shall be
treated as an includible corporation for purposes of
section 1504 only for purposes of applying this
subsection separately to corporations so described.
``(B) Description.--A corporation is described in
this subparagraph if--
``(i) such corporation is a financial
institution described in section 581 or 591,
``(ii) the business of such financial
institution is predominantly with persons other
than related persons (within the meaning of
subsection (d)(4)) or their customers, and
``(iii) such financial institution is
required by State or Federal law to be operated
separately from any other entity which is not
such an institution.
``(C) Treatment of bank and financial holding
companies.--To the extent provided in regulations--
``(i) a bank holding company (within the
meaning of section 2(a) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841(a)),
``(ii) a financial holding company (within
the meaning of section 2(p) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841(p)), and
``(iii) any subsidiary of a financial
institution described in section 581 or 591, or
of any such bank or financial holding company,
if such subsidiary is predominantly engaged
(directly or indirectly) in the active conduct
of a banking, financing, or similar business,
shall be treated as a corporation described in
subparagraph (B).
``(5) Election to expand financial institution group of
worldwide group.--
``(A) In general.--If a worldwide affiliated group
elects the application of this subsection, all
financial corporations which--
``(i) are members of such worldwide
affiliated group, but
``(ii) are not corporations described in
paragraph (4)(B),
shall be treated as described in paragraph (4)(B) for
purposes of applying paragraph (4)(A). This subsection
(other than this paragraph) shall apply to any such
group in the same manner as this subsection (other than
this paragraph) applies to the pre-election worldwide
affiliated group of which such group is a part.
``(B) Financial corporation.--For purposes of this
paragraph, the term `financial corporation' means any
corporation if at least 80 percent of its gross income
is income described in section 904(d)(2)(C)(ii) and the
regulations thereunder which is derived from
transactions with persons who are not related (within
the meaning of section 267(b) or 707(b)(1)) to the
corporation. For purposes of the preceding sentence,
there shall be disregarded any item of income or gain
from a transaction or series of transactions a
principal purpose of which is the qualification of any
corporation as a financial corporation.
``(C) Antiabuse rules.--In the case of a
corporation which is a member of an electing financial
institution group, to the extent that such
corporation--
``(i) distributes dividends or makes other
distributions with respect to its stock after
the date of the enactment of this paragraph to
any member of the pre-election worldwide
affiliated group (other than to a member of the
electing financial institution group) in excess
of the greater of--
``(I) its average annual dividend
(expressed as a percentage of current
earnings and profits) during the 5-
taxable-year period ending with the
taxable year preceding the taxable
year, or
``(II) 25 percent of its average
annual earnings and profits for such 5-
taxable-year period, or
``(ii) deals with any person in any manner
not clearly reflecting the income of the
corporation (as determined under principles
similar to the principles of section 482),
an amount of indebtedness of the electing financial
institution group equal to the excess distribution or
the understatement or overstatement of income, as the
case may be, shall be recharacterized (for the taxable
year and subsequent taxable years) for purposes of this
paragraph as indebtedness of the worldwide affiliated
group (excluding the electing financial institution
group). If a corporation has not been in existence for
5 taxable years, this subparagraph shall be applied
with respect to the period it was in existence.
``(D) Election.--An election under this paragraph
with respect to any financial institution group may be
made only by the common parent of the pre-election
worldwide affiliated group and may be made only for the
first taxable year beginning after December 31, 2008,
in which such affiliated group includes 1 or more
financial corporations. Such an election, once made,
shall apply to all financial corporations which are
members of the electing financial institution group for
such taxable year and all subsequent years unless
revoked with the consent of the Secretary.
``(E) Definitions relating to groups.--For purposes
of this paragraph--
``(i) Pre-election worldwide affiliated
group.--The term `pre-election worldwide
affiliated group' means, with respect to a
corporation, the worldwide affiliated group of
which such corporation would (but for an
election under this paragraph) be a member for
purposes of applying paragraph (1).
``(ii) Electing financial institution
group.--The term `electing financial
institution group' means the group of
corporations to which this subsection applies
separately by reason of the application of
paragraph (4)(A) and which includes financial
corporations by reason of an election under
subparagraph (A).
``(F) Regulations.--The Secretary shall prescribe
such regulations as may be appropriate to carry out
this subsection, including regulations--
``(i) providing for the direct allocation
of interest expense in other circumstances
where such allocation would be appropriate to
carry out the purposes of this subsection,
``(ii) preventing assets or interest
expense from being taken into account more than
once, and
``(iii) dealing with changes in members of
any group (through acquisitions or otherwise)
treated under this paragraph as an affiliated
group for purposes of this subsection.
``(6) Election.--An election to have this subsection apply
with respect to any worldwide affiliated group may be made only
by the common parent of the domestic affiliated group referred
to in paragraph (1)(C) and may be made only for the first
taxable year beginning after December 31, 2008, in which a
worldwide affiliated group exists which includes such
affiliated group and at least 1 foreign corporation. Such an
election, once made, shall apply to such common parent and all
other corporations which are members of such worldwide
affiliated group for such taxable year and all subsequent years
unless revoked with the consent of the Secretary.''.
(b) Expansion of Regulatory Authority.--Paragraph (7) of section
864(e) is amended--
(1) by inserting before the comma at the end of
subparagraph (B) ``and in other circumstances where such
allocation would be appropriate to carry out the purposes of
this subsection'', and
(2) by striking ``and'' at the end of subparagraph (E), by
redesignating subparagraph (F) as subparagraph (G), and by
inserting after subparagraph (E) the following new
subparagraph:
``(F) preventing assets or interest expense from
being taken into account more than once, and''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008.
SEC. 206. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY INCOME WITH
RESPECT TO TRANSACTIONS IN COMMODITIES.
(a) In General.--Clauses (i) and (ii) of section 954(c)(1)(C)
(relating to commodity transactions) are amended to read as follows:
``(i) arise out of commodity hedging
transactions (as defined in paragraph (4)(A)),
``(ii) are active business gains or losses
from the sale of commodities, but only if
substantially all of the controlled foreign
corporation's commodities are property
described in paragraph (1), (2), or (8) of
section 1221(a), or''.
(b) Definition and Special Rules.--Subsection (c) of section 954 is
amended by adding after paragraph (3) the following new paragraph:
``(4) Definition and special rules relating to commodity
transactions.--
``(A) Commodity hedging transactions.--For purposes
of paragraph (1)(C)(i), the term `commodity hedging
transaction' means any transaction with respect to a
commodity if such transaction--
``(i) is a hedging transaction as defined
in section 1221(b)(2), determined--
``(I) without regard to
subparagraph (A)(ii) thereof,
``(II) by applying subparagraph
(A)(i) thereof by substituting
`ordinary property or property
described in section 1231(b)' for
`ordinary property', and
``(III) by substituting `controlled
foreign corporation' for `taxpayer'
each place it appears, and
``(ii) is clearly identified as such in
accordance with section 1221(a)(7).
``(B) Treatment of dealer activities under
paragraph (1)(C).--Commodities with respect to which
gains and losses are not taken into account under
paragraph (2)(C) in computing a controlled foreign
corporation's foreign personal holding company income
shall not be taken into account in applying the
substantially all test under paragraph (1)(C)(ii) to
such corporation.
``(C) Regulations.--The Secretary shall prescribe
such regulations as are appropriate to carry out the
purposes of paragraph (1)(C) in the case of
transactions involving related parties.''.
(c) Modification of Exception for Dealers.--Clause (i) of section
954(c)(2)(C) is amended by inserting ``and transactions involving
physical settlement'' after ``(including hedging transactions''.
(d) Effective Date.--The amendments made by this section shall
apply to transactions entered into after December 31, 2004.
Subtitle B--International Tax Simplification
SEC. 211. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN
INVESTMENT COMPANY RULES.
(a) General Rule.--The following provisions are hereby repealed:
(1) Part III of subchapter G of chapter 1 (relating to
foreign personal holding companies).
(2) Section 1246 (relating to gain on foreign investment
company stock).
(3) Section 1247 (relating to election by foreign
investment companies to distribute income currently).
(b) Exemption of Foreign Corporations From Personal Holding Company
Rules.--
(1) In general.--Subsection (c) of section 542 (relating to
exceptions) is amended--
(A) by striking paragraph (5) and inserting the
following:
``(5) a foreign corporation,'',
(B) by striking paragraphs (7) and (10) and by
redesignating paragraphs (8) and (9) as paragraphs (7)
and (8), respectively,
(C) by inserting ``and'' at the end of paragraph
(7) (as so redesignated), and
(D) by striking ``; and'' at the end of paragraph
(8) (as so redesignated) and inserting a period.
(2) Treatment of income from personal service contracts.--
Paragraph (1) of section 954(c) is amended by adding at the end
the following new subparagraph:
``(I) Personal service contracts.--
``(i) Amounts received under a contract
under which the corporation is to furnish
personal services if--
``(I) some person other than the
corporation has the right to designate
(by name or by description) the
individual who is to perform the
services, or
``(II) the individual who is to
perform the services is designated (by
name or by description) in the
contract, and
``(ii) amounts received from the sale or
other disposition of such a contract.
This subparagraph shall apply with respect to amounts
received for services under a particular contract only
if at some time during the taxable year 25 percent or
more in value of the outstanding stock of the
corporation is owned, directly or indirectly, by or for
the individual who has performed, is to perform, or may
be designated (by name or by description) as the one to
perform, such services.''.
(c) Conforming Amendments.--
(1) Section 1(h) is amended--
(A) in paragraph (10), by inserting ``and'' at the
end of subparagraph (F), by striking subparagraph (G),
and by redesignating subparagraph (H) as subparagraph
(G), and
(B) by striking ``a foreign personal holding
company (as defined in section 552), a foreign
investment company (as defined in section 1246(b)),
or'' in paragraph (11)(C)(iii).
(2) Section 163(e)(3)(B), as amended by section 453(a) of
this Act, is amended by striking ``which is a foreign personal
holding company (as defined in section 552), a controlled
foreign corporation (as defined in section 957), or'' and
inserting ``which is a controlled foreign corporation (as
defined in section 957) or''.
(3) Paragraph (2) of section 171(c) is amended--
(A) by striking ``, or by a foreign personal
holding company, as defined in section 552'', and
(B) by striking ``, or foreign personal holding
company''.
(4) Paragraph (2) of section 245(a) is amended by striking
``foreign personal holding company or''.
(5) Section 267(a)(3)(B), as amended by section 453(a) of
this Act, is amended by striking ``to a foreign personal
holding company (as defined in section 552), a controlled
foreign corporation (as defined in section 957), or'' and
inserting ``to a controlled foreign corporation (as defined in
section 957) or''.
(6) Section 312 is amended by striking subsection (j).
(7) Subsection (m) of section 312 is amended by striking
``, a foreign investment company (within the meaning of section
1246(b)), or a foreign personal holding company (within the
meaning of section 552)''.
(8) Subsection (e) of section 443 is amended by striking
paragraph (3) and by redesignating paragraphs (4) and (5) as
paragraphs (3) and (4), respectively.
(9) Subparagraph (B) of section 465(c)(7) is amended by
adding ``or'' at the end of clause (i), by striking clause
(ii), and by redesignating clause (iii) as clause (ii).
(10) Paragraph (1) of section 543(b) is amended by
inserting ``and'' at the end of subparagraph (A), by striking
``, and'' at the end of subparagraph (B) and inserting a
period, and by striking subparagraph (C).
(11) Paragraph (1) of section 562(b) is amended by striking
``or a foreign personal holding company described in section
552''.
(12) Section 563 is amended--
(A) by striking subsection (c),
(B) by redesignating subsection (d) as subsection
(c), and
(C) by striking ``subsection (a), (b), or (c)'' in
subsection (c) (as so redesignated) and inserting
``subsection (a) or (b)''.
(13) Subsection (d) of section 751 is amended by adding
``and'' at the end of paragraph (2), by striking paragraph (3),
by redesignating paragraph (4) as paragraph (3), and by
striking ``paragraph (1), (2), or (3)'' in paragraph (3) (as so
redesignated) and inserting ``paragraph (1) or (2)''.
(14) Paragraph (2) of section 864(d) is amended by striking
subparagraph (A) and by redesignating subparagraphs (B) and (C)
as subparagraphs (A) and (B), respectively.
(15)(A) Subparagraph (A) of section 898(b)(1) is amended to
read as follows:
``(A) which is treated as a controlled foreign
corporation for any purpose under subpart F of part III
of this subchapter, and''.
(B) Subparagraph (B) of section 898(b)(2) is amended by
striking ``and sections 551(f) and 554, whichever are
applicable,''.
(C) Paragraph (3) of section 898(b) is amended to read as
follows:
``(3) United states shareholder.--The term `United States
shareholder' has the meaning given to such term by section
951(b), except that, in the case of a foreign corporation
having related person insurance income (as defined in section
953(c)(2)), the Secretary may treat any person as a United
States shareholder for purposes of this section if such person
is treated as a United States shareholder under section
953(c)(1).''.
(D) Subsection (c) of section 898 is amended to read as
follows:
``(c) Determination of Required Year.--
``(1) In general.--The required year is--
``(A) the majority U.S. shareholder year, or
``(B) if there is no majority U.S. shareholder
year, the taxable year prescribed under regulations.
``(2) 1-month deferral allowed.--A specified foreign
corporation may elect, in lieu of the taxable year under
paragraph (1)(A), a taxable year beginning 1 month earlier than
the majority U.S. shareholder year.
``(3) Majority u.s. shareholder year.--
``(A) In general.--For purposes of this subsection,
the term `majority U.S. shareholder year' means the
taxable year (if any) which, on each testing day,
constituted the taxable year of--
``(i) each United States shareholder
described in subsection (b)(2)(A), and
``(ii) each United States shareholder not
described in clause (i) whose stock was treated
as owned under subsection (b)(2)(B) by any
shareholder described in such clause.
``(B) Testing day.--The testing days shall be--
``(i) the first day of the corporation's
taxable year (determined without regard to this
section), or
``(ii) the days during such representative
period as the Secretary may prescribe.''.
(16) Clause (ii) of section 904(d)(2)(A) is amended to read
as follows:
``(ii) Certain amounts included.--Except as
provided in clause (iii), the term `passive
income' includes, except as provided in
subparagraph (E)(iii) or paragraph (3)(I), any
amount includible in gross income under section
1293 (relating to certain passive foreign
investment companies).''.
(17)(A) Subparagraph (A) of section 904(g)(1), as
redesignated by section 204, is amended by adding ``or'' at the
end of clause (i), by striking clause (ii), and by
redesignating clause (iii) as clause (ii).
(B) The paragraph heading of paragraph (2) of section
904(g), as so redesignated, is amended by striking ``foreign
personal holding or''.
(18) Section 951 is amended by striking subsections (c) and
(d) and by redesignating subsections (e) and (f) as subsections
(c) and (d), respectively.
(19) Paragraph (3) of section 989(b) is amended by striking
``, 551(a),''.
(20) Paragraph (5) of section 1014(b) is amended by
inserting ``and before January 1, 2005,'' after ``August 26,
1937,''.
(21) Subsection (a) of section 1016 is amended by striking
paragraph (13).
(22)(A) Paragraph (3) of section 1212(a) is amended to read
as follows:
``(3) Special rules on carrybacks.--A net capital loss of a
corporation shall not be carried back under paragraph (1)(A) to
a taxable year--
``(A) for which it is a regulated investment
company (as defined in section 851), or
``(B) for which it is a real estate investment
trust (as defined in section 856).''.
(B) The amendment made by subparagraph (A) shall apply to
taxable years beginning after December 31, 2004.
(23) Section 1223 is amended by striking paragraph (10) and
by redesignating the following paragraphs accordingly.
(24) Subsection (d) of section 1248 is amended by striking
paragraph (5) and by redesignating paragraphs (6) and (7) as
paragraphs (5) and (6), respectively.
(25) Paragraph (2) of section 1260(c) is amended by
striking subparagraphs (H) and (I) and by redesignating
subparagraph (J) as subparagraph (H).
(26)(A) Subparagraph (F) of section 1291(b)(3) is amended
by striking ``551(d), 959(a),'' and inserting ``959(a)''.
(B) Subsection (e) of section 1291 is amended by inserting
``(as in effect on the day before the date of the enactment of
the Jumpstart Our Business Strength (JOBS) Act)'' after
``section 1246''.
(27) Paragraph (2) of section 1294(a) is amended to read as
follows:
``(2) Election not permitted where amounts otherwise
includible under section 951.--The taxpayer may not make an
election under paragraph (1) with respect to the undistributed
PFIC earnings tax liability attributable to a qualified
electing fund for the taxable year if any amount is includible
in the gross income of the taxpayer under section 951 with
respect to such fund for such taxable year.''.
(28) Section 6035 is hereby repealed.
(29) Subparagraph (D) of section 6103(e)(1) is amended by
striking clause (iv) and redesignating clauses (v) and (vi) as
clauses (iv) and (v), respectively.
(30) Subparagraph (B) of section 6501(e)(1) is amended to
read as follows:
``(B) Constructive dividends.--If the taxpayer
omits from gross income an amount properly includible
therein under section 951(a), the tax may be assessed,
or a proceeding in court for the collection of such tax
may be done without assessing, at any time within 6
years after the return was filed.''.
(31) Subsection (a) of section 6679 is amended--
(A) by striking ``6035, 6046, and 6046A'' in
paragraph (1) and inserting ``6046 and 6046A'', and
(B) by striking paragraph (3).
(32) Sections 170(f)(10)(A), 508(d), 4947, and 4948(c)(4)
are each amended by striking ``556(b)(2),'' each place it
appears.
(33) The table of parts for subchapter G of chapter 1 is
amended by striking the item relating to part III.
(34) The table of sections for part IV of subchapter P of
chapter 1 is amended by striking the items relating to sections
1246 and 1247.
(35) The table of sections for subpart A of part III of
subchapter A of chapter 61 is amended by striking the item
relating to section 6035.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years of
foreign corporations beginning after December 31, 2004, and to
taxable years of United States shareholders with or within
which such taxable years of foreign corporations end.
(2) Subsection (c)(29).--The amendments made by subsection
(c)(29) shall apply to disclosures of return or return
information with respect to taxable years beginning after
December 31, 2004.
SEC. 212. EXPANSION OF DE MINIMIS RULE UNDER SUBPART F.
(a) In General.--Clause (ii) of section 954(b)(3)(A) (relating to
de minimis, etc., rules) is amended by striking ``$1,000,000'' and
inserting ``$5,000,000''.
(b) Technical Amendments.--
(1) Clause (ii) of section 864(d)(5)(A) is amended by
striking ``$1,000,000'' and inserting ``$5,000,000''.
(2) Clause (i) of section 881(c)(5)(A) is amended by
striking ``$1,000,000'' and inserting ``$5,000,000''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2004, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
SEC. 213. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS TO APPLY
IN DETERMINING SECTION 902 AND 960 CREDITS.
(a) In General.--Subsection (c) of section 902 is amended by
redesignating paragraph (7) as paragraph (8) and by inserting after
paragraph (6) the following new paragraph:
``(7) Constructive ownership through partnerships.--Stock
owned, directly or indirectly, by or for a partnership shall be
considered as being owned proportionately by its partners.
Stock considered to be owned by a person by reason of the
preceding sentence shall, for purposes of applying such
sentence, be treated as actually owned by such person. The
Secretary may prescribe such regulations as may be necessary to
carry out the purposes of this paragraph, including rules to
account for special partnership allocations of dividends,
credits, and other incidents of ownership of stock in
determining proportionate ownership.''.
(b) Clarification of Comparable Attribution Under Section
901(b)(5).--Paragraph (5) of section 901(b) is amended by striking
``any individual'' and inserting ``any person''.
(c) Effective Date.--The amendments made by this section shall
apply to taxes of foreign corporations for taxable years of such
corporations beginning after the date of the enactment of this Act.
SEC. 214. APPLICATION OF UNIFORM CAPITALIZATION RULES TO FOREIGN
PERSONS.
(a) In General.--Section 263A(c) (relating to exceptions) is
amended by adding at the end the following new paragraph:
``(7) Foreign persons.--Except for purposes of applying
sections 871(b)(1) and 882(a)(1), this section shall not apply
to any taxpayer who is not a United States person if such
taxpayer capitalizes costs of produced property or property
acquired for resale by applying the method used to ascertain
the income, profit, or loss for purposes of reports or
statements to shareholders, partners, other proprietors, or
beneficiaries, or for credit purposes.''.
(b) Effective Date.--
(1) In general.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2004.
(2) Change in method of accounting.--In the case of any
taxpayer required by the amendment made by this section to
change its method of accounting for its first taxable year
beginning after December 31, 2004--
(A) such change shall be treated as initiated by
the taxpayer,
(B) such change shall be treated as made with the
consent of the Secretary of the Treasury, and
(C) the net amount of the adjustments required to
be taken into account by the taxpayer under section 481
of the Internal Revenue Code of 1986 shall be taken
into account in such first year.
SEC. 215. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN FOREIGN
CORPORATIONS.
(a) In General.--Paragraph (2) of section 871(i) (relating to tax
not to apply to certain interest and dividends) is amended by adding at
the end the following new subparagraph:
``(D) Dividends paid by a foreign corporation which
are treated under section 861(a)(2)(B) as income from
sources within the United States.''.
(b) Effective Date.--The amendment made by this section shall apply
to payments made after December 31, 2004.
SEC. 216. REPEAL OF SPECIAL CAPITAL GAINS TAX ON ALIENS PRESENT IN THE
UNITED STATES FOR 183 DAYS OR MORE.
(a) In General.--Subsection (a) of section 871 is amended by
striking paragraph (2) and by redesignating paragraph (3) as paragraph
(2).
(b) Conforming Amendment.--Section 1441(g) is amended is amended by
striking ``section 871(a)(3)'' and inserting ``section 871(a)(2)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
Subtitle C--Additional International Tax Provisions
SEC. 221. ACTIVE LEASING INCOME FROM AIRCRAFT AND VESSELS.
(a) In General.--Section 954(c)(2) is amended by adding at the end
the following new subparagraph:
``(D) Certain rents, etc.--
``(i) In general.--Foreign personal holding
company income shall not include qualified
leasing income derived from or in connection
with the leasing or rental of any aircraft or
vessel.
``(ii) Qualified leasing income.--For
purposes of this subparagraph, the term
`qualified leasing income' means rents and
gains derived in the active conduct of a trade
or business of leasing with respect to which
the controlled foreign corporation conducts
substantial activity, but only if--
``(I) the leased property is used
by the lessee or other end-user in
foreign commerce and predominantly
outside the United States, and
``(II) the lessee or other end-user
is not a related person (as defined in
subsection (d)(3)).
Any amount not treated as foreign personal
holding income under this subparagraph shall
not be treated as foreign base company shipping
income.''.
(b) Conforming Amendment.--Section 954(c)(1)(B) is amended by
inserting ``or (2)(D)'' after ``paragraph (2)(A)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2005, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
SEC. 222. LOOK-THRU TREATMENT OF PAYMENTS BETWEEN RELATED CONTROLLED
FOREIGN CORPORATIONS UNDER FOREIGN PERSONAL HOLDING
COMPANY INCOME RULES.
(a) In General.--Subsection (c) of section 954, as amended by this
Act, is amended by adding after paragraph (4) the following new
paragraph:
``(5) Look-thru in the case of related controlled foreign
corporations.--For purposes of this subsection, dividends,
interest, rents, and royalties received or accrued from a
controlled foreign corporation which is a related person (as
defined in subsection (b)(9)) shall not be treated as foreign
personal holding company income to the extent attributable or
properly allocable (determined under rules similar to the rules
of subparagraphs (C) and (D) of section 904(d)(3)) to income of
the related person which is not subpart F income (as defined in
section 952). For purposes of this paragraph, interest shall
include factoring income which is treated as income equivalent
to interest for purposes of paragraph (1)(E). The Secretary
shall prescribe such regulations as may be appropriate to
prevent the abuse of the purposes of this paragraph.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years of foreign corporations beginning after December 31,
2004, and to taxable years of United States shareholders with or within
which such taxable years of foreign corporations end.
SEC. 223. LOOK-THRU TREATMENT FOR SALES OF PARTNERSHIP INTERESTS.
(a) In General.--Section 954(c) (defining foreign personal holding
company income), as amended by this Act, is amended by adding after
paragraph (5) the following new paragraph:
``(6) Look-thru rule for certain partnership sales.--
``(A) In general.--In the case of any sale by a
controlled foreign corporation of an interest in a
partnership with respect to which such corporation is a
25-percent owner, such corporation shall be treated for
purposes of this subsection as selling the
proportionate share of the assets of the partnership
attributable to such interest. The Secretary shall
prescribe such regulations as may be appropriate to
prevent abuse of the purposes of this paragraph,
including regulations providing for coordination of
this paragraph with the provisions of subchapter K.
``(B) 25-percent owner.--For purposes of this
paragraph, the term `25-percent owner' means a
controlled foreign corporation which owns directly 25
percent or more of the capital or profits interest in a
partnership. For purposes of the preceding sentence, if
a controlled foreign corporation is a shareholder or
partner of a corporation or partnership, the controlled
foreign corporation shall be treated as owning directly
its proportionate share of any such capital or profits
interest held directly or indirectly by such
corporation or partnership''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years of foreign corporations beginning after December 31,
2004, and to taxable years of United States shareholders with or within
which such taxable years of foreign corporations end.
SEC. 224. ELECTION NOT TO USE AVERAGE EXCHANGE RATE FOR FOREIGN TAX
PAID OTHER THAN IN FUNCTIONAL CURRENCY.
(a) In General.--Paragraph (1) of section 986(a) (relating to
determination of foreign taxes and foreign corporation's earnings and
profits) is amended by redesignating subparagraph (D) as subparagraph
(E) and by inserting after subparagraph (C) the following new
subparagraph:
``(D) Elective exception for taxes paid other than
in functional currency.--
``(i) In general.--At the election of the
taxpayer, subparagraph (A) shall not apply to
any foreign income taxes the liability for
which is denominated in any currency other than
in the taxpayer's functional currency.
``(ii) Application to qualified business
units.--An election under this subparagraph may
apply to foreign income taxes attributable to a
qualified business unit in accordance with
regulations prescribed by the Secretary.
``(iii) Election.--Any such election shall
apply to the taxable year for which made and
all subsequent taxable years unless revoked
with the consent of the Secretary.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 225. TREATMENT OF INCOME TAX BASE DIFFERENCES.
(a) In General.--Paragraph (2) of section 904(d) is amended by
redesignating subparagraphs (H) and (I) as subparagraphs (I) and (J),
respectively, and by inserting after subparagraph (G) the following new
subparagraph:
``(H) Treatment of income tax base differences.--
``(i) In general.--A taxpayer may elect to
treat tax imposed under the law of a foreign
country or possession of the United States on
an amount which does not constitute income
under United States tax principles as tax
imposed on income described in subparagraph (C)
or (I) of paragraph (1).
``(ii) Election irrevocable.--Any such
election shall apply to the taxable year for
which made and all subsequent taxable years
unless revoked with the consent of the
Secretary.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.
SEC. 226. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR ACTIVE
FINANCING.
(a) In General.--Section 954(h)(3) is amended by adding at the end
the following:
``(E) Direct conduct of activities.--For purposes
of subparagraph (A)(ii)(II), an activity shall be
treated as conducted directly by an eligible controlled
foreign corporation or qualified business unit in its
home country if the activity is performed by employees
of a related person and--
``(i) the related person is an eligible
controlled foreign corporation the home country
of which is the same as the home country of the
corporation or unit to which subparagraph
(A)(ii)(II) is being applied,
``(ii) the activity is performed in the
home country of the related person, and
``(iii) the related person is compensated
on an arm's-length basis for the performance of
the activity by its employees and such
compensation is treated as earned by such
person in its home country for purposes of the
home country's tax laws.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years of such foreign corporations beginning after December
31, 2004, and to taxable years of United States shareholders with or
within which such taxable years of such foreign corporations end.
SEC. 227. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS OF
CONTROLLED FOREIGN CORPORATION.
(a) In General.--Section 956(c)(2) (relating to exceptions from
property treated as United States property) is amended by striking
``and'' at the end of subparagraph (J), by striking the period at the
end of subparagraph (K) and inserting a semicolon, and by adding at the
end the following new subparagraphs:
``(L) securities acquired and held by a controlled
foreign corporation in the ordinary course of its
business as a dealer in securities if--
``(i) the dealer accounts for the
securities as securities held primarily for
sale to customers in the ordinary course of
business, and
``(ii) the dealer disposes of the
securities (or such securities mature while
held by the dealer) within a period consistent
with the holding of securities for sale to
customers in the ordinary course of business;
and
``(M) an obligation of a United States person
which--
``(i) is not a domestic corporation, and
``(ii) is not--
``(I) a United States shareholder
(as defined in section 951(b)) of the
controlled foreign corporation, or
``(II) a partnership, estate, or
trust in which the controlled foreign
corporation, or any related person (as
defined in section 954(d)(3)), is a
partner, beneficiary, or trustee
immediately after the acquisition of
any obligation of such partnership,
estate, or trust by the controlled
foreign corporation.''.
(b) Conforming Amendment.--Section 956(c)(2) is amended by striking
``and (K)'' in the last sentence and inserting ``, (K), and (L)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2004, and to taxable years of United States shareholders with or
within which such taxable years of foreign corporations end.
SEC. 228. PROVIDE EQUAL TREATMENT FOR INTEREST PAID BY FOREIGN
PARTNERSHIPS AND FOREIGN CORPORATIONS.
(a) In General.--Paragraph (1) of section 861(a) is amended by
striking ``and'' at the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ``, and'', and by adding
at the end the following new subparagraph:
``(C) in the case of a foreign partnership, which
is predominantly engaged in the active conduct of a
trade or business outside the United States, any
interest not paid by a trade or business engaged in by
the partnership in the United States and not allocable
to income which is effectively connected (or treated as
effectively connected) with the conduct of a trade or
business in the United States.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 229. CLARIFICATION OF TREATMENT OF CERTAIN TRANSFERS OF INTANGIBLE
PROPERTY.
(a) In General.--Subparagraph (C) of section 367(d)(2) is amended
by adding at the end the following new sentence: ``For purposes of
applying section 904(d), any such amount shall be treated in the same
manner as if such amount were a royalty.''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts treated as received pursuant to section 367(d)(2) of the
Internal Revenue Code of 1986 on or after August 5, 1997.
SEC. 230. MODIFICATION OF THE TREATMENT OF CERTAIN REIT DISTRIBUTIONS
ATTRIBUTABLE TO GAIN FROM SALES OR EXCHANGES OF UNITED
STATES REAL PROPERTY INTERESTS.
(a) In General.--Paragraph (1) of section 897(h) (relating to look-
through of distributions) is amended by adding at the end the following
new sentence: ``Notwithstanding the preceding sentence, any
distribution by a REIT with respect to any class of stock which is
regularly traded on an established securities market located in the
United States shall not be treated as gain recognized from the sale or
exchange of a United States real property interest if the shareholder
did not own more than 5 percent of such class of stock at any time
during the taxable year.''.
(b) Conforming Amendment.--Paragraph (3) of section 857(b)
(relating to capital gains) is amended by adding at the end the
following new subparagraph:
``(F) Certain distributions.--In the case of a
shareholder of a real estate investment trust to whom
section 897 does not apply by reason of the second
sentence of section 897(h)(1), the amount which would
be included in computing long-term capital gains for
such shareholder under subparagraph (B) or (D) (without
regard to this subparagraph)--
``(i) shall not be included in computing
such shareholder's long-term capital gains, and
``(ii) shall be included in such
shareholder's gross income as a dividend from
the real estate investment trust.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 231. TOLL TAX ON EXCESS QUALIFIED FOREIGN DISTRIBUTION AMOUNT.
(a) In General.--Subpart F of part III of subchapter N of chapter 1
is amended by adding at the end the following new section:
``SEC. 965. TOLL TAX IMPOSED ON EXCESS QUALIFIED FOREIGN DISTRIBUTION
AMOUNT.
``(a) Toll Tax Imposed on Excess Qualified Foreign Distribution
Amount.--If a corporation elects the application of this section, a tax
shall be imposed on the taxpayer in an amount equal to 5.25 percent
of--
``(1) the taxpayer's excess qualified foreign distribution
amount, and
``(2) the amount determined under section 78 which is
attributable to such excess qualified foreign distribution
amount.
Such tax shall be imposed in lieu of the tax imposed under section 11
or 55 on the amounts described in paragraphs (1) and (2) for the
taxable year.
``(b) Excess Qualified Foreign Distribution Amount.--For purposes
of this section--
``(1) In general.--The term `excess qualified foreign
distribution amount' means the excess (if any) of--
``(A) the aggregate dividends received by the
taxpayer during the taxable year which are--
``(i) from 1 or more corporations which are
controlled foreign corporations in which the
taxpayer is a United States shareholder on the
date such dividends are paid, and
``(ii) described in a domestic reinvestment
plan which--
``(I) is approved by the taxpayer's
president, chief executive officer, or
comparable official before the payment
of such dividends and subsequently
approved by the taxpayer's board of
directors, management committee,
executive committee, or similar body,
and
``(II) provides for the
reinvestment of such dividends in the
United States (other than as payment
for executive compensation), including
as a source for the funding of worker
hiring and training, infrastructure,
research and development, capital
investments, or the financial
stabilization of the corporation for
the purposes of job retention or
creation, over
``(B) the base dividend amount.
``(2) Base dividend amount.--The term `base dividend
amount' means an amount designated under subsection (c)(7), but
not less than the average amount of dividends received during
the fixed base period from 1 or more corporations which are
controlled foreign corporations in which the taxpayer is a
United States shareholder on the date such dividends are paid.
``(3) Fixed base period.--
``(A) In general.--The term `fixed base period'
means each of 3 taxable years which are among the 5
most recent taxable years of the taxpayer ending on or
before December 31, 2002, determined by disregarding--
``(i) the 1 taxable year for which the
taxpayer had the highest amount of dividends
from 1 or more corporations which are
controlled foreign corporations relative to the
other 4 taxable years, and
``(ii) the 1 taxable year for which the
taxpayer had the lowest amount of dividends
from such corporations relative to the other 4
taxable years.
``(B) Shorter period.--If the taxpayer has fewer
than 5 taxable years ending on or before December 31,
2002, then in lieu of applying subparagraph (A), the
fixed base period shall include all the taxable years
of the taxpayer ending on or before December 31, 2002.
``(c) Definitions and Special Rules.--For purposes of this
section--
``(1) Dividends.--The term `dividend' has the meaning given
such term by section 316, except that the term shall include
amounts described in section 951(a)(1)(B), but shall not
include amounts described in sections 78 and 959.
``(2) Controlled foreign corporations and united states
shareholders.--The term `controlled foreign corporation' has
the meaning given such term by section 957(a) and the term
`United States shareholder' has the meaning given such term by
section 951(b).
``(3) Foreign tax credits.--The amount of any income, war,
profits, or excess profit taxes paid (or deemed paid under
sections 902 and 960) or accrued by the taxpayer with respect
to the excess qualified foreign distribution amount for which a
credit would be allowable under section 901 in the absence of
this section, shall be reduced by 85 percent. No deduction
shall be allowed under this chapter for the portion of any tax
for which credit is not allowable by reason of the preceding
sentence.
``(4) Foreign tax credit limitation.--For purposes of
section 904, there shall be disregarded 85 percent of--
``(A) the excess qualified foreign distribution
amount,
``(B) the amount determined under section 78 which
is attributable to such excess qualified foreign
distribution amount, and
``(C) the amounts (including assets, gross income,
and other relevant bases of apportionment) which are
attributable to the excess qualified foreign
distribution amount which would, determined without
regard to this section, be used to apportion the
expenses, losses, and deductions of the taxpayer under
section 861 and 864 in determining its taxable income
from sources without the United States.
For purposes of applying subparagraph (C), the principles of
section 864(e)(3)(A) shall apply.
``(5) Treatment of acquisitions and dispositions.--Rules
similar to the rules of section 41(f)(3) shall apply in the
case of acquisitions or dispositions of controlled foreign
corporations occurring on or after the first day of the
earliest taxable year taken into account in determining the
fixed base period.
``(6) Treatment of consolidated groups.--Members of an
affiliated group of corporations filing a consolidated return
under section 1501 shall be treated as a single taxpayer for
purposes of this section.
``(7) Designation of dividends.--Subject to subsection
(b)(2), the taxpayer shall designate the particular dividends
received during the taxable year from 1 or more corporations
which are controlled foreign corporations in which it is a
United States shareholder which are dividends excluded from the
excess qualified foreign distribution amount. The total amount
of such designated dividends shall equal the base dividend
amount.
``(8) Treatment of expenses, losses, and deductions.--Any
expenses, losses, or deductions of the taxpayer allowable under
subchapter B--
``(A) shall not be applied to reduce the amounts
described in subsection (a)(1), and
``(B) shall be applied to reduce other income of
the taxpayer (determined without regard to the amounts
described in subsection (a)(1)).
``(d) Election.--
``(1) In general.--An election under this section shall be
made on the taxpayer's timely filed income tax return for the
first taxable year (determined by taking extensions into
account) ending 120 days or more after the date of the
enactment of this section, and, once made, may be revoked only
with the consent of the Secretary.
``(2) All controlled foreign corporations.--The election
shall apply to all corporations which are controlled foreign
corporations in which the taxpayer is a United States
shareholder during the taxable year.
``(3) Consolidated groups.--If a taxpayer is a member of an
affiliated group of corporations filing a consolidated return
under section 1501 for the taxable year, an election under this
section shall be made by the common parent of the affiliated
group which includes the taxpayer and shall apply to all
members of the affiliated group.
``(e) Regulations.--The Secretary shall prescribe such regulations
as may be necessary and appropriate to carry out the purposes of this
section, including regulations under section 55 and regulations
addressing corporations which, during the fixed base period or
thereafter, join or leave an affiliated group of corporations filing a
consolidated return.''.
(b) Conforming Amendment.--The table of sections for subpart F of
part III of subchapter N of chapter 1 is amended by adding at the end
the following new item:
``Sec. 965. Toll tax imposed on excess
qualified foreign distribution
amount.''.
(c) Effective Date.--The amendments made by this section shall
apply only to the first taxable year of the electing taxpayer ending
120 days or more after the date of the enactment of this Act.
SEC. 232. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON HORSE
RACES AND DOG RACES FROM GROSS INCOME OF NONRESIDENT
ALIEN INDIVIDUALS.
(a) In General.--Subsection (b) of section 872 (relating to
exclusions) is amended by redesignating paragraphs (5), (6), and (7) as
paragraphs (6), (7), and (8), respectively, and inserting after
paragraph (4) the following new paragraph:
``(5) Income derived from wagering transactions in certain
parimutuel pools.--Gross income derived by a nonresident alien
individual from a legal wagering transaction initiated outside
the United States in a parimutuel pool with respect to a live
horse race or dog race in the United States.''.
(b) Conforming Amendment.--Section 883(a)(4) is amended by striking
``(5), (6), and (7)'' and inserting ``(6), (7), and (8)''.
(c) Effective Date.--The amendments made by this section shall
apply to wagers made after the date of the enactment of this Act.
SEC. 233. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO CORPORATIONS.
(a) In General.--Subsection (b) of section 881 is amended by
redesignating paragraph (2) as paragraph (3) and by inserting after
paragraph (1) the following new paragraph:
``(2) Commonwealth of puerto rico.--If dividends are
received during a taxable year by a corporation--
``(A) created or organized in, or under the law of,
the Commonwealth of Puerto Rico, and
``(B) with respect to which the requirements of
subparagraphs (A), (B), and (C) of paragraph (1) are
met for the taxable year,
subsection (a) shall be applied for such taxable year by
substituting `10 percent' for `30 percent'.''.
(b) Withholding.--Subsection (c) of section 1442 (relating to
withholding of tax on foreign corporations) is amended--
(1) by striking ``For purposes'' and inserting the
following:
``(1) Guam, american samoa, the northern mariana islands,
and the virgin islands.--For purposes'', and
(2) by adding at the end the following new paragraph:
``(2) Commonwealth of puerto rico.--If dividends are
received during a taxable year by a corporation--
``(A) created or organized in, or under the law of,
the Commonwealth of Puerto Rico, and
``(B) with respect to which the requirements of
subparagraphs (A), (B), and (C) of section 881(b)(1)
are met for the taxable year,
subsection (a) shall be applied for such taxable year by
substituting `10 percent' for `30 percent'.''.
(b) Conforming Amendments.--
(1) Subsection (b) of section 881 is amended by striking
``Guam and Virgin Islands Corporations'' in the heading and
inserting ``Possessions''.
(2) Paragraph (1) of section 881(b) is amended by striking
``In general'' in the heading and inserting ``Guam, american
samoa, the northern mariana islands, and the virgin islands''.
(c) Effective Date.--The amendments made by this section shall
apply to dividends paid after the date of the enactment of this Act.
SEC. 234. REPORT ON WTO DISPUTE SETTLEMENT PANELS AND THE APPELLATE
BODY.
Not later than March 31, 2004, the Secretary of Commerce, in
consultation with the United States Trade Representative, shall
transmit a report to the Committee on Finance of the Senate and the
Committee on Ways and Means of the House of Representatives, regarding
whether dispute settlement panels and the Appellate Body of the World
Trade Organization have--
(1) added to or diminished the rights of the United States
by imposing obligations or restrictions on the use of
antidumping, countervailing, and safeguard measures not agreed
to under the Agreement on Implementation of Article VI of the
General Agreement on Tariffs and Trade of 1994, the Agreement
on Subsidies and Countervailing Measures, and the Agreement on
Safeguards;
(2) appropriately applied the standard of review contained
in Article 17.6 of the Agreement on Implementation of Article
VI of the General Agreement on Tariffs and Trade of 1994; or
(3) exceeded their authority or terms of reference under
the Agreements referred to in paragraph (1).
SEC. 235. STUDY OF IMPACT OF INTERNATIONAL TAX LAWS ON TAXPAYERS OTHER
THAN LARGE CORPORATIONS.
(a) Study.--The Secretary of the Treasury or the Secretary's
delegate shall conduct a study of the impact of Federal international
tax rules on taxpayers other than large corporations, including the
burdens placed on such taxpayers in complying with such rules.
(b) Report.--Not later than 180 days after the date of the
enactment of this Act, the Secretary shall report to the Committee on
Finance of the Senate and the Committee on Ways and Means of the House
of Representatives the results of the study conducted under subsection
(a), including any recommendations for legislative or administrative
changes to reduce the compliance burden on taxpayers other than large
corporations and for such other purposes as the Secretary determines
appropriate.
SEC. 236. DELAY IN EFFECTIVE DATE OF FINAL REGULATIONS GOVERNING
EXCLUSION OF INCOME FROM INTERNATIONAL OPERATION OF SHIPS
OR AIRCRAFT.
Notwithstanding the provisions of Treasury regulation Sec. 1.883-5,
the final regulations issued by the Secretary of the Treasury relating
to income derived by foreign corporations from the international
operation of ships or aircraft (Treasury regulations Sec. 1.883-1
through Sec. 1.883-5) shall apply to taxable years of a foreign
corporation seeking qualified foreign corporation status beginning
after December 31, 2004.
SEC. 237. INTEREST PAYMENTS DEDUCTIBLE WHERE DISQUALIFIED GUARANTEE HAS
NO ECONOMIC EFFECT.
(a) In General.--Section 163(j)(6)(D)(ii) (relating to exceptions
to disqualified guarantee) is amended--
(1) by striking ``or'' at the end of subclause (I),
(2) by striking the period at the end of subclause (II) and
inserting ``, or'',
(3) by inserting after subclause (II) the following new
subclause:
``(III) in the case of a guarantee
by a foreign person, to the extent of
the amount that the taxpayer
establishes to the satisfaction of the
Secretary that the taxpayer could have
borrowed from an unrelated person
without the guarantee.''.
(b) Effective Date.--The amendments made by this section shall
apply to guarantees issued on or after the date of the enactment of
this Act.
TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS
Subtitle A--General Provisions
SEC. 301. EXPANSION OF QUALIFIED SMALL-ISSUE BOND PROGRAM.
(a) In General.--Subparagraph (F) of section 144(a)(4) (relating to
$10,000,000 limit in certain cases) is amended to read as follows:
``(F) Additional capital expenditures not taken
into account.--With respect to any issue, in addition
to any capital expenditure described in subparagraph
(C), capital expenditures of not to exceed $10,000,000
shall not be taken into account for purposes of
applying subparagraph (A)(ii).''.
(b) Effective Date.--The amendment made by this section shall apply
to bonds issued after the date of the enactment of this Act.
SEC. 302. EXPENSING OF BROADBAND INTERNET ACCESS EXPENDITURES.
(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations) is amended by
inserting after section 190 the following new section:
``SEC. 191. BROADBAND EXPENDITURES.
``(a) Treatment of Expenditures.--
``(1) In general.--A taxpayer may elect to treat any
qualified broadband expenditure which is paid or incurred by
the taxpayer as an expense which is not chargeable to capital
account. Any expenditure which is so treated shall be allowed
as a deduction.
``(2) Election.--An election under paragraph (1) shall be
made at such time and in such manner as the Secretary may
prescribe by regulation.
``(b) Qualified Broadband Expenditures.--For purposes of this
section--
``(1) In general.--The term `qualified broadband
expenditure' means, with respect to any taxable year, any
direct or indirect costs incurred and properly taken into
account with respect to--
``(A) the purchase or installation of qualified
equipment (including any upgrades thereto), and
``(B) the connection of such qualified equipment to
any qualified subscriber.
``(2) Certain satellite expenditures excluded.--Such term
shall not include any costs incurred with respect to the
launching of any satellite equipment.
``(3) Leased equipment.--Such term shall include so much of
the purchase price paid by the lessor of qualified equipment
subject to a lease described in subsection (c)(2)(B) as is
attributable to expenditures incurred by the lessee which would
otherwise be described in paragraph (1).
``(c) When Expenditures Taken Into Account.--For purposes of this
section--
``(1) In general.--Qualified broadband expenditures with
respect to qualified equipment shall be taken into account with
respect to the first taxable year in which--
``(A) current generation broadband services are
provided through such equipment to qualified
subscribers, or
``(B) next generation broadband services are
provided through such equipment to qualified
subscribers.
``(2) Limitation.--
``(A) In general.--Qualified expenditures shall be
taken into account under paragraph (1) only with
respect to qualified equipment--
``(i) the original use of which commences
with the taxpayer, and
``(ii) which is placed in service, after
the date of the enactment of this Act.
``(B) Sale-leasebacks.--For purposes of
subparagraph (A), if property--
``(i) is originally placed in service after
the date of the enactment of this Act 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--
``(A) any census tract which is located in--
``(i) an empowerment zone or enterprise
community designated under section 1391, or
``(ii) the District of Columbia Enterprise
Zone established under section 1400, or
``(B) any census tract--
``(i) the poverty level of which is at
least 30 percent (based on the most recent
census data), and
``(ii) the median family income of which
does not exceed--
``(I) in the case of a census tract
located in a metropolitan statistical
area, 70 percent of the greater of the
metropolitan area median family income
or the statewide median family income,
and
``(II) in the case of a census
tract located in a nonmetropolitan
statistical area, 70 percent of the
nonmetropolitan statewide median family
income.
``(24) Underserved subscriber.--The term `underserved
subscriber' means any residential subscriber residing in a
dwelling located in an underserved area or nonresidential
subscriber maintaining a permanent place of business located in
an underserved area.
``(f) Special Rules.--
``(1) Property used outside the united states, etc., not
qualified.--No expenditures shall be taken into account under
subsection (a)(1) with respect to the portion of the cost of
any property referred to in section 50(b) or with respect to
the portion of the cost of any property specified in an
election under section 179.
``(2) Basis reduction.--
``(A) In general.--For purposes of this title, the
basis of any property shall be reduced by the portion
of the cost of such property taken into account under
subsection (a)(1).
``(B) Ordinary income recapture.--For purposes of
section 1245, the amount of the deduction allowable
under subsection (a)(1) with respect to any property
which is of a character subject to the allowance for
depreciation shall be treated as a deduction allowed
for depreciation under section 167.
``(3) Coordination with section 38.--No credit shall be
allowed under section 38 with respect to any amount for which a
deduction is allowed under subsection (a)(1).''.
(b) Special Rule for Mutual or Cooperative Telephone Companies.--
Section 512(b) (relating to modifications) is amended by adding at the
end the following new paragraph:
``(18) Special rule for mutual or cooperative telephone
companies.--A mutual or cooperative telephone company which for
the taxable year satisfies the requirements of section
501(c)(12)(A) may elect to reduce its unrelated business
taxable income for such year, if any, by an amount that does
not exceed the qualified broadband expenditures which would be
taken into account under section 191 for such year by such
company if such company was not exempt from taxation. Any
amount which is allowed as a deduction under this paragraph
shall not be allowed as a deduction under section 191 and the
basis of any property to which this paragraph applies shall be
reduced under section 1016(a)(29).''.
(c) Conforming Amendments.--
(1) Section 263(a)(1) (relating to capital expenditures) is
amended by striking ``or'' at the end of subparagraph (G), by
striking the period at the end of subparagraph (H) and
inserting ``, or'', and by adding at the end the following new
subparagraph:
``(I) expenditures for which a deduction is allowed
under section 191.''.
(2) Section 1016(a) of such Code is amended by striking
``and'' at the end of paragraph (27), by striking the period at
the end of paragraph (28) and inserting ``, and'', and by
adding at the end the following new paragraph:
``(29) to the extent provided in section 191(f)(2).''.
(3) The table of sections for part VI of subchapter A of
chapter 1 of such Code is amended by inserting after the item
relating to section 190 the following new item:
``Sec. 191. Broadband expenditures.''.
(d) Designation of Census Tracts.--
(1) In general.--The Secretary of the Treasury shall, not
later than 90 days after the date of the enactment of this Act,
designate and publish those census tracts meeting the criteria
described in paragraphs (16), (22), and (23) of section 191(e)
of the Internal Revenue Code of 1986 (as added by this
section). In making such designations, the Secretary of the
Treasury shall consult with such other departments and agencies
as the Secretary determines appropriate.
(2) Saturated market.--
(A) In general.--For purposes of designating and
publishing those census tracts meeting the criteria
described in subsection (e)(19) of such section 191--
(i) the Secretary of the Treasury shall
prescribe not later than 30 days after the date
of the enactment of this Act the form upon
which any provider which takes the position
that it meets such criteria with respect to any
census tract shall submit a list of such census
tracts (and any other information required by
the Secretary) not later than 60 days after the
date of the publication of such form, and
(ii) the Secretary of the Treasury shall
publish an aggregate list of such census tracts
and the applicable providers not later than 30
days after the last date such submissions are
allowed under clause (i).
(B) No subsequent lists required.--The Secretary of
the Treasury shall not be required to publish any list
of census tracts meeting such criteria subsequent to
the list described in subparagraph (A)(ii).
(e) Other Regulatory Matters.--
(1) Prohibition.--No Federal or State agency or
instrumentality shall adopt regulations or ratemaking
procedures that would have the effect of eliminating or
reducing any deduction or portion thereof allowed under section
191 of the Internal Revenue Code of 1986 (as added by this
section) or otherwise subverting the purpose of this section.
(2) Treasury regulatory authority.--It is the intent of
Congress in providing the election to deduct qualified
broadband expenditures under section 191 of the Internal
Revenue Code of 1986 (as added by this section) to provide
incentives for the purchase, installation, and connection of
equipment and facilities offering expanded broadband access to
the Internet for users in certain low income and rural areas of
the United States, as well as to residential users nationwide,
in a manner that maintains competitive neutrality among the
various classes of providers of broadband services.
Accordingly, the Secretary of the Treasury shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of section 191 of such Code, including--
(A) regulations to determine how and when a
taxpayer that incurs qualified broadband expenditures
satisfies the requirements of section 191 of such Code
to provide broadband services, and
(B) regulations describing the information,
records, and data taxpayers are required to provide the
Secretary to substantiate compliance with the
requirements of section 191 of such Code.
(f) Effective Date.--The amendments made by this section shall
apply to expenditures incurred after the date of the enactment of this
Act and before the date which is 12 months after the date of the
enactment of this Act.
SEC. 303. EXEMPTION OF NATURAL AGING PROCESS IN DETERMINATION OF
PRODUCTION PERIOD FOR DISTILLED SPIRITS UNDER SECTION
263A.
(a) In General.--Section 263A(f) of the Internal Revenue Code of
1986 (relating to general exceptions) is amended by adding at the end
the following new paragraph:
``(5) Exemption of natural aging process in determination
of production period for distilled spirits.--For purposes of
this subsection, the production period for distilled spirits
shall be determined without regard to any period allocated to
the natural aging process.''.
(b) Effective Date.--The amendment made by this section shall apply
to production periods beginning after the date of the enactment of this
Act.
SEC. 304. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER SECTION 355.
(a) In General.--Section 355(b) (defining active conduct of a trade
or business) is amended by adding at the end the following new
paragraph:
``(3) Special rules relating to active business
requirement.--
``(A) In general.--For purposes of determining
whether a corporation meets the requirement of
paragraph (2)(A), all members of such corporation's
separate affiliated group shall be treated as one
corporation. For purposes of the preceding sentence, a
corporation's separate affiliated group is the
affiliated group which would be determined under
section 1504(a) if such corporation were the common
parent and section 1504(b) did not apply.
``(B) Control.--For purposes of paragraph (2)(D),
all distributee corporations which are members of the
same affiliated group (as defined in section 1504(a)
without regard to section 1504(b)) shall be treated as
one distributee corporation.''.
(b) Conforming Amendments.--
(1) Subparagraph (A) of section 355(b)(2) is amended to
read as follows:
``(A) it is engaged in the active conduct of a
trade or business,''.
(2) Section 355(b)(2) is amended by striking the last
sentence.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply--
(A) to distributions after the date of the
enactment of this Act, and
(B) for purposes of determining the continued
qualification under section 355(b)(2)(A) of the
Internal Revenue Code of 1986 (as amended by subsection
(b)(1)) of distributions made before such date, as a
result of an acquisition, disposition, or other
restructuring after such date.
(2) Transition rule.--The amendments made by this section
shall not apply to any distribution pursuant to a transaction
which is--
(A) made pursuant to an agreement which was binding
on such date of enactment and at all times thereafter,
(B) described in a ruling request submitted to the
Internal Revenue Service on or before such date, or
(C) described on or before such date in a public
announcement or in a filing with the Securities and
Exchange Commission.
(3) Election to have amendments apply.--Paragraph (2) shall
not apply if the distributing corporation elects not to have
such paragraph apply to distributions of such corporation. Any
such election, once made, shall be irrevocable.
SEC. 305. MODIFIED TAXATION OF IMPORTED ARCHERY PRODUCTS.
(a) Bows.--Paragraph (1) of section 4161(b) (relating to bows) is
amended to read as follows:
``(1) Bows.--
``(A) In general.--There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
bow which has a peak draw weight of 30 pounds or more,
a tax equal to 11 percent of the price for which so
sold.
``(B) Archery equipment.--There is hereby imposed
on the sale by the manufacturer, producer, or
importer--
``(i) of any part or accessory suitable for
inclusion in or attachment to a bow described
in subparagraph (A), and
``(ii) of any quiver or broadhead suitable
for use with an arrow described in paragraph
(2),
a tax equal to 11 percent of the price for which so
sold.''.
(b) Arrows.--Subsection (b) of section 4161 (relating to bows and
arrows, etc.) is amended by redesignating paragraph (3) as paragraph
(4) and inserting after paragraph (2) the following:
``(3) Arrows.--
``(A) In general.--There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
arrow, a tax equal to 12 percent of the price for which
so sold.
``(B) Exception.--In the case of any arrow of which
the shaft or any other component has been previously
taxed under paragraph (1) or (2)--
``(i) section 6416(b)(3) shall not apply,
and
``(ii) the tax imposed by subparagraph (A)
shall be an amount equal to the excess (if any)
of--
``(I) the amount of tax imposed by
this paragraph (determined without
regard to this subparagraph), over
``(II) the amount of tax paid with
respect to the tax imposed under
paragraph (1) or (2) on such shaft or
component.
``(C) Arrow.--For purposes of this paragraph, the
term `arrow' means any shaft described in paragraph (2)
to which additional components are attached.''.
(c) Conforming Amendments.--Section 4161(b)(2) is amended--
(1) by inserting ``(other than broadheads)'' after
``point'', and
(2) by striking ``Arrows.--'' in the heading and inserting
``Arrow components.--''.
(d) Effective Date.--The amendments made by this section shall
apply to articles sold by the manufacturer, producer, or importer after
the date which is 30 days after the date of the enactment of this Act.
SEC. 306. MODIFICATION TO COOPERATIVE MARKETING RULES TO INCLUDE VALUE
ADDED PROCESSING INVOLVING ANIMALS.
(a) In General.--Section 1388 (relating to definitions and special
rules) is amended by adding at the end the following new subsection:
``(k) Cooperative Marketing Includes Value-Added Processing
Involving Animals.--For purposes of section 521 and this subchapter,
the marketing of the products of members or other producers shall
include the feeding of such products to cattle, hogs, fish, chickens,
or other animals and the sale of the resulting animals or animal
products.''.
(b) Conforming Amendment.--Section 521(b) is amended by adding at
the end the following new paragraph:
``(7) Cross Reference.--
``For treatment of value-added
processing involving animals, see section 1388(k).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 307. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO FARMERS'
COOPERATIVE ORGANIZATIONS.
(a) In General.--Section 7428(a)(1) (relating to declaratory
judgments of tax exempt organizations) is amended by striking ``or'' at
the end of subparagraph (B) and by adding at the end the following new
subparagraph:
``(D) with respect to the initial classification or
continuing classification of a cooperative as an
organization described in section 521(b) which is
exempt from tax under section 521(a), or''.
(b) Effective Date.--The amendments made by this section shall
apply with respect to pleadings filed after the date of the enactment
of this Act.
SEC. 308. TEMPORARY SUSPENSION OF PERSONAL HOLDING COMPANY TAX.
(a) In General.--Section 541 (relating to imposition of personal
holding company tax) is amended by adding at the end the following new
sentence: ``The preceding sentence shall not apply with respect to any
taxable year to which section 1(h)(11) (as in effect on the date of the
enactment of this sentence) applies.''.
(b) Coordination With Accumulated Earnings Tax.--Section 532(b) is
amended by adding at the end the following flush sentence:
``Paragraph (1) shall not apply to any taxable year to which section
541 does not apply.''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 309. INCREASE IN SECTION 179 EXPENSING.
(a) In General.--Section 179(b)(2) (relating to reduction in
limitation) is amended by inserting ``50 percent of'' before ``the
amount''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2002.
SEC. 310. FIVE-YEAR CARRYBACK OF NET OPERATING LOSSES.
(a) In General.--Subparagraph (H) of section 172(b)(1) is amended--
(1) by inserting ``5-year carryback of certain losses.--''
after ``(H)'', and
(2) by striking ``or 2002'' and inserting ``, 2002, or
2003''.
(b) Rules Relating to Certain Extended Net Operating Losses.--
Section 172 is amended by redesignating subsection (k) as subsection
(l) and by inserting after subsection (j) the following new subsection:
``(k) Rules Relating to Certain Extended Net Operating Losses.--In
the case of a taxpayer which has a net operating loss for any taxable
year ending during 2003 and does not make an election under subsection
(j), such taxpayer shall be treated as having made an election under
paragraphs (4)(E) and (2)(C)(iii) of section 168(k) with respect to all
classes of property for such taxable year.
(c) Temporary Suspension of 90 Percent Limit on Certain NOL
Carryovers.--Section 56(d)(1)(A)(ii)(I) (relating to general rule
defining alternative tax net operating loss deduction) is amended--
(1) by striking ``or 2002'' and inserting ``, 2002, or
2003'', and
(2) by striking ``and 2002'' and inserting ``, 2002, and
2003''.
(d) Technical Corrections.--
(1) Subparagraph (H) of section 172(b)(1) is amended by
striking ``a taxpayer which has''.
(2) Section 102(c)(2) of the Job Creation and Worker
Assistance Act of 2002 (Public Law 107-147) is amended by
striking ``before January 1, 2003'' and inserting ``after
December 31, 1990''.
(3)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended
by striking ``attributable to carryovers''.
(B) Subclause (I) of section 56(d)(1)(A)(ii) is amended--
(i) by striking ``for taxable years'' and inserting
``from taxable years'', and
(ii) by striking ``carryforwards'' and inserting
``carryovers''.
(e) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to net operating
losses for taxable years ending after December 31, 2002.
(2) Technical corrections.--The amendments made by
subsection (d) shall take effect as if included in the
amendments made by section 102 of the Job Creation and Worker
Assistance Act of 2002.
(3) Election.--In the case of a net operating loss for a
taxable year ending during 2003--
(A) any election made under section 172(b)(3) of
such Code may (notwithstanding such section) be revoked
before November 15, 2004, and
(B) any election made under section 172(j) of such
Code shall (notwithstanding such section) be treated as
timely made if made before November 15, 2004.
(4) Special rule for taxpayers with taxable years ending
during january.--Any taxpayer which has a taxable year ending
during January may elect under this paragraph to apply section
172(b)(1)(H) of the Internal Revenue Code of 1986 (as amended
by this section) to its taxable year ending in 2004 rather than
its taxable year ending in 2003. If such election is made, then
section 172(k) of such Code (as added by this section) shall be
applied to the taxpayer's taxable year ending in 2004. Such
election shall be made in such manner and at such time as may
be prescribed by the Secretary of the Treasury. Such election,
once made, shall be irrevocable.
SEC. 311. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.
(a) Extension.--
(1) In general.--Section 41(h)(1)(B) (relating to
termination) is amended by striking ``June 30, 2004'' and
inserting ``December 31, 2005''.
(2) Conforming amendment.--Section 45C(b)(1)(D) is amended
by striking ``June 30, 2004'' and inserting ``December 31,
2005''.
(b) Increase in Rates of Alternative Incremental Credit.--
Subparagraph (A) of section 41(c)(4) (relating to election of
alternative incremental credit) is amended--
(1) by striking ``2.65 percent'' and inserting ``3
percent'',
(2) by striking ``3.2 percent'' and inserting ``4
percent'', and
(3) by striking ``3.75 percent'' and inserting ``5
percent''.
(c) Alternative Simplified Credit for Qualified Research
Expenses.--
(1) In general.--Subsection (c) of section 41 (relating to
base amount) is amended by redesignating paragraphs (5) and (6)
as paragraphs (6) and (7), respectively, and by inserting after
paragraph (4) the following new paragraph:
``(5) Election of alternative simplified credit.--
``(A) In general.--At the election of the taxpayer,
the credit determined under subsection (a)(1) shall be
equal to 12 percent of so much of the qualified
research expenses for the taxable year as exceeds 50
percent of the average qualified research expenses for
the 3 taxable years preceding the taxable year for
which the credit is being determined.
``(B) Special rule in case of no qualified research
expenses in any of 3 preceding taxable years.--
``(i) Taxpayers to which subparagraph
applies.--The credit under this paragraph shall
be determined under this subparagraph if the
taxpayer has no qualified research expenses in
any 1 of the 3 taxable years preceding the
taxable year for which the credit is being
determined.
``(ii) Credit rate.--The credit determined
under this subparagraph shall be equal to 6
percent of the qualified research expenses for
the taxable year.
``(C) Election.--An election under this paragraph
shall apply to the taxable year for which made and all
succeeding taxable years unless revoked with the
consent of the Secretary. An election under this
paragraph may not be made for any taxable year to which
an election under paragraph (4) applies.''
(2) Coordination with election of alternative incremental
credit.--
(A) In general.--Section 41(c)(4)(B) (relating to
election) is amended by adding at the end the
following: ``An election under this paragraph may not
be made for any taxable year to which an election under
paragraph (5) applies.''
(B) Transition rule.--In the case of an election
under section 41(c)(4) of the Internal Revenue Code of
1986 which applies to the taxable year which includes
the date of the enactment of this Act, such election
shall be treated as revoked with the consent of the
Secretary of the Treasury if the taxpayer makes an
election under section 41(c)(5) of such Code (as added
by paragraph (1)) for such year.
(f) Effective Dates.--
(1) Subsection (a).--The amendments made by subsection (a)
shall apply to amounts paid or incurred after the date of the
enactment of this Act.
(2) Subsections (b) and (c).--The amendments made by
subsections (b) and (c) shall apply to taxable years beginning
after December 31, 2004.
SEC. 312. EXPANSION OF RESEARCH CREDIT.
(a) Credit for Expenses Attributable to Certain Collaborative
Research Consortia.--
(1) In general.--Section 41(a) (relating to credit for
increasing research activities) 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) 20 percent of the amounts paid or incurred by the
taxpayer in carrying on any trade or business of the taxpayer
during the taxable year (including as contributions) to a
research consortium.''.
(2) Research consortium defined.--Section 41(f) (relating
to special rules) is amended by adding at the end the following
new paragraph:
``(6) Research consortium.--
``(A) In general.--The term `research consortium'
means any organization--
``(i) which is--
``(I) described in section
501(c)(3) or 501(c)(6) and is exempt
from tax under section 501(a) and is
organized and operated primarily to
conduct research, or
``(II) organized and operated
primarily to conduct research in the
public interest (within the meaning of
section 501(c)(3)),
``(ii) which is not a private foundation,
``(iii) to which at least 5 unrelated
persons paid or incurred during the calendar
year in which the taxable year of the
organization begins amounts (including as
contributions) to such organization for
research, and
``(iv) to which no single person paid or
incurred (including as contributions) during
such calendar year an amount equal to more than
50 percent of the total amounts received by
such organization during such calendar year for
research.
``(B) Treatment of persons.--All persons treated as
a single employer under subsection (a) or (b) of
section 52 shall be treated as related persons for
purposes of subparagraph (A)(iii) and as a single
person for purposes of subparagraph (A)(iv).''.
(3) Conforming amendment.--Section 41(b)(3)(C) is amended
by inserting ``(other than a research consortium)'' after
``organization''.
(b) Repeal of Limitation on Contract Research Expenses Paid to
Small Businesses, Universities, and Federal Laboratories.--Section
41(b)(3) (relating to contract research expenses) is amended by adding
at the end the following new subparagraph:
``(D) Amounts paid to eligible small businesses,
universities, and federal laboratories.--
``(i) In general.--In the case of amounts
paid by the taxpayer to--
``(I) an eligible small business,
``(II) an institution of higher
education (as defined in section
3304(f)), or
``(III) an organization which is a
Federal laboratory,
for qualified research, subparagraph (A) shall
be applied by substituting `100 percent' for
`65 percent'.
``(ii) Eligible small business.--For
purposes of this subparagraph, the term
`eligible small business' means a small
business with respect to which the taxpayer
does not own (within the meaning of section
318) 50 percent or more of--
``(I) in the case of a corporation,
the outstanding stock of the
corporation (either by vote or value),
and
``(II) in the case of a small
business which is not a corporation,
the capital and profits interests of
the small business.
``(iii) Small business.--For purposes of
this subparagraph--
``(I) In general.--The term `small
business' means, with respect to any
calendar year, any person if the annual
average number of employees employed by
such person during either of the 2
preceding calendar years was 500 or
fewer. For purposes of the preceding
sentence, a preceding calendar year may
be taken into account only if the
person was in existence throughout the
year.
``(II) Startups, controlled groups,
and predecessors.--Rules similar to the
rules of subparagraphs (B) and (D) of
section 220(c)(4) shall apply for
purposes of this clause.
``(iv) Federal laboratory.--For purposes of
this subparagraph, the term `Federal
laboratory' has the meaning given such term by
section 4(6) of the Stevenson-Wydler Technology
Innovation Act of 1980 (15 U.S.C. 3703(6)), as
in effect on the date of the enactment of the
Jumpstart Our Business Strength (JOBS) Act.''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred after December 31, 2004.
SEC. 313. MANUFACTURER'S JOBS CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits), as amended by this Act, is
amended by adding at the end the following:
``SEC. 45S. MANUFACTURER'S JOBS CREDIT.
``(a) General Rule.--For purposes of section 38, in the case of an
eligible taxpayer, the manufacturer's jobs credit determined under this
section is an amount equal to 50 percent of the lesser of the
following:
``(1) The excess of the W-2 wages paid by the taxpayer
during the taxable year over the W-2 wages paid by the taxpayer
during the preceding taxable year.
``(2) The W-2 wages paid by the taxpayer during the taxable
year to any employee who is an eligible TAA recipient (as
defined in section 35(c)(2)) for any month during such taxable
year.
``(3) 22.4 percent of the W-2 wages paid by the taxpayer
during the taxable year.
``(b) Limitation.--
``(1) In general.--If there is an excess described in
paragraph (2)(A) for any taxable year, the amount of credit
determined under subsection (a) (without regard to this
subsection)--
``(A) if the value of domestic production
determined under section 199(g)(2) for the taxable year
does not exceed such value for the preceding taxable
year, shall be zero, and
``(B) if subparagraph (A) does not apply, shall be
reduced (but not below zero) by the applicable
percentage of such amount.
``(2) Applicable percentage.--For purposes of paragraph
(1), the term `applicable percentage' means, with respect to
any taxable year, the percentage equal to a fraction--
``(A) the numerator of which is the excess (if any)
of the modified value of worldwide production of the
taxpayer for the taxable year over such modified value
for the preceding taxable year, and
``(B) the denominator of which is the excess (if
any) of the value of worldwide production of the
taxpayer for the taxable year over such value for the
preceding taxable year.
``(3) Definitions.--For purposes of this subsection--
``(A) Value of worldwide production.--The value of
worldwide production for any taxable year shall be
determined under section 199(g)(4).
``(B) Modified value.--The term `modified value of
worldwide production' means the value of worldwide
production determined by not taking into account any
item taken into account in determining the value of
domestic production under section 199(g)(2).
``(c) Eligible Taxpayer.--For purposes of this section, the term
`eligible taxpayer' means any taxpayer--
``(1) which has domestic production gross receipts for the
taxable year and the preceding taxable year, and
``(2) which is not treated at any time during the taxable
year as an inverted domestic corporation under section 7874.
``(d) Definitions and Special Rule.--For purposes of this section--
``(1) In general.--Any term used in this section which is
also used in section 199 shall have the meaning given such term
by section 199.
``(2) Special rule for w-2 wages.--Notwithstanding
paragraph (1), the amount of W-2 wages taken into account with
respect to any employee for any taxable year shall not exceed
$50,000.
``(e) Certain Rules Made Applicable.--For purposes of this section,
rules similar to the rules of section 52 shall apply.
``(f) Termination.--This section shall not apply to any taxable
year beginning after December 31, 2005.''.
(b) Credit To Be Part of General Business Credit.--Section 38(b)
(relating to current year business credit), as amended by this Act, is
amended by striking ``plus'' at the end of paragraph (29), by striking
the period at the end of paragraph (30) and inserting ``, plus'', and
by adding at the end the following:
``(31) the manufacturer's jobs credit determined under
section 45S.''.
(c) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following:
``Sec. 45S. Manufacturer's jobs
credit.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 314. BROWNFIELDS DEMONSTRATION PROGRAM FOR QUALIFIED GREEN
BUILDING AND SUSTAINABLE DESIGN PROJECTS.
(a) Treatment as Exempt Facility Bond.--Subsection (a) of section
142 (relating to the definition of exempt facility bond) is amended by
striking ``or'' at the end of paragraph (12), by striking the period at
the end of paragraph (13) and inserting ``, or'', and by inserting at
the end the following new paragraph:
``(14) qualified green building and sustainable design
projects.''.
(b) Qualified Green Building and Sustainable Design Projects.--
Section 142 (relating to exempt facility bonds) is amended by adding at
the end thereof the following new subsection:
``(l) Qualified Green Building and Sustainable Design Projects.--
``(1) In general.--For purposes of subsection (a)(14), the
term `qualified green building and sustainable design project'
means any project which is designated by the Secretary, after
consultation with the Administrator of the Environmental
Protection Agency, as a qualified green building and
sustainable design project and which meets the requirements of
clauses (i), (ii), (iii), and (iv) of paragraph (4)(A).
``(2) Designations.--
``(A) In general.--Within 60 days after the end of
the application period described in paragraph (3)(A),
the Secretary, after consultation with the
Administrator of the Environmental Protection Agency,
shall designate qualified green building and
sustainable design projects. At least one of the
projects designated shall be located in, or within a
10-mile radius of, an empowerment zone as designated
pursuant to section 1391, and at least one of the
projects designated shall be located in a rural State.
No more than one project shall be designated in a
State. A project shall not be designated if such
project includes a stadium or arena for professional
sports exhibitions or games.
``(B) Minimum conservation and technology
innovation objectives.--The Secretary, after
consultation with the Administrator of the
Environmental Protection Agency, shall ensure that, in
the aggregate, the projects designated shall--
``(i) reduce electric consumption by more
than 150 megawatts annually as compared to
conventional generation,
``(ii) reduce daily sulfur dioxide
emissions by at least 10 tons compared to coal
generation power,
``(iii) expand by 75 percent the domestic
solar photovoltaic market in the United States
(measured in megawatts) as compared to the
expansion of that market from 2001 to 2002, and
``(iv) use at least 25 megawatts of fuel
cell energy generation.
``(3) Limited designations.--A project may not be
designated under this subsection unless--
``(A) the project is nominated by a State or local
government within 180 days of the enactment of this
subsection, and
``(B) such State or local government provides
written assurances that the project will satisfy the
eligibility criteria described in paragraph (4).
``(4) Application.--
``(A) In general.--A project may not be designated
under this subsection unless the application for such
designation includes a project proposal which describes
the energy efficiency, renewable energy, and
sustainable design features of the project and
demonstrates that the project satisfies the following
eligibility criteria:
``(i) Green building and sustainable
design.--At least 75 percent of the square
footage of commercial buildings which are part
of the project is registered for United States
Green Building Council's LEED certification and
is reasonably expected (at the time of the
designation) to receive such certification. For
purposes of determining LEED certification as
required under this clause, points shall be
credited by using the following:
``(I) For wood products,
certification under the Sustainable
Forestry Initiative Program and the
American Tree Farm System.
``(II) For renewable wood products,
as credited for recycled content
otherwise provided under LEED
certification.
``(III) For composite wood
products, certification under standards
established by the American National
Standards Institute, or such other
voluntary standards as published in the
Federal Register by the Administrator
of the Environmental Protection Agency.
``(ii) Brownfield redevelopment.--The
project includes a brownfield site as defined
by section 101(39) of the Comprehensive
Environmental Response, Compensation, and
Liability Act of 1980 (42 U.S.C. 9601),
including a site described in subparagraph
(D)(ii)(II)(aa) thereof.
``(iii) State and local support.--The
project receives specific State or local
government resources which will support the
project in an amount equal to at least
$5,000,000. For purposes of the preceding
sentence, the term `resources' includes tax
abatement benefits and contributions in kind.
``(iv) Size.--The project includes at least
one of the following:
``(I) At least 1,000,000 square
feet of building.
``(II) At least 20 acres.
``(v) Use of tax benefit.--The project
proposal includes a description of the net
benefit of the tax-exempt financing provided
under this subsection which will be allocated
for financing of one or more of the following:
``(I) The purchase, construction,
integration, or other use of energy
efficiency, renewable energy, and
sustainable design features of the
project.
``(II) Compliance with
certification standards cited under
clause (i).
``(III) The purchase, remediation,
and foundation construction and
preparation of the brownfields site.
``(vi) Prohibited facilities.--An issue
shall not be treated as an issue described in
subsection (a)(14) if any proceeds of such
issue are used to provide any facility the
principal business of which is the sale of food
or alcoholic beverages for consumption on the
premises.
``(vii) Employment.--The project is
projected to provide permanent employment of at
least 1,500 full time equivalents (150 full
time equivalents in rural States) when
completed and construction employment of at
least 1,000 full time equivalents (100 full
time equivalents in rural States).
The application shall include an independent analysis
which describes the project's economic impact,
including the amount of projected employment.
``(B) Project description.--Each application
described in subparagraph (A) shall contain for each
project a description of--
``(i) the amount of electric consumption
reduced as compared to conventional
construction,
``(ii) the amount of sulfur dioxide daily
emissions reduced compared to coal generation,
``(iii) the amount of the gross installed
capacity of the project's solar photovoltaic
capacity measured in megawatts, and
``(iv) the amount, in megawatts, of the
project's fuel cell energy generation.
``(5) Certification of use of tax benefit.--No later than
30 days after the completion of the project, each project must
certify to the Secretary that the net benefit of the tax-exempt
financing was used for the purposes described in paragraph (4).
``(6) Definitions.--For purposes of this subsection--
``(A) Rural state.--The term `rural State' means
any State which has--
``(i) a population of less than 4,500,000
according to the 2000 census,
``(ii) a population density of less than
150 people per square mile according to the
2000 census, and
``(iii) increased in population by less
than half the rate of the national increase
between the 1990 and 2000 censuses.
``(B) Local government.--The term `local
government' has the meaning given such term by section
1393(a)(5).
``(C) Net benefit of tax-exempt financing.--The
term `net benefit of tax-exempt financing' means the
present value of the interest savings (determined by a
calculation established by the Secretary) which result
from the tax-exempt status of the bonds.
``(7) Aggregate face amount of tax-exempt financing.--
``(A) In general.--An issue shall not be treated as
an issue described in subsection (a)(14) if the
aggregate face amount of bonds issued by the State or
local government pursuant thereto for a project (when
added to the aggregate face amount of bonds previously
so issued for such project) exceeds an amount
designated by the Secretary as part of the designation.
``(B) Limitation on amount of bonds.--The Secretary
may not allocate authority to issue qualified green
building and sustainable design project bonds in an
aggregate face amount exceeding $2,000,000,000.
``(8) Termination.--Subsection (a)(14) shall not apply with
respect to any bond issued after September 30, 2009.
``(9) Treatment of current refunding bonds.--Paragraphs
(7)(B) and (8) shall not apply to any bond (or series of bonds)
issued to refund a bond issued under subsection (a)(14) before
October 1, 2009, if--
``(A) the average maturity date of the issue of
which the refunding bond is a part is not later than
the average maturity date of the bonds to be refunded
by such issue,
``(B) the amount of the refunding bond does not
exceed the outstanding amount of the refunded bond, and
``(C) the net proceeds of the refunding bond are
used to redeem the refunded bond not later than 90 days
after the date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be determined
in accordance with section 147(b)(2)(A).''.
(c) Exemption From General State Volume Caps.--Paragraph (3) of
section 146(g) (relating to exception for certain bonds) is amended--
(1) by striking ``or (13)'' and inserting ``(13), or
(14)'', and
(2) by striking ``and qualified public educational
facilities'' and inserting ``qualified public educational
facilities, and qualified green building and sustainable design
projects''.
(d) Accountability.--Each issuer shall maintain, on behalf of each
project, an interest bearing reserve account equal to 1 percent of the
net proceeds of any bond issued under this section for such project.
Not later than 5 years after the date of issuance, the Secretary of the
Treasury, after consultation with the Administrator of the
Environmental Protection Agency, shall determine whether the project
financed with such bonds has substantially complied with the terms and
conditions described in section 142(l)(4) of the Internal Revenue Code
of 1986 (as added by this section). If the Secretary, after such
consultation, certifies that the project has substantially complied
with such terms and conditions and meets the commitments set forth in
the application for such project described in section 142(l)(4) of such
Code, amounts in the reserve account, including all interest, shall be
released to the project. If the Secretary determines that the project
has not substantially complied with such terms and conditions, amounts
in the reserve account, including all interest, shall be paid to the
United States Treasury.
(e) Effective Date.--The amendments made by this section shall
apply to bonds issued after December 31, 2004.
Subtitle B--Manufacturing Relating to Films
SEC. 321. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION PRODUCTIONS.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
inserting after section 180 the following new section:
``SEC. 181. TREATMENT OF QUALIFIED FILM AND TELEVISION PRODUCTIONS.
``(a) Election To Treat Certain Costs of Qualified Film and
Television Productions as Expenses.--
``(1) In general.--A taxpayer may elect to treat the cost
of any qualified film or television production as an expense
which is not chargeable to capital account. Any cost so treated
shall be allowed as a deduction.
``(2) Dollar limitation.--
``(A) In general.--The aggregate cost which may be
taken into account under paragraph (1) with respect to
each qualified film or television production shall not
exceed $15,000,000.
``(B) Higher dollar limitation for productions in
certain areas.--In the case of any qualified film or
television production the aggregate cost of which is
significantly incurred in an area eligible for
designation as--
``(i) a low-income community under section
45D, or
``(ii) a distressed county or isolated area
of distress by the Delta Regional Authority
established under section 2009aa-1 of title 7,
United States Code,
subparagraph (A) shall be applied by substituting
`$20,000,000' for `$15,000,000'.
``(b) Amortization of Remaining Costs.--
``(1) In general.--If an election is made under subsection
(a) with respect to any qualified film or television
production, that portion of the basis of such production in
excess of the amount taken into account under subsection (a)
shall be allowed as a deduction ratably over the 36-month
period beginning with the month in which such production is
placed in service.
``(2) No other deduction or amortization deduction
allowable.--With respect to the basis of any qualified film or
television production described in paragraph (1), no other
depreciation or amortization deduction shall be allowable.
``(c) Election.--
``(1) In general.--An election under subsection (a) with
respect to any qualified film or television production shall be
made in such manner as prescribed by the Secretary and by the
due date (including extensions) for filing the taxpayer's
return of tax under this chapter for the taxable year in which
costs of the production are first incurred.
``(2) Revocation of election.--Any election made under
subsection (a) may not be revoked without the consent of the
Secretary.
``(d) Qualified Film or Television Production.--For purposes of
this section--
``(1) In general.--The term `qualified film or television
production' means any production described in paragraph (2) if
75 percent of the total compensation of the production is
qualified compensation.
``(2) Production.--
``(A) In general.--A production is described in
this paragraph if such production is property described
in section 168(f)(3). For purposes of a television
series, only the first 44 episodes of such series may
be taken into account.
``(B) Exception.--A production is not described in
this paragraph if records are required under section
2257 of title 18, United States Code, to be maintained
with respect to any performer in such production.
``(3) Qualified compensation.--For purposes of paragraph
(1)--
``(A) In general.--The term `qualified
compensation' means compensation for services performed
in the United States by actors, directors, producers,
and other relevant production personnel.
``(B) Participations and residuals excluded.--The
term `compensation' does not include participations and
residuals (as defined in section 167(g)(7)(B)).
``(e) Application of Certain Other Rules.--For purposes of this
section, rules similar to the rules of subsections (b)(2) and (c)(4) of
section 194 shall apply.
``(f) Termination.--This section shall not apply to qualified film
and television productions commencing after December 31, 2008.''.
(b) Conforming Amendment.--The table of sections for part VI of
subchapter B of chapter 1 is amended by inserting after the item
relating to section 180 the following new item:
``Sec. 181. Treatment of qualified film
and television productions.''.
(c) Effective Date.--The amendments made by this section shall
apply to qualified film and television productions (as defined in
section 181(d)(1) of the Internal Revenue Code of 1986, as added by
this section) commencing after the date of the enactment of this Act.
SEC. 322. MODIFICATION OF APPLICATION OF INCOME FORECAST METHOD OF
DEPRECIATION.
(a) In General.--Section 167(g) (relating to depreciation under
income forecast method) is amended by adding at the end the following
new paragraph:
``(7) Treatment of participations and residuals.--
``(A) In general.--For purposes of determining the
depreciation deduction allowable with respect to a
property under this subsection, the taxpayer may
include participations and residuals with respect to
such property in the adjusted basis of such property
for the taxable year in which the property is placed in
service, but only to the extent that such
participations and residuals relate to income estimated
(for purposes of this subsection) to be earned in
connection with the property before the close of the
10th taxable year referred to in paragraph (1)(A).
``(B) Participations and residuals.--For purposes
of this paragraph, the term `participations and
residuals' means, with respect to any property, costs
the amount of which by contract varies with the amount
of income earned in connection with such property.
``(C) Special rules relating to recomputation
years.--If the adjusted basis of any property is
determined under this paragraph, paragraph (4) shall be
applied by substituting `for each taxable year in such
period' for `for such period'.
``(D) Other special rules.--
``(i) Participations and residuals.--
Notwithstanding subparagraph (A), the taxpayer
may exclude participations and residuals from
the adjusted basis of such property and deduct
such participations and residuals in the
taxable year that such participations and
residuals are paid.
``(ii) Coordination with other rules.--
Deductions computed in accordance with this
paragraph shall be allowable notwithstanding
paragraph (1)(B) or sections 263, 263A, 404,
419, or 461(h).
``(E) Authority to make adjustments.--The Secretary
shall prescribe appropriate adjustments to the basis of
property and to the look-back method for the additional
amounts allowable as a deduction solely by reason of
this paragraph.''.
(b) Determination of Income.--Section 167(g)(5) (relating to
special rules) is amended by redesignating subparagraphs (E) and (F) as
subparagraphs (F) and (G), respectively, and inserting after
subparagraph (D) the following new subparagraph:
``(E) Treatment of distribution costs.--For
purposes of this subsection, the income with respect to
any property shall be the taxpayer's gross income from
such property.''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act.
Subtitle C--Manufacturing Relating to Timber
SEC. 331. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.
(a) In General.--So much of subsection (b) of section 194 (relating
to amortization of reforestation expenditures) as precedes paragraph
(2) is amended to read as follows:
``(b) Treatment as Expenses.--
``(1) Election to treat certain reforestation expenditures
as expenses.--
``(A) In general.--In the case of any qualified
timber property with respect to which the taxpayer has
made (in accordance with regulations prescribed by the
Secretary) an election under this subsection, the
taxpayer shall treat reforestation expenditures which
are paid or incurred during the taxable year with
respect to such property as an expense which is not
chargeable to capital account. The reforestation
expenditures so treated shall be allowed as a
deduction.
``(B) Dollar limitation.--The aggregate amount of
reforestation expenditures which may be taken into
account under subparagraph (A) with respect to each
qualified timber property for any taxable year shall
not exceed $10,000 ($5,000 in the case of a separate
return by a married individual (as defined in section
7703)).''.
(b) Net Amortizable Basis.--Section 194(c)(2) (defining amortizable
basis) is amended by inserting ``which have not been taken into account
under subsection (b)'' after ``expenditures''.
(c) Conforming Amendments.--
(1) Section 194(b) is amended by striking paragraphs (3)
and (4).
(2) Section 194(b)(2) is amended by striking ``paragraph
(1)'' both places it appears and inserting ``paragraph
(1)(B)''.
(3) Section 194(c) is amended by striking paragraph (4) and
inserting the following new paragraphs:
``(4) Treatment of trusts and estates.--
``(A) In general.--Except as provided in
subparagraph (B), this section shall not apply to
trusts and estates.
``(B) Amortization deduction allowed to estates.--
The benefit of the deduction for amortization provided
by subsection (a) shall be allowed to estates in the
same manner as in the case of an individual. The
allowable deduction shall be apportioned between the
income beneficiary and the fiduciary under regulations
prescribed by the Secretary. Any amount so apportioned
to a beneficiary shall be taken into account for
purposes of determining the amount allowable as a
deduction under subsection (a) to such beneficiary.
``(5) Application with other deductions.--No deduction
shall be allowed under any other provision of this chapter with
respect to any expenditure with respect to which a deduction is
allowed or allowable under this section to the taxpayer.''.
(4) The heading for section 194 is amended by striking
``amortization'' and inserting ``treatment''.
(5) The item relating to section 194 in the table of
sections for part VI of subchapter B of chapter 1 is amended by
striking ``Amortization'' and inserting ``Treatment''.
(d) Repeal of Reforestation Credit.--
(1) In general.--Section 46 (relating to amount of credit)
is amended--
(A) by adding ``and'' at the end of paragraph (1),
(B) by striking ``, and'' at the end of paragraph
(2) and inserting a period, and
(C) by striking paragraph (3).
(2) Conforming amendments.--
(A) Section 48 is amended--
(i) by striking subsection (b),
(ii) by striking ``this subsection'' in
paragraph (5) of subsection (a) and inserting
``subsection (a)'', and
(iii) by redesignating such paragraph (5)
as subsection (b).
(B) The heading for section 48 is amended by
striking ``; reforestation credit''.
(C) The item relating to section 48 in the table of
sections for subpart E of part IV of subchapter A of
chapter 1 is amended by striking ``, reforestation
credit''.
(D) Section 50(c)(3) is amended by striking ``or
reforestation credit''.
(e) Effective Date.--The amendments made by this section shall
apply with respect to expenditures paid or incurred after the date of
the enactment of this Act.
SEC. 332. ELECTION TO TREAT CUTTING OF TIMBER AS A SALE OR EXCHANGE.
Any election under section 631(a) of the Internal Revenue Code of
1986 made for a taxable year ending on or before the date of the
enactment of this Act may be revoked by the taxpayer for any taxable
year ending after such date. For purposes of determining whether the
taxpayer may make a further election under such section, such election
(and any revocation under this section) shall not be taken into
account.
SEC. 333. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO APPLY TO
OUTRIGHT SALES BY LANDOWNERS.
(a) In General.--The first sentence of section 631(b) (relating to
disposal of timber with a retained economic interest) is amended by
striking ``retains an economic interest in such timber'' and inserting
``either retains an economic interest in such timber or makes an
outright sale of such timber''.
(b) Conforming Amendments.--
(1) The third sentence of section 631(b) is amended by
striking ``The date of disposal'' and inserting ``In the case
of disposal of timber with a retained economic interest, the
date of disposal''.
(2) The heading for section 631(b) is amended by striking
``With a Retained Economic Interest''.
(c) Effective Date.--The amendments made by this section shall
apply to sales after the date of the enactment of this Act.
SEC. 334. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITS.
(a) Expansion of Prohibited Transaction Safe Harbor.--Section
857(b)(6) (relating to income from prohibited transactions) is amended
by redesignating subparagraphs (D) and (E) as subparagraphs (E) and
(F), respectively, and by inserting after subparagraph (C) the
following new subparagraph:
``(D) Certain sales not to constitute prohibited
transactions.--For purposes of this part, the term
`prohibited transaction' does not include a sale of
property which is a real estate asset (as defined in
section 856(c)(5)(B)) if--
``(i) the trust held the property for not
less than 4 years in connection with the trade
or business of producing timber,
``(ii) the aggregate expenditures made by
the trust, or a partner of the trust, during
the 4-year period preceding the date of sale
which--
``(I) are includible in the basis
of the property (other than timberland
acquisition expenditures), and
``(II) are directly related to
operation of the property for the
production of timber or for the
preservation of the property for use as
timberland,
do not exceed 30 percent of the net selling
price of the property,
``(iii) the aggregate expenditures made by
the trust, or a partner of the trust, during
the 4-year period preceding the date of sale
which--
``(I) are includible in the basis
of the property (other than timberland
acquisition expenditures), and
``(II) are not directly related to
operation of the property for the
production of timber, or for the
preservation of the property for use as
timberland,
do not exceed 5 percent of the net selling
price of the property,
``(iv)(I) during the taxable year the trust
does not make more than 7 sales of property
(other than sales of foreclosure property or
sales to which section 1033 applies), or
``(II) the aggregate adjusted bases (as
determined for purposes of computing earnings
and profits) of property (other than sales of
foreclosure property or sales to which section
1033 applies) sold during the taxable year does
not exceed 10 percent of the aggregate bases
(as so determined) of all of the assets of the
trust as of the beginning of the taxable year,
``(v) in the case that the requirement of
clause (iv)(I) is not satisfied, substantially
all of the marketing expenditures with respect
to the property were made through an
independent contractor (as defined in section
856(d)(3)) from whom the trust itself does not
derive or receive any income, and
``(vi) the sales price of the property sold
by the trust is not based in whole or in part
on income or profits, including income or
profits derived from the sale or operation of
such property.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
TITLE IV--ADDITIONAL PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
SEC. 401. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.
(a) In General.--Section 7701 is amended by redesignating
subsection (n) as subsection (o) and by inserting after subsection (m)
the following new subsection:
``(n) Clarification of Economic Substance Doctrine; Etc.--
``(1) General rules.--
``(A) In general.--In any case in which a court
determines that the economic substance doctrine is
relevant for purposes of this title to a transaction
(or series of transactions), such transaction (or
series of transactions) shall have economic substance
only if the requirements of this paragraph are met.
``(B) Definition of economic substance.--For
purposes of subparagraph (A)--
``(i) In general.--A transaction has
economic substance only if--
``(I) the transaction changes in a
meaningful way (apart from Federal tax
effects) the taxpayer's economic
position, and
``(II) the taxpayer has a
substantial nontax purpose for entering
into such transaction and the
transaction is a reasonable means of
accomplishing such purpose.
In applying subclause (II), a purpose of
achieving a financial accounting benefit shall
not be taken into account in determining
whether a transaction has a substantial nontax
purpose if the origin of such financial
accounting benefit is a reduction of income
tax.
``(ii) Special rule where taxpayer relies
on profit potential.--A transaction shall not
be treated as having economic substance by
reason of having a potential for profit
unless--
``(I) the present value of the
reasonably expected pre-tax profit from
the transaction is substantial in
relation to the present value of the
expected net tax benefits that would be
allowed if the transaction were
respected, and
``(II) the reasonably expected pre-
tax profit from the transaction exceeds
a risk-free rate of return.
``(C) Treatment of fees and foreign taxes.--Fees
and other transaction expenses and foreign taxes shall
be taken into account as expenses in determining pre-
tax profit under subparagraph (B)(ii).
``(2) Special rules for transactions with tax-indifferent
parties.--
``(A) Special rules for financing transactions.--
The form of a transaction which is in substance the
borrowing of money or the acquisition of financial
capital directly or indirectly from a tax-indifferent
party shall not be respected if the present value of
the deductions to be claimed with respect to the
transaction is substantially in excess of the present
value of the anticipated economic returns of the person
lending the money or providing the financial capital. A
public offering shall be treated as a borrowing, or an
acquisition of financial capital, from a tax-
indifferent party if it is reasonably expected that at
least 50 percent of the offering will be placed with
tax-indifferent parties.
``(B) Artificial income shifting and basis
adjustments.--The form of a transaction with a tax-
indifferent party shall not be respected if--
``(i) it results in an allocation of income
or gain to the tax-indifferent party in excess
of such party's economic income or gain, or
``(ii) it results in a basis adjustment or
shifting of basis on account of overstating the
income or gain of the tax-indifferent party.
``(3) Definitions and special rules.--For purposes of this
subsection--
``(A) Economic substance doctrine.--The term
`economic substance doctrine' means the common law
doctrine under which tax benefits under subtitle A with
respect to a transaction are not allowable if the
transaction does not have economic substance or lacks a
business purpose.
``(B) Tax-indifferent party.--The term `tax-
indifferent party' means any person or entity not
subject to tax imposed by subtitle A. A person shall be
treated as a tax-indifferent party with respect to a
transaction if the items taken into account with
respect to the transaction have no substantial impact
on such person's liability under subtitle A.
``(C) Exception for personal transactions of
individuals.--In the case of an individual, this
subsection shall apply only to transactions entered
into in connection with a trade or business or an
activity engaged in for the production of income.
``(D) Treatment of lessors.--In applying paragraph
(1)(B)(ii) to the lessor of tangible property subject
to a lease--
``(i) the expected net tax benefits with
respect to the leased property shall not
include the benefits of--
``(I) depreciation,
``(II) any tax credit, or
``(III) any other deduction as
provided in guidance by the Secretary,
and
``(ii) subclause (II) of paragraph
(1)(B)(ii) shall be disregarded in determining
whether any of such benefits are allowable.
``(4) Other common law doctrines not affected.--Except as
specifically provided in this subsection, the provisions of
this subsection shall not be construed as altering or
supplanting any other rule of law, and the requirements of this
subsection shall be construed as being in addition to any such
other rule of law.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this subsection. Such regulations may include
exemptions from the application of this subsection.''.
(b) Effective Date.--The amendments made by this section shall
apply to transactions entered into after the date of the enactment of
this Act.
SEC. 402. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.
(a) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties) is amended by inserting after section 6707 the
following new section:
``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION
INFORMATION WITH RETURN OR STATEMENT.
``(a) Imposition of Penalty.--Any person who fails to include on
any return or statement any information with respect to a reportable
transaction which is required under section 6011 to be included with
such return or statement shall pay a penalty in the amount determined
under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraphs (2) and
(3), the amount of the penalty under subsection (a) shall be
$50,000.
``(2) Listed transaction.--The amount of the penalty under
subsection (a) with respect to a listed transaction shall be
$100,000.
``(3) Increase in penalty for large entities and high net
worth individuals.--
``(A) In general.--In the case of a failure under
subsection (a) by--
``(i) a large entity, or
``(ii) a high net worth individual,
the penalty under paragraph (1) or (2) shall be twice
the amount determined without regard to this paragraph.
``(B) Large entity.--For purposes of subparagraph
(A), the term `large entity' means, with respect to any
taxable year, a person (other than a natural person)
with gross receipts in excess of $10,000,000 for the
taxable year in which the reportable transaction occurs
or the preceding taxable year. Rules similar to the
rules of paragraph (2) and subparagraphs (B), (C), and
(D) of paragraph (3) of section 448(c) shall apply for
purposes of this subparagraph.
``(C) High net worth individual.--For purposes of
subparagraph (A), the term `high net worth individual'
means, with respect to a reportable transaction, a
natural person whose net worth exceeds $2,000,000
immediately before the transaction.
``(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) Disclosure by Secretary.--
(1) In general.--Section 6103 is amended by redesignating
subsection (q) as subsection (r) and by inserting after
subsection (p) the following new subsection:
``(q) Disclosure Relating to Payments of Certain Penalties.--
Notwithstanding any other provision of this section, the Secretary
shall make public the name of any person required to pay a penalty
described in section 6707A(e)(2) and the amount of the penalty.''.
(2) Records.--Section 6103(p)(3)(A) is amended by striking
``or (n)'' and inserting ``(n), or (q)''.
(c) 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.''.
(d) Effective Date.--The amendments made by this section shall
apply to returns and statements the due date for which is after the
date of the enactment of this Act.
SEC. 403. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER
REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX
AVOIDANCE PURPOSE.
(a) In General.--Subchapter A of chapter 68 is amended by inserting
after section 6662 the following new section:
``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS
WITH RESPECT TO REPORTABLE TRANSACTIONS.
``(a) Imposition of Penalty.--If a taxpayer has a reportable
transaction understatement for any taxable year, there shall be added
to the tax an amount equal to 20 percent of the amount of such
understatement.
``(b) Reportable Transaction Understatement.--For purposes of this
section--
``(1) In general.--The term `reportable transaction
understatement' means the sum of--
``(A) the product of--
``(i) the amount of the increase (if any)
in taxable income which results from a
difference between the proper tax treatment of
an item to which this section applies and the
taxpayer's treatment of such item (as shown on
the taxpayer's return of tax), and
``(ii) the highest rate of tax imposed by
section 1 (section 11 in the case of a taxpayer
which is a corporation), and
``(B) the amount of the decrease (if any) in the
aggregate amount of credits determined under subtitle A
which results from a difference between the taxpayer's
treatment of an item to which this section applies (as
shown on the taxpayer's return of tax) and the proper
tax treatment of such item.
For purposes of subparagraph (A), any reduction of the excess
of deductions allowed for the taxable year over gross income
for such year, and any reduction in the amount of capital
losses which would (without regard to section 1211) be allowed
for such year, shall be treated as an increase in taxable
income.
``(2) Items to which section applies.--This section shall
apply to any item which is attributable to--
``(A) any listed transaction, and
``(B) any reportable transaction (other than a
listed transaction) if a significant purpose of such
transaction is the avoidance or evasion of Federal
income tax.
``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance
Transactions.--
``(1) In general.--Subsection (a) shall be applied by
substituting `30 percent' for `20 percent' with respect to the
portion of any reportable transaction understatement with
respect to which the requirement of section 6664(d)(2)(A) is
not met.
``(2) Rules applicable to assertion and compromise of
penalty.--
``(A) In general.--Only upon the approval by the
Chief Counsel for the Internal Revenue Service or the
Chief Counsel's delegate at the national office of the
Internal Revenue Service may a penalty to which
paragraph (1) applies be included in a 1st letter of
proposed deficiency which allows the taxpayer an
opportunity for administrative review in the Internal
Revenue Service Office of Appeals. If such a letter is
provided to the taxpayer, only the Commissioner of
Internal Revenue may compromise all or any portion of
such penalty.
``(B) Applicable rules.--The rules of paragraphs
(2), (3), (4), and (5) of section 6707A(d) shall apply
for purposes of subparagraph (A).
``(d) Definitions of Reportable and Listed Transactions.--For
purposes of this section, the terms `reportable transaction' and
`listed transaction' have the respective meanings given to such terms
by section 6707A(c).
``(e) Special Rules.--
``(1) Coordination with penalties, etc., on other
understatements.--In the case of an understatement (as defined
in section 6662(d)(2))--
``(A) the amount of such understatement (determined
without regard to this paragraph) shall be increased by
the aggregate amount of reportable transaction
understatements and noneconomic substance transaction
understatements for purposes of determining whether
such understatement is a substantial understatement
under section 6662(d)(1), and
``(B) the addition to tax under section 6662(a)
shall apply only to the excess of the amount of the
substantial understatement (if any) after the
application of subparagraph (A) over the aggregate
amount of reportable transaction understatements and
noneconomic substance transaction understatements.
``(2) Coordination with other penalties.--
``(A) Application of fraud penalty.--References to
an underpayment in section 6663 shall be treated as
including references to a reportable transaction
understatement and a noneconomic substance transaction
understatement.
``(B) No double penalty.--This section shall not
apply to any portion of an understatement on which a
penalty is imposed under section 6662B or 6663.
``(3) Special rule for amended returns.--Except as provided
in regulations, in no event shall any tax treatment included
with an amendment or supplement to a return of tax be taken
into account in determining the amount of any reportable
transaction understatement or noneconomic substance transaction
understatement if the amendment or supplement is filed after
the earlier of the date the taxpayer is first contacted by the
Secretary regarding the examination of the return or such other
date as is specified by the Secretary.
``(4) Noneconomic substance transaction
understatement.--For purposes of this subsection, the
term `noneconomic substance transaction understatement'
has the meaning given such term by section 6662B(c).
``(5) Cross reference.--
``For reporting of section 6662A(c)
penalty to the Securities and Exchange Commission, see section
6707A(e).''.
(b) Determination of Other Understatements.--Subparagraph (A) of
section 6662(d)(2) is amended by adding at the end the following flush
sentence:
``The excess under the preceding sentence shall be
determined without regard to items 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,
``(IV) has an arrangement with
respect to the transaction which
provides that contractual disputes
between the taxpayer and the advisor
are to be settled by arbitration or
which limits damages by reference to
fees paid to the advisor for such
transaction, or
``(V) as determined under
regulations prescribed by the
Secretary, has a disqualifying
financial interest with respect to the
transaction.
``(iii) Disqualified opinions.--For
purposes of clause (i), an opinion is
disqualified if the opinion--
``(I) is based on unreasonable
factual or legal assumptions (including
assumptions as to future events),
``(II) unreasonably relies on
representations, statements, findings,
or agreements of the taxpayer or any
other person,
``(III) does not identify and
consider all relevant facts,
``(IV) is not signed by all
individuals who are principal authors
of the opinion, or
``(V) fails to meet any other
requirement as the Secretary may
prescribe.''.
(2) Conforming amendment.--The heading for subsection (c)
of section 6664 is amended by inserting ``for Underpayments''
after ``Exception''.
(d) Conforming Amendments.--
(1) Subparagraph (C) of section 461(i)(3) is amended by
striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(2) Paragraph (3) of section 1274(b) is amended--
(A) by striking ``(as defined in section
6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
(B) by adding at the end the following new
subparagraph:
``(C) Tax shelter.--For purposes of subparagraph
(B), the term `tax shelter' means--
``(i) a partnership or other entity,
``(ii) any investment plan or arrangement,
or
``(iii) any other plan or arrangement,
if a significant purpose of such partnership, entity,
plan, or arrangement is the avoidance or evasion of
Federal income tax.''.
(3) Section 6662(d)(2) is amended by striking subparagraphs
(C) and (D).
(4) Section 6664(c)(1) is amended by striking ``this part''
and inserting ``section 6662 or 6663''.
(5) Subsection (b) of section 7525 is amended by striking
``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(6)(A) The heading for section 6662 is amended to read as
follows:
``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERPAYMENTS.''.
(B) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to section
6662 and inserting the following new items:
``Sec. 6662. Imposition of accuracy-
related penalty on
underpayments.
``Sec. 6662A. Imposition of accuracy-
related penalty on
understatements with respect to
reportable transactions.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.
SEC. 404. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS
LACKING ECONOMIC SUBSTANCE, ETC.
(a) In General.--Subchapter A of chapter 68 is amended by inserting
after section 6662A the following new section:
``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS
LACKING ECONOMIC SUBSTANCE, ETC.
``(a) Imposition of Penalty.--If a taxpayer has an noneconomic
substance transaction understatement for any taxable year, there shall
be added to the tax an amount equal to 40 percent of the amount of such
understatement.
``(b) Reduction of Penalty for Disclosed Transactions.--Subsection
(a) shall be applied by substituting `20 percent' for `40 percent' with
respect to the portion of any noneconomic substance transaction
understatement with respect to which the relevant facts affecting the
tax treatment of the item are adequately disclosed in the return or a
statement attached to the return.
``(c) Noneconomic Substance Transaction Understatement.--For
purposes of this section--
``(1) In general.--The term `noneconomic substance
transaction understatement' means any amount which would be an
understatement under section 6662A(b)(1) if section 6662A were
applied by taking into account items attributable to
noneconomic substance transactions rather than items to which
section 6662A would apply without regard to this paragraph.
``(2) Noneconomic substance transaction.--The term
`noneconomic substance transaction' means any transaction if--
``(A) there is a lack of economic substance (within
the meaning of section 7701(n)(1)) for the transaction
giving rise to the claimed benefit or the transaction
was not respected under section 7701(n)(2), or
``(B) the transaction fails to meet the
requirements of any similar rule of law.
``(d) Rules Applicable To Compromise of Penalty.--
``(1) In general.--If the 1st letter of proposed deficiency
which allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of Appeals has
been sent with respect to a penalty to which this section
applies, only the Commissioner of Internal Revenue may
compromise all or any portion of such penalty.
``(2) Applicable rules.--The rules of paragraphs (2), (3),
(4), and (5) of section 6707A(d) shall apply for purposes of
paragraph (1).
``(e) Coordination With Other Penalties.--Except as otherwise
provided in this part, the penalty imposed by this section shall be in
addition to any other penalty imposed by this title.
``(f) Cross References.--
``(1) For coordination of penalty with
understatements under section 6662 and other special rules, see section
6662A(e).
``(2) For reporting of penalty imposed
under this section to the Securities and Exchange Commission, see
section 6707A(e).''.
(b) Clerical Amendment.--The table of sections for part II of
subchapter A of chapter 68 is amended by inserting after the item
relating to section 6662A the following new item:
``Sec. 6662B. Penalty for understatements
attributable to transactions
lacking economic substance,
etc.''.
(c) Effective Date.--The amendments made by this section shall
apply to transactions entered into after the date of the enactment of
this Act.
SEC. 405. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR
NONREPORTABLE TRANSACTIONS.
(a) Substantial Understatement of Corporations.--Section
6662(d)(1)(B) (relating to special rule for corporations) is amended to
read as follows:
``(B) Special rule for corporations.--In the case
of a corporation other than an S corporation or a
personal holding company (as defined in section 542),
there is a substantial understatement of income tax for
any taxable year if the amount of the understatement
for the taxable year exceeds the lesser of--
``(i) 10 percent of the tax required to be
shown on the return for the taxable year (or,
if greater, $10,000), or
``(ii) $10,000,000.''.
(b) Reduction for Understatement of Taxpayer Due to Position of
Taxpayer or Disclosed Item.--
(1) In general.--Section 6662(d)(2)(B)(i) (relating to
substantial authority) is amended to read as follows:
``(i) the tax treatment of any item by the
taxpayer if the taxpayer had reasonable belief
that the tax treatment was more likely than not
the proper treatment, or''.
(2) Conforming amendment.--Section 6662(d) is amended by
adding at the end the following new paragraph:
``(3) Secretarial list.--For purposes of this subsection,
section 6664(d)(2), and section 6694(a)(1), the Secretary may
prescribe a list of positions for which the Secretary believes
there is not substantial authority or there is no reasonable
belief that the tax treatment is more likely than not the
proper tax treatment. Such list (and any revisions thereof)
shall be published in the Federal Register or the Internal
Revenue Bulletin.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 406. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING
TO TAXPAYER COMMUNICATIONS.
(a) In General.--Section 7525(b) (relating to section not to apply
to communications regarding corporate tax shelters) is amended to read
as follows:
``(b) Section Not To Apply to Communications Regarding Tax
Shelters.--The privilege under subsection (a) shall not apply to any
written communication which is--
``(1) between a federally authorized tax practitioner and--
``(A) any person,
``(B) any director, officer, employee, agent, or
representative of the person, or
``(C) any other person holding a capital or profits
interest in the person, and
``(2) in connection with the promotion of the direct or
indirect participation of the person in any tax shelter (as
defined in section 1274(b)(3)(C)).''.
(b) Effective Date.--The amendment made by this section shall apply
to communications made on or after the date of the enactment of this
Act.
SEC. 407. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) In General.--Section 6111 (relating to registration of tax
shelters) is amended to read as follows:
``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
``(a) In General.--Each material advisor with respect to any
reportable transaction shall make a return (in such form as the
Secretary may prescribe) setting forth--
``(1) information identifying and describing the
transaction,
``(2) information describing any potential tax benefits
expected to result from the transaction, and
``(3) such other information as the Secretary may
prescribe.
Such return shall be filed not later than the date specified by the
Secretary.
``(b) Definitions.--For purposes of this section--
``(1) Material advisor.--
``(A) In general.--The term `material advisor'
means any person--
``(i) who provides any material aid,
assistance, or advice with respect to
organizing, managing, promoting, selling,
implementing, insuring, or carrying out any
reportable transaction, and
``(ii) who directly or indirectly derives
gross income in excess of the threshold amount
for such aid, assistance, or advice.
``(B) Threshold amount.--For purposes of
subparagraph (A), the threshold amount is--
``(i) $50,000 in the case of a reportable
transaction substantially all of the tax
benefits from which are provided to natural
persons, and
``(ii) $250,000 in any other case.
``(2) Reportable transaction.--The term `reportable
transaction' has the meaning given to such term by section
6707A(c).
``(c) Regulations.--The Secretary may prescribe regulations which
provide--
``(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2 or more
persons would otherwise be required to meet such requirements,
``(2) exemptions from the requirements of this section, and
``(3) such rules as may be necessary or appropriate to
carry out the purposes of this section.''.
(b) Conforming Amendments.--
(1) The item relating to section 6111 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6111. Disclosure of reportable
transactions.''.
(2)(A) So much of section 6112 as precedes subsection (c)
thereof is amended to read as follows:
``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP
LISTS OF ADVISEES.
``(a) In General.--Each material advisor (as defined in section
6111) with respect to any reportable transaction (as defined in section
6707A(c)) shall maintain, in such manner as the Secretary may by
regulations prescribe, a list--
``(1) identifying each person with respect to whom such
advisor acted as such a material advisor with respect to such
transaction, and
``(2) containing such other information as the Secretary
may by regulations require.
This section shall apply without regard to whether a material advisor
is required to file a return under section 6111 with respect to such
transaction.''.
(B) Section 6112 is amended by redesignating subsection (c)
as subsection (b).
(C) Section 6112(b), as redesignated by subparagraph (B),
is amended--
(i) by inserting ``written'' before ``request'' in
paragraph (1)(A), and
(ii) by striking ``shall prescribe'' in paragraph
(2) and inserting ``may prescribe''.
(D) The item relating to section 6112 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6112. Material advisors of
reportable transactions must
keep lists of advisees.''.
(3)(A) The heading for section 6708 is amended to read as
follows:
``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO
REPORTABLE TRANSACTIONS.''.
(B) The item relating to section 6708 in the table of
sections for part I of subchapter B of chapter 68 is amended to
read as follows:
``Sec. 6708. Failure to maintain lists of
advisees with respect to
reportable transactions.''.
(c) Required Disclosure Not Subject to Claim of Confidentiality.--
Subparagraph (A) of section 6112(b)(1), as redesignated by subsection
(b)(2)(B), is amended by adding at the end the following new flush
sentence:
``For purposes of this section, the identity of any person on
such list shall not be privileged.''.
(d) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to transactions
with respect to which material aid, assistance, or advice
referred to in section 6111(b)(1)(A)(i) of the Internal Revenue
Code of 1986 (as added by this section) is provided after the
date of the enactment of this Act.
(2) No claim of confidentiality against disclosure.--The
amendment made by subsection (c) shall take effect as if
included in the amendments made by section 142 of the Deficit
Reduction Act of 1984.
SEC. 408. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX
SHELTERS.
(a) In General.--Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as follows:
``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE
TRANSACTIONS.
``(a) In General.--If a person who is required to file a return
under section 6111(a) with respect to any reportable transaction--
``(1) fails to file such return on or before the date
prescribed therefor, or
``(2) files false or incomplete information with the
Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the
amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
penalty imposed under subsection (a) with respect to any
failure shall be $50,000.
``(2) Listed transactions.--The penalty imposed under
subsection (a) with respect to any listed transaction shall be
an amount equal to the greater of--
``(A) $200,000, or
``(B) 50 percent of the gross income derived by
such person with respect to aid, assistance, or advice
which is provided with respect to the listed
transaction before the date the return including the
transaction is filed under section 6111.
Subparagraph (B) shall be applied by substituting `75 percent'
for `50 percent' in the case of an intentional failure or act
described in subsection (a).
``(c) Certain Rules To Apply.--The provisions of section 6707A(d)
shall apply to any penalty imposed under this section.
``(d) Reportable and Listed Transactions.--The terms `reportable
transaction' and `listed transaction' have the respective meanings
given to such terms by section 6707A(c).''.
(b) Clerical Amendment.--The item relating to section 6707 in the
table of sections for part I of subchapter B of chapter 68 is amended
by striking ``tax shelters'' and inserting ``reportable transactions''.
(c) Effective Date.--The amendments made by this section shall
apply to returns the due date for which is after the date of the
enactment of this Act.
SEC. 409. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF
INVESTORS.
(a) In General.--Subsection (a) of section 6708 is amended to read
as follows:
``(a) Imposition of Penalty.--
``(1) In general.--If any person who is required to
maintain a list under section 6112(a) fails to make such list
available upon written request to the Secretary in accordance
with section 6112(b)(1)(A) within 20 business days after the
date of the Secretary's request, such person shall pay a
penalty of $10,000 for each day of such failure after such 20th
day.
``(2) Reasonable cause exception.--No penalty shall be
imposed by paragraph (1) with respect to the failure on any day
if such failure is due to reasonable cause.''.
(b) Effective Date.--The amendment made by this section shall apply
to requests made after the date of the enactment of this Act.
SEC. 410. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.
(a) In General.--Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by redesignating
subsection (c) as subsection (d) and by striking subsections (a) and
(b) and inserting the following new subsections:
``(a) Authority To Seek Injunction.--A civil action in the name of
the United States to enjoin any person from further engaging in
specified conduct may be commenced at 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, which
is--
``(1) subject to penalty under section 6700, 6701, 6707, or
6708, or
``(2) in violation of any requirement under regulations
issued under section 320 of title 31, United States Code.''.
(b) Conforming Amendments.--
(1) The heading for section 7408 is amended to read as
follows:
``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX
SHELTERS AND REPORTABLE TRANSACTIONS.''.
(2) The table of sections for subchapter A of chapter 67 is
amended by striking the item relating to section 7408 and
inserting the following new item:
``Sec. 7408. Actions to enjoin specified conduct related to tax
shelters and reportable transactions.''.
(c) Effective Date.--The amendment made by this section shall take
effect on the day after the date of the enactment of this Act.
SEC. 411. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN
PREPARER.
(a) Standards Conformed to Taxpayer Standards.--Section 6694(a)
(relating to understatements due to unrealistic positions) is amended--
(1) by striking ``realistic possibility of being sustained
on its merits'' in paragraph (1) and inserting ``reasonable
belief that the tax treatment in such position was more likely
than not the proper treatment'',
(2) by striking ``or was frivolous'' in paragraph (3) and
inserting ``or there was no reasonable basis for the tax
treatment of such position'', and
(3) by striking ``Unrealistic'' in the heading and
inserting ``Improper''.
(b) Amount of Penalty.--Section 6694 is amended--
(1) by striking ``$250'' in subsection (a) and inserting
``$1,000'', and
(2) by striking ``$1,000'' in subsection (b) and inserting
``$5,000''.
(c) Effective Date.--The amendments made by this section shall
apply to documents prepared after the date of the enactment of this
Act.
SEC. 412. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL
ACCOUNTS.
(a) In General.--Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
``(5) Foreign financial agency transaction violation.--
``(A) Penalty authorized.--The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
``(B) Amount of penalty.--
``(i) In general.--Except as provided in
subparagraph (C), the amount of any civil
penalty imposed under subparagraph (A) shall
not exceed $10,000.
``(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) $100,000, or
``(II) 50 percent of the amount
determined under subparagraph (D), and
``(ii) subparagraph (B)(ii) shall not
apply.
``(D) Amount.--The amount determined under this
subparagraph is--
``(i) in the case of a violation involving
a transaction, the amount of the transaction,
or
``(ii) in the case of a violation involving
a failure to report the existence of an account
or any identifying information required to be
provided with respect to an account, the
balance in the account at the time of the
violation.''.
(b) Effective Date.--The amendment made by this section shall apply
to violations occurring after the date of the enactment of this Act.
SEC. 413. FRIVOLOUS TAX SUBMISSIONS.
(a) Civil Penalties.--Section 6702 is amended to read as follows:
``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.
``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay
a penalty of $5,000 if--
``(1) such person files what purports to be a return of a
tax imposed by this title but which--
``(A) does not contain information on which the
substantial correctness of the self-assessment may be
judged, or
``(B) contains information that on its face
indicates that the self-assessment is substantially
incorrect; and
``(2) the conduct referred to in paragraph (1)--
``(A) is based on a position which the Secretary
has identified as frivolous under subsection (c), or
``(B) reflects a desire to delay or impede the
administration of Federal tax laws.
``(b) Civil Penalty for Specified Frivolous Submissions.--
``(1) Imposition of penalty.--Except as provided in
paragraph (3), any person who submits a specified frivolous
submission shall pay a penalty of $5,000.
``(2) Specified frivolous submission.--For purposes of this
section--
``(A) Specified frivolous submission.--The term
`specified frivolous submission' means a specified
submission if any portion of such submission--
``(i) is based on a position which the
Secretary has identified as frivolous under
subsection (c), or
``(ii) reflects a desire to delay or impede
the administration of Federal tax laws.
``(B) Specified submission.--The term `specified
submission' means--
``(i) a request for a hearing under--
``(I) section 6320 (relating to
notice and opportunity for hearing upon
filing of notice of lien), or
``(II) section 6330 (relating to
notice and opportunity for hearing
before levy), and
``(ii) an application under--
``(I) section 6159 (relating to
agreements for payment of tax liability
in installments),
``(II) section 7122 (relating to
compromises), or
``(III) section 7811 (relating to
taxpayer assistance orders).
``(3) Opportunity to withdraw submission.--If the Secretary
provides a person with notice that a submission is a specified
frivolous submission and such person withdraws such submission
within 30 days after such notice, the penalty imposed under
paragraph (1) shall not apply with respect to such submission.
``(c) Listing of Frivolous Positions.--The Secretary shall
prescribe (and periodically revise) a list of positions which the
Secretary has identified as being frivolous for purposes of this
subsection. The Secretary shall not include in such list any position
that the Secretary determines meets the requirement of section
6662(d)(2)(B)(ii)(II).
``(d) Reduction of Penalty.--The Secretary may reduce the amount of
any penalty imposed under this section if the Secretary determines that
such reduction would promote compliance with and administration of the
Federal tax laws.
``(e) Penalties in Addition to Other Penalties.--The penalties
imposed by this section shall be in addition to any other penalty
provided by law.''.
(b) Treatment of Frivolous Requests for Hearings Before Levy.--
(1) Frivolous requests disregarded.--Section 6330 (relating
to notice and opportunity for hearing before levy) is amended
by adding at the end the following new subsection:
``(g) Frivolous Requests for Hearing, etc.--Notwithstanding any
other provision of this section, if the Secretary determines that any
portion of a request for a hearing under this section or section 6320
meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A),
then the Secretary may treat such portion as if it were never submitted
and such portion shall not be subject to any further administrative or
judicial review.''.
(2) Preclusion from raising frivolous issues at hearing.--
Section 6330(c)(4) is amended--
(A) by striking ``(A)'' and inserting ``(A)(i)'';
(B) by striking ``(B)'' and inserting ``(ii)'';
(C) by striking the period at the end of the first
sentence and inserting ``; or''; and
(D) by inserting after subparagraph (A)(ii) (as so
redesignated) the following:
``(B) the issue meets the requirement of clause (i)
or (ii) of section 6702(b)(2)(A).''.
(3) Statement of grounds.--Section 6330(b)(1) is amended by
striking ``under subsection (a)(3)(B)'' and inserting ``in
writing under subsection (a)(3)(B) and states the grounds for
the requested hearing''.
(c) Treatment of Frivolous Requests for Hearings Upon Filing of
Notice of Lien.--Section 6320 is amended--
(1) in subsection (b)(1), by striking ``under subsection
(a)(3)(B)'' and inserting ``in writing under subsection
(a)(3)(B) and states the grounds for the requested hearing'',
and
(2) in subsection (c), by striking ``and (e)'' and
inserting ``(e), and (g)''.
(d) Treatment of Frivolous Applications for Offers-in-Compromise
and Installment Agreements.--Section 7122 is amended by adding at the
end the following new subsection:
``(e) Frivolous Submissions, etc.--Notwithstanding any other
provision of this section, if the Secretary determines that any portion
of an application for an offer-in-compromise or installment agreement
submitted under this section or section 6159 meets the requirement of
clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may
treat such portion as if it were never submitted and such portion shall
not be subject to any further administrative or judicial review.''.
(e) Clerical Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by striking the item relating to
section 6702 and inserting the following new item:
``Sec. 6702. Frivolous tax
submissions.''.
(f) Effective Date.--The amendments made by this section shall
apply to submissions made and issues raised after the date on which the
Secretary first prescribes a list under section 6702(c) of the Internal
Revenue Code of 1986, as amended by subsection (a).
SEC. 414. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF
TREASURY.
(a) Censure; Imposition of Penalty.--
(1) In general.--Section 330(b) of title 31, United States
Code, is amended--
(A) by inserting ``, or censure,'' after
``Department'', and
(B) by adding at the end the following new flush
sentence:
``The Secretary may impose a monetary penalty on any representative
described in the preceding sentence. If the representative was acting
on behalf of an employer or any firm or other entity in connection with
the conduct giving rise to such penalty, the Secretary may impose a
monetary penalty on such employer, firm, or entity if it knew, or
reasonably should have known, of such conduct. Such penalty shall not
exceed the gross income derived (or to be derived) from the conduct
giving rise to the penalty and may be in addition to, or in lieu of,
any suspension, disbarment, or censure of the representative.''.
(2) Effective date.--The amendments made by this subsection
shall apply to actions taken after the date of the enactment of
this Act.
(b) Tax Shelter Opinions, etc.--Section 330 of such title 31 is
amended by adding at the end the following new subsection:
``(d) Nothing in this section or in any other provision of law
shall be construed to limit the authority of the Secretary of the
Treasury to impose standards applicable to the rendering of written
advice with respect to any entity, transaction plan or arrangement, or
other plan or arrangement, which is of a type which the Secretary
determines as having a potential for tax avoidance or evasion.''.
SEC. 415. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.
(a) Penalty for Promoting Abusive Tax Shelters.--Section 6700
(relating to promoting abusive tax shelters, etc.) is amended--
(1) by redesignating subsections (b) and (c) as subsections
(d) and (e), respectively,
(2) by striking ``a penalty'' and all that follows through
the period in the first sentence of subsection (a) and
inserting ``a penalty determined under subsection (b)'', and
(3) by inserting after subsection (a) the following new
subsections:
``(b) Amount of Penalty; Calculation of Penalty; Liability for
Penalty.--
``(1) Amount of penalty.--The amount of the penalty imposed
by subsection (a) shall not exceed 100 percent of the gross
income derived (or to be derived) from such activity by the
person or persons subject to such penalty.
``(2) Calculation of penalty.--The penalty amount
determined under paragraph (1) shall be calculated with respect
to each instance of an activity described in subsection (a),
each instance in which income was derived by the person or
persons subject to such penalty, and each person who
participated in such an activity.
``(3) Liability for penalty.--If more than 1 person is
liable under subsection (a) with respect to such activity, all
such persons shall be jointly and severally liable for the
penalty under such subsection.
``(c) Penalty Not Deductible.--The payment of any penalty imposed
under this section or the payment of any amount to settle or avoid the
imposition of such penalty shall not be deductible by the person who is
subject to such penalty or who makes such payment.''.
(b) Effective Date.--The amendments made by this section shall
apply to activities after the date of the enactment of this Act.
SEC. 416. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH REQUIRED
LISTED TRANSACTIONS NOT REPORTED.
(a) In General.--Section 6501(c) (relating to exceptions) is
amended by adding at the end the following new paragraph:
``(10) Listed transactions.--If a taxpayer fails to include
on any return or statement for any taxable year any information
with respect to a listed transaction (as defined in section
6707A(c)(2)) which is required under section 6011 to be
included with such return or statement, the time for assessment
of any tax imposed by this title with respect to such
transaction shall not expire before the date which is 1 year
after the earlier of--
``(A) the date on which the Secretary is furnished
the information so required; or
``(B) the date that a material advisor (as defined
in section 6111) meets the requirements of section 6112
with respect to a request by the Secretary under
section 6112(b) relating to such transaction with
respect to such taxpayer.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years with respect to which the period for assessing a
deficiency did not expire before the date of the enactment of this Act.
SEC. 417. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND NONECONOMIC
SUBSTANCE TRANSACTIONS.
(a) In General.--Section 163 (relating to deduction for interest)
is amended by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following new subsection:
``(m) Interest on Unpaid Taxes Attributable To Nondisclosed
Reportable Transactions and Noneconomic Substance Transactions.--No
deduction shall be allowed under this chapter for any interest paid or
accrued under section 6601 on any underpayment of tax which is
attributable to--
``(1) the portion of any reportable transaction
understatement (as defined in section 6662A(b)) with respect to
which the requirement of section 6664(d)(2)(A) is not met, or
``(2) any noneconomic substance transaction understatement
(as defined in section 6662B(c)).''.
(b) Effective Date.--The amendments made by this section shall
apply to transactions in taxable years beginning after the date of the
enactment of this Act.
SEC. 418. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW ENFORCEMENT.
There is authorized to be appropriated $300,000,000 for each fiscal
year beginning after September 30, 2003, for the purpose of carrying
out tax law enforcement to combat tax avoidance transactions and other
tax shelters, including the use of offshore financial accounts to
conceal taxable income.
SEC. 419. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX
LIABILITY.
(a) In General.--Section 6701(a) (relating to imposition of
penalty) is amended--
(1) by inserting ``the tax liability or'' after ``respect
to,'' in paragraph (1),
(2) by inserting ``aid, assistance, procurement, or advice
with respect to such'' before ``portion'' both places it
appears in paragraphs (2) and (3), and
(3) by inserting ``instance of aid, assistance,
procurement, or advice or each such'' before ``document'' in
the matter following paragraph (3).
(b) Amount of Penalty.--Subsection (b) of section 6701 (relating to
penalties for aiding and abetting understatement of tax liability) is
amended to read as follows:
``(b) Amount of Penalty; Calculation of Penalty; Liability for
Penalty.--
``(1) Amount of penalty.--The amount of the penalty imposed
by subsection (a) shall not exceed 100 percent of the gross
income derived (or to be derived) from such aid, assistance,
procurement, or advice provided by the person or persons
subject to such penalty.
``(2) Calculation of penalty.--The penalty amount
determined under paragraph (1) shall be calculated with respect
to each instance of aid, assistance, procurement, or advice
described in subsection (a), each instance in which income was
derived by the person or persons subject to such penalty, and
each person who made such an understatement of the liability
for tax.
``(3) Liability for penalty.--If more than 1 person is
liable under subsection (a) with respect to providing such aid,
assistance, procurement, or advice, all such persons shall be
jointly and severally liable for the penalty under such
subsection.''.
(c) Penalty Not Deductible.--Section 6701 is amended by adding at
the end the following new subsection:
``(g) Penalty Not Deductible.--The payment of any penalty imposed
under this section or the payment of any amount to settle or avoid the
imposition of such penalty shall not be deductible by the person who is
subject to such penalty or who makes such payment.''.
(d) Effective Date.--The amendments made by this section shall
apply to activities after the date of the enactment of this Act.
SEC. 420. STUDY ON INFORMATION SHARING AMONG LAW ENFORCEMENT AGENCIES.
(a) Study.--The Secretary of the Treasury shall, jointly with the
Attorney General, the Securities and Exchange Commission, and the
Commissioner of Internal Revenue, study the effectiveness of, and ways
to improve, the sharing of information related to the promotion of
prohibited tax shelters or tax avoidance schemes and other potential
violations of Federal laws.
(b) Report.--The Secretary shall, not later than 1 year after the
date of the enactment of this Act, report to the appropriate committees
of the Congress the results of the study under subsection (a),
including any recommendations for legislation.
Subtitle B--Other Corporate Governance Provisions
SEC. 421. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.
(a) In General.--Section 1502 (relating to consolidated return
regulations) is amended by adding at the end the following new
sentence: ``In prescribing such regulations, the Secretary may
prescribe rules applicable to corporations filing consolidated returns
under section 1501 that are different from other provisions of this
title that would apply if such corporations filed separate returns.''.
(b) Result Not Overturned.--Notwithstanding subsection (a), the
Internal Revenue Code of 1986 shall be construed by treating Treasury
regulation Sec. 1.1502-20(c)(1)(iii) (as in effect on January 1, 2001)
as being inapplicable to the type of factual situation in 255 F.3d 1357
(Fed. Cir. 2001).
(c) Effective Date.--The provisions of this section shall apply to
taxable years beginning before, on, or after the date of the enactment
of this Act.
SEC. 422. DECLARATION BY CHIEF EXECUTIVE OFFICER RELATING TO FEDERAL
ANNUAL INCOME TAX RETURN OF A CORPORATION.
(a) In General.--The Federal annual tax return of a corporation
with respect to income shall also include a declaration signed by the
chief executive officer of such corporation (or other such officer of
the corporation as the Secretary of the Treasury may designate if the
corporation does not have a chief executive officer), under penalties
of perjury, that the corporation has in place processes and procedures
to ensure that such return complies with the Internal Revenue Code of
1986 and that the chief executive officer was provided reasonable
assurance of the accuracy of all material aspects of such return. The
preceding sentence shall not apply to any return of a regulated
investment company (within the meaning of section 851 of such Code).
(b) Effective Date.--This section shall apply to the Federal annual
tax return of a corporation with respect to income for taxable years
ending after the date of the enactment of this Act.
SEC. 423. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER
AMOUNTS.
(a) In General.--Subsection (f) of section 162 (relating to trade
or business expenses) is amended to read as follows:
``(f) Fines, Penalties, and Other Amounts.--
``(1) In general.--Except as provided in paragraph (2), no
deduction otherwise allowable shall be allowed under this
chapter for any amount paid or incurred (whether by suit,
agreement, or otherwise) to, or at the direction of, a
government or entity described in paragraph (4) in relation to
the violation of any law or the investigation or inquiry by
such government or entity into the potential violation of any
law.
``(2) Exception for amounts constituting restitution.--
Paragraph (1) shall not apply to any amount which the taxpayer
establishes constitutes restitution (including remediation of
property) for damage or harm caused by or which may be caused
by the violation of any law or the potential violation of any
law. This paragraph shall not apply to any amount paid or
incurred as reimbursement to the government or entity for the
costs of any investigation or litigation.
``(3) Exception for amounts paid or incurred as the result
of certain court orders.--Paragraph (1) shall not apply to any
amount paid or incurred by order of a court in a suit in which
no government or entity described in paragraph (4) is a party.
``(4) Certain nongovernmental regulatory entities.--An
entity is described in this paragraph if it is--
``(A) a nongovernmental entity which exercises
self-regulatory powers (including imposing sanctions)
in connection with a qualified board or exchange (as
defined in section 1256(g)(7)), or
``(B) to the extent provided in regulations, a
nongovernmental entity which exercises self-regulatory
powers (including imposing sanctions) as part of
performing an essential governmental function.
``(5) Exception for taxes due.--Paragraph (1) shall not
apply to any amount paid or incurred as taxes due.''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid or incurred after April 27, 2003, except that such
amendment shall not apply to amounts paid or incurred under any binding
order or agreement entered into on or before April 27, 2003. Such
exception shall not apply to an order or agreement requiring court
approval unless the approval was obtained on or before April 27, 2003.
SEC. 424. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.
(a) Disallowance of Deduction.--
(1) In general.--Section 162(g) (relating to treble damage
payments under the antitrust laws) is amended--
(A) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively,
(B) by striking ``If'' and inserting:
``(1) Treble damages.--If'', and
(C) by adding at the end the following new
paragraph:
``(2) Punitive damages.--No deduction shall be allowed
under this chapter for any amount paid or incurred for punitive
damages in connection with any judgment in, or settlement of,
any action. This paragraph shall not apply to punitive damages
described in section 104(c).''.
(2) Conforming amendment.--The heading for section 162(g)
is amended by inserting ``or Punitive Damages'' after ``Laws''.
(b) Inclusion in Income of Punitive Damages Paid by Insurer or
Otherwise.--
(1) In general.--Part II of subchapter B of chapter 1
(relating to items specifically included in gross income) is
amended by adding at the end the following new section:
``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.
``Gross income shall include any amount paid to or on behalf of a
taxpayer as insurance or otherwise by reason of the taxpayer's
liability (or agreement) to pay punitive damages.''.
(2) Reporting requirements.--Section 6041 (relating to
information at source) is amended by adding at the end the
following new subsection:
``(f) Section To Apply to Punitive Damages Compensation.--This
section shall apply to payments by a person to or on behalf of another
person as insurance or otherwise by reason of the other person's
liability (or agreement) to pay punitive damages.''.
(3) Conforming amendment.--The table of sections for part
II of subchapter B of chapter 1 is amended by adding at the end
the following new item:
``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
(c) Effective Date.--The amendments made by this section shall
apply to damages paid or incurred on or after the date of the enactment
of this Act.
SEC. 425. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION FOR THE
UNDERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.
(a) In General.--Section 7206 (relating to fraud and false
statements) is amended--
(1) by striking ``Any person who--'' and inserting ``(a) In
General.--Any person who--'', and
(2) by adding at the end the following new subsection:
``(b) Increase in Monetary Limitation for Underpayment or
Overpayment of Tax Due to Fraud.--If any portion of any underpayment
(as defined in section 6664(a)) or overpayment (as defined in section
6401(a)) of tax required to be shown on a return is attributable to
fraudulent action described in subsection (a), the applicable dollar
amount under subsection (a) shall in no event be less than an amount
equal to such portion. A rule similar to the rule under section 6663(b)
shall apply for purposes of determining the portion so attributable.''.
(b) Increase in Penalties.--
(1) Attempt to evade or defeat tax.--Section 7201 is
amended--
(A) by striking ``$100,000'' and inserting
``$250,000'',
(B) by striking ``$500,000'' and inserting
``$1,000,000'', and
(C) by striking ``5 years'' and inserting ``10
years''.
(2) Willful failure to file return, supply information, or
pay tax.--Section 7203 is amended--
(A) in the first sentence--
(i) by striking ``misdemeanor'' and
inserting ``felony'', and
(ii) by striking ``1 year'' and inserting
``10 years'', and
(B) by striking the third sentence.
(3) Fraud and false statements.--Section 7206(a) (as
redesignated by subsection (a)) is amended--
(A) by striking ``$100,000'' and inserting
``$250,000'',
(B) by striking ``$500,000'' and inserting
``$1,000,000'', and
(C) by striking ``3 years'' and inserting ``5
years''.
(c) Effective Date.--The amendments made by this section shall
apply to underpayments and overpayments attributable to actions
occurring after the date of the enactment of this Act.
Subtitle C--Enron-Related Tax Shelter Provisions
SEC. 431. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN LOSSES.
(a) In General.--Section 362 (relating to basis to corporations) is
amended by adding at the end the following new subsection:
``(e) Limitations on Built-In Losses.--
``(1) Limitation on importation of built-in losses.--
``(A) In general.--If in any transaction described
in subsection (a) or (b) there would (but for this
subsection) be an importation of a net built-in loss,
the basis of each property described in subparagraph
(B) which is acquired in such transaction shall
(notwithstanding subsections (a) and (b)) be its fair
market value immediately after such transaction.
``(B) Property described.--For purposes of
subparagraph (A), property is described in this
subparagraph if--
``(i) gain or loss with respect to such
property is not subject to tax under this
subtitle in the hands of the transferor
immediately before the transfer, and
``(ii) gain or loss with respect to such
property is subject to such tax in the hands of
the transferee immediately after such transfer.
In any case in which the transferor is a partnership,
the preceding sentence shall be applied by treating
each partner in such partnership as holding such
partner's proportionate share of the property of such
partnership.
``(C) Importation of net built-in loss.--For
purposes of subparagraph (A), there is an importation
of a net built-in loss in a transaction if the
transferee's aggregate adjusted bases of property
described in subparagraph (B) which is transferred in
such transaction would (but for this paragraph) exceed
the fair market value of such property immediately
after such transaction.
``(2) Limitation on transfer of built-in losses in section
351 transactions.--
``(A) In general.--If--
``(i) property is transferred by a
transferor in any transaction which is
described in subsection (a) and which is not
described in paragraph (1) of this subsection,
and
``(ii) the transferee's aggregate adjusted
bases of such property so transferred would
(but for this paragraph) exceed the fair market
value of such property immediately after such
transaction,
then, notwithstanding subsection (a), the transferee's
aggregate adjusted bases of the property so transferred
shall not exceed the fair market value of such property
immediately after such transaction.
``(B) Allocation of basis reduction.--The aggregate
reduction in basis by reason of subparagraph (A) shall
be allocated among the property so transferred in
proportion to their respective built-in losses
immediately before the transaction.
``(C) Exception for transfers within affiliated
group.--Subparagraph (A) shall not apply to any
transaction if the transferor owns stock in the
transferee meeting the requirements of section
1504(a)(2). In the case of property to which
subparagraph (A) does not apply by reason of the
preceding sentence, the transferor's basis in the stock
received for such property shall not exceed its fair
market value immediately after the transfer.''.
(b) Comparable Treatment Where Liquidation.--Paragraph (1) of
section 334(b) (relating to liquidation of subsidiary) is amended to
read as follows:
``(1) In general.--If property is received by a corporate
distributee in a distribution in a complete liquidation to
which section 332 applies (or in a transfer described in
section 337(b)(1)), the basis of such property in the hands of
such distributee shall be the same as it would be in the hands
of the transferor; except that the basis of such property in
the hands of such distributee shall be the fair market value of
the property at the time of the distribution--
``(A) in any case in which gain or loss is
recognized by the liquidating corporation with respect
to such property, or
``(B) in any case in which the liquidating
corporation is a foreign corporation, the corporate
distributee is a domestic corporation, and the
corporate distributee's aggregate adjusted bases of
property described in section 362(e)(1)(B) which is
distributed in such liquidation would (but for this
subparagraph) exceed the fair market value of such
property immediately after such liquidation.''.
(c) Effective Dates.--
(1) In general.--The amendment made by subsection (a) shall
apply to transactions after December 31, 2003.
(2) Liquidations.--The amendment made by subsection (b)
shall apply to liquidations after December 31, 2003.
SEC. 432. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK HELD BY
PARTNERSHIP IN CORPORATE PARTNER.
(a) In General.--Section 755 is amended by adding at the end the
following new subsection:
``(c) No Allocation of Basis Decrease to Stock of Corporate
Partner.--In making an allocation under subsection (a) of any decrease
in the adjusted basis of partnership property under section 734(b)--
``(1) no allocation may be made to stock in a corporation
(or any person which is related (within the meaning of section
267(b) or 707(b)(1)) to such corporation) which is a partner in
the partnership, and
``(2) any amount not allocable to stock by reason of
paragraph (1) shall be allocated under subsection (a) to other
partnership property in such manner as the Secretary may
prescribe.
Gain shall be recognized to the partnership to the extent that the
amount required to be allocated under paragraph (2) to other
partnership property exceeds the aggregate adjusted basis of such other
property immediately before the allocation required by paragraph
(2).''.
(b) Effective Date.--The amendment made by this section shall apply
to distributions after February 13, 2003.
SEC. 433. REPEAL OF SPECIAL RULES FOR FASITS.
(a) In General.--Part V of subchapter M of chapter 1 (relating to
financial asset securitization investment trusts) is hereby repealed.
(b) Conforming Amendments.--
(1) Paragraph (6) of section 56(g) is amended by striking
``REMIC, or FASIT'' and inserting ``or REMIC''.
(2) Clause (ii) of section 382(l)(4)(B) is amended by
striking ``a REMIC to which part IV of subchapter M applies, or
a FASIT to which part V of subchapter M applies,'' and
inserting ``or a REMIC to which part IV of subchapter M
applies,''.
(3) Paragraph (1) of section 582(c) is amended by striking
``, and any regular interest in a FASIT,''.
(4) Subparagraph (E) of section 856(c)(5) is amended by
striking the last sentence.
(5)(A) Section 860G(a)(1) is amended by adding at the end
the following new sentence: ``An interest shall not fail to
qualify as a regular interest solely because the specified
principal amount of the regular interest (or the amount of
interest accrued on the regular interest) can be reduced as a
result of the nonoccurrence of 1 or more contingent payments
with respect to any reverse mortgage loan held by the REMIC if,
on the startup day for the REMIC, the sponsor reasonably
believes that all principal and interest due under the regular
interest will be paid at or prior to the liquidation of the
REMIC.''.
(B) The last sentence of section 860G(a)(3) is amended by
inserting ``, and any reverse mortgage loan (and each balance
increase on such loan meeting the requirements of subparagraph
(A)(iii)) shall be treated as an obligation secured by an
interest in real property'' before the period at the end.
(6) Paragraph (3) of section 860G(a) is amended by adding
``and'' at the end of subparagraph (B), by striking ``, and''
at the end of subparagraph (C) and inserting a period, and by
striking subparagraph (D).
(7) Section 860G(a)(3), as amended by paragraph (6), is
amended by adding at the end the following new sentence: ``For
purposes of subparagraph (A), if more than 50 percent of the
obligations transferred to, or purchased by, the REMIC are
originated by the United States or any State (or any political
subdivision, agency, or instrumentality of the United States or
any State) and are principally secured by an interest in real
property, then each obligation transferred to, or purchased by,
the REMIC shall be treated as secured by an interest in real
property.''.
(8)(A) Section 860G(a)(3)(A) is amended by striking ``or''
at the end of clause (i), by inserting ``or'' at the end of
clause (ii), and by inserting after clause (ii) the following
new clause:
``(iii) represents an increase in the
principal amount under the original terms of an
obligation described in clause (i) or (ii) if
such increase--
``(I) is attributable to an advance
made to the obligor pursuant to the
original terms of the obligation,
``(II) occurs after the startup
day, and
``(III) is purchased by the REMIC
pursuant to a fixed price contract in
effect on the startup day.''.
(B) Section 860G(a)(7)(B) is amended to read as follows:
``(B) Qualified reserve fund.--For purposes of
subparagraph (A), the term `qualified reserve fund'
means any reasonably required reserve to--
``(i) provide for full payment of expenses
of the REMIC or amounts due on regular
interests in the event of defaults on qualified
mortgages or lower than expected returns on
cash flow investments, or
``(ii) provide a source of funds for the
purchase of obligations described in clause
(ii) or (iii) of paragraph (3)(A).
The aggregate fair market value of the assets held in
any such reserve shall not exceed 50 percent of the
aggregate fair market value of all of the assets of the
REMIC on the startup day, and the amount of any such
reserve shall be promptly and appropriately reduced to
the extent the amount held in such reserve is no longer
reasonably required for purposes specified in clause
(i) or (ii) of this subparagraph.''.
(9) Subparagraph (C) of section 1202(e)(4) is amended by
striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
(10) Clause (xi) of section 7701(a)(19)(C) is amended--
(A) by striking ``and any regular interest in a
FASIT,'', and
(B) by striking ``or FASIT'' each place it appears.
(11) Subparagraph (A) of section 7701(i)(2) is amended by
striking ``or a FASIT''.
(12) The table of parts for subchapter M of chapter 1 is
amended by striking the item relating to part V.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall take effect on February
14, 2003.
(2) Exception for existing fasits.--Paragraph (1) shall not
apply to any FASIT in existence on the date of the enactment of
this Act to the extent that regular interests issued by the
FASIT before such date continue to remain outstanding in
accordance with the original terms of issuance.
SEC. 434. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON
CONVERTIBLE DEBT.
(a) In General.--Paragraph (2) of section 163(l) is amended by
inserting ``or equity held by the issuer (or any related party) in any
other person'' after ``or a related party''.
(b) Capitalization Allowed With Respect to Equity of Persons Other
Than Issuer and Related Parties.--Section 163(l) is amended by
redesignating paragraphs (4) and (5) as paragraphs (5) and (6) and by
inserting after paragraph (3) the following new paragraph:
``(4) Capitalization allowed with respect to equity of
persons other than issuer and related parties.--If the
disqualified debt instrument of a corporation is payable in
equity held by the issuer (or any related party) in any other
person (other than a related party), the basis of such equity
shall be increased by the amount not allowed as a deduction by
reason of paragraph (1) with respect to the instrument.''.
(c) Exception for Certain Instruments Issued by Dealers in
Securities.--Section 163(l), as amended by subsection (b), is amended
by redesignating paragraphs (5) and (6) as paragraphs (6) and (7) and
by inserting after paragraph (4) the following new paragraph:
``(5) Exception for certain instruments issued by dealers
in securities.--For purposes of this subsection, the term
`disqualified debt instrument' does not include indebtedness
issued by a dealer in securities (or a related party) which is
payable in, or by reference to, equity (other than equity of
the issuer or a related party) held by such dealer in its
capacity as a dealer in securities. For purposes of this
paragraph, the term `dealer in securities' has the meaning
given such term by section 475.''.
(d) 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.
(e) Effective Date.--The amendments made by this section shall
apply to debt instruments issued after February 13, 2003.
SEC. 435. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER SECTION
269.
(a) In General.--Subsection (a) of section 269 (relating to
acquisitions made to evade or avoid income tax) is amended to read as
follows:
``(a) In General.--If--
``(1)(A) any person or persons acquire, directly or
indirectly, control of a corporation, or
``(B) any corporation acquires, directly or indirectly,
property of another corporation and the basis of such property,
in the hands of the acquiring corporation, is determined by
reference to the basis in the hands of the transferor
corporation, and
``(2) the principal purpose for which such acquisition was
made is evasion or avoidance of Federal income tax,
then the Secretary may disallow such deduction, credit, or other
allowance. For purposes of paragraph (1)(A), control means the
ownership of stock possessing at least 50 percent of the total combined
voting power of all classes of stock entitled to vote or at least 50
percent of the total value of all shares of all classes of stock of the
corporation.''.
(b) Effective Date.--The amendment made by this section shall apply
to stock and property acquired after February 13, 2003.
SEC. 436. MODIFICATION OF INTERACTION BETWEEN SUBPART F AND PASSIVE
FOREIGN INVESTMENT COMPANY RULES.
(a) Limitation on Exception From PFIC Rules for United States
Shareholders of Controlled Foreign Corporations.--Paragraph (2) of
section 1297(e) (relating to passive foreign investment company) is
amended by adding at the end the following flush sentence:
``Such term shall not include any period if the earning
of subpart F income by such corporation during such
period would result in only a remote likelihood of an
inclusion in gross income under section
951(a)(1)(A)(i).''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years of controlled foreign corporations beginning after
February 13, 2003, and to taxable years of United States shareholders
with or within which such taxable years of controlled foreign
corporations end.
Subtitle D--Provisions to Discourage Expatriation
SEC. 441. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.
(a) In General.--Subchapter C of chapter 80 (relating to provisions
affecting more than one subtitle) is amended by adding at the end the
following new section:
``SEC. 7874. RULES RELATING TO INVERTED CORPORATE ENTITIES.
``(a) Inverted Corporations Treated as Domestic Corporations.--
``(1) In general.--If a foreign incorporated entity is
treated as an inverted domestic corporation, then,
notwithstanding section 7701(a)(4), such entity shall be
treated for purposes of this title as a domestic corporation.
``(2) Inverted domestic corporation.--For purposes of this
section, a foreign incorporated entity shall be treated as an
inverted domestic corporation if, pursuant to a plan (or a
series of related transactions)--
``(A) the entity completes after March 20, 2002,
the direct or indirect acquisition of substantially all
of the properties held directly or indirectly by a
domestic corporation or substantially all of the
properties constituting a trade or business of a
domestic partnership,
``(B) after the acquisition at least 80 percent of
the stock (by vote or value) of the entity is held--
``(i) in the case of an acquisition with
respect to a domestic corporation, by former
shareholders of the domestic corporation by
reason of holding stock in the domestic
corporation, or
``(ii) in the case of an acquisition with
respect to a domestic partnership, by former
partners of the domestic partnership by reason
of holding a capital or profits interest in the
domestic partnership, and
``(C) the expanded affiliated group which after the
acquisition includes the entity does not have
substantial business activities in the foreign country
in which or under the law of which the entity is
created or organized when compared to the total
business activities of such expanded affiliated group.
Except as provided in regulations, an acquisition of properties
of a domestic corporation shall not be treated as described in
subparagraph (A) if none of the corporation's stock was readily
tradeable on an established securities market at any time
during the 4-year period ending on the date of the acquisition.
``(b) Preservation of Domestic Tax Base in Certain Inversion
Transactions to Which Subsection (a) Does Not Apply.--
``(1) In general.--If a foreign incorporated entity would
be treated as an inverted domestic corporation with respect to
an acquired entity if either--
``(A) subsection (a)(2)(A) were applied by
substituting `after December 31, 1996, and on or before
March 20, 2002' for `after March 20, 2002' and
subsection (a)(2)(B) were applied by substituting `more
than 50 percent' for `at least 80 percent', or
``(B) subsection (a)(2)(B) were applied by
substituting `more than 50 percent' for `at least 80
percent',
then the rules of subsection (c) shall apply to any inversion
gain of the acquired entity during the applicable period and
the rules of subsection (d) shall apply to any related party
transaction of the acquired entity during the applicable
period. This subsection shall not apply for any taxable year if
subsection (a) applies to such foreign incorporated entity for
such taxable year.
``(2) Acquired entity.--For purposes of this section--
``(A) In general.--The term `acquired entity' means
the domestic corporation or partnership substantially
all of the properties of which are directly or
indirectly acquired in an acquisition described in
subsection (a)(2)(A) to which this subsection applies.
``(B) Aggregation rules.--Any domestic person
bearing a relationship described in section 267(b) or
707(b) to an acquired entity shall be treated as an
acquired entity with respect to the acquisition
described in subparagraph (A).
``(3) Applicable period.--For purposes of this section--
``(A) In general.--The term `applicable period'
means the period--
``(i) beginning on the first date
properties are acquired as part of the
acquisition described in subsection (a)(2)(A)
to which this subsection applies, and
``(ii) ending on the date which is 10 years
after the last date properties are acquired as
part of such acquisition.
``(B) Special rule for inversions occurring before
march 21, 2002.--In the case of any acquired entity to
which paragraph (1)(A) applies, the applicable period
shall be the 10-year period beginning on January 1,
2003.
``(c) Tax on Inversion Gains May Not Be Offset.--If subsection (b)
applies--
``(1) In general.--The taxable income of an acquired entity
(or any expanded affiliated group which includes such entity)
for any taxable year which includes any portion of the
applicable period shall in no event be less than the inversion
gain of the entity for the taxable year.
``(2) Credits not allowed against tax on inversion gain.--
Credits shall be allowed against the tax imposed by this
chapter on an acquired entity for any taxable year described in
paragraph (1) only to the extent such tax exceeds the product
of--
``(A) the amount of the inversion gain for the
taxable year, and
``(B) the highest rate of tax specified in section
11(b)(1).
For purposes of determining the credit allowed by section 901
inversion gain shall be treated as from sources within the
United States.
``(3) Special rules for partnerships.--In the case of an
acquired entity which is a partnership--
``(A) the limitations of this subsection shall
apply at the partner rather than the partnership level,
``(B) the inversion gain of any partner for any
taxable year shall be equal to the sum of--
``(i) the partner's distributive share of
inversion gain of the partnership for such
taxable year, plus
``(ii) income or gain required to be
recognized for the taxable year by the partner
under section 367(a), 741, or 1001, or under
any other provision of chapter 1, by reason of
the transfer during the applicable period of
any partnership interest of the partner in such
partnership to the foreign incorporated entity,
and
``(C) the highest rate of tax specified in the rate
schedule applicable to the partner under chapter 1
shall be substituted for the rate of tax under
paragraph (2)(B).
``(4) Inversion gain.--For purposes of this section, the
term `inversion gain' means any income or gain required to be
recognized under section 304, 311(b), 367, 1001, or 1248, or
under any other provision of chapter 1, by reason of the
transfer during the applicable period of stock or other
properties by an acquired entity--
``(A) as part of the acquisition described in
subsection (a)(2)(A) to which subsection (b) applies,
or
``(B) after such acquisition to a foreign related
person.
The Secretary may provide that income or gain from the sale of
inventories or other transactions in the ordinary course of a
trade or business shall not be treated as inversion gain under
subparagraph (B) to the extent the Secretary determines such
treatment would not be inconsistent with the purposes of this
section.
``(5) Coordination with section 172 and minimum tax.--Rules
similar to the rules of paragraphs (3) and (4) of section
860E(a) shall apply for purposes of this section.
``(6) Statute of limitations.--
``(A) In general.--The statutory period for the
assessment of any deficiency attributable to the
inversion gain of any taxpayer for any pre-inversion
year shall not expire before the expiration of 3 years
from the date the Secretary is notified by the taxpayer
(in such manner as the Secretary may prescribe) of the
acquisition described in subsection (a)(2)(A) to which
such gain relates and such deficiency may be assessed
before the expiration of such 3-year period
notwithstanding the provisions of any other law or rule
of law which would otherwise prevent such assessment.
``(B) Pre-inversion year.--For purposes of
subparagraph (A), the term `pre-inversion year' means
any taxable year if--
``(i) any portion of the applicable period
is included in such taxable year, and
``(ii) such year ends before the taxable
year in which the acquisition described in
subsection (a)(2)(A) is completed.
``(d) Special Rules Applicable to Acquired Entities to Which
Subsection (b) Applies.--
``(1) Increases in accuracy-related penalties.--In the case
of any underpayment of tax of an acquired entity to which
subsection (b) applies--
``(A) section 6662(a) shall be applied with respect
to such underpayment by substituting `30 percent' for
`20 percent', and
``(B) if such underpayment is attributable to one
or more gross valuation understatements, the increase
in the rate of penalty under section 6662(h) shall be
to 50 percent rather than 40 percent.
``(2) Modifications of limitation on interest deduction.--
In the case of an acquired entity to which subsection (b)
applies, section 163(j) shall be applied--
``(A) without regard to paragraph (2)(A)(ii)
thereof, and
``(B) by substituting `25 percent' for `50 percent'
each place it appears in paragraph (2)(B) thereof.
``(e) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Rules for application of subsection (a)(2).--In
applying subsection (a)(2) for purposes of subsections (a) and
(b), the following rules shall apply:
``(A) Certain stock disregarded.--There shall not
be taken into account in determining ownership for
purposes of subsection (a)(2)(B)--
``(i) stock held by members of the expanded
affiliated group which includes the foreign
incorporated entity, or
``(ii) stock of such entity which is sold
in a public offering or private placement
related to the acquisition described in
subsection (a)(2)(A).
``(B) Plan deemed in certain cases.--If a foreign
incorporated entity acquires directly or indirectly
substantially all of the properties of a domestic
corporation or partnership during the 4-year period
beginning on the date which is 2 years before the
ownership requirements of subsection (a)(2)(B) are met
with respect to such domestic corporation or
partnership, such actions shall be treated as pursuant
to a plan.
``(C) Certain transfers disregarded.--The transfer
of properties or liabilities (including by contribution
or distribution) shall be disregarded if such transfers
are part of a plan a principal purpose of which is to
avoid the purposes of this section.
``(D) Special rule for related partnerships.--For
purposes of applying subsection (a)(2) to the
acquisition of a domestic partnership, except as
provided in regulations, all partnerships which are
under common control (within the meaning of section
482) shall be treated as 1 partnership.
``(E) Treatment of certain rights.--The Secretary
shall prescribe such regulations as may be necessary--
``(i) to treat warrants, options, contracts
to acquire stock, convertible debt instruments,
and other similar interests as stock, and
``(ii) to treat stock as not stock.
``(2) Expanded affiliated group.--The term `expanded
affiliated group' means an affiliated group as defined in
section 1504(a) but without regard to section 1504(b)(3),
except that section 1504(a) shall be applied by substituting
`more than 50 percent' for `at least 80 percent' each place it
appears.
``(3) Foreign incorporated entity.--The term `foreign
incorporated entity' means any entity which is, or but for
subsection (a)(1) would be, treated as a foreign corporation
for purposes of this title.
``(4) Foreign related person.--The term `foreign related
person' means, with respect to any acquired entity, a foreign
person which--
``(A) bears a relationship to such entity described
in section 267(b) or 707(b), or
``(B) is under the same common control (within the
meaning of section 482) as such entity.
``(5) Subsequent acquisitions by unrelated domestic
corporations.--
``(A) In general.--Subject to such conditions,
limitations, and exceptions as the Secretary may
prescribe, if, after an acquisition described in
subsection (a)(2)(A) to which subsection (b) applies, a
domestic corporation stock of which is traded on an
established securities market acquires directly or
indirectly any properties of one or more acquired
entities in a transaction with respect to which the
requirements of subparagraph (B) are met, this section
shall cease to apply to any such acquired entity with
respect to which such requirements are met.
``(B) Requirements.--The requirements of the
subparagraph are met with respect to a transaction
involving any acquisition described in subparagraph (A)
if--
``(i) before such transaction the domestic
corporation did not have a relationship
described in section 267(b) or 707(b), and was
not under common control (within the meaning of
section 482), with the acquired entity, or any
member of an expanded affiliated group
including such entity, and
``(ii) after such transaction, such
acquired entity--
``(I) is a member of the same
expanded affiliated group which
includes the domestic corporation or
has such a relationship or is under
such common control with any member of
such group, and
``(II) is not a member of, and does
not have such a relationship and is not
under such common control with any
member of, the expanded affiliated
group which before such acquisition
included such entity.
``(f) Regulations.--The Secretary shall provide such regulations as
are necessary to carry out this section, including regulations
providing for such adjustments to the application of this section as
are necessary to prevent the avoidance of the purposes of this section,
including the avoidance of such purposes through--
``(1) the use of related persons, pass-thru or other
noncorporate entities, or other intermediaries, or
``(2) transactions designed to have persons cease to be (or
not become) members of expanded affiliated groups or related
persons.''.
(b) Information Reporting.--The Secretary of the Treasury shall
exercise the Secretary's authority under the Internal Revenue Code of
1986 to require entities involved in transactions to which section 7874
of such Code (as added by subsection (a)) applies to report to the
Secretary, shareholders, partners, and such other persons as the
Secretary may prescribe such information as is necessary to ensure the
proper tax treatment of such transactions.
(c) Conforming Amendment.--The table of sections for subchapter C
of chapter 80 is amended by adding at the end the following new item:
``Sec. 7874. Rules relating to inverted
corporate entities.''.
(d) Transition Rule for Certain Regulated Investment Companies and
Unit Investment Trusts.--Notwithstanding section 7874 of the Internal
Revenue Code of 1986 (as added by subsection (a)), a regulated
investment company, or other pooled fund or trust specified by the
Secretary of the Treasury, may elect to recognize gain by reason of
section 367(a) of such Code with respect to a transaction under which a
foreign incorporated entity is treated as an inverted domestic
corporation under section 7874(a) of such Code by reason of an
acquisition completed after March 20, 2002, and before January 1, 2004.
(e) Disclosure of Corporate Expatriation Transactions.--
(1) In general.--Section 14 of the Securities Exchange Act
of 1934 (15 U.S.C. 78n) is amended by adding at the end the
following new subsection:
``(i) Proxy Solicitations in Connection With Corporate Expatriation
Transactions.--
``(1) Disclosure to shareholders of effects of corporate
expatriation transaction.--The Commission shall, by rule,
require that each domestic issuer shall prominently disclose,
not later than 5 business days before any shareholder vote
relating to a corporate expatriation transaction, as a separate
and distinct document accompanying each proxy statement
relating to the transaction--
``(A) the number of employees of the domestic
issuer that would be located in the new foreign
jurisdiction of incorporation or organization of that
issuer upon completion of the corporate expatriation
transaction;
``(B) how the rights of holders of the securities
of the domestic issuer would be impacted by a completed
corporate expatriation transaction, and any differences
in such rights before and after a completed corporate
expatriation transaction; and
``(C) that, as a result of a completed corporate
expatriation transaction, any taxable holder of the
securities of the domestic issuer shall be subject to
the taxation of any capital gains realized with respect
to such securities, and the amount of any such capital
gains tax that would apply as a result of the
transaction.
``(2) Definitions.--In this subsection, the following
definitions shall apply:
``(A) Corporate expatriation transaction.--The term
`corporate expatriation transaction' means any
transaction, or series of related transactions,
described in subsection (a) or (b) of section 7874 of
the Internal Revenue Code of 1986.
``(A) Domestic issuer.--The term `domestic issuer'
means an issuer created or organized in the United
States or under the law of the United States or of any
State.''
(2) Effective date.--Section 14(i) of the Securities
Exchange Act of 1934 (as added by this subsection) shall apply
with respect to corporate expatriation transactions (as defined
in that section 14(i)) proposed on and after the date of
enactment of this Act.
SEC. 442. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS WHO
EXPATRIATE.
(a) In General.--Subpart A of part II of subchapter N of chapter 1
is amended by inserting after section 877 the following new section:
``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
``(a) General Rules.--For purposes of this subtitle--
``(1) Mark to market.--Except as provided in subsections
(d) and (f), all property of a covered expatriate to whom this
section applies shall be treated as sold on the day before the
expatriation date for its fair market value.
``(2) Recognition of gain or loss.--In the case of any sale
under paragraph (1)--
``(A) notwithstanding any other provision of this
title, any gain arising from such sale shall be taken
into account for the taxable year of the sale, and
``(B) any loss arising from such sale shall be
taken into account for the taxable year of the sale to
the extent otherwise provided by this title, except
that section 1091 shall not apply to any such loss.
Proper adjustment shall be made in the amount of any gain or
loss subsequently realized for gain or loss taken into account
under the preceding sentence.
``(3) Exclusion for certain gain.--
``(A) In general.--The amount which, but for this
paragraph, would be includible in the gross income of
any individual by reason of this section shall be
reduced (but not below zero) by $600,000. For purposes
of this paragraph, allocable expatriation gain taken
into account under subsection (f)(2) shall be treated
in the same manner as an amount required to be
includible in gross income.
``(B) Cost-of-living adjustment.--
``(i) In general.--In the case of an
expatriation date occurring in any calendar
year after 2004, the $600,000 amount under
subparagraph (A) shall be increased by an
amount equal to--
``(I) such dollar amount,
multiplied by
``(II) the cost-of-living
adjustment determined under section
1(f)(3) for such calendar year,
determined by substituting `calendar
year 2003' for `calendar year 1992' in
subparagraph (B) thereof.
``(ii) Rounding rules.--If any amount after
adjustment under clause (i) is not a multiple
of $1,000, such amount shall be rounded to the
next lower multiple of $1,000.
``(4) Election to continue to be taxed as united states
citizen.--
``(A) In general.--If a covered expatriate elects
the application of this paragraph--
``(i) this section (other than this
paragraph and subsection (i)) shall not apply
to the expatriate, but
``(ii) in the case of property to which
this section would apply but for such election,
the expatriate shall be subject to tax under
this title in the same manner as if the
individual were a United States citizen.
``(B) Requirements.--Subparagraph (A) shall not
apply to an individual unless the individual--
``(i) provides security for payment of tax
in such form and manner, and in such amount, as
the Secretary may require,
``(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 January 1, 2004.''.
(2) Section 2107 is amended by adding at the end the
following new subsection:
``(f) Application.--This section shall not apply to any expatriate
subject to section 877A.''.
(3) Section 2501(a)(3) is amended by adding at the end the
following new subparagraph:
``(F) Application.--This paragraph shall not apply
to any expatriate subject to section 877A.''.
(4)(A) Paragraph (1) of section 6039G(d) is amended by
inserting ``or 877A'' after ``section 877''.
(B) The second sentence of section 6039G(e) is amended by
inserting ``or who relinquishes United States citizenship
(within the meaning of section 877A(e)(3))'' after ``877(a))''.
(C) Section 6039G(f) is amended by inserting ``or
877A(e)(2)(B)'' after ``877(e)(1)''.
(f) Clerical Amendment.--The table of sections for subpart A of
part II of subchapter N of chapter 1 is amended by inserting after the
item relating to section 877 the following new item:
``Sec. 877A. Tax responsibilities of
expatriation.''.
(g) Effective Date.--
(1) In general.--Except as provided in this subsection, the
amendments made by this section shall apply to expatriates
(within the meaning of section 877A(e) of the Internal Revenue
Code of 1986, as added by this section) whose expatriation date
(as so defined) occurs on or after January 1, 2004.
(2) Gifts and bequests.--Section 102(d) of the Internal
Revenue Code of 1986 (as added by subsection (b)) shall apply
to gifts and bequests received on or after January 1, 2004,
from an individual or the estate of an individual whose
expatriation date (as so defined) occurs after such date.
(3) Due date for tentative tax.--The due date under section
877A(h)(2) of the Internal Revenue Code of 1986, as added by
this section, shall in no event occur before the 90th day after
the date of the enactment of this Act.
SEC. 443. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN INVERTED
CORPORATIONS.
(a) In General.--Subtitle D is amended by adding at the end the
following new chapter:
``CHAPTER 48--STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS
``Sec. 5000A. Stock compensation of
insiders in inverted
corporations entities.
``SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS.
``(a) Imposition of Tax.--In the case of an individual who is a
disqualified individual with respect to any inverted corporation, there
is hereby imposed on such person a tax equal to 20 percent of the value
(determined under subsection (b)) of the specified stock compensation
held (directly or indirectly) by or for the benefit of such individual
or a member of such individual's family (as defined in section 267) at
any time during the 12-month period beginning on the date which is 6
months before the inversion date.
``(b) Value.--For purposes of subsection (a)--
``(1) In general.--The value of specified stock
compensation shall be--
``(A) in the case of a stock option (or other
similar right) or any stock appreciation right, the
fair value of such option or right, and
``(B) in any other case, the fair market value of
such compensation.
``(2) Date for determining value.--The determination of
value shall be made--
``(A) in the case of specified stock compensation
held on the inversion date, on such date,
``(B) in the case of such compensation which is
canceled during the 6 months before the inversion date,
on the day before such cancellation, and
``(C) in the case of such compensation which is
granted after the inversion date, on the date such
compensation is granted.
``(c) Tax To Apply Only if Shareholder Gain Recognized.--Subsection
(a) shall apply to any disqualified individual with respect to an
inverted corporation only if gain (if any) on any stock in such
corporation is recognized in whole or part by any shareholder by reason
of the acquisition referred to in section 7874(a)(2)(A) (determined by
substituting `July 10, 2002' for `March 20, 2002') with respect to such
corporation.
``(d) Exception Where Gain Recognized on Compensation.--Subsection
(a) shall not apply to--
``(1) any stock option which is exercised on the inversion
date or during the 6-month period before such date and to the
stock acquired in such exercise, if income is recognized under
section 83 on or before the inversion date with respect to the
stock acquired pursuant to such exercise, and
``(2) any specified stock compensation which is exercised,
sold, exchanged, distributed, cashed out, or otherwise paid
during such period in a transaction in which gain or loss is
recognized in full.
``(e) Definitions.--For purposes of this section--
``(1) Disqualified individual.--The term `disqualified
individual' means, with respect to a corporation, any
individual who, at any time during the 12-month period
beginning on the date which is 6 months before the inversion
date--
``(A) is subject to the requirements of section
16(a) of the Securities Exchange Act of 1934 with
respect to such corporation, or
``(B) would be subject to such requirements if such
corporation were an issuer of equity securities
referred to in such section.
``(2) Inverted corporation; inversion date.--
``(A) Inverted corporation.--The term `inverted
corporation' means any corporation to which subsection
(a) or (b) of section 7874 applies determined--
``(i) by substituting `July 10, 2002' for
`March 20, 2002' in section 7874(a)(2)(A), and
``(ii) without regard to subsection
(b)(1)(A).
Such term includes any predecessor or successor of such
a corporation.
``(B) Inversion date.--The term `inversion date'
means, with respect to a corporation, the date on which
the corporation first becomes an inverted corporation.
``(3) Specified stock compensation.--
``(A) In general.--The term `specified stock
compensation' means payment (or right to payment)
granted by the inverted corporation (or by any member
of the expanded affiliated group which includes such
corporation) to any person in connection with the
performance of services by a disqualified individual
for such corporation or member if the value of such
payment or right is based on (or determined by
reference to) the value (or change in value) of stock
in such corporation (or any such member).
``(B) Exceptions.--Such term shall not include--
``(i) any option to which part II of
subchapter D of chapter 1 applies, or
``(ii) any payment or right to payment from
a plan referred to in section 280G(b)(6).
``(4) Expanded affiliated group.--The term `expanded
affiliated group' means an affiliated group (as defined in
section 1504(a) without regard to section 1504(b)(3)); except
that section 1504(a) shall be applied by substituting `more
than 50 percent' for `at least 80 percent' each place it
appears.
``(f) Special Rules.--For purposes of this section--
``(1) Cancellation of restriction.--The cancellation of a
restriction which by its terms will never lapse shall be
treated as a grant.
``(2) Payment or reimbursement of tax by corporation
treated as specified stock compensation.--Any payment of the
tax imposed by this section directly or indirectly by the
inverted corporation or by any member of the expanded
affiliated group which includes such corporation--
``(A) shall be treated as specified stock
compensation, and
``(B) shall not be allowed as a deduction under any
provision of chapter 1.
``(3) Certain restrictions ignored.--Whether there is
specified stock compensation, and the value thereof, shall be
determined without regard to any restriction other than a
restriction which by its terms will never lapse.
``(4) Property transfers.--Any transfer of property shall
be treated as a payment and any right to a transfer of property
shall be treated as a right to a payment.
``(5) Other administrative provisions.--For purposes of
subtitle F, any tax imposed by this section shall be treated as
a tax imposed by subtitle A.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(b) Denial of Deduction.--
(1) In general.--Paragraph (6) of section 275(a) is amended
by inserting ``48,'' after ``46,''.
(2) $1,000,000 limit on deductible compensation reduced by
payment of excise tax on specified stock compensation.--
Paragraph (4) of section 162(m) is amended by adding at the end
the following new subparagraph:
``(G) Coordination with excise tax on specified
stock compensation.--The dollar limitation contained in
paragraph (1) with respect to any covered employee
shall be reduced (but not below zero) by the amount of
any payment (with respect to such employee) of the tax
imposed by section 5000A directly or indirectly by the
inverted corporation (as defined in such section) or by
any member of the expanded affiliated group (as defined
in such section) which includes such corporation.''.
(c) Conforming Amendments.--
(1) The last sentence of section 3121(v)(2)(A) is amended
by inserting before the period ``or to any specified stock
compensation (as defined in section 5000A) on which tax is
imposed by section 5000A''.
(2) The table of chapters for subtitle D is amended by
adding at the end the following new item:
``Chapter 48. Stock compensation of
insiders in inverted
corporations.''.
(d) Effective Date.--The amendments made by this section shall take
effect on July 11, 2002; except that periods before such date shall not
be taken into account in applying the periods in subsections (a) and
(e)(1) of section 5000A of the Internal Revenue Code of 1986, as added
by this section.
SEC. 444. REINSURANCE OF UNITED STATES RISKS IN FOREIGN JURISDICTIONS.
(a) In General.--Section 845(a) (relating to allocation in case of
reinsurance agreement involving tax avoidance or evasion) is amended by
striking ``source and character'' and inserting ``amount, source, or
character''.
(b) Effective Date.--The amendments made by this section shall
apply to any risk reinsured after April 11, 2002.
SEC. 445. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.
(a) In General.--Subpart B of part III of subchapter A of chapter
61 is amended by inserting after section 6043 the following new
section:
``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.
``(a) In General.--The acquiring corporation in any taxable
acquisition shall make a return (according to the forms or regulations
prescribed by the Secretary) setting forth--
``(1) a description of the acquisition,
``(2) the name and address of each shareholder of the
acquired corporation who is required to recognize gain (if any)
as a result of the acquisition,
``(3) the amount of money and the fair market value of
other property transferred to each such shareholder as part of
such acquisition, and
``(4) such other information as the Secretary may
prescribe.
To the extent provided by the Secretary, the requirements of this
section applicable to the acquiring corporation shall be applicable to
the acquired corporation and not to the acquiring corporation.
``(b) Nominee Reporting.--Any person who holds stock as a nominee
for another person shall furnish in the manner prescribed by the
Secretary to such other person the information provided by the
corporation under subsection (d).
``(c) Taxable Acquisition.--For purposes of this section, the term
`taxable acquisition' means any acquisition by a corporation of stock
in or property of another corporation if any shareholder of the
acquired corporation is required to recognize gain (if any) as a result
of such acquisition.
``(d) Statements To Be Furnished to Shareholders.--Every person
required to make a return under subsection (a) shall furnish to each
shareholder whose name is required to be set forth in such return a
written statement showing--
``(1) the name, address, and phone number of the
information contact of the person required to make such return,
``(2) the information required to be shown on such return
with respect to such shareholder, and
``(3) such other information as the Secretary may
prescribe.
The written statement required under the preceding sentence shall be
furnished to the shareholder on or before January 31 of the year
following the calendar year during which the taxable acquisition
occurred.''.
(b) Assessable Penalties.--
(1) Subparagraph (B) of section 6724(d)(1) (defining
information return) is amended by redesignating clauses (ii)
through (xviii) as clauses (iii) through (xix), respectively,
and by inserting after clause (i) the following new clause:
``(ii) section 6043A(a) (relating to
returns relating to taxable mergers and
acquisitions),''.
(2) Paragraph (2) of section 6724(d) (relating to
definitions) is amended by redesignating subparagraphs (F)
through (BB) as subparagraphs (G) through (CC), respectively,
and by inserting after subparagraph (E) the following new
subparagraph:
``(F) subsections (b) and (d) of section 6043A
(relating to returns relating to taxable mergers and
acquisitions).''.
(c) Clerical Amendment.--The table of sections for subpart B of
part III of subchapter A of chapter 61 is amended by inserting after
the item relating to section 6043 the following new item:
``Sec. 6043A. Returns relating to taxable
mergers and acquisitions.''.
(d) Effective Date.--The amendments made by this section shall
apply to acquisitions after the date of the enactment of this Act.
Subtitle E--International Tax
SEC. 451. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF DETERMINING
INVESTMENT OF EARNINGS IN UNITED STATES PROPERTY.
(a) In General.--Subparagraph (A) of section 956(c)(2) is amended
to read as follows:
``(A) obligations of the United States, money, or
deposits with persons described in paragraph (4);''.
(b) Eligible Persons.--Section 956(c) (relating to exceptions to
definition of United States property) is amended by adding at the end
the following new paragraph:
``(4) Financial services providers.--
``(A) In general.--For purposes of paragraph
(2)(A), a person is described in this paragraph if at
least 80 percent of the person's income is income
described in section 904(d)(2)(C)(ii) (and the
regulations thereunder) which is derived from persons
who are not related persons.
``(B) Special rules.--For purposes of subparagraph
(A)--
``(i) all related persons shall be treated
as 1 person in applying the 80-percent test,
and
``(ii) there shall be disregarded any item
of income or gain from a transaction or series
of transactions a principal purpose of which is
the qualification of a person as a person
described in this paragraph.
``(C) Related person.--For purposes of this
paragraph, the term `related person' has the meaning
given such term by section 954(d)(3).''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 452. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH COMPLETE
LIQUIDATION OF HOLDING COMPANY.
(a) In General.--Section 332 is amended by adding at the end the
following new subsection:
``(d) Recognition of Gain on Liquidation of Certain Holding
Companies.--
``(1) In general.--In the case of any distribution to a
foreign corporation in complete liquidation of an applicable
holding company--
``(A) subsection (a) and section 331 shall not
apply to such distribution, and
``(B) such distribution shall be treated as a
distribution to which section 301 applies.
``(2) Applicable holding company.--For purposes of this
subsection--
``(A) In general.--The term `applicable holding
company' means any domestic corporation--
``(i) which is a common parent of an
affiliated group,
``(ii) stock of which is directly owned by
the distributee foreign corporation,
``(iii) substantially all of the assets of
which consist of stock in other members of such
affiliated group, and
``(iv) which has not been in existence at
all times during the 5 years immediately
preceding the date of the liquidation.
``(B) Affiliated group.--For purposes of this
subsection, the term `affiliated group' has the meaning
given such term by section 1504(a) (without regard to
paragraphs (2) and (4) 0f section 1504(b)).
``(3) Coordination with subpart f.--If the distributee of a
distribution described in paragraph (1) is a controlled foreign
corporation (as defined in section 957), then notwithstanding
paragraph (1) or subsection (a), such distribution shall be
treated as a distribution to which section 331 applies.
``(4) Regulations.--The Secretary shall provide such
regulations as appropriate to prevent the abuse of this
subsection, including regulations which provide, for the
purposes of clause (iv) of paragraph (2)(A), that a corporation
is not in existence for any period unless it is engaged in the
active conduct of a trade or business or owns a significant
ownership interest in another corporation so engaged.''.
(b) Effective Date.--The amendment made by this section shall apply
to distributions in complete liquidation occurring on or after the date
of the enactment of this Act.
SEC. 453. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL ISSUE
DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS IN TRANSACTIONS
WITH RELATED FOREIGN PERSONS.
(a) Original Issue Discount.--Section 163(e)(3) (relating to
special rule for original issue discount on obligation held by related
foreign person) is amended by redesignating subparagraph (B) as
subparagraph (C) and by inserting after subparagraph (A) the following
new subparagraph:
``(B) Special rule for certain foreign entities.--
``(i) In general.--In the case of any debt
instrument having original issue discount which
is held by a related foreign person which is a
foreign personal holding company (as defined in
section 552), a controlled foreign corporation
(as defined in section 957), or a passive
foreign investment company (as defined in
section 1297), a deduction shall be allowable
to the issuer with respect to such original
issue discount for any taxable year before the
taxable year in which paid only to the extent
such original issue discount (reduced by
properly allowable deductions and qualified
deficits under section 952(c)(1)(B)) is
includible during such prior taxable year in
the gross income of a United States person who
owns (within the meaning of section 958(a))
stock in such corporation.
``(ii) Secretarial authority.--The
Secretary may by regulation exempt transactions
from the application of clause (i), including
any transaction which is entered into by a
payor in the ordinary course of a trade or
business in which the payor is predominantly
engaged.''.
(b) Interest and Other Deductible Amounts.--Section 267(a)(3) is
amended--
(1) by striking ``The Secretary'' and inserting:
``(A) In general.--The Secretary'', and
(2) by adding at the end the following new subparagraph:
``(B) Special rule for certain foreign entities.--
``(i) In general.--Notwithstanding
subparagraph (A), in the case of any item
payable to a foreign personal holding company
(as defined in section 552), a controlled
foreign corporation (as defined in section
957), or a passive foreign investment company
(as defined in section 1297), a deduction shall
be allowable to the payor with respect to such
amount for any taxable year before the taxable
year in which paid only to the extent that an
amount attributable to such item (reduced by
properly allowable deductions and qualified
deficits under section 952(c)(1)(B)) is
includible during such prior taxable year in
the gross income of a United States person who
owns (within the meaning of section 958(a))
stock in such corporation.
``(ii) Secretarial authority.--The
Secretary may by regulation exempt transactions
from the application of clause (i), including
any transaction which is entered into by a
payor in the ordinary course of a trade or
business in which the payor is predominantly
engaged and in which the payment of the accrued
amounts occurs within 8\1/2\ months after
accrual or within such other period as the
Secretary may prescribe.''.
(c) Effective Date.--The amendments made by this section shall
apply to payments accrued on or after the date of the enactment of this
Act.
SEC. 454. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN FOREIGN
SOURCE INCOME.
(a) In General.--Section 864(c)(4)(B) (relating to treatment of
income from sources without the United States as effectively connected
income) is amended by adding at the end the following new flush
sentence:
``Any income or gain which is equivalent to any item of
income or gain described in clause (i), (ii), or (iii)
shall be treated in the same manner as such item for
purposes of this subparagraph.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 455. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF CONTROLLED
FOREIGN CORPORATION.
(a) In General.--Section 904(f)(3) (relating to dispositions) is
amending by adding at the end the following new subparagraph:
``(D) Application to certain dispositions of stock
in controlled foreign corporation.--
``(i) In general.--This paragraph shall
apply to an applicable 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.
``(ii) Applicable disposition.--For
purposes of clause (i), the term `applicable
disposition' means any disposition of any share
of stock in a controlled foreign corporation in
a transaction or series of transactions if,
immediately before such transaction or series
of transactions, the taxpayer owned more than
50 percent (by vote or value) of the stock of
the controlled foreign corporation.
``(iii) Exception.--A disposition shall not
be treated as an applicable disposition under
clause (ii) if it is part of a transaction or
series of transactions--
``(I) to which section 351 or 721
applies, or under which the transferor
receives stock in a foreign corporation
in exchange for the stock in the
controlled foreign corporation and the
stock received is exchanged basis
property (as defined in section
7701(a)(44)), and
``(II) immediately after which, the
transferor owns (by vote or value) at
least the same percentage of stock in
the controlled foreign corporation (or,
if the controlled foreign corporation
is not in existence after such
transaction or series of transactions,
in another foreign corporation stock in
which was received by the transferor in
exchange for stock in the controlled
foreign corporation) as the percentage
of stock in the controlled foreign
corporation which the taxpayer owned
immediately before such transaction or
series of transactions.
Clause (i) shall apply to any gain recognized
on any disposition to which this clause
applies.
``(iv) Controlled foreign corporation.--For
purposes of this subparagraph, the term
`controlled foreign corporation' has the
meaning given such term by section 957.
``(v) Stock ownership.--For purposes of
this subparagraph, ownership of stock shall be
determined under the rules of subsections (a)
and (b) of section 958.
(b) Effective Date.--The amendment made by this section shall apply
to dispositions after the date of the enactment of this Act.
SEC. 456. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON WITHHOLDING
TAXES ON INCOME OTHER THAN DIVIDENDS.
(a) In General.--Section 901 is amended by redesignating subsection
(l) as subsection (m) and by inserting after subsection (k) the
following new subsection:
``(l) Minimum Holding Period for Withholding Taxes on Gain and
Income Other Than Dividends etc.--
``(1) In general.--In no event shall a credit be allowed
under subsection (a) for any withholding tax (as defined in
subsection (k)) on any item of income or gain with respect to
any property if--
``(A) such property is held by the recipient of the
item for 15 days or less during the 30-day period
beginning on the date which is 15 days before the date
on which the right to receive payment of such item
arises, or
``(B) to the extent that the recipient of the item
is under an obligation (whether pursuant to a short
sale or otherwise) to make related payments with
respect to positions in substantially similar or
related property.
This paragraph shall not apply to any dividend to which
subsection (k) applies.
``(2) Exception for taxes paid by dealers.--
``(A) In general.--Paragraph (1) shall not apply to
any qualified tax with respect to any property held in
the active conduct in a foreign country of a business
as a dealer in such property.
``(B) Qualified tax.--For purposes of subparagraph
(A), the term `qualified tax' means a tax paid to a
foreign country (other than the foreign country
referred to in subparagraph (A)) if--
``(i) the item to which such tax is
attributable is subject to taxation on a net
basis by the country referred to in
subparagraph (A), and
``(ii) such country allows a credit against
its net basis tax for the full amount of the
tax paid to such other foreign country.
``(C) Dealer.--For purposes of subparagraph (A),
the term `dealer' means--
``(i) with respect to a security, any
person to whom paragraphs (1) and (2) of
subsection (k) would not apply by reason of
paragraph (4) thereof if such security were
stock, and
``(ii) with respect to any other property,
any person with respect to whom such property
is described in section 1221(a)(1).
``(D) Regulations.--The Secretary may prescribe
such regulations as may be appropriate to carry out
this paragraph, including regulations to prevent the
abuse of the exception provided by this paragraph and
to treat other taxes as qualified taxes.
``(3) Exceptions.--The Secretary may by regulation provide
that paragraph (1) shall not apply to property where the
Secretary determines that the application of paragraph (1) to
such property is not necessary to carry out the purposes of
this subsection.
``(4) Certain rules to apply.--Rules similar to the rules
of paragraphs (5), (6), and (7) of subsection (k) shall apply
for purposes of this subsection.
``(5) Determination of holding period.--Holding periods
shall be determined for purposes of this subsection without
regard to section 1235 or any similar rule.''.
(b) Conforming Amendment.--The heading of subsection (k) of section
901 is amended by inserting ``on Dividends'' after ``Taxes''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or accrued more than 30 days after the date of
the enactment of this Act.
Subtitle F--Other Revenue Provisions
PART I--FINANCIAL INSTRUMENTS
SEC. 461. TREATMENT OF STRIPPED INTERESTS IN BOND AND PREFERRED STOCK
FUNDS, ETC.
(a) In General.--Section 1286 (relating to tax treatment of
stripped bonds) is amended by redesignating subsection (f) as
subsection (g) and by inserting after subsection (e) the following new
subsection:
``(f) Treatment of Stripped Interests in Bond and Preferred Stock
Funds, etc.--In the case of an account or entity substantially all of
the assets of which consist of bonds, preferred stock, or a combination
thereof, the Secretary may by regulations provide that rules similar to
the rules of this section and 305(e), as appropriate, shall apply to
interests in such account or entity to which (but for this subsection)
this section or section 305(e), as the case may be, would not apply.''.
(b) Cross Reference.--Subsection (e) of section 305 is amended by
adding at the end the following new paragraph:
``(7) Cross reference.--
``For treatment of stripped interests
in certain accounts or entities holding preferred stock, see section
1286(f).''.
(c) Effective Date.--The amendments made by this section shall
apply to purchases and dispositions after the date of the enactment of
this Act.
SEC. 462. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS WHICH ARE
C CORPORATIONS.
(a) In General.--Section 163(j) (relating to limitation on
deduction for interest on certain indebtedness) is amended by
redesignating paragraph (8) as paragraph (9) and by inserting after
paragraph (7) the following new paragraph:
``(8) Allocations to certain corporate partners.--If a C
corporation is a partner in a partnership--
``(A) the corporation's allocable share of
indebtedness and interest income of the partnership
shall be taken into account in applying this subsection
to the corporation, and
``(B) if a deduction is not disallowed under this
subsection with respect to any interest expense of the
partnership, this subsection shall be applied
separately in determining whether a deduction is
allowable to the corporation with respect to the
corporation's allocable share of such interest
expense.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 463. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME REALIZED
ON SATISFACTION OF DEBT WITH PARTNERSHIP INTEREST.
(a) In General.--Paragraph (8) of section 108(e) (relating to
general rules for discharge of indebtedness (including discharges not
in title 11 cases or insolvency)) is amended to read as follows:
``(8) Indebtedness satisfied by corporate stock or
partnership interest.--For purposes of determining income of a
debtor from discharge of indebtedness, if--
``(A) a debtor corporation transfers stock, or
``(B) a debtor partnership transfers a capital or
profits interest in such partnership,
to a creditor in satisfaction of its recourse or nonrecourse
indebtedness, such corporation or partnership shall be treated
as having satisfied the indebtedness with an amount of money
equal to the fair market value of the stock or interest. In the
case of any partnership, any discharge of indebtedness income
recognized under this paragraph shall be included in the
distributive shares of taxpayers which were the partners in the
partnership immediately before such discharge.''.
(b) Effective Date.--The amendment made by this section shall apply
with respect to cancellations of indebtedness occurring on or after the
date of the enactment of this Act.
SEC. 464. MODIFICATION OF STRADDLE RULES.
(a) Rules Relating to Identified Straddles.--
(1) In general.--Subparagraph (A) of section 1092(a)(2)
(relating to special rule for identified straddles) is amended
to read as follows:
``(A) In general.--In the case of any straddle
which is an identified straddle--
``(i) paragraph (1) shall not apply with
respect to identified positions comprising the
identified straddle,
``(ii) if there is any loss with respect to
any identified position of the identified
straddle, the basis of each of the identified
offsetting positions in the identified straddle
shall be increased by an amount which bears the
same ratio to the loss as the unrecognized gain
with respect to such offsetting position bears
to the aggregate unrecognized gain with respect
to all such offsetting positions, and
``(iii) any loss described in clause (ii)
shall not otherwise be taken into account for
purposes of this title.''.
(2) Identified straddle.--Section 1092(a)(2)(B) (defining
identified straddle) is amended--
(A) by striking clause (ii) and inserting the
following:
``(ii) to the extent provided by
regulations, the value of each position of
which (in the hands of the taxpayer immediately
before the creation of the straddle) is not
less than the basis of such position in the
hands of the taxpayer at the time the straddle
is created, and'', and
(B) by adding at the end the following new flush
sentence:
``The Secretary shall prescribe regulations which
specify the proper methods for clearly identifying a
straddle as an identified straddle (and the positions
comprising such straddle), which specify the rules for
the application of this section for a taxpayer which
fails to properly identify the positions of an
identified straddle, and which specify the ordering
rules in cases where a taxpayer disposes of less than
an entire position which is part of an identified
straddle.''.
(3) Unrecognized gain.--Section 1092(a)(3) (defining
unrecognized gain) is amended by redesignating subparagraph (B)
as subparagraph (C) and by inserting after subparagraph (A) the
following new subparagraph:
``(B) Special rule for identified straddles.--For
purposes of paragraph (2)(A)(ii), the unrecognized gain
with respect to any identified offsetting position
shall be the excess of the fair market value of the
position at the time of the determination over the fair
market value of the position at the time the taxpayer
identified the position as a position in an identified
straddle.''.
(4) Conforming amendment.--Section 1092(c)(2) is amended by
striking subparagraph (B) and by redesignating subparagraph (C)
as subparagraph (B).
(b) Physically Settled Positions.--Section 1092(d) (relating to
definitions and special rules) is amended by adding at the end the
following new paragraph:
``(8) Special rules for physically settled positions.--For
purposes of subsection (a), if a taxpayer settles a position
which is part of a straddle by delivering property to which the
position relates (and such position, if terminated, would
result in a realization of a loss), then such taxpayer shall be
treated as if such taxpayer--
``(A) terminated the position for its fair market
value immediately before the settlement, and
``(B) sold the property so delivered by the
taxpayer at its fair market value.''.
(c) Repeal of Stock Exception.--
(1) In general.--Paragraph (3) of section 1092(d) (relating
to definitions and special rules) is amended to read as
follows:
``(3) Special rules for stock.--For purposes of paragraph
(1)--
``(A) In general.--The term `personal property'
includes--
``(i) any stock which is a part of a
straddle at least 1 of the offsetting positions
of which is a position with respect to such
stock or substantially similar or related
property, or
``(ii) any stock of a corporation formed or
availed of to take positions in personal
property which offset positions taken by any
shareholder.
``(B) Rule for application.--For purposes of
determining whether subsection (e) applies to any
transaction with respect to stock described in
subparagraph (A)(ii), all includible corporations of an
affiliated group (within the meaning of section
1504(a)) shall be treated as 1 taxpayer.''.
(2) Conforming amendment.--Section 1258(d)(1) is amended by
striking ``; except that the term `personal property' shall
include stock''.
(d) Modifications of Qualified Covered Call Exception.--
(1) Markets on which options may be traded.--
(A) In general.--Section 1092(c)(4)(B)(i) is
amended by striking ``or other market which the
Secretary determines has rules adequate to carry out
the purposes of this paragraph''.
(B) Regulations.--Section 1092(c)(4)(H) is amended
by adding at the end the following new sentence: ``Such
regulations shall not add any exchange or market not
described in subparagraph (B)(i) to the exchanges or
markets on which qualified covered call options may be
traded.''
(2) Holding period for dividend exclusion.--The last
sentence of section 246(c) is amended by inserting: ``, other
than a qualified covered call option to which section 1092(f)
applies'' before the period at the end.
(e) Effective Date.--The amendments made by this section shall
apply to positions established on or after the date of the enactment of
this Act.
SEC. 465. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL READILY
TRADEABLE DEBT.
(a) In General.--Section 453(f)(4)(B) (relating to purchaser
evidences of indebtedness payable on demand or readily tradeable) is
amended by striking ``is issued by a corporation or a government or
political subdivision thereof and''.
(b) Effective Date.--The amendment made by this section shall apply
to sales occurring on or after the date of the enactment of this Act.
PART II--CORPORATIONS AND PARTNERSHIPS
SEC. 466. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS IN
DIVISIVE REORGANIZATIONS.
(a) In General.--Section 361(b)(3) (relating to treatment of
transfers to creditors) is amended by adding at the end the following
new sentence: ``In the case of a reorganization described in section
368(a)(1)(D) with respect to which stock or securities of the
corporation to which the assets are transferred are distributed in a
transaction which qualifies under section 355, this paragraph shall
apply only to the extent that the sum of the money and the fair market
value of other property transferred to such creditors does not exceed
the adjusted bases of such assets transferred.''.
(b) Liabilities in Excess of Basis.--Section 357(c)(1)(B) is
amended by inserting ``with respect to which stock or securities of the
corporation to which the assets are transferred are distributed in a
transaction which qualifies under section 355'' after ``section
368(a)(1)(D)''.
(c) Effective Date.--The amendments made by this section shall
apply to transfers of money or other property, or liabilities assumed,
in connection with a reorganization occurring on or after the date of
the enactment of this Act.
SEC. 467. CLARIFICATION OF DEFINITION OF NONQUALIFIED PREFERRED STOCK.
(a) In General.--Section 351(g)(3)(A) is amended by adding at the
end the following: ``Stock shall not be treated as participating in
corporate growth to any significant extent unless there is a real and
meaningful likelihood of the shareholder actually participating in the
earnings and growth of the corporation.''.
(b) Effective Date.--The amendment made by this section shall apply
to transactions after May 14, 2003.
SEC. 468. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF
CORPORATIONS.
(a) In General.--Section 1563(a)(2) (relating to brother-sister
controlled group) is amended by striking ``possessing--'' and all that
follows through ``(B)'' and inserting ``possessing''.
(b) Application of Existing Rules to Other Code Provisions.--
Section 1563(f) (relating to other definitions and rules) is amended by
adding at the end the following new paragraph:
``(5) Brother-sister controlled group definition for
provisions other than this part.--
``(A) In general.--Except as specifically provided
in an applicable provision, subsection (a)(2) shall be
applied to an applicable provision as if it read as
follows:
```(2) Brother-sister controlled group.--Two or more
corporations if 5 or fewer persons who are individuals,
estates, or trusts own (within the meaning of subsection (d)(2)
stock possessing--
```(A) at least 80 percent of the total combined
voting power of all classes of stock entitled to vote,
or at least 80 percent of the total value of shares of
all classes of stock, of each corporation, and
```(B) more than 50 percent of the total combined
voting power of all classes of stock entitled to vote
or more than 50 percent of the total value of shares of
all classes of stock of each corporation, taking into
account the stock ownership of each such person only to
the extent such stock ownership is identical with
respect to each such corporation.'
``(B) Applicable provision.--For purposes of this
paragraph, an applicable provision is any provision of
law (other than this part) which incorporates the
definition of controlled group of corporations under
subsection (a).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 469. MANDATORY BASIS ADJUSTMENTS IN CONNECTION WITH PARTNERSHIP
DISTRIBUTIONS AND TRANSFERS OF PARTNERSHIP INTERESTS.
(a) In General.--Section 754 is repealed.
(b) Adjustment to Basis of Undistributed Partnership Property.--
Section 734 is amended--
(1) by striking ``, with respect to which the election
provided in section 754 is in effect,'' in the matter preceding
paragraph (1) of subsection (b),
(2) by striking ``(as adjusted by section 732(d))'' both
places it appears in subsection (b),
(3) by striking the last sentence of subsection (b),
(4) by striking subsection (a) and by redesignating
subsections (b) and (c) as subsections (a) and (b),
respectively, and
(5) by striking ``optional'' in the heading.
(c) Adjustment to Basis of Partnership Property.--Section 743 is
amended--
(1) by striking ``with respect to which the election
provided in section 754 is in effect'' in the matter preceding
paragraph (1) of subsection (b),
(2) by striking subsection (a) and by redesignating
subsections (b) and (c) as subsections (a) and (b),
respectively,
(3) by adding at the end the following new subsection:
``(c) Election To Adjust Basis for Transfers Upon Death of
Partner.--Subsection (a) shall not apply and no adjustments shall be
made in the case of any transfer of an interest in a partnership upon
the death of a partner unless an election to do so is made by the
partnership. Such an election shall apply with respect to all such
transfers of interests in the partnership. Any election under section
754 in effect on the date of the enactment of this subsection shall
constitute an election made under this subsection. Such election may be
revoked by the partnership, subject to such limitations as may be
provided by regulations prescribed by the Secretary.'', and
(4) by striking ``optional'' in the heading.
(d) Conforming Amendments.--
(1) Subsection (d) of section 732 is repealed.
(2) Section 755(a) is amended--
(A) by striking ``section 734(b) (relating to the
optional adjustment'' and inserting ``section 734(a)
(relating to the adjustment'', and
(B) by striking ``section 743(b) (relating to the
optional adjustment'' and inserting ``section 743(a)
(relating to the adjustment''.
(3) Section 755(c), as added by this Act, is amended by
striking ``section 734(b)'' and inserting ``section 734(a)''.
(4) Section 761(e)(2) is amended by striking ``optional''.
(5) Section 774(a) is amended by striking ``743(b)'' both
places it appears and inserting ``743(a)''.
(6) The item relating to section 734 in the table of
sections for subpart B of part II of subchapter K of chapter 1
is amended by striking ``Optional''.
(7) The item relating to section 743 in the table of
sections for subpart C of part II of subchapter K of chapter 1
is amended by striking ``Optional''.
(e) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to transfers and
distributions made after the date of the enactment of this Act.
(2) Repeal of section 732(d).--The amendments made by
subsections (b)(2) and (d)(1) shall apply to--
(A) except as provided in subparagraph (B),
transfers made after the date of the enactment of this
Act, and
(B) in the case of any transfer made on or before
such date to which section 732(d) applies,
distributions made after the date which is 2 years
after such date of enactment.
PART III--DEPRECIATION AND AMORTIZATION
SEC. 471. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS
FRANCHISES.
(a) In General.--Section 197(e) (relating to exceptions to
definition of section 197 intangible) is amended by striking paragraph
(6) and by redesignating paragraphs (7) and (8) as paragraphs (6) and
(7), respectively.
(b) Conforming Amendments.--
(1)(A) Section 1056 (relating to basis limitation for
player contracts transferred in connection with the sale of a
franchise) is repealed.
(B) The table of sections for part IV of subchapter O of
chapter 1 is amended by striking the item relating to section
1056.
(2) Section 1245(a) (relating to gain from disposition of
certain depreciable property) is amended by striking paragraph
(4).
(3) Section 1253 (relating to transfers of franchises,
trademarks, and trade names) is amended by striking subsection
(e).
(c) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to property
acquired after the date of the enactment of this Act.
(2) Section 1245.--The amendment made by subsection (b)(2)
shall apply to franchises acquired after the date of the
enactment of this Act.
SEC. 472. CLASS LIVES FOR UTILITY GRADING COSTS.
(a) Gas Utility Property.--Section 168(e)(3)(E) (defining 15-year
property) is amended by striking ``and'' at the end of clause (ii), by
striking the period at the end of clause (iii) and inserting ``, and'',
and by adding at the end the following new clause:
``(iv) initial clearing and grading land
improvements with respect to gas utility
property.''.
(b) Electric Utility Property.--Section 168(e)(3) is amended by
adding at the end the following new subparagraph:
``(F) 20-year property.--The term `20-year
property' means initial clearing and grading land
improvements with respect to any electric utility
transmission and distribution plant.''.
(c) Conforming Amendments.--The table contained in section
168(g)(3)(B) is amended--
(1) by inserting ``or (E)(iv)'' after ``(E)(iii)'', and
(2) by adding at the end the following new item:
``(F)......................................... 25''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act.
SEC. 473. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN PASSENGER
AUTOMOBILES.
(a) In General.--Section 179(b) of the Internal Revenue Code of
1986 (relating to limitations) is amended by adding at the end the
following new paragraph:
``(6) Limitation on cost taken into account for certain
passenger vehicles.--
``(A) In general.--The cost of any sport utility
vehicle for any taxable year which may be taken into
account under this section shall not exceed $25,000.
``(B) Sport utility vehicle.--For purposes of
subparagraph (A)--
``(i) In general.--The term `sport utility
vehicle' means any 4-wheeled vehicle--
``(I) which is primarily designed
or which can be used to carry
passengers over public streets, roads,
or highways (except any vehicle
operated exclusively on a rail or
rails),
``(II) which is not subject to
section 280F, and
``(III) which is rated at not more
than 14,000 pounds gross vehicle
weight.
``(ii) Certain vehicles excluded.--Such
term does not include any vehicle which--
``(I) is designed to have a seating
capacity of more than 9 persons behind
the driver's seat,
``(II) is equipped with a cargo
area of at least 6 feet in interior
length which is an open area or is
designed for use as an open area but is
enclosed by a cap and is not readily
accessible directly from the passenger
compartment, or
``(III) has an integral enclosure,
fully enclosing the driver compartment
and load carrying device, does not have
seating rearward of the driver's seat,
and has no body section protruding more
than 30 inches ahead of the leading
edge of the windshield.''.
(b) Effective Date.--The amendment made by this section shall apply
to property placed in service after the date of the enactment of this
Act.
SEC. 474. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.
(a) Start-Up Expenditures.--
(1) Allowance of deduction.--Paragraph (1) of section
195(b) (relating to start-up expenditures) is amended to read
as follows:
``(1) Allowance of deduction.--If a taxpayer elects the
application of this subsection with respect to any start-up
expenditures--
``(A) the taxpayer shall be allowed a deduction for
the taxable year in which the active trade or business
begins in an amount equal to the lesser of--
``(i) the amount of start-up expenditures
with respect to the active trade or business,
or
``(ii) $5,000, reduced (but not below zero)
by the amount by which such start-up
expenditures exceed $50,000, and
``(B) the remainder of such start-up expenditures
shall be allowed as a deduction ratably over the 180-
month period beginning with the month in which the
active trade or business begins.''.
(2) Conforming amendment.--Subsection (b) of section 195 is
amended by striking ``Amortize'' and inserting ``Deduct'' in
the heading.
(b) Organizational Expenditures.--Subsection (a) of section 248
(relating to organizational expenditures) is amended to read as
follows:
``(a) Election to Deduct.--If a corporation elects the application
of this subsection (in accordance with regulations prescribed by the
Secretary) with respect to any organizational expenditures--
``(1) the corporation shall be allowed a deduction for the
taxable year in which the corporation begins business in an
amount equal to the lesser of--
``(A) the amount of organizational expenditures
with respect to the taxpayer, or
``(B) $5,000, reduced (but not below zero) by the
amount by which such organizational expenditures exceed
$50,000, and
``(2) the remainder of such organizational expenditures
shall be allowed as a deduction ratably over the 180-month
period beginning with the month in which the corporation begins
business.''.
(c) Treatment of Organizational and Syndication Fees or
Partnerships.--
(1) In general.--Section 709(b) (relating to amortization
of organization fees) is amended by redesignating paragraph (2)
as paragraph (3) and by amending paragraph (1) to read as
follows:
``(1) Allowance of deduction.--If a taxpayer elects the
application of this subsection (in accordance with regulations
prescribed by the Secretary) with respect to any organizational
expenses--
``(A) the taxpayer shall be allowed a deduction for
the taxable year in which the partnership begins
business in an amount equal to the lesser of--
``(i) the amount of organizational expenses
with respect to the partnership, or
``(ii) $5,000, reduced (but not below zero)
by the amount by which such organizational
expenses exceed $50,000, and
``(B) the remainder of such organizational expenses
shall be allowed as a deduction ratably over the 180-
month period beginning with the month in which the
partnership begins business.
``(2) Dispositions before close of amortization period.--In
any case in which a partnership is liquidated before the end of
the period to which paragraph (1)(B) applies, any deferred
expenses attributable to the partnership which were not allowed
as a deduction by reason of this section may be deducted to the
extent allowable under section 165.''.
(2) Conforming amendment.--Subsection (b) of section 709 is
amended by striking ``Amortization'' and inserting
``Deduction'' in the heading.
(d) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred after the date of the enactment of
this Act.
SEC. 475. REFORM OF TAX TREATMENT OF LEASING OPERATIONS.
(a) Clarification of Recovery Period for Tax-Exempt Use Property
Subject to Lease.--Subparagraph (A) of section 168(g)(3) (relating to
special rules for determining class life) is amended by inserting
``(notwithstanding any other subparagraph of this paragraph)'' after
``shall''.
(b) Limitation on Depreciation Period for Software Leased to Tax-
Exempt Entity.--Paragraph (1) of section 167(f) is amended by adding at
the end the following new subparagraph:
``(C) Tax-exempt use property subject to lease.--In
the case of computer software which would be tax-exempt
use property as defined in subsection (h) of section
168 if such section applied to computer software, the
useful life under subparagraph (A) shall not be less
than 125 percent of the lease term (within the meaning
of section 168(i)(3)).''
(c) Lease Term To Include Related Service Contracts.--Subparagraph
(A) of section 168(i)(3) (relating to lease term) is amended by
striking ``and'' at the end of clause (i), by redesignating clause (ii)
as clause (iii), and by inserting after clause (i) the following new
clause:
``(ii) the term of a lease shall include
the term of any service contract or similar
arrangement (whether or not treated as a lease
under section 7701(e))--
``(I) which is part of the same
transaction (or series of related
transactions) which includes the lease,
and
``(II) which is with respect to the
property subject to the lease or
substantially similar property, and''.
(d) Effective Date.--The amendments made by this section shall
apply to leases entered into after December 31, 2003.
SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED BY
GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.
(a) In General.--Subpart C of part II of subchapter E of chapter 1
(relating to taxable year for which deductions taken) is amended by
adding at the end the following new section:
``SEC. 470. LIMITATIONS ON LOSSES FROM TAX-EXEMPT USE PROPERTY.
``(a) Limitation on Losses.--Except as otherwise provided in this
section, a tax-exempt use loss for any taxable year shall not be
allowed.
``(b) Disallowed Loss Carried to Next Year.--Any tax-exempt use
loss with respect to any tax-exempt use property which is disallowed
under subsection (a) for any taxable year shall be treated as a
deduction with respect to such property in the next taxable year.
``(c) Definitions.--For purposes of this section--
``(1) Tax-exempt use loss.--The term `tax-exempt use loss'
means, with respect to any taxable year, the amount (if any) by
which--
``(A) the sum of--
``(i) the aggregate deductions (other than
interest) directly allocable to a tax-exempt
use property, plus
``(ii) the aggregate deductions for
interest properly allocable to such property,
exceed
``(B) the aggregate income from such property.
``(2) Tax-exempt use property.--The term `tax-exempt use
property' has the meaning given to such term by section 168(h)
(without regard to paragraph (1)(C) or (3) thereof and
determined as if property described in section 167(f)(1)(B)
were tangible property). Such term shall not include property
with respect to which the credit under section 42 is allowed
and which, but for this sentence, would be tax-exempt property
solely by reason of section 168(h)(6).
``(d) Exception for Certain Leases.--This section shall not apply
to any lease of property which meets the requirements of all of the
following paragraphs:
``(1) Property not financed with tax-exempt bonds or
federal funds.--A lease of property meets the requirements of
this paragraph if no part of the property was financed
(directly or indirectly) from--
``(A) the proceeds of an obligation the interest on
which is exempt from tax under section 103(a) and which
(or any refunding bond of which) is outstanding when
the lease is entered into, or
``(B) Federal funds.
The Secretary may by regulations provide for a de minimis
exception from this paragraph.
``(2) Availability of funds.--
``(A) In general.--A lease of property meets the
requirements of this paragraph if (at any time during
the lease term) not more than an allowable amount of
funds are--
``(i) subject to any arrangement referred
to in subparagraph (B), or
``(ii) set aside or expected to be set
aside,
to or for the benefit of the lessor or a lender, or to
or for the benefit of the lessee to satisfy the
lessee's obligations or options under the lease. Funds
shall be treated as described in clause (ii) only if a
reasonable person would conclude, based on the facts
and circumstances, that such funds are so described.
``(B) Arrangements.--The arrangements referred to
in this subparagraph are--
``(i) a defeasance arrangement, a loan by
the lessee to the lessor or a lender, a deposit
arrangement, a letter of credit collateralized
with cash or cash equivalents, a payment
undertaking agreement, a lease prepayment, a
sinking fund arrangement, or any similar
arrangement (whether or not such arrangement
provides credit support), and
``(ii) any other arrangement identified by
the Secretary in regulations.
``(C) Allowable amount.--
``(i) In general.--Except as otherwise
provided in this subparagraph, the term
`allowable amount' means an amount equal to 20
percent of the lessor's adjusted basis in the
property at the time the lease is entered into.
``(ii) Higher amount permitted in certain
cases.--To the extent provided in regulations,
a higher percentage shall be permitted under
clause (i) where necessary because of the
credit-worthiness of the lessee. In no event
may such regulations permit a percentage of
more than 50 percent.
``(iii) Option to purchase.--If under the
lease the lessee has the option to purchase the
property for a fixed price or for other than
the fair market value of the property
(determined at the time of exercise), the
allowable amount at the time such option may be
exercised may not exceed 50 percent of the
price at which such option may be exercised.
``(iv) No allowable amount for certain
arrangements.--The allowable amount shall be
zero in the case of any arrangement which
involves--
``(I) a loan from the lessee to the
lessor or a lender,
``(II) any deposit, letter of
credit, or payment undertaking
agreement involving a lender, or
``(III) any credit support made
available to the lessor in which a
lender (if any) does not have a claim
which is senior to the lessor.
For purposes of subclause (I), the term `loan'
shall not include any amount treated as a loan
under section 467 with respect to a section 467
rental agreement.
``(3) Lessor must make substantial equity investment.--A
lease of property meets the requirements of this paragraph if--
``(A) the lessor--
``(i) has at the time the lease is entered
into an unconditional at-risk equity investment
(as determined by the Secretary) in the
property of at least 20 percent of the lessor's
adjusted basis in the property as of that time,
and
``(ii) maintains such investment throughout
the term of the lease, and
``(B) the fair market value of the property at the
end of the lease term is reasonably expected to be
equal to at least 20 percent of such basis.
Subparagraphs (A)(ii) and (B) shall not apply if the lease term
is described in section 168(h)(1)(C)(ii), or in the case of
qualified technological equipment, is described in section
168(h)(3). For purposes of subparagraph (B), the fair market
value at the end of the lease term shall be reduced to the
extent that a person other than the lessor bears a risk of loss
in the value of the property.
``(4) Lessee may not bear more than minimal risk of loss.--
``(A) In general.--A lease of property meets the
requirements of this paragraph if there is no
arrangement under which more than a minimal risk of
loss (as determined under regulations) in the value of
the property is borne by the lessee.
``(B) Certain arrangements fail requirement.--In no
event will the requirements of this paragraph be met if
there is any arrangement under which the lessee bears--
``(i) any portion of the loss that would
occur if the fair market value of the leased
property were 25 percent less than its
reasonably expected fair market value at the
time the lease is terminated, or
``(ii) more than 50 percent of the loss
that would occur if the fair market value of
the leased property at the time the lease is
terminated were zero.
``(5) Property with more than 7-year class life.--In the
case of a lease--
``(A) of property with a class life (as defined in
section 168(i)(1)) of more than 7 years, and
``(B) under which the lessee has the option to
purchase the property,
the lease meets the requirements of this paragraph only if the
purchase price under the option equals the fair market value of
the property (determined at the time of exercise).
``(6) Regulatory requirements.--A lease of property meets
the requirements of this paragraph if such lease of property
meets such requirements as the Secretary may prescribe by
regulations.
``(e) Special Rules.--
``(1) Treatment of former tax-exempt use property.--
``(A) In general.--In the case of any former tax-
exempt use property--
``(i) any deduction allowable under
subsection (b) with respect to such property
for any taxable year shall be allowed only to
the extent of any net income (without regard to
such deduction) from such property for such
taxable year, and
``(ii) any portion of such unused deduction
remaining after application of clause (i) shall
be treated as allowable under subsection (b)
with respect to such property in the next
taxable year.
``(B) Former tax-exempt use property.--For purposes
of this subsection, the term `former tax-exempt use
property' means any property which--
``(i) is not tax-exempt use property for
the taxable year, but
``(ii) was tax-exempt use property for any
prior taxable year.
``(2) Disposition of entire interest in property.--If
during the taxable year a taxpayer disposes of the taxpayer's
entire interest in tax-exempt use property (or former tax-
exempt use property), rules similar to the rules of section
469(g) shall apply for purposes of this section.
``(3) Coordination with section 469.--This section shall be
applied before the application of section 469.
``(f) Other Definitions.--For purposes of this section--
``(1) Related parties.--The terms `lessor', `lessee', and
`lender' include any related party (within the meaning of
section 197(f)(9)(C)(i)).
``(2) Lease term.--The term `lease term' has the meaning
given to such term by section 168(i)(3).
``(3) Lender.--The term `lender' means, with respect to any
lease, a person that makes a loan to the lessor which is
secured (or economically similar to being secured) by the lease
or the leased property.
``(4) Loan.--The term `loan' includes any similar
arrangement.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section, including regulation which--
``(1) allow in appropriate cases the aggregation of
property subject to the same lease, and
``(2) provide for the determination of the allocation of
interest expense for purposes of this section.''
(b) Conforming Amendment.--The table of sections for subpart C of
part II of subchapter E of chapter 1 is amended by adding at the end
the following new item:
``Sec. 470. Limitations on losses from tax-exempt use property.''
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to leases entered into after November 18, 2003.
(2) Leases to foreign entities.--In the case of tax-exempt
use property leased to a tax-exempt entity which is a foreign
person or entity, the amendments made by this section shall
apply to taxable years beginning after January 31, 2004, with
respect to leases entered into on or before November 18, 2003.
PART IV--ADMINISTRATIVE PROVISIONS
SEC. 481. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX FOR
CERTAIN DEEMED ASSET SALES.
(a) In General.--Paragraph (13) of section 338(h) (relating to tax
on deemed sale not taken into account for estimated tax purposes) is
amended by adding at the end the following: ``The preceding sentence
shall not apply with respect to a qualified stock purchase for which an
election is made under paragraph (10).''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to transactions occurring after the date of the enactment of this
Act.
SEC. 482. EXTENSION OF IRS USER FEES.
(a) In General.--Section 7528(c) (relating to termination) is
amended by striking ``December 31, 2004'' and inserting ``September 30,
2013''.
(b) Effective Date.--The amendment made by this section shall apply
to requests after the date of the enactment of this Act.
SEC. 483. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST ON
UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE FINANCIAL
ARRANGEMENT.
(a) Determination of Penalty.--
(1) In general.--Notwithstanding any other provision of
law, in the case of an applicable taxpayer--
(A) the determination as to whether any interest or
applicable penalty is to be imposed with respect to any
arrangement to which any initiative described in
paragraph (2) applied, or to any underpayment of
Federal income tax attributable to items arising in
connection with any arrangement described in paragraph
(2), shall be made without regard to section 6664 of
the Internal Revenue Code of 1986, and
(B) if any such interest or applicable penalty is
imposed, the amount of such interest or penalty shall
be equal to twice that determined without regard to
this section.
(2) Applicable taxpayer.--For purposes of this subsection,
the term ``applicable taxpayer'' means 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).
(b) Definitions and Rules.--For purposes of this section--
(1) Applicable penalty.--The term ``applicable penalty''
means any penalty, addition to tax, or fine imposed under
chapter 68 of the Internal Revenue Code of 1986.
(2) Voluntary offshore compliance initiative.--The term
``Voluntary Offshore Compliance Initiative'' means the program
established by the Department of the Treasury in January of
2003 under which any taxpayer was eligible to voluntarily
disclose previously undisclosed income on assets placed in
offshore accounts and accessed through credit card and other
financial arrangements.
(3) Participation.--A taxpayer shall be treated as having
participated in the Voluntary Offshore Compliance Initiative if
the taxpayer submitted the request in a timely manner and all
information requested by the Secretary of the Treasury or his
delegate within a reasonable period of time following the
request.
(c) Effective Date.--The provisions of this section shall apply to
interest, penalties, additions to tax, and fines with respect to any
taxable year if as of the date of the enactment of this Act, the
assessment of any tax, penalty, or interest with respect to such
taxable year is not prevented by the operation of any law or rule of
law.
SEC. 484. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT AGREEMENTS.
(a) In General.--
(1) Section 6159(a) (relating to authorization of
agreements) is amended--
(A) by striking ``satisfy liability for payment
of'' and inserting ``make payment on'', and
(B) by inserting ``full or partial'' after
``facilitate''.
(2) Section 6159(c) (relating to Secretary required to
enter into installment agreements in certain cases) is amended
in the matter preceding paragraph (1) by inserting ``full''
before ``payment''.
(b) Requirement To Review Partial Payment Agreements Every Two
Years.--Section 6159, as amended by this Act, is amended by
redesignating subsections (d), (e), and (f) as subsections (e), (f),
and (g), respectively, and inserting after subsection (c) the following
new subsection:
``(d) Secretary Required To Review Installment Agreements for
Partial Collection Every Two Years.--In the case of an agreement
entered into by the Secretary under subsection (a) for partial
collection of a tax liability, the Secretary shall review the agreement
at least once every 2 years.''.
(c) Effective Date.--The amendments made by this section shall
apply to agreements entered into on or after the date of the enactment
of this Act.
SEC. 485. EXTENSION OF CUSTOMS USER FEES.
Section 13031(j)(3) of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended by striking
``March 1, 2005'' and inserting ``September 30, 2013''.
SEC. 486. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL
UNDERPAYMENTS.
(a) In General.--Subchapter A of chapter 67 (relating to interest
on underpayments) is amended by adding at the end the following new
section:
``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL
UNDERPAYMENTS, ETC.
``(a) Authority To Make Deposits Other Than As Payment of Tax.--A
taxpayer may make a cash deposit with the Secretary which may be used
by the Secretary to pay any tax imposed under subtitle A or B or
chapter 41, 42, 43, or 44 which has not been assessed at the time of
the deposit. Such a deposit shall be made in such manner as the
Secretary shall prescribe.
``(b) No Interest Imposed.--To the extent that such deposit is used
by the Secretary to pay tax, for purposes of section 6601 (relating to
interest on underpayments), the tax shall be treated as paid when the
deposit is made.
``(c) Return of Deposit.--Except in a case where the Secretary
determines that collection of tax is in jeopardy, the Secretary shall
return to the taxpayer any amount of the deposit (to the extent not
used for a payment of tax) which the taxpayer requests in writing.
``(d) Payment of Interest.--
``(1) In general.--For purposes of section 6611 (relating
to interest on overpayments), a deposit which is returned to a
taxpayer shall be treated as a payment of tax for any period to
the extent (and only to the extent) attributable to a
disputable tax for such period. Under regulations prescribed by
the Secretary, rules similar to the rules of section 6611(b)(2)
shall apply.
``(2) Disputable tax.--
``(A) In general.--For purposes of this section,
the term `disputable tax' means the amount of tax
specified at the time of the deposit as the taxpayer's
reasonable estimate of the maximum amount of any tax
attributable to disputable items.
``(B) Safe harbor based on 30-day letter.--In the
case of a taxpayer who has been issued a 30-day letter,
the maximum amount of tax under subparagraph (A) shall
not be less than the amount of the proposed deficiency
specified in such letter.
``(3) Other definitions.--For purposes of paragraph (2)--
``(A) Disputable item.--The term `disputable item'
means any item of income, gain, loss, deduction, or
credit if the taxpayer--
``(i) has a reasonable basis for its
treatment of such item, and
``(ii) reasonably believes that the
Secretary also has a reasonable basis for
disallowing the taxpayer's treatment of such
item.
``(B) 30-day letter.--The term `30-day letter'
means the first letter of proposed deficiency which
allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of
Appeals.
``(4) Rate of interest.--The rate of interest allowable
under this subsection shall be the Federal short-term rate
determined under section 6621(b), compounded daily.
``(e) Use of Deposits.--
``(1) Payment of tax.--Except as otherwise provided by the
taxpayer, deposits shall be treated as used for the payment of
tax in the order deposited.
``(2) Returns of deposits.--Deposits shall be treated as
returned to the taxpayer on a last-in, first-out basis.''.
(b) Clerical Amendment.--The table of sections for subchapter A of
chapter 67 is amended by adding at the end the following new item:
``Sec. 6603. Deposits made to suspend
running of interest on
potential underpayments,
etc.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to deposits made after the date of the enactment of this
Act.
(2) Coordination with deposits made under revenue procedure
84-58.--In the case of an amount held by the Secretary of the
Treasury or his delegate on the date of the enactment of this
Act as a deposit in the nature of a cash bond deposit pursuant
to Revenue Procedure 84-58, the date that the taxpayer
identifies such amount as a deposit made pursuant to section
6603 of the Internal Revenue Code (as added by this Act) shall
be treated as the date such amount is deposited for purposes of
such section 6603.
SEC. 487. QUALIFIED TAX COLLECTION CONTRACTS.
(a) Contract Requirements.--
(1) In general.--Subchapter A of chapter 64 (relating to
collection) is amended by adding at the end the following new
section:
``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.
``(a) In General.--Nothing in any provision of law shall be
construed to prevent the Secretary from entering into a qualified tax
collection contract.
``(b) Qualified Tax Collection Contract.--For purposes of this
section, the term `qualified tax collection contract' means any
contract which--
``(1) is for the services of any person (other than an
officer or employee of the Treasury Department)--
``(A) to locate and contact any taxpayer specified
by the Secretary,
``(B) to request full payment from such taxpayer of
an amount of Federal tax specified by the Secretary
and, if such request cannot be met by the taxpayer, to
offer the taxpayer an installment agreement providing
for full payment of such amount during a period not to
exceed 3 years, and
``(C) to obtain financial information specified by
the Secretary with respect to such taxpayer,
``(2) prohibits each person providing such services under
such contract from committing any act or omission which
employees of the Internal Revenue Service are prohibited from
committing in the performance of similar services,
``(3) prohibits subcontractors from--
``(A) having contacts with taxpayers,
``(B) providing quality assurance services, and
``(C) composing debt collection notices, and
``(4) permits subcontractors to perform other services only
with the approval of the Secretary.
``(c) Fees and Expenses.--The Secretary may retain and use--
``(1) an amount not in excess of 25 percent of the amount
collected under any qualified tax collection contract for the
costs of services performed under such contract, and
``(2) an amount not in excess of 25 percent of such amount
collected for collection enforcement activities of the Internal
Revenue Service.
The Secretary shall keep adequate records regarding amounts so retained
and used. The amount credited as paid by any taxpayer shall be
determined without regard to this subsection.
``(d) No Federal Liability.--The United States shall not be liable
for any act or omission of any person performing services under a
qualified tax collection contract.
``(e) Application of Fair Debt Collection Practices Act.--The
provisions of the Fair Debt Collection Practices Act (15 U.S.C. 1692 et
seq.) shall apply to any qualified tax collection contract, except to
the extent superseded by section 6304, section 7602(c), or by any other
provision of this title.
``(f) Application of Section.--In no event may the term of any
qualified tax collection contract extend beyond the date which is 5
years after the date of the enactment of this section.
``(g) Cross References.--
``(1) For damages for certain unauthorized collection
actions by persons performing services under a qualified tax
collection contract, see section 7433A.
``(2) For application of Taxpayer Assistance Orders to
persons performing services under a qualified tax collection
contract, see section 7811(a)(4).''.
(2) Conforming amendments.--
(A) Section 7809(a) is amended by inserting
``6306,'' before ``7651''.
(B) The table of sections for subchapter A of
chapter 64 is amended by adding at the end the
following new item:
``Sec. 6306. Qualified Tax Collection
Contracts.''.
(b) Civil Damages for Certain Unauthorized Collection Actions by
Persons Performing Services Under Qualified Tax Collection Contracts.--
(1) In general.--Subchapter B of chapter 76 (relating to
proceedings by taxpayers and third parties) is amended by
inserting after section 7433 the following new section:
``SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS
BY PERSONS PERFORMING SERVICES UNDER QUALIFIED TAX
COLLECTION CONTRACTS.
``(a) In General.--Subject to the modifications provided by
subsection (b), section 7433 shall apply to the acts and omissions of
any person performing services under a qualified tax collection
contract (as defined in section 6306(b)) to the same extent and in the
same manner as if such person were an employee of the Internal Revenue
Service.
``(b) Modifications.--For purposes of subsection (a)--
``(1) Any civil action brought under section 7433 by reason
of this section shall be brought against the person who entered
into the qualified tax collection contract with the Secretary
and shall not be brought against the United States.
``(2) Such person and not the United States shall be liable
for any damages and costs determined in such civil action.
``(3) Such civil action shall not be an exclusive remedy
with respect to such person.
``(4) Subsections (c), (d)(1), and (e) of section 7433
shall not apply.''.
(2) Clerical amendment.--The table of sections for
subchapter B of chapter 76 is amended by inserting after the
item relating to section 7433 the following new item:
``Sec. 7433A. Civil damages for certain
unauthorized collection actions
by persons performing services
under a qualified tax
collection contract.''.
(c) Application of Taxpayer Assistance Orders to Persons Performing
Services Under a Qualified Tax Collection Contract.--Section 7811
(relating to taxpayer assistance orders) is amended by adding at the
end the following new subsection:
``(g) Application to Persons Performing Services Under a Qualified
Tax Collection Contract.--Any order issued or action taken by the
National Taxpayer Advocate pursuant to this section shall apply to
persons performing services under a qualified tax collection contract
(as defined in section 6306(b)) to the same extent and in the same
manner as such order or action applies to the Secretary.''.
(d) Ineligibility of Individuals Who Commit Misconduct To Perform
Under Contract.--Section 1203 of the Internal Revenue Service
Restructuring Act of 1998 (relating to termination of employment for
misconduct) is amended by adding at the end the following new
subsection:
``(e) Individuals Performing Services Under a Qualified Tax
Collection Contract.--An individual shall cease to be permitted to
perform any services under any qualified tax collection contract (as
defined in section 6306(b) of the Internal Revenue Code of 1986) if
there is a final determination by the Secretary of the Treasury under
such contract that such individual committed any act or omission
described under subsection (b) in connection with the performance of
such services.''.
(e) Biennial Report.--The Secretary of the Treasury shall
biennially submit (beginning in 2005) to the Committee on Finance of
the Senate and the Committee on Ways and Means of the House of
Representatives a report with respect to qualified tax collection
contracts under section 6306 of the Internal Revenue Code of 1986 (as
added by this section) which includes--
(1) a complete cost benefit analysis,
(2) the impact of such contracts on collection enforcement
staff levels in the Internal Revenue Service,
(3) the amounts collected and the collection costs incurred
(directly and indirectly),
(4) an evaluation of contractor performance,
(5) a disclosure safeguard report in a form similar to that
required under section 6103(p)(5) of such Code, and
(6) a measurement plan which includes a comparison of the
best practices used by the private collectors with the Internal
Revenue Service's own collection techniques) and mechanisms to
identify and capture information on successful collection
techniques used by the contractors which could be adopted by
the Internal Revenue Service.
(f) Effective Date.--The amendments made to this section shall take
effect on the date of the enactment of this Act.
SEC. 488. WHISTLEBLOWER REFORMS.
(a) In General.--Section 7623 (relating to expenses of detection of
underpayments and fraud, etc.) is amended--
(1) by striking ``The Secretary'' and inserting ``(a) In
General.--The Secretary'',
(2) by striking ``and'' at the end of paragraph (1) and
inserting ``or'',
(3) by striking ``(other than interest)'', and
(4) by adding at the end the following new subsections:
``(b) Awards to Whistleblowers.--
``(1) In general.--If the Secretary proceeds with any
administrative or judicial action described in subsection (a)
based on information brought to the Secretary's attention by an
individual, such individual shall, subject to paragraph (2),
receive as an award at least 15 percent but not more than 30
percent of the collected proceeds (including penalties,
interest, additions to tax, and additional amounts) resulting
from the action (including any related actions) or from any
settlement in response to such action. The determination of the
amount of such award by the Whistleblower Office shall depend
upon the extent to which the individual substantially
contributed to such action.
``(2) Award in case of less substantial contribution.--
``(A) In general.--In the event the action
described in paragraph (1) is one which the
Whistleblower Office determines to be based principally
on disclosures of specific allegations (other than
information provided by the individual described in
paragraph (1)) resulting from a judicial or
administrative hearing, from a governmental report,
hearing, audit, or investigation, or from the news
media, the Whistleblower Office may award such sums as
it considers appropriate, but in no case more than 10
percent of the collected proceeds (including penalties,
interest, additions to tax, and additional amounts)
resulting from the action (including any related
actions) or from any settlement in response to such
action, taking into account the significance of the
individual's information and the role of such
individual and any legal representative of such
individual in contributing to such action.
``(B) Nonapplication of paragraph where individual
is original source of information.--Subparagraph (A)
shall not apply if the information resulting in the
initiation of the action described in paragraph (1) was
originally provided by the individual described in
paragraph (1).
``(3) Appeal of award determination.--Any determination
regarding an award under paragraph (1) or (2) shall be subject
to the filing by the individual described in such paragraph of
a petition for review with the Tax Court under rules similar to
the rules under section 7463 (without regard to the amount in
dispute) and such review shall be subject to the rules under
section 7461(b)(1).
``(4) Application of this subsection.--This subsection
shall apply with respect to any action--
``(A) against any taxpayer, but in the case of any
individual, only if such individual's gross income
exceeds $200,000 for any taxable year subject to such
action, and
``(B) if the tax, penalties, interest, additions to
tax, and additional amounts in dispute exceed $20,000.
``(5) Additional rules.--
``(A) No contract necessary.--No contract with the
Internal Revenue Service is necessary for any
individual to receive an award under this subsection.
``(B) Representation.--Any individual described in
paragraph (1) or (2) may be represented by counsel.
``(C) Award not subject to individual alternative
minimum tax.--No award received under this subsection
shall be included in gross income for purposes of
determining alternative minimum taxable income.
``(c) Whistleblower Office.--
``(1) In general.--There is established in the Internal
Revenue Service an office to be known as the `Whistleblower
Office' which--
``(A) shall analyze information received from any
individual described in subsection (b) and either
investigate the matter itself or assign it to the
appropriate Internal Revenue Service office,
``(B) shall monitor any action taken with respect
to such matter,
``(C) shall inform such individual that it has
accepted the individual's information for further
review,
``(D) may require such individual and any legal
representative of such individual to not disclose any
information so provided,
``(E) may ask for additional assistance from such
individual or any legal representative of such
individual, and
``(F) shall determine the amount to be awarded to
such individual under subsection (b).
``(2) Funding for office.--From the amounts available for
expenditure under subsection (a), the Whistleblower Office
shall be credited with an amount equal to the awards made under
subsection (b). These funds shall be used to maintain the
Whistleblower Office and also to reimburse other Internal
Revenue Service offices for related costs, such as costs of
investigation and collection.
``(3) Request for assistance.--
``(A) In general.--Any assistance requested under
paragraph (1)(E) shall be under the direction and
control of the Whistleblower Office or the office
assigned to investigate the matter under subparagraph
(A). To the extent the disclosure of any returns or
return information to the individual or legal
representative is required for the performance of such
assistance, such disclosure shall be pursuant to a
contract entered into between the Secretary and the
recipients of such disclosure subject to section
6103(n).
``(B) Funding of assistance.--From the funds made
available to the Whistleblower Office under paragraph
(2), the Whistleblower Office may reimburse the costs
incurred by any legal representative in providing
assistance described in subparagraph (A).''.
(b) Effective Date.--The amendments made by this section shall
apply to information provided on or after the date of the enactment of
this Act.
SEC. 489. PROTECTION OF OVERTIME PAY.
Section 13 of the Fair Labor Standards Act of 1938 (29 U.S.C. 213)
is amended by adding at the end the following:
``(k)(1) The Secretary shall not promulgate any rule under
subsection (a)(1) that exempts from the overtime pay provisions of
section 7 any employee who earns less than $23,660 per year.
``(2) The Secretary shall not promulgate any rule under subsection
(a)(1) concerning the right to overtime pay that is not as protective,
or more protective, of the overtime pay rights of employees in the
occupations or job classifications described in paragraph (3) as the
protections provided for such employees under the regulations in effect
under such subsection on March 31, 2003.
``(3) The occupations or job classifications described in this
paragraph are as follows:
``(A) Any worker paid on an hourly basis.
``(B) Blue collar workers.
``(C) Any worker provided overtime under a collective
bargaining agreement.
``(D) Team leaders.
``(E) Computer programmers.
``(F) Registered nurses.
``(G) Licensed practical nurses.
``(H) Nurse midwives.
``(I) Nursery school teachers.
``(J) Oil and gas pipeline workers.
``(K) Oil and gas field workers.
``(L) Oil and gas platform workers.
``(M) Refinery workers.
``(N) Steel workers.
``(O) Shipyard and ship scrapping workers.
``(P) Teachers.
``(Q) Technicians.
``(R) Journalists.
``(S) Chefs.
``(T) Cooks.
``(U) Police officers.
``(V) Firefighters.
``(W) Fire sergeants.
``(X) Police sergeants.
``(Y) Emergency medical technicians.
``(Z) Paramedics.
``(AA) Waste disposal workers.
``(BB) Day care workers.
``(CC) Maintenance employees.
``(DD) Production line employees.
``(EE) Construction employees.
``(FF) Carpenters.
``(GG) Mechanics.
``(HH) Plumbers.
``(II) Iron workers.
``(JJ) Craftsmen.
``(KK) Operating engineers.
``(LL) Laborers.
``(MM) Painters.
``(NN) Cement masons.
``(OO) Stone and brick masons.
``(PP) Sheet metal workers.
``(QQ) Utility workers.
``(RR) Longshoremen.
``(SS) Stationary engineers.
``(TT) Welders.
``(UU) Boilermakers.
``(VV) Funeral directors.
``(WW) Athletic trainers.
``(XX) Outside sales employees.
``(YY) Inside sales employees.
``(ZZ) Grocery store managers.
``(AAA) Financial services industry workers.
``(BBB) Route drivers.
``(CCC) Assistant retail managers.
``(4) Any portion of a rule promulgated under subsection (a)(1)
after March 31, 2003, that modifies the overtime pay provisions of
section 7 in a manner that is inconsistent with paragraphs (2) and (3)
shall have no force or effect as it relates to the occupation or job
classification involved.''.
SEC. 490. PROTECTION OF OVERTIME PAY.
Section 13 of the Fair Labor Standards Act of 1938 (29 U.S.C. 213)
is amended by adding at the end the following:
``(k) Notwithstanding the provisions of subchapter II of chapter 5
and chapter 7 of title 5, United States Code (commonly referred to as
the Administrative Procedures Act) or any other provision of law, any
portion of the final rule promulgated on April 23, 2004, revising part
541 of title 29, Code of Federal Regulations, that exempts from the
overtime pay provisions of section 7 any employee who would not
otherwise be exempt if the regulations in effect on March 31, 2003
remained in effect, shall have no force or effect and that portion of
such regulations (as in effect on March 31, 2003) that would prevent
such employee from being exempt shall remain in effect. Notwithstanding
the preceding sentence, the increased salary requirements provided for
in such final rule at section 541.600 of such title 29, shall remain in
effect.''.
PART V--MISCELLANEOUS PROVISIONS
SEC. 491. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF TAXABLE
VACCINES.
(a) In General.--Section 4132(a)(1) (defining taxable vaccine) is
amended by redesignating subparagraphs (I), (J), (K), and (L) as
subparagraphs (J), (K), (L), and (M), respectively, and by inserting
after subparagraph (H) the following new subparagraph:
``(I) Any vaccine against hepatitis A.''.
(b) Conforming Amendment.--Section 9510(c)(1)(A) is amended by
striking ``October 18, 2000'' and inserting ``the date of the enactment
of the Jumpstart Our Business Strength (JOBS) Act''.
(c) Effective Date.--
(1) Sales, etc.--The amendments made by this section shall
apply to sales and uses on or after the first day of the first
month which begins more than 4 weeks after the date of the
enactment of this Act.
(2) Deliveries.--For purposes of paragraph (1) and section
4131 of the Internal Revenue Code of 1986, in the case of sales
on or before the effective date described in such paragraph for
which delivery is made after such date, the delivery date shall
be considered the sale date.
SEC. 492. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL RESIDENCE
ACQUIRED IN A LIKE-KIND EXCHANGE WITHIN 5 YEARS OF SALE.
(a) In General.--Section 121(d) (relating to special rules for
exclusion of gain from sale of principal residence) is amended by
adding at the end the following new paragraph:
``(10) Property acquired in like-kind exchange.--If a
taxpayer acquired property in an exchange to which section 1031
applied, subsection (a) shall not apply to the sale or exchange
of such property if it occurs during the 5-year period
beginning with the date of the acquisition of such property.''.
(b) Effective Date.--The amendment made by this section shall apply
to sales or exchanges after the date of the enactment of this Act.
SEC. 493. MODIFICATION OF EXEMPTION FROM TAX FOR SMALL PROPERTY AND
CASUALTY INSURANCE COMPANIES.
(a) Premiums as Percentage of Gross Receipts Increased.--Section
501(c)(15)(A)(i)(II) is amended by striking ``50 percent'' and
inserting ``60 percent''.
(b) Limitation on Net Written Premiums Increased.--Section
831(b)(2) (relating to companies to which this subsection applies) is
amended--
(1) by striking ``$1,200,000'' and inserting
``$1,890,000'', and
(2) by adding at the end the following new subparagraph:
``(C) Inflation adjustments.--
``(i) In general.--In the case of any
taxable year beginning in a calendar year after
2005, the dollar amount in subparagraph (A)(i)
shall be increased by an amount equal to--
``(I) such dollar amount,
multiplied by
``(II) the cost-of-living
adjustment determined under section
1(f)(3) for the calendar year in which
the taxable year begins, by
substituting `calendar year 2004' for
`calendar year 1992' in subparagraph
(B) thereof.
``(ii) Rounding.--If the amount in
subparagraph (A)(i) as increased under clause
(i) is not a multiple of $10,000, such amount
shall be rounded to the nearest multiple of
$10,000.''.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2004.
(2) Transition rule for companies in receivership or
liquidation.--In the case of a company or association which--
(A) for the taxable year which includes April 1,
2004, meets the requirements of section 501(c)(15)(A)
of the Internal Revenue Code of 1986, as in effect for
the last taxable year beginning before January 1, 2004,
and
(B) on April 1, 2004, is in a receivership,
liquidation, or similar proceeding under the
supervision of a State court,
the amendments made by this section shall apply to taxable
years beginning after the earlier of the date such proceeding
ends (or, if later, December 31, 2004) or December 31, 2007.
SEC. 494. TREATMENT OF CHARITABLE CONTRIBUTIONS OF PATENTS AND SIMILAR
PROPERTY.
(a) In General.--Section 170(e)(1)(B) (relating to certain
contributions of ordinary income and capital gain property) is amended
by striking ``or'' at the end of clause (i), by adding ``or'' at the
end of clause (ii), and by inserting after clause (ii) the following
new clause:
``(iii) of any patent, copyright,
trademark, trade name, trade secret, know-how,
software (other than software described in
section 197(e)(3)(A)(i)), or similar property,
or applications or registrations of such
property,''.
(b) Additional Deduction for Certain Contributions of Patents and
Similar Property.--Section 170(e) is amended by adding at the end the
following new paragraph:
``(7) Additional deduction for certain contributions of
patents and similar property.--
``(A) In general.--In the case of a charitable
contribution of any property described in paragraph
(1)(B)(iii) (other than copyrights described in section
1221(a)(3) or 1231(b)(1)(C) or property contributed to
or for the use of an organization described in
paragraph (1)(B)(ii)), if--
``(i) the lesser of--
``(I) 5 percent of the fair market
value of such property (determined at
the time of such contribution), or
``(II) $1,000,000, exceeds
``(ii) the amount of such contribution as
determined under paragraph (1),
then the amount of the charitable contribution of such
property otherwise taken into account under this
section shall equal the amount determined under clause
(i).''.
(c) Certain Donee Income From Intellectual Property Treated as an
Additional Charitable Contribution.--Section 170 is amended by
redesignating subsection (m) as subsection (n) and by inserting after
subsection (l) the following new subsection:
``(m) Certain Donee Income From Intellectual Property Treated as an
Additional Charitable Contribution.--
``(1) Treatment as additional contribution.--In the case of
a taxpayer who makes a qualified intellectual property
contribution, the deduction allowed under subsection (a) for
each taxable year of the taxpayer ending on or after the date
of such contribution shall be increased (subject to the
limitations under subsection (b)) by the applicable percentage
of qualified donee income with respect to such contribution
which is properly allocable to such year under this subsection.
``(2) Qualified donee income.--For purposes of this
subsection, the term `qualified donee income' means any net
income received by or accrued to the donee which is properly
allocable to the qualified intellectual property.
``(3) Allocation of qualified donee income to taxable years
of donor.--For purposes of this subsection, qualified donee
income shall be treated as properly allocable to a taxable year
of the donor if such income is received by or accrued to the
donee for the taxable year of the donee which ends within or
with such taxable year of the donor.
``(4) 10-year limitation.--Income shall not be treated as
properly allocable to qualified intellectual property for
purposes of this subsection if such income is received by or
accrued to the donee after the 10-year period beginning on the
date of the contribution of such property.
``(5) Benefit limited to life of intellectual property.--
Income shall not be treated as properly allocable to qualified
intellectual property for purposes of this subsection if such
income is received by or accrued to the donee after the
expiration of the legal life of such property.
``(6) Applicable percentage.--For purposes of this
subsection, the term `applicable percentage' means the
percentage determined under the following table which
corresponds to a taxable year of the donor ending on or after
the date of the qualified intellectual property contribution:
``Taxable Year of Donor Ending On Applicable Percentage:
or After Date of
Contribution:
1st or 2d..................................... 100
3rd........................................... 90
4th........................................... 80
5th........................................... 70
6th........................................... 60
7th........................................... 50
8th........................................... 40
9th........................................... 30
10th.......................................... 20
11th or 12th.................................. 10.
``(7) Qualified intellectual property contribution.--For
purposes of this subsection, the term `qualified intellectual
property contribution' means any charitable contribution of
qualified intellectual property--
``(A) the amount of which taken into account under
this section--
``(i) is reduced by reason of subsection
(e)(1), or
``(ii) determined under subsection (e)(7),
and
``(B) with respect to which the donor informs the
donee at the time of such contribution that the donor
intends to treat such contribution as a qualified
intellectual property contribution for purposes of this
subsection and section 6050L.
``(8) Qualified intellectual property.--For purposes of
this subsection, the term `qualified intellectual property'
means property described in subsection (e)(1)(B)(iii) (other
than copyrights described in section 1221(a)(3) or
1231(b)(1)(C) or property contributed to or for the use of an
organization described in subsection (e)(1)(B)(ii)).
``(9) Other special rules.--
``(A) Application of limitations on charitable
contributions.--Any increase under this subsection of
the deduction provided under subparagraph (a) shall be
treated for purposes of subsection (b) as a deduction
which is attributable to a charitable contribution to
the donee to which such increase relates.
``(B) Net income determined by donee.--The net
income taken into account under paragraph (2) shall not
exceed the amount of such income reported under section
6050L(b)(1).
``(C) Deduction limited to 12 taxable years.--
Except as may be provided under subparagraph (D)(i),
this subsection shall not apply with respect to any
qualified intellectual property contribution for any
taxable year of the donor after the 12th taxable year
of the donor which ends on or after the date of such
contribution.
``(D) Regulations.--The Secretary may issue
regulations or other guidance to carry out the purposes
of this subsection, including regulations or guidance--
``(i) modifying the application of this
subsection in the case of a donor or donee with
a short taxable year, and
``(ii) providing for the determination of
an amount to be treated as net income of the
donee which is properly allocable to qualified
intellectual property in the case of a donee
who uses such property to further a purpose or
function constituting the basis of the donee's
exemption under section 501 (or, in the case of
a governmental unit, any purpose described in
section 170(c)) and does not possess a right to
receive any payment from a third party with
respect to such property.''.
(d) Reporting Requirements.--Section 6050L (relating to returns
relating to certain dispositions of donated property) is amended to
read as follows:
``SEC. 6050L. RETURNS RELATING TO CERTAIN DONATED PROPERTY.
``(a) Dispositions of Donated Property.--
``(1) In general.--If the donee of any charitable deduction
property sells, exchanges, or otherwise disposes of such
property within 2 years after its receipt, the donee shall make
a return (in accordance with forms and regulations prescribed
by the Secretary) showing--
``(A) the name, address, and TIN of the donor,
``(B) a description of the property,
``(C) the date of the contribution,
``(D) the amount received on the disposition, and
``(E) the date of such disposition.
``(2) Definitions.--For purposes of this subsection--
``(A) Charitable deduction property.--The term
`charitable deduction property' means any property
(other than publicly traded securities) contributed in
a contribution for which a deduction was claimed under
section 170 if the claimed value of such property (plus
the claimed value of all similar items of property
donated by the donor to 1 or more donees) exceeds
$5,000.
``(B) Publicly traded securities.--The term
`publicly traded securities' means securities for which
(as of the date of the contribution) market quotations
are readily available on an established securities
market.
``(b) Qualified Intellectual Property Contributions.--
``(1) In general.--Each donee with respect to a qualified
intellectual property contribution shall make a return (at such
time and in such form and manner as the Secretary may by
regulations prescribe) with respect to each specified taxable
year of the donee showing--
``(A) the name, address, and TIN of the donor,
``(B) a description of the qualified intellectual
property contributed,
``(C) the date of the contribution, and
``(D) the amount of net income of the donee for the
taxable year which is properly allocable to the
qualified intellectual property (determined without
regard to paragraph (9)(B) of section 170(m) and with
the modifications described in paragraphs (4) and (5)
of such section).
``(2) Definitions.--For purposes of this subsection--
``(A) In general.--Terms used in this subsection
which are also used in section 170(m) have the
respective meanings given such terms in such section.
``(B) Specified taxable year.--The term `specified
taxable year' means, with respect to any qualified
intellectual property contribution, any taxable year of
the donee any portion of which is part of the 10-year
period beginning on the date of such contribution.
``(c) Statement to Be Furnished to Donors.--Every person making a
return under subsection (a) or (b) shall furnish a copy of such return
to the donor at such time and in such manner as the Secretary may by
regulations prescribe.''.
(e) Processing Fee.--Section 170, as amended by subsection (b), is
amended by redesignating subsection (n) as subsection (o) and by
inserting after subsection (m) the following new subsection:
``(n) Processing Fee.--In the case of a deduction allowed for any
taxable year under this section with respect to a charitable
contribution of any property described in subsection (e)(1)(B)(iii)
(other than copyrights described in section 1221(a)(3) or 1231(b)(1)(C)
or property contributed to or for the use of an organization described
in subsection (e)(1)(B)(ii)), the taxpayer shall include, with the
taxpayer's return of tax including such deduction, a fee equal to 1
percent of the amount of such deduction. Such fee shall be credited by
the Secretary to the operations of the Exempt Organizations unit within
the Internal Revenue Service.''.
(f) Modification of Substantial Valuations Misstatement Penalty for
Charitable Contributions of Property.--
(1) Substantial misstatements.--Section 6662(e)(1)(A)
(relating to substantial valuation misstatements under chapter
1) is amended by inserting ``(50 percent or more in the case of
a charitable contribution of any property described in section
170(e)(1)(B)(iii))'' after ``200 percent or more''.
(2) Gross misstatements.--Section 6662(h)(2)(A) (defining
gross valuation misstatements) is amended by striking clause
(ii) and inserting the following new clauses:
``(ii) `100 percent or more' for `50
percent or more',
``(iii) `25 percent or less' for `50
percent or less', and''.
(g) Anti-Abuse Rules.--The Secretary of the Treasury--
(1) may prescribe such regulations or other guidance as may
be necessary or appropriate to prevent the avoidance of the
purposes of paragraphs (1)(B)(iii) and (7) of section 170(e) of
the Internal Revenue Code of 1986 (as added by subsections (a)
and (b)), including preventing--
(A) the circumvention of the reduction of the
charitable deduction by embedding or bundling the
patent or similar property as part of a charitable
contribution of property that includes the patent or
similar property,
(B) the manipulation of the basis of the property
to increase the amount of the charitable deduction
through the use of related persons, pass-thru entities,
or other intermediaries, or through the use of any
provision of law or regulation (including the
consolidated return regulations), and
(C) a donor from changing the form of the patent or
similar property to property of a form for which
different deduction rules would apply, and
(2) shall prescribe guidance on appraisal standards for
contributions of property described in section
170(e)(1)(B)(iii) of the Internal Revenue Code of 1986 (as
added by this section).
(h) Effective Date.--The amendments made by this section shall
apply to contributions made after the date of the enactment of this
Act.
SEC. 495. 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. 496. HOLDING PERIOD FOR PREFERRED STOCK.
(a) In General.--Section 1(h)(11)(B)(iii)(I) is amended to read as
follows:
``(I) with respect to which the
holding period requirements of section
246(c) are not met, determined by
substituting `60 days' for `45' days
each place it appears, by substituting
`120-day' for `90-day' each place it
appears, and by substituting `120 days'
for `90 days' and `240-day' for `180-
day' in paragraph (2).''
(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. 497. SUBSTANTIAL PRESENCE TEST REQUIRED TO DETERMINE BONA FIDE
RESIDENCE IN UNITED STATES POSSESSIONS.
(a) Substantial Presence Test.--
(1) In General.--Subpart D of part III of subchapter N of
chapter 1 (relating to possessions of the United States) is
amended by adding at the end the following new section:
``SEC. 937. BONA FIDE RESIDENT.
``For purposes of this subpart, section 865(g)(3), section 876,
section 881(b), paragraphs (2) and (3) of section 901(b), section
957(c), section 3401(a)(8)(C), and section 7654(a), the term `bona fide
resident' means a person who satisfies a test, determined by the
Secretary, similar to the substantial presence test under section
7701(b)(3) with respect to Guam, American Samoa, the Northern Mariana
Islands, Puerto Rico, or the Virgin Islands, as the case may be.''.
(2) Conforming amendments.--
(A) The following provisions are amended by
striking ``during the entire taxable year'' and
inserting ``for the taxable year'':
(i) Paragraph (3) of section 865(g).
(ii) Subsection (a) of section 876(a).
(iii) Paragraphs (2) and (3) of section
901(b).
(iv) Subsection (a) of section 931.
(v) Paragraphs (1) and (2) of section 933.
(B) Section 931(d) is amended by striking paragraph
(3).
(C) Section 932 is amended by striking ``at the
close of the taxable year'' and inserting ``for the
taxable year'' each place it appears.
(3) Clerical amendment.--The table of sections of subpart D
of part III of subchapter N of chapter 1 is amended by adding
at the end the following new item:
``Sec. 937. Bona fide resident.''.
(b) Reporting Requirements for Bona Fide Residents of the Virgin
Islands.--Paragraph (2) of section 932(c) (relating to treatment of
Virgin Islands residents) is amended to read as follows:
``(2) Filing requirements.--
``(A) In general.--Notwithstanding paragraph (4),
each individual to whom this subsection applies for the
taxable year shall file an income tax return for the
taxable year with--
``(i) the Virgin Islands, and
``(ii) the United States.
``(B) Filing fee.--The Secretary shall charge a
processing fee with respect to the return filed under
subparagraph (A)(ii) of an amount appropriate to cover
the administrative costs of the requirements of
subparagraph (A)(ii) and the enforcement of the
purposes of subparagraph (A)(ii).''.
(c) Penalties.--
(1) In general.--Part I of subchapter B of chapter 68 is
amended by adding at the end the following new section:
``SEC. 6717. FAILURE OF VIRGIN ISLANDS RESIDENTS TO FILE RETURNS WITH
THE UNITED STATES.
``(a) Penalty Authorized.--The Secretary may impose a civil money
penalty on any person who violates, or causes any violation of, the
requirements of section 932(c)(2)(A)(ii).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in subsection (c),
the amount of any civil penalty imposed under subsection (a)
shall not exceed $5,000.
``(2) Reasonable cause exception.--No penalty shall be
imposed under subsection (a) with respect to any violation if
such violation was due to reasonable cause and the taxpayer
acted in good faith.
``(c) Willful Violations.--In the case of any person willfully
violating, or willfully causing any violation of, any requirement of
section 932(c)(2)(A)(ii)--
``(1) the maximum penalty under subsection (b)(1) shall be
increased to $25,000 and
``(2) subsection (b)(2) shall not apply.''.
(2) Clerical amendment.--The table of sections for Part I
of subchapter B of chapter 68 is amended by adding at the end
the following new item:
``Sec. 6717. Failure of Virgin Islands
residents to file returns with
the United States.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.
TITLE V--PROTECTION OF UNITED STATES WORKERS FROM COMPETITION OF
FOREIGN WORKFORCES
SEC. 501. LIMITATIONS ON OFF-SHORE PERFORMANCE OF CONTRACTS.
(a) Limitations.--
(1) In general.--The Office of Federal Procurement Policy
Act (41 U.S.C. 403 et seq.) is amended by adding at the end the
following new section:
``SEC. 42. LIMITATIONS ON OFF-SHORE PERFORMANCE OF CONTRACTS.
``(a) Conversions to Contractor Performance of Federal
Activities.--An activity or function of an executive agency that is
converted to contractor performance under Office of Management and
Budget Circular A-76 may not be performed by the contractor or any
subcontractor at a location outside the United States except to the
extent that such activity or function was previously performed by
Federal Government employees outside the United States.
``(b) Other Federal Contracts.--(1) A contract that is entered into
by the head of an executive agency may not be performed outside the
United States except to meet a requirement of the executive agency for
the contract to be performed specifically at a location outside the
United States.
``(2) The prohibition in paragraph (1) does not apply in the case
of a contract of an executive agency if--
``(A) the President determines in writing that it is
necessary in the national security interests of the United
States for the contract to be performed outside the United
States; or
``(B) the head of such executive agency makes a
determination and reports such determination on a timely basis
to the Director of the Office of Management and Budget that--
``(i) the property or services needed by the
executive agency are available only by means of
performance of the contract outside the United States;
and
``(ii) no property or services available by means
of performance of the contract inside the United States
would satisfy the executive agency's need.
``(3) Paragraph (1) does not apply to the performance of a contract
outside the United States under the exception provided in subsection
(a).
``(c) State Contracts.--(1) Except as provided in paragraph (2),
funds appropriated for financial assistance for a State may not be
disbursed to or for such State during a fiscal year unless the chief
executive of that State has transmitted to the Administrator for
Federal Procurement Policy, not later than April 1 of the preceding
fiscal year, a written certification that none of such funds will be
expended for the performance outside the United States of contracts
entered into by such State.
``(2) The prohibition on disbursement of funds to or for a State
under paragraph (1) does not apply with respect to the performance of a
State contract outside the United States if--
``(A) the chief executive of such State--
``(i) determines that the property or services
needed by the State are available only by means of
performance of the contract outside the United States
and no property or services available by means of
performance of the contract inside the United States
would satisfy the State's need; and
``(ii) transmits a notification of such
determination to the head of the executive agency of
the United States that administers the authority under
which such funds are disbursed to or for the State; and
``(B) the head of the executive agency receiving the
notification of such determination--
``(i) confirms that the facts warrant the
determination;
``(ii) approves the determination; and
``(iii) transmits a notification of the approval of
the determination to the Director of the Office of
Management and Budget.
``(3) In this subsection, the term `State' means each of the
several States of the United States, the District of Columbia, the
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana
Islands, the Virgin Islands, Guam, American Samoa, and the Trust
Territory of the Pacific Islands.
``(d) Subsections (b) and (c) shall not apply to procurement
covered by the World Trade Organization Government Procurement
Agreement.
``(e) National Security Exemption.--Subsection (b) shall not apply
to any procurement for national security purposes entered into by--
``(1) the Department of Defense or any agency or entity
thereof;
``(2) the Department of the Army, the Department of the
Navy, the Department of the Air Force, or any agency or entity
of any of the military departments;
``(3) the Department of Homeland Security;
``(4) the Department of Energy or any agency or entity
thereof, with respect to the national security programs of that
Department; or
``(5) any element of the intelligence community.
``(f) Responsibilities of OMB.--The Director of the Office of
Management and Budget shall--
``(1) maintain--
``(A) the waivers granted under subsection (b)(2),
together with the determinations and certifications on
which such waivers were based; and
``(B) the notifications received under subsection
(c)(2)(B)(iii); and
``(2) submit to Congress promptly after the end of each
quarter of each fiscal year a report that sets forth--
``(A) the waivers that were granted under
subsection (b)(2) during such quarter; and
``(B) the notifications that were received under
subsection (c)(2)(B)(iii) during such quarter.
``(g) Annual GAO Review.--The Comptroller General shall--
``(1) review, each fiscal year, the waivers granted during
such fiscal year under subsection (b)(2) and the disbursements
of funds authorized pursuant to the exceptions in subsections
(c)(2) and (e); and
``(2) promptly after the end of such fiscal year, transmit
to Congress a report containing a list of the contracts covered
by such waivers and exception together with a brief description
of the performance of each such contract to the maximum extent
feasible outside the United States.''.
(2) Clerical amendment.--The table of sections in section
1(b) of such Act is amended by adding at the end the following
new item:
``Sec. 42. Limitations on off-shore performance of contracts.''.
(b) Inapplicability to States During First Two Fiscal Years.--
Section 42(c) of the Office of Federal Procurement Policy Act (as added
by subsection (a)) shall not apply to disbursements of funds to a State
during the fiscal year in which this Act is enacted and the next fiscal
year.
SEC. 502. REPEAL OF SUPERSEDED LAW.
Section 647 of the Transportation, Treasury, and Independent
Agencies Appropriations Act, 2004 (division F of Public Law 108-199) is
amended by striking subsection (e).
SEC. 503. EFFECTIVE DATE AND APPLICABILITY.
(a) In General.--This title and the amendments made by this title
shall take effect 30 days after the Secretary of Commerce certifies
that the amendments made by this title will not result in the loss of
more jobs than it will protect and will not cause harm to the United
States economy. The initial certification shall be made by the
Secretary of Commerce no later than 90 days after the enactment of this
Act. Such certification must be renewed on or before January 1 of each
year in order for the amendments made by this title to be in effect for
that year.
(b) Consistency With International Agreements.--The provisions of
this title shall not apply to the extent that they may be inconsistent
with obligations under international agreements. Within 90 days of this
legislation, the Office of Management and Budget, in consultation with
the Office of the United States Trade Representative, shall develop
guidelines for the implementation of this provision.
TITLE VI--OTHER PROVISIONS
Subtitle A--Provisions Relating to Housing
SEC. 601. TREATMENT OF QUALIFIED MORTGAGE BONDS.
(a) Year Holiday.--Section 143(a)(2)(A)(iv) of the Internal Revenue
Code of 1986 shall not apply to amounts received during the 1-year
period beginning on the date of the enactment of this Act with respect
to any bond outstanding on such date.
(b) Repeal of Required Use of Certain Principal Repayments on
Mortgage Subsidy Bond Financings To Redeem Bonds.--
(1) In general.--Subparagraph (A) of section 143(a)(2)
(defining qualified mortgage issue) is amended by adding
``and'' at the end of clause (ii), by striking ``, and'' at the
end of clause (iii) and inserting a period, and by striking
clause (iv) and the last sentence.
(2) Conforming amendment.--Clause (ii) of section
143(a)(2)(D) is amended by striking ``(and clause (iv) of
subparagraph (A))''.
(3) Effective date.--The amendments made by this subsection
shall apply to bonds originally issued after the date of the
enactment of this Act.
SEC. 602. PREMIUMS FOR MORTGAGE INSURANCE.
(a) 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).''.
(b) 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) the Home Loan Guaranty Program of the
Department of Veterans Affairs, and mortgage
insurance provided by 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 Department
of Veterans Affairs or the Rural Housing
Administration.''.
(c) 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) the Home Loan Guaranty Program of the
Department of Veterans Affairs, and mortgage
insurance provided by 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).''.
(d) Effective Date.--The amendments made by this section shall
apply to amounts paid or accrued in taxable years beginning after
December 31, 2004, and ending before January 1, 2006.
SEC. 603. 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.
Subtitle B--Provisions Relating to Bonds
SEC. 611. EXPANSION OF NEW YORK LIBERTY ZONE TAX BENEFITS.
(a) Additional Extension of Tax-Exempt Bond Financing.--Section
1400L(d)(2)(D), as amended by this Act, is amended by striking ``2006''
and inserting ``2010''.
(b) Extension of Advance Refundings.--Section 1400L(e)(1) is
amended by striking ``2005'' and inserting ``2006''.
SEC. 612. MODIFICATIONS OF TREATMENT OF QUALIFIED ZONE ACADEMY BONDS.
(a) Proceeds of Bonds May Be Used for Construction and Land
Acquisition.--Paragraph (5) of section 1397E(d) (defining qualified
purpose) is amended--
(1) by striking ``rehabilitating or repairing'' in
subparagraph (A) and inserting ``constructing, rehabilitating,
or repairing'', and
(2) by redesignating subparagraphs (B), (C), and (D) as
subparagraphs (C), (D), and (E), respectively, and by inserting
after subparagraph (A) the following:
``(B) acquiring the land on which the facility is
to be constructed,''.
(b) Effective Date.--The amendments made by this section shall
apply to obligations issued after December 31, 2003.
SEC. 613. MODIFICATIONS OF AUTHORITY OF INDIAN TRIBAL GOVERNMENTS TO
ISSUE TAX-EXEMPT BONDS.
(a) In General.--Paragraph (1) of section 7871(c) (relating to
Indian tribal governments treated as States for certain purposes) is
amended to read as follows:
``(1) In general.--Subsection (a) of section 103 shall
apply to any obligation issued by an Indian tribal government
(or subdivision thereof) only if--
``(A) such obligation--
``(i) is part of an issue 95 percent or
more of the net proceeds of which are to be
used to finance any facility located on an
Indian reservation, and
``(ii) is issued before January 1, 2006, or
``(B) such obligation is part of an issue
substantially all of the proceeds of which are to be
used in the exercise of any essential governmental
function.''.
(b) Special Rules and Definitions.--Subsection (c) of section 7871
is amended by inserting at the end the following new paragraph:
``(4) Special rules and definitions.--
``(A) Exclusion of gaming.--An obligation described
in subparagraph (A) or (B) of paragraph (1) may not be
used to finance any portion of a building in which
class II or III gaming (as defined in section 4 of the
Indian Gaming Regulatory Act (25 U.S.C. 2702)) is
conducted or housed.
``(B) Indian reservation.--For purposes of
paragraph (1), the term `Indian reservation' means--
``(i) a reservation, as defined in section
4(10) of the Indian Child Welfare Act of 1978
(25 U.S.C. 1903(10)), and
``(ii) lands held under the provisions of
the Alaska Native Claims Settlement Act (43
U.S.C. 1601 et seq.) by a Native corporation as
defined in section 3(m) of such Act (43 U.S.C.
1602(m)).''.
(c) Effective Date.--The amendments made by this section shall
apply to obligations issued after the date of the enactment of this
Act.
SEC. 614. DEFINITION OF MANUFACTURING FACILITY FOR SMALL ISSUE BONDS.
(a) In General.--Section 144(a)(12) (relating to termination dates)
is amended by striking subparagraph (C) and inserting the following new
subparagraphs:
``(C) Manufacturing facility.--For purposes of this
paragraph, the term `manufacturing facility' means any
facility which is used in--
``(i) the manufacture of tangible personal
property (including processing which results in
a change in the condition of such property),
``(ii) the manufacture or development of
any software product or process if--
``(I) it takes more than 6 months
to manufacture or develop such product,
``(II) the manufacture or
development could not with due
diligence be reasonably expected to
occur in less than 6 months, and
``(III) the software product or
process comprises programs, routines,
and attendant documentation developed
and maintained for use in computer and
telecommunications technology, or
``(iii) the manufacture or development of
any biobased product or bioenergy if--
``(I) it takes more than 6 months
to manufacture or develop, and
``(II) the manufacture or
development could not with due
diligence be reasonably expected to
occur in less than 6 months.
``(D) Related facilities.--For purposes of
subparagraph (C), the term `manufacturing facility'
includes a facility which is directly and functionally
related to a manufacturing facility (determined without
regard to subparagraph (C)) if--
``(i) such facility, including an office
facility and a research and development
facility, is located on the same site as the
manufacturing facility, and
``(ii) not more than 40 percent of the net
proceeds of the issue are used to provide such
facility.
``(E) Other definitions.--For purposes of
subparagraph (C)(iii)--
``(i) Biobased product.--The term `biobased
product' means a commercial or industrial
product (other than food or feed) which
utilizes biological products or renewable
domestic agricultural (plant, animal, and
marine) or forestry materials.
``(ii) Bioenergy.--The term `bioenergy'
means biomass used in the production of energy,
including liquid, solid, or gaseous fuels,
electricity, and heat.''.
(b) Effective Date.--The amendment made by this section shall apply
to obligations issued after the date of the enactment of this Act.
SEC. 615. CONSERVATION BONDS.
(a) Tax-Exempt Bond Financing.--
(1) In general.--For purposes of the Internal Revenue Code
of 1986, any qualified forest conservation bond shall be
treated as an exempt facility bond under section 142 of such
Code.
(2) Qualified forest conservation bond.--For purposes of
this section, the term ``qualified forest conservation bond''
means any bond issued as part of an issue if--
(A) 95 percent or more of the net proceeds (as
defined in section 150(a)(3) of such Code) of such
issue are to be used for qualified project costs,
(B) such bond is issued for a qualified
organization, and
(C) such bond is issued before December 31, 2006.
(3) Limitation on aggregate amount issued.--
(A) In general.--The maximum aggregate face amount
of bonds which may be issued under this subsection
shall not exceed $1,500,000,000 for all projects
(excluding refunding bonds).
(B) Allocation of limitation.--The limitation
described in subparagraph (A) shall be allocated by the
Secretary of the Treasury among qualified organizations
based on criteria established by the Secretary not
later than 180 days after the date of the enactment of
this section, after consultation with the Chief of the
Forest Service.
(4) Qualified project costs.--For purposes of this
subsection, the term ``qualified project costs'' means the sum
of--
(A) the cost of acquisition by the qualified
organization from an unrelated person of forests and
forest land which at the time of acquisition or
immediately thereafter are subject to a conservation
restriction described in subsection (c)(2),
(B) capitalized interest on the qualified forest
conservation bonds for the 3-year period beginning on
the date of issuance of such bonds, and
(C) credit enhancement fees which constitute
qualified guarantee fees (within the meaning of section
148 of such Code).
(5) Special rules.--In applying the Internal Revenue Code
of 1986 to any qualified forest conservation bond, the
following modifications shall apply:
(A) Section 146 of such Code (relating to volume
cap) shall not apply.
(B) For purposes of section 147(b) of such Code
(relating to maturity may not exceed 120 percent of
economic life), the land and standing timber acquired
with proceeds of qualified forest conservation bonds
shall have an economic life of 35 years.
(C) Subsections (c) and (d) of section 147 of such
Code (relating to limitations on acquisition of land
and existing property) shall not apply.
(D) Section 57(a)(5) of such Code (relating to tax-
exempt interest) shall not apply to interest on
qualified forest conservation bonds.
(6) Treatment of current refunding bonds.--Paragraphs
(2)(C) and (3) shall not apply to any bond (or series of bonds)
issued to refund a qualified forest conservation bond issued
before December 31, 2006, if--
(A) the average maturity date of the issue of which
the refunding bond is a part is not later than the
average maturity date of the bonds to be refunded by
such issue,
(B) the amount of the refunding bond does not
exceed the outstanding amount of the refunded bond, and
(C) the net proceeds of the refunding bond are used
to redeem the refunded bond not later than 90 days
after the date of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be
determined in accordance with section 147(b)(2)(A) of such
Code.
(7) Effective date.--This subsection shall apply to
obligations issued on or after the date which is 180 days after
the enactment of this Act.
(b) Items From Qualified Harvesting Activities Not Subject to Tax
or Taken Into Account.--
(1) In general.--Income, gains, deductions, losses, or
credits from a qualified harvesting activity conducted by a
qualified organization shall not be subject to tax or taken
into account under subtitle A of the Internal Revenue Code of
1986.
(2) Limitation.--The amount of income excluded from gross
income under paragraph (1) for any taxable year shall not
exceed the amount used by the qualified organization to make
debt service payments during such taxable year for qualified
forest conservation bonds.
(3) Qualified harvesting activity.--For purposes of
paragraph (1)--
(A) In general.--The term ``qualified harvesting
activity'' means the sale, lease, or harvesting, of
standing timber--
(i) on land owned by a qualified
organization which was acquired with proceeds
of qualified forest conservation bonds,
(ii) with respect to which a written
acknowledgement has been obtained by the
qualified organization from the State or local
governments with jurisdiction over such land
that the acquisition lessens the burdens of
such government with respect to such land, and
(iii) pursuant to a qualified conservation
plan adopted by the qualified organization.
(B) Exceptions.--
(i) Cessation as qualified organization.--
The term ``qualified harvesting activity''
shall not include any sale, lease, or
harvesting for any period during which the
organization ceases to qualify as a qualified
organization.
(ii) Exceeding limits on harvesting.--The
term ``qualified harvesting activity'' shall
not include any sale, lease, or harvesting of
standing timber on land acquired with proceeds
of qualified forest conservation bonds to the
extent that--
(I) the average annual area of
timber harvested from such land exceeds
2.5 percent of the total area of such
land or,
(II) the quantity of timber removed
from such land exceeds the quantity
which can be removed from such land
annually in perpetuity on a sustained-
yield basis with respect to such land.
The limitations under subclauses (I) and (II)
shall not apply to post-fire restoration and
rehabilitation or sanitation harvesting of
timber stands which are substantially damaged
by fire, windthrow, or other catastrophes, or
which are in imminent danger from insect or
disease attack.
(4) Termination.--This subsection shall not apply to any
qualified harvesting activity of a qualified organization
occurring after the date on which there is no outstanding
qualified forest conservation bond with respect to such
qualified organization or any such bond ceases to be a tax-
exempt bond.
(5) Partial recapture of benefits if harvesting limit
exceeded.--If, as of the date that this subsection ceases to
apply under paragraph (3), the average annual area of timber
harvested from the land exceeds the requirement of paragraph
(3)(B)(ii)(I), the tax imposed by chapter 1 of the Internal
Revenue Code of 1986 shall be increased, under rules prescribed
by the Secretary of the Treasury, by the sum of the tax
benefits attributable to such excess and interest at the
underpayment rate under section 6621 of such Code for the
period of the underpayment.
(c) Definitions.--For purposes of this section--
(1) Qualified conservation plan.--The term ``qualified
conservation plan'' means a multiple land use program or plan
which--
(A) is designed and administered primarily for the
purposes of protecting and enhancing wildlife and fish,
timber, scenic attributes, recreation, and soil and
water quality of the forest and forest land,
(B) mandates that conservation of forest and forest
land is the single-most significant use of the forest
and forest land, and
(C) requires that timber harvesting be consistent
with--
(i) restoring and maintaining reference
conditions for the region's ecotype,
(ii) restoring and maintaining a
representative sample of young, mid, and late
successional forest age classes,
(iii) maintaining or restoring the
resources' ecological health for purposes of
preventing damage from fire, insect, or
disease,
(iv) maintaining or enhancing wildlife or
fish habitat, or
(v) enhancing research opportunities in
sustainable renewable resource uses.
(2) Conservation restriction.--The conservation restriction
described in this paragraph is a restriction which--
(A) is granted in perpetuity to an unrelated person
which is described in section 170(h)(3) of such Code
and which, in the case of a nongovernmental unit, is
organized and operated for conservation purposes,
(B) meets the requirements of clause (ii) or
(iii)(II) of section 170(h)(4)(A) of such Code,
(C) obligates the qualified organization to pay the
costs incurred by the holder of the conservation
restriction in monitoring compliance with such
restriction, and
(D) requires an increasing level of conservation
benefits to be provided whenever circumstances allow
it.
(3) Qualified organization.--The term ``qualified
organization'' means an organization--
(A) which is a nonprofit organization substantially
all the activities of which are charitable, scientific,
or educational, including acquiring, protecting,
restoring, managing, and developing forest lands and
other renewable resources for the long-term charitable,
educational, scientific and public benefit,
(B) more than half of the value of the property of
which consists of forests and forest land acquired with
the proceeds from qualified forest conservation bonds,
(C) which periodically conducts educational
programs designed to inform the public of
environmentally sensitive forestry management and
conservation techniques,
(D) which has at all times a board of directors--
(i) at least 20 percent of the members of
which represent the holders of the conservation
restriction described in paragraph (2),
(ii) at least 20 percent of the members of
which are public officials, and
(iii) not more than one-third of the
members of which are individuals who are or
were at any time within 5 years before the
beginning of a term of membership on the board,
an employee of, independent contractor with
respect to, officer of, director of, or held a
material financial interest in, a commercial
forest products enterprise with which the
qualified organization has a contractual or
other financial arrangement,
(E) the bylaws of which require at least two-thirds
of the members of the board of directors to vote
affirmatively to approve the qualified conservation
plan and any change thereto, and
(F) upon dissolution, is required to dedicate its
assets to--
(i) an organization described in section
501(c)(3) of such Code which is organized and
operated for conservation purposes, or
(ii) a governmental unit described in
section 170(c)(1) of such Code.
(4) Unrelated person.--The term ``unrelated person'' means
a person who is not a related person.
(5) Related person.--A person shall be treated as related
to another person if--
(A) such person bears a relationship to such other
person described in section 267(b) (determined without
regard to paragraph (9) thereof), or 707(b)(1), of such
Code, determined by substituting ``25 percent'' for
``50 percent'' each place it appears therein, and
(B) in the case such other person is a non-profit
organization, if such person controls directly or
indirectly more than 25 percent of the governing body
of such organization.
SEC. 616. INDIAN SCHOOL CONSTRUCTION.
(a) Definitions.--In this section:
(1) Bureau.--The term ``Bureau'' means the Bureau of Indian
Affairs of the Department.
(2) Department.--The term ``Department'' means the
Department of the Interior.
(3) Escrow account.--The term ``escrow account'' means the
tribal school modernization escrow account established under
subsection (b)(6)(B)(i).
(4) Indian.--The term ``Indian'' means any individual who
is a member of an Indian tribe.
(5) Indian tribe.--
(A) In general.--The term ``Indian tribe'' has the
meaning given the term ``Indian tribal government'' by
section 7701(a)(40) of the Internal Revenue Code of
1986 (including the application of section 7871(d) of
that Code).
(B) Inclusion.--The term ``Indian tribe'' includes
a consortium of Indian tribes approved by the
Secretary.
(6) Secretary.--The term ``Secretary'' means the Secretary
of the Interior.
(7) Tribal school.--The term ``tribal school'' means an
elementary school, secondary school, or dormitory that--
(A) is operated by a tribal organization or the
Bureau for the education of Indian children; and
(B) under a contract, a grant, or an agreement, or
for a Bureau-operated school, receives financial
assistance to pay the costs of operation from funds
made available under--
(i) section 102, 103(a), or 208 of the
Indian Self-Determination and Education
Assistance Act (25 U.S.C. 450f, 450h(a), 458d);
or
(ii) the Tribally Controlled Schools Act of
1988 (25 U.S.C. 2501 et seq.).
(b) Issuance of Bonds.--
(1) In general.--The Secretary shall establish a pilot
program under which eligible Indian tribes may issue qualified
tribal school modernization bonds to provide funding for the
construction, rehabilitation, or repair of tribal schools
(including the advance planning and design of tribal schools).
(2) Eligibility.--
(A) In general.--To be eligible to issue any
qualified tribal school modernization bond under the
program under paragraph (1), an Indian tribe shall--
(i) prepare and submit to the Secretary a
plan of construction that meets the
requirements of subparagraph (B);
(ii) provide for quarterly and final
inspection of the project by the Bureau; and
(iii) pledge that the facilities financed
by the bond will be used primarily for
elementary and secondary educational purposes
for not less than the period during which the
bond remains outstanding.
(B) Plan of construction.--A plan of construction
referred to in subparagraph (A)(i) meets the
requirements of this subparagraph if the plan--
(i) contains a description of the
construction to be carried out with funding
provided under a qualified tribal school
modernization bond;
(ii) demonstrates that a comprehensive
survey has been completed to determine the
construction needs of the tribal school
involved;
(iii) contains assurances that funding
under the bond will be used only for the
activities described in the plan;
(iv) contains a response to the evaluation
criteria contained in Instructions and
Application for Replacement School
Construction, Revision 6, dated February 6,
1999; and
(v) contains any other reasonable and
related information determined to be
appropriate by the Secretary.
(C) Priority.--In determining whether an Indian
tribe is eligible to participate in the program under
this subsection, the Secretary shall give priority to
an Indian tribe that, as demonstrated by the relevant
plans of construction, will fund projects--
(i) described in the Education Facilities
Replacement Construction Priorities List, as of
fiscal year 2000, of the Bureau (65 Fed. Reg.
4623);
(ii) described in any subsequent priorities
list published in the Federal Register; or
(iii) that meet the criteria for ranking
schools as described in Instructions and
Application for Replacement School
Construction, Revision 6, dated February 6,
1999.
(D) Advance planning and design funding.--
(i) In general.--An Indian tribe may
propose in the plan of construction of the
Indian tribe to receive advance planning and
design funding from the escrow account.
(ii) Conditions on allocation of funds.--As
a condition to the allocation to an Indian
tribe of advance planning and design funds from
the escrow account under clause (i), the Indian
tribe shall agree--
(I) to issue qualified tribal
school modernization bonds after the
date of receipt of the funds; and
(II) as a condition of each bond
issuance, that the Indian tribe will
deposit into the escrow account, or a
fund managed by the trustee as
described in paragraph (4)(C), an
amount equal to the amount of funds
received from the escrow account.
(3) Permissible activities.--In addition to the use of
funds permitted under paragraph (1), an Indian tribe may use
amounts received through the issuance of a qualified tribal
school modernization bond--
(A) to enter into and make payments under contracts
with licensed and bonded architects, engineers, and
construction firms--
(i) to determine the needs of the tribal
school; and
(ii) for the design and engineering of the
tribal school;
(B) enter into and make payments under contracts
with financial advisers, underwriters, attorneys,
trustees, and other professionals who would be able to
provide assistance to the Indian tribe in issuing
bonds; and
(C) carry out other activities determined to be
appropriate by the Secretary.
(4) Bond trustee.--
(A) In general.--Notwithstanding any other
provision of law, any qualified tribal school
modernization bond issued by an Indian tribe under this
subsection shall be subject to a trust agreement
between the Indian tribe and a trustee.
(B) Trustee.--Any bank or trust company that meets
requirements established by the Secretary may be
designated as a trustee under subparagraph (A).
(C) Content of trust agreement.--A trust agreement
entered into by an Indian tribe under this paragraph
shall specify that the trustee, with respect to any
bond issued under this subsection, shall--
(i) act as a repository for the proceeds of
the bond;
(ii) make payments to bondholders;
(iii) receive, as a condition to the
issuance of the bond, a transfer of funds from
the escrow account, or from other funds
furnished by or on behalf of the Indian tribe,
in an amount that (including interest earnings
from the investment of the funds in obligations
of, or fully guaranteed by, the United States,
or from other investments authorized by
paragraph (10)) will produce funds sufficient
to timely pay in full the entire principal
amount of the bond on the stated maturity date
of the bond;
(iv) invest the funds transferred under
clause (iii) in an investment described in that
clause; and
(v)(I) hold and invest the funds
transferred under clause (iii) in a segregated
fund or account under the agreement; and
(II) use the fund or account solely for
payment of the costs of items described in
paragraph (3).
(D) Requirements for making direct payments.--
(i) Payments.--
(I) In general.--Notwithstanding
any other provision of law, the trustee
shall make any payment referred to in
subparagraph (C)(v) in accordance with
such requirements as the Indian tribe
shall prescribe in the trust agreement
entered into under subparagraph (C).
(II) Inspection.--Before making a
payment for a project to a contractor
under subparagraph (C)(v), to ensure
completion of the project, the trustee
shall require an inspection of the
project by--
(aa) a local financial
institution; or
(bb) an independent
inspecting architect or
engineer.
(ii) Contracts.--Each contract referred to
in paragraph (3) shall specify, or be
renegotiated to specify, that payments under
the contract shall be made in accordance with
this paragraph.
(5) Payments of principal and interest.--
(A) Principal.--
(i) In general.--No principal payment on
any qualified tribal school modernization bond
shall be required under this subsection until
the final, stated date on which the bond
reaches maturity.
(ii) Maturity; outstanding principal.--With
respect to a qualified tribal school
modernization bond issued under this
subsection--
(I) the bond shall reach maturity
not later than 15 years after the date
of issuance of the bond; and
(II) on the date on which the bond
reaches maturity, the entire
outstanding principal under the bond
shall become due and payable.
(B) Interest.--There shall be awarded a tax credit
under section 1400M of the Internal Revenue Code of
1986 in lieu of interest on a qualified tribal school
modernization bond issued under this subsection.
(6) Bond guarantees.--
(A) In general.--Payment of the principal portion
of a qualified tribal school modernization bond issued
under this subsection shall be guaranteed solely by
amounts deposited with each respective bond trustee as
described in paragraph (4)(C)(iii).
(B) Establishment of account.--
(i) In general.--Notwithstanding any other
provision of law, the Secretary may--
(I) establish a tribal school
modernization escrow account; and
(II) beginning in fiscal year 2005,
from amounts made available for school
replacement under the construction
account of the Bureau, deposit not more
than $30,000,000 for each fiscal year
into the escrow account.
(ii) Transfers of excess proceeds.--Excess
proceeds held under any trust agreement that
are not needed for any of the purposes
described in clauses (iii) and (v) of paragraph
(4)(C) shall be transferred, from time to time,
by the trustee for deposit into the escrow
account.
(iii) Payments.--The Secretary shall use
any amounts deposited in the escrow account
under clauses (i) and (ii)--
(I) to make payments to trustees
appointed and acting in accordance with
paragraph (4); or
(II) to make payments described in
paragraph (2)(D).
(7) Limitations.--
(A) Obligation to repay.--
(i) In general.--Notwithstanding any other
provision of law, the principal amount on any
qualified tribal school modernization bond
issued under this subsection shall be repaid
only to the extent of any escrowed funds
provided under paragraph (4)(C)(iii).
(ii) No guarantee.--No qualified tribal
school modernization bond issued by an Indian
tribe under this subsection shall be an
obligation of, and no payment of the principal
of such a bond shall be guaranteed by--
(I) the United States;
(II) the Indian tribe; or
(III) the tribal school for which
the bond was issued.
(B) Land and facilities.--No land or facility
purchased or improved with amounts derived from a
qualified tribal school modernization bond issued under
this subsection shall be mortgaged or used as
collateral for the bond.
(8) Sale of bonds.--A qualified tribal school modernization
bond may be sold at a purchase price equal to, in excess of, or
at a discount from, the par amount of the bond.
(9) Treatment of trust agreement earnings.--No amount
earned through the investment of funds under the control of a
trustee under any trust agreement described in paragraph (4)
shall be subject to Federal income taxation.
(10) Investment of sinking funds.--A sinking fund
established for the purpose of the payment of principal on a
qualified tribal school modernization bond issued under this
subsection shall be invested in--
(A) obligations issued by or guaranteed by the
United States; or
(B) such other assets as the Secretary of the
Treasury may by regulation allow.
(c) Expansion of Incentives for Tribal Schools.--Chapter 1 is
amended by adding at the end the following new subchapter:
``Subchapter Z--Tribal School Modernization Provisions
``Sec. 1400M. Credit to holders of qualified tribal school
modernization bonds.
``SEC. 1400M. CREDIT TO HOLDERS OF QUALIFIED TRIBAL SCHOOL
MODERNIZATION BONDS.
``(a) Allowance of Credit.--In the case of a taxpayer who holds a
qualified tribal school modernization bond on a credit allowance date
of such bond which occurs during the taxable year, there shall be
allowed as a credit against the tax imposed by this chapter for such
taxable year an amount equal to the sum of the credits determined under
subsection (b) with respect to credit allowance dates during such year
on which the taxpayer holds such bond.
``(b) Amount of Credit.--
``(1) In general.--The amount of the credit determined
under this subsection with respect to any credit allowance date
for a qualified tribal school modernization bond is 25 percent
of the annual credit determined with respect to such bond.
``(2) Annual credit.--The annual credit determined with
respect to any qualified tribal school modernization bond is
the product of--
``(A) the applicable credit rate, multiplied by
``(B) the outstanding face amount of the bond.
``(3) Applicable credit rate.--For purposes of paragraph
(1), the applicable credit rate with respect to an issue is the
rate equal to an average market yield (as of the date of sale
of the issue) on outstanding long-term corporate obligations
(as determined by the Secretary).
``(4) Special rule for issuance and redemption.--In the
case of a bond which is issued during the 3-month period ending
on a credit allowance date, the amount of the credit determined
under this subsection with respect to such credit allowance
date shall be a ratable portion of the credit otherwise
determined based on the portion of the 3-month period during
which the bond is outstanding. A similar rule shall apply when
the bond is redeemed.
``(c) Limitation Based on Amount of Tax.--
``(1) In general.--The credit allowed under subsection (a)
for any taxable year shall not exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under part
IV of subchapter A (other than subpart C thereof,
relating to refundable credits).
``(2) Carryover of unused credit.--If the credit allowable
under subsection (a) exceeds the limitation imposed by
paragraph (1) for such taxable year, such excess shall be
carried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such taxable year.
``(d) Qualified Tribal School Modernization Bond; Other
Definitions.--For purposes of this section--
``(1) Qualified tribal school modernization bond.--
``(A) In general.--The term `qualified tribal
school modernization bond' means, subject to
subparagraph (B), any bond issued as part of an issue
under section 616(b) of the Jumpstart Our Business
Strength (JOBS) Act, as in effect on the date of the
enactment of this section, if--
``(i) 95 percent or more of the proceeds of
such issue are to be used for the construction,
rehabilitation, or repair of a school facility
funded by the Bureau of Indian Affairs of the
Department of the Interior or for the
acquisition of land on which such a facility is
to be constructed with part of the proceeds of
such issue,
``(ii) the bond is issued by an Indian
tribe,
``(iii) the issuer designates such bond for
purposes of this section, and
``(iv) the term of each bond which is part
of such issue does not exceed 15 years.
``(B) National limitation on amount of bonds
designated.--
``(i) National limitation.--There is a
national qualified tribal school modernization
bond limitation for each calendar year. Such
limitation is--
``(I) $200,000,000 for 2005,
``(II) $200,000,000 for 2006, and
``(III) zero after 2006.
``(ii) Allocation of limitation.--The
national qualified tribal school modernization
bond limitation shall be allocated to Indian
tribes by the Secretary of the Interior subject
to the provisions of section 616 of the
Jumpstart Our Business Strength (JOBS) Act, as
in effect on the date of the enactment of this
section.
``(iii) Designation subject to limitation
amount.--The maximum aggregate face amount of
bonds issued during any calendar year which may
be designated under subsection (d)(1) with
respect to any Indian tribe shall not exceed
the limitation amount allocated to such
government under clause (ii) for such calendar
year.
``(iv) Carryover of unused limitation.--If
for any calendar year--
``(I) the limitation amount under
this subparagraph, exceeds
``(II) the amount of qualified
tribal school modernization bonds
issued during such year,
the limitation amount under this subparagraph
for the following calendar year shall be
increased by the amount of such excess. The
preceding sentence shall not apply if such
following calendar year is after 2012.
``(2) Credit allowance date.--The term `credit allowance
date' means--
``(A) March 15,
``(B) June 15,
``(C) September 15, and
``(D) December 15.
Such term includes the last day on which the bond is
outstanding.
``(3) Bond.--The term `bond' includes any obligation.
``(4) Tribe.--The term `tribe' has the meaning given the
term `Indian tribal government' by section 7701(a)(40),
including the application of section 7871(d). Such term
includes any consortium of tribes approved by the Secretary of
the Interior.
``(e) Credit Included in Gross Income.--Gross income includes the
amount of the credit allowed to the taxpayer under this section
(determined without regard to subsection (c)) and the amount so
included shall be treated as interest income.
``(f) Bonds Held by Regulated Investment Companies.--If any
qualified tribal school modernization bond is held by a regulated
investment company, the credit determined under subsection (a) shall be
allowed to shareholders of such company under procedures prescribed by
the Secretary.
``(g) Treatment for Estimated Tax Purposes.--Solely for purposes of
sections 6654 and 6655, the credit allowed by this section to a
taxpayer by reason of holding a qualified tribal school modernization
bonds on a credit allowance date shall be treated as if it were a
payment of estimated tax made by the taxpayer on such date.
``(h) Credit Treated as Allowed Under Part IV of Subchapter A.--For
purposes of subtitle F, the credit allowed by this section shall be
treated as a credit allowable under part IV of subchapter A of this
chapter.
``(i) Reporting.--Issuers of qualified tribal school modernization
bonds shall submit reports similar to the reports required under
section 149(e).''.
(d) Conforming Amendment.--The table of subchapters for chapter 1
is amended by adding at the end the following new item:
``Subchapter Z. Tribal school
modernization provisions.''.
(e) Additional Provisions.--
(1) Sovereign immunity.--This section and the amendments
made by this section shall not be construed to impact, limit,
or affect the sovereign immunity of the Federal Government or
any State or tribal government.
(2) Application.--This section and the amendments made by
this section shall take effect on the date of the enactment of
this Act with respect to bonds issued after December 31, 2004,
regardless of the status of regulations promulgated thereunder.
Subtitle C--Provisions Relating to Depreciation
SEC. 621. SPECIAL PLACED IN SERVICE RULE FOR BONUS DEPRECIATION
PROPERTY.
(a) In General.--Section 168(k)(2)(D) (relating to special rules)
is amended by adding at the end the following new clause:
``(iii) Syndication.--For purposes of
subparagraph (A)(ii), if--
``(I) property is originally placed
in service after September 10, 2001, by
the lessor of such property,
``(II) such property is sold by
such lessor or any subsequent purchaser
within 3 months after the date so
placed in service (or, in the case of
multiple units of property subject to
the same lease, within 3 months after
the date the final unit is placed in
service, so long as the period between
the time the first unit is placed in
service and the time the last unit is
placed in service does not exceed 12
months), and
``(III) the user of such property
after the last sale during such 3-month
period remains the same as when such
property was originally placed in
service,
such property shall be treated as originally
placed in service not earlier than the date of
such last sale, so long as no previous owner of
such property elects the application of this
subsection with respect to such property.''.
(b) Effective Date.--The amendment made by this section shall apply
to sales after the date of the enactment of this Act.
SEC. 622. MODIFICATION OF DEPRECIATION ALLOWANCE FOR AIRCRAFT.
(a) Aircraft Treated as Qualified Property.--
(1) In general.--Paragraph (2) of section 168(k) is amended
by redesignating subparagraphs (C) through (F) as subparagraphs
(D) through (G), respectively, and by inserting after
subparagraph (B) the following new subparagraph:
``(C) Certain aircraft.--The term `qualified
property' includes property--
``(i) which meets the requirements of
clauses (ii) and (iii) of subparagraph (A),
``(ii) which is an aircraft which is not a
transportation property (as defined in
subparagraph (B)(iii)) other than for
agricultural or firefighting purposes,
``(iii) which is purchased and on which
such purchaser, at the time of the contract for
purchase, has made a nonrefundable deposit of
the lesser of--
``(I) 10 percent of the cost, or
``(II) $100,000, and
``(iv) which has--
``(I) an estimated production
period exceeding 4 months, and
``(II) a cost exceeding
$200,000.''.
(2) Placed in service date.--Clause (iv) of section
168(k)(2)(A) is amended by striking ``subparagraph (B)'' and
inserting ``subparagraphs (B) and (C)''.
(b) Conforming Amendments.--
(1) Section 168(k)(2)(B) is amended by adding at the end
the following new clause:
``(iv) Application of subparagraph.--This
subparagraph shall not apply to any property
which is described in subparagraph (C).''.
(2) Section 168(k)(4)(A)(ii) is amended by striking
``paragraph (2)(C)'' and inserting ``paragraph (2)(D)''.
(3) Section 168(k)(4)(B)(iii) is amended by inserting ``and
paragraph (2)(C)'' after ``of this paragraph)''.
(4) Section 168(k)(4)(C) is amended by striking
``subparagraphs (B) and (D)'' and inserting ``subparagraphs
(B), (C), and (E)''.
(5) Section 168(k)(4)(D) is amended by striking ``Paragraph
(2)(E)'' and inserting ``Paragraph (2)(F)''.
(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. 623. MODIFICATION OF CLASS LIFE FOR CERTAIN TRACK FACILITIES.
(a) 7-Year Property.--Subparagraph (C) of section 168(e)(3)
(relating to classification of certain property) is amended by
redesignating clause (ii) as clause (iii) and by inserting after clause
(i) the following new clause:
``(ii) any motorsports entertainment
complex, and''.
(b) Definition.--Section 168(i) (relating to definitions and
special rules) is amended by adding at the end the following new
paragraph:
``(15) Motorsports entertainment complex.--
``(A) In general.--The term `motorsports
entertainment complex' means a racing track facility
which--
``(i) is permanently situated on land, and
``(ii) during the 36-month period following
the first day of the month in which the asset
is placed in service, is scheduled to host 1 or
more racing events for automobiles (of any
type), trucks, or motorcycles which are open to
the public for the price of admission.
``(B) Ancillary and support facilities.--Such term
shall include, if owned by the complex and provided for
the benefit of patrons of the complex--
``(i) ancillary grounds and facilities and
land improvements in support of the complex's
activities (including parking lots, sidewalks,
waterways, bridges, fences, and landscaping),
``(ii) support facilities (including food
and beverage retailing, souvenir vending, and
other nonlodging accommodations), and
``(iii) appurtenances associated with such
facilities and related attractions and
amusements (including ticket booths, race track
surfaces, suites and hospitality facilities,
grandstands and viewing structures, props,
walls, facilities that support the delivery of
entertainment services, other special purpose
structures, facades, shop interiors, and
buildings).
``(C) Exception.--Such term shall not include any
transportation equipment, administrative services
assets, warehouses, administrative buildings, hotels,
or motels.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to any property placed in service after the date of the
enactment of this Act and before January 1, 2008.
(2) No inference.--Nothing in the amendments made by this
section shall be construed to affect the treatment of expenses
incurred on or before the date of the enactment of this Act.
SEC. 624. MINIMUM TAX RELIEF FOR CERTAIN TAXPAYERS.
(a) Election to Increase Minimum Tax Credit Limitation in Lieu of
Bonus Depreciation.--
(1) In general.--Section 53 (relating to credit for prior
year minimum tax liability) is amended by adding at the end the
following new subsection:
``(e) Additional Credit in Lieu of Bonus Depreciation.--
``(1) In general.--In the case of a corporation making an
election under this subsection for a taxable year, the
limitation under subsection (c) shall be increased by an amount
equal to 50 percent of the bonus depreciation amount.
``(2) Bonus depreciation amount.--For purposes of paragraph
(1), the bonus depreciation amount for any taxable year is an
amount (not in excess of $25,000,000) equal to the product of--
``(A) 30 percent, and
``(B) the excess (if any) of--
``(i) the aggregate amount of depreciation
which would be determined under section 168 for
property placed in service during such taxable
year if no election under this subsection were
made, over
``(ii) the aggregate allowance for
depreciation allowable with respect to such
property placed in service for such taxable
year.
``(3) Aggregation rule.--All members of the same controlled
group of corporations shall be treated as 1 corporation for
purposes of this subsection.
``(4) Election.--Sections 168(k) (other than paragraph
(2)(F) thereof) shall not apply to any property placed in
service during a taxable year by a corporation making an
election under this subsection for such taxable year. An
election under this subsection may only be revoked with the
consent of the Secretary.
``(5) Credit refundable.--The aggregate increase in the
credit allowed by this section for any taxable year by reason
of this subsection shall for purposes of this title (other than
subsection (b)(2) of this section) be treated as a credit
allowed to the taxpayer under subpart C.''.
(2) Conforming amendments.--Subsection (k) of section 168
is amended by adding at the end the following new paragraph:
``(5) Cross reference.--For an election to claim certain
minimum tax credits in lieu of the allowance determined under
this subsection, see section 53(e).''.
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years ending after December 31, 2003.
(b) Use of General Business Credits Against Alternative Minimum
Tax.--
(1) In general.--Section 38(c) (relating to limitations
based on amount of tax) is amended by redesignating paragraph
(4) as paragraph (5) and by inserting after paragraph (3) the
following new paragraph:
``(4) Special rule for 2004.--Notwithstanding the preceding
provisions of this paragraph, in the case of any taxable year
beginning in 2004, the credit allowed under subsection (a)
shall not exceed the greater of--
``(A) the amount determined under this subsection
without regard to this paragraph, or
``(B) 50 percent of the lesser of--
``(i) the amount which would be determined
under this subsection if the tentative minimum
tax were treated as being zero in applying
paragraph (1) to such credit, or
``(ii) the amount of the current year
business credit.''.
(2) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning in 2004.
Subtitle D--Expansion of Business Credit
SEC. 631. NEW MARKETS TAX CREDIT FOR NATIVE AMERICAN RESERVATIONS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by redesignating
sections 45E and 45F as sections 45F and 45G, respectively, and by
inserting after section 45D the following new section:
``SEC. 45E. NEW MARKETS TAX CREDIT FOR NATIVE AMERICAN RESERVATIONS.
``(a) Allowance of Credit.--
``(1) In general.--For purposes of section 38, in the case
of a taxpayer who holds a qualified equity investment on a
credit allowance date of such investment which occurs during
the taxable year, the Native American new markets tax credit
determined under this section for such taxable year is an
amount equal to the applicable percentage of the amount paid to
the reservation development entity for such investment at its
original issue.
``(2) Applicable percentage.--For purposes of paragraph
(1), the applicable percentage is--
``(A) 5 percent with respect to the first 3 credit
allowance dates, and
``(B) 6 percent with respect to the remainder of
the credit allowance dates.
``(3) Credit allowance date.--For purposes of paragraph
(1), the term `credit allowance date' means, with respect to
any qualified equity investment--
``(A) the date on which such investment is
initially made, and
``(B) each of the 6 anniversary dates of such date
thereafter.
``(b) Qualified Equity Investment.--For purposes of this section--
``(1) In general.--The term `qualified equity investment'
means any equity investment in a reservation development entity
if--
``(A) such investment is acquired by the taxpayer
at its original issue (directly or through an
underwriter) solely in exchange for cash,
``(B) substantially all of such cash is used by the
reservation development entity to make qualified low-
income reservation investments, and
``(C) such investment is designated for purposes of
this section by the reservation development entity.
Such term shall not include any equity investment issued by a
reservation development entity more than 5 years after the date
that such entity receives an allocation under subsection (f).
Any allocation not used within such 5-year period may be
reallocated by the Secretary under subsection (f).
``(2) Limitation.--The maximum amount of equity investments
issued by a reservation development entity which may be
designated under paragraph (1)(C) by such entity shall not
exceed the portion of the limitation amount allocated under
subsection (f) to such entity.
``(3) Safe harbor for determining use of cash.--The
requirement of paragraph (1)(B) shall be treated as met if at
least 85 percent of the aggregate gross assets of the
reservation development entity are invested in qualified low-
income reservation investments.
``(4) Treatment of subsequent purchasers.--The term
`qualified equity investment' includes any equity investment
which would (but for paragraph (1)(A)) be a qualified equity
investment in the hands of the taxpayer if such investment was
a qualified equity investment in the hands of a prior holder.
``(5) Redemptions.--A rule similar to the rule of section
1202(c)(3) shall apply for purposes of this subsection.
``(6) Equity investment.--The term `equity investment'
means--
``(A) any stock (other than nonqualified preferred
stock as defined in section 351(g)(2)) in an entity
which is a corporation, and
``(B) any capital interest in an entity which is a
partnership.
``(c) Reservation Development Entity.--For purposes of this
section--
``(1) In general.--The term `reservation development
entity' means any domestic corporation or partnership if--
``(A) the primary mission of the entity is serving,
or providing investment capital for, low-income
reservations,
``(B) the entity maintains accountability to
residents of low-income reservations through their
representation on any governing board of the entity or
on any advisory board to the entity, and
``(C) the entity is certified by the Secretary for
purposes of this section as being a reservation
development entity.
``(2) Exception.--For purposes of subparagraph (C) of
paragraph (1), the Secretary shall not certify an entity as a
reservation development entity if such entity is also certified
as a qualified community development entity under section
45D(c).
``(d) Qualified Low-Income Reservation Investments.--For purposes
of this section--
``(1) In general.--The term `qualified low-income
reservation investment' means--
``(A) any capital or equity investment in, or loan
to, any qualified active low-income reservation
business,
``(B) the purchase from another reservation
development entity of any loan made by such entity
which is a qualified low-income reservation investment,
``(C) financial counseling and other services
specified in regulations prescribed by the Secretary to
businesses located in, and residents of, low-income
reservations, and
``(D) any equity investment in, or loan to, any
reservation development entity.
``(2) Qualified active low-income reservation business.--
``(A) In general.--For purposes of paragraph (1),
the term `qualified active low-income reservation
business' means, with respect to any taxable year, any
corporation (including a nonprofit corporation) or
partnership if for such year--
``(i) at least 50 percent of the total
gross income of such entity is derived from the
active conduct of a qualified business within
any low-income reservation,
``(ii) a substantial portion of the use of
the tangible property of such entity (whether
owned or leased) is within any low-income
reservation,
``(iii) a substantial portion of the
services performed for such entity by its
employees are performed in any low-income
reservation,
``(iv) less than 5 percent of the average
of the aggregate unadjusted bases of the
property of such entity is attributable to
collectibles (as defined in section 408(m)(2))
other than collectibles that are held primarily
for sale to customers in the ordinary course of
such business, and
``(v) less than 5 percent of the average of
the aggregate unadjusted bases of the property
of such entity is attributable to nonqualified
financial property (as defined in section
1397C(e)).
``(B) Proprietorship.--Such term shall include any
business carried on by an individual as a proprietor if
such business would meet the requirements of
subparagraph (A) were it incorporated.
``(C) Portions of business may be qualified active
low-income reservation business.--The term `qualified
active low-income reservation business' includes any
trades or businesses which would qualify as a qualified
active low-income reservation business if such trades
or businesses were separately incorporated.
``(3) Qualified business.--For purposes of this subsection,
the term `qualified business' has the meaning given to such
term by section 45D(d)(3).
``(e) Low-Income Reservation.--For purposes of this section, the
term `low-income reservation' means any Indian reservation (as defined
in section 168(j)(6)) which has a poverty rate of at least 40 percent.
``(f) National Limitation on Amount of Investments Designated.--
``(1) In general.--There is a Native American new markets
tax credit limitation of $50,000,000 for each of calendar years
2004 through 2007.
``(2) Allocation of limitation.--The limitation under
paragraph (1) shall be allocated by the Secretary among
reservation development entities selected by the Secretary. In
making allocations under the preceding sentence, the Secretary
shall give priority to any entity--
``(A) with a record of having successfully provided
capital or technical assistance to disadvantaged
businesses or communities, or
``(B) which intends to satisfy the requirement
under subsection (b)(1)(B) by making qualified low-
income reservation investments in 1 or more businesses
in which persons unrelated to such entity (within the
meaning of section 267(b) or 707(b)(1)) hold the
majority equity interest.
``(3) Carryover of unused limitation.--If the Native
American new markets tax credit limitation for any calendar
year exceeds the aggregate amount allocated under paragraph (2)
for such year, such limitation for the succeeding calendar year
shall be increased by the amount of such excess. No amount may
be carried under the preceding sentence to any calendar year
after 2014.
``(g) Recapture of Credit in Certain Cases.--
``(1) In general.--If, at any time during the 7-year period
beginning on the date of the original issue of a qualified
equity investment in a reservation development entity, there is
a recapture event with respect to such investment, then the tax
imposed by this chapter for the taxable year in which such
event occurs shall be increased by the credit recapture amount.
``(2) Credit recapture amount.--For purposes of paragraph
(1), the credit recapture amount is an amount equal to the sum
of--
``(A) the aggregate decrease in the credits allowed
to the taxpayer under section 38 for all prior taxable
years which would have resulted if no credit had been
determined under this section with respect to such
investment, plus
``(B) interest at the underpayment rate established
under section 6621 on the amount determined under
subparagraph (A) for each prior taxable year for the
period beginning on the due date for filing the return
for the prior taxable year involved.
No deduction shall be allowed under this chapter for interest
described in subparagraph (B).
``(3) Recapture event.--For purposes of paragraph (1),
there is a recapture event with respect to an equity investment
in a reservation development entity if--
``(A) such entity ceases to be a reservation
development entity,
``(B) the proceeds of the investment cease to be
used as required of subsection (b)(1)(B), or
``(C) such investment is redeemed by such entity.
``(4) Special rules.--
``(A) Tax benefit rule.--The tax for the taxable
year shall be increased under paragraph (1) only with
respect to credits allowed by reason of this section
which were used to reduce tax liability. In the case of
credits not so used to reduce tax liability, the
carryforwards and carrybacks under section 39 shall be
appropriately adjusted.
``(B) No credits against tax.--Any increase in tax
under this subsection shall not be treated as a tax
imposed by this chapter for purposes of determining the
amount of any credit under this chapter or for purposes
of section 55.
``(h) Basis Reduction.--The basis of any qualified equity
investment shall be reduced by the amount of any credit determined
under this section with respect to such investment. This subsection
shall not apply for purposes of sections 1202, 1400B, and 1400F.
``(i) Regulations.--The Secretary shall prescribe such regulations
as may be appropriate to carry out this section, including
regulations--
``(1) which limit the credit for investments which are
directly or indirectly subsidized by other Federal tax benefits
(including the credit under section 42 and the exclusion from
gross income under section 103),
``(2) which prevent the abuse of the purposes of this
section,
``(3) which provide rules for determining whether the
requirement of subsection (b)(1)(B) is treated as met,
``(4) which impose appropriate reporting requirements, and
``(5) which apply the provisions of this section to newly
formed entities.''.
(b) Credit Made Part of General Business Credit.--
(1) In general.--Subsection (b) of section 38 is amended by
redesignating paragraphs (14) and (15) as paragraphs (15) and
(16), respectively, and by inserting after paragraph (13) the
following new paragraph:
``(14) the Native American new markets tax credit
determined under section 45E(a),''.
(2) Limitation on carryback.--Subsection (d) of section 39
is amended by redesignating paragraph (10) as paragraph (11)
and by inserting after paragraph (9) the following new
paragraph:
``(10) No carryback of native american new markets tax
credit before january 1, 2004.--No portion of the unused
business credit for any taxable year which is attributable to
the credit under section 45E may be carried back to a taxable
year ending before January 1, 2004.''.
(c) Deduction for Unused Credit.--Subsection (c) of section 196 is
amended by redesignating paragraph (10) as paragraph (11), by striking
``and'' at the end of paragraph (9), and by inserting after paragraph
(9) the following new paragraph:
``(10) the Native American new markets tax credit
determined under section 45E(a), and''.
(d) Conforming Amendments.--
(1) Section 38(b)(15), as redesignated by subsection
(b)(1), is amended--
(A) by striking ``45E(c)'' and inserting
``45F(c)'', and
(B) by striking ``45E(a)'' and inserting
``45F(a)''.
(2) Section 38(b)(16), as redesignated by subsection
(b)(1), is amended by striking ``45F(a)'' and inserting
``45G(a)''.
(3) Section 39(d)(11), as redesignated by subsection
(b)(2), is amended by striking ``section 45E'' and inserting
``section 45F''.
(4) Section 196(c)(11), as redesignated by subsection (c),
is amended by striking ``45E(a)'' and inserting ``45F(a)''.
(5) Section 1016(a)(28) is amended--
(A) by striking ``under section 45F'' and inserting
``under section 45G'', and
(B) by striking ``section 45F(f)(1)'' and inserting
``section 45G(f)(1)''.
(e) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 is amended by striking the items
relating to sections 45E and 45F and inserting the following:
``Sec. 45E. New markets tax credit for
Native American reservations.
``Sec. 45F. Small employer pension plan
startup costs.
``Sec. 45G. Employer-provided child care
credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to investments made after December 31, 2003.
(f) Guidance on Allocation of National Limitation.--Not later than
120 days after the date of the enactment of this Act, the Secretary of
the Treasury or the Secretary's delegate shall issue guidance which
specifies--
(1) how entities shall apply for an allocation under
section 45E(f)(2) of the Internal Revenue Code of 1986, as
added by this section;
(2) the competitive procedure through which such
allocations are made; and
(3) the actions that such Secretary or delegate shall take
to ensure that such allocations are properly made to
appropriate entities.
(g) Audit and Report.--Not later than January 31 of 2007 and 2010,
the Comptroller General of the United States shall, pursuant to an
audit of the Native American new markets tax credit program established
under section 45E of the Internal Revenue Code of 1986 (as added by
subsection (a)), report to Congress on such program, including all
reservation development entities that receive an allocation under the
Native American new markets credit under such section.
(h) Grants in Coordination With Credit.--
(1) In general.--The Secretary of the Treasury is
authorized to award a grant of not more than $1,000,000 to the
First Nations Oweesta Corporation.
(2) Use of funds.--The grant awarded under paragraph (1)
may be used--
(A) to enhance the capacity of people living on
low-income reservations (within the meaning of section
45E(e) of the Internal Revenue Code of 1986, as added
by this section) to access, apply, control, create,
leverage, utilize, and retain the financial benefits to
such low-income reservations which are attributable to
qualified low-income reservation investments (within
the meaning of section 45E(d) of such Code), and
(B) to provide access to appropriate financial
capital for the development of such low-income
reservations.
(3) Authorization of appropriations.--There are authorized
to be appropriated $1,000,000 for fiscal years 2004 through
2014 to carry out the provisions of this subsection.
SEC. 632. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT AND READY
RESERVE-NATIONAL GUARD REPLACEMENT EMPLOYEE CREDIT.
(a) Ready Reserve-National Guard Credit.--
(1) In general.--Subpart D of part IV of subchapter A of
chapter 1 (relating to business-related credits), as amended by
this Act, is amended by adding at the end the following:
``SEC. 45H. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT.
``(a) General Rule.--For purposes of section 38, the Ready Reserve-
National Guard employee credit determined under this section for any
taxable year with respect to each Ready Reserve-National Guard employee
of an employer is an amount equal to 50 percent of the lesser of--
``(1) the actual compensation amount with respect to such
employee for such taxable year, or
``(2) $30,000.
``(b) Definition of Actual Compensation Amount.--For purposes of
this section, the term `actual compensation amount' means the amount of
compensation paid or incurred by an employer with respect to a Ready
Reserve-National Guard employee on any day when the employee was absent
from employment for the purpose of performing qualified active duty.
``(c) Limitations.--No credit shall be allowed with respect to any
day that a Ready Reserve-National Guard employee who performs qualified
active duty was not scheduled to work (for reason other than to
participate in qualified active duty).
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Qualified active duty.--The term `qualified active
duty' means--
``(A) active duty, other than the training duty
specified in section 10147 of title 10, United States
Code (relating to training requirements for the Ready
Reserve), or section 502(a) of title 32, United States
Code (relating to required drills and field exercises
for the National Guard), in connection with which an
employee is entitled to reemployment rights and other
benefits or to a leave of absence from employment under
chapter 43 of title 38, United States Code, and
``(B) hospitalization incident to such duty.
``(2) Compensation.--The term `compensation' means any
remuneration for employment, whether in cash or in kind, which
is paid or incurred by a taxpayer and which is deductible from
the taxpayer's gross income under section 162(a)(1).
``(3) Ready reserve-national guard employee.--The term
`Ready Reserve-National Guard employee' means an employee who
is a member of the Ready Reserve of a reserve component of an
Armed Force of the United States as described in sections 10142
and 10101 of title 10, United States Code.
``(4) Certain rules to apply.--Rules similar to the rules
of section 52 shall apply.
``(e) Portion of Credit Refundable.--
``(1) In general.--In the case of an employer of a
qualified first responder, the aggregate credits allowed to a
taxpayer under subpart C shall be increased by the lesser of--
``(A) the credit which would be allowed under this
section without regard to this subsection and the
limitation under section 38(c), or
``(B) the amount by which the aggregate amount of
credits allowed by this subpart (determined without
regard to this subsection) would increase if the
limitation imposed by section 38(c) for any taxable
year were increased by the amount of employer payroll
taxes imposed on the taxpayer during the calendar year
in which the taxable year begins.
The amount of the credit allowed under this subsection shall
not be treated as a credit allowed under this subpart and shall
reduce the amount of the credit otherwise allowable under
subsection (a) without regard to section 38(c).
``(2) Employer payroll taxes.--For purposes of this
subsection--
``(A) In general.--The term `employer payroll
taxes' means the taxes imposed by--
``(i) section 3111(b), and
``(ii) sections 3211(a) and 3221(a)
(determined at a rate equal to the rate under
section 3111(b)).
``(B) Special rule.--A rule similar to the rule of
section 24(d)(2)(C) shall apply for purposes of
subparagraph (A).
``(3) Qualified first responder.--For purposes of this
subsection, the term `qualified first responder' means any
person who is--
``(A) employed as a law enforcement official, a
firefighter, or a paramedic, and
``(B) a Ready Reserve-National Guard employee.''.
(2) Credit to be part of general business credit.--
Subsection (b) of section 38 (relating to general business
credit), as amended by this Act, is amended by striking
``plus'' at the end of paragraph (15), by striking the period
at the end of paragraph (16) and inserting ``, plus'', and by
adding at the end the following:
``(17) the Ready Reserve-National Guard employee credit
determined under section 45H(a).''.
(3) Denial of double benefit.--Section 280C(a) (relating to
rule for employment credits) is amended by inserting
``45H(a),'' after ``45A(a),''.
(4) Conforming amendment.--The table of sections for
subpart D of part IV of subchapter A of chapter 1, as amended
by this Act, is amended by inserting after the item relating to
section 45G the following:
``Sec. 45H. Ready Reserve-National Guard
employee credit.''.
(5) Effective date.--The amendments made by this subsection
shall apply to amounts paid or incurred after September 30,
2004, in taxable years ending after such date.
(b) Ready Reserve-National Guard Replacement Employee Credit.--
(1) In general.--Subpart B of part IV of subchapter A of
chapter 1 (relating to foreign tax credit, etc.), as amended by
this Act, is amended by adding after section 30C the following
new section:
``SEC. 30D. READY RESERVE-NATIONAL GUARD REPLACEMENT EMPLOYEE CREDIT.
``(a) Allowance of Credit.--
``(1) In general.--In the case of an eligible taxpayer,
there shall be allowed as a credit against the tax imposed by
this chapter for the taxable year the sum of the employment
credits for each qualified replacement employee under this
section.
``(2) Employment credit.--The employment credit with
respect to a qualified replacement employee of the taxpayer for
any taxable year is equal to 50 percent of the lesser of--
``(A) the individual's qualified compensation
attributable to service rendered as a qualified
replacement employee, or
``(B) $12,000.
``(b) Qualified Compensation.--The term `qualified compensation'
means--
``(1) compensation which is normally contingent on the
qualified replacement employee's presence for work and which is
deductible from the taxpayer's gross income under section
162(a)(1),
``(2) compensation which is not characterized by the
taxpayer as vacation or holiday pay, or as sick leave or pay,
or as any other form of pay for a nonspecific leave of absence,
and
``(3) group health plan costs (if any) with respect to the
qualified replacement employee.
``(c) Qualified Replacement Employee.--For purposes of this
section--
``(1) In general.--The term `qualified replacement
employee' means an individual who is hired to replace a Ready
Reserve-National Guard employee or a Ready Reserve-National
Guard self-employed taxpayer, but only with respect to the
period during which such Ready Reserve-National Guard employee
or Ready Reserve-National Guard self-employed taxpayer
participates in qualified active duty, including time spent in
travel status.
``(2) Ready reserve-national guard employee.--The term
`Ready Reserve-National Guard employee' has the meaning given
such term by section 45H(d)(3).
``(3) Ready reserve-national guard self-employed
taxpayer.--The term `Ready Reserve-National Guard self-employed
taxpayer' means a taxpayer who--
``(A) has net earnings from self-employment (as
defined in section 1402(a)) for the taxable year, and
``(B) is a member of the Ready Reserve of a reserve
component of an Armed Force of the United States as
described in section 10142 and 10101 of title 10,
United States Code.
``(d) Coordination With Other Credits.--The amount of credit
otherwise allowable under sections 51(a) and 1396(a) with respect to
any employee shall be reduced by the credit allowed by this section
with respect to such employee.
``(e) Limitations.--
``(1) Application with other credits.--The credit allowed
under subsection (a) for any taxable year shall not exceed the
excess (if any) of--
``(A) the regular tax for the taxable year reduced
by the sum of the credits allowable under subpart A and
sections 27, 29, and 30, over
``(B) the tentative minimum tax for the taxable
year.
``(2) Disallowance for failure to comply with employment or
reemployment rights of members of the reserve components of the
armed forces of the united states.--No credit shall be allowed
under subsection (a) to a taxpayer for--
``(A) any taxable year, beginning after the date of
the enactment of this section, in which the taxpayer is
under a final order, judgment, or other process issued
or required by a district court of the United States
under section 4323 of title 38 of the United States
Code with respect to a violation of chapter 43 of such
title, and
``(B) the 2 succeeding taxable years.
``(f) General Definitions and Special Rules.--For purposes of this
section--
``(1) Eligible taxpayer.--The term `eligible taxpayer'
means a small business employer or a Ready Reserve-National
Guard self-employed taxpayer.
``(2) Small business employer.--
``(A) In general.--The term `small business
employer' means, with respect to any taxable year, any
employer who employed an average of 50 or fewer
employees on business days during such taxable year.
``(B) Controlled groups.--For purposes of
subparagraph (A), all persons treated as a single
employer under subsection (b), (c), (m), or (o) of
section 414 shall be treated as a single employer.
``(3) Qualified active duty.--The term `qualified active
duty' has the meaning given such term by section 45H(d)(1).
``(4) Special rules for certain manufacturers.--
``(A) In general.--In the case of any qualified
manufacturer--
``(i) subsection (a)(2)(B) shall be applied
by substituting `$20,000' for `$12,000', and
``(ii) paragraph (2)(A) of this subsection
shall be applied by substituting `100' for
`50'.
``(B) Qualified manufacturer.--For purposes of this
paragraph, the term `qualified manufacturer' means any
person if--
``(i) the primary business of such person
is classified in sector 31, 32, or 33 of the
North American Industrial Classification
System, and
``(ii) all of such person's facilities
which are used for production in such business
are located in the United States.
``(5) Carryback and carryforward allowed.--
``(A) In general.--If the credit allowable under
subsection (a) for a taxable year exceeds the amount of
the limitation under subsection (e)(1) for such taxable
year (in this paragraph referred to as the `unused
credit year'), such excess shall be a credit carryback
to each of the 3 taxable years preceding the unused
credit year and a credit carryforward to each of the 20
taxable years following the unused credit year.
``(B) Rules.--Rules similar to the rules of section
39 shall apply with respect to the credit carryback and
credit carryforward under subparagraph (A).
``(6) Certain rules to apply.--Rules similar to the rules
of subsections (c), (d), and (e) of section 52 shall apply.''.
(2) No deduction for compensation taken into account for
credit.--Section 280C(a) (relating to rule for employment
credits), as amended by this Act, is amended--
(A) by inserting ``or compensation'' after
``salaries'', and
(B) by inserting ``30D,'' before ``45A(a),''.
(3) Conforming amendment.--Section 55(c)(2), as amended by
this Act, is amended by inserting ``30D(e)(1),'' after
``30C(e),''.
(4) Clerical amendment.--The table of sections for subpart
B of part IV of subchapter A of chapter 1, as amended by this
Act, is amended by adding after the item relating to section
30C the following new item:
``Sec. 30D. Credit for replacement of
activated military
reservists.''.
(5) Effective date.--The amendments made by this subsection
shall apply to amounts paid or incurred after September 30,
2004, in taxable years ending after such date.
(c) Application of Annual Exclusion Limit Under Section 911 to
Housing Costs.--
(1) In general.--Section 911(c) (relating to housing cost
amount) is amended by adding at the end the following new
paragraph:
``(4) Limit on exclusion for employer provided housing
costs.--The housing cost amount for any individual for any
taxable year attributable to employer provided amounts shall
not exceed the excess (if any) of--
``(A) the product of--
``(i) the exclusion amount determined under
subsection (b)(2)(D) for the taxable year, and
``(ii) a fraction equal to the number of
days of the taxable year within the applicable
period described in subparagraph (A) or (B) of
subsection (d)(1) divided by the number of days
in the taxable year, over
``(B) the foreign earned income of the individual
excluded under subsection (a)(1) for the taxable
year.''
(2) Conforming amendment.--Section 911(c)(1) is amended by
striking ``The'' and inserting ``Except as provided in
paragraph (4), the''.
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 2003.
SEC. 633. RURAL INVESTMENT TAX CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by adding at the end
the following:
``SEC. 42A. RURAL INVESTMENT CREDIT.
``(a) In General.--For purposes of section 38, the amount of the
rural investment credit determined under this section for any taxable
year in the credit period shall be an amount equal to the applicable
percentage of the eligible basis of each qualified rural investment
building.
``(b) Applicable Percentage: 70 Percent Present Value Credit for
New Buildings; 30 Percent Present Value Credit for Existing
Buildings.--For purposes of this section--
``(1) In general.--The term `applicable percentage' means
the appropriate percentage prescribed by the Secretary for the
earlier of--
``(A) the first month of the credit period with
respect to a rural investment building, or
``(B) at the election of the taxpayer, the month in
which the taxpayer and the rural investment credit
agency enter into an agreement with respect to such
building (which is binding on such agency, the
taxpayer, and all successors in interest) as to the
rural investment credit dollar amount to be allocated
to such building.
A month may be elected under subparagraph (B) only if the
election is made not later than the 5th day after the close of
such month. Such an election, once made, shall be irrevocable.
``(2) Method of prescribing percentages.--The percentages
prescribed by the Secretary for any month shall be percentages
which will yield over a 10-year period amounts of credit under
subsection (a) which have a present value equal to--
``(A) 70 percent of the eligible basis of a new
building, and
``(B) 30 percent of the eligible basis of an
existing building.
``(3) Method of discounting.--The present value under
paragraph (2) shall be determined--
``(A) as of the last day of the 1st year of the 10-
year period referred to in paragraph (2),
``(B) by using a discount rate equal to 72 percent
of the average of the annual Federal mid-term rate and
the annual Federal long-term rate applicable under
section 1274(d)(1) to the month applicable under
subparagraph (A) or (B) of paragraph (1) and compounded
annually, and
``(C) by assuming that the credit allowable under
this section for any year is received on the last day
of such year.
``(c) Eligible Basis; Qualified Rural Investment Building.--For
purposes of this section--
``(1) Eligible basis.--
``(A) In general.--The eligible basis of any
qualified rural investment building for any taxable
year shall be determined under rules similar to the
rules under section 42(d), except that--
``(i) the determination of the adjusted
basis of any building shall be made as of the
beginning of the credit period, and
``(ii) such basis shall include development
costs properly attributable to such building.
``(B) Development costs.--For purposes of
subparagraph (A)(ii), the term `development costs'
includes--
``(i) site preparation costs,
``(ii) State and local impact fees,
``(iii) reasonable development costs,
``(iv) professional fees related to basis
items,
``(v) construction financing costs related
to basis items other than land, and
``(vi) on-site and adjacent improvements
required by State and local governments.
``(2) Qualified rural investment building.--The term
`qualified rural investment building' means any building which
is part of a qualified rural investment project at all times
during the period--
``(A) beginning on the 1st day in the compliance
period on which such building is part of such an
investment project, and
``(B) ending on the last day of the compliance
period with respect to such building.
``(d) Rehabilitation Expenditures Treated as Separate New
Building.--Rehabilitation expenditures paid or incurred by the taxpayer
with respect to any building shall be treated for purposes of this
section as a separate new building under the rules of section 42(e).
``(e) Definition and Special Rules Relating to Credit Period.--
``(1) Credit period defined.--For purposes of this section,
the term `credit period' means, with respect to any building,
the period of 10 taxable years beginning with the taxable year
in which the building is first placed in service.
``(2) Special rule for 1st year of credit period.--
``(A) In general.--The credit allowable under
subsection (a) with respect to any building for the 1st
taxable year of the credit period shall be determined
by multiplying such credit by the fraction--
``(i) the numerator of which is the number
of full months of such year during which such
building was in service, and
``(ii) the denominator of which is 12.
``(B) Disallowed 1st year credit allowed in 11th
year.--Any reduction by reason of subparagraph (A) in
the credit allowable (without regard to subparagraph
(A)) for the 1st taxable year of the credit period
shall be allowable under subsection (a) for the 1st
taxable year following the credit period.
``(3) Credit period for existing buildings not to begin
before rehabilitation credit allowed.--The credit period for an
existing building shall not begin before the 1st taxable year
of the credit period for rehabilitation expenditures with
respect to the building.
``(f) Qualified Rural Investment Project; Qualifying County.--For
purposes of this section--
``(1) Qualified rural investment project.--The term
`qualified rural investment project' means any investment
project of 1 or more qualified rural investment buildings
located in a qualifying county (and, if necessary to the
project, any contiguous county) and selected by the State
according to its qualified rural investment plan.
``(2) Qualifying county.--The term `qualifying county'
means any county which--
``(A) is outside a metropolitan statistical area
(defined as such by the Office of Management and
Budget), and
``(B) during the 20-year period ending with the
year in which the most recent census was conducted, has
a net out-migration of inhabitants from the county of
at least 10 percent of the population of the county at
the beginning of such period.
``(g) Limitation on Aggregate Credit Allowable With Respect to
Investment Projects Located in a State.--
``(1) Credit may not exceed credit amount allocated to
building.--The amount of the credit determined under this
section for any taxable year with respect to any building shall
not exceed the rural investment credit dollar amount allocated
to such building under rules similar to the rules of section
42(h)(1).
``(2) Allocated credit amount to apply to all taxable years
ending during or after credit allocation year.--Any rural
investment credit dollar amount allocated to any building for
any calendar year--
``(A) shall apply to such building for all taxable
years in the credit period ending during or after such
calendar year, and
``(B) shall reduce the aggregate rural investment
credit dollar amount of the allocating agency only for
such calendar year.
``(3) Rural investment credit dollar amount for agencies.--
``(A) In general.--The aggregate rural investment
credit dollar amount which a rural investment credit
agency may allocate for any calendar year is the
portion of the State rural investment credit ceiling
allocated under this paragraph for such calendar year
to such agency.
``(B) State ceiling initially allocated to state
rural investment credit agencies.--Except as provided
in subparagraphs (D) and (E), the State rural
investment credit ceiling for each calendar year shall
be allocated to the rural investment credit agency of
such State. If there is more than 1 rural investment
credit agency of a State, all such agencies shall be
treated as a single agency.
``(C) State rural investment credit ceiling.--The
State rural investment credit ceiling applicable to any
State and any calendar year shall be an amount equal to
the sum of--
``(i) the unused State rural investment
credit ceiling (if any) of such State for the
preceding calendar year,
``(ii) $185,000 for each qualifying county
in the State,
``(iii) the amount of State rural
investment credit ceiling returned in the
calendar year, plus
``(iv) the amount (if any) allocated under
subparagraph (D) to such State by the
Secretary.
For purposes of clause (i), the unused State rural
investment credit ceiling for any calendar year is the
excess (if any) of the sum of the amounts described in
clauses (ii) through (iv) over the aggregate rural
investment credit dollar amount allocated for such
year. For purposes of clause (iii), the amount of State
rural investment credit ceiling returned in the
calendar year equals the rural investment credit dollar
amount previously allocated within the State to any
investment project which fails to meet the 10 percent
test under section 42(h)(1)(E)(ii) on a date after the
close of the calendar year in which the allocation was
made or which does not become a qualified rural
investment project within the period required by this
section or the terms of the allocation or to any
investment project with respect to which an allocation
is canceled by mutual consent of the rural investment
credit agency and the allocation recipient.
``(D) Unused rural investment credit carryovers
allocated among certain states.--
``(i) In general.--The unused rural
investment credit carryover of a State for any
calendar year shall be assigned to the
Secretary for allocation among qualified States
for the succeeding calendar year.
``(ii) Unused rural investment credit
carryover.--For purposes of this subparagraph,
the unused rural investment credit carryover of
a State for any calendar year is the excess (if
any) of the unused State rural investment
credit ceiling for such year (as defined in
subparagraph (C)(i)) over the excess (if any)
of--
``(I) the unused State rural
investment credit ceiling for the year
preceding such year, over
``(II) the aggregate rural
investment credit dollar amount
allocated for such year.
``(iii) Formula for allocation of unused
rural investment credit carryovers among
qualified states.--The amount allocated under
this subparagraph to a qualified State for any
calendar year shall be the amount determined by
the Secretary to bear the same ratio to the
aggregate unused rural investment credit
carryovers of all States for the preceding
calendar year as such State's population for
the calendar year bears to the population of
all qualified States for the calendar year. For
purposes of the preceding sentence, population
shall be determined in accordance with section
146(j).
``(iv) Qualified state.--For purposes of
this subparagraph, the term `qualified State'
means, with respect to a calendar year, any
State--
``(I) which allocated its entire
State rural investment credit ceiling
for the preceding calendar year, and
``(II) for which a request is made
(not later than May 1 of the calendar
year) to receive an allocation under
clause (iii).
``(E) State may provide for different allocation.--
Rules similar to the rules of section 146(e) (other
than paragraph (2)(B) thereof) shall apply for purposes
of this paragraph.
``(F) Population.--For purposes of this paragraph,
population shall be determined in accordance with
section 146(j).
``(G) Cost-of-living adjustment.--
``(i) In general.--In the case of a
calendar year after 2005, the $185,000 amount
in subparagraph (C) 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 by
substituting `calendar year 2004' for
`calendar year 1992' in subparagraph
(B) thereof.
``(ii) Rounding.--Any increase under clause
(i) which is not a multiple of $5,000 shall be
rounded to the next lowest multiple of $5,000.
``(4) Portion of state ceiling set-aside for certain
investment projects involving qualified nonprofit
organizations.--
``(A) In general.--At least 10 percent of the State
rural investment credit ceiling for any State for any
calendar year shall be allocated to qualified rural
investment projects described in subparagraph (B).
``(B) Investment projects involving qualified
nonprofit organizations.--For purposes of subparagraph
(A), a qualified rural investment project is described
in this subparagraph if a qualified nonprofit
organization is to materially participate (within the
meaning of section 469(h)) in the development and
operation of the investment project throughout the
compliance period.
``(C) Qualified nonprofit organization.--For
purposes of this paragraph, the term `qualified
nonprofit organization' means any organization if--
``(i) such organization is described in any
paragraph of section 501(c) and is exempt from
tax under section 501(a),
``(ii) such organization is determined by
the State rural investment credit agency not to
be affiliated with or controlled by a for-
profit organization; and
``(iii) 1 of the exempt purposes of such
organization includes the fostering of rural
investment.
``(D) Treatment of certain subsidiaries.--
``(i) In general.--For purposes of this
paragraph, a qualified nonprofit organization
shall be treated as satisfying the ownership
and material participation test of subparagraph
(B) if any qualified corporation in which such
organization holds stock satisfies such test.
``(ii) Qualified corporation.--For purposes
of clause (i), the term `qualified corporation'
means any corporation if 100 percent of the
stock of such corporation is held by 1 or more
qualified nonprofit organizations at all times
during the period such corporation is in
existence.
``(E) State may not override set-aside.--Nothing in
subparagraph (F) of paragraph (3) shall be construed to
permit a State not to comply with subparagraph (A) of
this paragraph.
``(F) Credits for qualified nonprofit
organizations.--
``(i) Allowance of credit.--Any credit
which would be allowable under subsection (a)
with respect to a qualified rural investment
building of a qualified nonprofit organization
if such organization were not exempt from tax
under this chapter shall be treated as a credit
allowable under subpart C to such organization.
``(ii) Use of credit.--A qualified
nonprofit organization may assign, trade, sell,
or otherwise transfer any credit allowable to
such organization under subparagraph (A) to any
taxpayer.
``(iii) Credit not income.--A transfer
under subparagraph (B) of any credit allowable
under subparagraph (A) shall not result in
income for purposes of section 511.
``(5) Special rules.--
``(A) Building must be located within jurisdiction
of credit agency.--A rural investment credit agency may
allocate its aggregate rural investment credit dollar
amount only to buildings located in the jurisdiction of
the governmental unit of which such agency is a part.
``(B) Agency allocations in excess of limit.--If
the aggregate rural investment credit dollar amounts
allocated by a rural investment credit agency for any
calendar year exceed the portion of the State rural
investment credit ceiling allocated to such agency for
such calendar year, the rural investment credit dollar
amounts so allocated shall be reduced (to the extent of
such excess) for buildings in the reverse of the order
in which the allocations of such amounts were made.
``(C) Credit reduced if allocated credit dollar
amount is less than credit which would be allowable
without regard to sales convention, etc.--
``(i) In general.--The amount of the credit
determined under this section with respect to
any building shall not exceed the clause (ii)
percentage of the amount of the credit which
would (but for this subparagraph) be determined
under this section with respect to such
building.
``(ii) Determination of percentage.--For
purposes of clause (i), the clause (ii)
percentage with respect to any building is the
percentage which--
``(I) the rural investment credit
dollar amount allocated to such
building bears to
``(II) the credit amount determined
in accordance with clause (iii).
``(iii) Determination of credit amount.--
The credit amount determined in accordance with
this clause is the amount of the credit which
would (but for this subparagraph) be determined
under this section with respect to the building
if this section were applied without regard to
paragraph (2)(A) of subsection (e).
``(D) Rural investment credit agency to specify
applicable percentage and maximum eligible basis.--In
allocating a rural investment credit dollar amount to
any building, the rural investment credit agency shall
specify the applicable percentage and the maximum
eligible basis which may be taken into account under
this section with respect to such building. The
applicable percentage and maximum eligible basis so
specified shall not exceed the applicable percentage
and eligible basis determined under this section
without regard to this subsection.
``(6) Other definitions.--For purposes of this subsection--
``(A) Rural investment credit agency.--The term
`rural investment credit agency' means any agency
authorized to carry out this subsection.
``(B) Possessions treated as States.--The term
`State' includes a possession of the United States.
``(7) Portion of state ceiling set-aside for qualified
rural small business investment credits.--Not more than 10
percent of the State rural investment credit ceiling for any
State for any calendar year may be allocated to qualified rural
small business investment credits under section 42B.
``(h) Definitions and Special Rules.--For purposes of this
section--
``(1) Compliance period.--The term `compliance period'
means, with respect to any building, the period of 10 taxable
years beginning with the 1st taxable year of the credit period
with respect thereto.
``(2) New building.--The term `new building' means a
building the original use of which begins with the taxpayer.
``(3) Existing building.--The term `existing building'
means any building which is not a new building.
``(4) Application to estates and trusts.--In the case of an
estate or trust, the amount of the credit determined under
subsection (a) and any increase in tax under subsection (i)
shall be apportioned between the estate or trust and the
beneficiaries on the basis of the income of the estate or trust
allocable to each.
``(i) Recapture of Credit.--If--
``(1) as of the close of any taxable year in the compliance
period, the amount of the eligible basis of any building with
respect to the taxpayer is less than
``(2) the amount of such basis as of the close of the
preceding taxable year,
then the taxpayer's tax under this chapter for the taxable year
shall be increased by the credit recapture amount determined
under rules similar to the rules of section 42(j).
``(j) Certifications and Other Reports to Secretary.--
``(1) Certification with respect to 1st year of credit
period.--Following the close of the 1st taxable year in the
credit period with respect to any qualified rural investment
building, the taxpayer shall certify to the Secretary (at such
time and in such form and in such manner as the Secretary
prescribes)--
``(A) the taxable year, and calendar year, in which
such building was first placed in service,
``(B) the eligible basis of such building as of the
beginning of the credit period,
``(C) the maximum applicable percentage and
eligible basis permitted to be taken into account by
the appropriate rural investment credit agency under
subsection (g),
``(D) the election made under subsection (f) with
respect to the qualified rural investment project of
which such building is a part, and
``(E) such other information as the Secretary may
require.
In the case of a failure to make the certification required by
the preceding sentence on the date prescribed therefor, unless
it is shown that such failure is due to reasonable cause and
not to willful neglect, no credit shall be allowable by reason
of subsection (a) with respect to such building for any taxable
year ending before such certification is made.
``(2) Annual reports to the secretary.--The Secretary may
require taxpayers to submit an information return (at such time
and in such form and manner as the Secretary prescribes) for
each taxable year setting forth--
``(A) the eligible basis for the taxable year of
each qualified rural investment building of the
taxpayer,
``(B) the information described in paragraph (1)(C)
for the taxable year, and
``(C) such other information as the Secretary may
require.
The penalty under section 6652(j) shall apply to any failure to
submit the return required by the Secretary under the preceding
sentence on the date prescribed therefor.
``(3) Annual reports from rural investment credit
agencies.--Each agency which allocates any rural investment
credit amount to any building for any calendar year shall
submit to the Secretary (at such time and in such manner as the
Secretary shall prescribe) an annual report specifying--
``(A) the amount of rural investment credit amount
allocated to each building for such year,
``(B) sufficient information to identify each such
building and the taxpayer with respect thereto, and
``(C) such other information as the Secretary may
require.
The penalty under section 6652(j) shall apply to any failure to
submit the report required by the preceding sentence on the
date prescribed therefor.
``(k) Responsibilities of Rural Investment Credit Agencies.--
``(1) Plans for allocation of credit among investment
projects.--
``(A) In general.--Notwithstanding any other
provision of this section, the rural investment credit
dollar amount with respect to any building shall be
zero unless--
``(i) such amount was allocated pursuant to
a qualified rural investment plan of the agency
which is approved by the governmental unit (in
accordance with rules similar to the rules of
section 147(f)(2) (other than subparagraph
(B)(ii) thereof)) of which such agency is a
part,
``(ii) such agency notifies the chief
executive officer (or the equivalent) of the
local jurisdiction within which the building is
located of such investment project and provides
such individual a reasonable opportunity to
comment on the investment project,
``(iii) a comprehensive market study of the
development needs of individuals in the
qualifying county to be served by the
investment project is conducted before the
credit allocation is made and at the
developer's expense by a disinterested party
who is approved by such agency, and
``(iv) a written explanation is available
to the general public for any allocation of a
rural investment credit dollar amount which is
not made in accordance with established
priorities and selection criteria of the rural
investment credit agency.
``(B) Qualified rural investment plan.--For
purposes of this section, the term `qualified rural
investment plan' means any plan--
``(i) which sets forth selection criteria
to be used to determine priorities of the rural
investment credit agency which are appropriate
to qualifying counties,
``(ii) which also gives preference in
allocating rural investment credit dollar
amounts among selected investment projects to--
``(I) investment projects that
target those small rural counties with
consistently high rates of net out-
migration,
``(II) investment projects that
link the economic development and job
creation efforts of 2 or more small
rural counties with high rates of net
out-migration, and
``(III) investment projects that
link the economic development and job
creation efforts of 1 or more small
rural counties in the State with high
rates of net out-migration to related
efforts in regions of such State
experiencing economic growth, and
``(iii) which provides a procedure that the
agency (or an agent or other private contractor
of such agency) will follow in monitoring for
noncompliance with the provisions of this
section and in notifying the Internal Revenue
Service of such noncompliance which such agency
becomes aware of and in monitoring for
noncompliance through regular site visits.
``(C) Certain selection criteria must be used.--The
selection criteria set forth in a qualified rural
investment plan must include--
``(i) investment project location,
``(ii) technology and transportation
infrastructure needs, and
``(iii) private development trends.
``(2) Credit allocated to building not to exceed amount
necessary to assure investment project feasibility.--
``(A) In general.--The rural investment credit
dollar amount allocated to an investment project shall
not exceed the amount the rural investment credit
agency determines is necessary for the financial
feasibility of the investment project and its viability
as a qualified rural investment project throughout the
compliance period.
``(B) Agency evaluation.--In making the
determination under subparagraph (A), the rural
investment credit agency shall consider--
``(i) the sources and uses of funds and the
total financing planned for the investment
project,
``(ii) any proceeds or receipts expected to
be generated by reason of tax benefits,
``(iii) the percentage of the rural
investment credit dollar amount used for
investment project costs other than the cost of
intermediaries, and
``(iv) the reasonableness of the
developmental and operational costs of the
investment project.
Clause (iii) shall not be applied so as to impede the
development of investment projects in hard-to-develop
areas.
``(C) Determination made when credit amount applied
for and when building placed in service.--
``(i) In general.--A determination under
subparagraph (A) shall be made as of each of
the following times:
``(I) The application for the rural
investment credit dollar amount.
``(II) The allocation of the rural
investment credit dollar amount.
``(III) The date the building is
first placed in service.
``(ii) Certification as to amount of other
subsidies.--Prior to each determination under
clause (i), the taxpayer shall certify to the
rural investment credit agency the full extent
of all Federal, State, and local subsidies
which apply (or which the taxpayer expects to
apply) with respect to the building.
``(l) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section, including regulations--
``(1) dealing with--
``(A) investment projects which include more than 1
building or only a portion of a building,
``(B) buildings which are sold in portions,
``(2) providing for the application of this section to
short taxable years,
``(3) preventing the avoidance of the rules of this
section, and
``(4) providing the opportunity for rural investment credit
agencies to correct administrative errors and omissions with
respect to allocations and record keeping within a reasonable
period after their discovery, taking into account the
availability of regulations and other administrative guidance
from the Secretary.''.
(b) Current Year Business Credit Calculation.--Section 38(b)
(relating to current year business credit), as amended by this Act, is
amended by striking ``plus'' at the end of paragraph (16), by striking
the period at the end of paragraph (17) and inserting ``, plus'', and
by adding at the end the following:
``(18) the rural investment credit determined under section
42A(a).''.
(c) Limitation on Carryback.--Subsection (d) of section 39
(relating to carryback and carryforward of unused credits), as amended
by this Act, is amended by adding at the end the following:
``(12) No carryback of rural investment credit before
effective date.--No portion of the unused business credit for
any taxable year which is attributable to the rural investment
credit determined under section 42A may be carried back to a
taxable year beginning before the date of the enactment of the
Jumpstart Our Business Strength (JOBS) Act.''.
(d) Conforming Amendments.--
(1) Section 55(c)(1) is amended by inserting ``or
subsection (i) or (j) of section 42A'' after ``section 42''.
(2) Subsections (i)(c)(3), (i)(c)(6)(B)(i), and (k)(1) of
section 469 are each amended by inserting ``or 42A'' after
``section 42''.
(3) Section 772(a) is amended by striking ``and'' at the
end of paragraph (10), by redesignating paragraph (11) as
paragraph (12), and by inserting after paragraph (10) the
following:
``(11) the rural investment credit determined under section
42A, and''.
(4) Section 774(b)(4) is amended by inserting ``, 42A(i),''
after ``section 42(j)''.
(e) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 is amended by inserting after the
item relating to section 42 the following:
``Sec. 42A. Rural investment credit.''.
(f) Effective Date.--The amendments made by this section shall
apply to expenditures made in taxable years beginning after the date of
the enactment of this Act.
SEC. 634. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by adding at the end the following:
``SEC. 42B. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.
``(a) In General.--For purposes of section 38, in the case of a
qualified rural small business, the amount of the qualified rural small
business investment credit determined under this section for any
taxable year is equal to 30 percent of the qualified expenditures for
the taxable year of such business.
``(b) Dollar Limitation.--
``(1) In general.--The credit allowable under subsection
(a) for any taxable year shall not exceed the lesser of--
``(A) $5,000, or
``(B) the amount when added to the aggregate
credits allowable to the taxpayer under subsection (a)
for all preceding taxable years does not exceed
$25,000.
``(2) No double credit allowed.--In the case of any
qualified rural small business which places in service a
qualified rural investment building with respect to which a
rural investment credit is allowed under section 42A for any
taxable year, paragraph (1)(A) shall be applied with respect to
such taxable year by substituting `zero' for `$5,000'.
``(c) Qualified Rural Small Business.--For purposes of this
section, the term `qualified rural small business' means any person if
such person--
``(1) employed not more than 5 full-time employees during
the taxable year,
``(2) materially and substantially participates in
management,
``(3) is located in a qualifying county, and
``(4) submitted a qualified business plan with respect to
which the rural investment credit agency with jurisdiction over
such qualifying county has allocated a portion of the State
rural investment ceiling for such taxable year under section
42A(g)(7).
For purposes of paragraph (1), an employee shall be considered full-
time if such employee is employed at least 30 hours per week for 20 or
more calendar weeks in the taxable year.
``(d) Qualified Expenditures.--For purposes of this section--
``(1) In general.--The term `qualified expenditures' means
expenditures normally associated with starting or expanding a
business and included in a qualified business plan, including
costs for capital, plant and equipment, inventory expenses, and
wages, but not including interest costs.
``(2) Only certain expenditures included for existing
businesses.--In the case of a qualified rural small business
with respect to which a credit under subsection (a) was allowed
for a preceding taxable year, such term shall include only so
much of the expenditures described in paragraph (1) for the
taxable year as exceed the aggregate of such expenditures for
the preceding taxable year.
``(e) Qualified Business Plan.--For purposes of this section, the
term `qualified business plan' means a business plan which--
``(1) has been approved by the rural investment credit
agency with jurisdiction over the qualifying county in which
the qualified rural small business is located pursuant to such
agency's rural investment plan, and
``(2) meets such requirements as the agency may specify.
``(f) Denial of Double Benefit.--In the case of the amount of the
credit determined under this section--
``(1) no deduction or credit shall be allowed for such
amount under any other provision of this chapter, and
``(2) no increase in the adjusted basis of any property
shall result from such amount.
``(g) Definitions and Special Rules.--For purposes of this
section--
``(1) any term which is used in this section which is used
in section 42A shall have the meaning given such term by
section 42A, and
``(2) rules similar to the rules under subsections (j)(2),
(j)(3), and (k) of section 42A shall apply.''.
(b) Current Year Business Credit Calculation.--Section 38(b)
(relating to current year business credit), as amended by this Act, is
amended by striking ``plus'' at the end of paragraph (17), by striking
the period at the end of paragraph (18) and inserting ``, plus'', and
by adding at the end the following:
``(19) the qualified rural small business investment credit
determined under section 42B(a).''.
(c) Limitation on Carryback.--Subsection (d) of section 39
(relating to carryback and carryforward of unused credits), as amended
by this Act, is amended by adding at the end the following:
``(13) No carryback of qualified rural small business
investment credit before effective date.--No portion of the
unused business credit for any taxable year which is
attributable to the qualified rural small business investment
credit determined under section 42B may be carried back to a
taxable year beginning before the date of the enactment of the
Jumpstart Our Business Strength (JOBS) Act.''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by inserting after the item relating to section 42A the
following:
``Sec. 42B. Qualified rural small
business investment credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to expenditures made in taxable years beginning after the date of
the enactment of this Act.
SEC. 635. CREDIT FOR MAINTENANCE OF RAILROAD TRACK.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 45I. RAILROAD TRACK MAINTENANCE CREDIT.
``(a) General Rule.--For purposes of section 38, the railroad track
maintenance credit determined under this section for the taxable year
is an amount equal to 30 percent of the qualified railroad track
maintenance expenditures paid or incurred by an eligible taxpayer
during the taxable year.
``(b) Limitation.--The credit allowed under subsection (a) for any
taxable year shall not exceed the product of--
``(1) $3,500, and
``(2) the number of miles of railroad track owned or leased
by the eligible taxpayer as of the close of the taxable year.
``(c) Eligible taxpayer.--For purposes of this section, the term
`eligible taxpayer' means--
``(1) any Class II or Class III railroad, and
``(2) any person who transports property using the rail
facilities of a person described in paragraph (1) or who
furnishes railroad-related property or services to such a
person.
``(d) Qualified Railroad Track Maintenance Expenditures.--For
purposes of this section, the term `qualified railroad track
maintenance expenditures' means expenditures (whether or not otherwise
chargeable to capital account) for maintaining railroad track
(including roadbed, bridges, and related track structures) owned or
leased as of January 1, 2005, by a Class II or Class III railroad.
``(e) Other Definitions and Special Rules.--
``(1) Class ii or Class iii railroad.--For purposes of this
section, the terms `Class II railroad' and `Class III railroad'
have the meanings given such terms by the Surface
Transportation Board.
``(2) Controlled groups.--Rules similar to the rules of
paragraph (1) of section 41(f) shall apply for purposes of this
section.
``(3) Basis adjustment.--For purposes of this subtitle, if
a credit is allowed under this section with respect to any
railroad track, the basis of such track shall be reduced by the
amount of the credit so allowed.
``(f) Application of Section.--This section shall apply to
qualified railroad track maintenance expenditures paid or incurred
during taxable years beginning after December 31, 2004, and before
January 1, 2008.''.
(b) Limitation on Carryback.--Section 39(d) (relating to transition
rules), as amended by this Act, is amended by adding at the end the
following new paragraph:
``(14) No carryback of railroad track maintenance credit
before effective date.--No portion of the unused business
credit for any taxable year which is attributable to the
railroad track maintenance credit determined under section 45I
may be carried to a taxable year beginning before January 1,
2005.''.
(c) Conforming Amendments.--
(1) Section 38(b) (relating to general business credit), as
amended by this Act, is amended by striking ``plus'' at the end
of paragraph (18), by striking the period at the end of
paragraph (19) and inserting ``, plus'', and by adding at the
end the following new paragraph:
``(20) the railroad track maintenance credit determined
under section 45I(a).''.
(2) Subsection (a) of section 1016, as amended by this Act,
is amended by striking ``and'' at the end of paragraph (28), by
striking the period at the end of paragraph (29) and inserting
``, and'', and by adding at the end the following new
paragraph:
``(30) in the case of railroad track with respect to which
a credit was allowed under section 45I, to the extent provided
in section 45I(e)(3).''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by inserting after the item relating to section 45H the
following new item:
``Sec. 45I. Railroad track maintenance
credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 636. RAILROAD REVITALIZATION AND SECURITY INVESTMENT CREDIT.
(a) Railroad Revitalization and Security Investment Credit.--
(1) In general.--Subpart D of part IV of subchapter A of
chapter 1 (relating to business-related credits), as amended by
this Act, is amended by adding at the end the following new
section:
``SEC. 45J. RAILROAD REVITALIZATION AND SECURITY INVESTMENT CREDIT.
``(a) General Rule.--For purposes of section 38, the railroad
revitalization and security investment credit determined under this
section for the taxable year is the amount equal to 50 percent of the
qualified project expenditures paid or incurred by the taxpayer during
the taxable year.
``(b) Qualified Project Expenditures.--
``(1) In general.--For purposes of this section, the term
`qualified project expenditures' means, with respect to any
project for intercity passenger rail transportation (as defined
under section 24102 of title 49, United States Code) which is
included in a State rail plan, expenditures (whether or not
otherwise chargeable to capital account) for--
``(A) planning,
``(B) environmental review and environmental impact
mitigation,
``(C) track and track structure rehabilitation,
relocation, improvement, and development,
``(D) railroad safety and security improvements,
``(E) communications and signaling improvements,
``(F) intercity passenger rail equipment
acquisition, and
``(G) rail station and intermodal facilities
development.
``(2) Exceptions.--An expenditure shall not be treated as a
qualified project expenditure unless all persons which conduct
rail operations over the infrastructure with respect to which
such an expenditure is made--
``(A) are employers for purposes of the Railroad
Retirement Act of 1974 and are carriers for purposes of
the Railway Labor Act (unless such a person is an
operator with respect to commuter rail passenger
transportation (as defined in section 24102(4) of title
49, United States Code) of a State or local government
authority (as such terms are defined in section 5302 of
such title) eligible to receive financial assistance
under section 5307 of such title, a contractor
performing services in connection with the operations
with respect to commuter rail passenger transportation
(as so defined), or the Alaska Railroad or its
contractors),
``(B) provide assurances to the State that any
collective bargaining agreements with such a person's
employees (including terms regulating the contracting
of work) will remain in full force and effect according
to the terms of the agreements for work performed for
such a person on the railroad transportation corridor,
and
``(C) comply with the protective agreements
established under section 504 of the Railroad
Revitalization and Regulatory Reform Act of 1976 with
respect to employees affected by actions taken in
connection with the project.
``(c) Limitation.--
``(1) In general.--The amount of the credit allowed under
subsection (a) for any taxable year with respect to any project
for which qualified project expenditures are made shall not
exceed the limitation allocated to such project under this
subsection for the calendar year in which the taxable year
begins.
``(2) State limitation.--
``(A) In general.--There is a State railroad
revitalization and security investment credit
limitation for each calendar year. Such limitation is
the amount which bears the same ratio to $165,000,000
as the allocation number for such State bears to the
allocation number for all States.
``(B) Allocation number.--For purposes of
subparagraph (A), the allocation number is, with
respect to any State, the sum of the following:
``(i) The number of railroad and public
road at grade crossings on intercity passenger
rail routes within the State.
``(ii) The number of intercity passenger
train miles within the State.
``(iii) The number of intercity
embarkations and disembarkations for each
passenger within the State.
``(3) Unused credit carryovers allocated among certain
states.--
``(A) In general.--The unused credit carryover for
all States for any calendar year shall be reallocated
to each qualified State in an amount which bears the
same ratio to the unused credit carryover for all
States for the calendar as the allocation number for
such qualified State bears to the allocation number for
all qualified States.
``(B) Unused credit carryover.--For purposes of
this paragraph, the term `unused credit carryover'
means, with respect to any State, the excess of the
State limitation (determined under paragraph (2)) for
the calendar year over the amount allocated by the
State under paragraph (4) for such calendar year.
``(C) Qualified states.--For purposes of this
paragraph, the term `qualified State' means any State--
``(i) which allocated its entire State
limitation amount under paragraph (4) for the
calendar year, and
``(ii) for which a request is made to
receive an allocation under this paragraph.
``(4) Allocation within states.--Each State shall allocate
the limitation amount allocated to such State under paragraphs
(2) and (3) to projects for intercity passenger rail
transportation which are included in the State rail plan of
such State.
``(5) New york city rail projects.--
``(A) In general.--In addition to the amounts
allocated under paragraph (2), the Secretary shall
allocate a limitation of $200,000,000 to New York City,
New York, for qualified project expenditures within the
New York Liberty Zone (as defined in section 1400L(h))
for the period described in subsection (h).
``(B) Allocation among projects.--Of the limitation
allocated under subparagraph (A)--
``(i) $100,000,000 shall be allocated to
projects designated by the Mayor of New York
City, New York, and
``(ii) $100,000,000 shall be allocated to
projects designated by the Governor of New
York.
``(C) Special rule regarding qualified project
expenditures.--For purposes of this paragraph, a
qualified project expenditure shall include any
expenditure for improvements to subway systems, for
commuter rail systems, for rail links to airports, and
for public infrastructure improvements in the vicinity
of rail or subway stations.
``(d) State rail plan.--For purposes of this section, the term
`State rail plan' means a plan prepared and maintained in accordance
with chapter 225 of title 49, United States Code.
``(e) Basis Adjustment.--For purposes of this subtitle, if a credit
is allowed under this section with respect to any property, the basis
of such property shall be reduced by the amount of the credit so
allowed.
``(f) No Double Benefit.--No credit shall be allowed under this
section with respect to any expenditures for which a credit is allowed
under section 45I.
``(g) Credit Transferability.--Any credit allowable under this
section may be transferred (but not more than once) if--
``(1) the credit exceeds the tax liability of the taxpayer
for the taxable year, or
``(2) the taxpayer is not subject to any tax imposed by
this chapter by reason of having a tax-exempt status.
``(h) Application of Section.--This section shall apply to
qualified project expenditures paid or incurred during taxable years
beginning after December 31, 2004, and before January 1, 2008.''.
(2) Limitation on carryback.--Section 39(d) (relating to
transition rules), as amended by this Act, is amended by adding
at the end the following new paragraph:
``(15) No carryback of section 45j credit before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the credit determined under
section 45J(a) may be carried back to any taxable year
beginning before January 1, 2005.''.
(3) Conforming Amendments.--
(A) Section 38(b) (relating to general business
credit), as amended by this Act, is amended by striking
``plus'' at the end of paragraph (19), by striking the
period at the end of paragraph (20) and inserting ``,
plus'', and by adding at the end the following new
paragraph:
``(21) the railroad revitalization and security investment
credit determined under section 45J(a).''.
(B) Subsection (a) of section 1016, as amended by
this Act, is amended by striking ``and'' at the end of
paragraph (29), by striking the period at the end of
paragraph (30) and inserting ``, and'', and by adding
at the end the following new paragraph:
``(31) in the case of property with respect to which a
credit was allowed under section 45J, to the extent provided in
section 45J(e).''.
(4) Clerical Amendment.--The table of sections for subpart
D of part IV of subchapter A of chapter 1, as amended by this
Act, is amended by inserting after the item relating to section
45I the following new item:
``Sec. 45J. Railroad revitalization and
security investment credit.''.
(5) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
(b) State rail plans.--
(1) In general.--Part B of subtitle V of title 49, United
States Code, is amended by adding at the end the following:
``CHAPTER 225--STATE RAIL PLANS
``Sec.
``22501. Authority.
``22502. Purposes.
``22503. Transparency; coordination.
``22504. Content.
``22505. Approval.
``22506. Definitions.
``Sec. 22501. Authority
``(a) In General.--Each State may prepare and maintain a State rail
plan in accordance with the provisions of this chapter.
``(b) Requirements.--For the preparation and periodic revision of a
State rail plan, a State shall--
``(1) establish or designate a State rail transportation
authority to prepare, maintain, coordinate, and administer the
plan;
``(2) establish or designate a State rail plan approval
authority to approve the plan;
``(3) make the State's approved plan available to the
public and transmit a copy to the Secretary of Transportation;
and
``(4) revise the plan no less frequently than once every 5
years.
``Sec. 22502. Purposes
``(a) Purposes.--The purposes of a State rail plan are as follows:
``(1) To set forth State policy involving freight and
passenger rail transportation, including commuter rail
operations, in the State.
``(2) To present priorities and strategies to enhance rail
service in the State that benefits the public.
``(3) To serve as the basis for Federal and State rail
investments within the State.
``(b) Content.--The State rail plan shall establish the period
covered by such plan.
``(c) Consistency With State Transportation Efforts.--A State rail
plan shall be consistent with the State transportation planning goals
and programs and shall set forth rail transportation's role within the
State transportation system.
``Sec. 22503. Transparency; coordination
``(a) Preparation.--A State shall provide adequate and reasonable
notice and opportunity for comment and other input on a proposed State
rail plan under this chapter to the following:
``(1) The public.
``(2) Rail carriers.
``(3) Commuter and transit authorities operating in, or
affected by rail operations within, the State.
``(4) Units of local government.
``(5) Other parties interested in the preparation and
review of the State rail plan.
``(b) Intergovernmental Coordination.--A State shall review the
freight and passenger rail service activities and initiatives of
regional planning agencies, regional transportation authorities, and
municipalities within the State, or in the region in which the State is
located, while preparing the plan, and shall include any
recommendations made by such agencies, authorities, and municipalities
as deemed appropriate by the State.
``Sec. 22504. Content
``(a) In General.--Each State rail plan shall contain the
following:
``(1) An inventory of the existing overall rail
transportation system and rail services and facilities within
the State and an analysis of the role of rail transportation
within the State's surface transportation system.
``(2) A comprehensive review of all rail lines within the
State, including proposed high speed rail corridors and
significant rail line segments not currently in service.
``(3) A statement of the State's passenger rail service
objectives, including minimum service levels, for intercity
passenger rail transportation routes in the State.
``(4) A general analysis of rail's transportation,
economic, and environmental impacts in the State, including
congestion mitigation, trade and economic development, air
quality, land-use, energy-use, and community impacts.
``(5) A long-range rail investment program for current and
future freight and passenger infrastructure in the State that
meets the requirements of subsection (b).
``(6) A statement of public financing issues for rail
projects and service in the State, including a list of current
and prospective public capital and operating funding resources,
public subsidies, State taxation, and other financial policies
relating to rail infrastructure development.
``(7) An identification of rail infrastructure issues
within the State that reflects consultation with all relevant
stake holders.
``(8) A review of major passenger and freight intermodal
rail connections and facilities within the State, including
seaports, and prioritized options to maximize service
integration and efficiency between rail and other modes of
transportation within the State.
``(9) A review of publicly funded projects within the State
to improve rail transportation safety and security, including
all major projects funded under section 130 of title 23.
``(10) A performance evaluation of passenger rail services
operating in the State, including possible improvements in
those services, and a description of strategies to achieve
those improvements.
``(11) A compilation of studies and reports on high-speed
rail corridor development within the State not included in a
previous plan under this chapter, and a plan for funding any
recommended development of such corridors in the State.
``(12) A statement that the State satisfies the conditions
set forth in section 22102.
``(b) Long-Range Service and Investment Program.--
``(1) Program content.--A long-range rail investment
program included in a State rail plan under subsection (a)(5)
shall include the following matters:
``(A) Two lists for rail capital projects, 1 list
for freight rail capital projects and 1 list for
intercity passenger rail capital projects.
``(B) A detailed funding plan for the projects.
``(2) Project list content.--The lists of freight and
intercity passenger rail capital projects shall contain--
``(A) a description of the anticipated public and
private benefits of each such project; and
``(B) a statement of the correlation between--
``(i) public funding contributions for the
projects; and
``(ii) the public benefits.
``(3) Considerations for project list.--In preparing the
list of freight and intercity passenger rail capital projects,
a State rail transportation authority shall take into
consideration the following matters:
``(A) Contributions made by non-Federal and non-
State sources through user fees, matching funds, or
other private capital involvement.
``(B) Rail capacity and congestion effects.
``(C) Effects to highway, aviation, and maritime
capacity, congestion, or safety.
``(D) Regional balance.
``(E) Environmental impact.
``(F) Economic and employment impacts.
``(G) Projected ridership and other service
measures for passenger rail projects.
``Sec. 22505. Approval
``The State rail plan approval authority established or designated
under section 22501(b)(2) may approve a State rail plan for the
purposes of this chapter if--
``(1) the plan meets all of the requirements applicable to
State plans under this chapter;
``(2) for each ready-to-commence project listed on the
ranked list of freight and intercity passenger rail capital
improvement projects under the plan--
``(A) the project meets all safety and
environmental requirements, including those prescribed
under the National Environmental Policy Act of 1969 (42
U.S.C. 4331 et seq.) that are applicable to the project
under law; and
``(B) the State has entered into an agreement with
any owner of rail infrastructure or right-of-way
directly affected by the project that provides for the
State to proceed with the project and includes
assurances regarding capacity and compensation for use
of such infrastructure or right-of-way, if applicable;
and
``(3) the content of the plan is coordinated with State
transportation plans developed pursuant to section 135 of title
23.
``Sec. 22506. Definitions
``In this chapter:
``(1) Private benefit.--The term `private benefit'--
``(A) means a benefit accrued to a person or
private entity, other than the National Railroad
Passenger Corporation, that directly improves the
economic and competitive condition of that person or
entity through improved assets, cost reductions,
service improvements, or other means; and
``(B) shall be determined on a project-by-project
basis, based upon an agreement between the State and
the affected persons or private entities.
``(2) Public benefit.--The term `public benefit'--
``(A) means a benefit accrued to the public in the
form of enhanced mobility of people or goods,
environmental protection or enhancement, congestion
mitigation, enhanced trade and economic development,
improved air quality or land use, more efficient energy
use, enhanced public safety or security, reduction of
public expenditures due to improved transportation
efficiency or infrastructure preservation, and other
positive community effects; and
``(B) shall be determined on a project-by-project
basis, based upon an agreement between the State and
the persons or private entities involved in the
project.
``(3) State.--The term `State' means any of the 50 States
and the District of Columbia.
``(4) State rail transportation authority.--The term `State
rail transportation authority' means the State agency or
official responsible under the direction of the Chief Executive
of the State or a State law for preparation, maintenance,
coordination, and administration of the State rail plan under
this chapter.''.
(2) Clerical amendment.--The table of chapters at the
beginning of subtitle V of title 49, United States Code, is
amended by inserting after the item relating to chapter 223 the
following:
``225. STATE RAIL PLANS........................................22501.''.
SEC. 637. MODIFICATION OF TARGETED AREAS DESIGNATED FOR NEW MARKETS TAX
CREDIT.
(a) In General.--Paragraph (2) of section 45D(e) is amended to read
as follows:
``(2) Targeted populations.--The Secretary shall prescribe
regulations under which 1 or more targeted populations (within
the meaning of section 103(20) of the Riegle Community
Development and Regulatory Improvement Act of 1994 (12 U.S.C.
4702(20))) may be treated as low-income communities. Such
regulations shall include procedures for determining which
entities are qualified active low-income community businesses
with respect to such populations.''.
(b) Effective Date.--The amendment made by this section shall apply
to designations made by the Secretary of the Treasury after the date of
the enactment of this Act.
SEC. 638. MODIFICATION OF INCOME REQUIREMENT FOR CENSUS TRACTS WITHIN
HIGH MIGRATION RURAL COUNTIES.
(a) In general.--Section 45D(e) (relating to low-income community)
is amended by adding at the end the following new paragraph:
``(4) Modification of income requirement for census tracts
within high migration rural counties.--
``(A) In general.--In the case of a population
census tract located within a high migration rural
county, paragraph (1)(B)(i) shall be applied by
substituting `85 percent' for `80 percent'.
``(B) High migration rural county.--For purposes of
this paragraph, the term `high migration rural county'
means any county which, during the 20-year period
ending with the year in which the most recent census
was conducted, has a net out-migration of inhabitants
from the county of at least 10 percent of the
population of the county at the beginning of such
period.''.
(b) Effective Date.--The amendment made by this section shall take
effect as if included in the amendment made by section 121(a) of the
Community Renewal Tax Relief Act of 2000.
SEC. 639. CREDIT FOR INVESTMENT IN TECHNOLOGY TO MAKE MOTION PICTURES
MORE ACCESSIBLE TO THE DEAF AND HARD OF HEARING.
(a) In General.--
(1) Allowance of credit.--Subpart D of part IV of
subchapter A of chapter 1 (relating to business related
credits), as amended by this Act, is amended by adding at the
end the following new section:
``SEC. 45T. EXPENDITURES TO PROVIDE ACCESS TO MOTION PICTURES FOR THE
DEAF AND HARD OF HEARING.
``(a) General Rule.--For purposes of section 38, in the case of an
eligible taxpayer, the motion picture accessibility credit for any
taxable year shall be an amount equal to 50 percent of the qualified
expenditures made by the eligible taxpayer during the taxable year.
``(b) Eligible Taxpayer.--For purposes of this section, the term
`eligible taxpayer' means a taxpayer who is in the business of--
``(1) showing motion pictures to the public in theaters, or
``(2) producing or distributing such motion pictures.
``(c) Qualified Expenditures.--For purposes of this section, the
term `qualified expenditures' means amounts paid or incurred by the
taxpayer for the purpose of making motion pictures accessible to
individuals who are deaf or hard of hearing through the use of
captioning technology.
``(d) Basis Adjustment.--For purposes of this subtitle, if a credit
is allowed under this section with respect to any property, the basis
of such property shall be reduced by the amount of the credit so
allowed.
``(e) No Double Benefit.--In the case of the credit determined
under this section, no deduction or credit shall be allowed for such
amount under any other provision of this chapter.''.
(2) Conforming amendments.--
(A) Section 38(b) (relating to general business
credit), as amended by this Act, is amended by striking
``plus'' at the end of paragraph (30), by striking the
period at the end of paragraph (31) and inserting ``,
plus'', and by adding at the end the following new
paragraph:
``(32) the motion picture accessibility credit determined
under section 45T(a).''.
(B) Subsection (a) of section 1016, as amended by
this Act, is amended by striking ``and'' at the end of
paragraph (38), by striking the period at the end of
paragraph (39) and inserting ``, and'', and by adding
at the end the following new paragraph:
``(40) in the case of property with respect to which a
credit was allowed under section 45T, to the extent provided in
section 45T(d).''.
(b) Limitation on Carryback.--Section 39(d) (relating to transition
rules) is amended by adding at the end the following new paragraph:
``(16) No carryback of motion picture accessibility credit
before effective date.--No portion of the unused business
credit for any taxable year which is attributable to the motion
picture accessibility credit determined under section 45T may
be carried to a taxable year beginning before January 1,
2004.''.
(c) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by inserting after the item relating to section 45S the
following new item:
``Sec. 45T. Expenditures to provide
access to motion pictures for
the deaf and hard of
hearing.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
Subtitle E--Miscellaneous Provisions
SEC. 641. EXCLUSION OF GAIN OR LOSS ON SALE OR EXCHANGE OF CERTAIN
BROWNFIELD SITES FROM UNRELATED BUSINESS TAXABLE INCOME.
(a) In General.--Subsection (b) of section 512 (relating to
unrelated business taxable income), as amended by this Act, is amended
by adding at the end the following new paragraph:
``(19) Treatment of gain or loss on sale or exchange of
certain brownfield sites.--
``(A) In general.--Notwithstanding paragraph
(5)(B), there shall be excluded any gain or loss from
the qualified sale, exchange, or other disposition of
any qualifying brownfield property by an eligible
taxpayer.
``(B) Eligible taxpayer.--For purposes of this
paragraph--
``(i) In general.--The term `eligible
taxpayer' means, with respect to a property,
any organization exempt from tax under section
501(a) which--
``(I) acquires from an unrelated
person a qualifying brownfield
property, and
``(II) pays or incurs eligible
remediation expenditures with respect
to such property in an amount which
exceeds the greater of $550,000 or 12
percent of the fair market value of the
property at the time such property was
acquired by the eligible taxpayer,
determined as if there was not a
presence of a hazardous substance,
pollutant, or contaminant on the
property which is complicating the
expansion, redevelopment, or reuse of
the property.
``(ii) Exception.--Such term shall not
include any organization which is--
``(I) potentially liable under
section 107 of the Comprehensive
Environmental Response, Compensation,
and Liability Act of 1980 with respect
to the qualifying brownfield property,
``(II) affiliated with any other
person which is so potentially liable
through any direct or indirect familial
relationship or any contractual,
corporate, or financial relationship
(other than a contractual, corporate,
or financial relationship which is
created by the instruments by which
title to any qualifying brownfield
property is conveyed or financed or by
a contract of sale of goods or
services), or
``(III) the result of a
reorganization of a business entity
which was so potentially liable.
``(C) Qualifying brownfield property.--For purposes
of this paragraph--
``(i) In general.--The term `qualifying
brownfield property' means any real property
which is certified, before the taxpayer incurs
any eligible remediation expenditures (other
than to obtain a Phase I environmental site
assessment), by an appropriate State agency
(within the meaning of section 198(c)(4)) in
the State in which such property is located as
a brownfield site within the meaning of section
101(39) of the Comprehensive Environmental
Response, Compensation, and Liability Act of
1980 (as in effect on the date of the enactment
of this paragraph).
``(ii) Request for certification.--Any
request by an eligible taxpayer for a
certification described in clause (i) shall
include a sworn statement by the eligible
taxpayer and supporting documentation of the
presence of a hazardous substance, pollutant,
or contaminant on the property which is
complicating the expansion, redevelopment, or
reuse of the property given the property's
reasonably anticipated future land uses or
capacity for uses of the property (including a
Phase I environmental site assessment and, if
applicable, evidence of the property's presence
on a local, State, or Federal list of
brownfields or contaminated property) and other
environmental assessments prepared or obtained
by the taxpayer.
``(D) Qualified sale, exchange, or other
disposition.--For purposes of this paragraph--
``(i) In general.--A sale, exchange, or
other disposition of property shall be
considered as qualified if--
``(I) such property is transferred
by the eligible taxpayer to an
unrelated person, and
``(II) within 1 year of such
transfer the eligible taxpayer has
received a certification from the
Environmental Protection Agency or an
appropriate State agency (within the
meaning of section 198(c)(4)) in the
State in which such property is located
that, as a result of the eligible
taxpayer's remediation actions, such
property would not be treated as a
qualifying brownfield property in the
hands of the transferee.
For purposes of subclause (II), before issuing
such certification, the Environmental
Protection Agency or appropriate State agency
shall respond to comments received pursuant to
clause (ii)(V) in the same form and manner as
required under section 117(b) of the
Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (as in
effect on the date of the enactment of this
paragraph).
``(ii) Request for certification.--Any
request by an eligible taxpayer for a
certification described in clause (i) shall be
made not later than the date of the transfer
and shall include a sworn statement by the
eligible taxpayer certifying the following:
``(I) Remedial actions which comply
with all applicable or relevant and
appropriate requirements (consistent
with section 121(d) of the
Comprehensive Environmental Response,
Compensation, and Liability Act of
1980) have been substantially
completed, such that there are no
hazardous substances, pollutants, or
contaminants which complicate the
expansion, redevelopment, or reuse of
the property given the property's
reasonably anticipated future land uses
or capacity for uses of the property.
``(II) The reasonably anticipated
future land uses or capacity for uses
of the property are more economically
productive or environmentally
beneficial than the uses of the
property in existence on the date of
the certification described in
subparagraph (C)(i). For purposes of
the preceding sentence, use of property
as a landfill or other hazardous waste
facility shall not be considered more
economically productive or
environmentally beneficial.
``(III) A remediation plan has been
implemented to bring the property into
compliance with all applicable local,
State, and Federal environmental laws,
regulations, and standards and to
ensure that the remediation protects
human health and the environment.
``(IV) The remediation plan
described in subclause (III), including
any physical improvements required to
remediate the property, is either
complete or substantially complete,
and, if substantially complete,
sufficient monitoring, funding,
institutional controls, and financial
assurances have been put in place to
ensure the complete remediation of the
property in accordance with the
remediation plan as soon as is
reasonably practicable after the sale,
exchange, or other disposition of such
property.
``(V) Public notice and the
opportunity for comment on the request
for certification was completed before
the date of such request. Such notice
and opportunity for comment shall be in
the same form and manner as required
for public participation required under
section 117(a) of the Comprehensive
Environmental Response, Compensation,
and Liability Act of 1980 (as in effect
on the date of the enactment of this
paragraph). For purposes of this
subclause, public notice shall include,
at a minimum, publication in a major
local newspaper of general circulation.
``(iii) Attachment to tax returns.--A copy
of each of the requests for certification
described in clause (ii) of subparagraph (C)
and this subparagraph shall be included in the
tax return of the eligible taxpayer (and, where
applicable, of the qualifying partnership) for
the taxable year during which the transfer
occurs.
``(iv) Substantial completion.--For
purposes of this subparagraph, a remedial
action is substantially complete when any
necessary physical construction is complete,
all immediate threats have been eliminated, and
all long-term threats are under control.
``(E) Eligible remediation expenditures.--For
purposes of this paragraph--
``(i) In general.--The term `eligible
remediation expenditures' means, with respect
to any qualifying brownfield property, any
amount paid or incurred by the eligible
taxpayer to an unrelated third person to obtain
a Phase I environmental site assessment of the
property, and any amount so paid or incurred
after the date of the certification described
in subparagraph (C)(i) for goods and services
necessary to obtain a certification described
in subparagraph (D)(i) with respect to such
property, including expenditures--
``(I) to manage, remove, control,
contain, abate, or otherwise remediate
a hazardous substance, pollutant, or
contaminant on the property,
``(II) to obtain a Phase II
environmental site assessment of the
property, including any expenditure to
monitor, sample, study, assess, or
otherwise evaluate the release, threat
of release, or presence of a hazardous
substance, pollutant, or contaminant on
the property,
``(III) to obtain environmental
regulatory certifications and approvals
required to manage the remediation and
monitoring of the hazardous substance,
pollutant, or contaminant on the
property, and
``(IV) regardless of whether it is
necessary to obtain a certification
described in subparagraph (D)(i)(II),
to obtain remediation cost-cap or stop-
loss coverage, re-opener or regulatory
action coverage, or similar coverage
under environmental insurance policies,
or financial guarantees required to
manage such remediation and monitoring.
``(ii) Exceptions.--Such term shall not
include--
``(I) any portion of the purchase
price paid or incurred by the eligible
taxpayer to acquire the qualifying
brownfield property,
``(II) environmental insurance
costs paid or incurred to obtain legal
defense coverage, owner/operator
liability coverage, lender liability
coverage, professional liability
coverage, or similar types of coverage,
``(III) any amount paid or incurred
to the extent such amount is
reimbursed, funded, or otherwise
subsidized by grants provided by the
United States, a State, or a political
subdivision of a State for use in
connection with the property, proceeds
of an issue of State or local
government obligations used to provide
financing for the property the interest
of which is exempt from tax under
section 103, or subsidized financing
provided (directly or indirectly) under
a Federal, State, or local program
provided in connection with the
property, or
``(IV) any expenditure paid or
incurred before the date of the
enactment of this paragraph.
For purposes of subclause (III), the Secretary
may issue guidance regarding the treatment of
government-provided funds for purposes of
determining eligible remediation expenditures.
``(F) Determination of gain or loss.--For purposes
of this paragraph, the determination of gain or loss
shall not include an amount treated as gain which is
ordinary income with respect to section 1245 or section
1250 property, including amounts deducted as section
198 expenses which are subject to the recapture rules
of section 198(e), if the taxpayer had deducted such
amounts in the computation of its unrelated business
taxable income.
``(G) Special rules for partnerships.--
``(i) In general.--In the case of an
eligible taxpayer which is a partner of a
qualifying partnership which acquires,
remediates, and sells, exchanges, or otherwise
disposes of a qualifying brownfield property,
this paragraph shall apply to the eligible
taxpayer's distributive share of the qualifying
partnership's gain or loss from the sale,
exchange, or other disposition of such
property.
``(ii) Qualifying partnership.--The term
`qualifying partnership' means a partnership
which--
``(I) has a partnership agreement
which satisfies the requirements of
section 514(c)(9)(B)(vi) at all times
beginning on the date of the first
certification received by the
partnership under subparagraph (C)(i),
``(II) satisfies the requirements
of subparagraphs (B)(i), (C), (D), and
(E), if `qualified partnership' is
substituted for `eligible taxpayer'
each place it appears therein (except
subparagraph (D)(iii)), and
``(III) is not an organization
which would be prevented from
constituting an eligible taxpayer by
reason of subparagraph (B)(ii).
``(iii) Requirement that tax-exempt partner
be a partner since first certification.--This
paragraph shall apply with respect to any
eligible taxpayer which is a partner of a
partnership which acquires, remediates, and
sells, exchanges, or otherwise disposes of a
qualifying brownfield property only if such
eligible taxpayer was a partner of the
qualifying partnership at all times beginning
on the date of the first certification received
by the partnership under subparagraph (C)(i)
and ending on the date of the sale, exchange,
or other disposition of the property by the
partnership.
``(iv) Regulations.--The Secretary shall
prescribe such regulations as are necessary to
prevent abuse of the requirements of this
subparagraph, including abuse through--
``(I) the use of special
allocations of gains or losses, or
``(II) changes in ownership of
partnership interests held by eligible
taxpayers.
``(H) Special rules for multiple properties.--
``(i) In general.--An eligible taxpayer or
a qualifying partnership of which the eligible
taxpayer is a partner may make a 1-time
election to apply this paragraph to more than 1
qualifying brownfield property by averaging the
eligible remediation expenditures for all such
properties acquired during the election period.
If the eligible taxpayer or qualifying
partnership makes such an election, the
election shall apply to all qualified sales,
exchanges, or other dispositions of qualifying
brownfield properties the acquisition and
transfer of which occur during the period for
which the election remains in effect.
``(ii) Election.--An election under clause
(i) shall be made with the eligible taxpayer's
or qualifying partnership's timely filed tax
return (including extensions) for the first
taxable year for which the taxpayer or
qualifying partnership intends to have the
election apply. An election under clause (i) is
effective for the period--
``(I) beginning on the date which
is the first day of the taxable year of
the return in which the election is
included or a later day in such taxable
year selected by the eligible taxpayer
or qualifying partnership, and
``(II) ending on the date which is
the earliest of a date of revocation
selected by the eligible taxpayer or
qualifying partnership, the date which
is 8 years after the date described in
subclause (I), or, in the case of an
election by a qualifying partnership of
which the eligible taxpayer is a
partner, the date of the termination of
the qualifying partnership.
``(iii) Revocation.--An eligible taxpayer
or qualifying partnership may revoke an
election under clause (i)(II) by filing a
statement of revocation with a timely filed tax
return (including extensions). A revocation is
effective as of the first day of the taxable
year of the return in which the revocation is
included or a later day in such taxable year
selected by the eligible taxpayer or qualifying
partnership. Once an eligible taxpayer or
qualifying partnership revokes the election,
the eligible taxpayer or qualifying partnership
is ineligible to make another election under
clause (i) with respect to any qualifying
brownfield property subject to the revoked
election.
``(I) Recapture.--If an eligible taxpayer excludes
gain or loss from a sale, exchange, or other
disposition of property to which an election under
subparagraph (H) applies, and such property fails to
satisfy the requirements of this paragraph, the
unrelated business taxable income of the eligible
taxpayer for the taxable year in which such failure
occurs shall be determined by including any previously
excluded gain or loss from such sale, exchange, or
other disposition allocable to such taxpayer, and
interest shall be determined at the overpayment rate
established under section 6621 on any resulting tax for
the period beginning with the due date of the return
for the taxable year during which such sale, exchange,
or other disposition occurred, and ending on the date
of payment of the tax.
``(J) Related persons.--For purposes of this
paragraph, a person shall be treated as related to
another person if--
``(i) such person bears a relationship to
such other person described in section 267(b)
(determined without regard to paragraph (9)
thereof), or section 707(b)(1), determined by
substituting `25 percent' for `50 percent' each
place it appears therein, and
``(ii) in the case such other person is a
nonprofit organization, if such person controls
directly or indirectly more than 25 percent of
the governing body of such organization.''
(b) Exclusion From Definition of Debt-Financed Property.--Section
514(b)(1) (defining debt-financed property) is amended by striking
``or'' at the end of subparagraph (C), by striking the period at the
end of subparagraph (D) and inserting ``; or'', and by inserting after
subparagraph (D) the following new subparagraph:
``(E) any property the gain or loss from the sale,
exchange, or other disposition of which would be
excluded by reason of the provisions of section
512(b)(19) in computing the gross income of any
unrelated trade or business.''.
(c) Savings Clause.--Nothing in the amendments made by this section
shall affect any duty, liability, or other requirement imposed under
any other Federal or State law. Notwithstanding section 128(b) of the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, a certification provided by the Environmental Protection
Agency or an appropriate State agency (within the meaning of section
198(c)(4) of the Internal Revenue Code of 1986) shall not affect the
liability of any person under section 107(a) of such Act.
(d) Effective Date.--The amendments made by this section shall
apply to any gain or loss on the sale, exchange, or other disposition
of any property acquired by the taxpayer after December 31, 2004.
SEC. 642. MODIFICATION OF UNRELATED BUSINESS INCOME LIMITATION ON
INVESTMENT IN CERTAIN DEBT-FINANCED PROPERTIES.
(a) In General.--Section 514(c)(6) (relating to acquisition
indebtedness) is amended--
(1) by striking ``include an obligation'' and inserting
``include--
``(A) an obligation'',
(2) by striking the period at the end and inserting ``,
or'', and
(3) by adding at the end the following:
``(B) indebtedness incurred by a small business
investment company licensed under the Small Business
Investment Act of 1958 which is evidenced by a
debenture--
``(i) issued by such company under section
303(a) of such Act, and
``(ii) held or guaranteed by the Small
Business Administration.''.
(b) Effective Date.--The amendments made by this section shall
apply to acquisitions made on or after the date of the enactment of
this Act.
SEC. 643. 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 or a claim made under section 1862(b)(3)(A) of the
Social Security Act (42 U.S.C. 1395y(b)(3)(A)). 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 Fderal, 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 claims for
wages, compensation, or benefits, or
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 December 31, 2002, with respect to
any judgment or settlement occurring after such date.
SEC. 644. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER NATIONAL HEALTH
SERVICE CORPS LOAN REPAYMENT PROGRAM AND CERTAIN STATE
LOAN REPAYMENT PROGRAMS.
(a) In General.--Section 108(f) (relating to student loans) is
amended by adding at the end the following new paragraph:
``(4) Payments under national health service corps loan
repayment program and certain state loan repayment programs.--
In the case of an individual, gross income shall not include
any amount received under section 338B(g) of the Public Health
Service Act or under a State program described in section 338I
of such Act.''.
(b) Treatment for Purposes of Employment Taxes.--Each of the
following provisions is amended by inserting ``108(f)(4),'' after
``74(c),'':
(1) Section 3121(a)(20).
(2) Section 3231(e)(5).
(3) Section 3306(b)(16).
(4) Section 3401(a)(19).
(5) Section 209(a)(17) of the Social Security Act.
(c) Effective Date.--The amendments made by this section shall
apply to amounts received by an individual in taxable years beginning
after December 31, 2003.
SEC. 645. CERTAIN EXPENSES OF RURAL LETTER CARRIERS.
(a) In General.--Section 162(o) (relating to treatment of certain
reimbursed expenses of rural mail carriers) is amended by redesignating
paragraph (2) as paragraph (3) and by inserting after paragraph (1) the
following:
``(2) Special rule where expenses exceed reimbursements.--
Notwithstanding paragraph (1)(A), if the expenses incurred by
an employee for the use of a vehicle in performing services
described in paragraph (1) exceed the qualified reimbursements
for such expenses, such excess shall be taken into account in
computing the miscellaneous itemized deductions of the employee
under section 67.''.
(b) Conforming Amendment.--The heading for section 162(o) is
amended by striking ``Reimbursed''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 646. METHOD OF ACCOUNTING FOR NAVAL SHIPBUILDERS.
(a) In General.--In the case of a qualified naval ship contract,
the taxable income of such contract during the 5-taxable year period
beginning with the taxable year in which the contract commencement date
occurs shall be determined under a method identical to the method used
in the case of a qualified ship contract (as defined in section
10203(b)(2)(B) of the Revenue Act of 1987).
(b) Recapture of Tax Benefit.--In the case of a qualified naval
ship contract to which subsection (a) applies, the taxpayer's tax
imposed by chapter 1 of the Internal Revenue Code of 1986 for the first
taxable year following the 5-taxable year period described in
subsection (a) shall be increased by the excess (if any) of--
(1) the amount of tax which would have been imposed during
such period if this section had not been enacted, over
(2) the amount of tax so imposed during such period.
(c) Qualified Naval Ship Contract.--For purposes of this section--
(1) In general.--The term ``qualified naval ship contract''
means any contract or portion thereof that is for the
construction in the United States of 1 ship or submarine for
the Federal Government if the taxpayer reasonably expects the
acceptance date will occur no later than 9 years after the
construction commencement date.
(2) Acceptance date.--The term ``acceptance date'' means
the date 1 year after the date on which the Federal Government
issues a letter of acceptance or other similar document for the
ship or submarine.
(3) Construction commencement date.--The term
``construction commencement date'' means the date on which the
physical fabrication of any section or component of the ship or
submarine begins.
(d) Effective Date.--This section shall apply to contracts for
ships or submarines with respect to which the construction commencement
date occurs after the date of the enactment of this Act.
SEC. 647. SUSPENSION OF POLICYHOLDERS SURPLUS ACCOUNT PROVISIONS.
(a) Distributions To Shareholders From Pre-1984 Policyholders
Surplus Account.--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 and 2005.--In the case
of any taxable year of a stock life insurance company beginning after
December 31, 2003, and before January 1, 2006--
``(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.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2003.
SEC. 648. 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 new sentence: ``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 beginning after the date of the
enactment of this Act.
SEC. 649. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF WEATHER-
RELATED CONDITIONS.
(a) Replacement of Livestock With Other Farm Property.--Subsection
(f) of section 1033 (relating to involuntary conversions) is amended--
(1) by inserting ``drought, flood, or other weather-related
conditions, or'' after ``because of'',
(2) by inserting ``in the case of soil contamination or
other environmental contamination'' after ``including real
property'', and
(3) by striking ``Where There Has Been Environmental
Contamination'' in the heading and inserting ``in Certain
Cases''.
(b) Extension of Replacement Period 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.''.
(c) 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.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2001.
SEC. 650. MOTOR VEHICLE DEALER TRANSITIONAL ASSISTANCE.
(a) In General.--For purposes of subtitle A of the Internal Revenue
Code of 1986, in the case of a taxpayer who elects the application of
this section and who was a party to a motor vehicle sales and service
agreement with a motor vehicle manufacturer who announced in December
2000 that it would phase-out the motor vehicle brand to which such
agreement relates--
(1) amounts received by such taxpayer from such
manufacturer on account of the termination of such agreement
(hereafter in this section referred to as ``termination
payment'') are considered to be received for property used in
the trade or business of a motor vehicle retail sales and
service dealership, and
(2) to the extent such termination payment is reinvested in
property used in a motor vehicle retail sales and service
dealership located within the United States, such property
shall qualify as like-kind replacement property to which
section 1031 of the Internal Revenue Code of 1986 shall apply
with the following modifications:
(A) Such section shall be applied without regard to
subparagraphs (A) and (B)(ii) of subsection (a)(3).
(B) The period described in section 1031(a)(3)(B)
of such Code shall be applied by substituting ``2
years'' for ``180 days''.
(b) Rules for Election.--
(1) Form of election.--The taxpayer shall make an election
under this section in such form and manner as the Secretary of
the Treasury may prescribe and shall include in such election
the amount of the termination payment received, the
identification of the replacement property purchased, and such
other information as the Secretary may prescribe.
(2) Election on amended return.--The Secretary of the
Treasury shall permit an election under this section on an
amended tax return for taxable years beginning before the date
of the enactment of this Act.
(c) Statute of Limitations.--Notwithstanding the provisions of any
other law or rule of law, the statutory period for the assessment for
any deficiency attributable to any termination payment gain shall be
extended until 3 years after the date the Secretary of the Treasury is
notified by the taxpayer of the like-kind replacement property or an
intention not to replace.
(d) Effective Date.--This section shall apply to amounts received
after December 12, 2000, in taxable years ending after such date.
SEC. 651. 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. 652. REDUCTION OF HOLDING PERIOD TO 12 MONTHS FOR PURPOSES OF
DETERMINING WHETHER HORSES ARE SECTION 1231 ASSETS.
(a) In General.--Subparagraph (A) of section 1231(b)(3) (relating
to definition of property used in the trade or business) is amended by
striking ``and horses''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2003.
SEC. 653. BLUE RIBBON COMMISSION ON COMPREHENSIVE TAX REFORM.
(a) Establishment.--
(1) In general.--There is established the ``Blue Ribbon
Commission on Comprehensive Tax Reform'' (in this section
referred to as the ``Commission'').
(2) Membership.--
(A) Composition.--The Commission shall be composed
of 17 members of whom--
(i) 3 shall be appointed by the majority
leader of the Senate;
(ii) 3 shall be appointed by the minority
leader of the Senate;
(iii) 3 shall be appointed by the Speaker
of the House of Representatives;
(iv) 3 shall be appointed by the minority
leader of the House of Representatives; and
(v) 5 shall be appointed by the President,
of which no more than 3 shall be of the same
party as the President.
(B) Federal employees.--The members of the
Commission may be employees or former employees of the
Federal Government.
(C) Date.--The appointments of the members of the
Commission shall be made not later than October 30,
2004.
(3) 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.
(4) 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.
(5) Meetings.--The Commission shall meet at the call of the
Chairman.
(6) Quorum.--A majority of the members of the Commission
shall constitute a quorum, but a lesser number of members may
hold hearings.
(7) Chairman and vice chairman.--The President shall select
a Chairman and Vice Chairman from among its members.
(b) Duties of the Commission.--
(1) 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.
(2) 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.
(3) Report.--Not later than 18 months after the date on
which all initial members of the commission have been appointed
pursuant to subsection (a)(2), 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.
(c) Powers of the Commission.--
(1) 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.
(2) 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.
(3) 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.
(4) Gifts.--The Commission may accept, use, and dispose of
gifts or donations of services or property.
(d) Commission Personnel Matters.--
(1) 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.
(2) 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.
(3) Staff.--
(A) 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.
(B) 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.
(4) 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.
(5) 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.
(e) Termination of the Commission.--The Commission shall terminate
90 days after the date on which the Commission submits its report under
subsection (b).
(f) Authorization of Appropriations.--There are authorized to be
appropriated such sums as are necessary to the Commission to carry out
this section.
SEC. 654. TREATMENT OF DISTRIBUTIONS BY ESOPS WITH RESPECT TO S
CORPORATION STOCK.
(a) In General.--Section 4975(d) of the Internal Revenue Code of
1986 is amended by adding at the end the following new flush sentences:
``A plan shall not be treated as violating the requirements of section
401, 409, or subsection (e)(7), or as engaging in a prohibited
transaction for purposes of paragraph (3), merely by reason of any
distribution described in section 1368(a) with respect to S corporation
stock which constitutes qualifying employer securities if the
distribution is, in accordance with the plan provisions, used to make
payments on a loan described in paragraph (3) the proceeds of which
were used to acquire the qualifying employer securities (whether or not
allocated to participants). The preceding sentence shall not apply in
the case of a distribution which is paid with respect to any employer
security which is allocated to a participant unless the plan provides
that employer securities with a fair market value of not less than the
amount of such distribution are allocated to such participant for the
year which (but for the preceding sentence) such distribution would
have been allocated to such participant.''
(b) Effective Date.--The amendment made by this section shall take
effect on January 1, 1998.
SEC. 655. CLARIFICATION OF WORKING CAPITAL FOR REASONABLY ANTICIPATED
NEEDS OF A BUSINESS FOR PURPOSES OF ACCUMULATED EARNINGS
TAX.
(a) In General.--Section 537(b) (relating to special rules) is
amended by adding at the end the following new paragraph:
``(6) Working capital.--The reasonably anticipated needs of
a business for any taxable year shall include working capital
for the business in an amount which is not less than the sum of
the cost of goods, operating expenses, taxes, and interest
expense which the business incurred during the preceding
taxable year. Any amounts incurred as part of a plan a
principal purpose of which is to increase the limitation under
this subsection shall not be taken into account.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2003, and before January
1, 2009.
SEC. 656. TAX TREATMENT OF STATE OWNERSHIP OF RAILROAD REAL ESTATE
INVESTMENT TRUST.
(a) In General.--If a State owns all of the outstanding stock of a
corporation which is a real estate investment trust, which is a non-
operating class III railroad, and substantially all of the activities
of which consist of the ownership, leasing, and operation by such
corporation of facilities, equipment, and other property used by the
corporation or other persons in railroad transportation, then, for
purposes of section 115 of the Internal Revenue Code of 1986--
(1) income derived from such activities by the corporation
shall be treated as accruing to the State, and
(2) such activities shall be treated as the exercise of an
essential governmental function of the State to the extent such
activities are of a type which are an essential government
function (within the meaning of section 115 of such Code).
(b) Gain or Loss Not Recognized on Conversion.--Notwithstanding
section 337(d) of the Internal Revenue Code of 1986--
(1) no gain or loss shall be recognized under section 336
or 337 of such Code, and
(2) no change in basis of the property of such corporation
shall occur,
because of any change of status of the corporation to a tax-exempt
entity by reason of the application of subsection (a).
(c) Tax-Exempt Financing.--Any obligation issued by an entity
described in subsection (a) shall be treated as an obligation of the
State for purposes of applying section 103 and part IV of subchapter B
of chapter 1 of the Internal Revenue Code of 1986.
(d) Definitions.--For purposes of this section--
(1) Real estate investment trust.--The term ``real estate
investment trust'' has the meaning given such term by section
856(a) of the Internal Revenue Code of 1986.
(2) Non-operating class iii railroad.--The term ``non-
operating class III railroad'' has the meaning given such term
by part A of subtitle IV of title 49, United States Code (49
U.S.C. 10101 et seq.) and the regulations thereunder.
(3) State.--The term ``State'' includes--
(A) the District of Columbia and any possession of
the United States, and
(B) any authority, agency, or public corporation of
a State.
(e) Applicability.--
(1) In general.--Except as provided in paragraph (2), this
section shall apply on and after the date on which a State
becomes the owner of all of the outstanding stock of a
corporation described in subsection (a).
(2) Exception.--This section shall not apply to any State
which--
(A) becomes the owner of all of the voting stock of
a corporation described in subsection (a) after
December 31, 2003, or
(B) becomes the owner of all of the outstanding
stock of a corporation described in subsection (a)
after December 31, 2005.
SEC. 657. 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. 658. CREDIT FOR PURCHASE AND INSTALLATION OF AGRICULTURAL WATER
CONSERVATION SYSTEMS.
(a) In General.--Subpart B of part IV of subchapter A of chapter 1
(relating to foreign tax credit, etc.) is amended by adding at the end
the following new section:
``SEC. 30B. PURCHASE AND INSTALLATION OF AGRICULTURAL WATER
CONSERVATION SYSTEMS.
``(a) Allowance of Credit.--In the case of an eligible taxpayer,
there shall be allowed as a credit against the tax imposed by this
chapter for the taxable year an amount equal to 30 percent of the water
conservation system expenses paid or incurred by the taxpayer during
such year.
``(b) Limitations.--The credit allowed by subsection (a) with
respect to any acre of land which is served by a water conservation
system shall not exceed the excess of--
``(1) $500, over
``(2) the amount of credit allowed under this section with
respect to such acre for all prior taxable years.
``(c) Definitions.--For purposes of this section--
``(1) Eligible taxpayer.--The term `eligible taxpayer'
means any taxpayer if--
``(A) at least 50 percent of such taxpayer's gross
income is normally derived from farm land, and
``(B) such taxpayer complies with all Federal,
State, and local water rights and environmental laws.
``(2) Water conservation system expenses.--
``(A) In general.--The term `water conservation
system expenses' means expenses for the purchase and
installation of a water conservation system but only
if--
``(i) the land served by the water
conservation system is entirely in a county or
county-equivalent area which has received, in
the taxable year the expenses were paid or
incurred or in any of the 3 preceding taxable
years, a primary-county designation due to
drought by the Secretary of Agriculture, and
``(ii) such system is certified as saving
at least 5 percent more irrigation water than
the irrigation system which was used on such
land immediately prior to the installation of
such water conservation system.
For purposes of clause (ii), irrigation water savings
shall be determined and certified under regulations
prescribed jointly by the Natural Resources
Conservation Service of the Department of Agriculture
and the Bureau of Reclamation of the Department of the
Interior. Such regulations shall include a list of
individuals or organizations qualified to make such
certification.
``(B) Water conservation system.--The term `water
conservation system' means, with respect to farm land--
``(i) new or replacement irrigation
equipment and machinery, including sprinklers,
pipes, siphons, nozzles, pumps, motors, and
engines, and
``(ii) computer systems for irrigation and
water management.
``(C) Farm land.--The term `farm land' means land
used in a trade or business by the taxpayer or a tenant
of the taxpayer for--
``(i) the production of crops, fruits, or
other agricultural products,
``(ii) the raising, harvesting, or growing
of trees, or
``(iii) the sustenance of livestock.
``(d) Year Expenditure Made.--For purposes of this section, an
expenditure with respect to a water conservation system shall be
treated as made when the original installation of the system is
completed.
``(e) Limitation Based on Amount of Tax.--
``(1) Liability for tax.--The credit allowable under
subsection (a) for any taxable year shall not exceed the excess
(if any) of--
``(A) the regular tax for the taxable year, reduced
by the sum of the credits allowable under subpart A and
the preceding sections of this subpart, over
``(B) the tentative minimum tax for the taxable
year.
``(2) Carryforward of unused credit.--If the amount of the
credit allowable under subsection (a) for any taxable year
exceeds the limitation under paragraph (1) for the taxable
year, the excess shall be carried to the succeeding taxable
year and added to the amount allowable as a credit under
subsection (a) for such succeeding taxable year.
``(f) Denial of Double Benefit.--No deduction shall be allowed
under this chapter with respect to any expense which is taken into
account in determining the credit under this section, and any increase
in the basis of any property which would (but for this subsection)
result from such expense shall be reduced by the amount of credit
allowed under this section for such expense.
``(g) Termination.--This section shall not apply to amounts paid or
incurred with respect any water conservation system the installation of
which is completed after December 31, 2006.''.
(b) Technical Amendment.--Subsection (a) of section 1016, as
amended by this Act, is amended by striking ``and'' at the end of
paragraph (30), by striking the period at the end of paragraph (31) and
inserting ``; and'', and by adding at the end the following new
paragraph:
``(32) to the extent provided in section 30B(f), in the
case of amounts with respect to which a credit has been allowed
under section 30B.''.
(c) Clerical Amendment.--The table of sections for subpart B of
part IV of subchapter A of chapter 1 is amended by adding at the end
the following new item:
``Sec. 30B. Purchase and installation of
agricultural water conservation
systems.''.
(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 with respect any water conservation system the installation of
which is completed after December 31, 2004.
SEC. 659. 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.
SEC. 660. REPEAL OF APPLICATION OF BELOW-MARKET LOAN RULES TO AMOUNTS
PAID TO CERTAIN CONTINUING CARE FACILITIES.
(a) In General.--Section 7872(c)(1) (relating to below-market loans
to which section applies) is amended--
(1) by striking subparagraph (F), and
(2) by striking ``(C), or (F)'' in subparagraph (E) and
inserting ``or (C)''.
(b) Full Exception.--Section 7872(g) (relating to exception for
certain loans to qualified continuing care facilities) is amended--
(1) by striking ``made by a lender to a qualified
continuing care facility pursuant to a continuing care
contract'' in paragraph (1) and inserting ``owed by a facility
which on the last day of such year is a qualified continuing
care facility, if such loan was made pursuant to a continuing
care contract and'',
(2) by striking ``increased personal care services or'' in
paragraph (3)(C),
(3) by adding at the end of paragraph (3) the following new
flush sentence:
``The Secretary shall issue guidance which limits such term to
contracts which provide to an individual or individual's spouse
only facilities, care, and services described in this paragraph
which are customarily offered by continuing care facilities.'',
(4) by inserting ``independent living unit'' after ``all of
the'' in paragraph (4)(A)(ii),
(5) by striking paragraphs (2) and (5),
(6) by redesignating paragraphs (3) and (4) as paragraphs
(2) and (3), respectively, and
(7) by striking ``Certain'' in the heading thereof.
(c) Effective Date.--The amendments made by this section shall
apply to calendar years beginning after 2004.
SEC. 661. GOLD, SILVER, PLATINUM, AND PALLADIUM TREATED IN THE SAME
MANNER AS STOCKS AND BONDS FOR MAXIMUM CAPITAL GAINS RATE
FOR INDIVIDUALS.
(a) In General.--Section 1(h)(5) (relating to definition of
collectibles gain and loss) is amended--
(1) by striking ``(as defined in section 408(m) without
regard to paragraph (3) thereof)'' in subparagraph (A) thereof,
and
(2) by adding at the end the following new subparagraph:
``(C) Collectible.--For purposes of this paragraph,
the term `collectible' has the meaning given such term
by section 408(m), except that in applying paragraph
(3)(B) thereof the determination of whether any bullion
is excluded from treatment as a collectible shall be
made without regard to the person who is in physical
possession of the bullion.''
(b) Effective Date.--The amendments made by subsection (a) shall
apply to taxable years beginning after December 31, 2003.
SEC. 662. INCLUSION OF PRIMARY AND SECONDARY MEDICAL STRATEGIES FOR
CHILDREN AND ADULTS WITH SICKLE CELL DISEASE AS MEDICAL
ASSISTANCE UNDER THE MEDICAID PROGRAM.
(a) Optional Medical Assistance.--
(1) In general.--Section 1905 of the Social Security Act
(42 U.S.C. 1396d) is amended--
(A) in subsection (a)--
(i) by striking ``and'' at the end of
paragraph (26);
(ii) by redesignating paragraph (27) as
paragraph (28); and
(iii) by inserting after paragraph (26),
the following:
``(27) subject to subsection (x), primary and secondary
medical strategies and treatment and services for individuals
who have Sickle Cell Disease; and''; and
(B) by adding at the end the following:
``(x) For purposes of subsection (a)(27), the strategies,
treatment, and services described in that subsection include the
following:
``(1) Chronic blood transfusion (with deferoxamine
chelation) to prevent stroke in individuals with Sickle Cell
Disease who have been identified as being at high risk for
stroke.
``(2) Genetic counseling and testing for individuals with
Sickle Cell Disease or the sickle cell trait to allow health
care professionals to treat such individuals and to prevent
symptoms of Sickle Cell Disease.
``(3) Other treatment and services to prevent individuals
who have Sickle Cell Disease and who have had a stroke from
having another stroke.''.
(2) Rule of Construction.--Nothing in subsections (a)(27)
or (x) of section 1905 of the Social Security Act (42 U.S.C.
1396d), as added by paragraph (1), shall be construed as
implying that a State medicaid program under title XIX of such
Act could not have treated, prior to the date of enactment of
this Act, any of the primary and secondary medical strategies
and treatment and services described in such subsections as
medical assistance under such program, including as early and
periodic screening, diagnostic, and treatment services under
section 1905(r) of such Act.
(b) Federal Reimbursement for Education and Other Services Related
to the Prevention and Treatment of Sickle Cell Disease.--Section
1903(a)(3) of the Social Security Act (42 U.S.C. 1396b(a)(3)) is
amended--
(1) in subparagraph (D), by striking ``plus'' at the end
and inserting ``and''; and
(2) by adding at the end the following:
``(E) 50 percent of the sums expended with respect
to costs incurred during such quarter as are
attributable to providing--
``(i) services to identify and educate
individuals who are likely to be eligible for
medical assistance under this title and who
have Sickle Cell Disease or who are carriers of
the sickle cell gene, including education
regarding how to identify such individuals; or
``(ii) education regarding the risks of
stroke and other complications, as well as the
prevention of stroke and other complications,
in individuals who are likely to be eligible
for medical assistance under this title and who
have Sickle Cell Disease; plus''.
(c) Demonstration Program for the Development and Establishment of
Systemic Mechanisms for the Prevention and Treatment of Sickle Cell
Disease.--
(1) Authority to conduct demonstration program.--
(A) In general.--The Administrator, through the
Bureau of Primary Health Care and the Maternal and
Child Health Bureau, shall conduct a demonstration
program by making grants to up to 40 eligible entities
for each fiscal year in which the program is conducted
under this section for the purpose of developing and
establishing systemic mechanisms to improve the
prevention and treatment of Sickle Cell Disease,
including through--
(i) the coordination of service delivery
for individuals with Sickle Cell Disease;
(ii) genetic counseling and testing;
(iii) bundling of technical services
related to the prevention and treatment of
Sickle Cell Disease;
(iv) training of health professionals; and
(v) identifying and establishing other
efforts related to the expansion and
coordination of education, treatment, and
continuity of care programs for individuals
with Sickle Cell Disease.
(B) Grant award requirements.--
(i) Geographic diversity.--The
Administrator shall, to the extent practicable,
award grants under this section to eligible
entities located in different regions of the
United States.
(ii) Priority.--In awarding grants under
this subsection, the Administrator shall give
priority to awarding grants to eligible
entities that are--
(I) Federally-qualified health
centers that have a partnership or
other arrangement with a comprehensive
Sickle Cell Disease treatment center
that does not receive funds from the
National Institutes of Health; or
(II) Federally-qualified health
centers that intend to develop a
partnership or other arrangement with a
comprehensive Sickle Cell Disease
treatment center that does not receive
funds from the National Institutes of
Health.
(2) Additional requirements.--An eligible entity awarded a
grant under this subsection shall use funds made available
under the grant to carry out, in addition to the activities
described in paragraph (1)(A), the following activities:
(A) To facilitate and coordinate the delivery of
education, treatment, and continuity of care for
individuals with Sickle Cell Disease under--
(i) the entity's collaborative agreement
with a community-based Sickle Cell Disease
organization or a nonprofit entity that works
with individuals who have Sickle Cell Disease;
(ii) the Sickle Cell Disease newborn
screening program for the State in which the
entity is located; and
(iii) the maternal and child health program
under title V of the Social Security Act (42
U.S.C. 701 et seq.) for the State in which the
entity is located.
(B) To train nursing and other health staff who
provide care for individuals with Sickle Cell Disease.
(C) To enter into a partnership with adult or
pediatric hematologists in the region and other
regional experts in Sickle Cell Disease at tertiary and
academic health centers and State and county health
offices.
(D) To identify and secure resources for ensuring
reimbursement under the medicaid program, State
children's health insurance program, and other health
programs for the prevention and treatment of Sickle
Cell Disease.
(3) National coordinating center.--
(A) Establishment.--The Administrator shall enter
into a contract with an entity to serve as the National
Coordinating Center for the demonstration program
conducted under this subsection.
(B) Activities described.--The National
Coordinating Center shall--
(i) collect, coordinate, monitor, and
distribute data, best practices, and findings
regarding the activities funded under grants
made to eligible entities under the
demonstration program;
(ii) develop a model protocol for eligible
entities with respect to the prevention and
treatment of Sickle Cell Disease;
(iii) develop educational materials
regarding the prevention and treatment of
Sickle Cell Disease; and
(iv) prepare and submit to Congress a final
report that includes recommendations regarding
the effectiveness of the demonstration program
conducted under this subsection and such direct
outcome measures as--
(I) the number and type of health
care resources utilized (such as
emergency room visits, hospital visits,
length of stay, and physician visits
for individuals with Sickle Cell
Disease); and
(II) the number of individuals that
were tested and subsequently received
genetic counseling for the sickle cell
trait.
(4) Application.--An eligible entity desiring a grant under
this subsection shall submit an application to the
Administrator at such time, in such manner, and containing such
information as the Administrator may require.
(5) Definitions.--In this subsection:
(A) Administrator.--The term ``Administrator''
means the Administrator of the Health Resources and
Services Administration.
(B) Eligible entity.--The term ``eligible entity''
means a Federally-qualified health center, a nonprofit
hospital or clinic, or a university health center that
provides primary health care, that--
(i) has a collaborative agreement with a
community-based Sickle Cell Disease
organization or a nonprofit entity with
experience in working with individuals who have
Sickle Cell Disease; and
(ii) demonstrates to the Administrator that
either the Federally-qualified health center,
the nonprofit hospital or clinic, the
university health center, the organization or
entity described in clause (i), or the experts
described in paragraph (2)(C), has at least 5
years of experience in working with individuals
who have Sickle Cell Disease.
(C) Federally-qualified health center.--The term
``Federally-qualified health center'' has the meaning
given that term in section 1905(l)(2)(B) of the Social
Security Act (42 U.S.C. 1396d(l)(2)(B)).
(6) Authorization of appropriations.--There is authorized
to be appropriated to carry out this subsection, $10,000,000
for each of fiscal years 2005 through 2009.
(d) Effective Date.--The amendments made by subsections (a) and (b)
take effect on the date of enactment of this Act and apply to medical
assistance and services provided under title XIX of the Social Security
Act (42 U.S.C. 1396 et seq.) on or after that date.
Subtitle F--Revenue Provisions
PART I--GENERAL REVENUE PROVISIONS
SEC. 661A. TREASURY REGULATIONS ON FOREIGN TAX CREDIT.
Section 901, as amended by this Act, is amended by redesignating
subsection (m) as subsection (n) and by inserting after subsection (l)
the following new subsection:
``(m) Regulations.--The Secretary may prescribe regulations
disallowing a credit under subsection (a) for all or a portion of any
foreign tax, or allocating a foreign tax among 2 or more persons, in
cases where the foreign tax is imposed on any person in respect of
income of another person or in other cases involving the inappropriate
separation of the foreign tax from the related foreign income.''.
SEC. 662B. FREEZE OF PROVISIONS REGARDING SUSPENSION OF INTEREST WHERE
SECRETARY FAILS TO CONTACT TAXPAYER.
(a) In General.--Section 6404(g) (relating to suspension of
interest and certain penalties where Secretary fails to contact
taxpayer) is amended by striking ``1-year period (18-month period in
the case of taxable years beginning before January 1, 2004)'' both
places it appears and inserting ``18-month period''.
(b) Exception for Gross Misstatement.--Section 6404(g)(2) (relating
to exceptions) is amended by striking ``or'' at the end of subparagraph
(C), by redesignating subparagraph (D) as subparagraph (E), and by
inserting after subparagraph (C) the following new subparagraph:
``(D) any interest, penalty, addition to tax, or
additional amount with respect to any gross
misstatement; or''.
(c) Exception for Listed and Reportable Transactions.--Section
6404(g)(2) (relating to exceptions), as amended by subsection (b), is
amended by striking ``or'' at the end of subparagraph (D), by
redesignating subparagraph (E) as subparagraph (F), and by inserting
after subparagraph (D) the following new subparagraph:
``(E) any interest, penalty, addition to tax, or
additional amount with respect to any reportable
transaction or listed transaction (as defined in
6707A(c)); or''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2003.
(2) Exception for reportable or listed transactions.--The
amendments made by subsection (c) shall apply with respect to
interest accruing after May 5, 2004.
PART II--PENSION AND DEFERRED COMPENSATION
SEC. 671. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION PLANS.
(a) In General.--Subpart A of part I of subchapter D of chapter 1
is amended by adding at the end the following new section:
``SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED COMPENSATION UNDER
NONQUALIFIED DEFERRED COMPENSATION PLANS.
``(a) Rules Relating to Constructive Receipt.--
``(1) In general.--
``(A) Gross income inclusion.--If at any time
during a taxable year a nonqualified deferred
compensation plan--
``(i) fails to meet the requirements of
paragraphs (2), (3), (4), and (5), or
``(ii) is not operated in accordance with
such requirements,
all compensation deferred under the plan for the
taxable year and all preceding taxable years shall be
includible in gross income for the taxable year to the
extent not subject to a substantial risk of forfeiture
and not previously included in gross income.
``(B) Interest and additional tax payable with
respect to previously deferred compensation.--
``(i) In general.--If compensation is
required to be included in gross income under
subparagraph (A) for a taxable year, the tax
imposed by this chapter for the taxable year of
inclusion shall be increased by the sum of--
``(I) the amount of interest
determined under clause (ii), and
``(II) an amount equal to 10
percent of the compensation which is
required to be included in gross
income.
``(ii) Interest.--For purposes of clause
(i), the interest determined under this clause
for any taxable year is the amount of interest
at the underpayment rate on the underpayments
that would have occurred had the deferred
compensation been includible in gross income
for the taxable year in which first deferred
or, if later, the first taxable year in which
such deferred compensation is not subject to a
substantial risk of forfeiture.
``(2) Distributions.--
``(A) In general.--The requirements of this
paragraph are met if the plan provides that
compensation deferred under the plan may not be
distributed earlier than--
``(i) except as provided in subparagraph
(B)(i), separation from service (as determined
by the Secretary),
``(ii) the date the participant becomes
disabled (within the meaning of subparagraph
(C)),
``(iii) death,
``(iv) a specified time (or pursuant to a
fixed schedule) specified under the plan as of
the date of the deferral of such compensation,
``(v) to the extent provided by the
Secretary, a change in the ownership or
effective control of the corporation, or in the
ownership of a substantial portion of the
assets of the corporation, or
``(vi) the occurrence of an unforeseeable
emergency.
``(B) Special rules.--
``(i) Separation from service of specified
employees.--In the case of specified employees,
the requirement of subparagraph (A)(i) is met
only if distributions may not be made earlier
than 6 months after the date of separation from
service. For purposes of the preceding
sentence, a specified employee is a key
employee (as defined in section 416(i)) of a
corporation the stock in which is publicly
traded on an established securities market or
otherwise.
``(ii) Changes in ownership or control.--In
the case of a participant who is subject to the
requirements of section 16(a) of the Securities
Exchange Act of 1934, the requirement of
subparagraph (A)(v) is met only if
distributions may not be made earlier than 1
year after the date of the change in ownership
or effective control.
``(iii) Unforeseeable emergency.--For
purposes of subparagraph (A)(vi)--
``(I) In general.--The term
`unforeseeable emergency' means a
severe financial hardship to the
participant or beneficiary resulting
from a sudden and unexpected illness or
accident of the participant or
beneficiary, the participant's or
beneficiary's spouse, or the
participant's or beneficiary's
dependent (as defined in section
152(a)), loss of the participant's or
beneficiary's property due to casualty,
or other similar extraordinary and
unforeseeable circumstances arising as
a result of events beyond the control
of the participant or beneficiary.
``(II) Limitation on
distributions.--The requirement of
subparagraph (A)(vi) is met only if, as
determined under regulations of the
Secretary, the amounts distributed with
respect to an emergency do not exceed
the amounts necessary to satisfy such
emergency plus amounts necessary to pay
taxes reasonably anticipated as a
result of the distribution, after
taking into account the extent to which
such hardship is or may be relieved
through reimbursement or compensation
by insurance or otherwise or by
liquidation of the participant's or
beneficiary's assets (to the extent the
liquidation of such assets would not
itself cause severe financial
hardship).
``(C) Disabled.--For purposes of subparagraph
(A)(ii), a participant shall be considered disabled if
the participant--
``(i) is unable to engage in any
substantial gainful activity by reason of any
medically determinable physical or mental
impairment which can be expected to result in
death or can be expected to last for a
continuous period of not less than 12 months,
or
``(ii) is, by reason of any medically
determinable physical or mental impairment
which can be expected to result in death or can
be expected to last for a continuous period of
not less than 12 months, receiving income
replacement benefits for a period of not less
than 3 months under an accident and health plan
covering employees of the participant's
employer.
``(3) Investment options.--The requirements of this
paragraph are met if the plan provides that the investment
options a participant may elect under the plan--
``(A) are comparable to the investment options
which a participant may elect under the defined
contribution plan of the employer which--
``(i) meets the requirement of section
401(a) and includes a trust exempt from
taxation under section 501(a), and
``(ii) has the fewest investment options,
or
``(B) if there is no such defined contribution
plan, meet such requirements as the Secretary may
prescribe (including requirements limiting such options
to permissible investment options specified by the
Secretary).
``(4) Acceleration of benefits.--The requirements of this
paragraph are met if the plan does not permit the acceleration
of the time or schedule of any payment under the plan, except
as provided by the Secretary in regulations.
``(5) Elections.--
``(A) In general.--The requirements of this
paragraph are met if the requirements of subparagraphs
(B) and (C) are met.
``(B) Initial deferral decision.--The requirements
of this subparagraph are met if the plan provides that
compensation for services performed during a taxable
year may be deferred at the participant's election only
if the election to defer such compensation is made
during the preceding taxable year or at such other time
as provided in regulations. In the case of the first
year in which a participant becomes eligible to
participate in the plan, such election may be made with
respect to services to be performed subsequent to the
election within 30 days after the date the participant
becomes eligible to participate in such plan.
``(C) Changes in time and form of distribution.--
The requirements of this subparagraph are met if, in
the case of a plan which permits under a subsequent
election a delay in a payment or a change in the form
of payment--
``(i) the plan requires that such election
may not take effect until at least 12 months
after the date on which the election is made,
``(ii) in the case an election related to a
payment not described in clause (ii), (iii), or
(vi) of paragraph (2)(A), the plan requires
that the first payment with respect to which
such election is made be deferred for a period
of not less than 5 years from the date such
payment would otherwise have been made, and
``(iii) the plan requires that any election
related to a payment described in paragraph
(2)(A)(iv) may not be made less than 12 months
prior to the date of the first scheduled
payment under such paragraph.
A plan shall be treated as failing to meet the
requirements of this subparagraph if the plan permits
more than 1 subsequent election to delay any payment.
``(b) Rules Relating to Funding.--
``(1) Offshore property in a trust.--In the case of assets
set aside (directly or indirectly) in a trust (or other
arrangement determined by the Secretary) for purposes of paying
deferred compensation under a nonqualified deferred
compensation plan, such assets shall be treated for purposes of
section 83 as property transferred in connection with the
performance of services whether or not such assets are
available to satisfy claims of general creditors--
``(A) at the time set aside if such assets are
located outside of the United States, or
``(B) at the time transferred if such assets are
subsequently transferred outside of the United States.
This paragraph shall not apply to assets located in a foreign
jurisdiction if substantially all of the services to which the
nonqualified deferred compensation relates are performed in
such jurisdiction.
``(2) Employer's financial health.--In the case of a
nonqualified deferred compensation plan, there is a transfer of
property within the meaning of section 83 as of the earlier
of--
``(A) the date on which the plan first provides
that assets will become restricted to the provision of
benefits under the plan in connection with a change in
the employer's financial health, or
``(B) the date on which assets are so restricted.
``(3) Income inclusion for offshore trusts and employer's
financial health.--For each taxable year that assets treated as
transferred under this subsection remain set aside in a trust
or other arrangement subject to paragraph (1) or (2), any
increase in value in, or earnings with respect to, such assets
shall be treated as an additional transfer of property under
this subsection (to the extent not previously included in
income).
``(4) Interest on tax liability payable with respect to
transferred property.--
``(A) In general.--If amounts are required to be
included in gross income by reason of paragraph (1) or
(2) for a taxable year, the tax imposed by this chapter
for such taxable year shall be increased by the sum
of--
``(i) the amount of interest determined
under subparagraph (B), and
``(ii) an amount equal to 10 percent of the
amounts required to be included in gross
income.
``(B) Interest.--For purposes of subparagraph (A),
the interest determined under this subparagraph for any
taxable year is the amount of interest at the
underpayment rate on the underpayments that would have
occurred had the amounts so required to be included in
gross income by paragraph (1) or (2) been includible in
gross income for the taxable year in which first
deferred or, if later, the first taxable year in which
such amounts are not subject to a substantial risk of
forfeiture.
``(c) No Inference on Earlier Income Inclusion.--Nothing in this
section shall be construed to prevent the inclusion of amounts in gross
income under any other provision of this chapter or any other rule of
law earlier than the time provided in this section. Any amount included
in gross income under this section shall not be required to be included
in gross income under any other provision of this chapter or any other
rule of law later than the time provided in this section.
``(d) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Nonqualified deferred compensation plan.--The term
`nonqualified deferred compensation plan' means any plan that
provides for the deferral of compensation, other than--
``(A) a qualified employer plan, and
``(B) any bona fide vacation leave, sick leave,
compensatory time, disability pay, or death benefit
plan.
``(2) Qualified employer plan.--The term `qualified
employer plan' means--
``(A) any plan, contract, pension, account, or
trust described in subparagraph (A) or (B) of section
219(g)(5), and
``(B) any eligible deferred compensation plan
(within the meaning of section 457(b)) of an employer
described in section 457(e)(1)(A).
``(3) Plan includes arrangements, etc.--The term `plan'
includes any agreement or arrangement, including an agreement
or arrangement that includes one person.
``(4) Substantial risk of forfeiture.--The rights of a
person to compensation are subject to a substantial risk of
forfeiture if such person's rights to such compensation are
conditioned upon the future performance of substantial services
by any individual.
``(5) Treatment of earnings.--References to deferred
compensation shall be treated as including references to income
(whether actual or notional) attributable to such compensation
or such income.
``(6) Exception for nonelective deferred compensation.--
This section shall not apply to any nonelective deferred
compensation to which section 457 does not apply by reason of
section 457(e)(12), but only if such compensation is provided
under a nonqualified deferred compensation plan which was in
existence on May 1, 2004, and which was providing nonelective
deferred compensation described in section 457(e)(12) on such
date. If, after May 1, 2004, a plan described in the preceding
sentence adopts a plan amemdment which provides a material
change in the classes of individuals eligible to participate in
the plan, this paragraph shall not apply to any nonelective
deferred compensation provided under the plan on or after the
date of the adoption of the amendment.
``(e) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section, including regulations--
``(1) providing for the determination of amounts of
deferral in the case of a nonqualified deferred compensation
plan which is a defined benefit plan,
``(2) relating to changes in the ownership and control of a
corporation or assets of a corporation for purposes of
subsection (a)(2)(A)(v),
``(3) exempting arrangements from the application of
subsection (b) if such arrangements will not result in an
improper deferral of United States tax and will not result in
assets being effectively beyond the reach of creditors,
``(4) defining financial health for purposes of subsection
(b)(2), and
``(5) disregarding a substantial risk of forfeiture in
cases where necessary to carry out the purposes of this
section.''.
(b) Application of Golden Parachute Payment Provisions.--Section
280G of such Code (relating to golden parachute payments) is amended by
redesignating subsection (e) as subsection (f) and by inserting after
subsection (d) the following new subsection:
``(e) Special Rules for Certain Payments From Nonqualified Deferred
Compensation Plans.--
``(1) In general.--Notwithstanding any other provision of
this section, an applicable payment shall be treated as an
excess parachute payment for purposes of this section and
section 4999.
``(2) Coordination with other payments.--
``(A) Applicable payments which are parachute
payments.--If any applicable payment is a parachute
payment (determined without regard to subsection
(b)(2)(A)(ii))--
``(i) except as provided in paragraph (4),
this section shall be applied to such payment
in the same manner as if this subsection had
not been enacted, and
``(ii) if such application results in an
excess parachute payment, any tax under section
4999 on the excess parachute payment shall be
in addition to the tax imposed by reason of
paragraph (1).
``(B) Applicable payments which are not parachute
payments.--An applicable payment not described in
subparagraph (A) shall be taken into account in
determining whether any payment described in
subparagraph (A) or any payment which is not an
applicable payment is a parachute payment under
subsection (b)(2).
``(3) Applicable payment.--For purposes of this subsection,
the term `applicable payment' means any distribution (including
any distribution treated as a parachute payment without regard
to this subsection) from a nonqualified deferred compensation
plan (as defined in section 409A(d)) which is made--
``(A) to a participant who is subject to the
requirements of section 16(a) of the Securities
Exchange Act of 1934, and
``(B) during the 1-year period following a change
in the ownership or effective control of the
corporation or in the ownership of a substantial
portion of the assets of the corporation.
Such terms shall not include any distribution by reason of the
death of the participant or the participant becoming disabled
(within the meaning of section 409A(a)(2)(C)).
``(4) No double counting.--Under regulations, proper
adjustments shall be made in the application of this subsection
to prevent a deduction from being disallowed more than once.''.
(c) W-2 Forms.--
(1) In general.--Subsection (a) of section 6051 (relating
to receipts for employees) is amended by striking ``and'' at
the end of paragraph (11), by striking the period at the end of
paragraph (12) and inserting ``, and'', and by inserting after
paragraph (12) the following new paragraph:
``(13) the total amount of deferrals under a nonqualified
deferred compensation plan (within the meaning of section
409A(d)).''.
(2) Threshold.--Subsection (a) of section 6051 is amended
by adding at the end the following: ``In the case of the
amounts required to be shown by paragraph (13), the Secretary
may (by regulation) establish a minimum amount of deferrals
below which paragraph (13) does not apply.''.
(d) Conforming and Clerical Amendments.--
(1) Section 414(b) is amended by inserting ``409A,'' after
``408(p),''.
(2) Section 414(c) is amended by inserting ``409A,'' after
``408(p),''.
(3) The table of sections for such subpart A is amended by
adding at the end the following new item:
``Sec. 409A. Inclusion in gross income of
deferred compensation under
nonqualified deferred
compensation plans.''.
(e) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to amounts deferred in taxable years beginning after
December 31, 2004.
(2) Earnings attributable to amount previously deferred.--
The amendments made by this section shall apply to earnings on
deferred compensation only to the extent that such amendments
apply to such compensation.
(f) Guidance Relating to Change of Ownership or Control.--Not later
than 90 days after the date of the enactment of this Act, the Secretary
of the Treasury shall issue guidance on what constitutes a change in
ownership or effective control for purposes of section 409A of the
Internal Revenue Code of 1986, as added by this section.
(g) Guidance Relating to Termination of Certain Existing
Arrangements.--Not later than 90 days after the date of the enactment
of this Act, the Secretary of the Treasury shall issue guidance
providing a limited period during which an individual participating in
a nonqualified deferred compensation plan adopted on or before December
31, 2004, may, without violating the requirements of paragraphs (2),
(3), (4), and (5) of section 409A(a) of the Internal Revenue Code of
1986 (as added by this section), terminate participation or cancel an
outstanding deferral election with regard to amounts earned after
December 31, 2004, if such amounts are includible in income as earned.
SEC. 672. PROHIBITION ON DEFERRAL OF GAIN FROM THE EXERCISE OF STOCK
OPTIONS AND RESTRICTED STOCK GAINS THROUGH DEFERRED
COMPENSATION ARRANGEMENTS.
(a) In General.--Section 83 (relating to property transferred in
connection with performance of services) is amending by adding at the
end the following new subsection:
``(i) Prohibition on Additional Deferral Through Deferred
Compensation Arrangements.--If a taxpayer exchanges--
``(1) an option to purchase employer securities--
``(A) to which subsection (a) applies, or
``(B) which is described in subsection (e)(3), or
``(2) employer securities or any other property based on
employer securities transferred to the taxpayer,
for a right to receive future payments, then, notwithstanding any other
provision of this title, there shall be included in gross income for
the taxable year of the exchange an amount equal to the present value
of such right (or such other amount as the Secretary may by regulations
specify). For purposes of this subsection, the term `employer
securities' includes any security issued by the employer.''.
(b) Controlled Group Rules.--Section 414(t)(2) is amended by
inserting ``83(i),'' after ``79,''.
(c) Effective Date.--The amendments made by this section shall
apply to any exchange after December 31, 2004.
SEC. 673. 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.
SEC. 674. TREATMENT OF SALE OF STOCK ACQUIRED PURSUANT TO EXERCISE OF
STOCK OPTIONS TO COMPLY WITH CONFLICT-OF-INTEREST
REQUIREMENTS.
(a) In General.--Section 421 of the Internal Revenue Code of 1986
(relating to general rules for certain stock options) is amended by
adding at the end the following new subsection:
``(d) Certain Sales To Comply With Conflict-of-Interest
Requirements.--If--
``(1) a share of stock is transferred to an eligible person
(as defined in section 1043(b)(1)) pursuant to such person's
exercise of an option to which this part applies, and
``(2) such share is disposed of by such person pursuant to
a certificate of divestiture (as defined in section
1043(b)(2)),
such disposition shall be treated as meeting the requirements of
section 422(a)(1) or 423(a)(1), whichever is applicable.''
(b) Effective Date.--The amendment made by this section shall apply
to sales after the date of the enactment of this Act.
SEC. 675. APPLICATION OF BASIS RULES TO EMPLOYER AND EMPLOYEE
CONTRIBUTIONS ON BEHALF OF NONRESIDENT ALIENS.
(a) In General.--Section 72 (relating to annuities and certain
proceeds of endowment and life insurance contracts) is amended by
redesignating subsection (w) as subsection (x) and by inserting after
subsection (v) the following new subsection:
``(w) Application of Basis Rules to Employer and Employee
Contributions Made on Behalf of Nonresident Aliens.--
``(1) In general.--Notwithstanding any other provision of
this section, for purposes of determining the portion of any
distribution which is includible in gross income of a
distributee who is a citizen or resident of the United States,
the investment in the contract shall not include any applicable
nontaxable contributions.
``(2) Applicable nontaxable contribution.--For purposes of
this subsection, the term `applicable nontaxable contribution'
means any employer or employee contribution--
``(A) which was made with respect to compensation
for labor or personal services by an employee who, at
the time the services were performed, was a nonresident
alien for purposes of the laws of the United States in
effect at such time, but only if such compensation is
treated as from sources without the United States, and
``(B) which was not subject to income tax under the
laws of the United States or any foreign country.
``(3) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions of
this subsection, including regulations treating contributions
as not subject to tax under the laws of any foreign country
where appropriate to carry out the purposes of this
subsection.''.
(b) Effective Date.--The amendments made by this section shall
apply to distributions on or after the date of the enactment of this
Act.
TITLE VII--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS
Subtitle A--Extensions
SEC. 701. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH
BENEFITS.
(a) In General.--Section 9812(f) is amended--
(1) by striking ``and'' at the end of paragraph (1), and
(2) by striking paragraph (2) and inserting the following
new paragraphs:
``(2) on or after January 1, 2004, and before the date of
the enactment of the Jumpstart Our Business Strength (JOBS)
Act, and
``(3) after December 31, 2005.''.
(b) ERISA.--Section 712(f) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1185a(f)) is amended by striking ``on
or after December 31, 2004'' and inserting ``after December 31, 2005''.
(c) PHSA.--Section 2705(f) of the Public Health Service Act (42
U.S.C. 300gg-5(f)) is amended by striking ``on or after December 31,
2004'' and inserting ``after December 31, 2005''.
(d) Effective Dates.--
(1) Subsection (a).--The amendments made by subsection (a)
shall apply to benefits for services furnished on or after
December 31, 2003.
(2) Subsections (b) and (c).--The amendments made by
subsections (b) and (c) shall apply to benefits for services
furnished on or after December 31, 2004.
SEC. 702. MODIFICATIONS TO WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK
CREDIT.
(a) Permanent Extension of Credit.--
(1) In general.--Section 51(c) is amended by striking
paragraph (4).
(2) Long-term family assistance recipients.--
(A) In general.--Section 51A is amended by striking
subsection (f).
(B) Conforming amendments.--
(i) The heading for section 51A is amended
by striking ``temporary''.
(ii) The item relating to section 51A in
the table of sections for subpart F of part IV
of subchapter A of chapter 1 is amended by
striking ``Temporary incentives'' and inserting
``Incentives''.
(b) Eligibility of Ex-Felons Determined Without Regard to Family
Income.--Paragraph (4) of section 51(d) is amended by adding ``and'' at
the end of subparagraph (A), by striking ``, and'' at the end of
subparagraph (B) and inserting a period, and by striking all that
follows subparagraph (B).
(c) Increase in Maximum Age for Eligibility of Food Stamp
Recipients.--Clause (i) of section 51(d)(8)(A) is amended by striking
``25'' and inserting ``40''.
(d) Increase in Maximum Age for Designated Community residents.--
(1) In general.--Paragraph (5) of section 51(d) is amended
to read as follows:
``(5) Designated community residents.--
``(A) In general.--The term `designated community
resident' means any individual who is certified by the
designated local agency--
``(i) as having attained age 18 but not age
40 on the hiring date, and
``(ii) as having his principal place of
abode within an empowerment zone, enterprise
community, or renewal community.
``(B) Individual must continue to reside in zone or
community.--In the case of a designated community
resident, the term `qualified wages' shall not include
wages paid or incurred for services performed while the
individual's principal place of abode is outside an
empowerment zone, enterprise community, or renewal
community.''
(2) Conforming amendment.--Subparagraph (D) of section
51(d)(1) is amended to read as follows:
``(D) a designated community resident,''.
(e) Effective Dates.--
(1) Extension of credits.--The amendments made by
subsection (a) shall apply to individuals who begin work for
the employer after December 31, 2003.
(2) Modifications.--The amendments made by subsections (b),
(c), and (d) shall apply to individuals who begin work for the
employer after December 31, 2004.
SEC. 703. CONSOLIDATION OF WORK OPPORTUNITY CREDIT WITH WELFARE-TO-WORK
CREDIT.
(a) In General.--Paragraph (1) of section 51(d) 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) a long-term family assistance recipient.''
(b) Long-Term Family Assistance Recipient.--Subsection (d) of
section 51 is amended by redesignating paragraphs (10) through (12) as
paragraphs (11) through (13), respectively, and by inserting after
paragraph (9) the following new paragraph:
``(10) Long-term family assistance recipient.--The term
`long-term family assistance recipient' means any individual
who is certified by the designated local agency--
``(A) as being a member of a family receiving
assistance under a IV-A program (as defined in
paragraph (2)(B)) for at least the 18-month period
ending on the hiring date,
``(B)(i) as being a member of a family receiving
such assistance for 18 months beginning after August 5,
1997, and
``(ii) as having a hiring date which is not more
than 2 years after the end of the earliest such 18-
month period, or
``(C)(i) as being a member of a family which ceased
to be eligible for such assistance by reason of any
limitation imposed by Federal or State law on the
maximum period such assistance is payable to a family,
and
``(ii) as having a hiring date which is not more
than 2 years after the date of such cessation.''
(c) Increased Credit for Employment of Long-Term Family Assistance
Recipients.--Section 51 is amended by inserting after subsection (d)
the following new subsection:
``(e) Credit for Employment of Long-Term Family Assistance
Recipients.--
``(1) In general.--With respect to the employment of a
long-term family assistance recipient--
``(A) the amount of the work opportunity credit
determined under this section for the taxable year
shall include 50 percent of the qualified second-year
wages for such year, and
``(B) in lieu of applying subsection (b)(3), the
amount of the qualified first-year wages, and the
amount of qualified second-year wages, which may be
taken into account with respect to such a recipient
shall not exceed $10,000 per year.
``(2) Qualified second-year wages.--For purposes of this
subsection, the term `qualified second-year wages' means
qualified wages--
``(A) which are paid to a long-term family
assistance recipient, and
``(B) which are attributable to service rendered
during the 1-year period beginning on the day after the
last day of the 1-year period with respect to such
recipient determined under subsection (b)(2).
``(3) Special rules for agricultural and railway labor.--If
such recipient is an employee to whom subparagraph (A) or (B)
of subsection (h)(1) applies, rules similar to the rules of
such subparagraphs shall apply except that--
``(A) such subparagraph (A) shall be applied by
substituting `$10,000' for `$6,000', and
``(B) such subparagraph (B) shall be applied by
substituting `$833.33' for `$500'.''
(d) Repeal of Separate Welfare-to-Work Credit.--
(1) In general.--Section 51A is hereby repealed.
(2) Clerical amendment.--The table of sections for subpart
F of part IV of subchapter A of chapter 1 is amended by
striking the item relating to section 51A.
(e) Effective Date.--The amendments made by this section shall
apply to individuals who begin work for the employer after December 31,
2004.
SEC. 704. QUALIFIED ZONE ACADEMY BONDS.
(a) In General.--Paragraph (1) of section 1397E(e) is amended by
striking ``and 2003'' and inserting ``2003, 2004, and 2005''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to obligations issued after December 31, 2003.
SEC. 705. COVER OVER OF TAX ON DISTILLED SPIRITS.
(a) In General.--Paragraph (1) of section 7652(f) is amended by
striking ``January 1, 2004'' and inserting ``January 1, 2006''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to articles brought into the United States after December 31,
2003.
SEC. 706. DEDUCTION FOR CORPORATE DONATIONS OF SCIENTIFIC PROPERTY AND
COMPUTER TECHNOLOGY.
(a) Scientific Property Used for Research.--
(1) In general.--Clause (ii) of section 170(e)(4)(B)
(defining qualified research contributions) is amended by
inserting ``or assembled'' after ``constructed''.
(2) Conforming amendment.--Clause (iii) of section
170(e)(4)(B) is amended by inserting ``or assembling'' after
``construction''.
(b) Computer Technology and Equipment for Educational Purposes.--
(1) In general.--Clause (ii) of section 170(e)(6)(B) is
amended by inserting ``or assembled'' after ``constructed'' and
``or assembling'' after ``construction''.
(2) Special rule extended.--Section 170(e)(6)(G) is amended
by striking ``2003'' and inserting ``2005''.
(3) Conforming amendments.--Subparagraph (D) of section
170(e)(6) is amended by inserting ``or assembled'' after
``constructed'' and ``or assembling'' after ``construction''.
(c) Effective Date.--The amendments made by this section shall
apply to contributions made in taxable years beginning after December
31, 2003.
SEC. 707. DEDUCTION FOR CERTAIN EXPENSES OF SCHOOL TEACHERS.
(a) In General.--Subparagraph (D) of section 62(a)(2) is amended by
striking ``or 2003'' and inserting ``, 2003, 2004, or 2005''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to expenses paid or incurred in taxable years beginning after
December 31, 2003.
SEC. 708. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.
(a) Extension of Termination Date.--Subsection (h) of section 198
is amended by striking ``December 31, 2003'' and inserting ``December
31, 2005''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to expenditures paid or incurred after December 31, 2003.
SEC. 709. EXPANSION OF CERTAIN NEW YORK LIBERTY ZONE BENEFITS.
(a) Extension of Tax-Exempt Bond Financing.--Subparagraph (D) of
section 1400L(d)(2) is amended by striking ``2005'' and inserting
``2006''.
(b) Clarification of Bonds Eligible for Advance Refunding.--Section
1400L(e)(2)(B) (relating to bonds described) is amended by striking ``,
or'' and inserting ``or the Municipal Assistance Corporation, or''.
(c) Election Out Technical Amendment.--Subsection (c) of section
1400L is amended by adding at the end the following new paragraph:
``(5) Election out.--For purposes of this subsection, rules
similar to the rules of section 168(k)(2)(C)(iii) shall
apply.''.
(d) Effective date.--The amendments made by subsections (b) and (c)
shall take effect as if included in the amendments made by section 301
of the Job Creation and Worker Assistance Act of 2002.
SEC. 710. REPEAL OF REDUCTION OF DEDUCTIONS FOR MUTUAL LIFE INSURANCE
COMPANIES.
(a) In General.--Section 809 of the Internal Revenue Code of 1986
(relating to reductions in certain deduction of mutual life insurance
companies) is hereby repealed.
(b) Conforming Amendments.--
(1) Subsections (a)(2)(B) and (b)(1)(B) of section 807 of
such Code are each amended by striking ``the sum of (i)'' and
by striking ``plus (ii) any excess described in section
809(a)(2) for the taxable year,''.
(2)(A) The last sentence of section 807(d)(1) of such Code
is amended by striking ``section 809(b)(4)(B)'' and inserting
``paragraph (6)''.
(B) Subsection (d) of section 807 of such Code is amended
by adding at the end the following new paragraph:
``(6) Statutory reserves.--The term `statutory reserves'
means the aggregate amount set forth in the annual statement
with respect to items described in section 807(c). Such term
shall not include any reserve attributable to a deferred and
uncollected premium if the establishment of such reserve is not
permitted under section 811(c).''
(3) Subsection (c) of section 808 of such Code is amended
to read as follows:
``(c) Amount of Deduction.--The deduction for policyholder
dividends for any taxable year shall be an amount equal to the
policyholder dividends paid or accrued during the taxable year.''
(4) Subparagraph (A) of section 812(b)(3) of such Code is
amended by striking ``sections 808 and 809'' and inserting
``section 808''.
(5) Subsection (c) of section 817 of such Code is amended
by striking ``(other than section 809)''.
(6) Subsection (c) of section 842 of such Code is amended
by striking paragraph (3) and by redesignating paragraph (4) as
paragraph (3).
(7) The table of sections for subpart C of part I of
subchapter L of chapter 1 of such Code is amended by striking
the item relating to section 809.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 711. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF COLUMBIA.
(a) Designation of Zone.--Subsection (f) of section 1400 is amended
by striking ``December 31, 2003'' both places it appears and inserting
``December 31, 2005''.
(b) Tax-Exempt Economic Development Bonds.--Subsection (b) of
section 1400A is amended by striking ``December 31, 2003'' and
inserting ``December 31, 2005''.
(c) Zero Percent Capital Gains Rate.--
(1) In general.--Subsection (b) of section 1400B is amended
by striking ``January 1, 2004'' each place it appears and
inserting ``January 1, 2006''.
(2) Conforming amendments.--
(A) Section 1400B(e)(2) is amended--
(i) by striking ``December 31, 2008'' and
inserting ``December 31, 2010'', and
(ii) by striking ``2008'' in the heading
and inserting ``2010''.
(B) Section 1400B(g)(2) is amended by striking
``December 31, 2008'' and inserting ``December 31,
2010''.
(C) Section 1400F(d) is amended by striking
``December 31, 2008'' and inserting ``December 31,
2010''.
(d) First-Time Homebuyer Credit.--Subsection (i) of section 1400C
is amended by striking ``January 1, 2004'' and inserting ``January 1,
2006''.
(e) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall take effect on January 1,
2004.
(2) Tax-exempt economic development bonds.--The amendment
made by subsection (b) shall apply to obligations issued after
the date of the enactment of this Act.
SEC. 712. DISCLOSURE OF TAX INFORMATION TO FACILITATE COMBINED
EMPLOYMENT TAX REPORTING.
(a) In General.--Paragraph (5) of section 6103(d) (relating to
disclosure to State tax officials and State and local law enforcement
agencies) is amended to read as follows:
``(5) Disclosure for combined employment tax reporting.--
The Secretary may disclose taxpayer identity information and
signatures to any agency, body, or commission of any State for
the purpose of carrying out with such agency, body, or
commission a combined Federal and State employment tax
reporting program approved by the Secretary. Subsections (a)(2)
and (p)(4) and sections 7213 and 7213A shall not apply with
respect to disclosures or inspections made pursuant to this
paragraph.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 713. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR
AND MINIMUM TAX LIABILITY.
(a) In General.--Paragraph (2) of section 26(a) is amended--
(1) by striking ``rule for 2000, 2001, 2002, and 2003.--''
and inserting ``rule for taxable years 2000 through 2004.--'',
and
(2) by striking ``or 2003'' and inserting ``2003, or
2004''.
(b) Conforming Provisions.--
(1) Section 904(i), as redesignated by this Act, is amended
by striking ``or 2003'' and inserting ``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, 2003.
SEC. 714. CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE
RESOURCES.
(a) In General.--Subparagraphs (A), (B), and (C) of section
45(c)(3) are each amended by striking ``January 1, 2004'' and inserting
``January 1, 2005''.
(b) Effective Date.--The amendments made by subsection (a) shall
apply to facilities placed in service after December 31, 2003.
SEC. 715. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR OIL AND
NATURAL GAS PRODUCED FROM MARGINAL PROPERTIES.
(a) In General.--Subparagraph (H) of section 613A(c)(6) is amended
by striking ``January 1, 2004'' and inserting ``January 1, 2005''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2003.
SEC. 716. INDIAN EMPLOYMENT TAX CREDIT.
Section 45A(f) (relating to termination) is amended by striking
``December 31, 2004'' and inserting ``December 31, 2005''.
SEC. 717. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON INDIAN
RESERVATION.
Section 168(j)(8) (relating to termination) is amended by striking
``December 31, 2004'' and inserting ``December 31, 2005''.
SEC. 718. DISCLOSURE OF RETURN INFORMATION RELATING TO STUDENT LOANS.
Section 6103(l)(13)(D) (relating to termination) is amended by
striking ``December 31, 2004'' and inserting ``December 31, 2005''.
SEC. 719. EXTENSION OF TRANSFERS OF EXCESS PENSION ASSETS TO RETIREE
HEALTH ACCOUNTS.
(a) Amendments of ERISA.--
(1) Section 101(e)(3) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by
striking ``Pension Funding Equity Act of 2004'' and inserting
``Jumpstart Our Business Strength (JOBS) Act''.
(2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is
amended by striking ``Pension Funding Equity Act of 2004'' and
inserting ``Jumpstart Our Business Strength (JOBS) Act''.
(3) Paragraph (13) of section 408(b) of such Act (29 U.S.C.
1108(b)(3)) is amended by striking ``Pension Funding Equity Act
of 2004'' and inserting ``Jumpstart Our Business Strength
(JOBS) Act''.
(b) Minimum Cost Requirements.--
(1) In general.--Section 420(c)(3)(E) is amended by adding
at the end the following new clause:
``(ii) Insignificant cost reductions
permitted.--
``(I) In general.--An eligible
employer shall not be treated as
failing to meet the requirements of
this paragraph for any taxable year if,
in lieu of any reduction of retiree
health coverage permitted under the
regulations prescribed under clause
(i), the employer reduces applicable
employer cost by an amount not in
excess of the reduction in costs which
would have occurred if the employer had
made the maximum permissible reduction
in retiree health coverage under such
regulations. In applying such
regulations to any subsequent taxable
year, any reduction in applicable
employer cost under this clause shall
be treated as if it were an equivalent
reduction in retiree health coverage.
``(II) Eligible employer.--For
purposes of subclause (I), an employer
shall be treated as an eligible
employer for any taxable year if, for
the preceding taxable year, the
qualified current retiree health
liabilities of the employer were at
least 5 percent of the gross receipts
of the employer. For purposes of this
subclause, the rules of paragraphs (2),
(3)(B), and (3)(C) of section 448(c)
shall apply in determining the amount
of an employer's gross receipts.''.
(2) Conforming amendment.--Section 420(c)(3)(E) is amended
by striking ``The Secretary'' and inserting:
``(i) In general.--The Secretary''.
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years ending after the date of the
enactment of this Act.
SEC. 720. ELIMINATION OF PHASEOUT OF CREDIT FOR QUALIFIED ELECTRIC
VEHICLES.
(a) In General.--Section 30(b) is amended by striking paragraph (2)
and by redesignating paragraph (3) as paragraph (2).
(b) Conforming Amendments.--
(1) Section 53(d)(1)(B)(iii) is amended by striking
``section 30(b)(3)(B)'' and inserting ``section 30(b)(2)(B)''.
(2) Section 55(c)(2) is amended by striking ``30(b)(3)''
and inserting ``30(b)(2)''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2003.
SEC. 721. ELIMINATION OF PHASEOUT FOR DEDUCTION FOR CLEAN-FUEL VEHICLE
PROPERTY.
(a) In General.--Paragraph (1) of section 179A(b) is amended to
read as follows:
``(1) Qualified clean-fuel vehicle property.--The cost
which may be taken into account under subsection (a)(1)(A) with
respect to any motor vehicle shall not exceed--
``(A) in the case of a motor vehicle not described
in subparagraph (B) or (C), $2,000,
``(B) in the case of any truck or van with a gross
vehicle weight rating greater than 10,000 pounds but
not greater than 26,000 pounds, $5,000, or
``(C) $50,000 in the case of--
``(i) a truck or van with a gross vehicle
weight rating greater than 26,000 pounds, or
``(ii) any bus which has a seating capacity
of at least 20 adults (not including the
driver).''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to property placed in service after December 31, 2003.
Subtitle B--Revenue Provisions
SEC. 731. DONATIONS OF MOTOR VEHICLES, BOATS, AND AIRPLANES.
(a) In General.--Subsection (f) of section 170 (relating to
disallowance of deduction in certain cases and special rules) is
amended by adding at the end the following new paragraph:
``(11) Contributions of used motor vehicles, boats, and
airplanes.--
``(A) In general.--In the case of a contribution of
a qualified vehicle in excess of $500--
``(i) paragraph (8) shall not apply and no
deduction shall be allowed under subsection (a)
for such contribution unless the taxpayer
substantiates the contribution by a
contemporaneous written acknowledgement of the
contribution by the donee organization that
meets the requirements of subparagraph (B) and
includes the acknowledgement with the
taxpayer's return of tax which includes the
deduction, and
``(ii) if the organization sells the
vehicle without any significant intervening use
or material improvement of such vehicle by the
organization, the amount of the deduction
allowed under subsection (a) shall not exceed
the gross proceeds received from such sale.
``(B) Content of acknowledgement.--An
acknowledgement meets the requirements of this
subparagraph if it includes the following information:
``(i) The name and taxpayer identification
number of the donor.
``(ii) The vehicle identification number or
similar number.
``(iii) In the case of a qualified vehicle
to which subparagraph (A)(ii) applies and which
is sold by the donee organization--
``(I) a certification that the
vehicle was sold in an arm's length
transaction between unrelated parties,
``(II) the gross proceeds from the
sale, and
``(III) that the deductible amount
may not exceed the amount of such gross
proceeds.
``(iv) In the case of a qualified vehicle
to which subparagraph (A)(ii) does not apply--
``(I) a certification of the
intended use or material improvement of
the vehicle and the intended duration
of such use, and
``(II) a certification that the
vehicle would not be transferred in
exchange for money, other property, or
services before completion of such use
or improvement.
``(C) Contemporaneous.--For purposes of
subparagraph (A), an acknowledgement shall be
considered to be contemporaneous if the donee
organization provides it within 30 days of--
``(i) the sale of the qualified vehicle, or
``(ii) in the case of an acknowledgement
including a certification described in
subparagraph (B)(iv), the contribution of the
qualified vehicle.
``(D) Information to secretary.--A donee
organization required to provide an acknowledgement
under this paragraph shall provide to the Secretary the
information contained in the acknowledgement. Such
information shall be provided at such time and in such
manner as the Secretary may prescribe.
``(E) Qualified vehicle.--For purposes of this
paragraph, the term `qualified vehicle' means any--
``(i) self-propelled vehicle manufactured
primarily for use on public streets, roads, and
highways,
``(ii) boat, or
``(iii) airplane.
Such term shall not include any property which is
described in section 1221(a)(1).
``(F) Regulations or other guidance.--The Secretary
shall prescribe such regulations or other guidance as
may be necessary to carry out the purposes of this
paragraph.''.
(b) Penalty for Fraudulent Acknowledgments.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalities), as amended by section
882(c) of this Act, is amended adding at the end the following
new section:
``SEC. 6720A. FRAUDULENT ACKNOWLEDGMENTS WITH RESPECT TO DONATIONS OF
MOTOR VEHICLES, BOATS, AND AIRPLANES.
``Any donee organization required under section 170(f)(11)(A) to
furnish a contemporaneous written acknowledgment to a donor which
knowingly furnishes a false or fraudulent acknowledgment, or which
knowingly fails to furnish such acknowledgment in the manner, at the
time, and showing the information required under section 170(f)(11), or
regulations prescribed thereunder, shall for each such act, or for each
such failure, be subject to a penalty equal to--
``(1) in the case of an acknowledgment with respect to a
qualified vehicle to which section 170(f)(11)(A)(ii) applies,
the greater of the value of the tax benefit to the donor or the
gross proceeds from the sale of such vehicle, and
``(2) in the case of an acknowledgment with respect to any
other qualified vehicle to which section 170(f)(11) applies,
the greater of the value of the tax benefit to the donor or
$5,000.''.
(2) Conforming amendment.--The table of sections for part I
of subchapter B of chapter 68, as amended by section 882(c) of
this Act, is amended by adding at the end the following new
item:
``Sec. 6720A. Fraudulent acknowledgments
with respect to donations of
motor vehicles, boats, and
airplanes.''.
(c) Effective Date.--The amendments made by this section shall
apply to contributions after June 30, 2004.
SEC. 732. ADDITION OF VACCINES AGAINST INFLUENZA TO LIST OF TAXABLE
VACCINES.
(a) In General.--Section 4132(a)(1) (defining taxable vaccine), as
amended by this Act, is amended adding at the end the following new
subparagraph:
``(N) Any trivalent vaccine against influenza.''.
(b) Effective Date.--
(1) Sales, etc.--The amendment made by this section shall
apply to sales and uses on or after the later of--
(A) the first day of the first month which begins
more than 4 weeks after the date of the enactment of
this Act, or
(B) the date on which the Secretary of Health and
Human Services lists any vaccine against influenza for
purposes of compensation for any vaccine-related injury
or death through the Vaccine Injury Compensation Trust
Fund.
(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. 733. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT INSTRUMENTS.
(a) In General.--Section 1275(d) (relating to regulation authority)
is amended--
(1) by striking ``The Secretary'' and inserting the
following:
``(1) In general.--The Secretary'', and
(2) by adding at the end the following new paragraph:
``(2) Treatment of contingent payment convertible debt.--
``(A) In general.--In the case of a debt instrument
which--
``(i) is convertible into stock of the
issuing corporation, into stock or debt of a
related party (within the meaning of section
267(b) or 707(b)(1)), or into cash or other
property in an amount equal to the approximate
value of such stock or debt, and
``(ii) provides for contingent payments,
any regulations which require original issue discount
to be determined by reference to the comparable yield
of a noncontingent fixed rate debt instrument shall be
applied as requiring that such comparable yield be
determined by reference to a noncontingent fixed rate
debt instrument which is convertible into stock.
``(B) Special rule.--For purposes of subparagraph
(A), the comparable yield shall be determined without
taking into account the yield resulting from the
conversion of a debt instrument into stock.''.
(b) Cross Reference.--Section 163(e)(6) (relating to cross
references) is amended by adding at the end the following:
``For the treatment of contingent payment convertible debt,
see section 1275(d)(2).''.
(c) Effective Date.--The amendments made by this section shall
apply to debt instruments issued after the date of the enactment of
this Act.
SEC. 734. MODIFICATION OF CONTINUING LEVY ON PAYMENTS TO FEDERAL
VENDERS.
(a) In General.--Section 6331(h) (relating to continuing levy on
certain payments) is amended by adding at the end the following new
paragraph:
``(3) Increase in levy for certain payments.--Paragraph (1)
shall be applied by substituting `100 percent' for `15 percent'
in the case of any specified payment due to a vendor of goods
or services sold or leased to the Federal Government.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
TITLE VIII--ENERGY TAX INCENTIVES
SEC. 800. SHORT TITLE.
This title may be cited as the ``Energy Tax Incentives Act''.
Subtitle A--Renewable Electricity Production Tax Credit
SEC. 801. EXTENSION AND EXPANSION OF CREDIT FOR ELECTRICITY PRODUCED
FROM CERTAIN RENEWABLE RESOURCES.
(a) Expansion of Qualified Energy Resources.--Subsection (c) of
section 45 (relating to electricity produced from certain renewable
resources) is amended to read as follows:
``(c) Qualified Energy Resources.--For purposes of this section--
``(1) In general.--The term `qualified energy resources'
means--
``(A) wind,
``(B) closed-loop biomass,
``(C) open-loop biomass,
``(D) geothermal energy,
``(E) solar energy,
``(F) small irrigation power,
``(G) biosolids and sludge, and
``(H) municipal solid waste.
``(2) Closed-loop biomass.--The term `closed-loop biomass'
means any organic material from a plant which is planted
exclusively for purposes of being used at a qualified facility
to produce electricity.
``(3) Open-loop biomass.--
``(A) In general.--The term `open-loop biomass'
means--
``(i) any agricultural livestock waste
nutrients, or
``(ii) any solid, nonhazardous, cellulosic
waste material which is segregated from other
waste materials and which is derived from--
``(I) any of the following forest-
related resources: mill and harvesting
residues, precommercial thinnings,
slash, and brush; but not including
spent chemicals from pulp
manufacturing,
``(II) solid wood waste materials,
including waste pallets, crates,
dunnage, manufacturing and construction
wood wastes (other than pressure-
treated, chemically-treated, or painted
wood wastes), and landscape or right-
of-way tree trimmings, but not
including municipal solid waste, gas
derived from the biodegradation of
solid waste, or paper which is commonly
recycled, or
``(III) agriculture sources,
including orchard tree crops, vineyard,
grain, legumes, sugar, and other crop
by-products or residues.
``(B) Agricultural livestock waste nutrients.--
``(i) In general.--The term `agricultural
livestock waste nutrients' means agricultural
livestock manure and litter, including wood
shavings, straw, rice hulls, and other bedding
material for the disposition of manure.
``(ii) Agricultural livestock.--The term
`agricultural livestock' includes bovine,
swine, poultry, and sheep.
``(C) Exceptions.--The term `open-loop biomass'
does not include--
``(i) closed-loop biomass, or
``(ii) biomass burned in conjunction with
fossil fuel (cofiring) beyond such fossil fuel
required for startup and flame stabilization.
``(4) Geothermal energy.--The term `geothermal energy'
means energy derived from a geothermal deposit (within the
meaning of section 613(e)(2)).
``(5) Small irrigation power.--The term `small irrigation
power' means power--
``(A) generated without any dam or impoundment of
water through an irrigation system canal or ditch, and
``(B) the installed capacity of which is less than
5 megawatts.
``(6) Biosolids and sludge.--The term `biosolids and
sludge' means the residue or solids removed in the treatment of
commercial, industrial, or municipal wastewater.
``(7) Municipal solid waste.--The term `municipal solid
waste' has the meaning given the term `solid waste' under
section 2(27) of the Solid Waste Disposal Act (42 U.S.C.
6903).''.
(b) Extension and Expansion of Qualified Facilities.--
(1) In general.--Section 45 is amended by redesignating
subsection (d) as subsection (e) and by inserting after
subsection (c) the following new subsection:
``(d) Qualified Facilities.--For purposes of this section--
``(1) Wind facility.--In the case of a facility using wind
to produce electricity, the term `qualified facility' means any
facility owned by the taxpayer which is originally placed in
service after December 31, 1993, and before January 1, 2007.
``(2) Closed-loop biomass facility.--
``(A) In general.--In the case of a facility using
closed-loop biomass to produce electricity, the term
`qualified facility' means any facility--
``(i) owned by the taxpayer which is
originally placed in service after December 31,
1992, and before January 1, 2007, or
``(ii) owned by the taxpayer which before
January 1, 2007, is originally placed in
service and modified to use closed-loop biomass
to co-fire with coal, with other biomass, or
with both, but only if the modification is
approved under the Biomass Power for Rural
Development Programs or is part of a pilot
project of the Commodity Credit Corporation as
described in 65 Fed. Reg. 63052.
``(B) Special rules.--In the case of a qualified
facility described in subparagraph (A)(ii)--
``(i) the 10-year period referred to in
subsection (a) shall be treated as beginning no
earlier than January 1, 2005,
``(ii) the amount of the credit determined
under subsection (a) with respect to the
facility shall be an amount equal to the amount
determined without regard to this clause
multiplied by the ratio of the thermal content
of the closed-loop biomass used in such
facility to the thermal content of all fuels
used in such facility, and
``(iii) if the owner of such facility is
not the producer of the electricity, the person
eligible for the credit allowable under
subsection (a) shall be the lessee or the
operator of such facility.
``(3) Open-loop biomass facility.--
``(A) In general.--In the case of a facility using
open-loop biomass to produce electricity for grid sale
in excess of its internal requirements, the term
`qualified facility' means any facility owned by the
taxpayer which--
``(i) in the case of a facility using
agricultural livestock waste nutrients, is
originally placed in service after December 31,
2004, and before January 1, 2007, and
``(ii) in the case of any other facility,
is originally placed in service before January
1, 2005.
``(B) Special rules for preeffective date
facilities.--In the case of any facility described in
subparagraph (A)(ii) which is placed in service before
January 1, 2005--
``(i) subsection (a)(1) shall be applied by
substituting `1.2 cents' for `1.5 cents', and
``(ii) the 5-year period beginning on
January 1, 2005, shall be substituted for the
10-year period in subsection (a)(2)(A)(ii).
``(C) Credit eligibility.--In the case of any
facility described in subparagraph (A), if the owner of
such facility is not the producer of the electricity,
the person eligible for the credit allowable under
subsection (a) shall be the lessee or the operator of
such facility.
``(4) Geothermal or solar energy facility.--In the case of
a facility using geothermal or solar energy to produce
electricity, the term `qualified facility' means any facility
owned by the taxpayer which is originally placed in service
after December 31, 2004, and before January 1, 2007. Such term
shall not include any property described in section 48(a)(3)
the basis of which is taken into account by the taxpayer for
purposes of determining the energy credit under section 48.
``(5) Small irrigation power facility.--In the case of a
facility using small irrigation power to produce electricity,
the term `qualified facility' means any facility owned by the
taxpayer which is originally placed in service after December
31, 2004, and before January 1, 2007.
``(6) Biosolids and sludge facility.--In the case of a
facility using waste heat from the incineration of biosolids
and sludge to produce electricity, the term `qualified
facility' means any facility owned by the taxpayer which is
originally placed in service after December 31, 2004, and
before January 1, 2007. Such term shall not include any
property described in section 48(a)(3) the basis of which is
taken into account for purposes of the energy credit under
section 46.
``(7) Municipal solid waste facility.--
``(A) In general.--In the case of a facility or
unit incinerating municipal solid waste to produce
electricity, the term `qualified facility' means any
facility or unit owned by the taxpayer which is
originally placed in service after December 31, 2004,
and before January 1, 2007.
``(B) Special rule.--In the case of any facility or
unit described in subparagraph (A), the 5-year period
beginning on the date the facility or unit was
originally placed in service shall be substituted for
the 10-year period in subsection (a)(2)(A)(ii).
``(C) Credit eligibility.--In the case of any
qualified facility described in subparagraph (A), if
the owner of such facility is not the producer of the
electricity, the person eligible for the credit
allowable under subsection (a) shall be the lessee or
the operator of such facility.''.
(2) No credit for certain production.--Section 45(e)
(relating to definitions and special rules), as redesignated by
paragraph (1), is amended by striking paragraph (6) and
inserting the following new paragraph:
``(6) Operations inconsistent with solid waste disposal
act.--In the case of a qualified facility described in
subsection (d)(6)(A), subsection (a) shall not apply to
electricity produced at such facility during any taxable year
if, during a portion of such year, there is a certification in
effect by the Administrator of the Environmental Protection
Agency that such facility was permitted to operate in a manner
inconsistent with section 4003(d) of the Solid Waste Disposal
Act (42 U.S.C. 6943(d)).''.
(3) Conforming amendment.--Section 45(e), as so
redesignated, is amended by striking ``subsection (c)(3)(A)''
in paragraph (7)(A)(i) and inserting ``subsection (d)(1)''.
(c) Credit Rate for Electricity Produced From New Facilities.--
(1) In general.--Section 45(a) is amended by adding at the
end the following new flush sentence:
``In the case of electricity produced after December 31, 2004, at any
qualified facility originally placed in service after such date,
paragraph (1) shall be applied by substituting `1.8 cents' for `1.5
cents'.''.
(2) New rate not subject to inflation adjustment.--Section
45(b)(2) (relating to credit and phaseout adjustment based on
inflation) is amended by adding at the end the following new
sentence: ``This paragraph shall not apply to any amount which
is substituted for the 1.5 cent amount in subsection (a) by
reason of any provision of this section.''.
(d) Elimination of Certain Credit Reductions.--Section 45(b)(3)(A)
(relating to credit reduced for grants, tax-exempt bonds, subsidized
energy financing, and other credits) is amended--
(1) by striking clause (ii),
(2) by redesignating clauses (iii) and (iv) as clauses (ii)
and (iii),
(3) by inserting ``(other than proceeds of an issue of
State or local government obligations the interest on which is
exempt from tax under section 103, or any loan, debt, or other
obligation incurred under subchapter I of chapter 31 of title 7
of the Rural Electrification Act of 1936 (7 U.S.C. 901 et
seq.), as in effect on the date of the enactment of the Energy
Tax Incentives Act)'' after ``project'' in clause (ii) (as so
redesignated),
(4) by adding at the end the following new sentence: ``This
paragraph shall not apply with respect to any facility
described in subsection (d)(2)(A)(ii).'', and
(5) by striking ``tax-exempt bonds,'' in the heading and
inserting ``certain''.
(e) Treatment of Persons Not Able To Use Entire Credit.--Section
45(e) (relating to definitions and special rules), as redesignated by
subsection (b)(1), is amended by adding at the end the following new
paragraph:
``(8) Treatment of persons not able to use entire credit.--
``(A) Allowance of credit.--
``(i) In general.--Except as otherwise
provided in this subsection--
``(I) any credit allowable under
subsection (a) with respect to a
qualified facility owned by a person
described in clause (ii) may be
transferred or used as provided in this
paragraph, and
``(II) the determination as to
whether the credit is allowable shall
be made without regard to the tax-
exempt status of the person.
``(ii) Persons described.--A person is
described in this clause if the person is--
``(I) an organization described in
section 501(c)(12)(C) and exempt from
tax under section 501(a),
``(II) an organization described in
section 1381(a)(2)(C),
``(III) a public utility (as
defined in section 136(c)(2)(B)), which
is exempt from income tax under this
subtitle,
``(IV) any State or political
subdivision thereof, the District of
Columbia, any possession of the United
States, or any agency or
instrumentality of any of the
foregoing,
``(V) any Indian tribal government
(within the meaning of section 7871) or
any agency or instrumentality thereof,
or
``(VI) the Tennessee Valley
Authority.
``(B) Transfer of credit.--
``(i) In general.--A person described in
subclause (I), (II), (III), (IV), or (V) of
subparagraph (A)(ii) may transfer any credit to
which subparagraph (A)(i) applies through an
assignment to any other person not described in
subparagraph (A)(ii). Such transfer may be
revoked only with the consent of the Secretary.
``(ii) Regulations.--The Secretary shall
prescribe such regulations as necessary to
ensure that any credit described in clause (i)
is assigned once and not reassigned by such
other person.
``(iii) Transfer proceeds treated as
arising from essential government function.--
Any proceeds derived by a person described in
subclause (III), (IV), or (V) of subparagraph
(A)(ii) from the transfer of any credit under
clause (i) shall be treated as arising from the
exercise of an essential government function.
``(C) Use of credit as an offset.--Notwithstanding
any other provision of law, in the case of a person
described in subclause (I), (II), or (V) of
subparagraph (A)(ii), any credit to which subparagraph
(A)(i) applies may be applied by such person, to the
extent provided by the Secretary of Agriculture, as a
prepayment of any loan, debt, or other obligation the
entity has incurred under subchapter I of chapter 31 of
title 7 of the Rural Electrification Act of 1936 (7
U.S.C. 901 et seq.), as in effect on the date of the
enactment of the Energy Tax Incentives Act.
``(D) Use by tva.--
``(i) In general.--Notwithstanding any
other provision of law, in the case of a person
described in subparagraph (A)(ii)(VI), any
credit to which subparagraph (A)(i) applies may
be applied as a credit against the payments
required to be made in any fiscal year under
section 15d(e) of the Tennessee Valley
Authority Act of 1933 (16 U.S.C. 831n-4(e)) as
an annual return on the appropriations
investment and an annual repayment sum.
``(ii) Treatment of credits.--The aggregate
amount of credits described in subparagraph
(A)(i) with respect to such person shall be
treated in the same manner and to the same
extent as if such credits were a payment in
cash and shall be applied first against the
annual return on the appropriations investment.
``(iii) Credit carryover.--With respect to
any fiscal year, if the aggregate amount of
credits described subparagraph (A)(i) with
respect to such person exceeds the aggregate
amount of payment obligations described in
clause (i), the excess amount shall remain
available for application as credits against
the amounts of such payment obligations in
succeeding fiscal years in the same manner as
described in this subparagraph.
``(E) Credit not income.--Any transfer under
subparagraph (B) or use under subparagraph (C) of any
credit to which subparagraph (A)(i) applies shall not
be treated as income for purposes of section
501(c)(12).
``(F) Treatment of unrelated persons.--For purposes
of subsection (a)(2)(B), sales of electricity among and
between persons described in subparagraph (A)(ii) shall
be treated as sales between unrelated parties.''.
(f) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
electricity produced and sold after December 31, 2004, in
taxable years ending after such date.
(2) Certain biomass facilities.--With respect to any
facility described in section 45(d)(3)(A)(ii) of the Internal
Revenue Code of 1986, as added by subsection (b)(1), which is
placed in service before the date of the enactment of this Act,
the amendments made by this section shall apply to electricity
produced and sold after December 31, 2004, in taxable years
ending after such date.
(3) Credit rate for new facilities.--The amendments made by
subsection (c) shall apply to electricity produced and sold
after December 31, 2004, in taxable years ending after such
date.
(4) Nonapplication of amendments to preeffective date
poultry waste facilities.--The amendments made by this section
shall not apply with respect to any poultry waste facility
(within the meaning of section 45(c)(3)(C), as in effect on
December 31, 2004) placed in service on or before such date.
Subtitle B--Alternative Motor Vehicles and Fuels Incentives
SEC. 811. ALTERNATIVE MOTOR VEHICLE CREDIT.
(a) In General.--Subpart B of part IV of subchapter A of chapter 1
(relating to foreign tax credit, etc.), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 30C. ALTERNATIVE MOTOR VEHICLE CREDIT.
``(a) Allowance of Credit.--There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an amount
equal to the sum of--
``(1) the new qualified fuel cell motor vehicle credit
determined under subsection (b),
``(2) the new qualified hybrid motor vehicle credit
determined under subsection (c), and
``(3) the new qualified alternative fuel motor vehicle
credit determined under subsection (d).
``(b) New Qualified Fuel Cell Motor Vehicle Credit.--
``(1) In general.--For purposes of subsection (a), the new
qualified fuel cell motor vehicle credit determined under this
subsection with respect to a new qualified fuel cell motor
vehicle placed in service by the taxpayer during the taxable
year is--
``(A) $4,000, if such vehicle has a gross vehicle
weight rating of not more than 8,500 pounds,
``(B) $10,000, if such vehicle has a gross vehicle
weight rating of more than 8,500 pounds but not more
than 14,000 pounds,
``(C) $20,000, if such vehicle has a gross vehicle
weight rating of more than 14,000 pounds but not more
than 26,000 pounds, and
``(D) $40,000, if such vehicle has a gross vehicle
weight rating of more than 26,000 pounds.
``(2) Increase for fuel efficiency.--
``(A) In general.--The amount determined under
paragraph (1)(A) with respect to a new qualified fuel
cell motor vehicle which is a passenger automobile or
light truck shall be increased by--
``(i) $1,000, if such vehicle achieves at
least 150 percent but less than 175 percent of
the 2002 model year city fuel economy,
``(ii) $1,500, if such vehicle achieves at
least 175 percent but less than 200 percent of
the 2002 model year city fuel economy,
``(iii) $2,000, if such vehicle achieves at
least 200 percent but less than 225 percent of
the 2002 model year city fuel economy,
``(iv) $2,500, if such vehicle achieves at
least 225 percent but less than 250 percent of
the 2002 model year city fuel economy,
``(v) $3,000, if such vehicle achieves at
least 250 percent but less than 275 percent of
the 2002 model year city fuel economy,
``(vi) $3,500, if such vehicle achieves at
least 275 percent but less than 300 percent of
the 2002 model year city fuel economy, and
``(vii) $4,000, if such vehicle achieves at
least 300 percent of the 2002 model year city
fuel economy.
``(B) 2002 model year city fuel economy.--For
purposes of subparagraph (A), the 2002 model year city
fuel economy with respect to a vehicle shall be
determined in accordance with the following tables:
``(i) In the case of a passenger
automobile:
The 2002 model year city
``If vehicle inertia weight class fuel economy is:
is:
1,500 or 1,750 lbs............................ 45.2 mpg
2,000 lbs..................................... 39.6 mpg
2,250 lbs..................................... 35.2 mpg
2,500 lbs..................................... 31.7 mpg
2,750 lbs..................................... 28.8 mpg
3,000 lbs..................................... 26.4 mpg
3,500 lbs..................................... 22.6 mpg
4,000 lbs..................................... 19.8 mpg
4,500 lbs..................................... 17.6 mpg
5,000 lbs..................................... 15.9 mpg
5,500 lbs..................................... 14.4 mpg
6,000 lbs..................................... 13.2 mpg
6,500 lbs..................................... 12.2 mpg
7,000 to 8,500 lbs............................ 11.3 mpg.
``(ii) In the case of a light truck:
The 2002 model year city
``If vehicle inertia weight class fuel economy is:
is:
1,500 or 1,750 lbs............................ 39.4 mpg
2,000 lbs..................................... 35.2 mpg
2,250 lbs..................................... 31.8 mpg
2,500 lbs..................................... 29.0 mpg
2,750 lbs..................................... 26.8 mpg
3,000 lbs..................................... 24.9 mpg
3,500 lbs..................................... 21.8 mpg
4,000 lbs..................................... 19.4 mpg
4,500 lbs..................................... 17.6 mpg
5,000 lbs..................................... 16.1 mpg
5,500 lbs..................................... 14.8 mpg
6,000 lbs..................................... 13.7 mpg
6,500 lbs..................................... 12.8 mpg
7,000 to 8,500 lbs............................ 12.1 mpg.
``(C) Vehicle inertia weight class.--For purposes
of subparagraph (B), the term `vehicle inertia weight
class' has the same meaning as when defined in
regulations prescribed by the Administrator of the
Environmental Protection Agency for purposes of the
administration of title II of the Clean Air Act (42
U.S.C. 7521 et seq.).
``(3) New qualified fuel cell motor vehicle.--For purposes
of this subsection, the term `new qualified fuel cell motor
vehicle' means a motor vehicle--
``(A) which is propelled by power derived from 1 or
more cells which convert chemical energy directly into
electricity by combining oxygen with hydrogen fuel
which is stored on board the vehicle in any form and
may or may not require reformation prior to use,
``(B) which, in the case of a passenger automobile
or light truck--
``(i) for 2002 and later model vehicles,
has received a certificate of conformity under
the Clean Air Act and meets or exceeds the
equivalent qualifying California low emission
vehicle standard under section 243(e)(2) of the
Clean Air Act for that make and model year, and
``(ii) for 2004 and later model vehicles,
has received a certificate that such vehicle
meets or exceeds the Bin 5 Tier II emission
level established in regulations prescribed by
the Administrator of the Environmental
Protection Agency under section 202(i) of the
Clean Air Act for that make and model year
vehicle,
``(C) the original use of which commences with the
taxpayer,
``(D) which is acquired for use or lease by the
taxpayer and not for resale, and
``(E) which is made by a manufacturer.
``(c) New Qualified Hybrid Motor Vehicle Credit.--
``(1) In general.--For purposes of subsection (a), the new
qualified hybrid motor vehicle credit determined under this
subsection with respect to a new qualified hybrid motor vehicle
placed in service by the taxpayer during the taxable year is
the credit amount determined under paragraph (2).
``(2) Credit amount.--
``(A) In general.--The credit amount determined
under this paragraph shall be determined in accordance
with the following tables:
``(i) In the case of a new qualified hybrid
motor vehicle which is a passenger automobile,
medium duty passenger vehicle, or light truck
and which provides the following percentage of
the maximum available power:
``If percentage of the maximum
available power is: The credit amount is:
At least 4 percent but less than 10 percent... $250
At least 10 percent but less than 20 percent.. $500
At least 20 percent but less than 30 percent.. $750
At least 30 percent........................... $1,000.
``(ii) In the case of a new qualified
hybrid motor vehicle which is a heavy duty
hybrid motor vehicle and which provides the
following percentage of the maximum available
power:
``(I) If such vehicle has a gross
vehicle weight rating of not more than
14,000 pounds:
``If percentage of the maximum
available power is: The credit amount is:
At least 20 percent but less than 30 percent.. $1,000
At least 30 percent but less than 40 percent.. $1,750
At least 40 percent but less than 50 percent.. $2,000
At least 50 percent but less than 60 percent.. $2,250
At least 60 percent........................... $2,500.
``(II) If such vehicle has a gross
vehicle weight rating of more than
14,000 but not more than 26,000 pounds:
``If percentage of the maximum
available power is: The credit amount is:
At least 20 percent but less than 30 percent.. $4,000
At least 30 percent but less than 40 percent.. $4,500
At least 40 percent but less than 50 percent.. $5,000
At least 50 percent but less than 60 percent.. $5,500
At least 60 percent........................... $6,000.
``(III) If such vehicle has a gross
vehicle weight rating of more than
26,000 pounds:
``If percentage of the maximum
available power is: The credit amount is:
At least 20 percent but less than 30 percent.. $6,000
At least 30 percent but less than 40 percent.. $7,000
At least 40 percent but less than 50 percent.. $8,000
At least 50 percent but less than 60 percent.. $9,000
At least 60 percent........................... $10,000.
``(B) Increase for fuel efficiency.--
``(i) Amount.--The amount determined under
subparagraph (A)(i) with respect to a new
qualified hybrid motor vehicle which is a
passenger automobile or light truck shall be
increased by--
``(I) $500, if such vehicle
achieves at least 125 percent but less
than 150 percent of the 2002 model year
city fuel economy,
``(II) $1,000, if such vehicle
achieves at least 150 percent but less
than 175 percent of the 2002 model year
city fuel economy,
``(III) $1,500, if such vehicle
achieves at least 175 percent but less
than 200 percent of the 2002 model year
city fuel economy,
``(IV) $2,000, if such vehicle
achieves at least 200 percent but less
than 225 percent of the 2002 model year
city fuel economy,
``(V) $2,500, if such vehicle
achieves at least 225 percent but less
than 250 percent of the 2002 model year
city fuel economy, and
``(VI) $3,000, if such vehicle
achieves at least 250 percent of the
2002 model year city fuel economy.
``(ii) 2002 model year city fuel economy.--
For purposes of clause (i), the 2002 model year
city fuel economy with respect to a vehicle
shall be determined on a gasoline gallon
equivalent basis as determined by the
Administrator of the Environmental Protection
Agency using the tables provided in subsection
(b)(2)(B) with respect to such vehicle.
``(C) Increase for accelerated emissions
performance.--The amount determined under subparagraph
(A)(ii) with respect to an applicable heavy duty hybrid
motor vehicle shall be increased by the increased
credit amount determined in accordance with the
following tables:
``(i) In the case of a vehicle which has a
gross vehicle weight rating of not more than
14,000 pounds:
``If the model year is: The increased credit amount is:
2004.......................................... $2,500
2005.......................................... $2,000
2006.......................................... $1,500.
``(ii) In the case of a vehicle which has a
gross vehicle weight rating of more than 14,000
pounds but not more than 26,000 pounds:
``If the model year is: The increased credit amount is:
2004.......................................... $6,500
2005.......................................... $5,250
2006.......................................... $4,000.
``(iii) In the case of a vehicle which has
a gross vehicle weight rating of more than
26,000 pounds:
``If the model year is: The increased credit amount is:
2004.......................................... $10,000
2005.......................................... $8,000
2006.......................................... $6,000.
``(D) Definitions relating to credit amount.--
``(i) Applicable heavy duty hybrid motor
vehicle.--For purposes of subparagraph (C), the
term `applicable heavy duty hybrid motor
vehicle' means a heavy duty hybrid motor
vehicle which is powered by an internal
combustion or heat engine which is certified as
meeting the emission standards set in the
regulations prescribed by the Administrator of
the Environmental Protection Agency for 2007
and later model year diesel heavy duty engines,
or for 2008 and later model year ottocycle
heavy duty engines, as applicable.
``(ii) Maximum available power.--
``(I) Passenger automobile, medium
duty passenger vehicle, or light
truck.--For purposes of subparagraph
(A)(i), the term `maximum available
power' means the maximum power
available from the rechargeable energy
storage system, during a standard 10
second pulse power or equivalent test,
divided by such maximum power and the
SAE net power of the heat engine.
``(II) Heavy duty hybrid motor
vehicle.--For purposes of subparagraph
(A)(ii), the term `maximum available
power' means the maximum power
available from the rechargeable energy
storage system, during a standard 10
second pulse power or equivalent test,
divided by the vehicle's total traction
power. The term `total traction power'
means the sum of the peak power from
the rechargeable energy storage system
and the heat engine peak power of the
vehicle, except that if such storage
system is the sole means by which the
vehicle can be driven, the total
traction power is the peak power of
such storage system.
``(3) New qualified hybrid motor vehicle.--For purposes of
this subsection--
``(A) In general.--The term `new qualified hybrid
motor vehicle' means a motor vehicle--
``(i) which draws propulsion energy from
onboard sources of stored energy which are
both--
``(I) an internal combustion or
heat engine using consumable fuel, and
``(II) a rechargeable energy
storage system,
``(ii) which, in the case of a passenger
automobile, medium duty passenger vehicle, or
light truck--
``(I) for 2002 and later model
vehicles, has received a certificate of
conformity under the Clean Air Act and
meets or exceeds the equivalent
qualifying California low emission
vehicle standard under section
243(e)(2) of the Clean Air Act for that
make and model year, and
``(II) for 2004 and later model
vehicles, has received a certificate
that such vehicle meets or exceeds the
Bin 5 Tier II emission level
established in regulations prescribed
by the Administrator of the
Environmental Protection Agency under
section 202(i) of the Clean Air Act for
that make and model year vehicle,
``(iii) which, in the case of a heavy duty
hybrid motor vehicle, has an internal
combustion or heat engine which has received a
certificate of conformity under the Clean Air
Act as meeting the emission standards set in
the regulations prescribed by the Administrator
of the Environmental Protection Agency for 2004
through 2007 model year diesel heavy duty
engines or ottocycle heavy duty engines, as
applicable,
``(iv) the original use of which commences
with the taxpayer,
``(v) which is acquired for use or lease by
the taxpayer and not for resale, and
``(vi) which is made by a manufacturer.
``(B) Consumable fuel.--For purposes of
subparagraph (A)(i)(I), the term `consumable fuel'
means any solid, liquid, or gaseous matter which
releases energy when consumed by an auxiliary power
unit.
``(4) Heavy duty hybrid motor vehicle.--For purposes of
this subsection, the term `heavy duty hybrid motor vehicle'
means a new qualified hybrid motor vehicle which has a gross
vehicle weight rating of more than 8,500 pounds. Such term does
not include a medium duty passenger vehicle.
``(d) New Qualified Alternative Fuel Motor Vehicle Credit.--
``(1) Allowance of credit.--Except as provided in paragraph
(5), the new qualified alternative fuel motor vehicle credit
determined under this subsection is an amount equal to the
applicable percentage of the incremental cost of any new
qualified alternative fuel motor vehicle placed in service by
the taxpayer during the taxable year.
``(2) Applicable percentage.--For purposes of paragraph
(1), the applicable percentage with respect to any new
qualified alternative fuel motor vehicle is--
``(A) 40 percent, plus
``(B) 30 percent, if such vehicle--
``(i) has received a certificate of
conformity under the Clean Air Act and meets or
exceeds the most stringent standard available
for certification under the Clean Air Act for
that make and model year vehicle (other than a
zero emission standard), or
``(ii) has received an order certifying the
vehicle as meeting the same requirements as
vehicles which may be sold or leased in
California and meets or exceeds the most
stringent standard available for certification
under the State laws of California (enacted in
accordance with a waiver granted under section
209(b) of the Clean Air Act) for that make and
model year vehicle (other than a zero emission
standard).
For purposes of the preceding sentence, in the case of any new
qualified alternative fuel motor vehicle which weighs more than
14,000 pounds gross vehicle weight rating, the most stringent
standard available shall be such standard available for
certification on the date of the enactment of the Energy Tax
Incentives Act.
``(3) Incremental cost.--For purposes of this subsection,
the incremental cost of any new qualified alternative fuel
motor vehicle is equal to the amount of the excess of the
manufacturer's suggested retail price for such vehicle over
such price for a gasoline or diesel fuel motor vehicle of the
same model, to the extent such amount does not exceed--
``(A) $5,000, if such vehicle has a gross vehicle
weight rating of not more than 8,500 pounds,
``(B) $10,000, if such vehicle has a gross vehicle
weight rating of more than 8,500 pounds but not more
than 14,000 pounds,
``(C) $25,000, if such vehicle has a gross vehicle
weight rating of more than 14,000 pounds but not more
than 26,000 pounds, and
``(D) $40,000, if such vehicle has a gross vehicle
weight rating of more than 26,000 pounds.
``(4) New qualified alternative fuel motor vehicle.--For
purposes of this subsection--
``(A) In general.--The term `new qualified
alternative fuel motor vehicle' means any motor
vehicle--
``(i) which is only capable of operating on
an alternative fuel,
``(ii) the original use of which commences
with the taxpayer,
``(iii) which is acquired by the taxpayer
for use or lease, but not for resale, and
``(iv) which is made by a manufacturer.
``(B) Alternative fuel.--The term `alternative
fuel' means compressed natural gas, liquefied natural
gas, liquefied petroleum gas, hydrogen, and any liquid
at least 85 percent of the volume of which consists of
methanol.
``(5) Credit for mixed-fuel vehicles.--
``(A) In general.--In the case of a mixed-fuel
vehicle placed in service by the taxpayer during the
taxable year, the credit determined under this
subsection is an amount equal to--
``(i) in the case of a 75/25 mixed-fuel
vehicle, 70 percent of the credit which would
have been allowed under this subsection if such
vehicle was a qualified alternative fuel motor
vehicle, and
``(ii) in the case of a 90/10 mixed-fuel
vehicle, 90 percent of the credit which would
have been allowed under this subsection if such
vehicle was a qualified alternative fuel motor
vehicle.
``(B) Mixed-fuel vehicle.--For purposes of this
subsection, the term `mixed-fuel vehicle' means any
motor vehicle described in subparagraph (C) or (D) of
paragraph (3), which--
``(i) is certified by the manufacturer as
being able to perform efficiently in normal
operation on a combination of an alternative
fuel and a petroleum-based fuel,
``(ii) either--
``(I) has received a certificate of
conformity under the Clean Air Act, or
``(II) has received an order
certifying the vehicle as meeting the
same requirements as vehicles which may
be sold or leased in California and
meets or exceeds the low emission
vehicle standard under section 88.105-
94 of title 40, Code of Federal
Regulations, for that make and model
year vehicle,
``(iii) the original use of which commences
with the taxpayer,
``(iv) which is acquired by the taxpayer
for use or lease, but not for resale, and
``(v) which is made by a manufacturer.
``(C) 75/25 mixed-fuel vehicle.--For purposes of
this subsection, the term `75/25 mixed-fuel vehicle'
means a mixed-fuel vehicle which operates using at
least 75 percent alternative fuel and not more than 25
percent petroleum-based fuel.
``(D) 90/10 mixed-fuel vehicle.--For purposes of
this subsection, the term `90/10 mixed-fuel vehicle'
means a mixed-fuel vehicle which operates using at
least 90 percent alternative fuel and not more than 10
percent petroleum-based fuel.
``(e) Application With Other Credits.--The credit allowed under
subsection (a) for any taxable year shall not exceed the excess (if
any) of--
``(1) the regular tax for the taxable year reduced by the
sum of the credits allowable under subpart A and sections 27,
29, and 30, over
``(2) the tentative minimum tax for the taxable year.
``(f) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Motor vehicle.--The term `motor vehicle' has the
meaning given such term by section 30(c)(2).
``(2) City fuel economy.--The city fuel economy with
respect to any vehicle shall be measured in a manner which is
substantially similar to the manner city fuel economy is
measured in accordance with procedures under part 600 of
subchapter Q of chapter I of title 40, Code of Federal
Regulations, as in effect on the date of the enactment of this
section.
``(3) Other terms.--The terms `automobile', `passenger
automobile', `medium duty passenger vehicle', `light truck',
and `manufacturer' have the meanings given such terms in
regulations prescribed by the Administrator of the
Environmental Protection Agency for purposes of the
administration of title II of the Clean Air Act (42 U.S.C. 7521
et seq.).
``(4) Reduction in basis.--For purposes of this subtitle,
the basis of any property for which a credit is allowable under
subsection (a) shall be reduced by the amount of such credit so
allowed (determined without regard to subsection (e)).
``(5) No double benefit.--The amount of any deduction or
other credit allowable under this chapter--
``(A) for any incremental cost taken into account
in computing the amount of the credit determined under
subsection (d) shall be reduced by the amount of such
credit attributable to such cost, and
``(B) with respect to a vehicle described under
subsection (b) or (c), shall be reduced by the amount
of credit allowed under subsection (a) for such vehicle
for the taxable year.
``(6) Property used by tax-exempt entities.--In the case of
a credit amount which is allowable with respect to a motor
vehicle which is acquired by an entity exempt from tax under
this chapter, the person which sells or leases such vehicle to
the entity shall be treated as the taxpayer with respect to the
vehicle for purposes of this section and the credit shall be
allowed to such person, but only if the person clearly
discloses to the entity at the time of any sale or lease the
specific amount of any credit otherwise allowable to the entity
under this section.
``(7) Recapture.--The Secretary shall, by regulations,
provide for recapturing the benefit of any credit allowable
under subsection (a) with respect to any property which ceases
to be property eligible for such credit (including recapture in
the case of a lease period of less than the economic life of a
vehicle).
``(8) Property used outside united states, etc., not
qualified.--No credit shall be allowed under subsection (a)
with respect to 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.
``(9) Election to not take credit.--No credit shall be
allowed under subsection (a) for any vehicle if the taxpayer
elects to not have this section apply to such vehicle.
``(10) Carryback and carryforward allowed.--
``(A) In general.--If the credit allowable under
subsection (a) for a taxable year exceeds the amount of
the limitation under subsection (e) for such taxable
year (in this paragraph referred to as the `unused
credit year'), such excess shall be a credit carryback
to each of the 3 taxable years preceding the unused
credit year and a credit carryforward to each of the 20
taxable years following the unused credit year, except
that no excess may be carried to a taxable year
beginning before January 1, 2005.
``(B) Rules.--Rules similar to the rules of section
39 shall apply with respect to the credit carryback and
credit carryforward under subparagraph (A).
``(11) Interaction with air quality and motor vehicle
safety standards.--Unless otherwise provided in this section, a
motor vehicle shall not be considered eligible for a credit
under this section unless such vehicle is in compliance with--
``(A) the applicable provisions of the Clean Air
Act for the applicable make and model year of the
vehicle (or applicable air quality provisions of State
law in the case of a State which has adopted such
provision under a waiver under section 209(b) of the
Clean Air Act), and
``(B) the motor vehicle safety provisions of
sections 30101 through 30169 of title 49, United States
Code.
``(g) Regulations.--
``(1) In general.--Except as provided in paragraph (2), the
Secretary shall promulgate such regulations as necessary to
carry out the provisions of this section.
``(2) Coordination in prescription of certain
regulations.--The Secretary of the Treasury, in coordination
with the Secretary of Transportation and the Administrator of
the Environmental Protection Agency, shall prescribe such
regulations as necessary to determine whether a motor vehicle
meets the requirements to be eligible for a credit under this
section.
``(h) Termination.--This section shall not apply to any property
purchased after--
``(1) in the case of a new qualified fuel cell motor
vehicle (as described in subsection (b)), December 31, 2011,
and
``(2) in the case of any other property, December 31,
2006.''.
(b) Conforming Amendments.--
(1) Section 1016(a) is amended by striking ``and'' at the
end of paragraph (31), by striking the period at the end of
paragraph (32) and inserting ``, and'', and by adding at the
end the following new paragraph:
``(33) to the extent provided in section 30C(f)(4).''.
(2) Section 55(c)(2), as amended by this Act, is amended by
inserting ``30C(e),'' after ``30(b)(2),''.
(3) Section 6501(m) is amended by inserting ``30C(f)(9),''
after ``30(d)(4),''.
(4) The table of sections for subpart B of part IV of
subchapter A of chapter 1, as amended by this Act, is amended
by inserting after the item relating to section 30B the
following new item:
``Sec. 30C. Alternative motor vehicle credit.''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2004, in taxable
years ending after such date.
SEC. 812. MODIFICATION OF CREDIT FOR QUALIFIED ELECTRIC VEHICLES.
(a) Amount of Credit.--
(1) In general.--Section 30(a) (relating to allowance of
credit) is amended by striking ``10 percent of''.
(2) Limitation of credit according to type of vehicle.--
Paragraph (1) of section 30(b) (relating to limitations) is
amended to read as follows:
``(1) Limitation according to type of vehicle.--The amount
of the credit allowed under subsection (a) for any vehicle
shall not exceed the greatest of the following amounts
applicable to such vehicle:
``(A) In the case of a vehicle with a gross vehicle
weight rating not exceeding 8,500 pounds--
``(i) except as provided in clause (ii) or
(iii), $3,500,
``(ii) $6,000, if such vehicle is--
``(I) capable of a driving range of
at least 100 miles on a single charge
of the vehicle's rechargeable batteries
as measured pursuant to the urban
dynamometer schedules under appendix I
to part 86 of title 40, Code of Federal
Regulations, or
``(II) capable of a payload
capacity of at least 1,000 pounds, and
``(iii) if such vehicle is a low-speed
vehicle which conforms to Standard 500
prescribed by the Secretary of Transportation
(49 C.F.R. 571.500), as in effect on the date
of the enactment of the Energy Tax Incentives
Act, the lesser of--
``(I) 10 percent of the
manufacturer's suggested retail price
of the vehicle, or
``(II) $1,500.
``(B) In the case of a vehicle with a gross vehicle
weight rating exceeding 8,500 but not exceeding 14,000
pounds, $10,000.
``(C) In the case of a vehicle with a gross vehicle
weight rating exceeding 14,000 but not exceeding 26,000
pounds, $20,000.
``(D) In the case of a vehicle with a gross vehicle
weight rating exceeding 26,000 pounds, $40,000.''.
(b) Qualified Battery Electric Vehicle.--
(1) In general.--Section 30(c)(1)(A) (defining qualified
electric vehicle) is amended to read as follows:
``(A) which is--
``(i) operated solely by use of a battery
or battery pack, or
``(ii) powered primarily through the use of
an electric battery or battery pack using a
flywheel or capacitor which stores energy
produced by an electric motor through
regenerative braking to assist in vehicle
operation,''.
(2) Leased vehicles.--Section 30(c)(1)(C) is amended by
inserting ``or lease'' after ``use''.
(3) Conforming amendments.--
(A) Subsections (a), (b)(2), and (c) of section 30
are each amended by inserting ``battery'' after
``qualified'' each place it appears.
(B) The heading of subsection (c) of section 30 is
amended by inserting ``Battery'' after ``Qualified''.
(C) The heading of section 30 is amended by
inserting ``battery'' after ``qualified''.
(D) The item relating to section 30 in the table of
sections for subpart B of part IV of subchapter A of
chapter 1 is amended by inserting ``battery'' after
``qualified''.
(E) Section 179A(c)(3) is amended by inserting
``battery'' before ``electric''.
(F) The heading of paragraph (3) of section 179A(c)
is amended by inserting ``battery'' before
``electric''.
(c) Additional Special Rules.--Section 30(d) (relating to special
rules) is amended by adding at the end the following new paragraphs:
``(5) No double benefit.--The amount of any deduction or
other credit allowable under this chapter for any cost taken
into account in computing the amount of the credit determined
under subsection (a) shall be reduced by the amount of such
credit attributable to such cost.
``(6) Property used by tax-exempt entities.--In the case of
a credit amount which is allowable with respect to a vehicle
which is acquired by an entity exempt from tax under this
chapter, the person which sells or leases such vehicle to the
entity shall be treated as the taxpayer with respect to the
vehicle for purposes of this section and the credit shall be
allowed to such person, but only if the person clearly
discloses to the entity at the time of any sale or lease the
specific amount of any credit otherwise allowable to the entity
under this section.
``(7) Carryback and carryforward allowed.--
``(A) In general.--If the credit allowable under
subsection (a) for a taxable year exceeds the amount of
the limitation under subsection (b)(2) for such taxable
year (in this paragraph referred to as the `unused
credit year'), such excess shall be a credit carryback
to each of the 3 taxable years preceding the unused
credit year and a credit carryforward to each of the 20
taxable years following the unused credit year, except
that no excess may be carried to a taxable year
beginning before January 1, 2005.
``(B) Rules.--Rules similar to the rules of section
39 shall apply with respect to the credit carryback and
credit carryforward under subparagraph (A).''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2004, in taxable
years ending after such date.
SEC. 813. CREDIT FOR INSTALLATION OF ALTERNATIVE FUELING STATIONS.
(a) In General.--Subpart B of part IV of subchapter A of chapter 1
(relating to foreign tax credit, etc.), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 30D. CLEAN-FUEL VEHICLE REFUELING PROPERTY CREDIT.
``(a) Credit Allowed.--There shall be allowed as a credit against
the tax imposed by this chapter for the taxable year an amount equal to
50 percent of the amount paid or incurred by the taxpayer during the
taxable year for the installation of qualified clean-fuel vehicle
refueling property.
``(b) Limitation.--The credit allowed under subsection (a)--
``(1) with respect to any retail clean-fuel vehicle
refueling property, shall not exceed $30,000, and
``(2) with respect to any residential clean-fuel vehicle
refueling property, shall not exceed $1,000.
``(c) Year Credit Allowed.--Notwithstanding subsection (a), no
credit shall be allowed under subsection (a) with respect to any
qualified clean-fuel vehicle refueling property before the taxable year
in which the property is placed in service by the taxpayer.
``(d) Definitions.--For purposes of this section--
``(1) Qualified clean-fuel vehicle refueling property.--The
term `qualified clean-fuel vehicle refueling property' has the
same meaning given such term by section 179A(d).
``(2) Residential clean-fuel vehicle refueling property.--
The term `residential clean-fuel vehicle refueling property'
means qualified clean-fuel vehicle refueling property which is
installed on property which is used as the principal residence
(within the meaning of section 121) of the taxpayer.
``(3) Retail clean-fuel vehicle refueling property.--The
term `retail clean-fuel vehicle refueling property' means
qualified clean-fuel vehicle refueling property which is
installed on property (other than property described in
paragraph (2)) used in a trade or business of the taxpayer.
``(e) Application With Other Credits.--The credit allowed under
subsection (a) for any taxable year shall not exceed the excess (if
any) of--
``(1) the regular tax for the taxable year reduced by the
sum of the credits allowable under subpart A and sections 27,
29, 30, and 30C, over
``(2) the tentative minimum tax for the taxable year.
``(f) Basis Reduction.--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).
``(g) No Double Benefit.--
``(1) Coordination with other deductions and credits.--
Except as provided in paragraph (2), the amount of any
deduction or other credit allowable under this chapter for any
cost taken into account in computing the amount of the credit
determined under subsection (a) shall be reduced by the amount
of such credit attributable to such cost.
``(2) No deduction allowed under section 179a.--No
deduction shall be allowed under section 179A with respect to
any property with respect to which a credit is allowed under
subsection (a).
``(h) Refueling Property Installed for Tax-Exempt Entities.--In the
case of qualified clean-fuel vehicle refueling property installed on
property owned or used by an entity exempt from tax under this chapter,
the person which installs such refueling property for the entity shall
be treated as the taxpayer with respect to the refueling property for
purposes of this section (and such refueling property shall be treated
as retail clean-fuel vehicle refueling property) and the credit shall
be allowed to such person, but only if the person clearly discloses to
the entity in any installation contract the specific amount of the
credit allowable under this section.
``(i) Carryforward Allowed.--
``(1) In general.--If the credit allowable under subsection
(a) for a taxable year exceeds the amount of the limitation
under subsection (e) for such taxable year, such excess shall
be a credit carryforward to each of the 20 taxable years
following such taxable year.
``(2) Rules.--Rules similar to the rules of section 39
shall apply with respect to the credit carryforward under
paragraph (1).
``(j) Special Rules.--Rules similar to the rules of paragraphs (4)
and (5) of section 179A(e) shall apply.
``(k) Regulations.--The Secretary shall prescribe such regulations
as necessary to carry out the provisions of this section.
``(l) Termination.--This section shall not apply to any property
placed in service--
``(1) in the case of property relating to hydrogen, after
December 31, 2011, and
``(2) in the case of any other property, after December 31,
2007.''.
(b) Modifications to Extension of Deduction for Certain Refueling
Property.--Subsection (f) of section 179A is amended to read as
follows:
``(f) Termination.--This section shall not apply to any property
placed in service--
``(1) in the case of property relating to hydrogen, after
December 31, 2011, and
``(2) in the case of any other property, after December 31,
2007.''.
(c) Incentive for Production of Hydrogen at Qualified Clean-Fuel
Vehicle Refueling Property.--Section 179A(d) (defining qualified clean-
fuel vehicle refueling property) is amended by adding at the end the
following new flush sentence:
``In the case of clean-burning fuel which is hydrogen produced from
another clean-burning fuel, paragraph (3)(A) shall be applied by
substituting `production, storage, or dispensing' for `storage or
dispensing' both places it appears.''.
(d) Conforming Amendments.--
(1) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (32), by striking the
period at the end of paragraph (33) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(34) to the extent provided in section 30D(f).''.
(2) Section 55(c)(2), as amended by this Act, is amended by
inserting ``30D(e),'' after ``30C(e),''.
(3) The table of sections for subpart B of part IV of
subchapter A of chapter 1, as amended by this Act, is amended
by inserting after the item relating to section 30C the
following new item:
``Sec. 30D. Clean-fuel vehicle refueling property credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2004, in taxable
years ending after such date.
SEC. 814. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR VEHICLE
FUEL.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by inserting after
section 40 the following new section:
``SEC. 40A. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR
VEHICLE FUEL.
``(a) General Rule.--For purposes of section 38, the alternative
fuel retail sales credit for any taxable year is the applicable amount
for each gasoline gallon equivalent of alternative fuel sold at retail
by the taxpayer during such year as a fuel to propel any qualified
motor vehicle.
``(b) Definitions.--For purposes of this section--
``(1) Applicable amount.--The term `applicable amount'
means the amount determined in accordance with the following
table:
``In the case of any taxable year
ending in-- The applicable amount is--
2005 and 2006................................. 50 cents.
``(2) Alternative fuel.--The term `alternative fuel' means
compressed natural gas, liquefied natural gas, liquefied
petroleum gas, hydrogen, or any liquid at least 85 percent of
the volume of which consists of methanol or ethanol.
``(3) Gasoline gallon equivalent.--The term `gasoline
gallon equivalent' means, with respect to any alternative fuel,
the amount (determined by the Secretary) of such fuel having a
Btu content of 114,000.
``(4) Qualified motor vehicle.--The term `qualified motor
vehicle' means any motor vehicle (as defined in section
30(c)(2)) which meets any applicable Federal or State emissions
standards with respect to each fuel by which such vehicle is
designed to be propelled.
``(5) Sold at retail.--
``(A) In general.--The term `sold at retail' means
the sale, for a purpose other than resale, after
manufacture, production, or importation.
``(B) Use treated as sale.--If any person uses
alternative fuel (including any use after importation)
as a fuel to propel any new qualified alternative fuel
motor vehicle (as defined in section 30C(d)(4)) before
such fuel is sold at retail, then such use shall be
treated in the same manner as if such fuel were sold at
retail as a fuel to propel such a vehicle by such
person.
``(c) No Double Benefit.--The amount of any deduction or other
credit allowable under this chapter for any fuel taken into account in
computing the amount of the credit determined under subsection (a)
shall be reduced by the amount of such credit attributable to such
fuel.
``(d) Pass-Thru in the Case of Estates and Trusts.--Under
regulations prescribed by the Secretary, rules similar to the rules of
subsection (d) of section 52 shall apply.
``(e) Termination.--This section shall not apply to any fuel sold
at retail after December 31, 2006.''.
(b) Credit Treated as Business Credit.--Section 38(b) (relating to
current year business credit) is amended by striking ``plus'' at the
end of paragraph (20), by striking the period at the end of paragraph
(21) and inserting ``, plus'', and by adding at the end the following
new paragraph:
``(22) the alternative fuel retail sales credit determined
under section 40A(a).''.
(c) Limitation on Carryback.--
(1) In general.--Subsection (d) of section 39, as amended
by this Act, is amended to read as follows:
``(d) Transitional Rule.--No portion of the unused business credit
for any taxable year which is attributable to a credit specified in
section 38(b) may be carried back to any taxable year before the first
taxable year for which such specified credit is allowable.''.
(2) Effective date.--The amendment made by paragraph (1)
shall apply with respect to taxable years beginning after
December 31, 2003.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 is amended by inserting after the
item relating to section 40 the following new item:
``Sec. 40A. Credit for retail sale of alternative fuels as
motor vehicle fuel.''.
(e) Effective Date.--Except as otherwise provided, the amendments
made by this section shall apply to fuel sold at retail after December
31, 2004, in taxable years ending after such date.
SEC. 815. SMALL ETHANOL PRODUCER CREDIT.
(a) Allocation of Alcohol Fuels Credit to Patrons of a
Cooperative.--Section 40(g) (relating to definitions and special rules
for eligible small ethanol producer credit) is amended by adding at the
end the following new paragraph:
``(6) Allocation of small ethanol producer credit to
patrons of cooperative.--
``(A) Election to allocate.--
``(i) In general.--In the case of a
cooperative organization described in section
1381(a), any portion of the credit determined
under subsection (a)(3) for the taxable year
may, at the election of the organization, be
apportioned pro rata among patrons of the
organization on the basis of the quantity or
value of business done with or for such patrons
for the taxable year.
``(ii) Form and effect of election.--An
election under clause (i) for any taxable year
shall be made on a timely filed return for such
year. Such election, once made, shall be
irrevocable for such taxable year.
``(B) Treatment of organizations and patrons.--The
amount of the credit apportioned to patrons under
subparagraph (A)--
``(i) shall not be included in the amount
determined under subsection (a) with respect to
the organization for the taxable year, and
``(ii) shall be included in the amount
determined under subsection (a) for the taxable
year of each patron for which the patronage
dividends for the taxable year described in
subparagraph (A) are included in gross income.
``(C) Special rules for decrease in credits for
taxable year.--If the amount of the credit of a
cooperative organization determined under subsection
(a)(3) for a taxable year is less than the amount of
such credit shown on the return of the cooperative
organization for such year, an amount equal to the
excess of--
``(i) such reduction, over
``(ii) the amount not apportioned to such
patrons under subparagraph (A) for the taxable
year,
shall be treated as an increase in tax imposed by this
chapter on the organization. Such increase shall not be
treated as tax imposed by this chapter for purposes of
determining the amount of any credit under this chapter
or for purposes of section 55.''.
(b) Improvements to Small Ethanol Producer Credit.--
(1) Definition of small ethanol producer.--Section 40(g)
(relating to definitions and special rules for eligible small
ethanol producer credit) is amended by striking ``30,000,000''
each place it appears and inserting ``60,000,000''.
(2) Small ethanol producer credit not a passive activity
credit.--Clause (i) of section 469(d)(2)(A) is amended by
striking ``subpart D'' and inserting ``subpart D, other than
section 40(a)(3),''.
(3) Small ethanol producer credit not added back to income
under section 87.--Section 87 (relating to income inclusion of
alcohol fuel credit) is amended to read as follows:
``SEC. 87. ALCOHOL FUEL CREDIT.
``Gross income includes an amount equal to the sum of--
``(1) the amount of the alcohol mixture credit determined
with respect to the taxpayer for the taxable year under section
40(a)(1), and
``(2) the alcohol credit determined with respect to the
taxpayer for the taxable year under section 40(a)(2).''.
(c) Conforming Amendment.--Section 1388 (relating to definitions
and special rules for cooperative organizations), as amended by this
Act, is amended by adding at the end the following new subsection:
``(l) Cross Reference.--For provisions relating to the
apportionment of the alcohol fuels credit between cooperative
organizations and their patrons, see section 40(g)(6).''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.
Subtitle C--Conservation and Energy Efficiency Provisions
SEC. 821. CREDIT FOR CONSTRUCTION OF NEW ENERGY EFFICIENT HOME.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 45K. NEW ENERGY EFFICIENT HOME CREDIT.
``(a) In General.--For purposes of section 38, in the case of an
eligible contractor, the credit determined under this section for the
taxable year is an amount equal to the aggregate adjusted bases of all
energy efficient property installed in a qualifying new home during
construction of such home.
``(b) Limitations.--
``(1) Maximum credit.--
``(A) In general.--The credit allowed by this
section with respect to a qualifying new home shall not
exceed--
``(i) in the case of a 30-percent home,
$1,000, and
``(ii) in the case of a 50-percent home,
$2,000.
``(B) 30- or 50-percent home.--For purposes of
subparagraph (A)--
``(i) 30-percent home.--The term `30-
percent home' means--
``(I) a qualifying new home which
is certified to have a projected level
of annual heating and cooling energy
consumption, measured in terms of
average annual energy cost to the
homeowner, which is at least 30 percent
less than the annual level of heating
and cooling energy consumption of a
qualifying new home constructed in
accordance with the latest standards of
chapter 4 of the International Energy
Conservation Code approved by the
Department of Energy before the
construction of such qualifying new
home and any applicable Federal minimum
efficiency standards for equipment, or
``(II) in the case of a qualifying
new home which is a manufactured home,
a home which meets the applicable
standards required by the Administrator
of the Environmental Protection Agency
under the Energy Star Labeled Homes
program.
``(ii) 50-percent home.--The term `50-
percent home' means a qualifying new home which
would be described in clause (i)(I) if 50
percent were substituted for 30 percent.
``(C) Prior credit amounts on same home taken into
account.--The amount of the credit otherwise allowable
for the taxable year with respect to a qualifying new
home under clause (i) or (ii) of subparagraph (A) shall
be reduced by the sum of the credits allowed under
subsection (a) to any taxpayer with respect to the home
for all preceding taxable years.
``(2) Coordination with certain credits.--For purposes of
this section--
``(A) the basis of any property referred to in
subsection (a) shall be reduced by that portion of the
basis of any property which is attributable to the
rehabilitation credit (as determined under section
47(a)) or to the energy credit (as determined under
section 48(a)), and
``(B) expenditures taken into account under section
25D, 47, or 48(a) shall not be taken into account under
this section.
``(3) Provider limitation.--Any eligible contractor who
directly or indirectly provides the guarantee of energy savings
under a guarantee-based method of certification described in
subsection (d)(1)(D) shall not be eligible to receive the
credit allowed by this section.
``(c) Definitions.--For purposes of this section--
``(1) Eligible contractor.--The term `eligible contractor'
means--
``(A) the person who constructed the qualifying new
home, or
``(B) in the case of a qualifying new home which is
a manufactured home, the manufactured home producer of
such home.
If more than 1 person is described in subparagraph (A) or (B)
with respect to any qualifying new home, such term means the
person designated as such by the owner of such home.
``(2) Energy efficient property.--The term `energy
efficient property' means any energy efficient building
envelope component, and any energy efficient heating or cooling
equipment or system which can, individually or in combination
with other components, meet the requirements of this section.
``(3) Qualifying new home.--
``(A) In general.--The term `qualifying new home'
means a dwelling--
``(i) located in the United States,
``(ii) the construction of which is
substantially completed after December 31,
2004, and
``(iii) the first use of which after
construction is as a principal residence
(within the meaning of section 121).
``(B) Manufactured home included.--The term
`qualifying new home' includes a manufactured home
conforming to Federal Manufactured Home Construction
and Safety Standards (24 C.F.R. 3280).
``(4) Construction.--The term `construction' includes
reconstruction and rehabilitation.
``(5) Building envelope component.--The term `building
envelope component' means--
``(A) any insulation material or system which is
specifically and primarily designed to reduce the heat
loss or gain of a qualifying new home when installed in
or on such home,
``(B) exterior windows (including skylights), and
``(C) exterior doors.
``(d) Certification.--
``(1) Method of certification.--
``(A) In general.--A certification described in
subsection (b)(1)(B) shall be determined either by a
component-based method, a performance-based method, or
a guarantee-based method, or, in the case of a
qualifying new home which is a manufactured home, by a
method prescribed by the Administrator of the
Environmental Protection Agency under the Energy Star
Labeled Homes program.
``(B) Component-based method.--A component-based
method is a method which uses the applicable technical
energy efficiency specifications or ratings (including
product labeling requirements) for the energy efficient
building envelope component or energy efficient heating
or cooling equipment. The Secretary shall, in
consultation with the Administrator of the
Environmental Protection Agency, develop prescriptive
component-based packages which are equivalent in energy
performance to properties which qualify under
subparagraph (C).
``(C) Performance-based method.--
``(i) In general.--A performance-based
method is a method which calculates projected
energy usage and cost reductions in the
qualifying new home in relation to a new home--
``(I) heated by the same fuel type,
and
``(II) constructed in accordance
with the latest standards of chapter 4
of the International Energy
Conservation Code approved by the
Department of Energy before the
construction of such qualifying new
home and any applicable Federal minimum
efficiency standards for equipment.
``(ii) Computer software.--Computer
software shall be used in support of a
performance-based method certification under
clause (i). Such software shall meet procedures
and methods for calculating energy and cost
savings in regulations promulgated by the
Secretary of Energy.
``(D) Guarantee-based method.--
``(i) In general.--A guarantee-based method
is a method which guarantees in writing to the
homeowner energy savings of either 30 percent
or 50 percent over the 2000 International
Energy Conservation Code for heating and
cooling costs. The guarantee shall be provided
for a minimum of 2 years and shall fully
reimburse the homeowner any heating and cooling
costs in excess of the guaranteed amount.
``(ii) Computer software.--Computer
software shall be selected by the provider to
support the guarantee-based method
certification under clause (i). Such software
shall meet procedures and methods for
calculating energy and cost savings in
regulations promulgated by the Secretary of
Energy.
``(2) Provider.--A certification described in subsection
(b)(1)(B) shall be provided by--
``(A) in the case of a component-based method, a
local building regulatory authority, a utility, or a
home energy rating organization,
``(B) in the case of a performance-based method or
a guarantee-based method, an individual recognized by
an organization designated by the Secretary for such
purposes, or
``(C) in the case of a qualifying new home which is
a manufactured home, a manufactured home primary
inspection agency.
``(3) Form.--
``(A) In general.--A certification described in
subsection (b)(1)(B) shall be made in writing in a
manner which specifies in readily verifiable fashion
the energy efficient building envelope components and
energy efficient heating or cooling equipment installed
and their respective rated energy efficiency
performance, and
``(i) in the case of a performance-based
method, accompanied by a written analysis
documenting the proper application of a
permissible energy performance calculation
method to the specific circumstances of such
qualifying new home, and
``(ii) in the case of a qualifying new home
which is a manufactured home, accompanied by
such documentation as required by the
Administrator of the Environmental Protection
Agency under the Energy Star Labeled Homes
program.
``(B) Form provided to buyer.--A form documenting
the energy efficient building envelope components and
energy efficient heating or cooling equipment installed
and their rated energy efficiency performance shall be
provided to the buyer of the qualifying new home. The
form shall include labeled R-value for insulation
products, NFRC-labeled U-factor and solar heat gain
coefficient for windows, skylights, and doors, labeled
annual fuel utilization efficiency (AFUE) ratings for
furnaces and boilers, labeled heating seasonal
performance factor (HSPF) ratings for electric heat
pumps, and labeled seasonal energy efficiency ratio
(SEER) ratings for air conditioners.
``(C) Ratings label affixed in dwelling.--A
permanent label documenting the ratings in subparagraph
(B) shall be affixed to the front of the electrical
distribution panel of the qualifying new home, or shall
be otherwise permanently displayed in a readily
inspectable location in such home.
``(4) Regulations.--
``(A) In general.--In prescribing regulations under
this subsection for performance-based and guarantee-
based certification methods, the Secretary shall
prescribe procedures for calculating annual energy
usage and cost reductions for heating and cooling and
for the reporting of the results. Such regulations
shall--
``(i) provide that any calculation
procedures be fuel neutral such that the same
energy efficiency measures allow a qualifying
new home to be eligible for the credit under
this section regardless of whether such home
uses a gas or oil furnace or boiler or an
electric heat pump, and
``(ii) require that any computer software
allow for the printing of the Federal tax forms
necessary for the credit under this section and
for the printing of forms for disclosure to the
homebuyer.
``(B) Providers.--For purposes of paragraph (2)(B),
the Secretary shall establish requirements for the
designation of individuals based on the requirements
for energy consultants and home energy raters specified
by the Mortgage Industry National Home Energy Rating
Standards.
``(e) Application.--Subsection (a) shall apply to qualifying new
homes the construction of which is substantially completed after
December 31, 2004, and purchased during the period beginning on such
date and ending on--
``(1) in the case of any 30-percent home, December 31,
2005, and
``(2) in the case of any 50-percent home, December 31,
2007.''.
(b) Credit Made Part of General Business Credit.--Section 38(b)
(relating to current year business credit), as amended by this Act, is
amended by striking ``plus'' at the end of paragraph (21), by striking
the period at the end of paragraph (22) and inserting ``, plus'', and
by adding at the end the following new paragraph:
``(23) the new energy efficient home credit determined
under section 45K(a).''.
(c) Denial of Double Benefit.--Section 280C (relating to certain
expenses for which credits are allowable) is amended by adding at the
end the following new subsection:
``(d) New Energy Efficient Home Expenses.--No deduction shall be
allowed for that portion of expenses for a qualifying new home
otherwise allowable as a deduction for the taxable year which is equal
to the amount of the credit determined for such taxable year under
section 45K(a).''.
(d) Deduction for Certain Unused Business Credits.--Section 196(c)
(defining qualified business credits), as amended by this Act, is
amended by striking ``and'' at the end of paragraph (10), by striking
the period at the end of paragraph (11) and inserting ``, and'', and by
adding after paragraph (11) the following new paragraph:
``(12) the new energy efficient home credit determined
under section 45K(a).''.
(e) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:
``Sec. 45K. New energy efficient home
credit.''.
(f) Effective Date.--The amendments made by this section shall
apply to homes the construction of which is substantially completed
after December 31, 2004.
SEC. 822. CREDIT FOR ENERGY EFFICIENT APPLIANCES.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 45L. ENERGY EFFICIENT APPLIANCE CREDIT.
``(a) Allowance of Credit.--
``(1) In general.--For purposes of section 38, the energy
efficient appliance credit determined under this section for
the taxable year is an amount equal to the sum of the amounts
determined under paragraph (2) for qualified energy efficient
appliances produced by the taxpayer during the calendar year
ending with or within the taxable year.
``(2) Amount.--The amount determined under this paragraph
for any category described in subsection (b)(2)(B) shall be the
product of the applicable amount for appliances in the category
and the eligible production for the category.
``(b) Applicable Amount; Eligible Production.--For purposes of
subsection (a)--
``(1) Applicable amount.--The applicable amount is--
``(A) $50, in the case of--
``(i) a clothes washer which is
manufactured with at least a 1.42 MEF, or
``(ii) a refrigerator which consumes at
least 10 percent less kilowatt hours per year
than the energy conservation standards for
refrigerators promulgated by the Department of
Energy and effective on July 1, 2001,
``(B) $100, in the case of--
``(i) a clothes washer which is
manufactured with at least a 1.50 MEF, or
``(ii) a refrigerator which consumes at
least 15 percent (20 percent in the case of a
refrigerator manufactured after 2006) less
kilowatt hours per year than such energy
conservation standards, and
``(C) $150, in the case of a refrigerator
manufactured before 2007 which consumes at least 20
percent less kilowatt hours per year than such energy
conservation standards.
``(2) Eligible production.--
``(A) In general.--The eligible production of each
category of qualified energy efficient appliances is
the excess of--
``(i) the number of appliances in such
category which are produced by the taxpayer
during such calendar year, over
``(ii) the average number of appliances in
such category which were produced by the
taxpayer during calendar years 2001, 2002, and
2003.
``(B) Categories.--For purposes of subparagraph
(A), the categories are--
``(i) clothes washers described in
paragraph (1)(A)(i),
``(ii) clothes washers described in
paragraph (1)(B)(i),
``(iii) refrigerators described in
paragraph (1)(A)(ii),
``(iv) refrigerators described in paragraph
(1)(B)(ii), and
``(v) refrigerators described in paragraph
(1)(C).
``(c) Limitation on Maximum Credit.--
``(1) In general.--The amount of credit allowed under
subsection (a) with respect to a taxpayer for all taxable years
shall not exceed $60,000,000, of which not more than
$30,000,000 may be allowed with respect to the credit
determined by using the applicable amount under subsection
(b)(1)(A).
``(2) Limitation based on gross receipts.--The credit
allowed under subsection (a) with respect to a taxpayer for the
taxable year shall not exceed an amount equal to 2 percent of
the average annual gross receipts of the taxpayer for the 3
taxable years preceding the taxable year in which the credit is
determined.
``(3) Gross receipts.--For purposes of this subsection, the
rules of paragraphs (2) and (3) of section 448(c) shall apply.
``(d) Definitions.--For purposes of this section--
``(1) Qualified energy efficient appliance.--The term
`qualified energy efficient appliance' means--
``(A) a clothes washer described in subparagraph
(A)(i) or (B)(i) of subsection (b)(1), or
``(B) a refrigerator described in subparagraph
(A)(ii), (B)(ii), or (C) of subsection (b)(1).
``(2) Clothes washer.--The term `clothes washer' means a
residential clothes washer, including a residential style coin
operated washer.
``(3) Refrigerator.--The term `refrigerator' means an
automatic defrost refrigerator-freezer which has an internal
volume of at least 16.5 cubic feet.
``(4) MEF.--The term `MEF' means Modified Energy Factor (as
determined by the Secretary of Energy).
``(e) Special Rules.--
``(1) In general.--Rules similar to the rules of
subsections (c), (d), and (e) of section 52 shall apply for
purposes of this section.
``(2) Aggregation rules.--All persons treated as a single
employer under subsection (a) or (b) of section 52 or
subsection (m) or (o) of section 414 shall be treated as 1
person for purposes of subsection (a).
``(f) Verification.--The taxpayer shall submit such information or
certification as the Secretary, in consultation with the Secretary of
Energy, determines necessary to claim the credit amount under
subsection (a).
``(g) Termination.--This section shall not apply--
``(1) with respect to refrigerators described in subsection
(b)(1)(A)(ii) produced after December 31, 2005, and
``(2) with respect to all other qualified energy efficient
appliances produced after December 31, 2007.''.
(b) Credit Made Part of General Business Credit.--Section 38(b)
(relating to current year business credit), as amended by this Act, is
amended by striking ``plus'' at the end of paragraph (22), by striking
the period at the end of paragraph (23) and inserting ``, plus'', and
by adding at the end the following new paragraph:
``(24) the energy efficient appliance credit determined
under section 45L(a).''.
(c) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:
``Sec. 45L. Energy efficient appliance
credit.''.
(d) Effective Date.--The amendments made by this section shall
apply to appliances produced after December 31, 2004, in taxable years
ending after such date.
SEC. 823. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT PROPERTY.
(a) In General.--Subpart A of part IV of subchapter A of chapter 1
(relating to nonrefundable personal credits) is amended by inserting
after section 25B the following new section:
``SEC. 25C. RESIDENTIAL ENERGY EFFICIENT PROPERTY.
``(a) Allowance of Credit.--In the case of an individual, there
shall be allowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to the sum of--
``(1) 15 percent of the qualified photovoltaic property
expenditures made by the taxpayer during such year,
``(2) 15 percent of the qualified solar water heating
property expenditures made by the taxpayer during such year,
``(3) 30 percent of the qualified fuel cell property
expenditures made by the taxpayer during such year,
``(4) 30 percent of the qualified wind energy property
expenditures made by the taxpayer during such year, and
``(5) the sum of the qualified Tier 2 energy efficient
building property expenditures made by the taxpayer during such
year.
``(b) Limitations.--
``(1) Maximum credit.--The credit allowed under subsection
(a) shall not exceed--
``(A) $2,000 for property described in paragraph
(1), (2), or (5) of subsection (d),
``(B) $500 for each 0.5 kilowatt of capacity of
property described in subsection (d)(4), and
``(C) for property described in subsection (d)(6)--
``(i) $150 for each electric heat pump
water heater,
``(ii) $125 for each advanced natural gas,
oil, propane furnace, or hot water boiler,
``(iii) $150 for each advanced natural gas,
oil, or propane water heater,
``(iv) $50 for each natural gas, oil, or
propane water heater,
``(v) $50 for an advanced main air
circulating fan,
``(vi) $150 for each advanced combination
space and water heating system,
``(vii) $50 for each combination space and
water heating system, and
``(viii) $250 for each geothermal heat
pump.
``(2) Safety certifications.--No credit shall be allowed
under this section for an item of property unless--
``(A) in the case of solar water heating property,
such property is certified for performance and safety
by the non-profit Solar Rating Certification
Corporation or a comparable entity endorsed by the
government of the State in which such property is
installed,
``(B) in the case of a photovoltaic property, a
fuel cell property, or a wind energy property, such
property meets appropriate fire and electric code
requirements, and
``(C) in the case of property described in
subsection (d)(6), such property meets the performance
and quality standards, and the certification
requirements (if any), which--
``(i) have been prescribed by the Secretary
by regulations (after consultation with the
Secretary of Energy or the Administrator of the
Environmental Protection Agency, as
appropriate),
``(ii) in the case of the energy efficiency
ratio (EER) for property described in
subsection (d)(6)(B)(viii)--
``(I) require measurements to be
based on published data which is tested
by manufacturers at 95 degrees
Fahrenheit, and
``(II) do not require ratings to be
based on certified data of the Air
Conditioning and Refrigeration
Institute, and
``(iii) are in effect at the time of the
acquisition of the property.
``(c) Carryforward of Unused Credit.--If the credit allowable under
subsection (a) exceeds the limitation imposed by section 26(a) for such
taxable year reduced by the sum of the credits allowable under this
subpart (other than this section and section 25D), such excess shall be
carried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such succeeding taxable year.
``(d) Definitions.--For purposes of this section--
``(1) Qualified solar water heating property expenditure.--
The term `qualified solar water heating property expenditure'
means an expenditure for property to heat water for use in a
dwelling unit located in the United States and used as a
residence by the taxpayer if at least half of the energy used
by such property for such purpose is derived from the sun.
``(2) Qualified photovoltaic property expenditure.--The
term `qualified photovoltaic property expenditure' means an
expenditure for property which uses solar energy to generate
electricity for use in a dwelling unit located in the United
States and used as a residence by the taxpayer.
``(3) Solar panels.--No expenditure relating to a solar
panel or other property installed as a roof (or portion
thereof) shall fail to be treated as property described in
paragraph (1) or (2) solely because it constitutes a structural
component of the structure on which it is installed.
``(4) Qualified fuel cell property expenditure.--The term
`qualified fuel cell property expenditure' means an expenditure
for qualified fuel cell property (as defined in section
48(a)(4)) installed on or in connection with a dwelling unit
located in the United States and used as a principal residence
(within the meaning of section 121) by the taxpayer.
``(5) Qualified wind energy property expenditure.--The term
`qualified wind energy property expenditure' means an
expenditure for property which uses wind energy to generate
electricity for use in a dwelling unit located in the United
States and used as a residence by the taxpayer.
``(6) Qualified tier 2 energy efficient building property
expenditure.--
``(A) In general.--The term `qualified Tier 2
energy efficient building property expenditure' means
an expenditure for any Tier 2 energy efficient building
property.
``(B) Tier 2 energy efficient building property.--
The term `Tier 2 energy efficient building property'
means--
``(i) an electric heat pump water heater
which yields an energy factor of at least 1.7
in the standard Department of Energy test
procedure,
``(ii) an advanced natural gas, oil,
propane furnace, or hot water boiler which
achieves at least 95 percent annual fuel
utilization efficiency (AFUE),
``(iii) an advanced natural gas, oil, or
propane water heater which has an energy factor
of at least 0.80 in the standard Department of
Energy test procedure,
``(iv) a natural gas, oil, or propane water
heater which has an energy factor of at least
0.65 but less than 0.80 in the standard
Department of Energy test procedure,
``(v) an advanced main air circulating fan
used in a new natural gas, propane, or oil-
fired furnace, including main air circulating
fans that use a brushless permanent magnet
motor or another type of motor which achieves
similar or higher efficiency at half and full
speed, as determined by the Secretary,
``(vi) an advanced combination space and
water heating system which has a combined
energy factor of at least 0.80 and a combined
annual fuel utilization efficiency (AFUE) of at
least 78 percent in the standard Department of
Energy test procedure,
``(vii) a combination space and water
heating system which has a combined energy
factor of at least 0.65 but less than 0.80 and
a combined annual fuel utilization efficiency
(AFUE) of at least 78 percent in the standard
Department of Energy test procedure, and
``(viii) a geothermal heat pump which has
an energy efficiency ratio (EER) of at least
21.
``(7) Labor costs.--Expenditures for labor costs properly
allocable to the onsite preparation, assembly, or original
installation of the property described in paragraph (1), (2),
(4), (5), or (6) and for piping or wiring to interconnect such
property to the dwelling unit shall be taken into account for
purposes of this section.
``(8) Swimming pools, etc., used as storage medium.--
Expenditures which are properly allocable to a swimming pool,
hot tub, or any other energy storage medium which has a
function other than the function of such storage shall not be
taken into account for purposes of this section.
``(e) Special Rules.--For purposes of this section--
``(1) Dollar amounts in case of joint occupancy.--In the
case of any dwelling unit which is jointly occupied and used
during any calendar year as a residence by 2 or more
individuals the following rules shall apply:
``(A) The amount of the credit allowable, under
subsection (a) by reason of expenditures (as the case
may be) made during such calendar year by any of such
individuals with respect to such dwelling unit shall be
determined by treating all of such individuals as 1
taxpayer whose taxable year is such calendar year.
``(B) There shall be allowable, with respect to
such expenditures to each of such individuals, a credit
under subsection (a) for the taxable year in which such
calendar year ends in an amount which bears the same
ratio to the amount determined under subparagraph (A)
as the amount of such expenditures made by such
individual during such calendar year bears to the
aggregate of such expenditures made by all of such
individuals during such calendar year.
``(2) Tenant-stockholder in cooperative housing
corporation.--In the case of an individual who is a tenant-
stockholder (as defined in section 216) in a cooperative
housing corporation (as defined in such section), such
individual shall be treated as having made his tenant-
stockholder's proportionate share (as defined in section
216(b)(3)) of any expenditures of such corporation.
``(3) Condominiums.--
``(A) In general.--In the case of an individual who
is a member of a condominium management association
with respect to a condominium which the individual
owns, such individual shall be treated as having made
the individual's proportionate share of any
expenditures of such association.
``(B) Condominium management association.--For
purposes of this paragraph, the term `condominium
management association' means an organization which
meets the requirements of paragraph (1) of section
528(c) (other than subparagraph (E) thereof) with
respect to a condominium project substantially all of
the units of which are used as residences.
``(4) Allocation in certain cases.--Except in the case of
qualified wind energy property expenditures, if less than 80
percent of the use of an item is for nonbusiness purposes, only
that portion of the expenditures for such item which is
properly allocable to use for nonbusiness purposes shall be
taken into account.
``(5) When expenditure made; amount of expenditure.--
``(A) In general.--Except as provided in
subparagraph (B), an expenditure with respect to an
item shall be treated as made when the original
installation of the item is completed.
``(B) Expenditures part of building construction.--
In the case of an expenditure in connection with the
construction or reconstruction of a structure, such
expenditure shall be treated as made when the original
use of the constructed or reconstructed structure by
the taxpayer begins.
``(C) Amount.--The amount of any expenditure shall
be the cost thereof.
``(6) Property financed by subsidized energy financing.--
For purposes of determining the amount of expenditures made by
any individual with respect to any dwelling unit, there shall
not be taken into account expenditures which are made from
subsidized energy financing (as defined in section
48(a)(5)(C)).
``(f) Basis Adjustments.--For purposes of this subtitle, if a
credit is allowed under this section for any expenditure with respect
to any property, the increase in the basis of such property which would
(but for this subsection) result from such expenditure shall be reduced
by the amount of the credit so allowed.
``(g) Termination.--The credit allowed under this section shall not
apply to expenditures after December 31, 2007.''.
(b) Credit Allowed Against Regular Tax and Alternative Minimum
Tax.--
(1) In general.--Section 25C(b), as added by subsection
(a), is amended by adding at the end the following new
paragraph:
``(3) Limitation based on amount of tax.--The credit
allowed under subsection (a) for the taxable year shall not
exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
subpart (other than this section and section 25D) and
section 27 for the taxable year.''.
(2) Conforming amendments.--
(A) Section 25C(c), as added by subsection (a), is
amended by striking ``section 26(a) for such taxable
year reduced by the sum of the credits allowable under
this subpart (other than this section and section
25D)'' and inserting ``subsection (b)(3)''.
(B) Section 23(b)(4)(B) is amended by inserting
``and section 25C'' after ``this section''.
(C) Section 24(b)(3)(B) is amended by striking ``23
and 25B'' and inserting ``23, 25B, and 25C''.
(D) Section 25(e)(1)(C) is amended by inserting
``25C,'' after ``25B,''.
(E) Section 25B(g)(2) is amended by striking
``section 23'' and inserting ``sections 23 and 25C''.
(F) Section 26(a)(1) is amended by striking ``and
25B'' and inserting ``25B, and 25C''.
(G) Section 904(i), as redesignated and amended by
this Act, is amended by striking ``and 25B'' and
inserting ``25B, and 25C''.
(H) Section 1400C(d) is amended by striking ``and
25B'' and inserting ``25B, and 25C''.
(c) Additional Conforming Amendments.--
(1) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (33), by striking the
period at the end of paragraph (34) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(35) to the extent provided in section 25C(f), in the
case of amounts with respect to which a credit has been allowed
under section 25C.''.
(2) The table of sections for subpart A of part IV of
subchapter A of chapter 1 is amended by inserting after the
item relating to section 25B the following new item:
``Sec. 25C. Residential energy efficient
property.''.
(d) Effective Dates.--
(1) In general.--Except as provided by paragraph (2), the
amendments made by this section shall apply to expenditures
after December 31, 2004, in taxable years ending after such
date.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to taxable years beginning after December 31, 2004.
SEC. 824. CREDIT FOR BUSINESS INSTALLATION OF QUALIFIED FUEL CELLS AND
STATIONARY MICROTURBINE POWER PLANTS.
(a) In General.--Section 48(a)(3)(A) (defining energy 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) qualified fuel cell property or
qualified microturbine property,''.
(b) Qualified Fuel Cell Property; Qualified Microturbine
Property.--Section 48(a) (relating to energy credit) is amended by
redesignating paragraphs (4) and (5) as paragraphs (5) and (6),
respectively, and by inserting after paragraph (3) the following new
paragraph:
``(4) Qualified fuel cell property; qualified microturbine
property.--For purposes of this subsection--
``(A) Qualified fuel cell property.--
``(i) In general.--The term `qualified fuel
cell property' means a fuel cell power plant
which--
``(I) generates at least 0.5
kilowatt of electricity using an
electrochemical process, and
``(II) has an electricity-only
generation efficiency greater than 30
percent.
``(ii) Limitation.--In the case of
qualified fuel cell property placed in service
during the taxable year, the credit otherwise
determined under paragraph (1) for such year
with respect to such property shall not exceed
an amount equal to $500 for each 0.5 kilowatt
of capacity of such property.
``(iii) Fuel cell power plant.--The term
`fuel cell power plant' means an integrated
system comprised of a fuel cell stack assembly
and associated balance of plant components
which converts a fuel into electricity using
electrochemical means.
``(iv) Termination.--The term `qualified
fuel cell property' shall not include any
property placed in service after December 31,
2007.
``(B) Qualified microturbine property.--
``(i) In general.--The term `qualified
microturbine property' means a stationary
microturbine power plant which--
``(I) has a capacity of less than
2,000 kilowatts, and
``(II) has an electricity-only
generation efficiency of not less than
26 percent at International Standard
Organization conditions.
``(ii) Limitation.--In the case of
qualified microturbine property placed in
service during the taxable year, the credit
otherwise determined under paragraph (1) for
such year with respect to such property shall
not exceed an amount equal $200 for each
kilowatt of capacity of such property.
``(iii) Stationary microturbine power
plant.--The term `stationary microturbine power
plant' means an integrated system comprised of
a gas turbine engine, a combustor, a
recuperator or regenerator, a generator or
alternator, and associated balance of plant
components which converts a fuel into
electricity and thermal energy. Such term also
includes all secondary components located
between the existing infrastructure for fuel
delivery and the existing infrastructure for
power distribution, including equipment and
controls for meeting relevant power standards,
such as voltage, frequency, and power factors.
``(iv) Termination.--The term `qualified
microturbine property' shall not include any
property placed in service after December 31,
2006.''.
(c) Energy Percentage.--Section 48(a)(2)(A) (relating to energy
percentage) is amended to read as follows:
``(A) In general.--The energy percentage is--
``(i) in the case of qualified fuel cell
property, 30 percent, and
``(ii) in the case of any other energy
property, 10 percent.''.
(d) Conforming Amendments.--
(A) Section 29(b)(3)(A)(i)(III) is amended by
striking ``section 48(a)(4)(C)'' and inserting
``section 48(a)(5)(C)''.
(B) Section 48(a)(1) is amended by inserting
``except as provided in subparagraph (A)(ii) or (B)(ii)
of paragraph (4),'' before ``the energy''.
(e) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2004, in taxable
years ending after such date, under rules similar to the rules of
section 48(m) of the Internal Revenue Code of 1986 (as in effect on the
day before the date of the enactment of the Revenue Reconciliation Act
of 1990).
SEC. 825. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.
(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 179A the following new section:
``SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.
``(a) In General.--There shall be allowed as a deduction for the
taxable year in which a building is placed in service by a taxpayer, an
amount equal to the energy efficient commercial building property
expenditures made by such taxpayer with respect to the construction or
reconstruction of such building for the taxable year or any preceding
taxable year.
``(b) Maximum Amount of Deduction.--The amount of energy efficient
commercial building property expenditures taken into account under
subsection (a) shall not exceed an amount equal to the product of--
``(1) $2.25, and
``(2) the square footage of the building with respect to
which the expenditures are made.
``(c) Energy Efficient Commercial Building Property Expenditures.--
For purposes of this section--
``(1) In general.--The term `energy efficient commercial
building property expenditures' means amounts paid or incurred
for energy efficient property installed on or in connection
with the construction or reconstruction of a building--
``(A) for which depreciation is allowable under
section 167,
``(B) which is located in the United States, and
``(C) which is the type of structure to which the
Standard 90.1-2001 of the American Society of Heating,
Refrigerating, and Air Conditioning Engineers and the
Illuminating Engineering Society of North America is
applicable.
Such term includes expenditures for labor costs properly
allocable to the onsite preparation, assembly, or original
installation of the property.
``(2) Energy efficient property.--For purposes of paragraph
(1)--
``(A) In general.--The term `energy efficient
property' means any property which reduces total annual
energy and power costs with respect to the lighting,
heating, cooling, ventilation, and hot water supply
systems of the building by 50 percent or more in
comparison to a building which meets the minimum
requirements of Standard 90.1-2001 of the American
Society of Heating, Refrigerating, and Air Conditioning
Engineers and the Illuminating Engineering Society of
North America, using methods of calculation described
in subparagraph (B) and certified by qualified
individuals as provided under paragraph (5).
``(B) Methods of calculation.--The Secretary, in
consultation with the Secretary of Energy, shall
promulgate regulations which describe in detail methods
for calculating and verifying energy and power costs.
``(C) Computer software.--
``(i) In general.--Any calculation
described in subparagraph (B) shall be prepared
by qualified computer software.
``(ii) Qualified computer software.--For
purposes of this subparagraph, the term
`qualified computer software' means software--
``(I) for which the software
designer has certified that the
software meets all procedures and
detailed methods for calculating energy
and power costs as required by the
Secretary,
``(II) which provides such forms as
required to be filed by the Secretary
in connection with energy efficiency of
property and the deduction allowed
under this section, and
``(III) which provides a notice
form which summarizes the energy
efficiency features of the building and
its projected annual energy costs.
``(3) Allocation of deduction for public property.--In the
case of energy efficient commercial building property
expenditures made by a public entity with respect to the
construction or reconstruction of a public building, the
Secretary shall promulgate regulations under which the value of
the deduction with respect to such expenditures which would be
allowable to the public entity under this section (determined
without regard to the tax-exempt status of such entity) may be
allocated to the person primarily responsible for designing the
energy efficient property. Such person shall be treated as the
taxpayer for purposes of this section.
``(4) Notice to owner.--Any qualified individual providing
a certification under paragraph (5) shall provide an
explanation to the owner of the building regarding the energy
efficiency features of the building and its projected annual
energy costs as provided in the notice under paragraph
(2)(C)(ii)(III).
``(5) Certification.--
``(A) In general.--The Secretary shall prescribe
procedures for the inspection and testing for
compliance of buildings by qualified individuals
described in subparagraph (B). Such procedures shall
be--
``(i) comparable, given the difference
between commercial and residential buildings,
to the requirements in the Mortgage Industry
National Home Energy Rating Standards, and
``(ii) fuel neutral such that the same
energy efficiency measures allow a building to
be eligible for the credit under this section
regardless of whether such building uses a gas
or oil furnace or boiler or an electric heat
pump.
``(B) Qualified individuals.--Individuals qualified
to determine compliance shall be only those individuals
who are recognized by an organization certified by the
Secretary for such purposes. The Secretary may qualify
a home energy ratings organization, a local building
regulatory authority, a State or local energy office, a
utility, or any other organization which meets the
requirements prescribed under this paragraph.
``(C) Proficiency of qualified individuals.--The
Secretary shall consult with nonprofit organizations
and State agencies with expertise in energy efficiency
calculations and inspections to develop proficiency
tests and training programs to qualify individuals to
determine compliance.
``(d) Basis Reduction.--For purposes of this subtitle, if a
deduction is allowed under this section with respect to any energy
efficient property, the basis of such property shall be reduced by the
amount of the deduction so allowed.
``(e) Interim Rules for Lighting Systems.--Until such time as the
Secretary issues final regulations under subsection (c)(2)(B) with
respect to property which is part of a lighting system--
``(1) In general.--The lighting system target under
subsection (d)(1)(A)(ii) shall be a reduction in lighting power
density of 25 percent (50 percent in the case of a warehouse)
of the minimum requirements in Table 9.3.1.1 or Table 9.3.1.2
(not including additional interior lighting power allowances)
of Standard 90.1-2001.
``(2) Reduction in credit if reduction less than 40
percent.--
``(A) In general.--If, with respect to the lighting
system of any building other than a warehouse, the
reduction of lighting power density of the lighting
system is not at least 40 percent, only the applicable
percentage of the amount of credit otherwise allowable
under this section with respect to such property shall
be allowed.
``(B) Applicable percentage.--For purposes of
subparagraph (A), the applicable percentage is the
number of percentage points (not greater than 100)
equal to the sum of--
``(i) 50, and
``(ii) the amount which bears the same
ratio to 50 as the excess of the reduction of
lighting power density of the lighting system
over 25 percentage points bears to 15.
``(C) Exceptions.--This subsection shall not apply
to any system--
``(i) the controls and circuiting of which
do not comply fully with the mandatory and
prescriptive requirements of Standard 90.1-2001
and which do not include provision for bilevel
switching in all occupancies except hotel and
motel guest rooms, store rooms, restrooms, and
public lobbies, or
``(ii) which does not meet the minimum
requirements for calculated lighting levels as
set forth in the Illuminating Engineering
Society of North America Lighting Handbook,
Performance and Application, Ninth Edition,
2000.
``(f) Regulations.--The Secretary shall promulgate such regulations
as necessary to take into account new technologies regarding energy
efficiency and renewable energy for purposes of determining energy
efficiency and savings under this section.
``(g) Termination.--This section shall not apply with respect to
any energy efficient commercial building property expenditures in
connection with a building the construction of which is not completed
on or before December 31, 2009.''.
(b) Conforming Amendments.--
(1) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (34), by striking the
period at the end of paragraph (35) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(36) to the extent provided in section 179B(d).''.
(2) Section 1245(a) is amended by inserting ``179B,'' after
``179A,'' both places it appears in paragraphs (2)(C) and
(3)(C).
(3) Section 1250(b)(3) is amended by inserting before the
period at the end of the first sentence ``or by section 179B''.
(4) Section 263(a)(1), as amended by this Act, is amended
by striking ``or'' at the end of subparagraph (H), by striking
the period at the end of subparagraph (I) and inserting ``,
or'', and by inserting after subparagraph (I) the following new
subparagraph:
``(J) expenditures for which a deduction is allowed
under section 179B.''.
(5) Section 312(k)(3)(B) is amended by striking ``or 179A''
each place it appears in the heading and text and inserting ``,
179A, or 179B''.
(c) Clerical Amendment.--The table of sections for part VI of
subchapter B of chapter 1 is amended by inserting after section 179A
the following new item:
``Sec. 179B. Energy efficient commercial
buildings deduction.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 826. THREE-YEAR APPLICABLE RECOVERY PERIOD FOR DEPRECIATION OF
QUALIFIED ENERGY MANAGEMENT DEVICES.
(a) In General.--Section 168(e)(3)(A) (defining 3-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) any qualified energy management
device.''.
(b) Definition of Qualified Energy Management Device.--Section
168(i) (relating to definitions and special rules), as amended by this
Act, is amended by inserting at the end the following new paragraph:
``(17) Qualified energy management device.--
``(A) In general.--The term `qualified energy
management device' means any energy management device
which is placed in service before January 1, 2008, by a
taxpayer who is a supplier of electric energy or a
provider of electric energy services.
``(B) Energy management device.--For purposes of
subparagraph (A), the term `energy management device'
means any meter or metering device which is used by the
taxpayer--
``(i) to measure and record electricity
usage data on a time-differentiated basis in at
least 4 separate time segments per day, and
``(ii) to provide such data on at least a
monthly basis to both consumers and the
taxpayer.''.
(c) Alternative System.--The table contained in section
168(g)(3)(B) is amended by inserting after the item relating to
subparagraph (A)(iii) the following:
``(A)(iv)...................................................... 20''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2004, in taxable
years ending after such date.
SEC. 827. THREE-YEAR APPLICABLE RECOVERY PERIOD FOR DEPRECIATION OF
QUALIFIED WATER SUBMETERING DEVICES.
(a) In General.--Section 168(e)(3)(A) (defining 3-year property),
as amended by this Act, is amended by striking ``and'' at the end of
clause (iii), by striking the period at the end of clause (iv) and
inserting ``, and'', and by adding at the end the following new clause:
``(v) any qualified water submetering
device.''.
(b) Definition of Qualified Water Submetering Device.--Section
168(i) (relating to definitions and special rules), as amended by this
Act, is amended by inserting at the end the following new paragraph:
``(16) Qualified water submetering device.--
``(A) In general.--The term `qualified water
submetering device' means any water submetering device
which is placed in service before January 1, 2008, by a
taxpayer who is an eligible resupplier with respect to
the unit for which the device is placed in service.
``(B) Water submetering device.--For purposes of
this paragraph, the term `water submetering device'
means any submetering device which is used by the
taxpayer--
``(i) to measure and record water usage
data, and
``(ii) to provide such data on at least a
monthly basis to both consumers and the
taxpayer.
``(C) Eligible resupplier.--For purposes of
subparagraph (A), the term `eligible resupplier' means
any taxpayer who purchases and installs qualified water
submetering devices in every unit in any multi-unit
property.''.
(c) Alternative System.--The table contained in section
168(g)(3)(B), as amended by this Act, is amended by inserting after the
item relating to subparagraph (A)(iv) the following:
``(A)(v)....................................................... 20''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2004, in taxable
years ending after such date.
SEC. 828. ENERGY CREDIT FOR COMBINED HEAT AND POWER SYSTEM PROPERTY.
(a) In General.--Section 48(a)(3)(A) (defining energy property), as
amended by this Act, is amended by striking ``or'' at the end of clause
(ii), by adding ``or'' at the end of clause (iii), and by inserting
after clause (iii) the following new clause:
``(iv) combined heat and power system
property,''.
(b) Combined Heat and Power System Property.--Section 48 (relating
to energy credit; reforestation credit), as amended by this Act, is
amended by adding at the end the following new subsection:
``(d) Combined Heat and Power System Property.--For purposes of
subsection (a)(3)(A)(iv)--
``(1) Combined heat and power system property.--The term
`combined heat and power system property' means property
comprising a system--
``(A) which uses the same energy source for the
simultaneous or sequential generation of electrical
power, mechanical shaft power, or both, in combination
with the generation of steam or other forms of useful
thermal energy (including heating and cooling
applications),
``(B) which has an electrical capacity of not more
than 15 megawatts or a mechanical energy capacity of
not more than 2,000 horsepower or an equivalent
combination of electrical and mechanical energy
capacities,
``(C) which produces--
``(i) at least 20 percent of its total
useful energy in the form of thermal energy
which is not used to produce electrical or
mechanical power (or combination thereof), and
``(ii) at least 20 percent of its total
useful energy in the form of electrical or
mechanical power (or combination thereof),
``(D) the energy efficiency percentage of which
exceeds 60 percent, and
``(E) which is placed in service before January 1,
2007.
``(2) Special rules.--
``(A) Energy efficiency percentage.--For purposes
of this subsection, the energy efficiency percentage of
a system is the fraction--
``(i) the numerator of which is the total
useful electrical, thermal, and mechanical
power produced by the system at normal
operating rates, and expected to be consumed in
its normal application, and
``(ii) the denominator of which is the
lower heating value of the fuel sources for the
system.
``(B) Determinations made on btu basis.--The energy
efficiency percentage and the percentages under
paragraph (1)(C) shall be determined on a Btu basis.
``(C) Input and output property not included.--The
term `combined heat and power system property' does not
include property used to transport the energy source to
the facility or to distribute energy produced by the
facility.
``(D) Public utility property.--
``(i) Accounting rule for public utility
property.--If the combined heat and power
system property is public utility property (as
defined in section 168(i)(10)), the taxpayer
may only claim the credit under subsection (a)
if, with respect to such property, the taxpayer
uses a normalization method of accounting.
``(ii) Certain exception not to apply.--The
matter in subsection (a)(3) which follows
subparagraph (D) thereof shall not apply to
combined heat and power system property.
``(3) Systems using bagasse.--If a system is designed to
use bagasse for at least 90 percent of the energy source--
``(A) paragraph (1)(D) shall not apply, but
``(B) the amount of credit determined under
subsection (a) with respect to such system shall not
exceed the amount which bears the same ratio to such
amount of credit (determined without regard to this
paragraph) as the energy efficiency percentage of such
system bears to 60 percent.''.
(c) Effective Date.--The amendments made by this subsection shall
apply to periods after December 31, 2004, in taxable years ending after
such date, under rules similar to the rules of section 48(m) of the
Internal Revenue Code of 1986 (as in effect on the day before the date
of the enactment of the Revenue Reconciliation Act of 1990).
SEC. 829. CREDIT FOR ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.
(a) In General.--Subpart A of part IV of subchapter A of chapter 1
(relating to nonrefundable personal credits), as amended by this Act,
is amended by inserting after section 25C the following new section:
``SEC. 25D. ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.
``(a) Allowance of Credit.--In the case of an individual, there
shall be allowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to 10 percent of the amount paid
or incurred by the taxpayer for qualified energy efficiency
improvements installed during such taxable year.
``(b) Limitation.--The credit allowed by this section with respect
to a dwelling for any taxable year shall not exceed $300, reduced (but
not below zero) by the sum of the credits allowed under subsection (a)
to the taxpayer with respect to the dwelling for all preceding taxable
years.
``(c) Carryforward of Unused Credit.--If the credit allowable under
subsection (a) exceeds the limitation imposed by section 26(a) for such
taxable year reduced by the sum of the credits allowable under this
subpart (other than this section) for such taxable year, such excess
shall be carried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such succeeding taxable year.
``(d) Qualified Energy Efficiency Improvements.--For purposes of
this section, the term `qualified energy efficiency improvements' means
any energy efficient building envelope component which is certified to
meet or exceed the latest prescriptive criteria for such component in
the International Energy Conservation Code approved by the Department
of Energy before the installation of such component, or any combination
of energy efficiency measures which are certified as achieving at least
a 30 percent reduction in heating and cooling energy usage for the
dwelling (as measured in terms of energy cost to the taxpayer), if--
``(1) such component or combination of measures is
installed in or on a dwelling which--
``(A) is located in the United States,
``(B) has not been treated as a qualifying new home
for purposes of any credit allowed under section 45K,
and
``(C) is owned and used by the taxpayer as the
taxpayer's principal residence (within the meaning of
section 121),
``(2) the original use of such component or combination of
measures commences with the taxpayer, and
``(3) such component or combination of measures reasonably
can be expected to remain in use for at least 5 years.
``(e) Certification.--
``(1) Methods of certification.--
``(A) Component-based method.--The certification
described in subsection (d) for any component described
in such subsection shall be determined on the basis of
applicable energy efficiency ratings (including product
labeling requirements) for affected building envelope
components.
``(B) Performance-based method.--
``(i) In general.--The certification
described in subsection (d) for any combination
of measures described in such subsection shall
be--
``(I) determined by comparing the
projected heating and cooling energy
usage for the dwelling to such usage
for such dwelling in its original
condition, and
``(II) accompanied by a written
analysis documenting the proper
application of a permissible energy
performance calculation method to the
specific circumstances of such
dwelling.
``(ii) Computer software.--Computer
software shall be used in support of a
performance-based method certification under
clause (i). Such software shall meet procedures
and methods for calculating energy and cost
savings in regulations promulgated by the
Secretary of Energy.
``(2) Provider.--A certification described in subsection
(d) shall be provided by--
``(A) in the case of the method described in
paragraph (1)(A), a third party, such as a local
building regulatory authority, a utility, a
manufactured home primary inspection agency, or a home
energy rating organization, or
``(B) in the case of the method described in
paragraph (1)(B), an individual recognized by an
organization designated by the Secretary for such
purposes.
``(3) Form.--A certification described in subsection (d)
shall be made in writing on forms which specify in readily
inspectable fashion the energy efficient components and other
measures and their respective efficiency ratings, and which
include a permanent label affixed to the electrical
distribution panel of the dwelling.
``(4) Regulations.--
``(A) In general.--In prescribing regulations under
this subsection for certification methods described in
paragraph (1)(B), the Secretary, after examining the
requirements for energy consultants and home energy
ratings providers specified by the Mortgage Industry
National Home Energy Rating Standards, shall prescribe
procedures for calculating annual energy usage and cost
reductions for heating and cooling and for the
reporting of the results. Such regulations shall--
``(i) provide that any calculation
procedures be fuel neutral such that the same
energy efficiency measures allow a dwelling to
be eligible for the credit under this section
regardless of whether such dwelling uses a gas
or oil furnace or boiler or an electric heat
pump, and
``(ii) require that any computer software
allow for the printing of the Federal tax forms
necessary for the credit under this section and
for the printing of forms for disclosure to the
owner of the dwelling.
``(B) Providers.--For purposes of paragraph (2)(B),
the Secretary shall establish requirements for the
designation of individuals based on the requirements
for energy consultants and home energy raters specified
by the Mortgage Industry National Home Energy Rating
Standards.
``(f) Definitions and Special Rules.--For purposes of this
section--
``(1) Dollar amounts in case of joint occupancy.--In the
case of any dwelling unit which is jointly occupied and used
during any calendar year as a residence by 2 or more
individuals the following rules shall apply:
``(A) The amount of the credit allowable under
subsection (a) by reason of expenditures for the
qualified energy efficiency improvements made during
such calendar year by any of such individuals with
respect to such dwelling unit shall be determined by
treating all of such individuals as 1 taxpayer whose
taxable year is such calendar year.
``(B) There shall be allowable, with respect to
such expenditures to each of such individuals, a credit
under subsection (a) for the taxable year in which such
calendar year ends in an amount which bears the same
ratio to the amount determined under subparagraph (A)
as the amount of such expenditures made by such
individual during such calendar year bears to the
aggregate of such expenditures made by all of such
individuals during such calendar year.
``(2) Tenant-stockholder in cooperative housing
corporation.--In the case of an individual who is a tenant-
stockholder (as defined in section 216) in a cooperative
housing corporation (as defined in such section), such
individual shall be treated as having paid his tenant-
stockholder's proportionate share (as defined in section
216(b)(3)) of the cost of qualified energy efficiency
improvements made by such corporation.
``(3) Condominiums.--
``(A) In general.--In the case of an individual who
is a member of a condominium management association
with respect to a condominium which the individual
owns, such individual shall be treated as having paid
the individual's proportionate share of the cost of
qualified energy efficiency improvements made by such
association.
``(B) Condominium management association.--For
purposes of this paragraph, the term `condominium
management association' means an organization which
meets the requirements of paragraph (1) of section
528(c) (other than subparagraph (E) thereof) with
respect to a condominium project substantially all of
the units of which are used as residences.
``(4) Building envelope component.--The term `building
envelope component' means--
``(A) any insulation material or system which is
specifically and primarily designed to reduce the heat
loss or gain or a dwelling when installed in or on such
dwelling,
``(B) exterior windows (including skylights), and
``(C) exterior doors.
``(5) Manufactured homes included.--For purposes of this
section, the term `dwelling' includes a manufactured home which
conforms to Federal Manufactured Home Construction and Safety
Standards (24 C.F.R. 3280).
``(g) Basis Adjustment.--For purposes of this subtitle, if a credit
is allowed under this section for any expenditure with respect to any
property, the increase in the basis of such property which would (but
for this subsection) result from such expenditure shall be reduced by
the amount of the credit so allowed.
``(h) Termination.--Subsection (a) shall not apply to qualified
energy efficiency improvements installed after December 31, 2006.''.
(b) Credit Allowed Against Regular Tax and Alternative Minimum
Tax.--
(1) In general.--Section 25D(b), as added by subsection
(a), is amended--
(A) by striking ``The credit'' and inserting the
following:
``(1) Dollar amount.--The credit'', and
(B) by adding at the end the following new
paragraph:
``(2) Limitation based on amount of tax.--The credit
allowed under subsection (a) for the taxable year shall not
exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
subpart (other than this section) and section 27 for
the taxable year.''.
(2) Conforming amendments.--
(A) Section 25D(c), as added by subsection (a), is
amended by striking ``section 26(a) for such taxable
year reduced by the sum of the credits allowable under
this subpart (other than this section)'' and inserting
``subsection (b)(2)''.
(B) Section 23(b)(4)(B), as amended by this Act, is
amended by striking ``section 25C'' and inserting
``sections 25C and 25D''.
(C) Section 24(b)(3)(B), as amended by this Act, is
amended by striking ``and 25C'' and inserting ``25C,
and 25D''.
(D) Section 25(e)(1)(C), as amended by this Act, is
amended by inserting ``25D,'' after ``25C,''.
(E) Section 25B(g)(2), as amended by this Act, is
amended by striking ``23 and 25C'' and inserting ``23,
25C, and 25D''.
(F) Section 26(a)(1), as amended by this Act, is
amended by striking ``and 25C'' and inserting ``25C,
and 25D''.
(G) Section 904(i), as redesignated and amended by
this Act, is amended by striking ``and 25C'' and
inserting ``25C, and 25D''.
(H) Section 1400C(d), as amended by this Act, is
amended by striking ``and 25C'' and inserting ``25C,
and 25D''.
(c) Additional Conforming Amendments.--
(1) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (35), by striking the
period at the end of paragraph (36) and inserting ``; and'',
and by adding at the end the following new paragraph:
``(37) to the extent provided in section 25D(g), in the
case of amounts with respect to which a credit has been allowed
under section 25D.''.
(2) The table of sections for subpart A of part IV of
subchapter A of chapter 1, as amended by this Act, is amended
by inserting after the item relating to section 25C the
following new item:
``Sec. 25D. Energy efficiency
improvements to existing
homes.''.
(d) Effective Dates.--
(1) In general.--Except as provided by paragraph (2), the
amendments made by this section shall apply to property
installed after December 31, 2004, in taxable years ending
after such date.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to taxable years beginning after December 31, 2004.
Subtitle D--Clean Coal Incentives
PART I--CREDIT FOR EMISSION REDUCTIONS AND EFFICIENCY IMPROVEMENTS IN
EXISTING COAL-BASED ELECTRICITY GENERATION FACILITIES
SEC. 831. CREDIT FOR PRODUCTION FROM A QUALIFYING CLEAN COAL TECHNOLOGY
UNIT.
(a) Credit for Production From a Qualifying Clean Coal Technology
Unit.--Subpart D of part IV of subchapter A of chapter 1 (relating to
business related credits), as amended by this Act, is amended by adding
at the end the following new section:
``SEC. 45M. CREDIT FOR PRODUCTION FROM A QUALIFYING CLEAN COAL
TECHNOLOGY UNIT.
``(a) General Rule.--For purposes of section 38, the qualifying
clean coal technology production credit of any taxpayer for any taxable
year is equal to--
``(1) the applicable amount of clean coal technology
production credit, multiplied by
``(2) the applicable percentage of the sum of--
``(A) the kilowatt hours of electricity, plus
``(B) each 3,413 Btu of fuels or chemicals,
produced by the taxpayer during such taxable year at a
qualifying clean coal technology unit, but only if such
production occurs during the 10-year period beginning on the
date the unit was returned to service after becoming a
qualifying clean coal technology unit.
``(b) Applicable Amount.--
``(1) In general.--For purposes of this section, the
applicable amount of clean coal technology production credit is
equal to $0.0034.
``(2) Inflation adjustment.--For calendar years after 2005,
the applicable amount of clean coal technology production
credit shall be adjusted by multiplying such amount by the
inflation adjustment factor for the calendar year in which the
amount is applied. If any amount as increased under the
preceding sentence is not a multiple of 0.01 cent, such amount
shall be rounded to the nearest multiple of 0.01 cent.
``(c) Applicable Percentage.--For purposes of this section, with
respect to any qualifying clean coal technology unit, the applicable
percentage is the percentage equal to the ratio which the portion of
the national megawatt capacity limitation allocated to the taxpayer
with respect to such unit under subsection (e) bears to the total
megawatt capacity of such unit.
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Qualifying clean coal technology unit.--The term
`qualifying clean coal technology unit' means a clean coal
technology unit of the taxpayer which--
``(A) on January 1, 2005--
``(i) was a coal-based electricity
generating steam generator-turbine unit which
was not a clean coal technology unit, and
``(ii) had a nameplate capacity rating of
not more than 300 megawatts,
``(B) becomes a clean coal technology unit as the
result of the retrofitting, repowering, or replacement
of the unit with clean coal technology during the 10-
year period beginning on January 1, 2005,
``(C) is not receiving nor is scheduled to receive
funding under the Clean Coal Technology Program, the
Power Plant Improvement Initiative, or the Clean Coal
Power Initiative administered by the Secretary of
Energy, and
``(D) receives an allocation of a portion of the
national megawatt capacity limitation under subsection
(e).
``(2) Clean coal technology unit.--The term `clean coal
technology unit' means a unit which--
``(A) uses clean coal technology, including
advanced pulverized coal or atmospheric fluidized bed
combustion, pressurized fluidized bed combustion,
integrated gasification combined cycle, or any other
technology, for the production of electricity,
``(B) uses an input of at least 75 percent coal to
produce at least 50 percent of its thermal output as
electricity,
``(C) has a design net heat rate of at least 500
less than that of such unit as described in paragraph
(1)(A),
``(D) has a maximum design net heat rate of not
more than 9,500, and
``(E) meets the pollution control requirements of
paragraph (3).
``(3) Pollution control requirements.--
``(A) In general.--A unit meets the requirements of
this paragraph if--
``(i) its emissions of sulfur dioxide,
nitrogen oxide, or particulates meet the lower
of the emission levels for each such emission
specified in--
``(I) subparagraph (B), or
``(II) the new source performance
standards of the Clean Air Act (42
U.S.C. 7411) which are in effect for
the category of source at the time of
the retrofitting, repowering, or
replacement of the unit, and
``(ii) its emissions do not exceed any
relevant emission level specified by regulation
pursuant to the hazardous air pollutant
requirements of the Clean Air Act (42 U.S.C.
7412) in effect at the time of the
retrofitting, repowering, or replacement.
``(B) Specific levels.--The levels specified in
this subparagraph are--
``(i) in the case of sulfur dioxide
emissions, 50 percent of the sulfur dioxide
emission levels specified in the new source
performance standards of the Clean Air Act (42
U.S.C. 7411) in effect on the date of the
enactment of this section for the category of
source,
``(ii) in the case of nitrogen oxide
emissions--
``(I) 0.1 pound per million Btu of
heat input if the unit is not a
cyclone-fired boiler, and
``(II) if the unit is a cyclone-
fired boiler, 15 percent of the
uncontrolled nitrogen oxide emissions
from such boilers, and
``(iii) in the case of particulate
emissions, 0.02 pound per million Btu of heat
input.
``(4) Design net heat rate.--The design net heat rate with
respect to any unit, measured in Btu per kilowatt hour (HHV)--
``(A) shall be based on the design annual heat
input to and the design annual net electrical power,
fuels, and chemicals output from such unit (determined
without regard to such unit's co-generation of steam),
``(B) shall be adjusted for the heat content of the
design coal to be used by the unit if it is less than
12,000 Btu per pound according to the following
formula:
Design net heat rate = Unit net heat rate x [l- {((12,000-
design coal heat content, Btu per pound)/1,000) x 0.013}],
``(C) shall be corrected for the site reference
conditions of--
``(i) elevation above sea level of 500
feet,
``(ii) air pressure of 14.4 pounds per
square inch absolute (psia),
``(iii) temperature, dry bulb of 63 deg.F,
``(iv) temperature, wet bulb of 54 deg.F,
and
``(v) relative humidity of 55 percent, and
``(D) if carbon capture controls have been
installed with respect to any qualifying unit and such
controls remove at least 50 percent of the unit's
carbon dioxide emissions, shall be adjusted up to the
design heat rate level which would have resulted
without the installation of such controls.
``(5) HHV.--The term `HHV' means higher heating value.
``(6) Application of certain rules.--The rules of
paragraphs (3), (4), and (5) of section 45(e) shall apply.
``(7) Inflation adjustment factor.--
``(A) In general.--The term `inflation adjustment
factor' means, with respect to a calendar year, a
fraction the numerator of which is the GDP implicit
price deflator for the preceding calendar year and the
denominator of which is the GDP implicit price deflator
for the calendar year 2003.
``(B) GDP implicit price deflator.--The term `GDP
implicit price deflator' means, for any calendar year,
the most recent revision of the implicit price deflator
for the gross domestic product as of June 30 of such
calendar year as computed by the Department of Commerce
before October 1 of such calendar year.
``(8) Noncompliance with pollution laws.--For purposes of
this section, a unit which is not in compliance with the
applicable State and Federal pollution prevention, control, and
permit requirements for any period of time shall not be
considered to be a qualifying clean coal technology unit during
such period.
``(e) National Limitation on the Aggregate Capacity of Qualifying
Clean Coal Technology Units.--
``(1) In general.--For purposes of this section, the
national megawatt capacity limitation for qualifying clean coal
technology units is 4,000 megawatts.
``(2) Allocation of limitation.--The Secretary shall
allocate the national megawatt capacity limitation for
qualifying clean coal technology units in such manner as the
Secretary may prescribe under the regulations under paragraph
(3).
``(3) Regulations.--Not later than 6 months after the date
of the enactment of this section, the Secretary shall prescribe
such regulations as may be necessary or appropriate--
``(A) to carry out the purposes of this subsection,
``(B) to limit the capacity of any qualifying clean
coal technology unit to which this section applies so
that the megawatt capacity allocated to any unit under
this subsection does not exceed 300 megawatts and the
combined megawatt capacity allocated to all such units
when all such units are placed in service during the
10-year period described in subsection (d)(1)(B), does
not exceed 4,000 megawatts,
``(C) to provide a certification process under
which the Secretary, in consultation with the Secretary
of Energy, shall approve and allocate the national
megawatt capacity limitation--
``(i) to encourage that units with the
highest thermal efficiencies, when adjusted for
the heat content of the design coal and site
reference conditions described in subsection
(d)(4)(C), and environmental performance, be
placed in service as soon as possible, and
``(ii) to allocate capacity to taxpayers
which have a definite and credible plan for
placing into commercial operation a qualifying
clean coal technology unit, including--
``(I) a site,
``(II) contractual commitments for
procurement and construction or, in the
case of regulated utilities, the
agreement of the State utility
commission,
``(III) filings for all necessary
preconstruction approvals,
``(IV) a demonstrated record of
having successfully completed
comparable projects on a timely basis,
and
``(V) such other factors that the
Secretary determines are appropriate,
``(D) to allocate the national megawatt capacity
limitation to a portion of the capacity of a qualifying
clean coal technology unit if the Secretary determines
that such an allocation would maximize the amount of
efficient production encouraged with the available tax
credits,
``(E) to set progress requirements and conditional
approvals so that capacity allocations for clean coal
technology units which become unlikely to meet the
necessary conditions for qualifying can be reallocated
by the Secretary to other clean coal technology units,
and
``(F) to provide taxpayers with opportunities to
correct administrative errors and omissions with
respect to allocations and record keeping within a
reasonable period after discovery, taking into account
the availability of regulations and other
administrative guidance from the Secretary.''.
(b) Credit Treated as Business Credit.--Section 38(b) (relating to
current year business credit), as amended by this Act, is amended by
striking ``plus'' at the end of paragraph (23), by striking the period
at the end of paragraph (24) and inserting ``, plus'', and by adding at
the end the following new paragraph:
``(25) the qualifying clean coal technology production
credit determined under section 45M(a).''.
(c) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:
``Sec. 45M. Credit for production from a qualifying clean coal
technology unit.''.
(d) Effective Date.--The amendments made by this section shall
apply to production after December 31, 2004, in taxable years ending
after such date.
PART II--INCENTIVES FOR EARLY COMMERCIAL APPLICATIONS OF ADVANCED CLEAN
COAL TECHNOLOGIES
SEC. 832. CREDIT FOR INVESTMENT IN QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY.
(a) Allowance of Qualifying Advanced Clean Coal Technology Unit
Credit.--Section 46 (relating to amount of credit), as amended by this
Act, is amended by striking ``and'' at the end of paragraph (1), by
striking the period at the end of paragraph (2) and inserting ``,
and'', and by adding at the end the following new paragraph:
``(3) the qualifying advanced clean coal technology unit
credit.''.
(b) Amount of Qualifying Advanced Clean Coal Technology Unit
Credit.--Subpart E of part IV of subchapter A of chapter 1 (relating to
rules for computing investment credit) is amended by inserting after
section 48 the following new section:
``SEC. 48A. QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT CREDIT.
``(a) In General.--For purposes of section 46, the qualifying
advanced clean coal technology unit credit for any taxable year is an
amount equal to 10 percent of the applicable percentage of the
qualified investment in a qualifying advanced clean coal technology
unit for such taxable year.
``(b) Qualifying Advanced Clean Coal Technology Unit.--
``(1) In general.--For purposes of subsection (a), the term
`qualifying advanced clean coal technology unit' means an
advanced clean coal technology unit of the taxpayer--
``(A)(i) in the case of a unit first placed in
service after December 31, 2004, the original use of
which commences with the taxpayer, or
``(ii) in the case of the retrofitting or
repowering of a unit first placed in service before
January 1, 2005, the retrofitting or repowering of
which is completed by the taxpayer after such date, or
``(B) which is depreciable under section 167,
``(C) which has a useful life of not less than 4
years,
``(D) which is located in the United States,
``(E) which is not receiving nor is scheduled to
receive funding under the Clean Coal Technology
Program, the Power Plant Improvement Initiative, or the
Clean Coal Power Initiative administered by the
Secretary of Energy,
``(F) which is not a qualifying clean coal
technology unit, and
``(G) which receives an allocation of a portion of
the national megawatt capacity limitation under
subsection (f).
``(2) Special rule for sale-leasebacks.--For purposes of
subparagraph (A) of paragraph (1), in the case of a unit
which--
``(A) is originally placed in service by a person,
and
``(B) is sold and leased back by such person, or is
leased to such person, within 3 months after the date
such unit was originally placed in service, for a
period of not less than 12 years,
such unit shall be treated as originally placed in service not
earlier than the date on which such unit is used under the
leaseback (or lease) referred to in subparagraph (B). The
preceding sentence shall not apply to any property if the
lessee and lessor of such property make an election under this
sentence. Such an election, once made, may be revoked only with
the consent of the Secretary.
``(3) Noncompliance with pollution laws.--For purposes of
this subsection, a unit which is not in compliance with the
applicable State and Federal pollution prevention, control, and
permit requirements for any period of time shall not be
considered to be a qualifying advanced clean coal technology
unit during such period.
``(c) Applicable Percentage.--For purposes of this section, with
respect to any qualifying advanced clean coal technology unit, the
applicable percentage is the percentage equal to the ratio which the
portion of the national megawatt capacity limitation allocated to the
taxpayer with respect to such unit under subsection (f) bears to the
total megawatt capacity of such unit.
``(d) Advanced Clean Coal Technology Unit.--For purposes of this
section--
``(1) In general.--The term `advanced clean coal technology
unit' means a new, retrofit, or repowering unit of the taxpayer
which--
``(A) is--
``(i) an eligible advanced pulverized coal
or atmospheric fluidized bed combustion
technology unit,
``(ii) an eligible pressurized fluidized
bed combustion technology unit,
``(iii) an eligible integrated gasification
combined cycle technology unit, or
``(iv) an eligible other technology unit,
and
``(B) meets the carbon emission rate requirements
of paragraph (6).
``(2) Eligible advanced pulverized coal or atmospheric
fluidized bed combustion technology unit.--The term `eligible
advanced pulverized coal or atmospheric fluidized bed
combustion technology unit' means a clean coal technology unit
using advanced pulverized coal or atmospheric fluidized bed
combustion technology which--
``(A) is placed in service after December 31, 2004,
and before January 1, 2013, and
``(B) has a design net heat rate of not more than
8,500 (8,900 in the case of units placed in service
before 2009).
``(3) Eligible pressurized fluidized bed combustion
technology unit.--The term `eligible pressurized fluidized bed
combustion technology unit' means a clean coal technology unit
using pressurized fluidized bed combustion technology which--
``(A) is placed in service after December 31, 2004,
and before January 1, 2017, and
``(B) has a design net heat rate of not more than
7,720 (8,900 in the case of units placed in service
before 2009, and 8,500 in the case of units placed in
service after 2008 and before 2013).
``(4) Eligible integrated gasification combined cycle
technology unit.--The term `eligible integrated gasification
combined cycle technology unit' means a clean coal technology
unit using integrated gasification combined cycle technology,
with or without fuel or chemical co-production, which--
``(A) is placed in service after December 31, 2004,
and before January 1, 2017,
``(B) has a design net heat rate of not more than
7,720 (8,900 in the case of units placed in service
before 2009, and 8,500 in the case of units placed in
service after 2008 and before 2013), and
``(C) has a net thermal efficiency (HHV) using coal
with fuel or chemical co-production of not less than
44.2 percent (38.4 percent in the case of units placed
in service before 2009, and 40.2 percent in the case of
units placed in service after 2008 and before 2013).
``(5) Eligible other technology unit.--The term `eligible
other technology unit' means a clean coal technology unit using
any other technology for the production of electricity which is
placed in service after December 31, 2004, and before January
1, 2017.
``(6) Carbon emission rate requirements.--
``(A) In general.--Except as provided in
subparagraph (B), a unit meets the requirements of this
paragraph if--
``(i) in the case of a unit using design
coal with a heat content of not more than 9,000
Btu per pound, the carbon emission rate is less
than 0.60 pound of carbon per kilowatt hour,
and
``(ii) in the case of a unit using design
coal with a heat content of more than 9,000 Btu
per pound, the carbon emission rate is less
than 0.54 pound of carbon per kilowatt hour.
``(B) Eligible other technology unit.--In the case
of an eligible other technology unit, subparagraph (A)
shall be applied by substituting `0.51' and `0.459' for
`0.60' and `0.54', respectively.
``(e) General Definitions.--Any term used in this section which is
also used in section 45M shall have the meaning given such term in
section 45M.
``(f) National Limitation on the Aggregate Capacity of Advanced
Clean Coal Technology Units.--
``(1) In general.--For purposes of subsection (b)(1)(G),
the national megawatt capacity limitation is--
``(A) for qualifying advanced clean coal technology
units using advanced pulverized coal or atmospheric
fluidized bed combustion technology, not more than
1,000 megawatts (not more than 500 megawatts in the
case of units placed in service before 2009),
``(B) for such units using pressurized fluidized
bed combustion technology, not more than 500 megawatts
(not more than 250 megawatts in the case of units
placed in service before 2009),
``(C) for such units using integrated gasification
combined cycle technology, with or without fuel or
chemical co-production, not more than 2,000 megawatts
(not more than 1,000 megawatts in the case of units
placed in service before 2009), and
``(D) for such units using other technology for the
production of electricity, not more than 500 megawatts
(not more than 250 megawatts in the case of units
placed in service before 2009).
``(2) Allocation of limitation.--The Secretary shall
allocate the national megawatt capacity limitation for
qualifying advanced clean coal technology units in such manner
as the Secretary may prescribe under the regulations under
paragraph (3).
``(3) Regulations.--Not later than 6 months after the date
of the enactment of this section, the Secretary shall prescribe
such regulations as may be necessary or appropriate--
``(A) to carry out the purposes of this subsection
and section 45N,
``(B) to limit the capacity of any qualifying
advanced clean coal technology unit to which this
section applies so that the combined megawatt capacity
of all such units to which this section applies does
not exceed 4,000 megawatts,
``(C) to provide a certification process described
in section 45M(e)(3)(C),
``(D) to carry out the purposes described in
subparagraphs (D), (E), and (F) of section 45M(e)(3),
and
``(E) to reallocate capacity which is not allocated
to any technology described in subparagraphs (A)
through (D) of paragraph (1) because an insufficient
number of qualifying units request an allocation for
such technology, to another technology described in
such subparagraphs in order to maximize the amount of
energy efficient production encouraged with the
available tax credits.
``(4) Selection criteria.--For purposes of this subsection,
the selection criteria for allocating the national megawatt
capacity limitation to qualifying advanced clean coal
technology units--
``(A) shall be established by the Secretary of
Energy as part of a competitive solicitation,
``(B) shall include primary criteria of minimum
design net heat rate, maximum design thermal
efficiency, environmental performance, and lowest cost
to the Government, and
``(C) shall include supplemental criteria as
determined appropriate by the Secretary of Energy.
``(g) Qualified Investment.--For purposes of subsection (a), the
term `qualified investment' means, with respect to any taxable year,
the basis of a qualifying advanced clean coal technology unit placed in
service by the taxpayer during such taxable year (in the case of a unit
described in subsection (b)(1)(A)(ii), only that portion of the basis
of such unit which is properly attributable to the retrofitting or
repowering of such unit).
``(h) Qualified Progress Expenditures.--
``(1) Increase in qualified investment.--In the case of a
taxpayer who has made an election under paragraph (5), the
amount of the qualified investment of such taxpayer for the
taxable year (determined under subsection (g) without regard to
this subsection) shall be increased by an amount equal to the
aggregate of each qualified progress expenditure for the
taxable year with respect to progress expenditure property.
``(2) Progress expenditure property defined.--For purposes
of this subsection, the term `progress expenditure property'
means any property being constructed by or for the taxpayer and
which it is reasonable to believe will qualify as a qualifying
advanced clean coal technology unit which is being constructed
by or for the taxpayer when it is placed in service.
``(3) Qualified progress expenditures defined.--For
purposes of this subsection--
``(A) Self-constructed property.--In the case of
any self-constructed property, the term `qualified
progress expenditures' means the amount which, for
purposes of this subpart, is properly chargeable
(during such taxable year) to capital account with
respect to such property.
``(B) Nonself-constructed property.--In the case of
nonself-constructed property, the term `qualified
progress expenditures' means the amount paid during the
taxable year to another person for the construction of
such property.
``(4) Other definitions.--For purposes of this subsection--
``(A) Self-constructed property.--The term `self-
constructed property' means property for which it is
reasonable to believe that more than half of the
construction expenditures will be made directly by the
taxpayer.
``(B) Nonself-constructed property.--The term
`nonself-constructed property' means property which is
not self-constructed property.
``(C) Construction, etc.--The term `construction'
includes reconstruction and erection, and the term
`constructed' includes reconstructed and erected.
``(D) Only construction of qualifying advanced
clean coal technology unit to be taken into account.--
Construction shall be taken into account only if, for
purposes of this subpart, expenditures therefor are
properly chargeable to capital account with respect to
the property.
``(5) Election.--An election under this subsection may be
made at such time and in such manner as the Secretary may by
regulations prescribe. Such an election shall apply to the
taxable year for which made and to all subsequent taxable
years. Such an election, once made, may not be revoked except
with the consent of the Secretary.
``(i) Coordination With Other Credits.--This section shall not
apply to any property with respect to which the rehabilitation credit
under section 47 or the energy credit under section 48 is allowed
unless the taxpayer elects to waive the application of such credit to
such property.''.
(c) Recapture.--Section 50(a) (relating to other special rules) is
amended by adding at the end the following new paragraph:
``(6) Special rules relating to qualifying advanced clean
coal technology unit.--For purposes of applying this subsection
in the case of any credit allowable by reason of section 48A,
the following rules shall apply:
``(A) General rule.--In lieu of the amount of the
increase in tax under paragraph (1), the increase in
tax shall be an amount equal to the investment tax
credit allowed under section 38 for all prior taxable
years with respect to a qualifying advanced clean coal
technology unit (as defined by section 48A(b)(1))
multiplied by a fraction the numerator of which is the
number of years remaining to fully depreciate under
this title the qualifying advanced clean coal
technology unit disposed of, and the denominator of
which is the total number of years over which such unit
would otherwise have been subject to depreciation. For
purposes of the preceding sentence, the year of
disposition of the qualifying advanced clean coal
technology unit shall be treated as a year of remaining
depreciation.
``(B) Property ceases to qualify for progress
expenditures.--Rules similar to the rules of paragraph
(2) shall apply in the case of qualified progress
expenditures for a qualifying advanced clean coal
technology unit under section 48A, except that the
amount of the increase in tax under subparagraph (A) of
this paragraph shall be substituted for the amount
described in such paragraph (2).
``(C) Application of paragraph.--This paragraph
shall be applied separately with respect to the credit
allowed under section 38 regarding a qualifying
advanced clean coal technology unit.''.
(d) Technical Amendments.--
(1) Section 49(a)(1)(C) 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) the portion of the basis of any
qualifying advanced clean coal technology unit
attributable to any qualified investment (as
defined by section 48A(g)).''.
(2) Section 50(a)(4) is amended by striking ``and (2)'' and
inserting ``, (2), and (6)''.
(3) Section 50(c) is amended by adding at the end the
following new paragraph:
``(6) Nonapplication.--Paragraphs (1) and (2) shall not
apply to any qualifying advanced clean coal technology unit
credit under section 48A.''.
(4) The table of sections for subpart E of part IV of
subchapter A of chapter 1 is amended by inserting after the
item relating to section 48 the following new item:
``Sec. 48A. Qualifying advanced clean coal technology unit credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to periods after December 31, 2004, under rules similar to the
rules of section 48(m) of the Internal Revenue Code of 1986 (as in
effect on the day before the date of the enactment of the Revenue
Reconciliation Act of 1990).
SEC. 833. CREDIT FOR PRODUCTION FROM A QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY UNIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 45N. CREDIT FOR PRODUCTION FROM A QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY UNIT.
``(a) General Rule.--For purposes of section 38, the qualifying
advanced clean coal technology production credit of any taxpayer for
any taxable year is equal to--
``(1) the applicable amount of advanced clean coal
technology production credit, multiplied by
``(2) the applicable percentage (as determined under
section 48A(c)) of the sum of--
``(A) the kilowatt hours of electricity, plus
``(B) each 3,413 Btu of fuels or chemicals,
produced by the taxpayer during such taxable year at a
qualifying advanced clean coal technology unit, but only if
such production occurs during the 10-year period beginning on
the date the unit was originally placed in service (or returned
to service after becoming a qualifying advanced clean coal
technology unit).
``(b) Applicable Amount.--For purposes of this section--
``(1) In general.--Except as provided in paragraph (2), the
applicable amount of advanced clean coal technology production
credit with respect to production from a qualifying advanced
clean coal technology unit shall be determined as follows:
``(A) If the qualifying advanced clean coal
technology unit is producing electricity only:
``(i) In the case of a unit originally
placed in service before 2009, if--
------------------------------------------------------------------------
The applicable amount is:
---------------------------------
``The design net heat rate is: For 1st 5 years For 2d 5 years
of such service of such service
------------------------------------------------------------------------
Not more than 8,500................... $.0060 $.0038
More than 8,500 but not more than $.0025 $.0010
8,750................................
More than 8,750 but less than 8,900... $.0010 $.0010.
------------------------------------------------------------------------
``(ii) In the case of a unit originally
placed in service after 2008 and before 2013,
if--
------------------------------------------------------------------------
The applicable amount is:
---------------------------------
``The design net heat rate is: For 1st 5 years For 2d 5 years
of such service of such service
------------------------------------------------------------------------
Not more than 7,770................... $.0105 $.0090
More than 7,770 but not more than $.0085 $.0068
8,125................................
More than 8,125 but less than 8,500... $.0075 $.0055.
------------------------------------------------------------------------
``(iii) In the case of a unit originally
placed in service after 2012 and before 2017,
if--
------------------------------------------------------------------------
The applicable amount is:
---------------------------------
``The design net heat rate is: For 1st 5 years For 2d 5 years
of such service of such service
------------------------------------------------------------------------
Not more than 7,380................... $.0140 $.0115
More than 7,380 but not more than $.0120 $.0090.
7,720................................
------------------------------------------------------------------------
``(B) If the qualifying advanced clean coal
technology unit is producing fuel or chemicals:
``(i) In the case of a unit originally
placed in service before 2009, if--
------------------------------------------------------------------------
The applicable amount is:
``The unit design net thermal ---------------------------------
efficiency (HHV) is: For 1st 5 years For 2d 5 years
of such service of such service
------------------------------------------------------------------------
Not less than 40.2 percent............ $.0060 $.0038
Less than 40.2 but not less than 39 $.0025 $.0010
percent..............................
Less than 39 but not less than 38.4 $.0010 $.0010.
percent..............................
------------------------------------------------------------------------
``(ii) In the case of a unit originally
placed in service after 2008 and before 2013,
if--
------------------------------------------------------------------------
The applicable amount is:
``The unit design net thermal ---------------------------------
efficiency (HHV) is: For 1st 5 years For 2d 5 years
of such service of such service
------------------------------------------------------------------------
Not less than 43.9 percent............ $.0105 $.0090
Less than 43.9 but not less than 42 $.0085 $.0068
percent..............................
Less than 42 but not less than 40.2 $.0075 $.0055.
percent..............................
------------------------------------------------------------------------
``(iii) In the case of a unit originally
placed in service after 2012 and before 2017,
if--
------------------------------------------------------------------------
The applicable amount is:
``The unit design net thermal ---------------------------------
efficiency (HHV) is: For 1st 5 years For 2d 5 years
of such service of such service
------------------------------------------------------------------------
Not less than 46.3 percent............ $.0140 $.0115
Less than 46.3 but not less than 44.2 $.0120 $.0090.
percent..............................
------------------------------------------------------------------------
``(2) Special rule for units qualifying for greater
applicable amount when placed in service.--If, at the time a
qualifying advanced clean coal technology unit is placed in
service, production from the unit would be entitled to a
greater applicable amount if such unit had been placed in
service at a later date, the applicable amount for such unit
shall be such greater amount.
``(c) Inflation Adjustment.--For calendar years after 2005, each
dollar amount in subsection (b)(1) shall be adjusted by multiplying
such amount by the inflation adjustment factor for the calendar year in
which the amount is applied. If any amount as increased under the
preceding sentence is not a multiple of 0.01 cent, such amount shall be
rounded to the nearest multiple of 0.01 cent.
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) In general.--Any term used in this section which is
also used in section 45M or 48A shall have the meaning given
such term in such section.
``(2) Applicable rules.--The rules of paragraphs (3), (4),
and (5) of section 45(e) shall apply.''.
(b) Credit Treated as Business Credit.--Section 38(b) (relating to
current year business credit), as amended by this Act, is amended by
striking ``plus'' at the end of paragraph (24), by striking the period
at the end of paragraph (25) and inserting ``, plus'', and by adding at
the end the following new paragraph:
``(26) the qualifying advanced clean coal technology
production credit determined under section 45N(a).''.
(c) Denial of Double Benefit.--Section 29(d) (relating to other
definitions and special rules) is amended by adding at the end the
following new paragraph:
``(9) Denial of double benefit.--This section shall not
apply with respect to any qualified fuel the production of
which may be taken into account for purposes of determining the
credit under section 45N.''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:
``Sec. 45N. Credit for production from a qualifying advanced clean coal
technology unit.''.
(e) Effective Date.--The amendments made by this section shall
apply to production after December 31, 2004, in taxable years ending
after such date.
PART III--TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT
SEC. 834. TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT.
(a) In General.--Section 45M, as added by this Act, is amended by
adding at the end the following new subsection:
``(f) Treatment of Person Not Able To Use Entire Credit.--
``(1) Allowance of credits.--
``(A) In general.--Any credit allowable under this
section, section 45N, or section 48A with respect to a
facility owned by a person described in subparagraph
(B) may be transferred or used as provided in this
subsection, and the determination as to whether the
credit is allowable shall be made without regard to the
tax-exempt status of the person.
``(B) Persons described.--A person is described in
this subparagraph if the person is--
``(i) an organization described in section
501(c)(12)(C) and exempt from tax under section
501(a),
``(ii) an organization described in section
1381(a)(2)(C),
``(iii) a public utility (as defined in
section 136(c)(2)(B)),
``(iv) any State or political subdivision
thereof, the District of Columbia, or any
agency or instrumentality of any of the
foregoing,
``(v) any Indian tribal government (within
the meaning of section 7871) or any agency or
instrumentality thereof, or
``(vi) the Tennessee Valley Authority.
``(2) Transfer of credit.--
``(A) In general.--A person described in clause
(i), (ii), (iii), (iv), or (v) of paragraph (1)(B) may
transfer any credit to which paragraph (1)(A) applies
through an assignment to any other person not described
in paragraph (1)(B). Such transfer may be revoked only
with the consent of the Secretary.
``(B) Regulations.--The Secretary shall prescribe
such regulations as necessary to ensure that any credit
described in subparagraph (A) is claimed once and not
reassigned by such other person.
``(C) Transfer proceeds treated as arising from
essential government function.--Any proceeds derived by
a person described in clause (iii), (iv), or (v) of
paragraph (1)(B) from the transfer of any credit under
subparagraph (A) shall be treated as arising from the
exercise of an essential government function.
``(3) Use of credit as an offset.--Notwithstanding any
other provision of law, in the case of a person described in
clause (i), (ii), or (v) of paragraph (1)(B), any credit to
which paragraph (1)(A) applies may be applied by such person,
to the extent provided by the Secretary of Agriculture, as a
prepayment of any loan, debt, or other obligation the entity
has incurred under subchapter I of chapter 31 of title 7 of the
Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.), as in
effect on the date of the enactment of this section.
``(4) Use by tva.--
``(A) In general.--Notwithstanding any other
provision of law, in the case of a person described in
paragraph (1)(B)(vi), any credit to which paragraph
(1)(A) applies may be applied as a credit against the
payments required to be made in any fiscal year under
section 15d(e) of the Tennessee Valley Authority Act of
1933 (16 U.S.C. 831n-4(e)) as an annual return on the
appropriations investment and an annual repayment sum.
``(B) Treatment of credits.--The aggregate amount
of credits described in paragraph (1)(A) with respect
to such person shall be treated in the same manner and
to the same extent as if such credits were a payment in
cash and shall be applied first against the annual
return on the appropriations investment.
``(C) Credit carryover.--With respect to any fiscal
year, if the aggregate amount of credits described
paragraph (1)(A) with respect to such person exceeds
the aggregate amount of payment obligations described
in subparagraph (A), the excess amount shall remain
available for application as credits against the
amounts of such payment obligations in succeeding
fiscal years in the same manner as described in this
paragraph.
``(5) Credit not income.--Any transfer under paragraph (2)
or use under paragraph (3) of any credit to which paragraph
(1)(A) applies shall not be treated as income for purposes of
section 501(c)(12).
``(6) Treatment of unrelated persons.--For purposes of this
subsection, transfers among and between persons described in
clauses (i), (ii), (iii), (iv), and (v) of paragraph (1)(B)
shall be treated as transfers between unrelated parties.''.
(b) Effective Date.--The amendment made by this section shall apply
to production after December 31, 2004, in taxable years ending after
such date.
Subtitle E--Oil and Gas Provisions
SEC. 841. OIL AND GAS FROM MARGINAL WELLS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business credits), as amended by this Act, is amended by
adding at the end the following new section:
``SEC. 45O. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.
``(a) General Rule.--For purposes of section 38, the marginal well
production credit for any taxable year is an amount equal to the
product of--
``(1) the credit amount, and
``(2) the qualified crude oil production and the qualified
natural gas production which is attributable to the taxpayer.
``(b) Credit Amount.--For purposes of this section--
``(1) In general.--The credit amount is--
``(A) $3 per barrel of qualified crude oil
production, and
``(B) 50 cents per 1,000 cubic feet of qualified
natural gas production.
``(2) Reduction as oil and gas prices increase.--
``(A) In general.--The $3 and 50 cents amounts
under paragraph (1) shall each be reduced (but not
below zero) by an amount which bears the same ratio to
such amount (determined without regard to this
paragraph) as--
``(i) the excess (if any) of the applicable
reference price over $15 ($1.67 for qualified
natural gas production), bears to
``(ii) $3 ($0.33 for qualified natural gas
production).
The applicable reference price for a taxable year is
the reference price of the calendar year preceding the
calendar year in which the taxable year begins.
``(B) Inflation adjustment.--
``(i) In general.--In the case of any
taxable year beginning in a calendar year after
2005, each of the dollar amounts contained in
subparagraph (A) shall be increased to an
amount equal to such dollar amount multiplied
by the inflation adjustment factor for such
calendar year.
``(ii) Inflation adjustment factor.--For
purposes of clause (i)--
``(I) In general.--The term
`inflation adjustment factor' means,
with respect to a calendar year, a
fraction the numerator of which is the
GDP implicit price deflator for the
preceding calendar year and the
denominator of which is the GDP
implicit price deflator for the
calendar year 2004.
``(II) GDP implicit price
deflator.--The term `GDP implicit price
deflator' means, for any calendar year,
the most recent revision of the
implicit price deflator for the gross
domestic product as of June 30 of such
calendar year as computed by the
Department of Commerce before October 1
of such calendar year.
``(C) Reference price.--For purposes of this
paragraph, the term `reference price' means, with
respect to any calendar year--
``(i) in the case of qualified crude oil
production, the reference price determined
under section 29(d)(2)(C), and
``(ii) in the case of qualified natural gas
production, the Secretary's estimate of the
annual average wellhead price per 1,000 cubic
feet for all domestic natural gas.
``(c) Qualified Crude Oil and Natural Gas Production.--For purposes
of this section--
``(1) In general.--The terms `qualified crude oil
production' and `qualified natural gas production' mean
domestic crude oil or domestic natural gas which is produced
from a qualified marginal well.
``(2) Limitation on amount of production which may
qualify.--
``(A) In general.--Crude oil or natural gas
produced during any taxable year from any well shall
not be treated as qualified crude oil production or
qualified natural gas production to the extent
production from the well during the taxable year
exceeds 1,095 barrels or barrel equivalents.
``(B) Proportionate reductions.--
``(i) Short taxable years.--In the case of
a short taxable year, the limitations under
this paragraph shall be proportionately reduced
to reflect the ratio which the number of days
in such taxable year bears to 365.
``(ii) Wells not in production entire
year.--In the case of a well which is not
capable of production during each day of a
taxable year, the limitations under this
paragraph applicable to the well shall be
proportionately reduced to reflect the ratio
which the number of days of production bears to
the total number of days in the taxable year.
``(3) Noncompliance with pollution laws.--Production from
any well during any period in which such well is not in
compliance with applicable Federal pollution prevention,
control, and permit requirements shall not be treated as
qualified crude oil production or qualified natural gas
production.
``(4) Definitions.--
``(A) Qualified marginal well.--The term `qualified
marginal well' means a domestic well--
``(i) the production from which during the
taxable year is treated as marginal production
under section 613A(c)(6), or
``(ii) which, during the taxable year--
``(I) has average daily production
of not more than 25 barrel equivalents,
and
``(II) produces water at a rate not
less than 95 percent of total well
effluent.
``(B) Crude oil, etc.--The terms `crude oil',
`natural gas', `domestic', and `barrel' have the
meanings given such terms by section 613A(e).
``(C) Barrel equivalent.--The term `barrel
equivalent' means, with respect to natural gas, a
conversation ratio of 6,000 cubic feet of natural gas
to 1 barrel of crude oil.
``(D) Domestic natural gas.--The term `domestic
natural gas' does not include Alaska natural gas (as
defined in section 45Q(c)(1)).
``(d) Other Rules.--
``(1) Production attributable to the taxpayer.--In the case
of a qualified marginal well in which there is more than 1
owner of operating interests in the well and the crude oil or
natural gas production exceeds the limitation under subsection
(c)(2), qualifying crude oil production or qualifying natural
gas production attributable to the taxpayer shall be determined
on the basis of the ratio which taxpayer's revenue interest in
the production bears to the aggregate of the revenue interests
of all operating interest owners in the production.
``(2) Operating interest required.--Any credit under this
section may be claimed only on production which is attributable
to the holder of an operating interest.
``(3) Production from nonconventional sources excluded.--In
the case of production from a qualified marginal well which is
eligible for the credit allowed under section 29 for the
taxable year, no credit shall be allowable under this section
unless the taxpayer elects not to claim the credit under
section 29 with respect to the well.''.
(b) Credit Treated as Business Credit.--Section 38(b) (relating to
current year business credit), as amended by this Act, is amended by
striking ``plus'' at the end of paragraph (25), by striking the period
at the end of paragraph (26) and inserting ``, plus'', and by adding at
the end the following new paragraph:
``(27) the marginal oil and gas well production credit
determined under section 45O(a).''.
(c) Coordination With Section 29.--Section 29(a) (relating to
allowance of credit) is amended by striking ``There'' and inserting
``At the election of the taxpayer, there''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:
``Sec. 45O. Credit for producing oil and
gas from marginal wells.''.
(e) Effective Date.--The amendments made by this section shall
apply to production in taxable years beginning after December 31, 2004.
SEC. 842. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR PROPERTY.
(a) In General.--Section 168(e)(3)(C) (defining 7-year property),
as amended by this Act, is amended by striking ``and'' at the end of
clause (ii), by redesignating clause (iii) as clause (iv), and by
inserting after clause (ii) the following new clause:
``(iii) any natural gas gathering line,
and''.
(b) Natural Gas Gathering Line.--Section 168(i) (relating to
definitions and special rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
``(18) Natural gas gathering line.--The term `natural gas
gathering line' means--
``(A) the pipe, equipment, and appurtenances used
to deliver natural gas from the wellhead or a
commonpoint to the point at which such gas first
reaches--
``(i) a gas processing plant,
``(ii) an interconnection with a
transmission pipeline certificated by the
Federal Energy Regulatory Commission as an
interstate transmission pipeline,
``(iii) an interconnection with an
intrastate transmission pipeline, or
``(iv) a direct interconnection with a
local distribution company, a gas storage
facility, or an industrial consumer, or
``(B) any other pipe, equipment, or appurtenances
determined to be a gathering line by the Federal Energy
Regulatory Commission.
(c) Alternative System.--The table contained in section
168(g)(3)(B) (relating to special rule for certain property assigned to
classes) is amended by inserting after the item relating to
subparagraph (C)(i) the following new item:
``(C)(iii)..................................................... 14''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2004, in taxable
years ending after such date.
SEC. 843. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH
ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.
(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations), as amended by
this Act, is amended by inserting after section 179B the following new
section:
``SEC. 179C. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH
ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.
``(a) Treatment as Expenses.--A small business refiner (as defined
in section 45I(c)(1)) may elect to treat 75 percent of qualified
capital costs (as defined in section 45I(c)(2)) which are paid or
incurred by the taxpayer during the taxable year as expenses which are
not chargeable to capital account. Any cost so treated shall be allowed
as a deduction for the taxable year in which paid or incurred.
``(b) Reduced Percentage.--In the case of a small business refiner
with average daily domestic refinery runs for the 1-year period ending
on December 31, 2002, in excess of 155,000 barrels, the number of
percentage points described in subsection (a) shall be reduced (not
below zero) by the product of such number (before the application of
this subsection) and the ratio of such excess to 50,000 barrels. For
purposes of calculating such average daily domestic refinery runs, only
refineries of the refiner or a related person (within the meaning of
section 613A(d)(3)) on April 1, 2003, shall be taken into account.
``(c) Basis Reduction.--
``(1) 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).
``(2) Ordinary income recapture.--For purposes of section
1245, the amount of the deduction allowable under subsection
(a) 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.
``(d) Coordination With Other Provisions.--Section 280B shall not
apply to amounts which are treated as expenses under this section.''.
(b) Conforming Amendments.--
(1) Section 263(a)(1), as amended by this Act, is amended
by striking ``or'' at the end of subparagraph (I), by striking
the period at the end of subparagraph (J) and inserting ``;
or'', and by adding at the end the following new subparagraph:
``(K) expenditures for which a deduction is allowed
under section 179C.''.
(2) Section 263A(c)(3) is amended by inserting ``179C,''
after ``section''.
(3) Section 312(k)(3)(B), as amended by this Act, is
amended by striking ``or 179B'' each place it appears in the
heading and text and inserting ``179B, or 179C''.
(4) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (36), by striking the
period at the end of paragraph (37) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(38) to the extent provided in section 179C(c).''
(5) Paragraphs (2)(C) and (3)(C) of section 1245(a), as
amended by this Act, are each amended by inserting ``179C,''
after ``179B,''.
(6) The table of sections for part VI of subchapter B of
chapter 1, as amended by this Act, is amended by inserting
after the item relating to section 179B the following new item:
``Sec. 179C. Deduction for capital costs
incurred in complying with
Environmental Protection Agency
sulfur regulations.''.
(c) Effective Date.--The amendment made by this section shall apply
to expenses paid or incurred after December 31, 2002, in taxable years
ending after such date.
SEC. 844. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 45P. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
``(a) In General.--For purposes of section 38, the amount of the
low sulfur diesel fuel production credit determined under this section
with respect to any facility of a small business refiner is an amount
equal to 5 cents for each gallon of low sulfur diesel fuel produced
during the taxable year by such small business refiner at such
facility.
``(b) Maximum Credit.--
``(1) In general.--The aggregate credit determined under
subsection (a) for any taxable year with respect to any
facility shall not exceed--
``(A) 25 percent of the qualified capital costs
incurred by the small business refiner with respect to
such facility, reduced by
``(B) the aggregate credits determined under this
section for all prior taxable years with respect to
such facility.
``(2) Reduced percentage.--In the case of a small business
refiner with average daily domestic refinery runs for the 1-
year period ending on December 31, 2002, in excess of 155,000
barrels, the number of percentage points described in paragraph
(1) shall be reduced (not below zero) by the product of such
number (before the application of this paragraph) and the ratio
of such excess to 50,000 barrels. For purposes of calculating
such average daily domestic refinery runs, only refineries of
the refiner or a related person (within the meaning of section
613A(d)(3)) on April 1, 2003, shall be taken into account.
``(c) Definitions and Special Rule.--For purposes of this section--
``(1) Small business refiner.--The term `small business
refiner' means, with respect to any taxable year, a refiner of
crude oil--
``(A) with respect to which not more than 1,500
individuals are engaged in the refinery operations of
the business on any day during such taxable year, and
``(B) the average daily domestic refinery run or
average retained production of which for all facilities
of the taxpayer for the 1-year period ending on
December 31, 2002, did not exceed 205,000 barrels.
For purposes of calculating such average daily domestic
refinery run or retained production, only refineries of the
refiner or a related person (within the meaning of section
613A(d)(3)) on April 1, 2003, shall be taken into account.
``(2) Qualified capital costs.--The term `qualified capital
costs' means, with respect to any facility, those costs paid or
incurred during the applicable period for compliance with the
applicable EPA regulations with respect to such facility,
including expenditures for the construction of new process
operation units or the dismantling and reconstruction of
existing process units to be used in the production of low
sulfur diesel fuel, associated adjacent or offsite equipment
(including tankage, catalyst, and power supply), engineering,
construction period interest, and sitework.
``(3) Applicable epa regulations.--The term `applicable EPA
regulations' means the Highway Diesel Fuel Sulfur Control
Requirements of the Environmental Protection Agency.
``(4) Applicable period.--The term `applicable period'
means, with respect to any facility, the period beginning on
January 1, 2003, and ending on the earlier of the date which is
1 year after the date on which the taxpayer must comply with
the applicable EPA regulations with respect to such facility or
December 31, 2009.
``(5) Low sulfur diesel fuel.--The term `low sulfur diesel
fuel' means diesel fuel with a sulfur content of 15 parts per
million or less.
``(6) Special rule for determination of refinery runs.--
Refinery runs shall be determined under rules similar to the
rules under section 613A(d)(4).
``(d) Reduction in Basis.--For purposes of this subtitle, if a
credit is determined under this section for any expenditure with
respect to any property, the increase in basis of such property which
would (but for this subsection) result from such expenditure shall be
reduced by the amount of the credit so determined.
``(e) Certification.--
``(1) Required.--No credit shall be allowed unless, not
later than the date which is 30 months after the first day of
the first taxable year in which the low sulfur diesel fuel
production credit is allowed with respect to a facility, the
small business refiner obtains certification from the
Secretary, after consultation with the Administrator of the
Environmental Protection Agency, that the taxpayer's qualified
capital costs with respect to such facility will result in
compliance with the applicable EPA regulations.
``(2) Contents of application.--An application for
certification shall include relevant information regarding unit
capacities and operating characteristics sufficient for the
Secretary, after consultation with the Administrator of the
Environmental Protection Agency, to determine that such
qualified capital costs are necessary for compliance with the
applicable EPA regulations.
``(3) Review period.--Any application shall be reviewed and
notice of certification, if applicable, shall be made within 60
days of receipt of such application. In the event the Secretary
does not notify the taxpayer of the results of such
certification within such period, the taxpayer may presume the
certification to be issued until so notified.
``(4) Statute of limitations.--With respect to the credit
allowed under this section--
``(A) the statutory period for the assessment of
any deficiency attributable to such credit shall not
expire before the end of the 3-year period ending on
the date that the review period described in paragraph
(3) ends with respect to the taxpayer, and
``(B) 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.
``(f) Cooperative Organizations.--
``(1) Apportionment of credit.--
``(A) In general.--In the case of a cooperative
organization described in section 1381(a), any portion
of the credit determined under subsection (a) for the
taxable year may, at the election of the organization,
be apportioned among patrons eligible to share in
patronage dividends on the basis of the quantity or
value of business done with or for such patrons for the
taxable year.
``(B) Form and effect of election.--An election
under subparagraph (A) for any taxable year shall be
made on a timely filed return for such year. Such
election, once made, shall be irrevocable for such
taxable year.
``(2) Treatment of organizations and patrons.--
``(A) Organizations.--The amount of the credit not
apportioned to patrons pursuant to paragraph (1) shall
be included in the amount determined under subsection
(a) for the taxable year of the organization.
``(B) Patrons.--The amount of the credit
apportioned to patrons pursuant to paragraph (1) shall
be included in the amount determined under subsection
(a) for the first taxable year of each patron ending on
or after the last day of the payment period (as defined
in section 1382(d)) for the taxable year of the
organization or, if earlier, for the taxable year of
each patron ending on or after the date on which the
patron receives notice from the cooperative of the
apportionment.
``(3) Special rule.--If for any reason the tax imposed with
respect to any patron of a cooperative organization would, but
for this paragraph, be increased by any amount by reason of a
credit apportioned to such patron under this subsection--
``(A) the amount of such increase in tax shall not
be imposed on such patron, and
``(B) the tax imposed by this chapter on such
organization shall be increased by such amount.
The increase under subparagraph (B) shall not be treated as tax
imposed by this chapter for purposes of determining the amount
of any credit under this chapter or for purposes of section
55.''.
(b) Credit Made Part of General Business Credit.--Subsection (b) of
section 38 (relating to general business credit), as amended by this
Act, is amended by striking ``plus'' at the end of paragraph (26), by
striking the period at the end of paragraph (27) and inserting ``,
plus'', and by adding at the end the following new paragraph:
``(28) in the case of a small business refiner, the low
sulfur diesel fuel production credit determined under section
45P(a).''.
(c) Denial of Double Benefit.--Section 280C (relating to certain
expenses for which credits are allowable) is amended by adding after
subsection (d) the following new subsection:
``(e) Low Sulfur Diesel Fuel Production Credit.--No deduction shall
be allowed for that portion of the expenses otherwise allowable as a
deduction for the taxable year which is equal to the amount of the
credit determined for the taxable year under section 45P(a).''.
(d) Basis Adjustment.--Section 1016(a) (relating to adjustments to
basis), as amended by this Act, is amended by striking ``and'' at the
end of paragraph (37), by striking the period at the end of paragraph
(38) and inserting ``, and'', and by adding at the end the following
new paragraph:
``(39) in the case of a facility with respect to which a
credit was allowed under section 45P, to the extent provided in
section 45P(d).''.
(e) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:
``Sec. 45P. Credit for production of low
sulfur diesel fuel.''.
(f) Effective Date.--The amendments made by this section shall
apply to expenses paid or incurred after December 31, 2002, in taxable
years ending after such date.
SEC. 845. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION
DEDUCTION.
(a) In General.--Paragraph (4) of section 613A(d) (relating to
limitations on application of subsection (c)) is amended to read as
follows:
``(4) Certain refiners excluded.--If the taxpayer or 1 or
more related persons engages in the refining of crude oil,
subsection (c) shall not apply to the taxpayer for a taxable
year if the average daily refinery runs of the taxpayer and
such persons for the taxable year exceed 60,000 barrels. For
purposes of this paragraph, the average daily refinery runs for
any taxable year shall be determined by dividing the aggregate
refinery runs for the taxable year by the number of days in the
taxable year.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years ending after December 31, 2004.
SEC. 846. MARGINAL PRODUCTION INCOME LIMIT EXTENSION.
Section 613A(c)(6)(H) (relating to temporary suspension of taxable
income limit with respect to marginal production), as amended by this
Act, is amended by striking ``2005'' and inserting ``2007''.
SEC. 847. AMORTIZATION OF DELAY RENTAL PAYMENTS.
(a) In General.--Section 167 (relating to depreciation) is amended
by redesignating subsection (h) as subsection (i) and by inserting
after subsection (g) the following new subsection:
``(h) Amortization of Delay Rental Payments for Domestic Oil and
Gas Wells.--
``(1) In general.--Any delay rental payment paid or
incurred in connection with the development of oil or gas wells
within the United States (as defined in section 638) shall be
allowed as a deduction ratably over the 24-month period
beginning on the date that such payment was paid or incurred.
``(2) Half-year convention.--For purposes of paragraph (1),
any payment paid or incurred during the taxable year shall be
treated as paid or incurred on the mid-point of such taxable
year.
``(3) Exclusive method.--Except as provided in this
subsection, no depreciation or amortization deduction shall be
allowed with respect to such payments.
``(4) Treatment upon abandonment.--If any property to which
a delay rental payment relates is retired or abandoned during
the 24-month period described in paragraph (1), no deduction
shall be allowed on account of such retirement or abandonment
and the amortization deduction under this subsection shall
continue with respect to such payment.
``(5) Delay rental payments.--For purposes of this
subsection, the term `delay rental payment' means an amount
paid for the privilege of deferring development of an oil or
gas well under an oil or gas lease.''.
(b) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred in taxable years beginning after
December 31, 2004.
SEC. 848. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.
(a) In General.--Section 167 (relating to depreciation), as amended
by this Act, is amended by redesignating subsection (i) as subsection
(j) and by inserting after subsection (h) the following new subsection:
``(i) Amortization of Geological and Geophysical Expenditures.--
``(1) In general.--Any geological and geophysical expenses
paid or incurred in connection with the exploration for, or
development of, oil or gas within the United States (as defined
in section 638) shall be allowed as a deduction ratably over
the 24-month period beginning on the date that such expense was
paid or incurred.
``(2) Special rules.--For purposes of this subsection,
rules similar to the rules of paragraphs (2), (3), and (4) of
subsection (h) shall apply.''.
(b) Conforming Amendment.--Section 263A(c)(3) is amended by
inserting ``167(h), 167(i),'' after ``under section''.
(c) Effective Date.--The amendments made by this section shall
apply to costs paid or incurred in taxable years beginning after
December 31, 2004.
SEC. 849. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM
A NONCONVENTIONAL SOURCE.
(a) In General.--Section 29 (relating to credit for producing fuel
from a nonconventional source) is amended by adding at the end the
following new subsection:
``(h) Extension for Other Facilities.--
``(1) Oil and gas.--In the case of a well or facility for
producing qualified fuels described in subparagraph (A) or (B)
of subsection (c)(1) which was drilled or placed in service
after December 31, 2004, and before January 1, 2007,
notwithstanding subsection (f), this section shall apply with
respect to such fuels produced at such well or facility before
the close of the 3-year period beginning on the date that such
well is drilled or such facility is placed in service.
``(2) Facilities producing fuels from agricultural and
animal waste.--
``(A) In general.--In the case of a facility for
producing liquid, gaseous, or solid fuels from
qualified agricultural and animal wastes, including
such fuels when used as feedstocks, which was placed in
service after December 31, 2004, and before January 1,
2007, this section shall apply with respect to fuel
produced at such facility before the close of the 3-
year period beginning on the date such facility is
placed in service.
``(B) Qualified agricultural and animal waste.--For
purposes of this paragraph, the term `qualified
agricultural and animal waste' means agriculture and
animal waste, including by-products, packaging, and any
materials associated with the processing, feeding,
selling, transporting, or disposal of agricultural or
animal products or wastes.
``(3) Wells producing viscous oil.--
``(A) In general.--In the case of a well for
producing viscous oil which was placed in service after
December 31, 2004, and before January 1, 2007, this
section shall apply with respect to fuel produced at
such well before the close of the 3-year period
beginning on the date such well is placed in service.
``(B) Viscous oil.--The term `viscous oil' means
heavy oil, as defined in section 613A(c)(6), except
that--
``(i) `22 degrees' shall be substituted for
`20 degrees' in applying subparagraph (F)
thereof, and
``(ii) in all cases, the oil gravity shall
be measured from the initial well-head samples,
drill cuttings, or down hole samples.
``(C) Waiver of unrelated person requirement.--In
the case of viscous oil, the requirement under
subsection (a)(2)(A) of a sale to an unrelated person
shall not apply to any sale to the extent that the
viscous oil is not consumed in the immediate vicinity
of the wellhead.
``(4) Facilities producing refined coal.--
``(A) In general.--In the case of a facility
described in subparagraph (C) for producing refined
coal which was placed in service after December 31,
2004, and before January 1, 2007, this section shall
apply with respect to fuel produced at such facility
before the close of the 5-year period beginning on the
date such facility is placed in service.
``(B) Refined coal.--For purposes of this
paragraph, the term `refined coal' means a fuel which
is a liquid, gaseous, or solid synthetic fuel produced
from coal (including lignite) or high carbon fly ash,
including such fuel used as a feedstock.
``(C) Covered facilities.--
``(i) In general.--A facility is described
in this subparagraph if such facility produces
refined coal using a technology which results
in--
``(I) a qualified emission
reduction, and
``(II) a qualified enhanced value.
``(ii) Qualified emission reduction.--For
purposes of this subparagraph, the term
`qualified emission reduction' means a
reduction of at least 20 percent of the
emissions of nitrogen oxide and either sulfur
dioxide or mercury released when burning the
refined coal (excluding any dilution caused by
materials combined or added during the
production process), as compared to the
emissions released when burning the feedstock
coal or comparable coal predominantly available
in the marketplace as of January 1, 2004.
``(iii) Qualified enhanced value.--For
purposes of this subparagraph, the term
`qualified enhanced value' means an increase of
at least 50 percent in the market value of the
refined coal (excluding any increase caused by
materials combined or added during the
production process), as compared to the value
of the feedstock coal.
``(iv) Qualifying advanced clean coal
technology units excluded.--A facility
described in this subparagraph shall not
include a qualifying advanced clean coal
technology unit (as defined in section 48A(b)).
``(5) Coalmine gas.--
``(A) In general.--This section shall apply to
coalmine gas--
``(i) captured or extracted by the taxpayer
during the period beginning after December 31,
2004, and ending before January 1, 2007, and
``(ii) utilized as a fuel source or sold by
or on behalf of the taxpayer to an unrelated
person during such period.
``(B) Coalmine gas.--For purposes of this
paragraph, the term `coalmine gas' means any methane
gas which is--
``(i) liberated during or as a result of
coal mining operations, or
``(ii) extracted up to 10 years in advance
of coal mining operations as part of a specific
plan to mine a coal deposit.
``(C) Special rule for advanced extraction.--In the
case of coalmine gas which is captured in advance of
coal mining operations, the credit under subsection (a)
shall be allowed only after the date the coal
extraction occurs in the immediate area where the
coalmine gas was removed.
``(D) Noncompliance with pollution laws.--This
paragraph shall not apply to the capture or extraction
of coalmine gas from coal mining operations with
respect to any period in which such coal mining
operations are not in compliance with applicable State
and Federal pollution prevention, control, and permit
requirements.
``(6) Special rules.--In determining the amount of credit
allowable under this section solely by reason of this
subsection--
``(A) Fuels treated as qualified fuels.--Any fuel
described in paragraph (2), (3), (4), or (5) shall be
treated as a qualified fuel for purposes of this
section.
``(B) Daily limit.--The amount of qualified fuels
described in subparagraph (A) or (B)(i) of subsection
(c)(1) sold during any taxable year which may be taken
into account by reason of this subsection with respect
to any project shall not exceed an average barrel-of-
oil equivalent of 200,000 cubic feet of natural gas per
day. Days before the date the project is placed in
service shall not be taken into account in determining
such average.
``(C) Extension period to commence with unadjusted
credit amount and new phaseout adjustment.--For
purposes of applying subsection (b)(2), in the case of
fuels sold after 2003--
``(i) paragraphs (1)(A) and (2) of
subsection (b) shall be applied by subtituting
`$35.00' for `$23.50', and
``(ii) subparagraph (B) of subsection
(d)(2) shall be applied by substituting `2002'
for `1979' in determining such dollar
amounts.''.
(b) Extension for certain fuel produced at existing facilities.--
(1) Extension.--Section 29(f)(2) (relating to application
of section) is amended by inserting ``(January 1, 2006, in the
case of any coke, coke gas, or natural gas and byproducts
produced by coal gasification from lignite in a facility
described in paragraph (1)(B))'' after ``January 1, 2003''.
(2) Use of credit as an offset.--Section 29, as amended by
subsection (a), is amended by adding the end the following new
subsection:
``(i) Use of Credit as an Offset.--
``(1) In general.--Any credit allowable under subsection
(a) with respect to any natural gas and byproducts produced by
coal gasification from lignite in a facility described in
paragraph (1)(B) of subsection (f) owned by a person described
in section 1381(a)(2)(C) or subsidiaries of such person may be
used as provided in paragraph (2).
``(2) Use of credit as an offset.--Notwithstanding any
other provision of law, in the case of a person described in
paragraph (1), any credit to which paragraph (1) applies may be
applied by such person--
``(A) to the extent provided by the Secretary of
Agriculture, as a prepayment of any loan, debt, or
other obligation the entity has incurred under
subchapter I of chapter 31 of title 7 of the Rural
Electrification Act of 1936 (7 U.S.C. 901 et seq.), as
in effect on the date of the enactment of the Energy
Tax Incentives Act of 2003, and
``(B) to the extent provided by the Secretary of
Energy, as a prepayment not to exceed 50 percent of any
obligation the person has incurred pursuant to an asset
purchase agreement entered into with the Secretary and
dated October 7, 1988.
``(3) Credit not income.--Any use under paragraph (2) of
any credit to which paragraph (1) applies shall not be treated
as income for purposes of this title.
``(4) Treatment of unrelated persons.--For purposes of
subsection (a)(2)(A), sales of qualified fuels among and
between persons described in paragraph (1) shall be treated as
sales between unrelated parties.''.
(c) Treatment as Business Credit.--
(1) Credit moved to subpart relating to business related
credits.--The Internal Revenue Code of 1986, as amended by this
Act, is amended by redesignating section 29, as amended by this
Act, as section 45R and by moving section 45R (as so
redesignated) from subpart B of part IV of subchapter A of
chapter 1 to the end of subpart D of part IV of subchapter A of
chapter 1.
(2) Credit Treated as Business Credit.--Section 38(b), as
amended by this Act, is amended by striking ``plus'' at the end
of paragraph (29), by striking the period at the end of
paragraph (30) and inserting ``, plus'', and by adding at the
end the following:
``(31) the nonconventional source production credit
determined under section 45R(a).''.
(3) Conforming Amendments.--
(A) Section 30(b)(2)(A), as redesignated by this
Act, is amended by striking ``sections 27 and 29'' and
inserting ``section 27''.
(B) Sections 43(b)(2) and 613A(c)(6)(C) are each
amended by striking ``section 29(d)(2)(C)'' and
inserting ``section 45R(d)(2)(C)''.
(C) Section 45R(a), as redesignated by paragraph
(1), is amended by striking ``At the election of the
taxpayer, there shall be allowed as a credit against
the tax imposed by this chapter for the taxable year''
and inserting ``For purposes of section 38, if the
taxpayer elects to have this section apply, the
nonconventional source production credit determined
under this section for the taxable year is''.
(D) Section 45R(b), as so redesignated, is amended
by striking paragraph (6).
(E) Section 53(d)(1)(B)(iii) is amended by striking
``under section 29'' and all that follows through ``or
not allowed''.
(F) Section 55(c)(2) is amended by striking
``29(b)(6),''.
(G) Subsection (a) of section 772, as amended by
this Act, is amended by striking paragraph (10) and by
redesignating paragraphs (11) and (12) as paragraphs
(10) and (11), respectively.
(H) Paragraph (5) of section 772(d) is amended by
striking ``the foreign tax credit, and the credit
allowable under section 29'' and inserting ``and the
foreign tax credit''.
(I) The table of sections for subpart B of part IV
of subchapter A of chapter 1 is amended by striking the
item relating to section 29.
(J) The table of sections for subpart D of part IV
of subchapter A of chapter 1, as amended by this Act,
is amended by inserting after the item relating to
section 45Q the following new item:
``Sec. 45R. Credit for producing fuel
from a nonconventional
source.''.
(d) Study of Coalbed Methane.--
(1) In general.--The Secretary of the Treasury shall
conduct a study regarding the effect of section 45R of the
Internal Revenue Code of 1986 on the production of coalbed
methane.
(2) Contents of study.--The study under paragraph (1) shall
estimate the total amount of credits under section 45R of the
Internal Revenue Code of 1986 claimed annually and in the
aggregate which are related to the production of coalbed
methane since the date of the enactment of such section 45R.
Such study shall report the annual value of such credits
allowable for coalbed methane compared to the average annual
wellhead price of natural gas (per thousand cubic feet of
natural gas). Such study shall also estimate the incremental
increase in production of coalbed methane which has resulted
from the enactment of such section 45R, and the cost to the
Federal Government, in terms of the net tax benefits claimed,
per thousand cubic feet of incremental coalbed methane produced
annually and in the aggregate since such enactment.
(e) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to fuel sold after
December 31, 2004, in taxable years ending after such date.
(2) Existing facilities.--The amendments made by subsection
(b) shall apply to fuel sold after December 31, 2002, in
taxable years ending after such date.
(3) Treatment as business credit.--The amendments made by
subsection (c) shall apply to taxable years ending after
December 31, 2003.
SEC. 850. NATURAL GAS DISTRIBUTION LINES TREATED AS 15-YEAR PROPERTY.
(a) In General.--Section 168(e)(3)(E) (defining 15-year property),
as amended by this Act, is amended by striking ``and'' at the end of
clause (iii), by striking the period at the end of clause (iv) and by
inserting ``, and'', and by adding at the end the following new clause:
``(v) any natural gas distribution line.''.
(b) Alternative System.--The table contained in section
168(g)(3)(B) (relating to special rule for certain property assigned to
classes), as amended by this Act, is amended by adding after the item
relating to subparagraph (E)(iii) the following new item:
``(E)(v)....................................................... 35''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2004, in taxable
years ending after such date.
SEC. 851. CREDIT FOR ALASKA NATURAL GAS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 45Q. ALASKA NATURAL GAS.
``(a) In General.--For purposes of section 38, the Alaska natural
gas credit for any taxable year is an amount equal to the product of--
``(1) the credit amount, and
``(2) Alaska natural gas the production of which is
attributable to the taxpayer.
``(b) Credit Amount.--For purposes of this section--
``(1) In general.--The credit amount is $0.52 per 1,000,000
Btu of Alaska natural gas.
``(2) Reduction as gas prices increase.--
``(A) In general.--The dollar amount under
paragraph (1) shall be reduced (but not below zero) by
an amount which bears the same ratio to such amount
(determined without regard to this paragraph) as--
``(i) the excess (if any) of the applicable
reference price over $0.83, bears to
``(ii) $0.52.
``(B) Applicable reference price.--For purposes of
this paragraph--
``(i) In general.--The applicable reference
price for any calendar month in a taxable year
is the reference price for the calendar month
in which production occurs.
``(ii) Reference price.--The term
`reference price' means, with respect to any
calendar month, a published market price for
natural gas in United States dollars per
1,000,000 Btu (reduced by any gas
transportation costs and gas processing costs
as determined by the appropriate national
regulatory body for natural gas transportation)
as determined under regulations by the
Secretary.
``(C) Inflation adjustment.--
``(i) In general.--In the case of any
taxable year beginning in a calendar year after
2005, each of the dollar amounts contained in
paragraph (1) and subparagraph (A) of this
paragraph shall be increased to an amount equal
to such dollar amount multiplied by the
inflation adjustment factor for such calendar
year.
``(ii) Inflation adjustment factor.--For
purposes of clause (i)--
``(I) In general.--The term
`inflation adjustment factor' means,
with respect to a calendar year, a
fraction the numerator of which is the
GDP implicit price deflator for the
preceding calendar year and the
denominator of which is the GDP
implicit price deflator for the
calendar year 2004.
``(II) GDP implicit price
deflator.--The term `GDP implicit price
deflator' means, for any calendar year,
the most recent revision of the
implicit price deflator for the gross
domestic product as of June 30 of such
calendar year as computed by the
Department of Commerce before October 1
of such calendar year.
``(c) Alaska Natural Gas.--For purposes of this section--
``(1) In general.--The term `Alaska natural gas' means
natural gas entering the Alaska natural gas pipeline (as
defined in section 168(i)(19) (determined without regard to
subparagraph (B) thereof)) which is produced from a well--
``(A) located in the area of the State of Alaska
lying north of 64 degrees North latitude, determined by
excluding the area of the Alaska National Wildlife
Refuge (including the continental shelf thereof within
the meaning of section 638(1)), and
``(B) pursuant to the applicable State and Federal
pollution prevention, control, and permit requirements
from such area (including the continental shelf thereof
within the meaning of section 638(1)).
``(2) Natural gas.--The term `natural gas' has the meaning
given such term by section 613A(e)(2).
``(d) Special Rules.--For purposes of this section--
``(1) Production attributable to the taxpayer.--
``(A) In general.--In the case of a well in which
there is more than 1 person or entity--
``(i) entitled to production of Alaska
natural gas, or
``(ii) at the election of such person or
entity, entitled to the value of production as
either an operating interest owner or a royalty
interest owner,
the portion of such production attributable to such
person or entity shall be determined on the basis of
the ratio which the person's or entity's interest in
the production or the value of production bears to the
aggregate of the interests of all such persons or
entities. Production otherwise attributable to a United
States tax-exempt person or entity by reason of a
royalty interest shall be attributable to such person
or entity with respect to whom royalty-in-value
production remains or to whom royalty-in-kind
production is sold.
``(B) Partnership properties.--In the case of a
partnership, for purposes of applying subparagraph (A),
production shall be attributable to its partners based
on each partner's distributive share of Alaska natural
gas which is produced from partnership properties and
attributable to the partnership or its partners under
subparagraph (A).
``(2) Pass-Thru in the Case of Estates and Trusts.--Under
regulations prescribed by the Secretary, rules similar to the
rules of subsection (d) of section 52 shall apply.
``(e) Application of Section.--This section shall apply to Alaska
natural gas during the period--
``(1) beginning with the later of--
``(A) January 1, 2010, or
``(B) the initial date for the interstate
transportation of such Alaska natural gas, and
``(2) ending with the date which is 25 years after the date
described in paragraph (1).''.
(b) Credit Treated as Business Credit.--Section 38(b) (relating to
current year business credit), as amended by this Act, is amended by
striking ``plus'' at the end of paragraph (27), by striking the period
at the end of paragraph (28) and inserting ``, plus'', and by adding at
the end the following new paragraph:
``(29) The Alaska natural gas credit determined under
section 45Q(a).''.
(c) Allowing Credit Against Entire Regular Tax and Minimum Tax.--
(1) In general.--Section 38(c) (relating to limitation
based on amount of tax), as amended by this Act, is amended by
redesignating paragraph (5) as paragraph (6) and by inserting
after paragraph (4) the following new paragraph:
``(5) Special rules for alaska natural gas credit.--
``(A) In general.--In the case of the Alaska
natural gas credit--
``(i) this section and section 39 shall be
applied separately with respect to the credit,
and
``(ii) in applying paragraph (1) to the
credit--
``(I) the amounts in subparagraphs
(A) and (B) thereof shall be treated as
being zero, and
``(II) the limitation under
paragraph (1) (as modified by subclause
(I)) shall be reduced by the credit
allowed under subsection (a) for the
taxable year (other than the Alaska
natural gas credit).
``(B) Alaska Natural Gas Credit.--For purposes of
this subsection, the term `Alaska natural gas credit'
means the credit allowable under subsection (a) by
reason of section 45Q(a).''.
(2) Conforming amendments.--Subclause (II) of section
38(c)(2)(A)(ii), as amended by this Act, subclause (II) of
section 38(c)(3)(A)(ii), as amended by this Act, and subclause
(II) of section 38(c)(4)(A)(ii), as added by this Act, are each
amended by inserting ``or the Alaska natural gas credit'' after
``specified credits''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:
``Sec. 45Q. Alaska natural gas.''.
SEC. 852. CERTAIN ALASKA NATURAL GAS PIPELINE PROPERTY TREATED AS 7-
YEAR PROPERTY.
(a) In General.--Section 168(e)(3)(C) (defining 7-year property),
as amended by this Act, is amended by striking ``and'' at the end of
clause (iii), by redesignating clause (iv) as clause (v), and by
inserting after clause (iii) the following new clause:
``(iv) any Alaska natural gas pipeline,
and''.
(b) Alaska Natural Gas Pipeline.--Section 168(i) (relating to
definitions and special rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
``(19) Alaska natural gas pipeline.--The term `Alaska
natural gas pipeline' means the natural gas pipeline system
located in the State of Alaska which--
``(A) has a capacity of more than 500,000,000,000
Btu of natural gas per day, and
``(B) is--
``(i) placed in service after December 31,
2012, or
``(ii) treated as placed in service on
January 1, 2013, if the taxpayer who places
such system in service before January 1, 2013,
elects such treatment.
Such term includes the pipe, trunk lines, related equipment,
and appurtenances used to carry natural gas, but does not
include any gas processing plant.''.
(c) Alternative System.--The table contained in section
168(g)(3)(B) (relating to special rule for certain property assigned to
classes), as amended by this Act, is amended by inserting after the
item relating to subparagraph (C)(iii) the following new item:
``(C)(iv)...................................................... 22''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2004.
SEC. 853. EXTENSION OF ENHANCED OIL RECOVERY CREDIT TO CERTAIN ALASKA
FACILITIES.
(a) In General.--Section 43(c)(1) (defining qualified enhanced oil
recovery costs) is amended by adding at the end the following new
subparagraph:
``(D) Any amount which is paid or incurred during
the taxable year to construct a gas treatment plant
which--
``(i) is located in the area of the United
States (within the meaning of section 638(1))
lying north of 64 degrees North latitude,
``(ii) prepares Alaska natural gas (as
defined in section 45Q(c)(1)) for
transportation through a pipeline with a
capacity of at least 2,000,000,000,000 Btu of
natural gas per day, and
``(iii) produces carbon dioxide which is
injected into hydrocarbon-bearing geological
formations.''.
(b) Effective Date.--The amendment made by this section shall apply
to costs paid or incurred in taxable years beginning after December 31,
2004.
SEC. 854. ARBITRAGE RULES NOT TO APPLY TO PREPAYMENTS FOR NATURAL GAS.
(a) In General.--Section 148(b) (relating to higher yielding
investments) is amended by adding at the end the following new
paragraph:
``(4) Safe harbor for prepaid natural gas.--
``(A) In general.--The term `investment-type
property' does not include a prepayment under a
qualified natural gas supply contract.
``(B) Qualified natural gas supply contract.--For
purposes of this paragraph, the term `qualified natural
gas supply contract' means any contract to acquire
natural gas for resale by or for a utility owned by a
governmental unit if the amount of gas permitted to be
acquired under the contract for the utility during any
year does not exceed the sum of--
``(i) the annual average amount during the
testing period of natural gas purchased (other
than for resale) by customers of such utility
who are located within the service area of such
utility, and
``(ii) the amount of natural gas to be used
to transport the prepaid natural gas to the
utility during such year.
``(C) Natural gas used to generate electricity.--
Natural gas used to generate electricity shall be taken
into account in determining the average under
subparagraph (B)(i)--
``(i) only if the electricity is generated
by a utility owned by a governmental unit, and
``(ii) only to the extent that the
electricity is sold (other than for resale) to
customers of such utility who are located
within the service area of such utility.
``(D) Adjustments for changes in customer base.--
``(i) New business customers.--If--
``(I) after the close of the
testing period and before the date of
issuance of the issue, the utility
owned by a governmental unit enters
into a contract to supply natural gas
(other than for resale) for use by a
business at a property within the
service area of such utility, and
``(II) the utility did not supply
natural gas to such property during the
testing period or the ratable amount of
natural gas to be supplied under the
contract is significantly greater than
the ratable amount of gas supplied to
such property during the testing
period,
then a contract shall not fail to be treated as
a qualified natural gas supply contract by
reason of supplying the additional natural gas
under the contract referred to in subclause
(I).
``(ii) Overall limitation.--The average
under subparagraph (B)(i) shall not exceed the
annual amount of natural gas reasonably
expected to be purchased (other than for
resale) by persons who are located within the
service area of such utility and who, as of the
date of issuance of the issue, are customers of
such utility.
``(E) Ruling requests.--The Secretary may increase
the average under subparagraph (B)(i) for any period if
the utility owned by the governmental unit establishes
to the satisfaction of the Secretary that, based on
objective evidence of growth in natural gas consumption
or population, such average would otherwise be
insufficient for such period.
``(F) Adjustment for natural gas otherwise on
hand.--
``(i) In general.--The amount otherwise
permitted to be acquired under the contract for
any period shall be reduced by--
``(I) the applicable share of
natural gas held by the utility on the
date of issuance of the issue, and
``(II) the natural gas (not taken
into account under subclause (I)) which
the utility has a right to acquire
during such period (determined as of
the date of issuance of the issue).
``(ii) Applicable share.--For purposes of
clause (i), the term `applicable share' means,
with respect to any period, the natural gas
allocable to such period if the gas were
allocated ratably over the period to which the
prepayment relates.
``(G) Intentional acts.--Subparagraph (A) shall
cease to apply to any issue if the utility owned by the
governmental unit engages in any intentional act to
render the volume of natural gas acquired by such
prepayment to be in excess of the sum of--
``(i) the amount of natural gas needed
(other than for resale) by customers of such
utility who are located within the service area
of such utility, and
``(ii) the amount of natural gas used to
transport such natural gas to the utility.
``(H) Testing period.--For purposes of this
paragraph, the term `testing period' means, with
respect to an issue, the most recent 5 calendar years
ending before the date of issuance of the issue.
``(I) Service area.--For purposes of this
paragraph, the service area of a utility owned by a
governmental unit shall be comprised of--
``(i) any area throughout which such
utility provided at all times during the
testing period--
``(I) in the case of a natural gas
utility, natural gas transmission or
distribution services, and
``(II) in the case of an electric
utility, electricity distribution
services,
``(ii) any area within a county contiguous
to the area described in clause (i) in which
retail customers of such utility are located if
such area is not also served by another utility
providing natural gas or electricity services,
as the case may be, and
``(iii) any area recognized as the service
area of such utility under State or Federal
law.''.
(b) Private Loan Financing Test Not To Apply to Prepayments for
Natural Gas.--Section 141(c)(2) (providing exceptions to the private
loan financing test) is amended by striking ``or'' at the end of
subparagraph (A), by striking the period at the end of subparagraph (B)
and inserting ``, or'', and by adding at the end the following new
subparagraph:
``(C) is a qualified natural gas supply contract
(as defined in section 148(b)(4)).''.
(c) Conforming Amendment.--Section 141(d) is amended by adding at
the end the following new paragraph:
``(7) Exception for qualified electric and natural gas
supply contracts.--The term `nongovernmental output property'
shall not include any contract for the prepayment of
electricity or natural gas which is not investment property
under section 148(b)(2).''.
(d) Effective Date.--The amendment made by this section shall apply
to obligations issued after December 31, 2004.
Subtitle F--Electric Utility Restructuring Provisions
SEC. 855. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR DECOMMISSIONING
COSTS.
(a) Repeal of Limitation on Deposits Into Fund Based on Cost of
Service; Contributions After Funding Period.--Subsection (b) of section
468A (relating to special rules for nuclear decommissioning costs) is
amended to read as follows:
``(b) Limitation on Amounts Paid Into Fund.--The amount which a
taxpayer may pay into the Fund for any taxable year shall not exceed
the ruling amount applicable to such taxable year.''.
(b) Clarification of Treatment of Fund Transfers.--Section 468A(e)
(relating to Nuclear Decommissioning Reserve Fund) is amended by adding
at the end the following new paragraph:
``(8) Treatment of fund transfers.--If, in connection with
the transfer of the taxpayer's interest in a nuclear power
plant, the taxpayer transfers the Fund with respect to such
power plant to the transferee of such interest and the
transferee elects to continue the application of this section
to such Fund--
``(A) the transfer of such Fund shall not cause
such Fund to be disqualified from the application of
this section, and
``(B) no amount shall be treated as distributed
from such Fund, or be includable in gross income, by
reason of such transfer.''.
(c) Treatment of Certain Decommissioning Costs.--
(1) In general.--Section 468A is amended by redesignating
subsections (f) and (g) as subsections (g) and (h),
respectively, and by inserting after subsection (e) the
following new subsection:
``(f) Transfers Into Qualified Funds.--
``(1) In general.--Notwithstanding subsection (b), any
taxpayer maintaining a Fund to which this section applies with
respect to a nuclear power plant may transfer into such Fund
not more than an amount equal to the present value of the
excess of the total nuclear decommissioning costs with respect
to such nuclear power plant over the portion of such costs
taken into account in determining the ruling amount in effect
immediately before the transfer.
``(2) Deduction for amounts transferred.--
``(A) In general.--Except as provided in
subparagraph (C), the deduction allowed by subsection
(a) for any transfer permitted by this subsection shall
be allowed ratably over the remaining estimated useful
life (within the meaning of subsection (d)(2)(A)) of
the nuclear power plant beginning with the taxable year
during which the transfer is made.
``(B) Denial of deduction for previously deducted
amounts.--No deduction shall be allowed for any
transfer under this subsection of an amount for which a
deduction was previously allowed or a corresponding
amount was not included in gross income. For purposes
of the preceding sentence, a ratable portion of each
transfer shall be treated as being from previously
deducted or excluded amounts to the extent thereof.
``(C) Transfers of qualified funds.--If--
``(i) any transfer permitted by this
subsection is made to any Fund to which this
section applies, and
``(ii) such Fund is transferred thereafter,
any deduction under this subsection for taxable years
ending after the date that such Fund is transferred
shall be allowed to the transferee and not the
transferor. The preceding sentence shall not apply if
the transferor is an entity exempt from tax under this
chapter.
``(D) Special rules.--
``(i) Gain or loss not recognized.--No gain
or loss shall be recognized on any transfer
permitted by this subsection.
``(ii) Transfers of appreciated property.--
If appreciated property is transferred in a
transfer permitted by this subsection, the
amount of the deduction shall not exceed the
adjusted basis of such property.
``(3) New ruling amount required.--Paragraph (1) shall not
apply to any transfer unless the taxpayer requests from the
Secretary a new schedule of ruling amounts in connection with
such transfer.
``(4) No basis in qualified funds.--Notwithstanding any
other provision of law, the taxpayer's basis in any Fund to
which this section applies shall not be increased by reason of
any transfer permitted by this subsection.''.
(2) New ruling amount to take into account total costs.--
Subparagraph (A) of section 468A(d)(2) (defining ruling amount)
is amended to read as follows:
``(A) fund the total nuclear decommissioning costs
with respect to such power plant over the estimated
useful life of such power plant, and''.
(d) Technical Amendment.--Section 468A(e)(2) (relating to taxation
of Fund) is amended--
(1) by striking ``rate set forth in subparagraph (B)'' in
subparagraph (A) and inserting ``rate of 20 percent'',
(2) by striking subparagraph (B), and
(3) by redesignating subparagraphs (C) and (D) as
subparagraphs (B) and (C), respectively.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 856. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.
(a) Income From Open Access and Nuclear Decommissioning
Transactions.--
(1) In general.--Section 501(c)(12)(C) (relating to list of
exempt organizations) is amended by striking ``or'' at the end
of clause (i), by striking clause (ii), and by adding at the
end the following new clauses:
``(ii) from any open access transaction
(other than income received or accrued directly
or indirectly from a member),
``(iii) from any nuclear decommissioning
transaction,
``(iv) from any asset exchange or
conversion transaction, or
``(v) from the prepayment of any loan,
debt, or obligation made, insured, or
guaranteed under the Rural Electrification Act
of 1936.''.
(2) Definitions and special rules.--Section 501(c)(12) is
amended by adding at the end the following new subparagraphs:
``(E) For purposes of subparagraph (C)(ii)--
``(i) The term `open access transaction'
means any transaction meeting the open access
requirements of any of the following subclauses
with respect to a mutual or cooperative
electric company:
``(I) The provision or sale of
electric transmission service or
ancillary services meets the open
access requirements of this subclause
only if such services are provided on a
nondiscriminatory open access basis
pursuant to an open access transmission
tariff filed with and approved by FERC,
including an acceptable reciprocity
tariff, or under a regional
transmission organization agreement
approved by FERC.
``(II) The provision or sale of
electric energy distribution services
or ancillary services meets the open
access requirements of this subclause
only if such services are provided on a
nondiscriminatory open access basis to
end-users served by distribution
facilities owned by the mutual or
cooperative electric company (or its
members).
``(III) The delivery or sale of
electric energy generated by a
generation facility meets the open
access requirements of this subclause
only if such facility is directly
connected to distribution facilities
owned by the mutual or cooperative
electric company (or its members) which
owns the generation facility, and such
distribution facilities meet the open
access requirements of subclause (II).
``(ii) Clause (i)(I) shall apply in the
case of a voluntarily filed tariff only if the
mutual or cooperative electric company files a
report with FERC within 90 days after the date
of the enactment of this subparagraph relating
to whether or not such company will join a
regional transmission organization.
``(iii) A mutual or cooperative electric
company shall be treated as meeting the open
access requirements of clause (i)(I) if a
regional transmission organization controls the
transmission facilities.
``(iv) References to FERC in this
subparagraph shall be treated as including
references to the Public Utility Commission of
Texas with respect to any ERCOT utility (as
defined in section 212(k)(2)(B) of the Federal
Power Act (16 U.S.C. 824k(k)(2)(B))) or
references to the Rural Utilities Service with
respect to any other facility not subject to
FERC jurisdiction.
``(v) For purposes of this subparagraph--
``(I) The term `transmission
facility' means an electric output
facility (other than a generation
facility) which operates at an electric
voltage of 69 kilovolts or greater. To
the extent provided in regulations,
such term includes any output facility
which FERC determines is a transmission
facility under standards applied by
FERC under the Federal Power Act (as in
effect on the date of the enactment of
the Energy Tax Incentives Act).
``(II) The term `regional
transmission organization' includes an
independent system operator.
``(III) The term `FERC' means the
Federal Energy Regulatory Commission.
``(F) The term `nuclear decommissioning
transaction' means--
``(i) any transfer into a trust, fund, or
instrument established to pay any nuclear
decommissioning costs if the transfer is in
connection with the transfer of the mutual or
cooperative electric company's interest in a
nuclear power plant or nuclear power plant
unit,
``(ii) any distribution from any trust,
fund, or instrument established to pay any
nuclear decommissioning costs, or
``(iii) any earnings from any trust, fund,
or instrument established to pay any nuclear
decommissioning costs.
``(G) The term `asset exchange or conversion
transaction' means any voluntary exchange or
involuntary conversion of any property related to
generating, transmitting, distributing, or selling
electric energy by a mutual or cooperative electric
company, the gain from which qualifies for deferred
recognition under section 1031 or 1033, but only if the
replacement property acquired by such company pursuant
to such section constitutes property which is used, or
to be used, for--
``(i) generating, transmitting,
distributing, or selling electric energy, or
``(ii) producing, transmitting,
distributing, or selling natural gas.''.
(b) Treatment of Income From Load Loss Transactions.--Section
501(c)(12), as amended by subsection (a)(2), is amended by adding after
subparagraph (G) the following new subparagraph:
``(H)(i) In the case of a mutual or cooperative
electric company described in this paragraph or an
organization described in section 1381(a)(2)(C), income
received or accrued from a load loss transaction shall
be treated as an amount collected from members for the
sole purpose of meeting losses and expenses.
``(ii) For purposes of clause (i), the term `load
loss transaction' means any wholesale or retail sale of
electric energy (other than to members) to the extent
that the aggregate sales during the recovery period do
not exceed the load loss mitigation sales limit for
such period.
``(iii) For purposes of clause (ii), the load loss
mitigation sales limit for the recovery period is the
sum of the annual load losses for each year of such
period.
``(iv) For purposes of clause (iii), a mutual or
cooperative electric company's annual load loss for
each year of the recovery period is the amount (if any)
by which--
``(I) the megawatt hours of electric energy
sold during such year to members of such
electric company are less than
``(II) the megawatt hours of electric
energy sold during the base year to such
members.
``(v) For purposes of clause (iv)(II), the term
`base year' means--
``(I) the calendar year preceding the
start-up year, or
``(II) at the election of the electric
company, the second or third calendar years
preceding the start-up year.
``(vi) For purposes of this subparagraph, the
recovery period is the 7-year period beginning with the
start-up year.
``(vii) For purposes of this subparagraph, the
start-up year is the calendar year which includes
January 1, 2005, or, if later, at the election of the
mutual or cooperative electric company--
``(I) the first year that such electric
company offers nondiscriminatory open access,
or
``(II) the first year in which at least 10
percent of such electric company's sales are
not to members of such electric company.
``(viii) A company shall not fail to be treated as
a mutual or cooperative company for purposes of this
paragraph or as a corporation operating on a
cooperative basis for purposes of section 1381(a)(2)(C)
by reason of the treatment under clause (i).
``(ix) In the case of a mutual or cooperative
electric company, income from any open access
transaction received, or accrued, indirectly from a
member shall be treated as an amount collected from
members for the sole purpose of meeting losses and
expenses.''.
(c) Exception From Unrelated Business Taxable Income.--Section
512(b) (relating to modifications), as amended by this Act, is amended
by adding at the end the following new paragraph:
``(20) Treatment of mutual or cooperative electric
companies.--In the case of a mutual or cooperative electric
company described in section 501(c)(12), there shall be
excluded income which is treated as member income under
subparagraph (H) thereof.''.
(d) Cross Reference.--Section 1381 is amended by adding at the end
the following new subsection:
``(c) Cross Reference.--
``For treatment of income from load
loss transactions of organizations described in subsection (a)(2)(C),
see section 501(c)(12)(H).''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 857. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY REGULATORY
COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY.
(a) In General.--Section 451 (relating to general rule for taxable
year of inclusion) is amended by adding at the end the following new
subsection:
``(i) Special Rule for Sales or Dispositions To Implement Federal
Energy Regulatory Commission or State Electric Restructuring Policy.--
``(1) In general.--For purposes of this subtitle, if a
taxpayer elects the application of this subsection to a
qualifying electric transmission transaction in any taxable
year--
``(A) any ordinary income derived from such
transaction which would be required to be recognized
under section 1245 or 1250 for such taxable year
(determined without regard to this subsection), and
``(B) any income derived from such transaction in
excess of such ordinary income which is required to be
included in gross income for such taxable year
(determined without regard to this subsection),
shall be so recognized and included ratably over the 8-taxable
year period beginning with such taxable year.
``(2) Qualifying electric transmission transaction.--For
purposes of this subsection, the term `qualifying electric
transmission transaction' means any sale or other disposition
before January 1, 2008, of--
``(A) property used by the taxpayer in the trade or
business of providing electric transmission services,
or
``(B) any stock or partnership interest in a
corporation or partnership, as the case may be, whose
principal trade or business consists of providing
electric transmission services,
but only if such sale or disposition is to an independent
transmission company.
``(3) Independent transmission company.--For purposes of
this subsection, the term `independent transmission company'
means--
``(A) a regional transmission organization approved
by the Federal Energy Regulatory Commission,
``(B) a person--
``(i) who the Federal Energy Regulatory
Commission determines in its authorization of
the transaction under section 203 of the
Federal Power Act (16 U.S.C. 824b) is not a
market participant within the meaning of such
Commission's rules applicable to regional
transmission organizations, and
``(ii) whose transmission facilities to
which the election under this subsection
applies are under the operational control of a
Federal Energy Regulatory Commission-approved
regional transmission organization before the
close of the period specified in such
authorization, but not later than January 1,
2008, or
``(C) in the case of facilities subject to the
exclusive jurisdiction of the Public Utility Commission
of Texas, a person which is approved by that Commission
as consistent with Texas State law regarding an
independent transmission organization.
``(4) Election.--An election under paragraph (1), once
made, shall be irrevocable.
``(5) Nonapplication of installment sales treatment.--
Section 453 shall not apply to any qualifying electric
transmission transaction with respect to which an election to
apply this subsection is made.''.
(b) Effective Date.--The amendment made by this section shall apply
to transactions occurring after December 31, 2004.
Subtitle G--Volumetric Ethanol Excise Tax Credit
SEC. 860. SHORT TITLE.
This subtitle may be cited as the ``Volumetric Ethanol Excise Tax
Credit (VEETC) Act of 2004''.
SEC. 861. ALCOHOL AND BIODIESEL EXCISE TAX CREDIT AND EXTENSION OF
ALCOHOL FUELS INCOME TAX CREDIT.
(a) In General.--Subchapter B of chapter 65 (relating to rules of
special application) is amended by inserting after section 6425 the
following new section:
``SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL MIXTURES.
``(a) Allowance of Credits.--There shall be allowed as a credit
against the tax imposed by section 4081 an amount equal to the sum of--
``(1) the alcohol fuel mixture credit, plus
``(2) the biodiesel mixture credit.
``(b) Alcohol Fuel Mixture Credit.--
``(1) In general.--For purposes of this section, the
alcohol fuel mixture credit is the product of the applicable
amount and the number of gallons of alcohol used by the
taxpayer in producing any alcohol fuel mixture for sale or use
in a trade or business of the taxpayer.
``(2) Applicable amount.--For purposes of this subsection--
``(A) In general.--Except as provided in
subparagraph (B), the applicable amount is 52 cents (51
cents in the case of any sale or use after 2004).
``(B) Mixtures not containing ethanol.--In the case
of an alcohol fuel mixture in which none of the alcohol
consists of ethanol, the applicable amount is 60 cents.
``(3) Alcohol fuel mixture.--For purposes of this
subsection, the term `alcohol fuel mixture' means a mixture of
alcohol and a taxable fuel which--
``(A) is sold by the taxpayer producing such
mixture to any person for use as a fuel,
``(B) is used as a fuel by the taxpayer producing
such mixture, or
``(C) is removed from the refinery by a person
producing such mixture.
``(4) Other definitions.--For purposes of this subsection--
``(A) Alcohol.--The term `alcohol' includes
methanol and ethanol but does not include--
``(i) alcohol produced from petroleum,
natural gas, or coal (including peat), or
``(ii) alcohol with a proof of less than
190 (determined without regard to any added
denaturants).
Such term also includes an alcohol gallon equivalent of
ethyl tertiary butyl ether or other ethers produced
from such alcohol.
``(B) Taxable fuel.--The term `taxable fuel' has
the meaning given such term by section 4083(a)(1).
``(5) Termination.--This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2010.
``(c) Biodiesel Mixture Credit.--
``(1) In general.--For purposes of this section, the
biodiesel mixture credit is the product of the applicable
amount and the number of gallons of biodiesel used by the
taxpayer in producing any biodiesel mixture for sale or use in
a trade or business of the taxpayer.
``(2) Applicable amount.--For purposes of this subsection--
``(A) In general.--Except as provided in
subparagraph (B), the applicable amount is 50 cents.
``(B) Amount for agri-biodiesel.--In the case of
any biodiesel which is agri-biodiesel, the applicable
amount is $1.00.
``(3) Biodiesel mixture.--For purposes of this section, the
term `biodiesel mixture' means a mixture of biodiesel and
diesel fuel (as defined in section 4083(a)(3)), determined
without regard to any use of kerosene, which--
``(A) is sold by the taxpayer producing such
mixture to any person for use as a fuel,
``(B) is used as a fuel by the taxpayer producing
such mixture, or
``(C) is removed from the refinery by a person
producing such mixture.
``(4) Certification for biodiesel.--No credit shall be
allowed under this section unless the taxpayer obtains a
certification (in such form and manner as prescribed by the
Secretary) from the producer of the biodiesel which identifies
the product produced and the percentage of biodiesel and agri-
biodiesel in the product.
``(5) Other definitions.--Any term used in this subsection
which is also used in section 40A shall have the meaning given
such term by section 40A.
``(6) Termination.--This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2006.
``(d) Mixture not used as a fuel, etc.--
``(1) Imposition of tax.--If--
``(A) any credit was determined under this section
with respect to alcohol or biodiesel used in the
production of any alcohol fuel mixture or biodiesel
mixture, respectively, and
``(B) any person--
``(i) separates the alcohol or biodiesel
from the mixture, or
``(ii) without separation, uses the mixture
other than as a fuel,
then there is hereby imposed on such person a tax equal
to the product of the applicable amount and the number
of gallons of such alcohol or biodiesel.
``(2) Applicable laws.--All provisions of law, including
penalties, shall, insofar as applicable and not inconsistent
with this section, apply in respect of any tax imposed under
paragraph (1) as if such tax were imposed by section 4081 and
not by this section.
``(e) Coordination With Exemption From Excise Tax.--Rules similar
to the rules under section 40(c) shall apply for purposes of this
section.''.
(b) Registration Requirement.--Section 4101(a)(1) (relating to
registration), as amended by sections 871 and 880 of this Act, is
amended by inserting ``and every person producing or importing
biodiesel (as defined in section 40A(d)(1)) or alcohol (as defined in
section 6426(b)(4)(A))'' after ``4081''.
(c) Additional Amendments.--
(1) Section 40(c) is amended by striking ``subsection
(b)(2), (k), or (m) of section 4041, section 4081(c), or
section 4091(c)'' and inserting ``section 4041(b)(2), section
6426, or section 6427(e)''.
(2) Paragraph (4) of section 40(d) is amended to read as
follows:
``(4) Volume of alcohol.--For purposes of determining under
subsection (a) the number of gallons of alcohol with respect to
which a credit is allowable under subsection (a), the volume of
alcohol shall include the volume of any denaturant (including
gasoline) which is added under any formulas approved by the
Secretary to the extent that such denaturants do not exceed 5
percent of the volume of such alcohol (including
denaturants).''.
(3) Section 40(e)(1) is amended--
(A) by striking ``2007'' in subparagraph (A) and
inserting ``2010'', and
(B) by striking ``2008'' in subparagraph (B) and
inserting ``2011''.
(4) Section 40(h) is amended--
(A) by striking ``2007'' in paragraph (1) and
inserting ``2010'', and
(B) by striking ``, 2006, or 2007'' in the table
contained in paragraph (2) and inserting ``through
2010''.
(5) Section 4041(b)(2)(B) is amended by striking ``a
substance other than petroleum or natural gas'' and inserting
``coal (including peat)''.
(6) Section 4041 is amended by striking subsection (k).
(7) Section 4081 is amended by striking subsection (c).
(8) Paragraph (2) of section 4083(a) is amended to read as
follows:
``(2) Gasoline.--The term `gasoline'--
``(A) includes any gasoline blend, other than
qualified methanol or ethanol fuel (as defined in
section 4041(b)(2)(B)), partially exempt methanol or
ethanol fuel (as defined in section 4041(m)(2)), or a
denatured alcohol, and
``(B) includes, to the extent prescribed in
regulations--
``(i) any gasoline blend stock, and
``(ii) any product commonly used as an
additive in gasoline (other than alcohol).
For purposes of subparagraph (B)(i), the term `gasoline blend
stock' means any petroleum product component of gasoline.''.
(9) Section 6427 is amended by inserting after subsection
(d) the following new subsection:
``(e) Alcohol or Biodiesel Used To Produce Alcohol Fuel and
Biodiesel Mixtures or Used as Fuels.--Except as provided in subsection
(k)--
``(1) Used to produce a mixture.--If any person produces a
mixture described in section 6426 in such person's trade or
business, the Secretary shall pay (without interest) to such
person an amount equal to the alcohol fuel mixture credit or
the biodiesel mixture credit with respect to such mixture.
``(2) Used as fuel.--If alcohol (as defined in section
40(d)(1)) or biodiesel (as defined in section 40A(d)(1)) or
agri-biodiesel (as defined in section 40A(d)(2)) which is not
in a mixture described in section 6426--
``(A) is used by any person as a fuel in a trade or
business, or
``(B) is sold by any person at retail to another
person and placed in the fuel tank of such person's
vehicle,
the Secretary shall pay (without interest) to such person an
amount equal to the alcohol credit (as determined under section
40(b)(2)) or the biodiesel credit (as determined under section
40A(b)(2)) with respect to such fuel.
``(3) Coordination with other repayment provisions.--No
amount shall be payable under paragraph (1) with respect to any
mixture with respect to which an amount is allowed as a credit
under section 6426.
``(4) Termination.--This subsection shall not apply with
respect to--
``(A) any alcohol fuel mixture (as defined in
section 6426(b)(3)) or alcohol (as so defined) sold or
used after December 31, 2010, and
``(B) any biodiesel mixture (as defined in section
6426(c)(3)) or biodiesel (as so defined) or agri-
biodiesel (as so defined) sold or used after December
31, 2006.''.
(10) Section 6427(i)(3) is amended--
(A) by striking ``subsection (f)'' both places it
appears in subparagraph (A) and inserting ``subsection
(e)(1)'',
(B) by striking ``gasoline, diesel fuel, or
kerosene used to produce a qualified alcohol mixture
(as defined in section 4081(c)(3))'' in subparagraph
(A) and inserting ``a mixture described in section
6426'',
(C) by adding at the end of subparagraph (A) the
following new flush sentence:
``In the case of an electronic claim, this subparagraph
shall be applied without regard to clause (i).'',
(D) by striking ``subsection (f)(1)'' in
subparagraph (B) and inserting ``subsection (e)(1)'',
(E) by striking ``20 days of the date of the filing
of such claim'' in subparagraph (B) and inserting ``45
days of the date of the filing of such claim (20 days
in the case of an electronic claim)'', and
(F) by striking ``alcohol mixture'' in the heading
and inserting ``alcohol fuel and biodiesel mixture''.
(11) Section 9503(b)(1) is amended by adding at the end the
following new flush sentence:
``For purposes of this paragraph, taxes received under sections
4041 and 4081 shall be determined without reduction for credits
under section 6426.''.
(12) Section 9503(b)(4) is amended--
(A) by adding ``or'' at the end of subparagraph
(C),
(B) by striking the comma at the end of
subparagraph (D)(iii) and inserting a period, and
(C) by striking subparagraphs (E) and (F).
(13) The table of sections for subchapter B of chapter 65
is amended by inserting after the item relating to section 6425
the following new item:
``Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.''.
(14) Tariff schedule.--Headings 9901.00.50 and 9901.00.52
of the Harmonized Tariff Schedule of the United States (19
U.S.C. 3007) are each amended in the effective period column by
striking ``10/1/2007'' each place it appears and inserting ``1/
1/2011''.
(d) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
fuel sold or used after September 30, 2004.
(2) Registration requirement.--The amendment made by
subsection (b) shall take effect on April 1, 2005.
(3) Extension of alcohol fuels credit.--The amendments made
by paragraphs (3), (4), and (14) of subsection (c) shall take
effect on the date of the enactment of this Act.
(4) Repeal of general fund retention of certain alcohol
fuels taxes.--The amendments made by subsection (c)(12) shall
apply to fuel sold or used after September 30, 2003.
(e) Format for Filing.--The Secretary of the Treasury shall
describe the electronic format for filing claims described in section
6427(i)(3)(B) of the Internal Revenue Code of 1986 (as amended by
subsection (c)(10)(C)) not later than September 30, 2004.
SEC. 862. BIODIESEL INCOME TAX CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by inserting after section 40A the following new section:
``SEC. 40B. BIODIESEL USED AS FUEL.
``(a) General Rule.--For purposes of section 38, the biodiesel
fuels credit determined under this section for the taxable year is an
amount equal to the sum of--
``(1) the biodiesel mixture credit, plus
``(2) the biodiesel credit.
``(b) Definition of Biodiesel Mixture Credit and Biodiesel
Credit.--For purposes of this section--
``(1) Biodiesel mixture credit.--
``(A) In general.--The biodiesel mixture credit of
any taxpayer for any taxable year is 50 cents for each
gallon of biodiesel used by the taxpayer in the
production of a qualified biodiesel mixture.
``(B) Qualified biodiesel mixture.--The term
`qualified biodiesel mixture' means a mixture of
biodiesel and diesel fuel (as defined in section
4083(a)(3)), determined without regard to any use of
kerosene, which--
``(i) is sold by the taxpayer producing
such mixture to any person for use as a fuel,
or
``(ii) is used as a fuel by the taxpayer
producing such mixture.
``(C) Sale or use must be in trade or business,
etc.--Biodiesel used in the production of a qualified
biodiesel mixture shall be taken into account--
``(i) only if the sale or use described in
subparagraph (B) is in a trade or business of
the taxpayer, and
``(ii) for the taxable year in which such
sale or use occurs.
``(D) Casual off-farm production not eligible.--No
credit shall be allowed under this section with respect
to any casual off-farm production of a qualified
biodiesel mixture.
``(2) Biodiesel credit.--
``(A) In general.--The biodiesel credit of any
taxpayer for any taxable year is 50 cents for each
gallon of biodiesel which is not in a mixture with
diesel fuel and which during the taxable year--
``(i) is used by the taxpayer as a fuel in
a trade or business, or
``(ii) is sold by the taxpayer at retail to
a person and placed in the fuel tank of such
person's vehicle.
``(B) User credit not to apply to biodiesel sold at
retail.--No credit shall be allowed under subparagraph
(A)(i) with respect to any biodiesel which was sold in
a retail sale described in subparagraph (A)(ii).
``(3) Credit for agri-biodiesel.--In the case of any
biodiesel which is agri-biodiesel, paragraphs (1)(A) and (2)(A)
shall be applied by substituting `$1.00' for `50 cents'.
``(4) Certification for biodiesel.--No credit shall be
allowed under this section unless the taxpayer obtains a
certification (in such form and manner as prescribed by the
Secretary) from the producer or importer of the biodiesel which
identifies the product produced and the percentage of biodiesel
and agri-biodiesel in the product.
``(c) Coordination With Credit Against Excise Tax.--The amount of
the credit determined under this section with respect to any biodiesel
shall be properly reduced to take into account any benefit provided
with respect to such biodiesel solely by reason of the application of
section 6426 or 6427(e).
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Biodiesel.--The term `biodiesel' means the monoalkyl
esters of long chain fatty acids derived from plant or animal
matter which meet--
``(A) the registration requirements for fuels and
fuel additives established by the Environmental
Protection Agency under section 211 of the Clean Air
Act (42 U.S.C. 7545), and
``(B) the requirements of the American Society of
Testing and Materials D6751.
``(2) Agri-biodiesel.--The term `agri-biodiesel' means
biodiesel derived solely from virgin oils, including esters
derived from virgin vegetable oils from corn, soybeans,
sunflower seeds, cottonseeds, canola, crambe, rapeseeds,
safflowers, flaxseeds, rice bran, and mustard seeds, and from
animal fats.
``(3) Mixture or biodiesel not used as a fuel, etc.--
``(A) Mixtures.--If--
``(i) any credit was determined under this
section with respect to biodiesel used in the
production of any qualified biodiesel mixture,
and
``(ii) any person--
``(I) separates the biodiesel from
the mixture, or
``(II) without separation, uses the
mixture other than as a fuel,
then there is hereby imposed on such person a tax equal
to the product of the rate applicable under subsection
(b)(1)(A) and the number of gallons of such biodiesel
in such mixture.
``(B) Biodiesel.--If--
``(i) any credit was determined under this
section with respect to the retail sale of any
biodiesel, and
``(ii) any person mixes such biodiesel or
uses such biodiesel other than as a fuel,
then there is hereby imposed on such person a tax equal
to the product of the rate applicable under subsection
(b)(2)(A) and the number of gallons of such biodiesel.
``(C) Applicable laws.--All provisions of law,
including penalties, shall, insofar as applicable and
not inconsistent with this section, apply in respect of
any tax imposed under subparagraph (A) or (B) as if
such tax were imposed by section 4081 and not by this
chapter.
``(4) Pass-thru in the case of estates and trusts.--Under
regulations prescribed by the Secretary, rules similar to the
rules of subsection (d) of section 52 shall apply.
``(e) Termination.--This section shall not apply to any sale or use
after December 31, 2006.''.
(b) Credit Treated as Part of General Business Credit.--Section
38(b) (relating to current year business credit), as amended by this
Act, is amended by striking ``plus'' at the end of paragraph (28), by
striking the period at the end of paragraph (29) and inserting ``,
plus'', and by adding at the end the following new paragraph:
``(30) the biodiesel fuels credit determined under section
40B(a).''.
(c) Conforming Amendments.--
(1)(A) Section 87, as amended by this Act, is amended--
(i) by striking ``and'' at the end of paragraph
(1),
(ii) by striking the period at the end of paragraph
(2) and inserting ``, and'',
(iii) by adding at the end the following new
paragraph:
``(3) the biodiesel fuels credit determined with respect to
the taxpayer for the taxable year under section 40B(a).'', and
(iv) by striking ``fuel credit'' in the heading and
inserting ``and biodiesel fuels credits''.
(B) The item relating to section 87 in the table of
sections for part II of subchapter B of chapter 1 is amended by
striking ``fuel credit'' and inserting ``and biodiesel fuels
credits''.
(2) Section 196(c), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (11), by striking the
period at the end of paragraph (12) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(13) the biodiesel fuels credit determined under section
40B(a).''.
(3) The table of sections for subpart D of part IV of
subchapter A of chapter 1 is amended by adding after the item
relating to section 40 the following new item:
``Sec. 40B. Biodiesel used as fuel.''.
(d) Effective Date.--The amendments made by this section shall
apply to fuel produced, and sold or used, after September 30, 2004, in
taxable years ending after such date.
Subtitle H--Fuel Fraud Prevention
SEC. 870. SHORT TITLE.
This subtitle may be cited as the ``Fuel Fraud Prevention Act of
2004''.
PART I--AVIATION JET FUEL
SEC. 871. TAXATION OF AVIATION-GRADE KEROSENE.
(a) Rate of Tax.--
(1) In general.--Subparagraph (A) of section 4081(a)(2) 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) in the case of aviation-grade
kerosene, 21.8 cents per gallon.''.
(2) Commercial aviation.--Paragraph (2) of section 4081(a)
is amended by adding at the end the following new subparagraph:
``(C) Taxes imposed on fuel used in commercial
aviation.--In the case of aviation-grade kerosene which
is removed from any refinery or terminal directly into
the fuel tank of an aircraft for use in commercial
aviation, the rate of tax under subparagraph (A)(iv)
shall be 4.3 cents per gallon.''.
(3) Nontaxable uses.--
(A) In general.--Section 4082 is amended by
redesignating subsections (e) and (f) as subsections
(f) and (g), respectively, and by inserting after
subsection (d) the following new subsection:
``(e) Aviation-Grade Kerosene.--In the case of aviation-grade
kerosene which is exempt from the tax imposed by section 4041(c) (other
than by reason of a prior imposition of tax) and which is removed from
any refinery or terminal directly into the fuel tank of an aircraft,
the rate of tax under section 4081(a)(2)(A)(iv) shall be zero.''.
(B) Conforming amendments.--
(i) Subsection (b) of section 4082 is
amended by adding at the end the following new
flush sentence: ``The term `nontaxable use'
does not include the use of aviation-grade
kerosene in an aircraft.''.
(ii) Section 4082(d) is amended by striking
paragraph (1) and by redesignating paragraphs
(2) and (3) as paragraphs (1) and (2),
respectively.
(4) Nonaircraft use of aviation-grade kerosene.--
(A) In general.--Subparagraph (B) of section
4041(a)(1) is amended by adding at the end the
following new sentence: ``This subparagraph shall not
apply to aviation-grade kerosene.''.
(B) Conforming amendment.--The heading for
paragraph (1) of section 4041(a) is amended by
inserting ``and kerosene'' after ``diesel fuel''.
(b) Commercial Aviation.--Section 4083 is amended redesignating
subsections (b) and (c) as subsections (c) and (d), respectively, and
by inserting after subsection (a) the following new subsection:
``(b) Commercial Aviation.--For purposes of this subpart, the term
`commercial aviation' means any use of an aircraft in a business of
transporting persons or property for compensation or hire by air,
unless properly allocable to any transportation exempt from the taxes
imposed by section 4261 and 4271 by reason of section 4281 or 4282 or
by reason of section 4261(h).''.
(c) Refunds.--
(1) In general.--Paragraph (4) of section 6427(l) is
amended to read as follows:
``(4) Refunds for aviation-grade kerosene.--
``(A) No refund of certain taxes on fuel used in
commercial aviation.--In the case of aviation-grade
kerosene used in commercial aviation (as defined in
section 4083(b)) (other than supplies for vessels or
aircraft within the meaning of section 4221(d)(3)),
paragraph (1) shall not apply to so much of the tax
imposed by section 4081 as is attributable to--
``(i) the Leaking Underground Storage Tank
Trust Fund financing rate imposed by such
section, and
``(ii) so much of the rate of tax specified
in section 4081(a)(2)(A)(iv) as does not exceed
4.3 cents per gallon.
``(B) Payment to ultimate, registered vendor.--With
respect to aviation-grade kerosene, if the ultimate
purchaser of such kerosene waives (at such time and in
such form and manner as the Secretary shall prescribe)
the right to payment under paragraph (1) and assigns
such right to the ultimate vendor, then the Secretary
shall pay the amount which would be paid under
paragraph (1) to such ultimate vendor, but only if such
ultimate vendor--
``(i) is registered under section 4101, and
``(ii) meets the requirements of
subparagraph (A), (B), or (D) of section
6416(a)(1).''.
(2) Time for filing claims.--Subparagraph (A) of section
6427(i)(4) is amended--
(A) by striking ``subsection (l)(5)'' both places
it appears and inserting ``paragraph (4)(B) or (5) of
subsection (l)'', and
(B) by striking ``the preceding sentence'' and
inserting ``subsection (l)(5)''.
(3) Conforming amendment.--Subparagraph (B) of section
6427(l)(2) is amended to read as follows:
``(B) in the case of aviation-grade kerosene--
``(i) any use which is exempt from the tax
imposed by section 4041(c) other than by reason
of a prior imposition of tax, or
``(ii) any use in commercial aviation
(within the meaning of section 4083(b)).''.
(d) Repeal of Prior Taxation of Aviation Fuel.--
(1) In general.--Part III of subchapter A of chapter 32 is
amended by striking subpart B and by redesignating subpart C as
subpart B.
(2) Conforming amendments.--
(A) Section 4041(c) is amended to read as follows:
``(c) Aviation-Grade Kerosene.--
``(1) In general.--There is hereby imposed a tax upon
aviation-grade kerosene--
``(A) sold by any person to an owner, lessee, or
other operator of an aircraft for use in such aircraft,
or
``(B) used by any person in an aircraft unless
there was a taxable sale of such fuel under
subparagraph (A).
``(2) Exemption for previously taxed fuel.--No tax shall be
imposed by this subsection on the sale or use of any aviation-
grade kerosene if tax was imposed on such liquid under section
4081 and the tax thereon was not credited or refunded.
``(3) Rate of tax.--The rate of tax imposed by this
subsection shall be the rate of tax specified in section
4081(a)(2)(A)(iv) which is in effect at the time of such sale
or use.''.
(B) Section 4041(d)(2) is amended by striking
``section 4091'' and inserting ``section 4081''.
(C) Section 4041 is amended by striking subsection
(e).
(D) Section 4041 is amended by striking subsection
(i).
(E) Section 4041(m)(1) is amended to read as
follows:
``(1) In general.--In the case of the sale or use of any
partially exempt methanol or ethanol fuel, the rate of the tax
imposed by subsection (a)(2) shall be--
``(A) after September 30, 1997, and before
September 30, 2009--
``(i) in the case of fuel none of the
alcohol in which consists of ethanol, 9.15
cents per gallon, and
``(ii) in any other case, 11.3 cents per
gallon, and
``(B) after September 30, 2009--
``(i) in the case of fuel none of the
alcohol in which consists of ethanol, 2.15
cents per gallon, and
``(ii) in any other case, 4.3 cents per
gallon.''.
(F) Sections 4101(a), 4103, 4221(a), and 6206 are
each amended by striking ``, 4081, or 4091'' and
inserting ``or 4081''.
(G) Section 6416(b)(2) is amended by striking
``4091 or''.
(H) Section 6416(b)(3) is amended by striking ``or
4091'' each place it appears.
(I) Section 6416(d) is amended by striking ``or to
the tax imposed by section 4091 in the case of refunds
described in section 4091(d)''.
(J) Section 6427 is amended by striking subsection
(f).
(K) Section 6427(j)(1) is amended by striking ``,
4081, and 4091'' and inserting ``and 4081''.
(L)(i) Section 6427(l)(1) is amended to read as
follows:
``(1) In general.--Except as otherwise provided in this
subsection and in subsection (k), if any diesel fuel or
kerosene on which tax has been imposed by section 4041 or 4081
is used by any person in a nontaxable use, the Secretary shall
pay (without interest) to the ultimate purchaser of such fuel
an amount equal to the aggregate amount of tax imposed on such
fuel under section 4041 or 4081, as the case may be, reduced by
any refund paid to the ultimate vendor under paragraph
(4)(B).''.
(ii) Paragraph (5)(B) of section 6427(l) is amended
by striking ``Paragraph (1)(A) shall not apply to
kerosene'' and inserting ``Paragraph (1) shall not
apply to kerosene (other than aviation-grade
kerosene)''.
(M) Subparagraph (B) of section 6724(d)(1), as
amended by this Act, is amended by striking clause
(xvi) and by redesignating clauses (xvii), (xviii), and
(xix) as clauses (xvi), (xvii), and (xviii),
respectively.
(N) Paragraph (2) of section 6724(d), as amended by
this Act, is amended by striking subparagraph (X) and
by redesignating subparagraphs (Y), (Z), (AA), (BB),
and (CC) as subparagraphs (X), (Y), (Z), (AA), and
(BB), respectively.
(O) Paragraph (1) of section 9502(b) is amended by
adding ``and'' at the end of subparagraph (B) and by
striking subparagraphs (C) and (D) and inserting the
following new subparagraph:
``(C) section 4081 with respect to aviation
gasoline and aviation-grade kerosene, and''.
(P) The last sentence of section 9502(b) is amended
to read as follows:
``There shall not be taken into account under paragraph (1) so much of
the taxes imposed by section 4081 as are determined at the rate
specified in section 4081(a)(2)(B).''.
(Q) Subsection (b) of section 9508 is amended by
striking paragraph (3) and by redesignating paragraphs
(4) and (5) as paragraphs (3) and (4), respectively.
(R) Section 9508(c)(2)(A) is amended by striking
``sections 4081 and 4091'' and inserting ``section
4081''.
(S) The table of subparts for part III of
subchapter A of chapter 32 is amended to read as
follows:
``Subpart A. Motor and aviation fuels.
``Subpart B. Special provisions
applicable to fuels tax.''.
(T) The heading for subpart A of part III of
subchapter A of chapter 32 is amended to read as
follows:
``Subpart A--Motor and Aviation Fuels''.
(U) The heading for subpart B of part III of
subchapter A of chapter 32 is amended to read as
follows:
``Subpart B--Special Provisions Applicable to Fuels Tax''.
(e) Effective Date.--The amendments made by this section shall
apply to aviation-grade kerosene removed, entered, or sold after
September 30, 2004.
(f) Floor Stocks Tax.--
(1) In general.--There is hereby imposed on aviation-grade
kerosene held on October 1, 2004, by any person a tax equal
to--
(A) the tax which would have been imposed before
such date on such kerosene had the amendments made by
this section been in effect at all times before such
date, reduced by
(B) the tax imposed before such date under section
4091 of the Internal Revenue Code of 1986, as in effect
on the day before the date of the enactment of this
Act.
(2) Liability for tax and method of payment.--
(A) Liability for tax.--The person holding the
kerosene on October 1, 2004, to which the tax imposed
by paragraph (1) applies shall be liable for such tax.
(B) Method and time for payment.--The tax imposed
by paragraph (1) shall be paid at such time and in such
manner as the Secretary of the Treasury shall
prescribe, including the nonapplication of such tax on
de minimis amounts of kerosene.
(3) Transfer of floor stock tax revenues to trust funds.--
For purposes of determining the amount transferred to any trust
fund, the tax imposed by this subsection shall be treated as
imposed by section 4081 of the Internal Revenue Code of 1986--
(A) at the Leaking Underground Storage Tank Trust
Fund financing rate under such section to the extent of
0.1 cents per gallon, and
(B) at the rate under section 4081(a)(2)(A)(iv) to
the extent of the remainder.
(4) Held by a person.--For purposes of this section,
kerosene shall be considered as held by a person if title
thereto has passed to such person (whether or not delivery to
the person has been made).
(5) Other laws applicable.--All provisions of law,
including penalties, applicable with respect to the tax imposed
by section 4081 of such Code shall, insofar as applicable and
not inconsistent with the provisions of this subsection, apply
with respect to the floor stock tax imposed by paragraph (1) to
the same extent as if such tax were imposed by such section.
SEC. 872. TRANSFER OF CERTAIN AMOUNTS FROM THE AIRPORT AND AIRWAY TRUST
FUND TO THE HIGHWAY TRUST FUND TO REFLECT HIGHWAY USE OF
JET FUEL.
(a) In General.--Section 9502(d) is amended by adding at the end
the following new paragraph:
``(7) Transfers from the trust fund to the highway trust
fund.--
``(A) In general.--The Secretary shall pay annually
from the Airport and Airway Trust Fund into the Highway
Trust Fund an amount (as determined by him) equivalent
to amounts received in the Airport and Airway Trust
Fund which are attributable to fuel that is used
primarily for highway transportation purposes.
``(B) Amounts transferred to mass transit
account.--The Secretary shall transfer 11 percent of
the amounts paid into the Highway Trust Fund under
subparagraph (A) to the Mass Transit Account
established under section 9503(e).''.
(b) Conforming Amendments.--
(1) Subsection (a) of section 9503 is amended--
(A) by striking ``appropriated or credited'' and
inserting ``paid, appropriated, or credited'', and
(B) by striking ``or section 9602(b)'' and
inserting ``, section 9502(d)(7), or section 9602(b)''.
(2) Subsection (e)(1) of section 9503 is amended by
striking ``or section 9602(b)'' and inserting ``, section
9502(d)(7), or section 9602(b)''.
(c) Effective Date.--The amendments made by this section shall take
effect on October 1, 2004.
PART II--DYED FUEL
SEC. 873. DYE INJECTION EQUIPMENT.
(a) In General.--Section 4082(a)(2) (relating to exemptions for
diesel fuel and kerosene) is amended by inserting ``by mechanical
injection'' after ``indelibly dyed''.
(b) Dye Injector Security.--Not later than June 30, 2004, the
Secretary of the Treasury shall issue regulations regarding mechanical
dye injection systems described in the amendment made by subsection
(a), and such regulations shall include standards for making such
systems tamper resistant.
(c) Penalty for Tampering With or Failing To Maintain Security
Requirements for Mechanical Dye Injection Systems.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding after
section 6715 the following new section:
``SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN SECURITY
REQUIREMENTS FOR MECHANICAL DYE INJECTION SYSTEMS.
``(a) Imposition of Penalty.--
``(1) Tampering.--If any person tampers with a mechanical
dye injection system used to indelibly dye fuel for purposes of
section 4082, then such person shall pay a penalty in addition
to the tax (if any).
``(2) Failure to maintain security requirements.--If any
operator of a mechanical dye injection system used to indelibly
dye fuel for purposes of section 4082 fails to maintain the
security standards for such system as established by the
Secretary, then such operator shall pay a penalty.
``(b) Amount of Penalty.--The amount of the penalty under
subsection (a) shall be--
``(1) for each violation described in paragraph (1), the
greater of--
``(A) $25,000, or
``(B) $10 for each gallon of fuel involved, and
``(2) for each--
``(A) failure to maintain security standards
described in paragraph (2), $1,000, and
``(B) failure to correct a violation described in
paragraph (2), $1,000 per day for each day after which
such violation was discovered or such person should
have reasonably known of such violation.
``(c) Joint and Several Liability.--
``(1) In general.--If a penalty is imposed under this
section on any business entity, each officer, employee, or
agent of such entity or other contracting party who willfully
participated in any act giving rise to such penalty shall be
jointly and severally liable with such entity for such penalty.
``(2) Affiliated groups.--If a business entity described in
paragraph (1) is part of an affiliated group (as defined in
section 1504(a)), the parent corporation of such entity shall
be jointly and severally liable with such entity for the
penalty imposed under this section.''.
(2) Clerical amendment.--The table of sections for part I
of subchapter B of chapter 68 is amended by adding after the
item related to section 6715 the following new item:
``Sec. 6715A. Tampering with or failing
to maintain security
requirements for mechanical dye
injection systems.''.
(d) Effective Date.--The amendments made by subsections (a) and (c)
shall take effect 180 days after the date on which the Secretary issues
the regulations described in subsection (b).
SEC. 874. ELIMINATION OF ADMINISTRATIVE REVIEW FOR TAXABLE USE OF DYED
FUEL.
(a) In General.--Section 6715 is amended by inserting at the end
the following new subsection:
``(e) No Administrative Appeal for Third and Subsequent
Violations.--In the case of any person who is found to be subject to
the penalty under this section after a chemical analysis of such fuel
and who has been penalized under this section at least twice after the
date of the enactment of this subsection, no administrative appeal or
review shall be allowed with respect to such finding except in the case
of a claim regarding--
``(1) fraud or mistake in the chemical analysis, or
``(2) mathematical calculation of the amount of the
penalty.''.
(b) Effective Date.--The amendment made by this section shall apply
to penalties assessed after the date of the enactment of this Act.
SEC. 875. PENALTY ON UNTAXED CHEMICALLY ALTERED DYED FUEL MIXTURES.
(a) In General.--Section 6715(a) (relating to dyed fuel sold for
use or used in taxable use, etc.) is amended by striking ``or'' in
paragraph (2), by inserting ``or'' at the end of paragraph (3), and by
inserting after paragraph (3) the following new paragraph:
``(4) any person who has knowledge that a dyed fuel which
has been altered as described in paragraph (3) sells or holds
for sale such fuel for any use which the person knows or has
reason to know is not a nontaxable use of such fuel,''.
(b) Conforming Amendment.--Section 6715(a)(3) is amended by
striking ``alters, or attempts to alter,'' and inserting ``alters,
chemically or otherwise, or attempts to so alter,''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 876. TERMINATION OF DYED DIESEL USE BY INTERCITY BUSES.
(a) In General.--Paragraph (3) of section 4082(b) (relating to
nontaxable use) is amended to read as follows:
``(3) any use described in section
4041(a)(1)(C)(iii)(II).''.
(b) Ultimate Vendor Refund.--Subsection (b) of section 6427 is
amended by adding at the end the following new paragraph:
``(4) Refunds for use of diesel fuel in certain intercity
buses.--
``(A) In general.--With respect to any fuel to
which paragraph (2)(A) applies, if the ultimate
purchaser of such fuel waives (at such time and in such
form and manner as the Secretary shall prescribe) the
right to payment under paragraph (1) and assigns such
right to the ultimate vendor, then the Secretary shall
pay the amount which would be paid under paragraph (1)
to such ultimate vendor, but only if such ultimate
vendor--
``(i) is registered under section 4101, and
``(ii) meets the requirements of
subparagraph (A), (B), or (D) of section
6416(a)(1).
``(B) Credit cards.--For purposes of this
paragraph, if the sale of such fuel is made by means of
a credit card, the person extending credit to the
ultimate purchaser shall be deemed to be the ultimate
vendor.''.
(c) Payment of Refunds.--Subparagraph (A) of section 6427(i)(4), as
amended by this Act, is amended by inserting ``subsections (b)(4) and''
after ``filed under''.
(d) Effective Date.--The amendments made by this section shall
apply to fuel sold after September 30, 2004.
PART III--MODIFICATION OF INSPECTION OF RECORDS PROVISIONS
SEC. 877. AUTHORITY TO INSPECT ON-SITE RECORDS.
(a) In General.--Section 4083(d)(1)(A) (relating to administrative
authority), as amended by this Act, is amended by striking ``and'' at
the end of clause (i) and by inserting after clause (ii) the following
new clause:
``(iii) inspecting any books and records
and any shipping papers pertaining to such
fuel, and''.
(b) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 878. ASSESSABLE PENALTY FOR REFUSAL OF ENTRY.
(a) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties), as amended by this Act, is amended by adding at
the end the following new section:
``SEC. 6717. REFUSAL OF ENTRY.
``(a) In General.--In addition to any other penalty provided by
law, any person who refuses to admit entry or refuses to permit any
other action by the Secretary authorized by section 4083(d)(1) shall
pay a penalty of $1,000 for such refusal.
``(b) Joint and Several Liability.--
``(1) In general.--If a penalty is imposed under this
section on any business entity, each officer, employee, or
agent of such entity or other contracting party who willfully
participated in any act giving rise to such penalty shall be
jointly and severally liable with such entity for such penalty.
``(2) Affiliated groups.--If a business entity described in
paragraph (1) is part of an affiliated group (as defined in
section 1504(a)), the parent corporation of such entity shall
be jointly and severally liable with such entity for the
penalty imposed under this section.
``(c) Reasonable Cause Exception.--No penalty shall be imposed
under this section with respect to any failure if it is shown that such
failure is due to reasonable cause.''.
(b) Conforming Amendments.--
(1) Section 4083(d)(3), as amended by this Act, is
amended--
(A) by striking ``entry.--The penalty'' and
inserting: ``entry.--
``(A) Forfeiture.--The penalty'', and
(B) by adding at the end the following new
subparagraph:
``(B) Assessable penalty.--For additional
assessable penalty for the refusal to admit entry or
other refusal to permit an action by the Secretary
authorized by paragraph (1), see section 6717.''.
(2) The table of sections for part I of subchapter B of
chapter 68, as amended by this Act, is amended by adding at the
end the following new item:
``Sec. 6717. Refusal of entry.''.
(c) Effective Date.--The amendments made by this section shall take
effect on October 1, 2004.
PART IV--REGISTRATION AND REPORTING REQUIREMENTS
SEC. 879. REGISTRATION OF PIPELINE OR VESSEL OPERATORS REQUIRED FOR
EXEMPTION OF BULK TRANSFERS TO REGISTERED TERMINALS OR
REFINERIES.
(a) In General.--Section 4081(a)(1)(B) (relating to exemption for
bulk transfers to registered terminals or refineries) is amended--
(1) by inserting ``by pipeline or vessel'' after
``transferred in bulk'', and
(2) by inserting ``, the operator of such pipeline or
vessel,'' after ``the taxable fuel''.
(b) Civil Penalty for Carrying Taxable Fuels by Nonregistered
Pipelines or Vessels.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 6718. CARRYING TAXABLE FUELS BY NONREGISTERED PIPELINES OR
VESSELS.
``(a) Imposition of Penalty.--If any person knowingly transfers any
taxable fuel (as defined in section 4083(a)(1)) in bulk pursuant to
section 4081(a)(1)(B) to an unregistered, such person shall pay a
penalty in addition to the tax (if any).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
amount of the penalty under subsection (a) on each act shall be
an amount equal to the greater of--
``(A) $10,000, or
``(B) $1 per gallon.
``(2) Multiple violations.--In determining the penalty
under subsection (a) on any person, paragraph (1) shall be
applied by increasing the amount in paragraph (1) by the
product of such amount and the number of prior penalties (if
any) imposed by this section on such person (or a related
person or any predecessor of such person or related person).
``(c) Joint and Several Liability.--
``(1) In general.--If a penalty is imposed under this
section on any business entity, each officer, employee, or
agent of such entity or other contracting party who willfully
participated in any act giving rise to such penalty shall be
jointly and severally liable with such entity for such penalty.
``(2) Affiliated groups.--If a business entity described in
paragraph (1) is part of an affiliated group (as defined in
section 1504(a)), the parent corporation of such entity shall
be jointly and severally liable with such entity for the
penalty imposed under this section.
``(d) Reasonable Cause Exception.--No penalty shall be imposed
under this section with respect to any failure if it is shown that such
failure is due to reasonable cause.''.
(2) Clerical amendment.--The table of sections for part I
of subchapter B of chapter 68, as amended by this Act, is
amended by adding at the end the following new item:
``Sec. 6718. Carrying taxable fuels by
nonregistered pipelines or
vessels.''.
(c) Publication of Registered Persons.--Not later than June 30,
2004, the Secretary of the Treasury shall publish a list of persons
required to be registered under section 4101 of the Internal Revenue
Code of 1986.
(d) Effective Date.--The amendments made by subsections (a) and (b)
shall take effect on October 1, 2004.
SEC. 880. DISPLAY OF REGISTRATION.
(a) In General.--Subsection (a) of section 4101 (relating to
registration) is amended--
(1) by striking ``Every'' and inserting the following:
``(1) In general.--Every'', and
(2) by adding at the end the following new paragraph:
``(2) Display of registration.--Every operator of a vessel
required by the Secretary to register under this section shall
display proof of registration through an electronic
identification device prescribed by the Secretary on each
vessel used by such operator to transport any taxable fuel.''.
(b) Civil Penalty for Failure to Display Registration.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 6719. FAILURE TO DISPLAY REGISTRATION OF VESSEL.
``(a) Failure to Display Registration.--Every operator of a vessel
who fails to display proof of registration pursuant to section
4101(a)(2) shall pay a penalty of $500 for each such failure. With
respect to any vessel, only one penalty shall be imposed by this
section during any calendar month.
``(b) Multiple Violations.--In determining the penalty under
subsection (a) on any person, subsection (a) shall be applied by
increasing the amount in subsection (a) by the product of such amount
and the number of prior penalties (if any) imposed by this section on
such person (or a related person or any predecessor of such person or
related person).
``(c) Reasonable Cause Exception.--No penalty shall be imposed
under this section with respect to any failure if it is shown that such
failure is due to reasonable cause.''.
(2) Clerical amendment.--The table of sections for part I
of subchapter B of chapter 68, as amended by this Act, is
amended by adding at the end the following new item:
``Sec. 6719. Failure to display
registration of vessel.''.
(c) Effective Date.--The amendments made by this section shall take
effect on October 1, 2004.
SEC. 881. REGISTRATION OF PERSONS WITHIN FOREIGN TRADE ZONES, ETC.
(a) In General.--Section 4101(a), as amended by this Act, is
amended by redesignating paragraph (2) as paragraph (3), and by
inserting after paragraph (1) the following new paragraph:
``(2) Registration of persons within foreign trade zones,
etc.--The Secretary shall require registration by any person
which--
``(A) operates a terminal or refinery within a
foreign trade zone or within a customs bonded storage
facility, or
``(B) holds an inventory position with respect to a
taxable fuel in such a terminal.''.
(b) Effective Date.--The amendments made by this section shall take
effect on October 1, 2004.
SEC. 882. PENALTIES FOR FAILURE TO REGISTER AND FAILURE TO REPORT.
(a) Increased Penalty.--Subsection (a) of section 7272 (relating to
penalty for failure to register) is amended by inserting ``($10,000 in
the case of a failure to register under section 4101)'' after ``$50''.
(b) Increased Criminal Penalty.--Section 7232 (relating to failure
to register under section 4101, false representations of registration
status, etc.) is amended by striking ``$5,000'' and inserting
``$10,000''.
(c) Assessable Penalty for Failure to Register.--
(1) In general.--Part I of subchapter B of chapter 68
(relating to assessable penalties), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 6720. FAILURE TO REGISTER.
``(a) Failure to Register.--Every person who is required to
register under section 4101 and fails to do so shall pay a penalty in
addition to the tax (if any).
``(b) Amount of Penalty.--The amount of the penalty under
subsection (a) shall be--
``(1) $10,000 for each initial failure to register, and
``(2) $1,000 for each day thereafter such person fails to
register.
``(c) Reasonable Cause Exception.--No penalty shall be imposed
under this section with respect to any failure if it is shown that such
failure is due to reasonable cause.''.
(2) Clerical amendment.--The table of sections for part I
of subchapter B of chapter 68, as amended by this Act, is
amended by adding at the end the following new item:
``Sec. 6720. Failure to register.''.
(d) Assessable Penalty for Failure to Report.--
(1) In general.--Part II of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding at the
end the following new section:
``SEC. 6725. FAILURE TO REPORT INFORMATION UNDER SECTION 4101.
``(a) In General.--In the case of each failure described in
subsection (b) by any person with respect to a vessel or facility, such
person shall pay a penalty of $10,000 in addition to the tax (if any).
``(b) Failures Subject to Penalty.--For purposes of subsection (a),
the failures described in this subsection are--
``(1) any failure to make a report under section 4101(d) on
or before the date prescribed therefor, and
``(2) any failure to include all of the information
required to be shown on such report or the inclusion of
incorrect information.
``(c) Reasonable Cause Exception.--No penalty shall be imposed
under this section with respect to any failure if it is shown that such
failure is due to reasonable cause.''.
(2) Clerical amendment.--The table of sections for part II
of subchapter B of chapter 68 is amended by adding at the end
the following new item:
``Sec. 6725. Failure to report
information under section
4101.''.
(e) Effective Date.--The amendments made by this section shall
apply to failures pending or occurring after September 30, 2004.
SEC. 883. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN TAX
BENEFITS.
(a) In General.--Subpart C of part III of subchapter A of chapter
32 is amended by adding at the end the following new section:
``SEC. 4104. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN TAX
BENEFITS.
``(a) In General.--The Secretary shall require any person claiming
tax benefits--
``(1) under the provisions of section 34, 40, and 40B to
file a return at the time such person claims such benefits (in
such manner as the Secretary may prescribe), and
``(2) under the provisions of section 4041(b)(2), 6426, or
6427(e) to file a monthly return (in such manner as the
Secretary may prescribe).
``(b) Contents of Return.--Any return filed under this section
shall provide such information relating to such benefits and the
coordination of such benefits as the Secretary may require to ensure
the proper administration and use of such benefits.
``(c) Enforcement.--With respect to any person described in
subsection (a) and subject to registration requirements under this
title, rules similar to rules of section 4222(c) shall apply with
respect to any requirement under this section.''.
(b) Conforming Amendment.--The table of sections for subpart C of
part III of subchapter A of chapter 32 is amended by adding at the end
the following new item:
``Sec. 4104. Information reporting for persons claiming certain
tax benefits.''.
(c) Effective Date.--The amendments made by this section shall take
effect on October 1, 2004.
PART V--IMPORTS
SEC. 884. TAX AT POINT OF ENTRY WHERE IMPORTER NOT REGISTERED.
(a) Tax at Point of Entry Where Importer Not Registered.--
(1) In general.--Subpart C of part III of subchapter A of
chapter 31, as amended by this Act, is amended by adding at the
end the following new section:
``SEC. 4105. TAX AT ENTRY WHERE IMPORTER NOT REGISTERED.
``(a) In General.--Any tax imposed under this part on any person
not registered under section 4101 for the entry of a fuel into the
United States shall be imposed at the time and point of entry.
``(b) Enforcement of Assessment.--If any person liable for any tax
described under subsection (a) has not paid the tax or posted a bond,
the Secretary may--
``(1) seize the fuel on which the tax is due, or
``(2) detain any vehicle transporting such fuel,
until such tax is paid or such bond is filed.
``(c) Levy of Fuel.--If no tax has been paid or no bond has been
filed within 5 days from the date the Secretary seized fuel pursuant to
subsection (b), the Secretary may sell such fuel as provided under
section 6336.''.
(2) Conforming amendment.--The table of sections for
subpart C of part III of subchapter A of chapter 31 of the
Internal Revenue Code of 1986, as amended by section 5245 of
this Act, is amended by adding after the last item the
following new item:
``Sec. 4105. Tax at entry where importer
not registered.''.
(b) Denial of Entry Where Tax Not Paid.--The Secretary of Homeland
Security is authorized to deny entry into the United States of any
shipment of a fuel which is taxable under section 4081 of the Internal
Revenue Code of 1986 if the person entering such shipment fails to pay
the tax imposed under such section or post a bond in accordance with
the provisions of section 4105 of such Code.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 885. RECONCILIATION OF ON-LOADED CARGO TO ENTERED CARGO.
(a) In General.--Subsection (a) of section 343 of the Trade Act of
2002 is amended by inserting at the end the following new paragraph:
``(4) In General.--Subject to paragraphs (2) and (3), not
later than 1 year after the enactment of this paragraph, the
Secretary of Homeland Security, together with the Secretary of
the Treasury, shall promulgate regulations providing for the
transmission to the Internal Revenue Service, through an
electronic data interchange system, of information pertaining
to cargo of taxable fuels (as defined in section 4083 of the
Internal Revenue Code of 1986) destined for importation into
the United States prior to such importation.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
PART VI--MISCELLANEOUS PROVISIONS
SEC. 886. TAX ON SALE OF DIESEL FUEL WHETHER SUITABLE FOR USE OR NOT IN
A DIESEL-POWERED VEHICLE OR TRAIN.
(a) In General.--Section 4083(a)(3) is amended--
(1) by striking ``The term'' and inserting the following:
``(A) In general.--The term'', and
(2) by inserting at the end the following new subparagraph:
``(B) Liquid sold as diesel fuel.--The term `diesel
fuel' includes any liquid which is sold as or offered
for sale as a fuel in a diesel-powered highway vehicle
or a diesel-powered train.''.
(b) Conforming Amendments.--
(1) Section 40B(b)(1)(B), as added by this Act, is amended
by striking ``4083(a)(3)'' and inserting ``4083(a)(3)(A)''.
(2) Section 6426(c)(3), as added by this Act, is amended by
striking ``4083(a)(3)'' and inserting ``4083(a)(3)(A)''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 887. MODIFICATION OF ULTIMATE VENDOR REFUND CLAIMS WITH RESPECT TO
FARMING.
(a) In General.--
(1) Refunds.--Section 6427(l) is amended by adding at the
end the following new paragraph:
``(6) Registered vendors permitted to administer certain
claims for refund of diesel fuel and kerosene sold to
farmers.--
``(A) In general.--In the case of diesel fuel or
kerosene used on a farm for farming purposes (within
the meaning of section 6420(c)), paragraph (1) shall
not apply to the aggregate amount of such diesel fuel
or kerosene if such amount does not exceed 500 gallons
(as determined under subsection (i)(5)(A)(iii)).
``(B) Payment to ultimate vendor.--The amount which
would (but for subparagraph (A)) have been paid under
paragraph (1) with respect to any fuel shall be paid to
the ultimate vendor of such fuel, if such vendor--
``(i) is registered under section 4101, and
``(ii) meets the requirements of
subparagraph (A), (B), or (D) of section
6416(a)(1).''.
(2) Filing of claims.--Section 6427(i) is amended by
inserting at the end the following new paragraph:
``(5) Special rule for vendor refunds with respect to
farmers.--
``(A) In general.--A claim may be filed under
subsection (l)(6) by any person with respect to fuel
sold by such person for any period--
``(i) for which $200 or more ($100 or more
in the case of kerosene) is payable under
subsection (l)(6),
``(ii) which is not less than 1 week, and
``(iii) which is for not more than 500
gallons for each farmer for which there is a
claim.
Notwithstanding subsection (l)(1), paragraph (3)(B)
shall apply to claims filed under the preceding
sentence.
``(B) Time for filing claim.--No claim filed under
this paragraph shall be allowed unless filed on or
before the last day of the first quarter following the
earliest quarter included in the claim.''.
(3) Conforming amendments.--
(A) Section 6427(l)(5)(A) is amended to read as
follows:
``(A) In general.--Paragraph (1) shall not apply to
diesel fuel or kerosene used by a State or local
government.''.
(B) The heading for section 6427(l)(5) is amended
by striking ``farmers and''.
(b) Effective Date.--The amendment made by this section shall apply
to fuels sold for nontaxable use after the date of the enactment of
this Act.
SEC. 888. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE VENDORS.
(a) In General.--Paragraph (4) of section 6416(a) (relating to
abatements, credits, and refunds) is amended to read as follows:
``(4) Registered ultimate vendor to administer credits and
refunds of gasoline tax.--
``(A) In general.--For purposes of this subsection,
if an ultimate vendor purchases any gasoline on which
tax imposed by section 4081 has been paid and sells
such gasoline to an ultimate purchaser described in
subparagraph (C) or (D) of subsection (b)(2) (and such
gasoline is for a use described in such subparagraph),
such ultimate vendor shall be treated as the person
(and the only person) who paid such tax, but only if
such ultimate vendor is registered under section 4101.
For purposes of this subparagraph, if the sale of
gasoline is made by means of a credit card, the person
extending the credit to the ultimate purchaser shall be
deemed to be the ultimate vendor.
``(B) Timing of claims.--The procedure and timing
of any claim under subparagraph (A) shall be the same
as for claims under section 6427(i)(4), except that the
rules of section 6427(i)(3)(B) regarding electronic
claims shall not apply unless the ultimate vendor has
certified to the Secretary for the most recent quarter
of the taxable year that all ultimate purchasers of the
vendor are certified and entitled to a refund under
subparagraph (C) or (D) of subsection (b)(2).''.
(b) Credit Card Purchases of Diesel Fuel or Kerosene by State and
Local Governments.--Section 6427(l)(5)(C) (relating to nontaxable uses
of diesel fuel, kerosene, and aviation fuel), as amended by this Act,
is amended by adding at the end the following new sentence: ``For
purposes of this subparagraph, if the sale of diesel fuel or kerosene
is made by means of a credit card, the person extending the credit to
the ultimate purchaser shall be deemed to be the ultimate vendor.''.
(c) Effective Date.--The amendments made by this section shall take
effect on October 1, 2004.
SEC. 889. TWO-PARTY EXCHANGES.
(a) In General.--Subpart C of part III of subchapter A of chapter
32, as amended by this Act, is amended by adding at the end the
following new section:
``SEC. 4106. TWO-PARTY EXCHANGES.
``(a) In General.--In a two-party exchange, the delivering person
shall not be liable for the tax imposed under of section
4081(a)(1)(A)(ii).
``(b) Two-Party Exchange.--The term `two-party exchange' means a
transaction, other than a sale, in which taxable fuel is transferred
from a delivering person registered under section 4101 as a taxable
fuel registrant to a receiving person who is so registered where all of
the following occur:
``(1) The transaction includes a transfer from the
delivering person, who holds the inventory position for taxable
fuel in the terminal as reflected in the records of the
terminal operator.
``(2) The exchange transaction occurs before or
contemporaneous with completion of removal across the rack from
the terminal by the receiving person.
``(3) The terminal operator in its books and records treats
the receiving person as the person that removes the product
across the terminal rack for purposes of reporting the
transaction to the Secretary.
``(4) The transaction is the subject of a written
contract.''.
(b) Conforming Amendment.--The table of sections for subpart C of
part III of subchapter A of chapter 32, as amended by of this Act, is
amended by adding after the last item the following new item:
``Sec. 4106. Two-party exchanges.''.
(c) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 890. MODIFICATIONS OF TAX ON USE OF CERTAIN VEHICLES.
(a) No Proration of Tax Unless Vehicle Is Destroyed or Stolen.--
(1) In general.--Section 4481(c) (relating to proration of
tax) is amended to read as follows:
``(c) Proration of Tax Where Vehicle Sold, Destroyed, or Stolen.--
``(1) In general.--If in any taxable period a highway motor
vehicle is sold, destroyed, or stolen before the first day of
the last month in such period and not subsequently used during
such taxable period, the tax shall be reckoned proportionately
from the first day of the month in such period in which the
first use of such highway motor vehicle occurs to and including
the last day of the month in which such highway motor vehicle
was sold, destroyed, or stolen.
``(2) Destroyed.--For purposes of paragraph (1), a highway
motor vehicle is destroyed if such vehicle is damaged by reason
of an accident or other casualty to such an extent that it is
not economic to rebuild.''.
(2) Conforming amendments.--
(A) Section 6156 (relating to installment payment
of tax on use of highway motor vehicles) is repealed.
(B) The table of sections for subchapter A of
chapter 62 is amended by striking the item relating to
section 6156.
(b) Display of Tax Certificate.--Paragraph (2) of section 4481(d)
(relating to one tax liability for period) is amended to read as
follows:
``(2) Display of tax certificate.--Under regulations by the
Secretary, every taxpayer which pays the tax imposed under this
section with respect to a highway motor vehicle shall, not
later than 1 month after the due date of the return of tax with
respect to each taxable period, receive and display on such
vehicle an electronic identification device prescribed by the
Secretary.''.
(c) Electronic filing.--Section 4481, is amended by redesignating
subsection (e) as subsection (f) and by inserting after subsection (d)
the following new subsection:
``(e) Electronic filing.--Any taxpayer who files a return under
this section with respect to 25 or more vehicles for any taxable period
shall file such return electronically.''.
(d) Repeal of reduction in tax for certain trucks.--Section 4483 of
the Internal Revenue Code of 1986 is amended by striking subsection
(f).
(e) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable periods
beginning after the date of the enactment of this Act.
(2) Regulations regarding display of tax certificate.--The
Secretary of the Treasury shall issue regulations required
under section 4481(d)(2) of the Internal Revenue Code of 1986
(as added by subsection (b)) not later than October 1, 2005.
SEC. 891. DEDICATION OF REVENUES FROM CERTAIN PENALTIES TO THE HIGHWAY
TRUST FUND.
(a) In General.--Subsection (b) of section 9503 (relating to
transfer to Highway Trust Fund of amounts equivalent to certain taxes),
is amended by redesignating paragraph (5) as paragraph (6) and
inserting after paragraph (4) the following new paragraph:
``(5) Certain penalties.--There are hereby appropriated to
the Highway Trust Fund amounts equivalent to the penalties
assessed under sections 6715, 6715A, 6717, 6718, 6719, 6720,
6725, 7232, and 7272 (but only with regard to penalties under
such section related to failure to register under section
4101).''.
(b) Conforming Amendments.--
(1) The heading of subsection (b) of section 9503 is
amended by inserting ``and Penalties'' after ``Taxes''.
(2) The heading of paragraph (1) of section 9503(b) is
amended by striking ``In general'' and inserting ``Certain
taxes''.
(c) Effective Date.--The amendments made by this section shall
apply to penalties assessed after October 1, 2004.
SEC. 892. NONAPPLICATION OF EXPORT EXEMPTION TO DELIVERY OF FUEL TO
MOTOR VEHICLES REMOVED FROM UNITED STATES.
(a) In General.--Section 4221(d)(2) (defining export) is amended by
adding at the end the following new sentence: ``Such term does not
include the delivery of a taxable fuel (as defined in section
4083(a)(1)) into a fuel tank of a motor vehicle which is shipped or
driven out of the United States.''.
(b) Conforming Amendments.--
(1) Section 4041(g) (relating to other exemptions) is
amended by adding at the end the following new sentence:
``Paragraph (3) shall not apply to the sale for delivery of a
liquid into a fuel tank of a motor vehicle which is shipped or
driven out of the United States.''.
(2) Clause (iv) of section 4081(a)(1)(A) (relating to tax
on removal, entry, or sale) is amended by inserting ``or at a
duty-free sales enterprise (as defined in section 555(b)(8) of
the Tariff Act of 1930)'' after ``section 4101''.
(c) Effective Date.--The amendments made by this section shall
apply to sales or deliveries made after the date of the enactment of
this Act.
PART VII--TOTAL ACCOUNTABILITY
SEC. 893. TOTAL ACCOUNTABILITY.
(a) Taxation of Reportable Liquids.--
(1) In general.--Section 4081(a), as amended by this Act,
is amended--
(A) by inserting ``or reportable liquid'' after
``taxable fuel'' each place it appears, and
(B) by inserting ``such liquid'' after ``such
fuel'' in paragraph (1)(A)(iv).
(2) Rate of tax.--Subparagraph (A) of section 4081(a)(2),
as amended by this Act, is amended by striking ``and'' at the
end of clause (iii), by striking the period at the end of
clause (iv) and inserting ``, and'', and by adding at the end
the following new clause:
``(v) in the case of reportable liquids,
the rate determined under section
4083(c)(2).''.
(3) Exemption.--Section 4081(a)(1) is amended by adding at
the end the following new subparagraph:
``(C) Exemption for registered transfers of
reportable liquids.--The tax imposed by this paragraph
shall not apply to any removal, entry, or sale of a
reportable liquid if--
``(i) such removal, entry, or sale is to a
registered person who certifies that such
liquid will not be used as a fuel or in the
production of a fuel, or
``(ii) the sale is to the ultimate
purchaser of such liquid.''.
(4) Reportable liquids.--Section 4083, as amended by this
Act, is amended by redesignating subsections (c) and (d) (as
redesignated by this Act) as subsections (d) and (e),
respectively, and by inserting after subsection (b) the
following new section:
``(c) Reportable liquid.--For purposes of this subpart--
``(1) In general.--The term `reportable liquid' means any
petroleum-based liquid other than a taxable fuel.
``(2) Taxation.--
``(A) Gasoline blend stocks and additives.--
Gasoline blend stocks and additives which are
reportable liquids (as defined in paragraph (1)) shall
be subject to the rate of tax under clause (i) of
section 4081(a)(2)(A).
``(B) Other reportable liquids.--Any reportable
liquid (as defined in paragraph (1)) not described in
subparagraph (A) shall be subject to the rate of tax
under clause (iii) of section 4081(a)(2)(A).''.
(5) Conforming amendments.--
(A) Section 4081(e) is amended by inserting ``or
reportable liquid'' after ``taxable fuel''.
(B) Section 4083(d) (relating to certain use
defined as removal), as redesignated by paragraph (4),
is amended by inserting ``or reportable liquid'' after
``taxable fuel''.
(C) Section 4083(e)(1) (relating to administrative
authority), as redesignated by paragraph (4), is
amended--
(i) in subparagraph (A)--
(I) by inserting ``or reportable
liquid'' after ``taxable fuel'', and
(II) by inserting ``or such
liquid'' after ``such fuel'' each place
it appears, and
(ii) in subparagraph (B), by inserting ``or
any reportable liquid'' after ``any taxable
fuel''.
(D) Section 4101(a)(2), as added by this Act, is
amended by inserting ``or a reportable liquid'' after
``taxable fuel''.
(E) Section 4101(a)(3), as added and redesignated
by this Act, is amended by inserting ``or any
reportable liquid'' before the period at the end.
(F) Section 4102 is amended by inserting ``or any
reportable liquid'' before the period at the end.
(G)(i) Section 6718, as added by this Act, is
amended--
(I) in subsection (a), by inserting ``or
any reportable liquid (as defined in section
4083(c)(1))'' after ``section 4083(a)(1))'',
and
(II) in the heading, by inserting ``or
reportable liquids'' after ``taxable fuel''.
(ii) The item relating to section 6718 in table of
sections for part I of subchapter B of chapter 68, as
added by this Act, is amended by inserting ``or
reportable liquids'' after ``taxable fuels''.
(H) Section 6427(h) is amended to read as follows:
``(h) Gasoline Blend Stocks or Additives and Reportable Liquids.--
Except as provided in subsection (k)--
``(1) if any gasoline blend stock or additive (within the
meaning of section 4083(a)(2)) is not used by any person to
produce gasoline and such person establishes that the ultimate
use of such gasoline blend stock or additive is not to produce
gasoline, or
``(2) if any reportable liquid (within the meaning of
section 4083(c)(1)) is not used by any person to produce a
taxable fuel and such person establishes that the ultimate use
of such reportable liquid is not to produce a taxable fuel,
then the Secretary shall pay (without interest) to such person an
amount equal to the aggregate amount of the tax imposed on such person
with respect to such gasoline blend stock or additive or such
reportable liquid.''.
(I) Section 7232, as amended by this Act, is
amended by inserting ``or reportable liquid (within the
meaning of section 4083(c)(1))'' after ``section
4083)''.
(J) Section 343 of the Trade Act of 2002, as
amended by this Act, is amended by inserting ``and
reportable liquids (as defined in section 4083(c)(1) of
such Code)'' after ``Internal Revenue Code of 1986)''.
(b) Dyed Diesel.--Section 4082(a) is amended by striking ``and'' at
the end of paragraph (2), by striking the period at the end of
paragraph (3) and inserting ``and'', and by inserting after paragraph
(3) the following new paragraph:
``(4) which is removed, entered, or sold by a person
registered under section 4101.''.
(c) Effective Date.--The amendments made by this section shall
apply to reportable liquids (as defined in section 4083(c) of the
Internal Revenue Code) and fuel sold or used after September 30, 2004.
SEC. 894. EXCISE TAX REPORTING.
(a) In General.--Part II of subchapter A of chapter 61 is amended
by adding at the end the following new subpart:
``subpart e--excise tax reporting
``SEC. 6025. RETURNS RELATING TO FUEL TAXES.
``(a) In General.--The Secretary shall require any person liable
for the tax imposed under Part III of subchapter A of chapter 32 to
file a return of such tax on a monthly basis. Not earlier than January
1, 2005, such filings shall be in electronic form as prescribed by the
Secretary.
``(b) Information Included with Return.--The Secretary shall
require any person filing a return under subsection (a) to provide
information regarding any refined product (whether or not such product
is taxable under this title) removed from a terminal during the period
for which such return applies.''.
(b) Conforming Amendment.--The table of parts for subchapter A of
chapter 61 is amended by adding at the end the following new item:
``Subpart E--Excise Tax Reporting''.
(c) Effective Date.--The amendments made by this section shall
apply to fuel sold or used after September 30, 2004.
SEC. 895. INFORMATION REPORTING.
(a) In General.--Section 4101(d) is amended by adding at the end
the following new flush sentence:
``The Secretary shall require reporting under the previous sentence
with respect to taxable fuels removed, entered, or transferred from any
refinery, pipeline, or vessel which is registered under this section.
Any person who is required to report under this subsection and who has
25 or more reportable transactions in a month shall file such report in
electronic format.''.
(b) Effective Date.--The amendment made by this section shall apply
on October 1, 2004.
Subtitle I--Mobile Machinery
SEC. 896. TREATMENT OF MOBILE MACHINERY.
(a) Treatment of Mobile Machinery as Highway Vehicle.--
(1) In general.--Section 7701(a) (relating to definitions)
is amended by adding at the end the following new paragraph:
``(48) Treatment of mobile machinery as highway vehicle.--
``(A) In general.--A vehicle described in
subparagraph (B) shall be treated as a highway vehicle.
``(B) Mobile machinery.--A vehicle is described in
this subparagraph if such vehicle consists of a
chassis--
``(i) to which there has been permanently
mounted (by welding, bolting, riveting, or
other means) machinery or equipment to perform
a construction, manufacturing, processing,
farming, mining, drilling, timbering, or
similar operation if the operation of the
machinery or equipment is unrelated to
transportation on or off the public highways,
``(ii) which has been specially designed to
serve only as a mobile carriage and mount (and
a power source, where applicable) for the
particular machinery or equipment involved,
whether or not such machinery or equipment is
in operation, and
``(iii) which, by reason of such special
design, could not, without substantial
structural modification, be used as a component
of a vehicle designed to perform a function of
transporting any load other than that
particular machinery or equipment or similar
machinery or equipment requiring such a
specially designed chassis.''.
(2) Effective date.--The amendment made by this subsection
shall take effect on the day after the date of the enactment of
this Act.
(b) Eligibility for Refund in Case of Limited Use of Vehicle on
Highways.--
(1) Retail sales and tire taxes.--
(A) In general.--Section 6416(b) (relating to
special cases in which tax payments considered
overpayments) is amended by adding at the end the
following new paragraph:
``(7) Mobile machinery.--
``(A) In general.--If the tax imposed by section
4051 or 4071 has been paid with respect to any vehicle
described in section 7701(a)(48)(B) which meets the
use-based test for each of the first 2 12-month periods
after such payment, 50 percent of such tax shall be
considered an overpayment for each such period.
``(B) Use-based test.--For purposes of subparagraph
(A), the use-based test is met if the use of the
vehicle on public highways was less than 5,000 miles
during any 12-month period.
``(C) Special rule for use by certain tax-exempt
organizations.--For purposes of subparagraph (A), the
use-based test shall be determined without regard to
any use in a vehicle by an organization which is
described in section 501(c) and exempt from tax under
section 501(a).''.
(B) Effective date.--The amendment made by this
paragraph shall take effect on the day after the date
of the enactment of this Act.
(2) Fuel Taxes.--
(A) In general.--Section 6421(e)(2) (defining off-
highway business use) is amended by adding at the end
the following new subparagraph:
``(C) Uses in mobile machinery.--
``(i) In general.--The term `off-highway
business use' shall include any use in a
vehicle described in section 7701(a)(48)(B)
which meets the use-based test.
``(ii) Use-based test.--For purposes of
clause (i), the use-based test is met if the
use of the vehicle on public highways was less
than 5,000 miles during the taxpayer's taxable
year.
``(iii) Special rule for use by certain
tax-exempt organizations.--For purposes of
clause (i), the use-based test shall be
determined without regard to any use in a
vehicle by an organization which is described
in section 501(c) and exempt from tax under
section 501(a).''.
(B) Annual refund of tax paid.--Section 6427(i)(2)
(relating to exceptions) is amended by adding at the
end the following new subparagraph:
``(C) Nonapplication of paragraph.--This paragraph
shall not apply to any fuel used in any off-highway
business use described in section 6421(e)(2)(C).''.
(C) Effective date.--The amendments made by this
paragraph shall apply to taxable years beginning after
the date of the enactment of this Act.
(3) Conforming amendment for tax-exempt users with respect
to use tax.--
(A) In general.--Section 4483(d)(1) (relating to
suspension of tax) is amended by adding at the end the
following new subparagraph:
``(C) Special rule for use by certain tax-exempt
organizations.--Subparagraph (A) shall be determined
without regard to any use in a vehicle by an
organization which is described in section 501(c) and
exempt from tax under section 501(a).''.
(B) Effective date.--The amendment made by this
paragraph shall take effect on the day after the date
of the enactment of this Act.
Subtitle J--Additional Provisions
SEC. 897. STUDY OF EFFECTIVENESS OF CERTAIN PROVISIONS BY GAO.
(a) Study.--The Comptroller General of the United States shall
undertake an ongoing analysis of--
(1) the effectiveness of the alternative motor vehicles and
fuel incentives provisions under subtitle B and the
conservation and energy efficiency provisions under subtitle C,
and
(2) the recipients of the tax benefits contained in such
provisions, including an identification of such recipients by
income and other appropriate measurements.
Such analysis shall quantify the effectiveness of such provisions by
examining and comparing the Federal Government's forgone revenue to the
aggregate amount of energy actually conserved and tangible
environmental benefits gained as a result of such provisions.
(b) Reports.--The Comptroller General of the United States shall
report the analysis required under subsection (a) to Congress not later
than December 31, 2004, and annually thereafter.
SEC. 898. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND
INLAND WATERWAY TRANSPORTATION WHICH REMAIN IN GENERAL
FUND.
(a) Taxes on Trains.--
(1) In general.--Subparagraph (A) of section 4041(a)(1) is
amended by striking ``or a diesel-powered train'' each place it
appears and by striking ``or train''.
(2) Conforming amendments.--
(A) Subparagraph (C) of section 4041(a)(1) is
amended by striking clause (ii) and by redesignating
clause (iii) as clause (ii).
(B) Subparagraph (C) of section 4041(b)(1) is
amended by striking all that follows ``section
6421(e)(2)'' and inserting a period.
(C) Subsection (d) of section 4041 is amended by
redesignating paragraph (3) as paragraph (4) and by
inserting after paragraph (2) the following new
paragraph:
``(3) Diesel fuel used in trains.--There is hereby imposed
a tax of 0.1 cent per gallon on any liquid other than gasoline
(as defined in section 4083)--
``(A) sold by any person to an owner, lessee, or
other operator of a diesel-powered train for use as a
fuel in such train, or
``(B) used by any person as a fuel in a diesel-
powered train unless there was a taxable sale of such
fuel under subparagraph (A).
No tax shall be imposed by this paragraph on the sale or use of
any liquid if tax was imposed on such liquid under section
4081.''
(D) Subsection (f) of section 4082 is amended by
striking ``section 4041(a)(1)'' and inserting
``subsections (d)(3) and (a)(1) of section 4041,
respectively''.
(E) Paragraph (3) of section 4083(a) is amended by
striking ``or a diesel-powered train''.
(F) Paragraph (3) of section 6421(f) is amended to
read as follows:
``(3) Gasoline used in trains.--In the case of gasoline
used as a fuel in a train, this section shall not apply with
respect to the Leaking Underground Storage Tank Trust Fund
financing rate under section 4081.''
(G) Paragraph (3) of section 6427(l) is amended to
read as follows:
``(3) Refund of certain taxes on fuel used in diesel-
powered trains.--For purposes of this subsection, the term
`nontaxable use' includes fuel used in a diesel-powered train.
The preceding sentence shall not apply to the tax imposed by
section 4041(d) and the Leaking Underground Storage Tank Trust
Fund financing rate under section 4081 except with respect to
fuel sold for exclusive use by a State or any political
subdivision thereof.''
(b) Fuel Used on Inland Waterways.--
(1) In general.--Paragraph (1) of section 4042(b) is
amended by adding ``and'' at the end of subparagraph (A), by
striking ``, and'' at the end of subparagraph (B) and inserting
a period, and by striking subparagraph (C).
(2) Conforming amendment.--Paragraph (2) of section 4042(b)
is amended by striking subparagraph (C).
(c) Effective Date.--The amendments made by this section shall take
effect on October 1, 2004.
SEC. 899. DISTRIBUTIONS FROM PUBLICLY TRADED PARTNERSHIPS TREATED AS
QUALIFYING INCOME OF REGULATED INVESTMENT COMPANIES.
(a) In General.--Paragraph (2) of section 851(b) (defining
regulated investment company) is amended to read as follows:
``(2) at least 90 percent of its gross income is derived
from--
``(A) dividends, interest, payments with respect to
securities loans (as defined in section 512(a)(5)), and
gains from the sale or other disposition of stock or
securities (as defined in section 2(a)(36) of the
Investment Company Act of 1940, as amended) or foreign
currencies, or other income (including but not limited
to gains from options, futures or forward contracts)
derived with respect to its business of investing in
such stock, securities, or currencies, and
``(B) distributions or other income derived from an
interest in a qualified publicly traded partnership (as
defined in subsection (h)); and''
(b) Source Flow-Through Rule Not To Apply.--The last sentence of
section 851(b) is amended by inserting ``(other than a qualified
publicly traded partnership as defined in subsection (h))'' after
``derived from a partnership''.
(c) Limitation on Ownership.--Subsection (c) of section 851 is
amended by redesignating paragraph (5) as paragraph (6) and inserting
after paragraph (4) the following new paragraph:
``(5) The term `outstanding voting securities of such
issuer' shall include the equity securities of a qualified
publicly traded partnership (as defined in subsection (h)).''.
(d) Definition of Qualified Publicly Traded Partnership.--Section
851 is amended by adding at the end the following new subsection:
``(h) Qualified Publicly Traded Partnership.--For purposes of this
section, the term `qualified publicly traded partnership' means a
publicly traded partnership described in section 7704(b) other than a
partnership which would satisfy the gross income requirements of
section 7704(c)(2) if qualifying income included only income described
in subsection (b)(2)(A).''.
(e) Definition of Qualifying Income.--Section 7704(d)(4) is amended
by striking ``section 851(b)(2)'' and inserting ``section
851(b)(2)(A)''.
(f) Limitation on Composition of Assets.--Subparagraph (B) of
section 851(b)(3) is amended to read as follows:
``(B) not more than 25 percent of the value of its
total assets is invested in--
``(i) the securities (other than Government
securities or the securities of other regulated
investment companies) of any one issuer,
``(ii) the securities (other than the
securities of other regulated investment
companies) of two or more issuers which the
taxpayer controls and which are determined,
under regulations prescribed by the Secretary,
to be engaged in the same or similar trades or
businesses or related trades or businesses, or
``(iii) the securities of one or more
qualified publicly traded partnerships (as
defined in subsection (h)).''.
(g) Application of Special Passive Activity Rule to Regulated
Investment Companies.--Subsection (k) of section 469 (relating to
separate application of section in case of publicly traded
partnerships) is amended by adding at the end the following new
paragraph:
``(4) Application to regulated investment companies.--For
purposes of this section, a regulated investment company (as
defined in section 851) holding an interest in a qualified
publicly traded partnership (as defined in section 851(h))
shall be treated as a taxpayer described in subsection (a)(2)
with respect to items attributable to such interest.''.
(h) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 899A. CERTAIN BUSINESS RELATED CREDITS ALLOWED AGAINST REGULAR AND
MINIMUM TAX.
(a) In General.--Subsection (c) of section 38 (relating to
limitation based on amount of tax) is amended by redesignating
paragraph (4) as paragraph (5) and by inserting after paragraph (3) the
following new paragraph:
``(4) Special rules for specified credits.--
``(A) In general.--In the case of specified
credits--
``(i) this section and section 39 shall be
applied separately with respect to such
credits, and
``(ii) in applying paragraph (1) to such
credits--
``(I) the tentative minimum tax
shall be treated as being zero, and
``(II) the limitation under
paragraph (1) (as modified by subclause
(I)) shall be reduced by the credit
allowed under subsection (a) for the
taxable year (other than the specified
credits).
``(B) Specified credits.--For purposes of this
subsection, the term `specified credits' includes--
``(i) for taxable years beginning after
December 31, 2004, the credit determined under
section 40, and
``(ii) the credit determined under section
45 to the extent that such credit is
attributable to electricity produced--
``(I) at a facility which is
originally placed in service after the
date of the enactment of this
paragraph, and
``(II) during the 4-year period
beginning on the date that such
facility was originally placed in
service.''.
(b) Conforming Amendments.--Paragraph (2)(A)(ii)(II) and
(3)(A)(ii)(II) of section 38(c) are each amended by inserting ``or the
specified credits'' after ``employee credit''.
(c) Effective Date.--Except as otherwise provided, the amendments
made by this section shall apply to taxable years ending after the date
of the enactment of this Act.
SEC. 899B. CREDIT FOR QUALIFYING POLLUTION CONTROL EQUIPMENT.
(a) Allowance of Qualifying Pollution Control Equipment Credit.--
Section 46 (relating to amount of credit), as amended by this Act, is
amended by striking ``and'' at the end of paragraph (2), by striking
the period at the end of paragraph (3) and inserting ``, and'', and by
adding at the end the following new paragraph:
``(4) the qualifying pollution control equipment credit.''.
(b) Amount of Qualifying Pollution Control Equipment Credit.--
Subpart E of part IV of subchapter A of chapter 1 (relating to rules
for computing investment credit), as amended by this Act, is amended by
inserting after section 48A the following new section:
``SEC. 48B. QUALIFYING POLLUTION CONTROL EQUIPMENT CREDIT.
``(a) In General.--For purposes of section 46, the qualifying
pollution control equipment credit for any taxable year is an amount
equal to 15 percent of the basis of the qualifying pollution control
equipment placed in service at a qualifying facility during such
taxable year.
``(b) Qualifying Pollution Control Equipment.--For purposes of this
section, the term `qualifying pollution control equipment' means any
technology installed in or on a qualifying facility to reduce air
emissions of any pollutant regulated by the Environmental Protection
Agency under the Clean Air Act, including thermal oxidizers,
regenerative thermal oxidizers, scrubber systems, evaporative control
systems, vapor recovery systems, flair systems, bag houses, cyclones,
continuous emissions monitoring systems, and low nitric oxide burners.
``(c) Qualifying Facility.--For purposes of this section, the term
`qualifying facility' means any facility which produces not less than
1,000,000 gallons of ethanol during the taxable year.
``(d) Special Rule for Certain Subsidized Property.--Rules similar
to section 48(a)(4) shall apply for purposes of this section.
``(e) Certain Qualified Progress Expenditures Rules Made
Applicable.--Rules similar to the rules of subsections (c)(4) and (d)
of section 46 (as in effect on the day before the enactment of the
Revenue Reconciliation Act of 1990) shall apply for purposes of this
subsection.''.
(c) Recapture of Credit Where Emissions Reduction Offset is Sold.--
Paragraph (1) of section 50(a) is amended by redesignating subparagraph
(B) as subparagraph (C) and by inserting after subparagraph (A) the
following new subparagraph:
``(B) Special rule for qualifying pollution control
equipment.--For purposes of subparagraph (A), any
investment property which is qualifying pollution
control equipment (as defined in section 48B(b)) shall
cease to be investment credit property with respect to
a taxpayer if such taxpayer receives a payment in
exchange for a credit for emission reductions
attributable to such qualifying pollution control
equipment for purposes of an offset requirement under
part D of title I of the Clean Air Act.''.
(d) Special Rule for Basis Reduction; Recapture of Credit.--
Paragraph (3) of section 50(c) (relating to basis adjustment to
investment credit property), as amended by this Act, is amended by
inserting ``or qualifying pollution control equipment credit'' after
``energy credit''.
(e) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2003, in taxable
years ending after such date, under rules similar to the rules of
section 48(m) of the Internal Revenue Code of 1986 (as in effect on the
day before the date of the enactment of the Revenue Reconciliation Act
of 1990).
SEC. 899C. ELECTRIC TRANSMISSION PROPERTY TREATED AS 15-YEAR PROPERTY.
(a) In General.--Subparagraph (E) of section 168(e)(3) (relating to
classification of certain property), as amended by this Act, is amended
by striking ``and'' at the end of clause (iii), by striking the period
at the end of clause (iv) and by inserting ``, and'', and by adding at
the end the following new clause:
``(v) any section 1245 property (as defined
in section 1245(a)(3)) used in the transmission
at 69 or more kilovolts of electricity for sale
the original use of which commences with the
taxpayer after the date of the enactment of
this clause.''.
(b) Alternative System.--The table contained in section
168(g)(3)(B) is amended by inserting after the item relating to
subparagraph (E)(iv) the following:
``(E)(v)....................................................... 30''.
(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, and prior to July 1, 2006.
TITLE IX--HOMESTEAD PRESERVATION ACT
SEC. 901. SHORT TITLE.
This title may be cited as the ``Homestead Preservation Act''.
SEC. 902. MORTGAGE PAYMENT ASSISTANCE.
(a) Establishment of Program.--The Secretary of Housing and Urban
Development (referred to in this section as the ``Secretary'') shall
establish a program under which the Secretary shall award low-interest
loans to eligible individuals to enable such individuals to continue to
make mortgage payments with respect to the primary residences of such
individuals.
(b) Eligibility.--To be eligible to receive a loan under the
program established under subsection (a), an individual shall be--
(1) an individual that is a worker adversely affected by
international economic activity, as determined by the
Secretary;
(2) a borrower under a loan which requires the individual
to make monthly mortgage payments with respect to the primary
place of residence of the individual; and
(3) enrolled in a training or assistance program.
(c) Loan Requirements.--
(1) In general.--A loan provided to an eligible individual
under this section shall--
(A) be for a period of not to exceed 12 months;
(B) be for an amount that does not exceed the sum
of--
(i) the amount of the monthly mortgage
payment owed by the individual; and
(ii) the number of months for which the
loan is provided;
(C) have an applicable rate of interest that equals
4 percent;
(D) require repayment as provided for in subsection
(d); and
(E) be subject to such other terms and conditions
as the Secretary determines appropriate.
(2) Account.--A loan awarded to an individual under this
section shall be deposited into an account from which a monthly
mortgage payment will be made in accordance with the terms and
conditions of such loan.
(d) Repayment.--
(1) In general.--An individual to which a loan has been
awarded under this section shall be required to begin making
repayments on the loan on the earlier of--
(A) the date on which the individual has been
employed on a full-time basis for 6 consecutive months;
or
(B) the date that is 1 year after the date on which
the loan has been approved under this section.
(2) Repayment period and amount.--
(A) Repayment period.--A loan awarded under this
section shall be repaid on a monthly basis over the 5-
year period beginning on the date determined under
paragraph (1).
(B) Amount.--The amount of the monthly payment
described in subparagraph (A) shall be determined by
dividing the total amount provided under the loan (plus
interest) by 60.
(C) Rule of construction.--Nothing in this
paragraph shall be construed to prohibit an individual
from--
(i) paying off a loan awarded under this
section in less than 5 years; or
(ii) from paying a monthly amount under
such loan in excess of the monthly amount
determined under subparagraph (B) with respect
to the loan.
(e) Regulations.--Not later than 6 weeks after the date of
enactment of this section, the Secretary shall promulgate regulations
necessary to carry out this section, including regulations that permit
an individual to certify that the individual is an eligible individual
under subsection (b).
(f) Authorization of Appropriations.--There is authorized to be
appropriated to carry out this section, $10,000,000 for each of fiscal
years 2005 through 2009.
TITLE X--OFFICE OF FEDERAL PROCUREMENT POLICY ACT IMPROVEMENTS
SEC. 1001. REPORT ON ACQUISITIONS OF GOODS FROM FOREIGN SOURCES.
(a) Report.--The Office of Federal Procurement Policy Act (41
U.S.C. 403 et seq.), as amended by this Act, is further amended by
adding at the end the following new section:
``SEC. 43. REPORT ON ACQUISITIONS OF GOODS FROM FOREIGN SOURCES.
``(a) Not later than 60 days after the end of each fiscal year, the
head of each executive agency shall submit to Congress a report on the
acquisitions that were made of articles, materials, or supplies by such
executive agency in that fiscal year from entities that manufacture the
articles, materials, or supplies outside the United States.
``(b) The report for a fiscal year under subsection (a) shall
separately indicate the following information:
``(1) The dollar value of any articles, materials, or
supplies that were manufactured outside the United States.
``(2) An itemized list of all waivers granted with respect
to such articles, materials, or supplies under the Buy American
Act (41 U.S.C. 10a et seq.).
``(3) A summary of--
``(A) the total procurement funds expended on
articles, materials, and supplies manufactured inside
the United States; and
``(B) the total procurement funds expended on
articles, materials, and supplies manufactured outside
the United States.
``(c) The head of each executive agency submitting a report under
subsection (a) shall make the report publicly available by posting on
an Internet website.
``(d) Subsection (a) shall not apply to any procurement for
national security purposes entered into by--
``(1) the Department of Defense or any agency or entity
thereof;
``(2) the Department of the Army, the Department of the
Navy, the Department of the Air Force, or any agency or entity
of any of the military departments;
``(3) the Department of Homeland Security;
``(4) the Department of Energy or any agency or entity
thereof, with respect to the national security programs of that
Department; or
``(5) any element of the intelligence community.''.
(b) Clerical Amendment.--The table of contents in section 1(b) of
the Office of Federal Procurement Policy Act is amended by adding at
the end the following new item:
``Sec. 43. Report on acquisitions of goods from foreign
sources.''.
(c) Commerce Department Report.--Not later than 60 days after the
end of each fiscal year ending after the date of the enactment of this
Act, the Secretary of Commerce shall submit to Congress and make
publicly available by posting on an Internet website a report on the
acquisitions by foreign governments of articles, materials, or supplies
that were manufactured or extracted in the United States in that fiscal
year. Such report shall indicate the dollar value of such articles,
materials, or supplies.
TITLE XI--PROVISIONS RELATING TO TOBACCO
Subtitle A--Family Smoking Prevention and Tobacco Control
SEC. 1101. SHORT TITLE.
This subtitle may be cited as the ``Family Smoking Prevention and
Tobacco Control Act''.
SEC. 1102. FINDINGS.
The Congress finds the following:
(1) The use of tobacco products by the Nation's children is
a pediatric disease of considerable proportions that results in
new generations of tobacco-dependent children and adults.
(2) A consensus exists within the scientific and medical
communities that tobacco products are inherently dangerous and
cause cancer, heart disease, and other serious adverse health
effects.
(3) Nicotine is an addictive drug.
(4) Virtually all new users of tobacco products are under
the minimum legal age to purchase such products.
(5) Tobacco advertising and marketing contribute
significantly to the use of nicotine-containing tobacco
products by adolescents.
(6) Because past efforts to restrict advertising and
marketing of tobacco products have failed adequately to curb
tobacco use by adolescents, comprehensive restrictions on the
sale, promotion, and distribution of such products are needed.
(7) Federal and State governments have lacked the legal and
regulatory authority and resources they need to address
comprehensively the public health and societal problems caused
by the use of tobacco products.
(8) Federal and State public health officials, the public
health community, and the public at large recognize that the
tobacco industry should be subject to ongoing oversight.
(9) Under article I, section 8 of the Constitution, the
Congress is vested with the responsibility for regulating
interstate commerce and commerce with Indian tribes.
(10) The sale, distribution, marketing, advertising, and
use of tobacco products are activities in and substantially
affecting interstate commerce because they are sold, marketed,
advertised, and distributed in interstate commerce on a
nationwide basis, and have a substantial effect on the Nation's
economy.
(11) The sale, distribution, marketing, advertising, and
use of such products substantially affect interstate commerce
through the health care and other costs attributable to the use
of tobacco products.
(12) It is in the public interest for Congress to enact
legislation that provides the Food and Drug Administration with
the authority to regulate tobacco products and the advertising
and promotion of such products. The benefits to the American
people from enacting such legislation would be significant in
human and economic terms.
(13) Tobacco use is the foremost preventable cause of
premature death in America. It causes over 400,000 deaths in
the United States each year and approximately 8,600,000
Americans have chronic illnesses related to smoking.
(14) Reducing the use of tobacco by minors by 50 percent
would prevent well over 6,500,000 of today's children from
becoming regular, daily smokers, saving over 2,000,000 of them
from premature death due to tobacco induced disease. Such a
reduction in youth smoking would also result in approximately
$75,000,000,000 in savings attributable to reduced health care
costs.
(15) Advertising, marketing, and promotion of tobacco
products have been especially directed to attract young persons
to use tobacco products and these efforts have resulted in
increased use of such products by youth. Past efforts to
oversee these activities have not been successful in adequately
preventing such increased use.
(16) In 2001, the tobacco industry spent more than
$11,000,000,000 to attract new users, retain current users,
increase current consumption, and generate favorable long-term
attitudes toward smoking and tobacco use.
(17) Tobacco product advertising often misleadingly
portrays the use of tobacco as socially acceptable and
healthful to minors.
(18) Tobacco product advertising is regularly seen by
persons under the age of 18, and persons under the age of 18
are regularly exposed to tobacco product promotional efforts.
(19) Through advertisements during and sponsorship of
sporting events, tobacco has become strongly associated with
sports and has become portrayed as an integral part of sports
and the healthy lifestyle associated with rigorous sporting
activity.
(20) Children are exposed to substantial and unavoidable
tobacco advertising that leads to favorable beliefs about
tobacco use, plays a role in leading young people to
overestimate the prevalence of tobacco use, and increases the
number of young people who begin to use tobacco.
(21) The use of tobacco products in motion pictures and
other mass media glamorizes its use for young people and
encourages them to use tobacco products.
(22) Tobacco advertising expands the size of the tobacco
market by increasing consumption of tobacco products including
tobacco use by young people.
(23) Children are more influenced by tobacco advertising
than adults, they smoke the most advertised brands.
(24) Tobacco company documents indicate that young people
are an important and often crucial segment of the tobacco
market. Children, who tend to be more price-sensitive than
adults, are influenced by advertising and promotion practices
that result in drastically reduced cigarette prices.
(25) Comprehensive advertising restrictions will have a
positive effect on the smoking rates of young people.
(26) Restrictions on advertising are necessary to prevent
unrestricted tobacco advertising from undermining legislation
prohibiting access to young people and providing for education
about tobacco use.
(27) International experience shows that advertising
regulations that are stringent and comprehensive have a greater
impact on overall tobacco use and young people's use than
weaker or less comprehensive ones.
(28) Text only requirements, although not as stringent as a
ban, will help reduce underage use of tobacco products while
preserving the informational function of advertising.
(29) It is in the public interest for Congress to adopt
legislation to address the public health crisis created by
actions of the tobacco industry.
(30) The final regulations promulgated by the Secretary of
Health and Human Services in the August 28, 1996, issue of the
Federal Register (61 Fed. Reg. 44615-44618) for inclusion as
part 897 of title 21, Code of Federal Regulations, are
consistent with the First Amendment to the United States
Constitution and with the standards set forth in the amendments
made by this subtitle for the regulation of tobacco products by
the Food and Drug Administration and the restriction on the
sale and distribution, including access to and the advertising
and promotion of, tobacco products contained in such
regulations are substantially related to accomplishing the
public health goals of this subtitle.
(31) The regulations described in paragraph (30) will
directly and materially advance the Federal Government's
substantial interest in reducing the number of children and
adolescents who use cigarettes and smokeless tobacco and in
preventing the life-threatening health consequences associated
with tobacco use. An overwhelming majority of Americans who use
tobacco products begin using such products while they are
minors and become addicted to the nicotine in those products
before reaching the age of 18. Tobacco advertising and
promotion plays a crucial role in the decision of these minors
to begin using tobacco products. Less restrictive and less
comprehensive approaches have not and will not be effective in
reducing the problems addressed by such regulations. The
reasonable restrictions on the advertising and promotion of
tobacco products contained in such regulations will lead to a
significant decrease in the number of minors using and becoming
addicted to those products.
(32) The regulations described in paragraph (30) impose no
more extensive restrictions on communication by tobacco
manufacturers and sellers than are necessary to reduce the
number of children and adolescents who use cigarettes and
smokeless tobacco and to prevent the life-threatening health
consequences associated with tobacco use. Such regulations are
narrowly tailored to restrict those advertising and promotional
practices which are most likely to be seen or heard by youth
and most likely to entice them into tobacco use, while
affording tobacco manufacturers and sellers ample opportunity
to convey information about their products to adult consumers.
(33) Tobacco dependence is a chronic disease, one that
typically requires repeated interventions to achieve long-term
or permanent abstinence.
(34) Because the only known safe alternative to smoking is
cessation, interventions should target all smokers to help them
quit completely.
(35) Tobacco products have been used to facilitate and
finance criminal activities both domestically and
internationally. Illicit trade of tobacco products has been
linked to organized crime and terrorist groups.
(36) It is essential that the Food and Drug Administration
review products sold or distributed for use to reduce risks or
exposures associated with tobacco products and that it be
empowered to review any advertising and labeling for such
products. It is also essential that manufacturers, prior to
marketing such products, be required to demonstrate that such
products will meet a series of rigorous criteria, and will
benefit the health of the population as a whole, taking into
account both users of tobacco products and persons who do not
currently use tobacco products.
(37) Unless tobacco products that purport to reduce the
risks to the public of tobacco use actually reduce such risks,
those products can cause substantial harm to the public health
to the extent that the individuals, who would otherwise not
consume tobacco products or would consume such products less,
use tobacco products purporting to reduce risk. Those who use
products sold or distributed as modified risk products that do
not in fact reduce risk, rather than quitting or reducing their
use of tobacco products, have a substantially increased
likelihood of suffering disability and premature death. The
costs to society of the widespread use of products sold or
distributed as modified risk products that do not in fact
reduce risk or that increase risk include thousands of
unnecessary deaths and injuries and huge costs to our health
care system.
(38) As the National Cancer Institute has found, many
smokers mistakenly believe that ``low tar'' and ``light''
cigarettes cause fewer health problems than other cigarettes.
As the National Cancer Institute has also found, mistaken
beliefs about the health consequences of smoking ``low tar''
and ``light'' cigarettes can reduce the motivation to quit
smoking entirely and thereby lead to disease and death.
(39) Recent studies have demonstrated that there has been
no reduction in risk on a population-wide basis from ``low
tar'' and ``light'' cigarettes and such products may actually
increase the risk of tobacco use.
(40) The dangers of products sold or distributed as
modified risk tobacco products that do not in fact reduce risk
are so high that there is a compelling governmental interest in
insuring that statements about modified risk tobacco products
are complete, accurate, and relate to the overall disease risk
of the product.
(41) As the Federal Trade Commission has found, consumers
have misinterpreted advertisements in which one product is
claimed to be less harmful than a comparable product, even in
the presence of disclosures and advisories intended to provide
clarification.
(42) Permitting manufacturers to make unsubstantiated
statements concerning modified risk tobacco products, whether
express or implied, even if accompanied by disclaimers would be
detrimental to the public health.
(43) The only way to effectively protect the public health
from the dangers of unsubstantiated modified risk tobacco
products is to empower the Food and Drug Administration to
require that products that tobacco manufacturers sold or
distributed for risk reduction be approved in advance of
marketing, and to require that the evidence relied on to
support approval of these products is rigorous.
SEC. 1103. PURPOSE.
The purposes of this subtitle are--
(1) to provide authority to the Food and Drug
Administration to regulate tobacco products under the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 301 et seq.), by
recognizing it as the primary Federal regulatory authority with
respect to the manufacture, marketing, and distribution of
tobacco products;
(2) to ensure that the Food and Drug Administration has the
authority to address issues of particular concern to public
health officials, especially the use of tobacco by young people
and dependence on tobacco;
(3) to authorize the Food and Drug Administration to set
national standards controlling the manufacture of tobacco
products and the identity, public disclosure, and amount of
ingredients used in such products;
(4) to provide new and flexible enforcement authority to
ensure that there is effective oversight of the tobacco
industry's efforts to develop, introduce, and promote less
harmful tobacco products;
(5) to vest the Food and Drug Administration with the
authority to regulate the levels of tar, nicotine, and other
harmful components of tobacco products;
(6) in order to ensure that consumers are better informed,
to require tobacco product manufacturers to disclose research
which has not previously been made available, as well as
research generated in the future, relating to the health and
dependency effects or safety of tobacco products;
(7) to continue to permit the sale of tobacco products to
adults in conjunction with measures to ensure that they are not
sold or accessible to underage purchasers;
(8) to impose appropriate regulatory controls on the
tobacco industry;
(9) to promote cessation to reduce disease risk and the
social costs associated with tobacco related diseases; and
(10) to strengthen legislation against illicit trade in
tobacco products.
SEC. 1104. SCOPE AND EFFECT.
(a) Intended Effect.--Nothing in this subtitle (or an amendment
made by this subtitle) shall be construed to--
(1) establish a precedent with regard to any other
industry, situation, circumstance, or legal action; or
(2) affect any action pending in Federal, State, or Tribal
court, or any agreement, consent decree, or contract of any
kind.
(b) Agricultural Activities.--The provisions of this subtitle (or
an amendment made by this subtitle) which authorize the Secretary to
take certain actions with regard to tobacco and tobacco products shall
not be construed to affect any authority of the Secretary of
Agriculture under existing law regarding the growing, cultivation, or
curing of raw tobacco.
SEC. 1105. SEVERABILITY.
If any provision of this subtitle, the amendments made by this
subtitle, or the application of any provision of this subtitle to any
person or circumstance is held to be invalid, the remainder of this
subtitle, the amendments made by this subtitle, and the application of
the provisions of this subtitle to any other person or circumstance
shall not be affected and shall continue to be enforced to the fullest
extent possible.
CHAPTER 1--AUTHORITY OF THE FOOD AND DRUG ADMINISTRATION
SEC. 1111. AMENDMENT OF FEDERAL FOOD, DRUG, AND COSMETIC ACT.
(a) Definition of Tobacco Products.--Section 201 of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 321) is amended by adding at
the end the following:
``(nn)(1) The term `tobacco product' means any product made or
derived from tobacco that is intended for human consumption, including
any component, part, or accessory of a tobacco product (except for raw
materials other than tobacco used in manufacturing a component, part,
or accessory of a tobacco product).
``(2) The term `tobacco product' does not mean--
``(A) a product in the form of conventional food (including
water and chewing gum), a product represented for use as or for
use in a conventional food, or a product that is intended for
ingestion in capsule, tablet, softgel, or liquid form; or
``(B) an article that is approved or is regulated as a drug
by the Food and Drug Administration.
``(3) The products described in paragraph (2)(A) shall be subject
to chapter IV or chapter V of this Act and the articles described in
paragraph (2)(B) shall be subject to chapter V of this Act.
``(4) A tobacco product may not be marketed in combination with any
other article or product regulated under this Act (including a drug,
biologic, food, cosmetics, medical device, or a dietary supplement).''.
(b) FDA Authority Over Tobacco Products.--The Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 301 et seq.) is amended--
(1) by redesignating chapter IX as chapter X;
(2) by redesignating sections 901 through 907 as sections
1001 through 1007; and
(3) by inserting after section 803 the following:
``CHAPTER IX--TOBACCO PRODUCTS
``SEC. 900. DEFINITIONS.
``In this chapter:
``(1) Additive.--The term `additive' means any substance
the intended use of which results or may reasonably be expected
to result, directly or indirectly, in its becoming a component
or otherwise affecting the characteristic of any tobacco
product (including any substances intended for use as a
flavoring, coloring or in producing, manufacturing, packing,
processing, preparing, treating, packaging, transporting, or
holding), except that such term does not include tobacco or a
pesticide chemical residue in or on raw tobacco or a pesticide
chemical.
``(2) Brand.--The term `brand' means a variety of tobacco
product distinguished by the tobacco used, tar content,
nicotine content, flavoring used, size, filtration, or
packaging, logo, registered trademark or brand name,
identifiable pattern of colors, or any combination of such
attributes.
``(3) Cigarette.--The term `cigarette' has the meaning
given that term by section 3(1) of the Federal Cigarette
Labeling and Advertising Act (15 U.S.C. 1332(1)), but also
includes tobacco, in any form, that is functional in the
product, which, because of its appearance, the type of tobacco
used in the filler, or its packaging and labeling, is likely to
be offered to, or purchased by, consumers as a cigarette or as
roll-your-own tobacco.
``(4) Cigarette tobacco.--The term `cigarette tobacco'
means any product that consists of loose tobacco that is
intended for use by consumers in a cigarette. Unless otherwise
stated, the requirements for cigarettes shall also apply to
cigarette tobacco.
``(5) Commerce.--The term `commerce' has the meaning given
that term by section 3(2) of the Federal Cigarette Labeling and
Advertising Act (15 U.S.C. 1332(2)).
``(6) Counterfeit tobacco product.--The term `counterfeit
tobacco product' means a tobacco product (or the container or
labeling of such a product) that, without authorization, bears
the trademark, trade name, or other identifying mark, imprint
or device, or any likeness thereof, of a tobacco product listed
in a registration under section 905(i)(1).
``(7) Distributor.--The term `distributor' as regards a
tobacco product means any person who furthers the distribution
of a tobacco product, whether domestic or imported, at any
point from the original place of manufacture to the person who
sells or distributes the product to individuals for personal
consumption. Common carriers are not considered distributors
for purposes of this chapter.
``(8) Illicit trade.--The term `illicit trade' means any
practice or conduct prohibited by law which relates to
production, shipment, receipt, possession, distribution, sale,
or purchase of tobacco products including any practice or
conduct intended to facilitate such activity.
``(9) Indian tribe.--The term `Indian tribe' has the
meaning given such term in section 4(e) of the Indian Self
Determination and Education Assistance Act (25 U.S.C. 450b(e)).
``(10) Little cigar.--The term `little cigar' has the
meaning given that term by section 3(7) of the Federal
Cigarette Labeling and Advertising Act (15 U.S.C. 1332(7)).
``(11) Nicotine.--The term `nicotine' means the chemical
substance named 3-(1-Methyl-2-pyrrolidinyl) pyridine or
C[10]H[14]N[2], including any salt or complex of nicotine.
``(12) Package.--The term `package' means a pack, box,
carton, or container of any kind or, if no other container, any
wrapping (including cellophane), in which a tobacco product is
offered for sale, sold, or otherwise distributed to consumers.
``(13) Retailer.--The term `retailer' means any person who
sells tobacco products to individuals for personal consumption,
or who operates a facility where self-service displays of
tobacco products are permitted.
``(14) Roll-your-own tobacco.--The term `roll-your-own
tobacco' means any tobacco which, because of its appearance,
type, packaging, or labeling, is suitable for use and likely to
be offered to, or purchased by, consumers as tobacco for making
cigarettes.
``(15) Smoke constituent.--The term `smoke constituent'
means any chemical or chemical compound in mainstream or
sidestream tobacco smoke that either transfers from any
component of the cigarette to the smoke or that is formed by
the combustion or heating of tobacco, additives, or other
component of the tobacco product.
``(16) Smokeless tobacco.--The term `smokeless tobacco'
means any tobacco product that consists of cut, ground,
powdered, or leaf tobacco and that is intended to be placed in
the oral or nasal cavity.
``(17) State.--The term `State' means any State of the
United States and, for purposes of this chapter, includes the
District of Columbia, the Commonwealth of Puerto Rico, Guam,
the Virgin Islands, American Samoa, Wake Island, Midway
Islands, Kingman Reef, Johnston Atoll, the Northern Mariana
Islands, and any other trust territory or possession of the
United States.
``(18) Tobacco product manufacturer.--Term `tobacco product
manufacturer' means any person, including any repacker or
relabeler, who--
``(A) manufactures, fabricates, assembles,
processes, or labels a tobacco product; or
``(B) imports a finished cigarette or smokeless
tobacco product for sale or distribution in the United
States.
``(19) United states.--The term `United States' means the
50 States of the United States of America and the District of
Columbia, the Commonwealth of Puerto Rico, Guam, the Virgin
Islands, American Samoa, Wake Island, Midway Islands, Kingman
Reef, Johnston Atoll, the Northern Mariana Islands, and any
other trust territory or possession of the United States.
``SEC. 901. FDA AUTHORITY OVER TOBACCO PRODUCTS.
``(a) In General.--Tobacco products shall be regulated by the
Secretary under this chapter and shall not be subject to the provisions
of chapter V, unless--
``(1) such products are intended for use in the diagnosis,
cure, mitigation, treatment, or prevention of disease (within
the meaning of section 201(g)(1)(B) or section 201(h)(2)); or
``(2) a claim is made for such products under section
201(g)(1)(C) or 201(h)(3);
other than modified risk tobacco products approved in
accordance with section 911.
``(b) Applicability.--This chapter shall apply to all tobacco
products subject to the regulations referred to in section 1112 of the
Family Smoking Prevention and Tobacco Control Act, and to any other
tobacco products that the Secretary by regulation deems to be subject
to this chapter.
``(c) Scope.--
``(1) In general.--Nothing in this chapter, or any policy
issued or regulation promulgated thereunder, or the Family
Smoking Prevention and Tobacco Control Act, shall be construed
to affect the Secretary's authority over, or the regulation of,
products under this Act that are not tobacco products under
chapter V or any other chapter.
``(2) Limitation of authority.--
``(A) In general.--The provisions of this chapter
shall not apply to tobacco leaf that is not in the
possession of a manufacturer of tobacco products, or to
the producers of tobacco leaf, including tobacco
growers, tobacco warehouses, and tobacco grower
cooperatives, nor shall any employee of the Food and
Drug Administration have any authority to enter onto a
farm owned by a producer of tobacco leaf without the
written consent of such producer.
``(B) Exception.--Notwithstanding any other
provision of this subparagraph, if a producer of
tobacco leaf is also a tobacco product manufacturer or
controlled by a tobacco product manufacturer, the
producer shall be subject to this chapter in the
producer's capacity as a manufacturer.
``(C) Rule of construction.--Nothing in this
chapter shall be construed to grant the Secretary
authority to promulgate regulations on any matter that
involves the production of tobacco leaf or a producer
thereof, other than activities by a manufacturer
affecting production.
``SEC. 902. ADULTERATED TOBACCO PRODUCTS.
``A tobacco product shall be deemed to be adulterated if--
``(1) it consists in whole or in part of any filthy,
putrid, or decomposed substance, or is otherwise contaminated
by any added poisonous or added deleterious substance that may
render the product injurious to health;
``(2) it has been prepared, packed, or held under
insanitary conditions whereby it may have been contaminated
with filth, or whereby it may have been rendered injurious to
health;
``(3) its package is composed, in whole or in part, of any
poisonous or deleterious substance which may render the
contents injurious to health;
``(4) it is, or purports to be or is represented as, a
tobacco product which is subject to a tobacco product standard
established under section 907 unless such tobacco product is in
all respects in conformity with such standard;
``(5)(A) it is required by section 910(a) to have premarket
approval and does not have an approved application in effect;
``(B) it is in violation of the order approving such an
application; or
``(6) the methods used in, or the facilities or controls
used for, its manufacture, packing or storage are not in
conformity with applicable requirements under section 906(e)(1)
or an applicable condition prescribed by an order under section
906(e)(2); or
``(7) it is in violation of section 911.
``SEC. 903. MISBRANDED TOBACCO PRODUCTS.
``(a) In General.--A tobacco product shall be deemed to be
misbranded--
``(1) if its labeling is false or misleading in any
particular;
``(2) if in package form unless it bears a label
containing--
``(A) the name and place of business of the tobacco
product manufacturer, packer, or distributor;
``(B) an accurate statement of the quantity of the
contents in terms of weight, measure, or numerical
count;
``(C) an accurate statement of the percentage of
the tobacco used in the product that is domestically
grown tobacco and the percentage that is foreign grown
tobacco; and
``(D) the statement required under section 921(a),
except that under subparagraph (B) reasonable variations shall
be permitted, and exemptions as to small packages shall be
established, by regulations prescribed by the Secretary;
``(3) if any word, statement, or other information required
by or under authority of this chapter to appear on the label or
labeling is not prominently placed thereon with such
conspicuousness (as compared with other words, statements or
designs in the labeling) and in such terms as to render it
likely to be read and understood by the ordinary individual
under customary conditions of purchase and use;
``(4) if it has an established name, unless its label
bears, to the exclusion of any other nonproprietary name, its
established name prominently printed in type as required by the
Secretary by regulation;
``(5) if the Secretary has issued regulations requiring
that its labeling bear adequate directions for use, or adequate
warnings against use by children, that are necessary for the
protection of users unless its labeling conforms in all
respects to such regulations;
``(6) if it was manufactured, prepared, propagated,
compounded, or processed in any State in an establishment not
duly registered under section 905(b), 905(c), 905(d), or
905(h), if it was not included in a list required by section
905(i), if a notice or other information respecting it was not
provided as required by such section or section 905(j), or if
it does not bear such symbols from the uniform system for
identification of tobacco products prescribed under section
905(e) as the Secretary by regulation requires;
``(7) if, in the case of any tobacco product distributed or
offered for sale in any State--
``(A) its advertising is false or misleading in any
particular; or
``(B) it is sold or distributed in violation of
regulations prescribed under section 906(d);
``(8) unless, in the case of any tobacco product
distributed or offered for sale in any State, the manufacturer,
packer, or distributor thereof includes in all advertisements
and other descriptive printed matter issued or caused to be
issued by the manufacturer, packer, or distributor with respect
to that tobacco product--
``(A) a true statement of the tobacco product's
established name as described in paragraph (4), printed
prominently; and
``(B) a brief statement of--
``(i) the uses of the tobacco product and
relevant warnings, precautions, side effects,
and contraindications; and
``(ii) in the case of specific tobacco
products made subject to a finding by the
Secretary after notice and opportunity for
comment that such action is appropriate to
protect the public health, a full description
of the components of such tobacco product or
the formula showing quantitatively each
ingredient of such tobacco product to the
extent required in regulations which shall be
issued by the Secretary after an opportunity
for a hearing;
``(9) if it is a tobacco product subject to a tobacco
product standard established under section 907, unless it bears
such labeling as may be prescribed in such tobacco product
standard; or
``(10) if there was a failure or refusal--
``(A) to comply with any requirement prescribed
under section 904 or 908; or
``(B) to furnish any material or information
required under section 909.
``(b) Prior Approval of Label Statements.--The Secretary may, by
regulation, require prior approval of statements made on the label of a
tobacco product. No regulation issued under this subsection may require
prior approval by the Secretary of the content of any advertisement,
except for modified risk tobacco products as provided in section 911.
No advertisement of a tobacco product published after the date of
enactment of the Family Smoking Prevention and Tobacco Control Act
shall, with respect to the language of label statements as prescribed
under section 4 of the Cigarette Labeling and Advertising Act and
section 3 of the Comprehensive Smokeless Tobacco Health Education Act
of 1986 or the regulations issued under such sections, be subject to
the provisions of sections 12 through 15 of the Federal Trade
Commission Act (15 U.S.C. 52 through 55).
``SEC. 904. SUBMISSION OF HEALTH INFORMATION TO THE SECRETARY.
``(a) Requirement.--Not later than 6 months after the date of
enactment of the Family Smoking Prevention and Tobacco Control Act,
each tobacco product manufacturer or importer, or agents thereof, shall
submit to the Secretary the following information:
``(1) A listing of all ingredients, including tobacco,
substances, compounds, and additives that are, as of such date,
added by the manufacturer to the tobacco, paper, filter, or
other part of each tobacco product by brand and by quantity in
each brand and subbrand.
``(2) A description of the content, delivery, and form of
nicotine in each tobacco product measured in milligrams of
nicotine in accordance with regulations promulgated by the
Secretary in accordance with section 4(a)(4) of the Federal
Cigarette Labeling and Advertising Act.
``(3) A listing of all constituents, including smoke
constituents as applicable, identified by the Secretary as
harmful or potentially harmful to health in each tobacco
product, and as applicable in the smoke of each tobacco
product, by brand and by quantity in each brand and subbrand.
Effective beginning 2 years after the date of enactment of this
chapter, the manufacturer, importer, or agent shall comply with
regulations promulgated under section 915 in reporting
information under this paragraph, where applicable.
``(4) All documents developed after the date of enactment
of the Family Smoking Prevention and Tobacco Control Act that
relate to health, toxicological, behavioral, or physiologic
effects of current or future tobacco products, their
constituents (including smoke constituents), ingredients,
components, and additives.
``(b) Data Submission.--At the request of the Secretary, each
tobacco product manufacturer or importer of tobacco products, or agents
thereof, shall submit the following:
``(1) Any or all documents (including underlying scientific
information) relating to research activities, and research
findings, conducted, supported, or possessed by the
manufacturer (or agents thereof) on the health, toxicological,
behavioral, or physiologic effects of tobacco products and
their constituents (including smoke constituents), ingredients,
components, and additives.
``(2) Any or all documents (including underlying scientific
information) relating to research activities, and research
findings, conducted, supported, or possessed by the
manufacturer (or agents thereof) that relate to the issue of
whether a reduction in risk to health from tobacco products can
occur upon the employment of technology available or known to
the manufacturer.
``(3) Any or all documents (including underlying scientific
or financial information) relating to marketing research
involving the use of tobacco products or marketing practices
and the effectiveness of such practices used by tobacco
manufacturers and distributors.
An importer of a tobacco product not manufactured in the United States
shall supply the information required of a tobacco product manufacturer
under this subsection.
``(c) Time for Submission.--
``(1) In general.--At least 90 days prior to the delivery
for introduction into interstate commerce of a tobacco product
not on the market on the date of enactment of the Family
Smoking Prevention and Tobacco Control Act, the manufacturer of
such product shall provide the information required under
subsection (a).
``(2) Disclosure of additive.--If at any time a tobacco
product manufacturer adds to its tobacco products a new tobacco
additive or increases the quantity of an existing tobacco
additive, the manufacturer shall, except as provided in
paragraph (3), at least 90 days prior to such action so advise
the Secretary in writing.
``(3) Disclosure of other actions.--If at any time a
tobacco product manufacturer eliminates or decreases an
existing additive, or adds or increases an additive that has by
regulation been designated by the Secretary as an additive that
is not a human or animal carcinogen, or otherwise harmful to
health under intended conditions of use, the manufacturer shall
within 60 days of such action so advise the Secretary in
writing.
``(d) Data List.--
``(1) In general.--Not later than 3 years after the date of
enactment of the Family Smoking Prevention and Tobacco Control
Act, and annually thereafter, the Secretary shall publish in a
format that is understandable and not misleading to a lay
person, and place on public display (in a manner determined by
the Secretary) the list established under subsection (e).
``(2) Consumer research.--The Secretary shall conduct
periodic consumer research to ensure that the list published
under paragraph (1) is not misleading to lay persons. Not later
than 5 years after the date of enactment of the Family Smoking
Prevention and Tobacco Control Act, the Secretary shall submit
to the appropriate committees of Congress a report on the
results of such research, together with recommendations on
whether such publication should be continued or modified.
``(e) Data Collection.--Not later than 12 months after the date of
enactment of the Family Smoking Prevention and Tobacco Control Act, the
Secretary shall establish a list of harmful and potentially harmful
constituents, including smoke constituents, to health in each tobacco
product by brand and by quantity in each brand and subbrand. The
Secretary shall publish a public notice requesting the submission by
interested persons of scientific and other information concerning the
harmful and potentially harmful constituents in tobacco products and
tobacco smoke.
``SEC. 905. ANNUAL REGISTRATION.
``(a) Definitions.--In this section:
``(1) Manufacture, preparation, compounding, or
processing.--The term `manufacture, preparation, compounding,
or processing' shall include repackaging or otherwise changing
the container, wrapper, or labeling of any tobacco product
package in furtherance of the distribution of the tobacco
product from the original place of manufacture to the person
who makes final delivery or sale to the ultimate consumer or
user.
``(2) Name.--The term `name' shall include in the case of a
partnership the name of each partner and, in the case of a
corporation, the name of each corporate officer and director,
and the State of incorporation.
``(b) Registration by Owners and Operators.--On or before December
31 of each year every person who owns or operates any establishment in
any State engaged in the manufacture, preparation, compounding, or
processing of a tobacco product or tobacco products shall register with
the Secretary the name, places of business, and all such establishments
of that person.
``(c) Registration of New Owners and Operators.--Every person upon
first engaging in the manufacture, preparation, compounding, or
processing of a tobacco product or tobacco products in any
establishment owned or operated in any State by that person shall
immediately register with the Secretary that person's name, place of
business, and such establishment.
``(d) Registration of Added Establishments.--Every person required
to register under subsection (b) or (c) shall immediately register with
the Secretary any additional establishment which that person owns or
operates in any State and in which that person begins the manufacture,
preparation, compounding, or processing of a tobacco product or tobacco
products.
``(e) Uniform Product Identification System.--The Secretary may by
regulation prescribe a uniform system for the identification of tobacco
products and may require that persons who are required to list such
tobacco products under subsection (i) shall list such tobacco products
in accordance with such system.
``(f) Public Access to Registration Information.--The Secretary
shall make available for inspection, to any person so requesting, any
registration filed under this section.
``(g) Biennial Inspection of Registered Establishments.--Every
establishment in any State registered with the Secretary under this
section shall be subject to inspection under section 704, and every
such establishment engaged in the manufacture, compounding, or
processing of a tobacco product or tobacco products shall be so
inspected by 1 or more officers or employees duly designated by the
Secretary at least once in the 2-year period beginning with the date of
registration of such establishment under this section and at least once
in every successive 2-year period thereafter.
``(h) Foreign Establishments Shall Register.--Any establishment
within any foreign country engaged in the manufacture, preparation,
compounding, or processing of a tobacco product or tobacco products,
shall register under this section under regulations promulgated by the
Secretary. Such regulations shall require such establishment to provide
the information required by subsection (i) of this section and shall
include provisions for registration of any such establishment upon
condition that adequate and effective means are available, by
arrangement with the government of such foreign country or otherwise,
to enable the Secretary to determine from time to time whether tobacco
products manufactured, prepared, compounded, or processed in such
establishment, if imported or offered for import into the United
States, shall be refused admission on any of the grounds set forth in
section 801(a).
``(i) Registration Information.--
``(1) Product list.--Every person who registers with the
Secretary under subsection (b), (c), (d), or (h) shall, at the
time of registration under any such subsection, file with the
Secretary a list of all tobacco products which are being
manufactured, prepared, compounded, or processed by that person
for commercial distribution and which has not been included in
any list of tobacco products filed by that person with the
Secretary under this paragraph or paragraph (2) before such
time of registration. Such list shall be prepared in such form
and manner as the Secretary may prescribe and shall be
accompanied by--
``(A) in the case of a tobacco product contained in
the applicable list with respect to which a tobacco
product standard has been established under section 907
or which is subject to section 910, a reference to the
authority for the marketing of such tobacco product and
a copy of all labeling for such tobacco product;
``(B) in the case of any other tobacco product
contained in an applicable list, a copy of all consumer
information and other labeling for such tobacco
product, a representative sampling of advertisements
for such tobacco product, and, upon request made by the
Secretary for good cause, a copy of all advertisements
for a particular tobacco product; and
``(C) if the registrant filing a list has
determined that a tobacco product contained in such
list is not subject to a tobacco product standard
established under section 907, a brief statement of the
basis upon which the registrant made such determination
if the Secretary requests such a statement with respect
to that particular tobacco product.
``(2) Biannual report of any change in product list.--Each
person who registers with the Secretary under this section
shall report to the Secretary once during the month of June of
each year and once during the month of December of each year
the following:
``(A) A list of each tobacco product introduced by
the registrant for commercial distribution which has
not been included in any list previously filed by that
person with the Secretary under this subparagraph or
paragraph (1). A list under this subparagraph shall
list a tobacco product by its established name and
shall be accompanied by the other information required
by paragraph (1).
``(B) If since the date the registrant last made a
report under this paragraph that person has
discontinued the manufacture, preparation, compounding,
or processing for commercial distribution of a tobacco
product included in a list filed under subparagraph (A)
or paragraph (1), notice of such discontinuance, the
date of such discontinuance, and the identity of its
established name.
``(C) If since the date the registrant reported
under subparagraph (B) a notice of discontinuance that
person has resumed the manufacture, preparation,
compounding, or processing for commercial distribution
of the tobacco product with respect to which such
notice of discontinuance was reported, notice of such
resumption, the date of such resumption, the identity
of such tobacco product by established name, and other
information required by paragraph (1), unless the
registrant has previously reported such resumption to
the Secretary under this subparagraph.
``(D) Any material change in any information
previously submitted under this paragraph or paragraph
(1).
``(j) Report Preceding Introduction of Certain Substantially-
Equivalent Products Into Interstate Commerce.--
``(1) In general.--Each person who is required to register
under this section and who proposes to begin the introduction
or delivery for introduction into interstate commerce for
commercial distribution of a tobacco product intended for human
use that was not commercially marketed (other than for test
marketing) in the United States as of June 1, 2003, shall, at
least 90 days prior to making such introduction or delivery,
report to the Secretary (in such form and manner as the
Secretary shall prescribe)--
``(A) the basis for such person's determination
that the tobacco product is substantially equivalent,
within the meaning of section 910, to a tobacco product
commercially marketed (other than for test marketing)
in the United States as of June 1, 2003, that is in
compliance with the requirements of this Act; and
``(B) action taken by such person to comply with
the requirements under section 907 that are applicable
to the tobacco product.
``(2) Application to certain post june 1, 2003 products.--A
report under this subsection for a tobacco product that was
first introduced or delivered for introduction into interstate
commerce for commercial distribution in the United States after
June 1, 2003, and prior to the date that is 15 months after the
date of enactment of the Family Smoking Prevention and Tobacco
Control Act shall be submitted to the Secretary not later than
15 months after such date of enactment.
``(3) Exemptions.--
``(A) In general.--The Secretary may by regulation,
exempt from the requirements of this subsection tobacco
products that are modified by adding or deleting a
tobacco additive, or increasing or decreasing the
quantity of an existing tobacco additive, if the
Secretary determines that--
``(i) such modification would be a minor
modification of a tobacco product authorized
for sale under this Act;
``(ii) a report under this subsection is
not necessary to ensure that permitting the
tobacco product to be marketed would be
appropriate for protection of the public
health; and
``(iii) an exemption is otherwise
appropriate.
``(B) Regulations.--Not later than 9 months after
the date of enactment of the Family Smoking Prevention
and Tobacco Control Act, the Secretary shall issue
regulations to implement this paragraph.
``SEC. 906. GENERAL PROVISIONS RESPECTING CONTROL OF TOBACCO PRODUCTS.
``(a) In General.--Any requirement established by or under section
902, 903, 905, or 909 applicable to a tobacco product shall apply to
such tobacco product until the applicability of the requirement to the
tobacco product has been changed by action taken under section 907,
section 910, section 911, or subsection (d) of this section, and any
requirement established by or under section 902, 903, 905, or 909 which
is inconsistent with a requirement imposed on such tobacco product
under section 907, section 910, section 911, or subsection (d) of this
section shall not apply to such tobacco product.
``(b) Information on Public Access and Comment.--Each notice of
proposed rulemaking under section 907, 908, 909, 910, or 911 or under
this section, any other notice which is published in the Federal
Register with respect to any other action taken under any such section
and which states the reasons for such action, and each publication of
findings required to be made in connection with rulemaking under any
such section shall set forth--
``(1) the manner in which interested persons may examine
data and other information on which the notice or findings is
based; and
``(2) the period within which interested persons may
present their comments on the notice or findings (including the
need therefore) orally or in writing, which period shall be at
least 60 days but may not exceed 90 days unless the time is
extended by the Secretary by a notice published in the Federal
Register stating good cause therefore.
``(c) Limited Confidentiality of Information.--Any information
reported to or otherwise obtained by the Secretary or the Secretary's
representative under section 903, 904, 907, 908, 909, 910, 911, or 704,
or under subsection (e) or (f) of this section, which is exempt from
disclosure under subsection (a) of section 552 of title 5, United
States Code, by reason of subsection (b)(4) of that section shall be
considered confidential and shall not be disclosed, except that the
information may be disclosed to other officers or employees concerned
with carrying out this chapter, or when relevant in any proceeding
under this chapter.
``(d) Restrictions.--
``(1) In general.--The Secretary may by regulation require
restrictions on the sale and distribution of a tobacco product,
including restrictions on the access to, and the advertising
and promotion of, the tobacco product, if the Secretary
determines that such regulation would be appropriate for the
protection of the public health. The Secretary may by
regulation impose restrictions on the advertising and promotion
of a tobacco product consistent with and to full extent
permitted by the first amendment to the Constitution. The
finding as to whether such regulation would be appropriate for
the protection of the public health shall be determined with
respect to the risks and benefits to the population as a whole,
including users and non-users of the tobacco product, and
taking into account--
``(A) the increased or decreased likelihood that
existing users of tobacco products will stop using such
products; and
``(B) the increased or decreased likelihood that
those who do not use tobacco products will start using
such products.
No such regulation may require that the sale or distribution of
a tobacco product be limited to the written or oral
authorization of a practitioner licensed by law to prescribe
medical products.
``(2) Label statements.--The label of a tobacco product
shall bear such appropriate statements of the restrictions
required by a regulation under subsection (a) as the Secretary
may in such regulation prescribe.
``(3) Limitations.--
``(A) In general.--No restrictions under paragraph
(1) may--
``(i) prohibit the sale of any tobacco
product in face-to-face transactions by a
specific category of retail outlets; or
``(ii) establish a minimum age of sale of
tobacco products to any person older than 18
years of age.
``(B) Matchbooks.--For purposes of any regulations
issued by the Secretary, matchbooks of conventional
size containing not more than 20 paper matches, and
which are customarily given away for free with the
purchase of tobacco products shall be considered as
adult written publications which shall be permitted to
contain advertising. Notwithstanding the preceding
sentence, if the Secretary finds that such treatment of
matchbooks is not appropriate for the protection of the
public health, the Secretary may determine by
regulation that matchbooks shall not be considered
adult written publications.
``(e) Good Manufacturing Practice Requirements.--
``(1) Methods, facilities, and controls to conform.--
``(A) In general.--The Secretary may, in accordance
with subparagraph (B), prescribe regulations (which may
differ based on the type of tobacco product involved)
requiring that the methods used in, and the facilities
and controls used for, the manufacture, pre-production
design validation (including a process to assess the
performance of a tobacco product), packing and storage
of a tobacco product, conform to current good
manufacturing practice, as prescribed in such
regulations, to assure that the public health is
protected and that the tobacco product is in compliance
with this chapter. Good manufacturing practices may
include the testing of raw tobacco for pesticide
chemical residues regardless of whether a tolerance for
such chemical residues has been established.
``(B) Requirements.--The Secretary shall--
``(i) before promulgating any regulation
under subparagraph (A), afford the Tobacco
Products Scientific Advisory Committee an
opportunity to submit recommendations with
respect to the regulation proposed to be
promulgated;
``(ii) before promulgating any regulation
under subparagraph (A), afford opportunity for
an oral hearing;
``(iii) provide the advisory committee a
reasonable time to make its recommendation with
respect to proposed regulations under
subparagraph (A); and
``(iv) in establishing the effective date
of a regulation promulgated under this
subsection, take into account the differences
in the manner in which the different types of
tobacco products have historically been
produced, the financial resources of the
different tobacco product manufacturers, and
the state of their existing manufacturing
facilities, and shall provide for a reasonable
period of time for such manufacturers to
conform to good manufacturing practices.
``(2) Exemptions; variances.--
``(A) Petition.--Any person subject to any
requirement prescribed under paragraph (1) may petition
the Secretary for a permanent or temporary exemption or
variance from such requirement. Such a petition shall
be submitted to the Secretary in such form and manner
as the Secretary shall prescribe and shall--
``(i) in the case of a petition for an
exemption from a requirement, set forth the
basis for the petitioner's determination that
compliance with the requirement is not required
to assure that the tobacco product will be in
compliance with this chapter;
``(ii) in the case of a petition for a
variance from a requirement, set forth the
methods proposed to be used in, and the
facilities and controls proposed to be used
for, the manufacture, packing, and storage of
the tobacco product in lieu of the methods,
facilities, and controls prescribed by the
requirement; and
``(iii) contain such other information as
the Secretary shall prescribe.
``(B) Referral to the tobacco products scientific
advisory committee.--The Secretary may refer to the
Tobacco Products Scientific Advisory Committee any
petition submitted under subparagraph (A). The Tobacco
Products Scientific Advisory Committee shall report its
recommendations to the Secretary with respect to a
petition referred to it within 60 days after the date
of the petition's referral. Within 60 days after--
``(i) the date the petition was submitted
to the Secretary under subparagraph (A); or
``(ii) the day after the petition was
referred to the Tobacco Products Scientific
Advisory Committee,
whichever occurs later, the Secretary shall by order
either deny the petition or approve it.
``(C) Approval.--The Secretary may approve--
``(i) a petition for an exemption for a
tobacco product from a requirement if the
Secretary determines that compliance with such
requirement is not required to assure that the
tobacco product will be in compliance with this
chapter; and
``(ii) a petition for a variance for a
tobacco product from a requirement if the
Secretary determines that the methods to be
used in, and the facilities and controls to be
used for, the manufacture, packing, and storage
of the tobacco product in lieu of the methods,
controls, and facilities prescribed by the
requirement are sufficient to assure that the
tobacco product will be in compliance with this
chapter.
``(D) Conditions.--An order of the Secretary
approving a petition for a variance shall prescribe
such conditions respecting the methods used in, and the
facilities and controls used for, the manufacture,
packing, and storage of the tobacco product to be
granted the variance under the petition as may be
necessary to assure that the tobacco product will be in
compliance with this chapter.
``(E) Hearing.--After the issuance of an order
under subparagraph (B) respecting a petition, the
petitioner shall have an opportunity for an informal
hearing on such order.
``(3) Compliance.--Compliance with requirements under this
subsection shall not be required before the period ending 3
years after the date of enactment of the Family Smoking
Prevention and Tobacco Control Act.
``(f) Research and Development.--The Secretary may enter into
contracts for research, testing, and demonstrations respecting tobacco
products and may obtain tobacco products for research, testing, and
demonstration purposes without regard to section 3324(a) and (b) of
title 31, United States Code, and section 5 of title 41, United States
Code.
``SEC. 907. TOBACCO PRODUCT STANDARDS.
``(a) In General.--
``(1) Special rule for cigarettes.--A cigarette or any of
its component parts (including the tobacco, filter, or paper)
shall not contain, as a constituent (including a smoke
constituent) or additive, an artificial or natural flavor
(other than tobacco or menthol) or an herb or spice, including
strawberry, grape, orange, clove, cinnamon, pineapple, vanilla,
coconut, licorice, cocoa, chocolate, cherry, or coffee, that is
a characterizing flavor of the tobacco product or tobacco
smoke. Nothing in this subparagraph shall be construed to limit
the Secretary's authority to take action under this section or
other sections of this Act applicable to menthol or any
artificial or natural flavor, herb, or spice not specified in
this paragraph.
``(2) Revision of tobacco product standards.--The Secretary
may revise the tobacco product standards in paragraph (1) in
accordance with subsection (b).
``(3) Tobacco product standards.--The Secretary may adopt
tobacco product standards in addition to those in paragraph (1)
if the Secretary finds that a tobacco product standard is
appropriate for the protection of the public health. This
finding shall be determined with respect to the risks and
benefits to the population as a whole, including users and non-
users of the tobacco product, and taking into account--
``(A) the increased or decreased likelihood that
existing users of tobacco products will stop using such
products; and
``(B) the increased or decreased likelihood that
those who do not use tobacco products will start using
such products.
``(4) Content of tobacco product standards.--A tobacco
product standard established under this section for a tobacco
product--
``(A) shall include provisions that are appropriate
for the protection of the public health, including
provisions, where appropriate--
``(i) for the reduction of nicotine yields
of the product;
``(ii) for the reduction or elimination of
other constituents, including smoke
constituents, or harmful components of the
product; or
``(iii) relating to any other requirement
under (B);
``(B) shall, where appropriate for the protection
of the public health, include--
``(i) provisions respecting the
construction, components, ingredients,
additives, constituents, including smoke
constituents, and properties of the tobacco
product;
``(ii) provisions for the testing (on a
sample basis or, if necessary, on an individual
basis) of the tobacco product;
``(iii) provisions for the measurement of
the tobacco product characteristics of the
tobacco product;
``(iv) provisions requiring that the
results of each or of certain of the tests of
the tobacco product required to be made under
clause (ii) show that the tobacco product is in
conformity with the portions of the standard
for which the test or tests were required; and
``(v) a provision requiring that the sale
and distribution of the tobacco product be
restricted but only to the extent that the sale
and distribution of a tobacco product may be
restricted under a regulation under section
906(d); and
``(C) shall, where appropriate, require the use and
prescribe the form and content of labeling for the
proper use of the tobacco product.
``(5) Periodic re-evaluation of tobacco product
standards.--The Secretary shall provide for periodic evaluation
of tobacco product standards established under this section to
determine whether such standards should be changed to reflect
new medical, scientific, or other technological data. The
Secretary may provide for testing under paragraph (4)(B) by any
person.
``(6) Involvement of other agencies; informed persons.--In
carrying out duties under this section, the Secretary shall
endeavor to--
``(A) use personnel, facilities, and other
technical support available in other Federal agencies;
``(B) consult with other Federal agencies concerned
with standard-setting and other nationally or
internationally recognized standard-setting entities;
and
``(C) invite appropriate participation, through
joint or other conferences, workshops, or other means,
by informed persons representative of scientific,
professional, industry, agricultural, or consumer
organizations who in the Secretary's judgment can make
a significant contribution.
``(b) Establishment of Standards.--
``(1) Notice.--
``(A) In general.--The Secretary shall publish in
the Federal Register a notice of proposed rulemaking
for the establishment, amendment, or revocation of any
tobacco product standard.
``(B) Requirements of notice.--A notice of proposed
rulemaking for the establishment or amendment of a
tobacco product standard for a tobacco product shall--
``(i) set forth a finding with supporting
justification that the tobacco product standard
is appropriate for the protection of the public
health;
``(ii) set forth proposed findings with
respect to the risk of illness or injury that
the tobacco product standard is intended to
reduce or eliminate; and
``(iii) invite interested persons to submit
an existing tobacco product standard for the
tobacco product, including a draft or proposed
tobacco product standard, for consideration by
the Secretary.
``(C) Standard.--Upon a determination by the
Secretary that an additive, constituent (including
smoke constituent), or other component of the product
that is the subject of the proposed tobacco product
standard is harmful, it shall be the burden of any
party challenging the proposed standard to prove that
the proposed standard will not reduce or eliminate the
risk of illness or injury.
``(D) Finding.--A notice of proposed rulemaking for
the revocation of a tobacco product standard shall set
forth a finding with supporting justification that the
tobacco product standard is no longer appropriate for
the protection of the public health.
``(E) Consideration by secretary.--The Secretary
shall consider all information submitted in connection
with a proposed standard, including information
concerning the countervailing effects of the tobacco
product standard on the health of adolescent tobacco
users, adult tobacco users, or non-tobacco users, such
as the creation of a significant demand for contraband
or other tobacco products that do not meet the
requirements of this chapter and the significance of
such demand, and shall issue the standard if the
Secretary determines that the standard would be
appropriate for the protection of the public health.
``(F) Comment.--The Secretary shall provide for a
comment period of not less than 60 days.
``(2) Promulgation.--
``(A) In general.--After the expiration of the
period for comment on a notice of proposed rulemaking
published under paragraph (1) respecting a tobacco
product standard and after consideration of such
comments and any report from the Tobacco Products
Scientific Advisory Committee, the Secretary shall--
``(i) promulgate a regulation establishing
a tobacco product standard and publish in the
Federal Register findings on the matters
referred to in paragraph (1); or
``(ii) publish a notice terminating the
proceeding for the development of the standard
together with the reasons for such termination.
``(B) Effective date.--A regulation establishing a
tobacco product standard shall set forth the date or
dates upon which the standard shall take effect, but no
such regulation may take effect before 1 year after the
date of its publication unless the Secretary determines
that an earlier effective date is necessary for the
protection of the public health. Such date or dates
shall be established so as to minimize, consistent with
the public health, economic loss to, and disruption or
dislocation of, domestic and international trade.
``(3) Power reserved to congress.--Because of the
importance of a decision of the Secretary to issue a regulation
establishing a tobacco product standard--
``(A) banning all cigarettes, all smokeless tobacco
products, all little cigars, all cigars other than
little cigars, all pipe tobacco, or all roll your own
tobacco products; or
``(B) requiring the reduction of nicotine yields of
a tobacco product to zero,
Congress expressly reserves to itself such power.
``(4) Amendment; revocation.--
``(A) Authority.--The Secretary, upon the
Secretary's own initiative or upon petition of an
interested person may by a regulation, promulgated in
accordance with the requirements of paragraphs (1) and
(2)(B), amend or revoke a tobacco product standard.
``(B) Effective date.--The Secretary may declare a
proposed amendment of a tobacco product standard to be
effective on and after its publication in the Federal
Register and until the effective date of any final
action taken on such amendment if the Secretary
determines that making it so effective is in the public
interest.
``(5) Reference to advisory committee.--The Secretary may--
``(A) on the Secretary's own initiative, refer a
proposed regulation for the establishment, amendment,
or revocation of a tobacco product standard; or
``(B) upon the request of an interested person
which demonstrates good cause for referral and which is
made before the expiration of the period for submission
of comments on such proposed regulation,
refer such proposed regulation to the Tobacco Products Scientific
Advisory Committee, for a report and recommendation with respect to any
matter involved in the proposed regulation which requires the exercise
of scientific judgment. If a proposed regulation is referred under this
paragraph to the Tobacco Products Scientific Advisory Committee, the
Secretary shall provide the advisory committee with the data and
information on which such proposed regulation is based. The Tobacco
Products Scientific Advisory Committee shall, within 60 days after the
referral of a proposed regulation and after independent study of the
data and information furnished to it by the Secretary and other data
and information before it, submit to the Secretary a report and
recommendation respecting such regulation, together with all underlying
data and information and a statement of the reason or basis for the
recommendation. A copy of such report and recommendation shall be made
public by the Secretary.
``SEC. 908. NOTIFICATION AND OTHER REMEDIES.
``(a) Notification.--If the Secretary determines that--
``(1) a tobacco product which is introduced or delivered
for introduction into interstate commerce for commercial
distribution presents an unreasonable risk of substantial harm
to the public health; and
``(2) notification under this subsection is necessary to
eliminate the unreasonable risk of such harm and no more
practicable means is available under the provisions of this
chapter (other than this section) to eliminate such risk,
the Secretary may issue such order as may be necessary to assure that
adequate notification is provided in an appropriate form, by the
persons and means best suited under the circumstances involved, to all
persons who should properly receive such notification in order to
eliminate such risk. The Secretary may order notification by any
appropriate means, including public service announcements. Before
issuing an order under this subsection, the Secretary shall consult
with the persons who are to give notice under the order.
``(b) No Exemption From Other Liability.--Compliance with an order
issued under this section shall not relieve any person from liability
under Federal or State law. In awarding damages for economic loss in an
action brought for the enforcement of any such liability, the value to
the plaintiff in such action of any remedy provided under such order
shall be taken into account.
``(c) Recall Authority.--
``(1) In general.--If the Secretary finds that there is a
reasonable probability that a tobacco product contains a
manufacturing or other defect not ordinarily contained in
tobacco products on the market that would cause serious,
adverse health consequences or death, the Secretary shall issue
an order requiring the appropriate person (including the
manufacturers, importers, distributors, or retailers of the
tobacco product) to immediately cease distribution of such
tobacco product. The order shall provide the person subject to
the order with an opportunity for an informal hearing, to be
held not later than 10 days after the date of the issuance of
the order, on the actions required by the order and on whether
the order should be amended to require a recall of such tobacco
product. If, after providing an opportunity for such a hearing,
the Secretary determines that inadequate grounds exist to
support the actions required by the order, the Secretary shall
vacate the order.
``(2) Amendment of order to require recall.--
``(A) In general.--If, after providing an
opportunity for an informal hearing under paragraph
(1), the Secretary determines that the order should be
amended to include a recall of the tobacco product with
respect to which the order was issued, the Secretary
shall, except as provided in subparagraph (B), amend
the order to require a recall. The Secretary shall
specify a timetable in which the tobacco product recall
will occur and shall require periodic reports to the
Secretary describing the progress of the recall.
``(B) Notice.--An amended order under subparagraph
(A)--
``(i) shall not include recall of a tobacco
product from individuals; and
``(ii) shall provide for notice to persons
subject to the risks associated with the use of
such tobacco product.
In providing the notice required by clause (ii), the
Secretary may use the assistance of retailers and other
persons who distributed such tobacco product. If a
significant number of such persons cannot be
identified, the Secretary shall notify such persons
under section 705(b).
``(3) Remedy not exclusive.--The remedy provided by this
subsection shall be in addition to remedies provided by
subsection (a) of this section.
``SEC. 909. RECORDS AND REPORTS ON TOBACCO PRODUCTS.
``(a) In General.--Every person who is a tobacco product
manufacturer or importer of a tobacco product shall establish and
maintain such records, make such reports, and provide such information,
as the Secretary may by regulation reasonably require to assure that
such tobacco product is not adulterated or misbranded and to otherwise
protect public health. Regulations prescribed under the preceding
sentence--
``(1) may require a tobacco product manufacturer or
importer to report to the Secretary whenever the manufacturer
or importer receives or otherwise becomes aware of information
that reasonably suggests that one of its marketed tobacco
products may have caused or contributed to a serious unexpected
adverse experience associated with the use of the product or
any significant increase in the frequency of a serious,
expected adverse product experience;
``(2) shall require reporting of other significant adverse
tobacco product experiences as determined by the Secretary to
be necessary to be reported;
``(3) shall not impose requirements unduly burdensome to a
tobacco product manufacturer or importer, taking into account
the cost of complying with such requirements and the need for
the protection of the public health and the implementation of
this chapter;
``(4) when prescribing the procedure for making requests
for reports or information, shall require that each request
made under such regulations for submission of a report or
information to the Secretary state the reason or purpose for
such request and identify to the fullest extent practicable
such report or information;
``(5) when requiring submission of a report or information
to the Secretary, shall state the reason or purpose for the
submission of such report or information and identify to the
fullest extent practicable such report or information; and
``(6) may not require that the identity of any patient or
user be disclosed in records, reports, or information required
under this subsection unless required for the medical welfare
of an individual, to determine risks to public health of a
tobacco product, or to verify a record, report, or information
submitted under this chapter.
In prescribing regulations under this subsection, the Secretary shall
have due regard for the professional ethics of the medical profession
and the interests of patients. The prohibitions of paragraph (6)
continue to apply to records, reports, and information concerning any
individual who has been a patient, irrespective of whether or when he
ceases to be a patient.
``(b) Reports of Removals and Corrections.--
``(1) In general.--Except as provided in paragraph (2), the
Secretary shall by regulation require a tobacco product
manufacturer or importer of a tobacco product to report
promptly to the Secretary any corrective action taken or
removal from the market of a tobacco product undertaken by such
manufacturer or importer if the removal or correction was
undertaken--
``(A) to reduce a risk to health posed by the
tobacco product; or
``(B) to remedy a violation of this chapter caused
by the tobacco product which may present a risk to
health.
A tobacco product manufacturer or importer of a tobacco product
who undertakes a corrective action or removal from the market
of a tobacco product which is not required to be reported under
this subsection shall keep a record of such correction or
removal.
``(2) Exception.--No report of the corrective action or
removal of a tobacco product may be required under paragraph
(1) if a report of the corrective action or removal is required
and has been submitted under subsection (a).
``SEC. 910. APPLICATION FOR REVIEW OF CERTAIN TOBACCO PRODUCTS.
``(a) In General.--
``(1) New tobacco product defined.--For purposes of this
section the term `new tobacco product' means--
``(A) any tobacco product (including those products
in test markets) that was not commercially marketed in
the United States as of June 1, 2003; or
``(B) any modification (including a change in
design, any component, any part, or any constituent,
including a smoke constituent, or in the content,
delivery or form of nicotine, or any other additive or
ingredient) of a tobacco product where the modified
product was commercially marketed in the United States
after June 1, 2003.
``(2) Premarket approval required.--
``(A) New products.--Approval under this section of
an application for premarket approval for any new
tobacco product is required unless--
``(i) the manufacturer has submitted a
report under section 905(j); and
``(ii) the Secretary has issued an order
that the tobacco product--
``(I) is substantially equivalent
to a tobacco product commercially
marketed (other than for test
marketing) in the United States as of
June 1, 2003; and
``(II)(aa) is in compliance with
the requirements of this Act; or
``(bb) is exempt from the
requirements of section 905(j) pursuant
to a regulation issued under section
905(j)(3).
``(B) Application to certain post june 1, 2003
products.--Subparagraph (A) shall not apply to a
tobacco product--
``(i) that was first introduced or
delivered for introduction into interstate
commerce for commercial distribution in the
United States after June 1, 2003, and prior to
the date that is 15 months after the date of
enactment of the Family Smoking Prevention and
Tobacco Control Act; and
``(ii) for which a report was submitted
under section 905(j) within such 15-month
period, until the Secretary issues an order
that the tobacco product is not substantially
equivalent.
``(3) Substantially equivalent defined.--
``(A) In general.--In this section and section
905(j), the terms `substantially equivalent' or
`substantial equivalence' mean, with respect to the
tobacco product being compared to the predicate tobacco
product, that the Secretary by order has found that the
tobacco product--
``(i) has the same characteristics as the
predicate tobacco product; or
``(ii) has different characteristics and
the information submitted contains information,
including clinical data if deemed necessary by
the Secretary, that demonstrates that it is not
appropriate to regulate the product under this
section because the product does not raise
different questions of public health.
``(B) Characteristics.--In subparagraph (A), the
term `characteristics' means the materials,
ingredients, design, composition, heating source, or
other features of a tobacco product.
``(C) Limitation.--A tobacco product may not be
found to be substantially equivalent to a predicate
tobacco product that has been removed from the market
at the initiative of the Secretary or that has been
determined by a judicial order to be misbranded or
adulterated.
``(4) Health information.--
``(A) Summary.--As part of a submission under
section 905(j) respecting a tobacco product, the person
required to file a premarket notification under such
section shall provide an adequate summary of any health
information related to the tobacco product or state
that such information will be made available upon
request by any person.
``(B) Required information.--Any summary under
subparagraph (A) respecting a tobacco product shall
contain detailed information regarding data concerning
adverse health effects and shall be made available to
the public by the Secretary within 30 days of the
issuance of a determination that such tobacco product
is substantially equivalent to another tobacco product.
``(b) Application.--
``(1) Contents.--An application for premarket approval
shall contain--
``(A) full reports of all information, published or
known to, or which should reasonably be known to, the
applicant, concerning investigations which have been
made to show the health risks of such tobacco product
and whether such tobacco product presents less risk
than other tobacco products;
``(B) a full statement of the components,
ingredients, additives, and properties, and of the
principle or principles of operation, of such tobacco
product;
``(C) a full description of the methods used in,
and the facilities and controls used for, the
manufacture, processing, and, when relevant, packing
and installation of, such tobacco product;
``(D) an identifying reference to any tobacco
product standard under section 907 which would be
applicable to any aspect of such tobacco product, and
either adequate information to show that such aspect of
such tobacco product fully meets such tobacco product
standard or adequate information to justify any
deviation from such standard;
``(E) such samples of such tobacco product and of
components thereof as the Secretary may reasonably
require;
``(F) specimens of the labeling proposed to be used
for such tobacco product; and
``(G) such other information relevant to the
subject matter of the application as the Secretary may
require.
``(2) Reference to tobacco products scientific advisory
committee.--Upon receipt of an application meeting the
requirements set forth in paragraph (1), the Secretary--
``(A) may, on the Secretary's own initiative; or
``(B) may, upon the request of an applicant,
refer such application to the Tobacco Products Scientific
Advisory Committee for reference and for submission (within
such period as the Secretary may establish) of a report and
recommendation respecting approval of the application, together
with all underlying data and the reasons or basis for the
recommendation.
``(c) Action on Application.--
``(1) Deadline.--
``(A) In general.--As promptly as possible, but in
no event later than 180 days after the receipt of an
application under subsection (b), the Secretary, after
considering the report and recommendation submitted
under paragraph (2) of such subsection, shall--
``(i) issue an order approving the
application if the Secretary finds that none of
the grounds for denying approval specified in
paragraph (2) of this subsection applies; or
``(ii) deny approval of the application if
the Secretary finds (and sets forth the basis
for such finding as part of or accompanying
such denial) that 1 or more grounds for denial
specified in paragraph (2) of this subsection
apply.
``(B) Restrictions on sale and distribution.--An
order approving an application for a tobacco product
may require as a condition to such approval that the
sale and distribution of the tobacco product be
restricted but only to the extent that the sale and
distribution of a tobacco product may be restricted
under a regulation under section 906(d).
``(2) Denial of approval.--The Secretary shall deny
approval of an application for a tobacco product if, upon the
basis of the information submitted to the Secretary as part of
the application and any other information before the Secretary
with respect to such tobacco product, the Secretary finds
that--
``(A) there is a lack of a showing that permitting
such tobacco product to be marketed would be
appropriate for the protection of the public health;
``(B) the methods used in, or the facilities or
controls used for, the manufacture, processing, or
packing of such tobacco product do not conform to the
requirements of section 906(e);
``(C) based on a fair evaluation of all material
facts, the proposed labeling is false or misleading in
any particular; or
``(D) such tobacco product is not shown to conform
in all respects to a tobacco product standard in effect
under section 907, compliance with which is a condition
to approval of the application, and there is a lack of
adequate information to justify the deviation from such
standard.
``(3) Denial information.--Any denial of an application
shall, insofar as the Secretary determines to be practicable,
be accompanied by a statement informing the applicant of the
measures required to place such application in approvable form
(which measures may include further research by the applicant
in accordance with 1 or more protocols prescribed by the
Secretary).
``(4) Basis for finding.--For purposes of this section, the
finding as to whether approval of a tobacco product is
appropriate for the protection of the public health shall be
determined with respect to the risks and benefits to the
population as a whole, including users and nonusers of the
tobacco product, and taking into account--
``(A) the increased or decreased likelihood that
existing users of tobacco products will stop using such
products; and
``(B) the increased or decreased likelihood that
those who do not use tobacco products will start using
such products.
``(5) Basis for action.--
``(A) Investigations.--For purposes of paragraph
(2)(A), whether permitting a tobacco product to be
marketed would be appropriate for the protection of the
public health shall, when appropriate, be determined on
the basis of well-controlled investigations, which may
include 1 or more clinical investigations by experts
qualified by training and experience to evaluate the
tobacco product.
``(B) Other evidence.--If the Secretary determines
that there exists valid scientific evidence (other than
evidence derived from investigations described in
subparagraph (A)) which is sufficient to evaluate the
tobacco product the Secretary may authorize that the
determination for purposes of paragraph (2)(A) be made
on the basis of such evidence.
``(d) Withdrawal and Temporary Suspension.--
``(1) In general.--The Secretary shall, upon obtaining,
where appropriate, advice on scientific matters from an
advisory committee, and after due notice and opportunity for
informal hearing to the holder of an approved application for a
tobacco product, issue an order withdrawing approval of the
application if the Secretary finds--
``(A) that the continued marketing of such tobacco
product no longer is appropriate for the protection of
the public health;
``(B) that the application contained or was
accompanied by an untrue statement of a material fact;
``(C) that the applicant--
``(i) has failed to establish a system for
maintaining records, or has repeatedly or
deliberately failed to maintain records or to
make reports, required by an applicable
regulation under section 909;
``(ii) has refused to permit access to, or
copying or verification of, such records as
required by section 704; or
``(iii) has not complied with the
requirements of section 905;
``(D) on the basis of new information before the
Secretary with respect to such tobacco product,
evaluated together with the evidence before the
Secretary when the application was approved, that the
methods used in, or the facilities and controls used
for, the manufacture, processing, packing, or
installation of such tobacco product do not conform
with the requirements of section 906(e) and were not
brought into conformity with such requirements within a
reasonable time after receipt of written notice from
the Secretary of nonconformity;
``(E) on the basis of new information before the
Secretary, evaluated together with the evidence before
the Secretary when the application was approved, that
the labeling of such tobacco product, based on a fair
evaluation of all material facts, is false or
misleading in any particular and was not corrected
within a reasonable time after receipt of written
notice from the Secretary of such fact; or
``(F) on the basis of new information before the
Secretary, evaluated together with the evidence before
the Secretary when the application was approved, that
such tobacco product is not shown to conform in all
respects to a tobacco product standard which is in
effect under section 907, compliance with which was a
condition to approval of the application, and that
there is a lack of adequate information to justify the
deviation from such standard.
``(2) Appeal.--The holder of an application subject to an
order issued under paragraph (1) withdrawing approval of the
application may, by petition filed on or before the 30th day
after the date upon which such holder receives notice of such
withdrawal, obtain review thereof in accordance with subsection
(e).
``(3) Temporary suspension.--If, after providing an
opportunity for an informal hearing, the Secretary determines
there is reasonable probability that the continuation of
distribution of a tobacco product under an approved application
would cause serious, adverse health consequences or death, that
is greater than ordinarily caused by tobacco products on the
market, the Secretary shall by order temporarily suspend the
approval of the application approved under this section. If the
Secretary issues such an order, the Secretary shall proceed
expeditiously under paragraph (1) to withdraw such application.
``(e) Service of Order.--An order issued by the Secretary under
this section shall be served--
``(1) in person by any officer or employee of the
department designated by the Secretary; or
``(2) by mailing the order by registered mail or certified
mail addressed to the applicant at the applicant's last known
address in the records of the Secretary.
``(f) Records.--
``(1) Additional information.--In the case of any tobacco
product for which an approval of an application filed under
subsection (b) is in effect, the applicant shall establish and
maintain such records, and make such reports to the Secretary,
as the Secretary may by regulation, or by order with respect to
such application, prescribe on the basis of a finding that such
records and reports are necessary in order to enable the
Secretary to determine, or facilitate a determination of,
whether there is or may be grounds for withdrawing or
temporarily suspending such approval.
``(2) Access to records.--Each person required under this
section to maintain records, and each person in charge or
custody thereof, shall, upon request of an officer or employee
designated by the Secretary, permit such officer or employee at
all reasonable times to have access to and copy and verify such
records.
``(g) Investigational Tobacco Product Exemption for Investigational
Use.--The Secretary may exempt tobacco products intended for
investigational use from the provisions of this chapter under such
conditions as the Secretary may by regulation prescribe.
``SEC. 911. MODIFIED RISK TOBACCO PRODUCTS.
``(a) In General.--No person may introduce or deliver for
introduction into interstate commerce any modified risk tobacco product
unless approval of an application filed pursuant to subsection (d) is
effective with respect to such product.
``(b) Definitions.--In this section:
``(1) Modified risk tobacco product.--The term `modified
risk tobacco product' means any tobacco product that is sold or
distributed for use to reduce harm or the risk of tobacco-
related disease associated with commercially marketed tobacco
products.
``(2) Sold or distributed.--
``(A) In general.--With respect to a tobacco
product, the term `sold or distributed for use to
reduce harm or the risk of tobacco-related disease
associated with commercially marketed tobacco products'
means a tobacco product--
``(A) the label, labeling, or advertising
of which represents explicitly or implicitly
that--
``(I) the tobacco product presents
a lower risk of tobacco-related disease
or is less harmful than one or more
other commercially marketed tobacco
products;
``(II) the tobacco product or its
smoke contains a reduced level of a
substance or presents a reduced
exposure to a substance; or
``(III) the tobacco product or its
smoke does not contain or is free of a
substance;
``(ii) the label, labeling, or advertising
of which uses the descriptors `light', `mild',
or `low' or similar descriptors; or
``(iii) the tobacco product manufacturer of
which has taken any action directed to
consumers through the media or otherwise, other
than by means of the tobacco product's label,
labeling or advertising, after the date of
enactment of the Family Smoking Prevention and
Tobacco Control Act, respecting the product
that would be reasonably expected to result in
consumers believing that the tobacco product or
its smoke may present a lower risk of disease
or is less harmful than one or more
commercially marketed tobacco products, or
presents a reduced exposure to, or does not
contain or is free of, a substance or
substances.
``(B) Limitation.--No tobacco product shall be
considered to be `sold or distributed for use to reduce
harm or the risk of tobacco-related disease associated
with commercially marketed tobacco products', except as
described in subparagraph (A).
``(c) Tobacco Dependence Products.--A product that is intended to
be used for the treatment of tobacco dependence, including smoking
cessation, is not a modified risk tobacco product under this section
and is subject to the requirements of chapter V.
``(d) Filing.--Any person may file with the Secretary an
application for a modified risk tobacco product. Such application shall
include--
``(1) a description of the proposed product and any
proposed advertising and labeling;
``(2) the conditions for using the product;
``(3) the formulation of the product;
``(4) sample product labels and labeling;
``(5) all documents (including underlying scientific
information) relating to research findings conducted,
supported, or possessed by the tobacco product manufacturer
relating to the effect of the product on tobacco related
diseases and health-related conditions, including information
both favorable and unfavorable to the ability of the product to
reduce risk or exposure and relating to human health;
``(6) data and information on how consumers actually use
the tobacco product; and
``(7) such other information as the Secretary may require.
``(e) Public Availability.--The Secretary shall make the
application described in subsection (d) publicly available (except
matters in the application which are trade secrets or otherwise
confidential, commercial information) and shall request comments by
interested persons on the information contained in the application and
on the label, labeling, and advertising accompanying such application.
``(f) Advisory Committee.--
``(1) In general.--The Secretary shall refer to an advisory
committee any application submitted under this subsection.
``(2) Recommendations.--Not later than 60 days after the
date an application is referred to an advisory committee under
paragraph (1), the advisory committee shall report its
recommendations on the application to the Secretary.
``(g) Approval.--
``(1) Modified risk products.--Except as provided in
paragraph (2), the Secretary shall approve an application for a
modified risk tobacco product filed under this section only if
the Secretary determines that the applicant has demonstrated
that such product, as it is actually used by consumers, will--
``(A) significantly reduce harm and the risk of
tobacco-related disease to individual tobacco users;
and
``(B) benefit the health of the population as a
whole taking into account both users of tobacco
products and persons who do not currently use tobacco
products.
``(2) Special rule for certain products.--
``(A) In general.--The Secretary may approve an
application for a tobacco product that has not been
approved as a modified risk tobacco product pursuant to
paragraph (1) if the Secretary makes the findings
required under this paragraph and determines that the
applicant has demonstrated that--
``(i) the approval of the application would
be appropriate to promote the public health;
``(ii) any aspect of the label, labeling,
and advertising for such product that would
cause the tobacco product to be a modified risk
tobacco product under subsection (b)(2) is
limited to an explicit or implicit
representation that such tobacco product or its
smoke contains or is free of a substance or
contains a reduced level of a substance, or
presents a reduced exposure to a substance in
tobacco smoke.
``(iii) scientific evidence is not
available and, using the best available
scientific methods, cannot be made available
without conducting long-term epidemiological
studies for an application to meet the
standards set forth in paragraph (1); and
``(iv) the scientific evidence that is
available without conducting long-term
epidemiological studies demonstrates that a
measurable and substantial reduction in
morbidity or mortality among individual tobacco
users is anticipated in subsequent studies.
``(B) Additional findings required.--In order to
approve an application under subparagraph (A) the
Secretary must also find that the applicant has
demonstrated that--
``(i) the magnitude of the overall
reductions in exposure to the substance or
substances which are the subject of the
application is substantial, such substance or
substances are harmful, and the product as
actually used exposes consumers to the
specified reduced level of the substance or
substances;
``(ii) the product as actually used by
consumers will not expose them to higher levels
of other harmful substances compared to the
similar types of tobacco products then on the
market unless such increases are minimal and
the anticipated overall impact of use of the
product remains a substantial and measurable
reduction in overall morbidity and mortality
among individual tobacco users;
``(iii) testing of actual consumer
perception shows that, as the applicant
proposes to label and market the product,
consumers will not be misled into believing
that the product--
``(I) is or has been demonstrated
to be less harmful; or
``(II) presents or has been
demonstrated to present less of a risk
of disease than 1 or more other
commercially marketed tobacco products;
and
``(iv) approval of the application is
expected to benefit the health of the
population as a whole taking into account both
users of tobacco products and persons who do
not currently use tobacco products.
``(C) Conditions of approval.--
``(i) In general.--Applications approved
under this paragraph shall be limited to a term
of not more than 5 years, but may be renewed
upon a finding by the Secretary that the
requirements of this paragraph continue to be
satisfied based on the filing of a new
application.
``(ii) Agreements by applicant.--
Applications approved under this paragraph
shall be conditioned on the applicant's
agreement to conduct post-market surveillance
and studies and to submit to the Secretary the
results of such surveillance and studies to
determine the impact of the application
approval on consumer perception, behavior, and
health and to enable the Secretary to review
the accuracy of the determinations upon which
the approval was based in accordance with a
protocol approved by the Secretary.
``(iii) Annual submission.--The results of
such post-market surveillance and studies
described in clause (ii) shall be submitted
annually.
``(3) Basis.--The determinations under paragraphs (1) and
(2) shall be based on--
``(A) the scientific evidence submitted by the
applicant; and
``(B) scientific evidence and other information
that is available to the Secretary.
``(4) Benefit to health of individuals and of population as
a whole.--In making the determinations under paragraphs (1) and
(2), the Secretary shall take into account--
``(A) the relative health risks to individuals of
the tobacco product that is the subject of the
application;
``(B) the increased or decreased likelihood that
existing users of tobacco products who would otherwise
stop using such products will switch to the tobacco
product that is the subject of the application;
``(C) the increased or decreased likelihood that
persons who do not use tobacco products will start
using the tobacco product that is the subject of the
application;
``(D) the risks and benefits to persons from the
use of the tobacco product that is the subject of the
application as compared to the use of products for
smoking cessation approved under chapter V to treat
nicotine dependence; and
``(E) comments, data, and information submitted by
interested persons.
``(h) Additional Conditions for Approval.--
``(1) Modified risk products.--The Secretary shall require
for the approval of an application under this section that any
advertising or labeling concerning modified risk products
enable the public to comprehend the information concerning
modified risk and to understand the relative significance of
such information in the context of total health and in relation
to all of the diseases and health-related conditions associated
with the use of tobacco products.
``(2) Comparative claims.--
``(A) In general.--The Secretary may require for
the approval of an application under this subsection
that a claim comparing a tobacco product to 1 or more
other commercially marketed tobacco products shall
compare the tobacco product to a commercially marketed
tobacco product that is representative of that type of
tobacco product on the market (for example the average
value of the top 3 brands of an established regular
tobacco product).
``(B) Quantitative comparisons.--The Secretary may
also require, for purposes of subparagraph (A), that
the percent (or fraction) of change and identity of the
reference tobacco product and a quantitative comparison
of the amount of the substance claimed to be reduced
shall be stated in immediate proximity to the most
prominent claim.
``(3) Label disclosure.--
``(A) In general.--The Secretary may require the
disclosure on the label of other substances in the
tobacco product, or substances that may be produced by
the consumption of that tobacco product, that may
affect a disease or health-related condition or may
increase the risk of other diseases or health-related
conditions associated with the use of tobacco products.
``(B) Conditions of use.--If the conditions of use
of the tobacco product may affect the risk of the
product to human health, the Secretary may require the
labeling of conditions of use.
``(4) Time.--The Secretary shall limit an approval under
subsection (g)(1) for a specified period of time.
``(5) Advertising.--The Secretary may require that an
applicant, whose application has been approved under this
subsection, comply with requirements relating to advertising
and promotion of the tobacco product.
``(i) Postmarket Surveillance and Studies.--
``(1) In general.--The Secretary shall require that an
applicant under subsection (g)(1) conduct post market
surveillance and studies for a tobacco product for which an
application has been approved to determine the impact of the
application approval on consumer perception, behavior, and
health, to enable the Secretary to review the accuracy of the
determinations upon which the approval was based, and to
provide information that the Secretary determines is otherwise
necessary regarding the use or health risks involving the
tobacco product. The results of post-market surveillance and
studies shall be submitted to the Secretary on an annual basis.
``(2) Surveillance protocol.--Each applicant required to
conduct a surveillance of a tobacco product under paragraph (1)
shall, within 30 days after receiving notice that the applicant
is required to conduct such surveillance, submit, for the
approval of the Secretary, a protocol for the required
surveillance. The Secretary, within 60 days of the receipt of
such protocol, shall determine if the principal investigator
proposed to be used in the surveillance has sufficient
qualifications and experience to conduct such surveillance and
if such protocol will result in collection of the data or other
information designated by the Secretary as necessary to protect
the public health.
``(j) Withdrawal of Approval.--The Secretary, after an opportunity
for an informal hearing, shall withdraw the approval of an application
under this section if the Secretary determines that--
``(1) the applicant, based on new information, can no
longer make the demonstrations required under subsection (g),
or the Secretary can no longer make the determinations required
under subsection (g);
``(2) the application failed to include material
information or included any untrue statement of material fact;
``(3) any explicit or implicit representation that the
product reduces risk or exposure is no longer valid, including
if--
``(A) a tobacco product standard is established
pursuant to section 907;
``(B) an action is taken that affects the risks
presented by other commercially marketed tobacco
products that were compared to the product that is the
subject of the application; or
``(C) any postmarket surveillance or studies reveal
that the approval of the application is no longer
consistent with the protection of the public health;
``(4) the applicant failed to conduct or submit the
postmarket surveillance and studies required under subsection
(g)(2)(C)(ii) or (i); or
``(5) the applicant failed to meet a condition imposed
under subsection (h).
``(k) Chapter IV or V.--A product approved in accordance with this
section shall not be subject to chapter IV or V.
``(l) Implementing Regulations or Guidance.--
``(1) Scientific evidence.--Not later than 2 years after
the date of enactment of the Family Smoking Prevention and
Tobacco Control Act, the Secretary shall issue regulations or
guidance (or any combination thereof) on the scientific
evidence required for assessment and ongoing review of modified
risk tobacco products. Such regulations or guidance shall--
``(A) establish minimum standards for scientific
studies needed prior to approval to show that a
substantial reduction in morbidity or mortality among
individual tobacco users is likely;
``(B) include validated biomarkers, intermediate
clinical endpoints, and other feasible outcome
measures, as appropriate;
``(C) establish minimum standards for post market
studies, that shall include regular and long-term
assessments of health outcomes and mortality,
intermediate clinical endpoints, consumer perception of
harm reduction, and the impact on quitting behavior and
new use of tobacco products, as appropriate;
``(D) establish minimum standards for required
postmarket surveillance, including ongoing assessments
of consumer perception; and
``(E) require that data from the required studies
and surveillance be made available to the Secretary
prior to the decision on renewal of a modified risk
tobacco product.
``(2) Consultation.--The regulations or guidance issued
under paragraph (1) shall be developed in consultation with the
Institute of Medicine, and with the input of other appropriate
scientific and medical experts, on the design and conduct of
such studies and surveillance.
``(3) Revision.--The regulations or guidance under
paragraph (1) shall be revised on a regular basis as new
scientific information becomes available.
``(4) New tobacco products.--Not later than 2 years after
the date of enactment of the Family Smoking Prevention and
Tobacco Control Act, the Secretary shall issue a regulation or
guidance that permits the filing of a single application for
any tobacco product that is a new tobacco product under section
910 and for which the applicant seeks approval as a modified
risk tobacco product under this section.
``(m) Distributors.--No distributor may take any action, after the
date of enactment of the Family Smoking Prevention and Tobacco Control
Act, with respect to a tobacco product that would reasonably be
expected to result in consumers believing that the tobacco product or
its smoke may present a lower risk of disease or is less harmful than
one or more commercially marketed tobacco products, or presents a
reduced exposure to, or does not contain or is free of, a substance or
substances.
``SEC. 912. JUDICIAL REVIEW.
``(a) Right To Review.--
``(1) In general.--Not later than 30 days after--
``(A) the promulgation of a regulation under
section 907 establishing, amending, or revoking a
tobacco product standard; or
``(B) a denial of an application for approval under
section 910(c),
any person adversely affected by such regulation or denial may
file a petition for judicial review of such regulation or
denial with the United States Court of Appeals for the District
of Columbia or for the circuit in which such person resides or
has their principal place of business.
``(2) Requirements.--
``(A) Copy of petition.--A copy of the petition
filed under paragraph (1) shall be transmitted by the
clerk of the court involved to the Secretary.
``(B) Record of proceedings.--On receipt of a
petition under subparagraph (A), the Secretary shall
file in the court in which such petition was filed--
``(i) the record of the proceedings on
which the regulation or order was based; and
``(ii) a statement of the reasons for the
issuance of such a regulation or order.
``(C) Definition of record.--In this section, the
term `record' means--
``(i) all notices and other matter
published in the Federal Register with respect
to the regulation or order reviewed;
``(ii) all information submitted to the
Secretary with respect to such regulation or
order;
``(iii) proceedings of any panel or
advisory committee with respect to such
regulation or order;
``(iv) any hearing held with respect to
such regulation or order; and
``(v) any other information identified by
the Secretary, in the administrative proceeding
held with respect to such regulation or order,
as being relevant to such regulation or order.
``(b) Standard of Review.--Upon the filing of the petition under
subsection (a) for judicial review of a regulation or order, the court
shall have jurisdiction to review the regulation or order in accordance
with chapter 7 of title 5, United States Code, and to grant appropriate
relief, including interim relief, as provided for in such chapter. A
regulation or denial described in subsection (a) shall be reviewed in
accordance with section 706(2)(A) of title 5, United States Code.
``(c) Finality of Judgment.--The judgment of the court affirming or
setting aside, in whole or in part, any regulation or order shall be
final, subject to review by the Supreme Court of the United States upon
certiorari or certification, as provided in section 1254 of title 28,
United States Code.
``(d) Other Remedies.--The remedies provided for in this section
shall be in addition to, and not in lieu of, any other remedies
provided by law.
``(e) Regulations and Orders Must Recite Basis in Record.--To
facilitate judicial review, a regulation or order issued under section
906, 907, 908, 909, 910, or 916 shall contain a statement of the
reasons for the issuance of such regulation or order in the record of
the proceedings held in connection with its issuance.
``SEC. 913. EQUAL TREATMENT OF RETAIL OUTLETS.
``The Secretary shall issue regulations to require that retail
establishments for which the predominant business is the sale of
tobacco products comply with any advertising restrictions applicable to
retail establishments accessible to individuals under the age of 18.
``SEC. 914. JURISDICTION OF AND COORDINATION WITH THE FEDERAL TRADE
COMMISSION.
``(a) Jurisdiction.--
``(1) In general.--Except where expressly provided in this
chapter, nothing in this chapter shall be construed as limiting
or diminishing the authority of the Federal Trade Commission to
enforce the laws under its jurisdiction with respect to the
advertising, sale, or distribution of tobacco products.
``(2) Enforcement.--Any advertising that violates this
chapter or a provision of the regulations referred to in
section 1112 of the Family Smoking Prevention and Tobacco
Control Act, is an unfair or deceptive act or practice under
section 5(a) of the Federal Trade Commission Act (15 U.S.C.
45(a)) and shall be considered a violation of a rule
promulgated under section 18 of that Act (15 U.S.C. 57a).
``(b) Coordination.--With respect to the requirements of section 4
of the Federal Cigarette Labeling and Advertising Act (15 U.S.C. 1333)
and section 3 of the Comprehensive Smokeless Tobacco Health Education
Act of 1986 (15 U.S.C. 4402)--
``(1) the Chairman of the Federal Trade Commission shall
coordinate with the Secretary concerning the enforcement of
such Act as such enforcement relates to unfair or deceptive
acts or practices in the advertising of cigarettes or smokeless
tobacco; and
``(2) the Secretary shall consult with the Chairman of such
Commission in revising the label statements and requirements
under such sections.
``SEC. 915. CONGRESSIONAL REVIEW PROVISIONS.
``In accordance with section 801 of title 5, United States Code,
Congress shall review, and may disapprove, any rule under this chapter
that is subject to section 801. This section and section 801 do not
apply to the regulations referred to in section 1112 of the Family
Smoking Prevention and Tobacco Control Act.
``SEC. 916. REGULATION REQUIREMENT.
``(a) Testing, Reporting, and Disclosure.--Not later than 24 months
after the date of enactment of the Family Smoking Prevention and
Tobacco Control Act, the Secretary, acting through the Commissioner of
the Food and Drug Administration, shall promulgate regulations under
this Act that meet the requirements of subsection (b).
``(b) Contents of Rules.--The regulations promulgated under
subsection (a) shall require testing and reporting of tobacco product
constituents, ingredients, and additives, including smoke constituents,
by brand and sub-brand that the Secretary determines should be tested
to protect the public health. The regulations may require that tobacco
product manufacturers, packagers, or importers make disclosures
relating to the results of the testing of tar and nicotine through
labels or advertising or other appropriate means, and make disclosures
regarding the results of the testing of other constituents, including
smoke constituents, ingredients, or additives, that the Secretary
determines should be disclosed to the public to protect the public
health and will not mislead consumers about the risk of tobacco related
disease.
``(c) Authority.--The Food and Drug Administration shall have the
authority under this chapter to conduct or to require the testing,
reporting, or disclosure of tobacco product constituents, including
smoke constituents.
``SEC. 917. PRESERVATION OF STATE AND LOCAL AUTHORITY.
``(a) In General.--
``(1) Preservation.--Nothing in this chapter, or rules
promulgated under this chapter, shall be construed to limit the
authority of a Federal agency (including the Armed Forces), a
State or political subdivision of a State, or the government of
an Indian tribe to enact, adopt, promulgate, and enforce any
law, rule, regulation, or other measure with respect to tobacco
products that is in addition to, or more stringent than,
requirements established under this chapter, including a law,
rule, regulation, or other measure relating to or prohibiting
the sale, distribution, possession, exposure to, access to,
advertising and promotion of, or use of tobacco products by
individuals of any age, information reporting to the State, or
measures relating to fire safety standards for tobacco
products. No provision of this chapter shall limit or otherwise
affect any State, Tribal, or local taxation of tobacco
products.
``(2) Preemption of certain state and local requirements.--
``(A) In general.--Except as provided in paragraph
(1) and subparagraph (B), no State or political
subdivision of a State may establish or continue in
effect with respect to a tobacco product any
requirement which is different from, or in addition to,
any requirement under the provisions of this chapter
relating to tobacco product standards, premarket
approval, adulteration, misbranding, labeling,
registration, good manufacturing standards, or reduced
risk products.
``(B) Exception.--Subparagraph (A) does not apply
to requirements relating to the sale, distribution,
possession, information reporting to the State,
exposure to, access to, the advertising and promotion
of, or use of, tobacco products by individuals of any
age, or relating to fire safety standards for tobacco
products. Information disclosed to a State under
subparagraph (A) that is exempt from disclosure under
section 554(b)(4) of title 5, United States Code, shall
be treated as trade secret and confidential information
by the State.
``(b) Rule of Construction Regarding Product Liability.--No
provision of this chapter relating to a tobacco product shall be
construed to modify or otherwise affect any action or the liability of
any person under the product liability law of any State.
``SEC. 918. TOBACCO PRODUCTS SCIENTIFIC ADVISORY COMMITTEE.
``(a) Establishment.--Not later than 1 year after the date of
enactment of the Family Smoking Prevention and Tobacco Control Act, the
Secretary shall establish a 11-member advisory committee, to be known
as the `Tobacco Products Scientific Advisory Committee'.
``(b) Membership.--
``(1) In general.--
``(A) Members.--The Secretary shall appoint as
members of the Tobacco Products Scientific Advisory
Committee individuals who are technically qualified by
training and experience in the medicine, medical
ethics, science, or technology involving the
manufacture, evaluation, or use of tobacco products,
who are of appropriately diversified professional
backgrounds. The committee shall be composed of--
``(i) 7 individuals who are physicians,
dentists, scientists, or health care
professionals practicing in the area of
oncology, pulmonology, cardiology, toxicology,
pharmacology, addiction, or any other relevant
specialty;
``(ii) 1 individual who is an officer or
employee of a State or local government or of
the Federal Government;
``(iii) 1 individual as a representative of
the general public;
``(iv) 1 individual as a representative of
the interests in the tobacco manufacturing
industry; and
``(v) 1 individual as a representative of
the interests of the tobacco growers.
``(B) Nonvoting members.--The members of the
committee appointed under clauses (iv) and (v) of
subparagraph (A) shall serve as consultants to those
described in clauses (i) through (iii) of subparagraph
(A) and shall be nonvoting representatives.
``(2) Limitation.--The Secretary may not appoint to the
Advisory Committee any individual who is in the regular full-
time employ of the Food and Drug Administration or any agency
responsible for the enforcement of this Act. The Secretary may
appoint Federal officials as ex officio members.
``(3) Chairperson.--The Secretary shall designate 1 of the
members of the Advisory Committee to serve as chairperson.
``(c) Duties.--The Tobacco Products Scientific Advisory Committee
shall provide advice, information, and recommendations to the
Secretary--
``(1) as provided in this chapter;
``(2) on the effects of the alteration of the nicotine
yields from tobacco products;
``(3) on whether there is a threshold level below which
nicotine yields do not produce dependence on the tobacco
product involved; and
``(4) on its review of other safety, dependence, or health
issues relating to tobacco products as requested by the
Secretary.
``(d) Compensation; Support; FACA.--
``(1) Compensation and travel.--Members of the Advisory
Committee who are not officers or employees of the United
States, while attending conferences or meetings of the
committee or otherwise engaged in its business, shall be
entitled to receive compensation at rates to be fixed by the
Secretary, which may not exceed the daily equivalent of the
rate in effect for level 4 of the Senior Executive Schedule
under section 5382 of title 5, United States Code, for each day
(including travel time) they are so engaged; and while so
serving away from their homes or regular places of business
each member may be allowed travel expenses, including per diem
in lieu of subsistence, as authorized by section 5703 of title
5, United States Code, for persons in the Government service
employed intermittently.
``(2) Administrative support.--The Secretary shall furnish
the Advisory Committee clerical and other assistance.
``(3) Nonapplication of faca.--Section 14 of the Federal
Advisory Committee Act (5 U.S.C.
App.) does not apply to the Advisory Committee.
``(e) Proceedings of Advisory Panels and Committees.--The Advisory
Committee shall make and maintain a transcript of any proceeding of the
panel or committee. Each such panel and committee shall delete from any
transcript made under this subsection information which is exempt from
disclosure under section 552(b) of title 5, United States Code.
``SEC. 919. DRUG PRODUCTS USED TO TREAT TOBACCO DEPENDENCE.
The Secretary shall consider--
``(1) at the request of the applicant, designating nicotine
replacement products as fast track research and approval
products within the meaning of section 506;
``(2) direct the Commissioner to consider approving the
extended use of nicotine replacement products (such as nicotine
patches, nicotine gum, and nicotine lozenges) for the treatment
of tobacco dependence;
``(3) review and consider the evidence for additional
indications for nicotine replacement products, such as for
craving relief or relapse prevention; and
``(4) consider--
``(A) relieving companies of premarket burdens
under section 505 if the requirement is redundant
considering other nicotine replacement therapies
already on the market; and
``(B) time and extent applications for nicotine
replacement therapies that have been approved by a
regulatory body in a foreign country and have marketing
experience in such country.
``SEC. 920. USER FEE.
``(a) Establishment of Quarterly User Fee.--The Secretary shall
assess a quarterly user fee with respect to every quarter of each
fiscal year commencing fiscal year 2004, calculated in accordance with
this section, upon each manufacturer and importer of tobacco products
subject to this chapter.
``(b) Funding of FDA Regulation of Tobacco Products.--The Secretary
shall make user fees collected pursuant to this section available to
pay, in each fiscal year, for the costs of the activities of the Food
and Drug Administration related to the regulation of tobacco products
under this chapter.
``(c) Assessment of User Fee.--
``(1) Amount of assessment.--Except as provided in
paragraph (4), the total user fees assessed each year pursuant
to this section shall be sufficient, and shall not exceed what
is necessary, to pay for the costs of the activities described
in subsection (b) for each fiscal year.
``(2) Allocation of assessment by class of tobacco
products.--
``(A) In general.--Subject to paragraph (3), the
total user fees assessed each fiscal year with respect
to each class of importers and manufacturers shall be
equal to an amount that is the applicable percentage of
the total costs of activities of the Food and Drug
Administration described in subsection (b).
``(B) Applicable percentage.--For purposes of
subparagraph (A) the applicable percentage for a fiscal
year shall be the following:
``(i) 92.07 percent shall be assessed on
manufacturers and importers of cigarettes;
``(ii) 0.05 percent shall be assessed on
manufacturers and importers of little cigars;
``(iii) 7.15 percent shall be assessed on
manufacturers and importers of cigars other
than little cigars;
``(iv) 0.43 percent shall be assessed on
manufacturers and importers of snuff;
``(v) 0.10 percent shall be assessed on
manufacturers and importers of chewing tobacco;
``(vi) 0.06 percent shall be assessed on
manufacturers and importers of pipe tobacco;
and
``(vii) 0.14 percent shall be assessed on
manufacturers and importers of roll-your-own
tobacco.
``(3) Distribution of fee shares of manufacturers and
importers exempt from user fee.--Where a class of tobacco
products is not subject to a user fee under this section, the
portion of the user fee assigned to such class under subsection
(d)(2) shall be allocated by the Secretary on a pro rata basis
among the classes of tobacco products that are subject to a
user fee under this section. Such pro rata allocation for each
class of tobacco products that are subject to a user fee under
this section shall be the quotient of--
``(A) the sum of the percentages assigned to all
classes of tobacco products subject to this section;
divided by
``(B) the percentage assigned to such class under
paragraph (2).
``(4) Annual limit on assessment.--The total assessment
under this section--
``(A) for fiscal year 2004 shall be $85,000,000;
``(B) for fiscal year 2005 shall be $175,000,000;
``(C) for fiscal year 2006 shall be $300,000,000;
and
``(D) for each subsequent fiscal year, shall not
exceed the limit on the assessment imposed during the
previous fiscal year, as adjusted by the Secretary
(after notice, published in the Federal Register) to
reflect the greater of--
``(i) the total percentage change that
occurred in the Consumer Price Index for all
urban consumers (all items; United States city
average) for the 12-month period ending on June
30 of the preceding fiscal year for which fees
are being established; or
``(ii) the total percentage change for the
previous fiscal year in basic pay under the
General Schedule in accordance with section
5332 of title 5, United States Code, as
adjusted by any locality-based comparability
payment pursuant to section 5304 of such title
for Federal employees stationed in the District
of Columbia.
``(5) Timing of user fee assessment.--The Secretary shall
notify each manufacturer and importer of tobacco products
subject to this section of the amount of the quarterly
assessment imposed on such manufacturer or importer under
subsection (f) during each quarter of each fiscal year. Such
notifications shall occur not earlier than 3 months prior to
the end of the quarter for which such assessment is made, and
payments of all assessments shall be made not later than 60
days after each such notification.
``(d) Determination of User Fee by Company Market Share.--
``(1) In general.--The user fee to be paid by each
manufacturer or importer of a given class of tobacco products
shall be determined in each quarter by multiplying--
``(A) such manufacturer's or importer's market
share of such class of tobacco products; by
``(B) the portion of the user fee amount for the
current quarter to be assessed on manufacturers and
importers of such class of tobacco products as
determined under subsection (e).
``(2) No fee in excess of market share.--No manufacturer or
importer of tobacco products shall be required to pay a user
fee in excess of the market share of such manufacturer or
importer.
``(e) Determination of Volume of Domestic Sales.--
``(1) In general.--The calculation of gross domestic volume
of a class of tobacco product by a manufacturer or importer,
and by all manufacturers and importers as a group, shall be
made by the Secretary using information provided by
manufacturers and importers pursuant to subsection (f), as well
as any other relevant information provided to or obtained by
the Secretary.
``(2) Measurement.--For purposes of the calculations under
this subsection and the information provided under subsection
(f) by the Secretary, gross domestic volume shall be measured
by--
``(A) in the case of cigarettes, the number of
cigarettes sold;
``(B) in the case of little cigars, the number of
little cigars sold;
``(C) in the case of large cigars, the number of
cigars weighing more than 3 pounds per thousand sold;
and
``(D) in the case of other classes of tobacco
products, in terms of number of pounds, or fraction
thereof, of these products sold.
``(f) Measurement of Gross Domestic Volume.--
``(1) In general.--Each manufacturer and importer of
tobacco products shall submit to the Secretary a certified copy
of each of the returns or forms described by this paragraph
that are required to be filed with a Government agency on the
same date that those returns or forms are filed, or required to
be filed, with such agency. The returns and forms described by
this paragraph are those returns and forms related to the
release of tobacco products into domestic commerce, as defined
by section 5702(k) of the Internal Revenue Code of 1986, and
the repayment of the taxes imposed under chapter 52 of such
Code (ATF Form 500.24 and United States Customs Form 7501 under
currently applicable regulations).
``(2) Penalties.--Any person that knowingly fails to
provide information required under this subsection or that
provides false information under this subsection shall be
subject to the penalties described in section 1003 of title 18,
United States Code. In addition, such person may be subject to
a civil penalty in an amount not to exceed 2 percent of the
value of the kind of tobacco products manufactured or imported
by such person during the applicable quarter, as determined by
the Secretary.
``(h) Effective Date.--The user fees prescribed by this section
shall be assessed in fiscal year 2004, based on domestic sales of
tobacco products during fiscal year 2003 and shall be assessed in each
fiscal year thereafter.''.
SEC. 1112. INTERIM FINAL RULE.
(a) Cigarettes and Smokeless Tobacco.--
(1) In general.--Not later than 30 days after the date of
enactment of this Act, the Secretary of Health and Human
Services shall publish in the Federal Register an interim final
rule regarding cigarettes and smokeless tobacco, which is
hereby deemed to be in compliance with the Administrative
Procedures Act and other applicable law.
(2) Contents of rule.--Except as provided in this
subsection, the interim final rule published under paragraph
(1), shall be identical in its provisions to part 897 of the
regulations promulgated by the Secretary of Health and Human
Services in the August 28, 1996, issue of the Federal Register
(61 Fed. Reg., 44615-44618). Such rule shall--
(A) provide for the designation of jurisdictional
authority that is in accordance with this subsection;
(B) strike Subpart C--Labeling and section
897.32(c); and
(C) become effective not later than 1 year after
the date of enactment of this Act.
(3) Amendments to rule.--Prior to making amendments to the
rule published under paragraph (1), the Secretary shall
promulgate a proposed rule in accordance with the
Administrative Procedures Act.
(4) Rule of construction.--Except as provided in paragraph
(3), nothing in this section shall be construed to limit the
authority of the Secretary to amend, in accordance with the
Administrative Procedures Act, the regulation promulgated
pursuant to this section.
(b) Limitation on Advisory Opinions.--As of the date of enactment
of this Act, the following documents issued by the Food and Drug
Administration shall not constitute advisory opinions under section
10.85(d)(1) of title 21, Code of Federal Regulations, except as they
apply to tobacco products, and shall not be cited by the Secretary of
Health and Human Services or the Food and Drug Administration as
binding precedent:
(1) The preamble to the proposed rule in the document
entitled ``Regulations Restricting the Sale and Distribution of
Cigarettes and Smokeless Tobacco Products to Protect Children
and Adolescents'' (60 Fed. Reg. 41314-41372 (August 11, 1995)).
(2) The document entitled ``Nicotine in Cigarettes and
Smokeless Tobacco Products is a Drug and These Products Are
Nicotine Delivery Devices Under the Federal Food, Drug, and
Cosmetic Act'' (60 Fed. Reg. 41453-41787 (August 11, 1995)).
(3) The preamble to the final rule in the document entitled
``Regulations Restricting the Sale and Distribution of
Cigarettes and Smokeless Tobacco to Protect Children and
Adolescents'' (61 Fed. Reg. 44396-44615 (August 28, 1996)).
(4) The document entitled ``Nicotine in Cigarettes and
Smokeless Tobacco is a Drug and These Products are Nicotine
Delivery Devices Under the Federal Food, Drug, and Cosmetic
Act; Jurisdictional Determination'' (61 Fed. Reg. 44619-45318
(August 28, 1996)).
SEC. 1113. CONFORMING AND OTHER AMENDMENTS TO GENERAL PROVISIONS.
(a) Amendment of Federal Food, Drug, and Cosmetic Act.--Except as
otherwise expressly provided, whenever in this section an amendment is
expressed in terms of an amendment to, or repeal of, a section or other
provision, the reference is to a section or other provision of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301 et seq.).
(b) Section 301.--Section 301 (21 U.S.C. 331) is amended--
(1) in subsection (a), by inserting ``tobacco product,''
after ``device,'';
(2) in subsection (b), by inserting ``tobacco product,''
after ``device,'';
(3) in subsection (c), by inserting ``tobacco product,''
after ``device,'';
(4) in subsection (e), by striking ``515(f), or 519'' and
inserting ``515(f), 519, or 909'';
(5) in subsection (g), by inserting ``tobacco product,''
after ``device,'';
(6) in subsection (h), by inserting ``tobacco product,''
after ``device,'';
(7) in subsection (j), by striking ``708, or 721'' and
inserting ``708, 721, 904, 905, 906, 907, 908, 909, or section
921(b)'';
(8) in subsection (k), by inserting ``tobacco product,''
after ``device,'';
(9) by striking subsection (p) and inserting the following:
``(p) The failure to register in accordance with section 510 or
905, the failure to provide any information required by section 510(j),
510(k), 905(i), or 905(j), or the failure to provide a notice required
by section 510(j)(2) or 905(i)(2).'';
(10) by striking subsection (q)(1) and inserting the
following:
``(q)(1) The failure or refusal--
``(A) to comply with any requirement prescribed under
section 518, 520(g), 903(b)(8), or 908, or condition prescribed
under section 903(b)(6)(B)(ii)(II);
``(B) to furnish any notification or other material or
information required by or under section 519, 520(g), 904, 909,
or section 921; or
``(C) to comply with a requirement under section 522 or
913.'';
(11) in subsection (q)(2), by striking ``device,'' and
inserting ``device or tobacco product,'';
(12) in subsection (r), by inserting ``or tobacco product''
after ``device'' each time that it appears; and
(13) by adding at the end the following:
``(aa) The sale of tobacco products in violation of a no-
tobacco-sale order issued under section 303(f).
``(bb) The introduction or delivery for introduction into
interstate commerce of a tobacco product in violation of
section 911.
``(cc)(1) Forging, counterfeiting, simulating, or falsely
representing, or without proper authority using any mark, stamp
(including tax stamp), tag, label, or other identification
device upon any tobacco product or container or labeling
thereof so as to render such tobacco product a counterfeit
tobacco product.
``(2) Making, selling, disposing of, or keeping in
possession, control, or custody, or concealing any punch, die,
plate, stone, or other item that is designed to print, imprint,
or reproduce the trademark, trade name, or other identifying
mark, imprint, or device of another or any likeness of any of
the foregoing upon any tobacco product or container or labeling
thereof so as to render such tobacco product a counterfeit
tobacco product.
``(3) The doing of any act that causes a tobacco product to
be a counterfeit tobacco product, or the sale or dispensing, or
the holding for sale or dispensing, of a counterfeit tobacco
product.
``(dd) The charitable distribution of tobacco products.
``(ee) The failure of a manufacturer or distributor to
notify the Attorney General of their knowledge of tobacco
products used in illicit trade.''.
(c) Section 303.--Section 303 (21 U.S.C. 333(f)) is amended in
subsection (f)--
(1) by striking the subsection heading and inserting the
following:
``(f) Civil Penalties; No-Tobacco-Sale Orders.--'';
(2) in paragraph (1)(A), by inserting ``or tobacco
products'' after ``devices'';
(3) by redesignating paragraphs (3), (4), and (5) as
paragraphs (4), (5), and (6), and inserting after paragraph (2)
the following:
``(3) If the Secretary finds that a person has committed
repeated violations of restrictions promulgated under section
906(d) at a particular retail outlet then the Secretary may
impose a no-tobacco-sale order on that person prohibiting the
sale of tobacco products in that outlet. A no-tobacco-sale
order may be imposed with a civil penalty under paragraph
(1).'';
(4) in paragraph (4) as so redesignated--
(A) in subparagraph (A)--
(i) by striking ``assessed'' the first time
it appears and inserting ``assessed, or a no-
tobacco-sale order may be imposed,''; and
(ii) by striking ``penalty'' and inserting
``penalty, or upon whom a no-tobacco-order is
to be imposed,'';
(B) in subparagraph (B)--
(i) by inserting after ``penalty,'' the
following: ``or the period to be covered by a
no-tobacco-sale order,''; and
(ii) by adding at the end the following:
``A no-tobacco-sale order permanently
prohibiting an individual retail outlet from
selling tobacco products shall include
provisions that allow the outlet, after a
specified period of time, to request that the
Secretary compromise, modify, or terminate the
order.''; and
(C) by adding at the end, the following:
``(D) The Secretary may compromise, modify, or
terminate, with or without conditions, any no-tobacco-
sale order.'';
(5) in paragraph (5) as so redesignated--
(A) by striking ``(3)(A)'' as redesignated, and
inserting ``(4)(A)'';
(B) by inserting ``or the imposition of a no-
tobacco-sale order'' after ``penalty'' the first 2
places it appears; and
(C) by striking ``issued.'' and inserting ``issued,
or on which the no-tobacco-sale order was imposed, as
the case may be.''; and
(6) in paragraph (6), as so redesignated, by striking
``paragraph (4)'' each place it appears and inserting
``paragraph (5)''.
(d) Section 304.--Section 304 (21 U.S.C. 334) is amended--
(1) in subsection (a)(2)--
(A) by striking ``and'' before ``(D)''; and
(B) by striking ``device.'' and inserting the
following: ``, (E) Any adulterated or misbranded
tobacco product.'';
(2) in subsection (d)(1), by inserting ``tobacco product,''
after ``device,'';
(3) in subsection (g)(1), by inserting ``or tobacco
product'' after ``device'' each place it appears; and
(4) in subsection (g)(2)(A), by inserting ``or tobacco
product'' after ``device'' each place it appears.
(e) Section 702.--Section 702(a) (21 U.S.C. 372(a)) is amended--
(1) by inserting ``(1)'' after ``(a)''; and
(2) by adding at the end thereof the following:
``(2) For a tobacco product, to the extent feasible, the Secretary
shall contract with the States in accordance with paragraph (1) to
carry out inspections of retailers in connection with the enforcement
of this Act.''.
(f) Section 703.--Section 703 (21 U.S.C. 373) is amended--
(1) by inserting ``tobacco product,'' after ``device,''
each place it appears; and
(2) by inserting ``tobacco products,'' after ``devices,''
each place it appears.
(g) Section 704.--Section 704 (21 U.S.C. 374) is amended--
(1) in subsection (a)(1)(A), by inserting ``tobacco
products,'' after ``devices,'' each place it appears;
(2) in subsection (a)(1)(B), by inserting ``or tobacco
product'' after ``restricted devices'' each place it appears;
and
(3) in subsection (b), by inserting ``tobacco product,''
after ``device,''.
(h) Section 705.--Section 705(b) (21 U.S.C. 375(b)) is amended by
inserting ``tobacco products,'' after ``devices,''.
(i) Section 709.--Section 709 (21 U.S.C. 379) is amended by
inserting ``or tobacco product'' after ``device''.
(j) Section 801.--Section 801 (21 U.S.C. 381) is amended--
(1) in subsection (a)--
(A) by inserting ``tobacco products,'' after
``devices,'' the first time it appears;
(B) by inserting ``or section 905(j)'' after
``section 510''; and
(C) by striking ``drugs or devices'' each time it
appears and inserting ``drugs, devices, or tobacco
products'';
(2) in subsection (e)(1), by inserting ``tobacco product,''
after ``device,''; and
(3) by adding at the end the following:
``(p)(1) Not later than 2 years after the date of enactment of the
Family Smoking Prevention and Tobacco Control Act, and annually
thereafter, the Secretary shall submit to the Committee on Health,
Education, Labor, and Pensions of the Senate and the Committee on
Energy and Commerce of the House of Representatives, a report
regarding--
``(A) the nature, extent, and destination of United States
tobacco product exports that do not conform to tobacco product
standards established pursuant to this Act;
``(B) the public health implications of such exports,
including any evidence of a negative public health impact; and
``(C) recommendations or assessments of policy alternatives
available to Congress and the Executive Branch to reduce any
negative public health impact caused by such exports.
``(2) The Secretary is authorized to establish appropriate
information disclosure requirements to carry out this subsection.''.
(k) Section 1003.--Section 1003(d)(2)(C) (as redesignated by
section 101(a)) is amended--
(1) by striking ``and'' after ``cosmetics,''; and
(2) inserting a comma and ``and tobacco products'' after
``devices''.
(l) Effective Date for No-Tobacco-Sale Order Amendments.--The
amendments made by subsection (c), other than the amendment made by
paragraph (2) of such subsection, shall take effect upon the issuance
of guidance by the Secretary of Health and Human Services--
(1) defining the term ``repeated violation'', as used in
section 303(f) of the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 333(f)) as amended by subsection (c), by identifying the
number of violations of particular requirements over a
specified period of time at a particular retail outlet that
constitute a repeated violation;
(2) providing for timely and effective notice to the
retailer of each alleged violation at a particular retail
outlet and an expedited procedure for the administrative appeal
of an alleged violation;
(3) providing that a person may not be charged with a
violation at a particular retail outlet unless the Secretary
has provided notice to the retailer of all previous violations
at that outlet;
(4) establishing a period of time during which, if there
are no violations by a particular retail outlet, that outlet
will not be considered to have been the site of repeated
violations when the next violation occurs; and
(5) providing that good faith reliance on the presentation
of a false government issued photographic identification that
contains the bearer's date of birth does not constitute a
violation of any minimum age requirement for the sale of
tobacco products if the retailer has taken effective steps to
prevent such violations, including--
(A) adopting and enforcing a written policy against
sales to minors;
(B) informing its employees of all applicable laws;
(C) establishing disciplinary sanctions for
employee noncompliance; and
(D) requiring its employees to verify age by way of
photographic identification or electronic scanning
device.
CHAPTER 2--TOBACCO PRODUCT WARNINGS; CONSTITUENT AND SMOKE CONSTITUENT
DISCLOSURE
SEC. 1121. CIGARETTE LABEL AND ADVERTISING WARNINGS.
Section 4 of the Federal Cigarette Labeling and Advertising Act (15
U.S.C. 1333) is amended to read as follows:
``SEC. 4. LABELING.
``(a) Label Requirements.--
``(1) In general.--It shall be unlawful for any person to
manufacture, package, sell, offer to sell, distribute, or
import for sale or distribution within the United States any
cigarettes the package of which fails to bear, in accordance
with the requirements of this section, one of the following
labels:
`WARNING: Cigarettes are addictive'.
`WARNING: Tobacco smoke can harm your children'.
`WARNING: Cigarettes cause fatal lung disease'.
`WARNING: Cigarettes cause cancer'.
`WARNING: Cigarettes cause strokes and heart disease'.
`WARNING: Smoking during pregnancy can harm your baby'.
`WARNING: Smoking can kill you'.
`WARNING: Tobacco smoke causes fatal lung disease in non-
smokers'.
`WARNING: Quitting smoking now greatly reduces serious risks to
your health'.
``(2) Placement; typography; etc.--
``(A) In general.--Each label statement required by
paragraph (1) shall be located in the upper portion of
the front and rear panels of the package, directly on
the package underneath the cellophane or other clear
wrapping. Except as provided in subparagraph (B), each
label statement shall comprise at least the top 30
percent of the front and rear panels of the package.
The word `WARNING' shall appear in capital letters and
all text shall be in conspicuous and legible 17-point
type, unless the text of the label statement would
occupy more than 70 percent of such area, in which case
the text may be in a smaller conspicuous and legible
type size, provided that at least 60 percent of such
area is occupied by required text. The text shall be
black on a white background, or white on a black
background, in a manner that contrasts, by typography,
layout, or color, with all other printed material on
the package, in an alternating fashion under the plan
submitted under subsection (b)(4).
``(B) Flip-top boxes.--For any cigarette brand
package manufactured or distributed before January 1,
2000, which employs a flip-top style (if such packaging
was used for that brand in commerce prior to June 21,
1997), the label statement required by paragraph (1)
shall be located on the flip-top area of the package,
even if such area is less than 25 percent of the area
of the front panel. Except as provided in this
paragraph, the provisions of this subsection shall
apply to such packages.
``(3) Does not apply to foreign distribution.--The
provisions of this subsection do not apply to a tobacco product
manufacturer or distributor of cigarettes which does not
manufacture, package, or import cigarettes for sale or
distribution within the United States.
``(4) Applicability to retailers.--A retailer of cigarettes
shall not be in violation of this subsection for packaging that
is supplied to the retailer by a tobacco product manufacturer,
importer, or distributor and is not altered by the retailer in
a way that is material to the requirements of this subsection
except that this paragraph shall not relieve a retailer of
liability if the retailer sells or distributes tobacco products
that are not labeled in accordance with this subsection.
``(b) Advertising Requirements.--
``(1) In general.--It shall be unlawful for any tobacco
product manufacturer, importer, distributor, or retailer of
cigarettes to advertise or cause to be advertised within the
United States any cigarette unless its advertising bears, in
accordance with the requirements of this section, one of the
labels specified in subsection (a) of this section.
``(2) Typography, etc.--Each label statement required by
subsection (a) of this section in cigarette advertising shall
comply with the standards set forth in this paragraph. For
press and poster advertisements, each such statement and (where
applicable) any required statement relating to tar, nicotine,
or other constituent (including a smoke constituent) yield
shall comprise at least 20 percent of the area of the
advertisement and shall appear in a conspicuous and prominent
format and location at the top of each advertisement within the
trim area. The Secretary may revise the required type sizes in
such area in such manner as the Secretary determines
appropriate. The word `WARNING' shall appear in capital
letters, and each label statement shall appear in conspicuous
and legible type. The text of the label statement shall be
black if the background is white and white if the background is
black, under the plan submitted under paragraph (4) of this
subsection. The label statements shall be enclosed by a
rectangular border that is the same color as the letters of the
statements and that is the width of the first downstroke of the
capital `W' of the word `WARNING' in the label statements. The
text of such label statements shall be in a typeface pro rata
to the following requirements: 45-point type for a whole-page
broadsheet newspaper advertisement; 39-point type for a half-
page broadsheet newspaper advertisement; 39-point type for a
whole-page tabloid newspaper advertisement; 27-point type for a
half-page tabloid newspaper advertisement; 31.5-point type for
a double page spread magazine or whole-page magazine
advertisement; 22.5-point type for a 28 centimeter by 3 column
advertisement; and 15-point type for a 20 centimeter by 2
column advertisement. The label statements shall be in English,
except that in the case of--
``(A) an advertisement that appears in a newspaper,
magazine, periodical, or other publication that is not
in English, the statements shall appear in the
predominant language of the publication; and
``(B) in the case of any other advertisement that
is not in English, the statements shall appear in the
same language as that principally used in the
advertisement.
``(3) Matchbooks.--Notwithstanding paragraph (2), for
matchbooks (defined as containing not more than 20 matches)
customarily given away with the purchase of tobacco products,
each label statement required by subsection (a) may be printed
on the inside cover of the matchbook.
``(4) Adjustment by secretary.--The Secretary may, through
a rulemaking under section 553 of title 5, United States Code,
adjust the format and type sizes for the label statements
required by this section or the text, format, and type sizes of
any required tar, nicotine yield, or other constituent
(including smoke constituent) disclosures, or to establish the
text, format, and type sizes for any other disclosures required
under the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301
et. seq.). The text of any such label statements or disclosures
shall be required to appear only within the 20 percent area of
cigarette advertisements provided by paragraph (2) of this
subsection. The Secretary shall promulgate regulations which
provide for adjustments in the format and type sizes of any
text required to appear in such area to ensure that the total
text required to appear by law will fit within such area.
``(5) Marketing requirements.--
``(A) The label statements specified in subsection
(a)(1) shall be randomly displayed in each 12-month
period, in as equal a number of times as is possible on
each brand of the product and be randomly distributed
in all areas of the United States in which the product
is marketed in accordance with a plan submitted by the
tobacco product manufacturer, importer, distributor, or
retailer and approved by the Secretary.
``(B) The label statements specified in subsection
(a)(1) shall be rotated quarterly in alternating
sequence in advertisements for each brand of cigarettes
in accordance with a plan submitted by the tobacco
product manufacturer, importer, distributor, or
retailer to, and approved by, the Secretary.
``(C) The Secretary shall review each plan
submitted under subparagraph (B) and approve it if the
plan--
``(i) will provide for the equal
distribution and display on packaging and the
rotation required in advertising under this
subsection; and
``(ii) assures that all of the labels
required under this section will be displayed
by the tobacco product manufacturer, importer,
distributor, or retailer at the same time.
``(6) Applicability to retailers.--This subsection applies
to a retailer only if that retailer is responsible for or
directs the label statements required under this section except
that this paragraph shall not relieve a retailer of liability
if the retailer displays, in a location open to the public, an
advertisement that is not labeled in accordance with the
requirements of this subsection.''.
SEC. 1122. AUTHORITY TO REVISE CIGARETTE WARNING LABEL STATEMENTS.
Section 4 of the Federal Cigarette Labeling and Advertising Act (15
U.S.C. 1333), as amended by section 1121, is further amended by adding
at the end the following:
``(c) Change in Required Statements.--The Secretary may, by a
rulemaking conducted under section 553 of title 5, United States Code,
adjust the format, type size, and text of any of the label
requirements, require color graphics to accompany the text, increase
the required label area from 30 percent up to 50 percent of the front
and rear panels of the package, or establish the format, type size, and
text of any other disclosures required under the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 301 et seq.), if the Secretary finds that
such a change would promote greater public understanding of the risks
associated with the use of tobacco products.''.
SEC. 1123. STATE REGULATION OF CIGARETTE ADVERTISING AND PROMOTION.
Section 5 of the Federal Cigarette Labeling and Advertising Act (15
U.S.C. 1334) is amended by adding at the end the following:
``(c) Exception.--Notwithstanding subsection (b), a State or
locality may enact statutes and promulgate regulations, based on
smoking and health, that take effect after the effective date of the
Family Smoking Prevention and Tobacco Control Act, imposing specific
bans or restrictions on the time, place, and manner, but not content,
of the advertising or promotion of any cigarettes.''.
SEC. 1124. SMOKELESS TOBACCO LABELS AND ADVERTISING WARNINGS.
Section 3 of the Comprehensive Smokeless Tobacco Health Education
Act of 1986 (15 U.S.C. 4402) is amended to read as follows:
``SEC. 3. SMOKELESS TOBACCO WARNING.
``(a) General Rule.--
``(1) It shall be unlawful for any person to manufacture,
package, sell, offer to sell, distribute, or import for sale or
distribution within the United States any smokeless tobacco
product unless the product package bears, in accordance with
the requirements of this Act, one of the following labels:
`WARNING: This product can cause mouth cancer'.
`WARNING: This product can cause gum disease and tooth loss'.
`WARNING: This product is not a safe alternative to
cigarettes'.
`WARNING: Smokeless tobacco is addictive'.
``(2) Each label statement required by paragraph (1) shall
be--
``(A) located on the 2 principal display panels of
the package, and each label statement shall comprise at
least 30 percent of each such display panel; and
``(B) in 17-point conspicuous and legible type and
in black text on a white background, or white text on a
black background, in a manner that contrasts by
typography, layout, or color, with all other printed
material on the package, in an alternating fashion
under the plan submitted under subsection (b)(3),
except that if the text of a label statement would
occupy more than 70 percent of the area specified by
subparagraph (A), such text may appear in a smaller
type size, so long as at least 60 percent of such
warning area is occupied by the label statement.
``(3) The label statements required by paragraph (1) shall
be introduced by each tobacco product manufacturer, packager,
importer, distributor, or retailer of smokeless tobacco
products concurrently into the distribution chain of such
products.
``(4) The provisions of this subsection do not apply to a
tobacco product manufacturer or distributor of any smokeless
tobacco product that does not manufacture, package, or import
smokeless tobacco products for sale or distribution within the
United States.
``(5) A retailer of smokeless tobacco products shall not be
in violation of this subsection for packaging that is supplied
to the retailer by a tobacco products manufacturer, importer,
or distributor and that is not altered by the retailer unless
the retailer offers for sale, sells, or distributes a smokeless
tobacco product that is not labeled in accordance with this
subsection.
``(b) Required Labels.--
``(1) It shall be unlawful for any tobacco product
manufacturer, packager, importer, distributor, or retailer of
smokeless tobacco products to advertise or cause to be
advertised within the United States any smokeless tobacco
product unless its advertising bears, in accordance with the
requirements of this section, one of the labels specified in
subsection (a).
``(2) Each label statement required by subsection (a) in
smokeless tobacco advertising shall comply with the standards
set forth in this paragraph. For press and poster
advertisements, each such statement and (where applicable) any
required statement relating to tar, nicotine, or other
constituent yield shall--
``(A) comprise at least 20 percent of the area of
the advertisement, and the warning area shall be
delineated by a dividing line of contrasting color from
the advertisement; and
``(B) the word `WARNING' shall appear in capital
letters and each label statement shall appear in
conspicuous and legible type. The text of the label
statement shall be black on a white background, or
white on a black background, in an alternating fashion
under the plan submitted under paragraph (3).
``(3)(A) The label statements specified in subsection
(a)(1) shall be randomly displayed in each 12-month period, in
as equal a number of times as is possible on each brand of the
product and be randomly distributed in all areas of the United
States in which the product is marketed in accordance with a
plan submitted by the tobacco product manufacturer, importer,
distributor, or retailer and approved by the Secretary.
``(B) The label statements specified in subsection (a)(1)
shall be rotated quarterly in alternating sequence in
advertisements for each brand of smokeless tobacco product in
accordance with a plan submitted by the tobacco product
manufacturer, importer, distributor, or retailer to, and
approved by, the Secretary.
``(C) The Secretary shall review each plan submitted under
subparagraph (B) and approve it if the plan--
``(i) will provide for the equal distribution and
display on packaging and the rotation required in
advertising under this subsection; and
``(ii) assures that all of the labels required
under this section will be displayed by the tobacco
product manufacturer, importer, distributor, or
retailer at the same time.
``(D) This paragraph applies to a retailer only if that
retailer is responsible for or directs the label statements
under this section, unless the retailer displays in a location
open to the public, an advertisement that is not labeled in
accordance with the requirements of this subsection.
``(c) Television and Radio Advertising.--It is unlawful to
advertise smokeless tobacco on any medium of electronic communications
subject to the jurisdiction of the Federal Communications
Commission.''.
SEC. 1125. AUTHORITY TO REVISE SMOKELESS TOBACCO PRODUCT WARNING LABEL
STATEMENTS.
Section 3 of the Comprehensive Smokeless Tobacco Health Education
Act of 1986 (15 U.S.C. 4402), as amended by section 1123, is further
amended by adding at the end the following:
``(d) Authority To Revise Warning Label Statements.--The Secretary
may, by a rulemaking conducted under section 553 of title 5, United
States Code, adjust the format, type size, and text of any of the label
requirements, require color graphics to accompany the text, increase
the required label area from 30 percent up to 50 percent of the front
and rear panels of the package, or establish the format, type size, and
text of any other disclosures required under the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 301 et seq.), if the Secretary finds that
such a change would promote greater public understanding of the risks
associated with the use of smokeless tobacco products.''.
SEC. 1126. TAR, NICOTINE, AND OTHER SMOKE CONSTITUENT DISCLOSURE TO THE
PUBLIC.
Section 4(a) of the Federal Cigarette Labeling and Advertising Act
(15 U.S.C. 1333 (a)), as amended by section 1121, is further amended by
adding at the end the following:
``(4)(A) The Secretary shall, by a rulemaking conducted
under section 553 of title 5, United States Code, determine (in
the Secretary's sole discretion) whether cigarette and other
tobacco product manufacturers shall be required to include in
the area of each cigarette advertisement specified by
subsection (b) of this section, or on the package label, or
both, the tar and nicotine yields of the advertised or packaged
brand. Any such disclosure shall be in accordance with the
methodology established under such regulations, shall conform
to the type size requirements of subsection (b) of this
section, and shall appear within the area specified in
subsection (b) of this section.
``(B) Any differences between the requirements established
by the Secretary under subparagraph (A) and tar and nicotine
yield reporting requirements established by the Federal Trade
Commission shall be resolved by a memorandum of understanding
between the Secretary and the Federal Trade Commission.
``(C) In addition to the disclosures required by
subparagraph (A) of this paragraph, the Secretary may, under a
rulemaking conducted under section 553 of title 5, United
States Code, prescribe disclosure requirements regarding the
level of any cigarette or other tobacco product constituent
including any smoke constituent. Any such disclosure may be
required if the Secretary determines that disclosure would be
of benefit to the public health, or otherwise would increase
consumer awareness of the health consequences of the use of
tobacco products, except that no such prescribed disclosure
shall be required on the face of any cigarette package or
advertisement. Nothing in this section shall prohibit the
Secretary from requiring such prescribed disclosure through a
cigarette or other tobacco product package or advertisement
insert, or by any other means under the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 301 et seq.).
``(D) This paragraph applies to a retailer only if that
retailer is responsible for or directs the label statements
required under this section, except that this paragraph shall
not relieve a retailer of liability if the retailer sells or
distributes tobacco products that are not labeled in accordance
with the requirements of this subsection.''.
CHAPTER 3--PREVENTION OF ILLICIT TRADE IN TOBACCO PRODUCTS
SEC. 1131. LABELING, RECORDKEEPING, RECORDS INSPECTION.
Chapter IX of the Federal Food, Drug, and Cosmetic Act, as added by
section 1111, is further amended by adding at the end the following:
``SEC. 921. LABELING, RECORDKEEPING, RECORDS INSPECTION.
``(a) Origin Labeling.--The label, packaging, and shipping
containers of tobacco products for introduction or delivery for
introduction into interstate commerce shall bear the statement `sale
only allowed in the United States.'
``(b) Regulations Concerning Recordkeeping for Tracking and
Tracing.--
``(1) In general.--Not later than 9 months after the date
of enactment of the Family Smoking Prevention and Tobacco
Control Act, the Secretary shall promulgate regulations
regarding the establishment and maintenance of records by any
person who manufactures, processes, transports, distributes,
receives, packages, holds, exports, or imports tobacco
products.
``(2) Inspection.--In promulgating the regulations
described in paragraph (1), the Secretary shall consider which
records are needed for inspection to monitor the movement of
tobacco products from the point of manufacture through
distribution to retail outlets to assist in investigating
potential illicit trade, smuggling or counterfeiting of tobacco
products.
``(3) Codes.--The Secretary may require codes on the labels
of tobacco products or other designs or devices for the purpose
of tracking or tracing the tobacco product through the
distribution system.
``(4) Size of business.--The Secretary shall take into
account the size of a business in promulgating regulations
under this section.
``(5) Recordkeeping by retailers.--The Secretary shall not
require any retailer to maintain records relating to individual
purchasers of tobacco products for personal consumption.
``(c) Records Inspection.--If the Secretary has a reasonable belief
that a tobacco product is part of an illicit trade or smuggling or is a
counterfeit product, each person who manufactures, processes,
transports, distributes, receives, holds, packages, exports, or imports
tobacco products shall, at the request of an officer or employee duly
designated by the Secretary, permit such officer or employee, at
reasonable times and within reasonable limits and in a reasonable
manner, upon the presentation of appropriate credentials and a written
notice to such person, to have access to and copy all records
(including financial records) relating to such article that are needed
to assist the Secretary in investigating potential illicit trade,
smuggling or counterfeiting of tobacco products.
``(d) Knowledge of Illegal Transaction.--If the manufacturer or
distributor of a tobacco product has knowledge which reasonably
supports the conclusion that a tobacco product manufactured or
distributed by such manufacturer or distributor that has left the
control of such person may be or has been--
``(A) imported, exported, distributed or offered
for sale in interstate commerce by a person without
paying duties or taxes required by law; or
``(B) imported, exported, distributed or diverted
for possible illicit marketing,
the manufacturer or distributor shall promptly notify the Attorney
General of such knowledge.
``(2) Knowledge defined.--For purposes of this subsection,
the term `knowledge' as applied to a manufacturer or
distributor means--
``(A) the actual knowledge that the manufacturer or
distributor had; or
``(B) the knowledge which a reasonable person would
have had under like circumstances or which would have
been obtained upon the exercise of due care.
SEC. 1132. STUDY AND REPORT.
(a) Study.--The Comptroller General of the United States shall
conduct a study of cross-border trade in tobacco products to--
(1) collect data on cross-border trade in tobacco products,
including illicit trade and trade of counterfeit tobacco
products and make recommendations on the monitoring of such
trade;
(2) collect data on cross-border advertising (any
advertising intended to be broadcast, transmitted, or
distributed from the United States to another country) of
tobacco products and make recommendations on how to prevent or
eliminate, and what technologies could help facilitate the
elimination of, cross-border advertising.
(b) Report.--Not later than 18 months after the date of enactment
of this Act, the Comptroller General of the United States shall submit
to the Committee on Health, Education, Labor, and Pensions of the
Senate and the Committee on Energy and Commerce of the House of
Representatives a report on the study described in subsection (a).
Subtitle B--Tobacco Market Transition
SEC. 1140. SHORT TITLE OF SUBTITLE.
This subtitle may be cited as the ``Tobacco Market Transition Act
of 2004''.
CHAPTER 1--TERMINATION OF CURRENT TOBACCO PROGRAMS
SEC. 1141. TERMINATION OF TOBACCO PRODUCTION ADJUSTMENT PROGRAMS.
(a) Tobacco Statistics.--The Act of January 14, 1929 (45 Stat.
1079; 7 U.S.C. 501 et seq.) is repealed.
(b) Tobacco Standards.--The Tobacco Inspection Act (7 U.S.C. 511 et
seq.) is repealed.
(c) Tobacco Inspections.--Section 213 of the Tobacco Adjustment Act
of 1983 (7 U.S.C. 511r) is repealed.
(d) Tobacco Control.--The Act of April 25, 1936 (commonly known as
the Tobacco Control Act; 7 U.S.C. 515 et seq.), is repealed.
(e) Commodity Handling Orders.--Section 8c(2)(A) of the
Agricultural Adjustment Act (7 U.S.C. 608c(2)(A)), reenacted with
amendments by the Agricultural Marketing Agreement Act of 1937, is
amended by striking ``tobacco,''.
(f) Processing Tax.--Section 9(b) of the Agricultural Adjustment
Act (7 U.S.C. 609(b)), reenacted with amendments by the Agricultural
Marketing Agreement Act of 1937, is amended--
(1) in paragraph (2), by striking ``tobacco,''; and
(2) in paragraph (6)B)(i), by striking ``, or, in the case
of tobacco, is less than the fair exchange value by not more
than 10 per centum,''.
(g) Burley Tobacco Import Review.--Section 3 of Public Law 98-59 (7
U.S.C. 625) is repealed.
(h) Declaration of Policy.--Section 2 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1282) is amended by striking
``tobacco,''.
(i) Definitions.--Section 301(b) of the Agricultural Adjustment Act
of 1938 (7 U.S.C. 1301(b)) is amended--
(1) in paragraph (3)--
(A) by striking subparagraph (C); and
(B) by redesignating subparagraph (D) as
subparagraph (C);
(2) in paragraph (6)(A), by striking ``tobacco,'';
(3) in paragraph (10)--
(A) by striking subparagraph (B); and
(B) by redesignating subparagraph (C) as
subparagraph (B);
(4) in paragraph (11)(B), by striking ``and tobacco'';
(5) in paragraph (12), by striking ``tobacco,'';
(6) in paragraph (14)--
(A) in subparagraph (A), by striking ``(A)''; and
(B) by striking subparagraphs (B), (C), and (D);
(7) by striking paragraph (15);
(8) in paragraph (16)--
(A) by striking subparagraph (B); and
(B) by redesignating subparagraph (C) as
subparagraph (B);
(9) by striking paragraph (17); and
(10) by redesignating paragraph (16) as paragraph (15).
(j) Parity Payments.--Section 303 of the Agricultural Adjustment
Act of 1938 (7 U.S.C. 1303) is amended in the first sentence by
striking ``rice, or tobacco,'' and inserting ``or rice,''.
(k) Marketing Quotas.--Part I of subtitle B of title III of the
Agricultural Adjustment Act of 1938 (7 U.S.C. 1311 et seq.) is
repealed.
(l) Administrative Provisions.--Section 361 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1361) is amended by striking
``tobacco,''.
(m) Adjustment of Quotas.--Section 371 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1371) is amended--
(1) in the first sentence of subsection (a), by striking
``rice, or tobacco'' and inserting ``or rice''; and
(2) in the first sentence of subsection (b), by striking
``rice, or tobacco'' and inserting ``or rice''.
(n) Reports and Records.--Section 373 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1373) is amended--
(1) by striking ``rice, or tobacco'' each place it appears
in subsections (a) and (b) and inserting ``or rice''; and
(2) in subsection (a)--
(A) in the first sentence, by striking ``all
persons engaged in the business of redrying, prizing,
or stemming tobacco for producers,''; and
(B) in the last sentence, by striking ``$500;'' and
all that follows through the period at the end of the
sentence and inserting ``$500.''.
(o) Regulations.--Section 375 of the Agricultural Adjustment Act of
1938 (7 U.S.C. 1375) is amended--
(1) in subsection (a), by striking ``peanuts, or tobacco''
and inserting ``or peanuts''; and
(2) by striking subsection (c).
(p) Eminent Domain.--Section 378 of the Agricultural Adjustment Act
of 1938 (7 U.S.C. 1378) is amended--
(1) in the first sentence of subsection (c), by striking
``cotton, and tobacco'' and inserting ``and cotton''; and
(2) by striking subsections (d), (e), and (f).
(q) Burley Tobacco Farm Reconstitution.--Section 379 of the
Agricultural Adjustment Act of 1938 (7 U.S.C. 1379) is amended--
(1) in subsection (a)--
(A) by striking ``(a)''; and
(B) in paragraph (6), by striking ``, but this
clause (6) shall not be applicable in the case of
burley tobacco''; and
(2) by striking subsections (b) and (c).
(r) Acreage-Poundage Quotas.--Section 4 of the Act of April 16,
1955 (Public Law 89-12; 7 U.S.C. 1314c note), is repealed.
(s) Burley Tobacco Acreage Allotments.--The Act of July 12, 1952 (7
U.S.C. 1315), is repealed.
(t) Transfer of Allotments.--Section 703 of the Food and
Agriculture Act of 1965 (7 U.S.C. 1316) is repealed.
(u) Advance Recourse Loans.--Section 13(a)(2)(B) of the Food
Security Improvements Act of 1986 (7 U.S.C. 1433c-1(a)(2)(B)) is
amended by striking ``tobacco and''.
(v) Tobacco Field Measurement.--Section 1112 of the Omnibus Budget
Reconciliation Act of 1987 (Public Law 100-203) is amended by striking
subsection (c).
SEC. 1142. TERMINATION OF TOBACCO PRICE SUPPORT PROGRAM.
(a) Parity Price Support.--Section 101 of the Agricultural Act of
1949 (7 U.S.C. 1441) is amended--
(1) in the first sentence of subsection (a), by striking
``tobacco (except as otherwise provided herein), corn,'' and
inserting ``corn'';
(2) by striking subsections (c), (g), (h), and (i);
(3) in subsection (d)(3)--
(A) by striking ``, except tobacco,''; and
(B) by striking ``and no price support shall be
made available for any crop of tobacco for which
marketing quotas have been disapproved by producers;'';
and
(4) by redesignating subsections (d) and (e) as subsections
(c) and (d), respectively.
(b) Termination of Tobacco Price Support and No Net Cost
Provisions.--Sections 106, 106A, and 106B of the Agricultural Act of
1949 (7 U.S.C. 1445, 1445-1, 1445-2) are repealed.
(c) Definition of Basic Agricultural Commodity.--Section 408(c) of
the Agricultural Act of 1949 (7 U.S.C. 1428(c)) is amended by striking
``tobacco,''.
(d) Review of Burley Tobacco Imports.--Section 3 of Public Law 98-
59 (7 U.S.C. 625) is repealed.
(e) Powers of Commodity Credit Corporation.--Section 5 of the
Commodity Credit Corporation Charter Act (15 U.S.C. 714c) is amended by
inserting ``(other than tobacco)'' after ``agricultural commodities''
each place it appears.
SEC. 1143. LIABILITY.
This title and the amendments made by this title shall not affect
the liability of any person under any provision of law with respect to
any crop of tobacco planted before the effective date prescribed in
section 1162.
CHAPTER 2--TOBACCO ASSISTANCE
SEC. 1151. TOBACCO ASSISTANCE.
Title III of the Agricultural Adjustment Act of 1938 is amended by
inserting after subtitle D (7 U.S.C. 1379a et seq.) the following:
``Subtitle E--Tobacco Assistance
``SEC. 380A. DEFINITIONS.
``In this subtitle:
``(1) Active producer of tobacco.--The term `active
producer of tobacco' means a person that--
``(A) is actively engaged in the production of
tobacco marketed or considered planted; and
``(B) shares in the risk of producing the tobacco.
``(2) Applicable fiscal year.--The term `applicable fiscal
year' means each of fiscal years 2004 through 2013.
``(3) Base period.--The term `base period' means the 1-year
period ending the June 30 preceding each applicable fiscal
year.
``(4) Considered planted.--The term `considered planted'
means tobacco planted but failed to be produced as a result of
a natural disaster, as determined by the Secretary.
``(5) Department.--The term `Department' means the
Department of Agriculture.
``(6) Eligible state.--The term `eligible State' means--
``(A) in the case of section 380O, each of the
States of Maryland, Pennsylvania, South Carolina, and
North Carolina; and
``(B) in the case of section 380Q, each of the
States of Alabama, Arkansas, Florida, Georgia, Indiana,
Kansas, Kentucky, Minnesota, Missouri, North Carolina,
Ohio, Oklahoma, South Carolina, Tennessee, Virginia,
West Virginia, and Wisconsin.
``(7) Impacted community.--The term `impacted community'
means a community in an eligible State that is adversely
affected by a reduction in gross receipts from the sale of
tobacco.
``(8) Market share.--The term `market share' means the
share of each manufacturer or importer of a class of tobacco
product (expressed as a decimal to the fourth place) of the
total volume of domestic sales of the class of tobacco product
during the base period for the applicable fiscal year for an
assessment under section 380T.
``(9) Production board.--The term `Production Board' means
a Production Board established for a kind of tobacco under
section 380H.
``(10) Quota tobacco.--The term `quota tobacco' means a
kind of tobacco that is subject to a farm marketing quota or
farm acreage allotment for the 2002 tobacco marketing years
under a marketing quota or allotment program established under
part I of subtitle B (as in effect before the effective date of
this subtitle).
``(11) Tobacco.--The term `tobacco' means each of the
following kinds of tobacco:
``(A) Flue-cured tobacco, comprising types 11, 12,
13, and 14.
``(B) Fire-cured tobacco, comprising types 22 and
23.
``(C) Dark air-cured tobacco, comprising types 35
and 36.
``(D) Virginia sun-cured tobacco, comprising type
37.
``(E) Virginia fire-cured tobacco, comprising type
21.
``(F) Burley tobacco, comprising type 31.
``(G) Cigar-filler and cigar-binder tobacco,
comprising types 42, 43, 44, 53, 54, and 55.
``(12) Tobacco quality board.--The term `Tobacco Quality
Board' means the Tobacco Quality Board established under
section 380G.
``(13) Tobacco quota holder.--The term `tobacco quota
holder' means a person that is considered an tobacco quota
holder under section 380B(b).
``(14) Tobacco trust fund.--The term `Tobacco Trust Fund'
means the Tobacco Trust Fund established under section 380S.
``(15) Traditional producer of tobacco.--The term
`traditional producer of tobacco' means a person that, for at
least 1 of the 2000, 2001, or 2002 tobacco marketing years--
``(A) was actively engaged in the production of
tobacco marketed, or considered planted, under a
marketing quota established under part I of subtitle B
(as in effect before the effective date of this
subtitle); and
``(B) shared in the risk of producing the tobacco.
``(16) Traditional tobacco county.--
``(A) In general.--The term `traditional tobacco
county' means a county in the United States that had 1
or more farms operated by traditional producers of
tobacco under a marketing quota for at least 1 of the
marketing years described in paragraph (15).
``(B) Inclusion.--For the purpose of determining
the crop acreage base of an active producer of tobacco
for a kind of tobacco produced in the State of Georgia
under section 380I(c)(3), the term `traditional tobacco
county' includes a county that is contiguous to a
county described in subparagraph (A).
``CHAPTER 1--PAYMENTS TO TOBACCO QUOTA HOLDERS AND TRADITIONAL
PRODUCERS
``SEC. 380B. TRANSITION PAYMENTS TO TOBACCO QUOTA HOLDERS.
``(a) In General.--The Secretary shall make transition payments to
each tobacco quota holder.
``(b) Tobacco Quota Holder.--
``(1) In general.--Except as otherwise provided in this
subsection, the Secretary shall consider a person to be a
tobacco quota holder under this section if the person held, as
of July 1, 2002, a basic quota or farm acreage allotment (as
applicable) for quota tobacco established for the 2002 tobacco
marketing year under a marketing quota program established
under part I of subtitle B (as in effect before the effective
date of this subtitle).
``(2) Effect of purchase contract.--If there was an
agreement for the purchase of all or part of a farm described
in paragraph (1) as of July 1, 2002, and the parties to the
sale are unable to agree to the disposition of eligibility for
payments under this section, the Secretary, taking into account
any transfer of quota that has been agreed to, shall provide
for the equitable division of the payments among the parties by
adjusting the determination of who is the tobacco quota holder
with respect to particular pounds of the quota.
``(3) Effect of agreement for permanent quota transfer.--If
the Secretary determines that there was in existence, as of
July 1, 2002, an agreement for the permanent transfer of quota,
but that the transfer was not completed by that date, the
Secretary shall consider the tobacco quota holder to be the
party to the agreement that, as of that date, was the owner of
the farm to which the quota was to be transferred.
``(4) Protected bases.--A person that owns a farm with a
tobacco poundage quota that is protected under a conservation
reserve program contract entered into under section 1231 of the
Food Security Act of 1985 (16 U.S.C. 3831) shall be considered
to be a tobacco quota holder with respect to the protected
poundage.
``(5) Quantity of quota held.--
``(A) In general.--A person shall be considered a
tobacco quota holder for purposes of this section only
with respect to that quantity of quota that qualifies
the person as a tobacco quota holder.
``(B) Included quota.--The determination of the
tobacco poundage amount for which the person qualifies
shall--
``(i) be based on the quantity of quota
held by person on January 1, 2004;
``(ii) subject to clause (iii), not be
greater than the quantity of quota held by the
person for the 2002 crop; and
``(iii) take into account--
``(I) sales of quota that occurred
during the period beginning July 1,
2002, and ending December 31, 2004; and
``(II) any transfers of quota that
took place after July 1, 2002.
``(c) Application.--
``(1) In general.--To be eligible to receive a payment
under this section, a person shall submit to the Secretary an
application containing such information as the Secretary may
require to demonstrate to the satisfaction of the Secretary
that the person is a tobacco quota holder.
``(2) Administration.--The application shall be submitted
within such time, in such form, and in such manner as the
Secretary may require.
``(d) Base Quota Level.--
``(1) In general.--The Secretary shall establish a base
quota level applicable to each tobacco quota holder, as
determined under this subsection.
``(2) Level.--The base quota level for each tobacco quota
holder shall be equal to the quantity of quota that qualifies a
person as the tobacco quota holder under subsection (b)(5).
``(e) Payment.--The Secretary shall make payments to each tobacco
quota holder under subsection (b) in an amount obtained by
multiplying--
``(1) 80 cents per pound for each of fiscal years 2004
through 2013; by
``(2) the base quota level established for the quota holder
under subsection (d).
``(f) Time for Payment.--Subject to section 380D(c), the payments
to tobacco quota holders required under this section shall be made by,
to the maximum extent practicable, the date that is 180 days after the
date of enactment of this subtitle and each November 1 thereafter.
``SEC. 380C. DIRECT PAYMENTS TO TRADITIONAL PRODUCERS OF TOBACCO.
``(a) In General.--The Secretary shall make direct payments under
this section to traditional producers of tobacco.
``(b) Eligibility.--
``(1) In general.--To be eligible to receive a payment
under this section, a person shall submit to the Secretary an
application containing such information as the Secretary may
require to demonstrate to the satisfaction of the Secretary
that the person is a traditional producer of tobacco.
``(2) Administration.--The application shall be submitted
within such time, in such form, and in such manner as the
Secretary may require.
``(c) Base Quota Level.--
``(1) In general.--The Secretary shall establish a base
quota level applicable to each traditional producer of tobacco,
as determined under this subsection.
``(2) Flue-cured and burley tobacco.--In the case of Flue-
cured tobacco (types 11, 12, 13, and 14) and Burley tobacco
(type 31), the base quota level for each tobacco quota holder
shall be equal to the effective tobacco marketing quota
(irrespective of disaster lease and transfers) under part I of
subtitle B (as in effect before the effective date of this
subtitle) for the 2002 marketing year for quota tobacco
produced on the farm.
``(3) Other kinds of tobacco.--In the case of each kind of
tobacco other than Flue-cured tobacco (types 11, 12, 13, and
14) and Burley tobacco (type 31), for the purpose of
calculating a payment to a traditional producer of tobacco, the
base quota level for the traditional producer of tobacco shall
be the quantity obtained by multiplying--
``(A) the basic tobacco farm acreage allotment for
the 2002 marketing year established by the Secretary
for quota tobacco produced on the farm; by
``(B) the actual yield of the crop of quota tobacco
produced on the farm.
``(d) Payment.--
``(1) In general.--Subject to paragraph (2), the Secretary
shall make payments to each traditional producer of tobacco, as
determined under subsection (b), in an amount obtained by
multiplying--
``(A) 40 cents per pound for each of fiscal years
2004 through 2013; by
``(B) the base quota level established for the
traditional producer of tobacco under subsection (c).
``(2) Payment rate.--The rate for payments to a traditional
producer of quota tobacco under paragraph (1)(A) shall be equal
to--
``(A) in the case of a person that produced quota
tobacco marketed, or considered planted, under a
marketing quota for all 3 of the 2000, 2001, and 2002
tobacco marketing years, the rate prescribed under
paragraph (1)(A) for the applicable fiscal year;
``(B) in the case of a person that produced quota
tobacco marketed, or considered planted, under a
marketing quota for not more than 2 of the 2000, 2001,
and 2002 tobacco marketing years, \2/3\ of the rate
prescribed under paragraph (1)(A) for the applicable
fiscal year; and
``(C) in the case of a person that produced quota
tobacco marketed, or considered planted, under a
marketing quota for not more than 1 of the 2000, 2001,
and 2002 tobacco marketing years, \1/3\ of the rate
prescribed under paragraph (1)(A) for the applicable
fiscal year.
``(e) Time for Payment.--Subject to section 380D(c), the payments
to traditional producers of tobacco required under this section shall
be made by, to the maximum extent practicable, the date that is 180
days after the date of enactment of this subtitle and each November 1
thereafter.
``SEC. 380D. ADMINISTRATION.
``(a) Resolution of Disputes.--
``(1) In general.--Any dispute regarding the eligibility of
a person to receive a payment under this subtitle, or the
amount of the payment, may be appealed to the county committee
established under section 8 of the Soil Conservation and
Domestic Allotment Act (16 U.S.C. 590h) for the county or other
area in which the farming operation of the person is located.
``(2) National appeals division.--Any adverse determination
of a county committee under subsection (a) may be appealed to
the National Appeals Division established under subtitle H of
the Department of Agriculture Reorganization Act of 1994 (7
U.S.C. 6991 et seq.).
``(b) Use of Qualified Financial Institutions.--The Secretary may
use qualified financial institutions to manage assets, make payments,
and otherwise carry out this subtitle.
``(c) Advanced Payments.--
``(1) In general.--The Secretary shall permit a tobacco
quota holder and a traditional producer of tobacco to elect to
receive advanced payments for 2 or more fiscal years under this
chapter by selecting 1 of 4 advance payment options established
by the Secretary, including a lump sum payment option.
``(2) Risk.--A tobacco quota holder or traditional producer
of tobacco that elects to receive accelerated payments shall
bear the expense of the discount in value for acceleration of
the payments.
``(3) Qualified financial institutions.--
``(A) In general.--The Secretary shall provide
advanced payments under this subsection through 1 or
more qualified financial institutions designated by the
Secretary.
``(B) Administration.--In providing advanced
payments under this subsection, a qualified financial
institution shall (in accordance with guidance issued
by the Secretary)--
``(i) offer the advanced payments
regardless of the location or size of the
payments;
``(ii) apply updated discount rates that
vary only by payment term; and
``(iii) distribute the advanced payments in
accordance with the option elected by the
tobacco quota holder or traditional producer of
tobacco.
``(4) County offices.--A county office of the Department
may receive applications and other documentation necessary to
receive advanced payments under this subsection, on behalf of
the Secretary and qualified financial institutions.
``(d) Treatment of Payments.--Payments received by a tobacco quota
holder or traditional producer of tobacco under this chapter shall be
considered received not earlier than the date the tobacco quota holder
or traditional producer of tobacco first receives the payments.
``CHAPTER 2--TOBACCO QUALITY AND QUANTITY
``SEC. 380G. TOBACCO QUALITY BOARD.
``(a) In General.--The Secretary shall establish a permanent
advisory board within the Department, to be known as the `Tobacco
Quality Board'.
``(b) Membership.--
``(1) In general.--The Tobacco Quality Board shall consist
of 13 members, of which--
``(A) 5 members shall be appointed by the Secretary
from nominations submitted by representatives of
tobacco producers in the United States, including at
least--
``(i) 1 representative of Flue-cured
tobacco producers;
``(ii) 1 representative of Burley tobacco
producers; and
``(iii) 1 representative of dark fire-cured
tobacco producers;
``(B) 5 members shall be appointed by the Secretary
from nominations submitted by representatives of
tobacco product manufacturers in the United States,
including at least--
``(i) 1 representative of smokeless tobacco
product manufacturers; and
``(ii) 1 representative of export dealers
of tobacco; and
``(C) 3 at-large members shall be appointed by the
Secretary, including at least 1 officer or employee of
the Department.
``(2) Chairperson.--The Secretary shall appoint the
chairperson of the Tobacco Quality Board, with a different
member serving as chairperson of the Tobacco Quality Board each
term.
``(3) Terms.--Each member of the Tobacco Quality Board
shall serve for 2-year terms, except that the terms of the
members first appointed to the Tobacco Quality Board shall be
staggered so as to establish a rotating membership of the
Tobacco Quality Board, as determined by the Secretary.
``(c) Duties.--The Tobacco Quality Board shall--
``(1) determine and describe the physical characteristics
of tobacco produced in the United States and unmanufactured
tobacco imported into the United States;
``(2) assemble and evaluate, in a systematic manner,
concerns and problems with the quality of tobacco produced in
the United States, expressed by domestic and foreign buyers and
manufacturers of tobacco products;
``(3) review data collected by Federal agencies on the
physical and chemical integrity of tobacco produced in the
United States and unmanufactured tobacco imported into the
United States, to ensure that tobacco being used in
domestically-manufactured tobacco products is of the highest
quality and is free from prohibited physical and chemical
agents;
``(4) investigate and communicate to the Secretary--
``(A) conditions with respect to the production of
tobacco that discourage improvements in the quality of
tobacco produced in the United States; and
``(B) recommendations for regulatory changes that
would address tobacco quality issues;
``(5) conduct oversight regarding tobacco marketing issues
(such as opening sales dates and marketing regulations)
applicable to auction markets;
``(6) provide assistance to Federal agencies on actions
taken by the Federal agencies that affect the quality or
quantity of tobacco produced in the United States;
``(7) not later than a date determined by the Secretary,
make recommendations to the Secretary, and the applicable
Production Board established for the kind of tobacco, on the
range of base years for the maximum crop acreage base under
section 380I(c)(3)(B), and for the maximum crop poundage base
under section 380I(d)(3)(B), for each crop of each kind of
tobacco, except that the range of base years shall be the crop
years for the 1998 through 2002 crops unless otherwise
determined by the Tobacco Quality Board; and
``(8) carry out such other related activities as are
assigned to the Tobacco Quality Board by the Secretary.
``(d) Administration.--The Secretary shall provide the Tobacco
Quality Board with (as determined by the Secretary)--
``(1) a staff that is--
``(A) experienced in the sampling and analysis of
unmanufactured tobacco; and
``(B) capable of collecting data and monitoring
tobacco production information; and
``(2) other resources and information necessary for the
Tobacco Quality Board to perform the duties of the Tobacco
Quality Board under this subtitle, including--
``(A) information concerning acreage devoted to the
production of each kind of tobacco; and
``(B) international information from the Foreign
Agricultural Service.
``(e) Applicability of Federal Advisory Committee Act.--The Federal
Advisory Committee Act (5 U.S.C. App.) shall not apply to the Tobacco
Quality Board.
``SEC. 380H. PRODUCTION BOARDS.
``(a) In General.--The Secretary shall establish a permanent
advisory board for each kind of tobacco, to be known as a `Production
Board'.
``(b) Membership.--
``(1) In general.--Subject to paragraph (2), a Production
Board for a kind of tobacco shall consist of--
``(A) not more than 10 members appointed by the
Secretary from nominations submitted by representatives
of producers of that kind of tobacco in the United
States; and
``(B) 1 officer or employee of the Department
appointed by the Secretary.
``(2) Allocation of membership.--In appointing members to a
Production Board established for a kind of tobacco, the number
of members appointed by the Secretary to represent each State
shall, to the maximum extent practicable, bear the same ratio
to the total number of members of the Production Board as--
``(A) the total volume of domestic sales of the
kind of tobacco produced in the State during the most
recent period for which data is available; bears to
``(B) the total volume of domestic sales of the
kind of tobacco produced in all States during the most
recent period for which data is available.
``(3) Chairperson.--The Secretary shall appoint the
chairperson of a Production Board, with a different member
serving as chairperson of the Production Board each term.
``(4) Terms.--Each member of a Production Board shall serve
for 2-year terms, except that the terms of the members first
appointed to the Production Board shall be staggered so as to
establish a rotating membership of the Production Board, as
determined by the Secretary.
``(c) Duties.--A Production Board established for a kind of tobacco
shall--
``(1) not later than a date determined by the Secretary,
make recommendations to the Secretary on the base year, within
the range of base years recommended by the Tobacco Quality
Board under section 380G(c)(7), for the maximum crop acreage
base under section 380I(c)(3)(B) for each crop of each kind of
tobacco; and
``(2) carry out such other related activities as are
assigned to the Production Board by the Secretary.
``(d) Administration.--The Secretary shall provide each Production
Board established for a kind of tobacco with (as determined by the
Secretary)--
``(1) a staff that is knowledgeable about production and
marketing of that kind of tobacco; and
``(2) other resources and information necessary for the
Production Board to perform the duties of the Production Board
under this subtitle, including information concerning acreage
devoted to the production of each kind of tobacco.
``(e) Applicability of Federal Advisory Committee Act.--The Federal
Advisory Committee Act (5 U.S.C. App.) shall not apply to a Production
Board.
``SEC. 380I. TOBACCO PRODUCTION LIMITATION PROGRAMS.
``(a) Definitions.--In this section:
``(1) Crop acreage base.--The term `crop acreage base'
means the crop acreage base for a kind of tobacco for a crop
for an active producer of tobacco, as determined by the
Secretary.
``(2) Crop poundage base.--The term `crop poundage base'
means the crop poundage base for a kind of tobacco for a crop
for an active producer of tobacco, as determined by the
Secretary.
``(3) Permitted acreage.--The term `permitted acreage'
means the number of acres that may be devoted to the production
of a kind of tobacco by an active producer of tobacco,
consistent with the annual acreage limitation program, as
determined by the Secretary.
``(4) Permitted poundage.--The term `permitted poundage'
means the number of pounds of a kind of tobacco for a crop may
be produced by an active tobacco producer, consistent with the
annual poundage limitation program, as determined by the
Secretary.
``(b) Establishment.--
``(1) In general.--The Secretary shall establish for each
crop of each kind of tobacco--
``(A) an acreage limitation program in accordance
with subsection (c); or
``(B) a poundage limitation in accordance with
subsection (d).
``(2) Consultation.--The Secretary shall carry out the
acreage limitation program and the poundage limitation program
for a kind of tobacco in consultation with the Tobacco Advisory
Board and the applicable Production Board established for that
kind of tobacco.
``(3) Supply.--In carrying out an acreage limitation
program or a poundage limitation program for a crop of a kind
of tobacco, the Secretary shall determine whether the total
supply of that kind of tobacco, in the absence of the
respective production limitation program, will be excessive,
taking into account the need for an adequate carryover to
maintain reasonable and stable supplies and prices.
``(4) Announcement.--
``(A) In general.--Except as provided in
subparagraph (B), the Secretary shall announce an
acreage limitation program or poundage limitation
program for each kind of tobacco not later than
December 15 of the calendar year preceding the year in
which the crop is harvested.
``(B) Special rule for 2004 crop.--In the case of
the 2004 crop for a kind of tobacco, the Secretary
shall announce an acreage limitation program or
poundage limitation for each kind of tobacco as soon as
practicable after the date of the enactment of the
Tobacco Market Transition Act of 2004.
``(c) Acreage Limitation Program.--
``(1) In general.--Under an acreage limitation program for
a crop of a kind of tobacco announced under subsection (b), the
limitation shall be achieved by applying a uniform percentage
reduction to the crop acreage base for the kind of tobacco for
the crop for active producers of that kind of tobacco in each
traditional tobacco county, as determined by the Secretary.
``(2) Crop acreage bases.--
``(A) In general.--The crop acreage base for an
active producer of tobacco for a crop of each kind of
tobacco shall equal the number of acres that is equal
to--
``(i) in the case of the 2004 crop year,
the average of the acreage planted and
considered planted by the active producer of
tobacco to the kind of tobacco for harvest in a
traditional tobacco county in each of the 5
crop years preceding the crop year, as
determined and adjusted by the Secretary (in
consultation with the Tobacco Quality Board and
the applicable Production Board); and
``(ii) in the case of each subsequent crop
year, the number of acres planted and
considered planted by the active producer of
tobacco to the kind of tobacco for harvest in a
traditional tobacco county in the preceding
crop year, as determined and adjusted by the
Secretary (in consultation with the Tobacco
Quality Board and the applicable Production
Board).
``(B) Maximum crop acreage bases.--
``(i) In general.--The total quantity of
acreage devoted to a kind of tobacco by active
producers of tobacco during a crop year shall
not exceed the total quantity of acreage
devoted to the kind of tobacco by active
producers during a crop year determined by the
Secretary.
``(ii) Adjustment.--If the active producers
of a kind of tobacco demonstrate to the
Secretary that the application of clause (i) to
a crop of a kind of tobacco will result in
unbalanced supply and demand conditions, the
Secretary may adjust the total quantity of
acreage that may be devoted to the kind of
tobacco by active producers during the crop
year.
``(C) Sale, lease, or transfer of crop acreage
bases.--An active producer of tobacco shall not sell,
lease, or transfer to another person a crop acreage
base established for the active producer of tobacco
under this paragraph.
``(D) Reallocation of unused crop acreage bases.--
``(i) County pool.--If an active producer
of tobacco with a crop acreage base for a kind
of tobacco elects not to use all or part of the
crop acreage base to continue to produce that
kind of tobacco, the unused crop acreage base
shall be placed in a pool established for the
traditional tobacco county for reallocation by
the Secretary to other producers of that kind
of tobacco in the traditional tobacco county
that request the crop acreage base.
``(ii) State pool.--If any crop acreage
base for a kind of tobacco remains after the
crop acreage base is made available to
producers of that kind of tobacco in the
traditional tobacco county in a State, the
unused crop acreage base shall be placed in a
pool established for the State for reallocation
by the Secretary to other producers of that
kind of tobacco in a traditional tobacco
county.
``(iii) New producers.--In reallocating
unused crop acreage bases for a kind of tobacco
in a traditional tobacco county made available
under each of clauses (i) and (ii), the
Secretary shall make available to any new
producers of that kind of tobacco in the
traditional tobacco county up to 10 percent of
the crop acreage bases available for
reallocation for the kind of tobacco in the
traditional tobacco county.
``(d) Poundage Limitation Program.--
``(1) In general.--Under a poundage limitation program for
a crop of a kind of tobacco, the Secretary shall achieve the
limitation by applying a uniform percentage adjustment to the
crop poundage base of an active producer of tobacco for the
kind of tobacco in each traditional tobacco county, as
determined by the Secretary.
``(2) Determination of crop poundage bases.--
``(A) 2004 crop year.--The crop poundage base for
an active tobacco producer for the 2004 crop of a kind
of tobacco shall equal the average of the number of
pounds of that kind of tobacco harvested by the active
tobacco producer in a traditional tobacco county and
marketed in each of the 5 crop years preceding the crop
year, as determined by the Secretary.
``(B) Subsequent crop years.--In the case of the
2005 and subsequent crops of each kind of tobacco, the
crop poundage base for an active tobacco producer of a
kind of tobacco shall equal the number of pounds of
that kind of tobacco harvested by the active tobacco
producer in a traditional tobacco county and marketed
in the preceding crop year, as determined and adjusted
by the Secretary.
``(3) Maximum crop poundage bases.--
``(A) In general.--The total number of pounds
devoted to a kind of tobacco by active tobacco
producers during a crop year shall not exceed the total
number of pounds devoted to the kind of tobacco by
active tobacco producers during a crop year determined
by the Secretary.
``(B) Adjustment.--If the active tobacco producers
of a kind of tobacco demonstrate to the Secretary that
the application of paragraph (1) to a crop of a kind of
tobacco will result in unbalanced supply and demand
conditions, the Secretary may adjust the total number
of pounds that may be devoted to the kind of tobacco by
active tobacco producers during the crop year.
``(4) Sale, lease, or transfer of crop poundage bases.--
``(A) Prohibition.--An active producer of tobacco
shall not directly or indirectly sell, lease, or
transfer to another person or other legal entity a crop
poundage base established for an active tobacco
producer under this subsection.
``(B) Exception.--If the crop poundage base of an
active producer of tobacco for a type of tobacco covers
tobacco that was produced by the producer in more than
1 traditional tobacco county, the producer may elect to
consolidate the base in a single traditional tobacco
county in which the producer bore or shared in the risk
of producing a crop of that kind of tobacco for the
2002 crop year.
``(5) Reallocation of unused crop poundage bases.--
``(A) County pool.--If an active producer of
tobacco with a crop poundage base for a kind of tobacco
elects not to use all or part of the crop poundage
base, the unused crop poundage base shall be placed in
a pool established for the traditional tobacco county
where the unused crop poundage base was originally
located for reallocation by the Secretary to other
active producers of tobacco of that kind of tobacco in
the traditional tobacco county, in a manner determined
by the Secretary.
``(B) State pool.--If any crop poundage base for a
kind of tobacco remains after the crop poundage base is
made available to producers of that kind of tobacco in
the traditional tobacco county in a State under
subparagraph (A), the unused crop poundage base shall
be placed in a pool established for the State for
reallocation by the Secretary to other producers of
that kind of tobacco in traditional tobacco counties,
in a manner determined by the Secretary.
``(C) Traditional growing area pool.--If any crop
poundage base for a kind of tobacco remains after the
crop poundage base is made available to producers of
that kind of tobacco under subparagraphs (A) and (B),
the unused crop poundage base shall be placed in a pool
established for reallocation by the Secretary to other
producers of that kind of tobacco in a traditional
tobacco county for that kind of tobacco.
``(D) New producers.--In reallocating unused crop
poundage bases for a kind of tobacco in a traditional
tobacco county made available under any of
subparagraphs (A) through (C), the Secretary shall make
available to any new producers of that kind of tobacco
in the traditional tobacco county up to 10 percent of
the crop poundage bases available for reallocation for
the kind of tobacco in the traditional tobacco county.
``(e) Compliance.--
``(1) Loans, purchases, or payments.--An active producer of
tobacco that knowingly produces a kind of tobacco in excess of
the permitted acreage or permitted poundage, as applicable, for
the kind of tobacco, or violates any lease or transfer
requirements of this section, shall be ineligible for any
loans, purchases, or payments for that crop of the kind of
tobacco.
``(2) No carryover.--An active producer of tobacco may not
carry over permitted poundage or permitted acreage, as
applicable, for a crop of a kind of tobacco, that is not
produced by the producer, for production in a subsequent crop
year.
``(3) Penalties.--
``(A) Criminal penalty.--An active producer of
tobacco that violates paragraph (1) shall be fined not
more than $100,000 or imprisoned not more than 2 years,
or both.
``(B) Civil penalty.--An active producer of tobacco
that violates paragraph (2) shall be subject to a civil
penalty in an amount not to exceed 2 percent of the
value of the kind of tobacco produced by the producer
during the applicable crop year, as determined by the
Secretary.
``(C) Additional penalties.--A civil penalty under
subparagraph (B) for a violation shall be in addition
to any criminal penalty under subparagraph (A) for the
violation.
``(D) Jurisdiction to prevent and restrain
violations.--A United States district court shall have
jurisdiction to prevent and restrain an active producer
of tobacco from producing a kind of tobacco in excess
of the permitted acreage for the kind of tobacco.
``(4) Compliance with conservation and agricultural
requirements.--As a condition of the establishment of a crop
acreage base or crop poundage base, as applicable, for active
producers of tobacco for a crop of a kind of tobacco, the
active producers of tobacco shall agree, during the crop year
for which the crop acreage base or crop poundage base is
established--
``(A) to comply with applicable conservation
requirements under subtitle B of title XII of the Food
Security Act of 1985 (16 U.S.C. 3811 et seq.);
``(B) to comply with applicable wetland protection
requirements under subtitle C of title XII of the Act
(16 U.S.C. 3821 et seq.);
``(C) to use the land of the active producer of
tobacco, in a quantity equal to the crop acreage base
for an agricultural or conserving use, and not for a
nonagricultural commercial or industrial use, as
determined by the Secretary; and
``(D) to effectively control noxious weeds and
otherwise maintain the land in accordance with sound
agricultural practices, as determined by the Secretary,
if the agricultural or conserving use involves the
noncultivation of any portion of the land referred to
in subparagraph (C).
``CHAPTER 3--TOBACCO COMMUNITY ECONOMIC DEVELOPMENT GRANTS
``SEC. 380O. TOBACCO COMMUNITY ECONOMIC DEVELOPMENT GRANTS.
``(a) In General.--The Secretary shall make grants to eligible
States in accordance with this section to pay the cost of carrying out
economic development initiatives in impacted communities.
``(b) Application.--To be eligible to receive payments under this
section, an eligible State shall prepare and submit to the Secretary an
application at such time, in such manner, and containing such
information as the Secretary may require, including--
``(1) a description of the activities that the eligible
State will carry out using amounts received under the grant;
and
``(2) a description of the State department of agriculture
that will administer amounts received under the grant.
``(c) Amount of Grant.--From the amounts available to carry out
this section, the Secretary shall allot--
``(1) $20,000,000 to the State of Maryland;
``(2) $14,000,000 to the State of Pennsylvania;
``(3) $50,000,000 to the State of South Carolina; and
``(4) $50,000,000 to the State of North Carolina.
``(d) Payments.--An eligible State that has an application approved
by the Secretary under subsection (b) shall be entitled to a payment
under this section, in 5 equal installments, in an amount that is equal
to its allotment under subsection (c).
``(e) Use of Funds.--Amounts received by an eligible State under
this section shall be used to carry out economic development activities
in impacted communities of the eligible State, as determined by the
eligible State.
``(f) Termination Date.--The authority provided by this section
terminates on September 30, 2008.
``CHAPTER 4--COMPETITIVE GRANTS FOR TOBACCO RESEARCH
``SEC. 380Q. COMPETITIVE GRANTS FOR TOBACCO RESEARCH.
``(a) In General.--Notwithstanding any other provision of law, the
Secretary shall make competitive grants under section 406 of the
Agricultural Research, Extension, and Education Reform Act of 1998 (7
U.S.C. 7626) to colleges and universities located in eligible States to
conduct research--
``(1) to assist tobacco producers to diversify crops or
implement other means to reduce or eliminate the reliance of
the producers on the production of tobacco or to promote
alternative uses of tobacco or enhance the quality of tobacco
produced in the United States; and
``(2) to foster and facilitate development, evaluation, and
implementation of economically viable new agricultural
technologies and enterprises for rural communities.
``(b) Grant Distribution.--In making grants under this section, the
Secretary shall provide for an equitable distribution of the grants
based on the volume of each kind of tobacco that is produced in each
eligible State, as determined by the Secretary
``(c) Termination Date.--The authority provided by this section
terminates on September 30, 2008.
``CHAPTER 5--FUNDING
``SEC. 380S. TOBACCO TRUST FUND.
``(a) Establishment.--There is established in the Commodity Credit
Corporation a revolving trust fund to be used in carrying out this
subtitle (referred to in this section as the `Fund'), consisting of--
``(1) such amounts as are deposited in the Fund under
subsection (b);
``(2) such amounts as are necessary from the Commodity
Credit Corporation; and
``(3) any interest earned on investment of amounts in the
Fund under subsection (d).
``(b) Deposits.--Revenues from assessments collected under section
380T shall be deposited in the Fund.
``(c) Expenditures.--
``(1) In general.--Subject to paragraphs (2) and (3) and
notwithstanding any other provision of law, in addition to any
other funds that may be available, the Secretary may use from
the Fund such amounts as the Secretary determines are
necessary--
``(A) to make payments to tobacco quota holders and
traditional producers under chapter 1;
``(B) to pay necessary expenses of the Tobacco
Quality Board and Production Boards and to carry out
the acreage limitation program under chapter 2;
``(C) to make tobacco community economic
development grants under chapter 3, in an amount equal
to $16,800,000 for each of fiscal years 2004 through
2008;
``(D) to make competitive grants for tobacco
research under chapter 4, in an amount equal to
$12,000,000 for each of fiscal years 2004 through 2008;
``(E) to make grants to each association that has
entered into a loan agreement with the Commodity Credit
Corporation under section 106A or 106B of the
Agricultural Act of 1949 (7 U.S.C. 1445-1, 1445-2) (as
in effect before the effective date of this subtitle)
to assist the association to transition to alternative
methods of marketing tobacco in accordance with a plan
approved by the Secretary, with the grants allocated on
the basis of the proportion of tobacco marketed by each
association, in an amount not to exceed $1,000,000 for
each association for each kind of tobacco for each of
fiscal years 2004 through 2008;
``(F) to make payments to appropriate tobacco
warehouse associations, as determined by the Secretary,
in an amount not to exceed $500,000 for each of fiscal
years 2004 through 2008;
``(G) to pay administrative costs incurred by the
Secretary in carrying out this subtitle; and
``(H) to reimburse the Commodity Credit Corporation
for costs incurred by the Commodity Credit Corporation
under paragraph (2).
``(2) Expenditures by commodity credit corporation.--
``(A) In general.--Subject to subparagraph (B) and
notwithstanding any other provision of law, the
Secretary shall use funds of the Commodity Credit
Corporation to make payments under paragraph (1).
``(B) Reimbursement to commodity credit
corporation.--Not later than January 1, 2013, the
Commodity Credit Corporation shall be reimbursed in
full, with interest, for all funds of the Commodity
Credit Corporation expended under subparagraph (A).
``(3) Administrative expenses.--
``(A) In general.--An amount not to exceed
$20,000,000 for each fiscal year of the amounts in the
Fund shall be available to pay the administrative
expenses necessary to carry out this subtitle.
``(B) Termination date.--The authority provided by
this paragraph terminates on September 30, 2013.
``(d) Investment of Amounts.--
``(1) In general.--The Commodity Credit Corporation shall
invest such portion of the Fund as is not, in the judgment of
the Commodity Credit Corporation, required to meet current
withdrawals.
``(2) Interest-bearing obligations.--Investments may be
made only in interest-bearing obligations of the United States.
``(3) Acquisition of obligations.--For the purpose of
investments under paragraph (1), obligations may be acquired--
``(A) on original issue at the issue price; or
``(B) by purchase of outstanding obligations at the
market price.
``(4) Sale of obligations.--Any obligation acquired by the
Fund may be sold by the Commodity Credit Corporation at the
market price.
``(5) Credits to fund.--The interest on, and the proceeds
from the sale or redemption of, any obligations held in the
Fund shall be credited to and form a part of the Fund.
``(e) Administration.--In administering the Fund, the Secretary
shall make payments, reimburse agencies of the Department, and accept
deposits without regard to limitations on total amounts of allotments
and fund transfers under section 11 of the Commodity Credit Corporation
Charter Act (15 U.S.C. 714i).
``SEC. 380T. ASSESSMENTS.
``(a) Definition of Gross Domestic Volume.--In this section, the
term `gross domestic volume' means the volume of tobacco products--
``(1) removed (as defined by section 5702 of the Internal
Revenue Code of 1986); and
``(2) not exempt from tax under chapter 52 of the Internal
Revenue Code of 1986 at the time of their removal under that
chapter or the Harmonized Tariff Schedule of the United States
(19 U.S.C. 1202).
``(b) Assessments.--The Secretary, acting through the Commodity
Credit Corporation, shall impose quarterly assessments, calculated in
accordance with this section, on each tobacco product manufacturer and
tobacco product importer that sells tobacco products in domestic
commerce in the United States.
``(c) Tobacco Trust Fund.--Assessments collected under this section
shall be deposited in the Tobacco Trust Fund.
``(d) Assessment for Each Class of Tobacco Product.--
``(1) Allocation by class of tobacco products.--The
percentage of the total amount to be assessed against, and paid
by, the manufacturers and importers of each class of tobacco
product in each applicable fiscal year shall be--
``(A) for cigarette manufacturers and importers,
99.409 percent;
``(B) for snuff manufacturers and importers, 0.428
percent;
``(C) for chewing tobacco manufacturers and
importers, 0.098 percent;
``(D) for pipe tobacco manufacturers and importers,
0.021 percent; and
``(E) for roll-your-own tobacco manufacturers and
importers, 0.044 percent.
``(2) Adjustment.--The Secretary shall adjust the
percentage of the total amount to be assessed against, as
determined under paragraph (1), and paid by, the manufacturers
and importers of each class of tobacco product in each
applicable fiscal year by multiplying the percentage of the
total amount to be assessed, as determined under paragraph (1),
by a fraction--
``(A) the numerator of which is the total volume of
domestic sales of that class of tobacco product during
the preceding applicable fiscal year; and
``(B) the denominator of which is the total volume
of domestic sales of that class of tobacco product
during fiscal year 2003.
``(3) Total assessment.--
``(A) In general.--The total amount to be assessed
against all manufacturers and importers of all classes
of tobacco product in each applicable fiscal year shall
be equal to the amount required to carry out this
subtitle during the applicable fiscal year, as
determined by the Secretary.
``(B) Additional amount.--
``(i) In general.--If the amount to be
assessed after the application of paragraphs
(1) and (2) is insufficient to carry out this
subtitle during the applicable fiscal year, the
Secretary may assess such additional amount as
the Secretary determines to be necessary to
carry out this subtitle during the applicable
fiscal year.
``(ii) Allocation.--The additional amount
shall be allocated to the manufacturers and
importers of each class of tobacco product in
the same manner and based on the same
percentages applied in determining the total
amount to be assessed under paragraph (1), as
adjusted under paragraph (2) during the
applicable fiscal year.
``(4) Notification of assessments.--
``(A) In general.--The Secretary shall notify all
manufacturers and importers of tobacco products of the
amount of the assessment for each quarterly payment
period.
``(B) Contents.--The notice for a quarterly payment
period shall describe gross domestic sales and market
shares for the quarterly payment period and conform
with the requirements of subsection (i).
``(5) Timing of assessment payments.--
``(A) In general.--Assessments shall be collected
at the end of each calendar year quarter.
``(B) Base period quarter.--The assessment for a
calendar year quarter shall correspond to the base
period quarter that ended at the end of the preceding
calendar year quarter.
``(C) Amounts.--Subject to subparagraph (D),
beginning with the calendar quarter ending on December
31 of each applicable fiscal year, the payments over 4
calendar quarters shall be sufficient to cover--
``(i) the payments required under chapter 1
on November 1 of that same applicable fiscal
year; and
``(ii) other expenditures from the Tobacco
Trust Fund required under section 380S during
the base quarter periods corresponding to those
4 calendar quarters.
``(D) Special rule.--In the case of payments
required under chapter 1 that are due on September 30,
2004, the assessments shall be paid on that same date
and correspond to the first base period of 6 months.
``(e) Allocation of Assessment Within Each Class of Tobacco
Product.--
``(1) In general.--The assessment for each class of tobacco
product shall be allocated on a pro rata basis among
manufacturers and importers based on each manufacturer's or
importer's share of gross domestic volume.
``(2) Limitation.--No manufacturer or importer shall be
required to pay an assessment that is based on a share that is
in excess of the manufacturer's or importer's share of domestic
volume.
``(f) Allocation of Total Assessments by Market Share.--The amount
of the assessment for each class of tobacco product to be paid by each
manufacturer or importer of the class of tobacco product under
subsection (b) shall be determined for each quarterly payment period by
multiplying--
``(1) the market share of the manufacturer or importer, as
calculated with respect to that payment period, of the class of
tobacco product; by
``(2) the total amount of the assessment for that quarterly
payment period under subsection (d), for the class of tobacco
product.
``(g) Determination of Volume of Domestic Sales.--
``(1) In general.--The calculation of the volume of
domestic sales of a class of tobacco product by a manufacturer
or importer, and by all manufacturers and importers as a group,
shall be made by the Secretary based on information provided by
the manufacturers and importers pursuant to subsection (h), as
well as any other relevant information provided to or obtained
by the Secretary.
``(2) Gross domestic volume.--The volume of domestic sales
shall be calculated based on gross domestic volume.
``(3) Measurement.--For purposes of the calculations under
this subsection and the certifications under subsection (h) by
the Secretary, the volumes of domestic sales shall be measured
by--
``(A) in the case of cigarettes, the numbers of
cigarettes; and
``(B) in the case of other classes of tobacco
products, in terms of number of pounds, or fraction
thereof, of those products.
``(h) Measurement of Volume of Domestic Sales.--
``(1) In general.--Each manufacturer and importer of
tobacco products shall submit to the Secretary a certified copy
of each of the returns or forms described by paragraph (2) that
are required to be filed with a Federal Government agency on
the same date that those returns or forms are filed, or
required to be filed, with the agency.
``(2) Returns and forms.--The returns and forms described
by this paragraph are those returns and forms that relate to--
``(A) the removal of tobacco products into domestic
commerce (as defined by section 5702 of the Internal
Revenue Code of 1986); and
``(B) the payment of the taxes imposed under
charter 52 of the Internal Revenue Code of 1986,
including AFT Form 5000.24 and United States Customs
Form 7501 under currently applicable regulations.
``(3) Penalties.--
``(A) In general.--Any person that knowingly fails
to provide information required under this subsection
or that provides false information under this
subsection shall be subject to the penalties described
in section 1003 of title 18, United States Code.
``(B) Additional civil penalty.--In addition, the
Secretary may assess against the person a civil penalty
in an amount not to exceed 2 percent of the value of
the kind of tobacco products manufactured or imported
by the person during the applicable fiscal year, as
determined by the Secretary.
``(i) Assessment Notification; Content.--
``(1) In general.--The Secretary shall provide each
manufacturer or importer subject to an assessment under
subsection (b) with written notice setting forth the amount to
be assessed against the manufacturer or importer for the
applicable quarterly period.
``(2) Deadline.--The notice for a quarterly period shall be
provided not later than 30 days before the date payment is due
under subsection (d)(5).
``(3) Contents.--The notice shall include the following
information with respect to the quarterly period used by the
Secretary in calculating the amount:
``(A) The total combined assessment for all
manufacturers and importers of tobacco products.
``(B) The total assessment with respect to the
class of tobacco products manufactured or imported by
the manufacturer or importer.
``(C) Any adjustments to the percentage allocations
among the classes of tobacco products made pursuant to
subsection (d)(2).
``(D) The volume of gross sales of the applicable
class of tobacco product treated as made by the
manufacturer or importer for purposes of calculating
the manufacturer's or importer's market share under
subsection (f).
``(E) The total volume of gross sales of the
applicable class of tobacco product that the Secretary
treated as made by all manufacturers and importers for
purposes of calculating the manufacturer's or
importer's market share under subsection (f).
``(F) The manufacturer's or importer's market share
of the applicable class of tobacco product as
determined by the Secretary under subsection (f).
``(G) The market share, as determined by the
Secretary under subsection (f), of each other
manufacturer and importer, for each applicable class of
tobacco product.
``(j) Challenge to Assessment.--
``(1) Appeal to secretary.--A manufacturer or importer
subject to this section may contest an assessment imposed on
the person under this section by notifying the Secretary not
later than 10 business days after receiving the assessment
notification required by subsection (i).
``(2) Escrow.--The manufacturer and importer may place into
escrow, in accordance with rules promulgated by the Secretary,
only the portion of the assessment being challenged in good
faith pending final determination of the assessment under this
subsection.
``(3) Information.--The Secretary shall by regulation
establish a procedure under which a person contesting an
assessment under this subsection may present information to the
Secretary to demonstrate that the assessment is incorrect,
including information to demonstrate the following:
``(A) The total combined assessment imposed by the
Secretary on all manufacturers and importers is
excessive.
``(B) The Secretary's allocation of the total
assessment among the classes of tobacco products is
incorrect.
``(C) The total volume of gross domestic sales of
all manufacturers and importers of the relevant class
of tobacco product calculated by the Secretary under
subsection (f) is incorrect.
``(D) The level of gross domestic sales attributed
to the person by the Secretary for purposes of
calculating the person's market share under subsection
(f) exceeds the person's actual domestic sales of that
class of tobacco product.
``(E) The amount of the assessment attributed to
the person by the Secretary exceeds the person's pro
rata share based on the person's share of gross
domestic sales.
``(4) Challenge.--
``(A) In general.--In challenging an assessment
under this subsection, the manufacturer or importer may
use any information that is available, including third
party data on industry or individual company sales
volumes.
``(B) Incorrect determination.--The information may
constitute evidence sufficient to establish that the
Secretary's initial determination was incorrect, in
which event the assessment shall be revised so that the
manufacturer or importer is required only to pay the
amount correctly determined.
``(5) Time for review.--Not later than 30 days after
receiving notice from a manufacturer or importer under
paragraph (2), the Secretary shall--
``(A) decide whether the information provided to
the Secretary pursuant to that paragraph, and any other
information that the Secretary determines, is
appropriate is sufficient to establish that the
original assessment was incorrect; and
``(B) make any revisions necessary to ensure that
each manufacturer and importer pays only its correct
pro rata share of total gross domestic volume from all
sources.
``(6) Immediate payment of undisputed amounts.--The
regulations promulgated by the Secretary under paragraph (2)
shall provide for the immediate payment by a manufacturer or
importer challenging an assessment of that portion of the
assessment that is not in dispute.
``(7) Judicial review.--
``(A) In general.--Any manufacturer or importer
aggrieved by a determination of the Secretary with
respect to the amount of any assessment may seek review
of the determination in the United States District
Court for the District of Columbia or for the district
in which the manufacturer or importer resides or has
its principal place of business at any time following
exhaustion of the administrative remedies under this
subsection.
``(B) Time limits.--Administrative remedies shall
be deemed exhausted if no decision by the Secretary is
made within the time limits established under paragraph
(5).
``(C) Excessive assessments.--The court shall
restrain collection of the excessive portion of any
assessment or order a refund of excessive assessments
already paid, along with interest calculated at the
rate prescribed in section 3717 of title 31, United
States Code, if it finds that the Secretary's
determination is not supported by a preponderance of
the information available to the Secretary.
``(8) Regulations.--Not later than 180 days after the date
of enactment of this subtitle, the Secretary shall promulgate
regulations to implement this subsection (in accordance with
section 301 of the Tobacco Market Transition Act of 2004).
``(k) Use of Qualified Financial Institutions.--The Secretary may
use qualified financial institutions to manage assets, make payments,
and otherwise carry out this subtitle.
``(l) Termination Date.--The authority provided by this section
terminates on September 30, 2013.
``SEC. 380U. COMMODITY CREDIT CORPORATION.
The Secretary shall use the funds, facilities, and authorities of
the Commodity Credit Corporation to carry out this subtitle, to remain
available until expended.
``SEC. 380V. TRANSITION PROVISIONS.
``(a) Tobacco Stocks.--
``(1) In general.--To provide for the orderly disposition
of quota tobacco held by an association that has entered into a
loan agreement with the Commodity Credit Corporation under
section 106A or 106B of the Agricultural Act of 1949 (7 U.S.C.
1445-1, 1445-2) (referred to in this section as an
`association'), loan pool stocks for each kind of tobacco held
by the association shall be disposed of in accordance with this
subsection.
``(2) Associations.--For each kind of tobacco held by an
association, the proportion of loan pool stocks for each kind
of tobacco held by the association that shall be transferred to
the association shall be equal to--
``(A) the amount of funds held by the association
in the No Net Cost Tobacco Fund and the No Net Cost
Tobacco Account established under sections 106A and
106B of the Agricultural Act of 1949 (7 U.S.C. 1445-1,
1445-2), respectively, for the kind of tobacco; divided
by
``(B) the average list price per pound for the kind
of tobacco, as determined by the Secretary.
``(3) Commodity credit corporation.--Any loan pool stocks
of a kind of tobacco of an association that are not disposed of
in accordance with paragraph (2) shall be--
``(A) transferred by the association to the
Commodity Credit Corporation; and
``(B) disposed of in a manner determined by the
Secretary.
``(b) No Net Cost Funds.--
``(1) In general.--Any funds in the No Net Cost Tobacco
Fund or the No Net Cost Tobacco Account of an association
established under sections 106A and 106B of the Agricultural
Act of 1949 (7 U.S.C. 1445-1, 1445-2), respectively, that
remain after the application of subsection (a) and sections
106A and 106B of the Agricultural Act of 1949 (7 U.S.C. 1445,
1445-1) (as in effect before the effective date of this
subtitle) shall be transferred to the association for
distribution to traditional producers of tobacco in accordance
with a plan approved by the Secretary.
``(2) Associations with no loan pool stocks.--In the case
of an association that does not hold any loan pool stocks that
are covered by subsection (a)(2), any funds in the No Net Cost
Tobacco Fund or the No Net Cost Tobacco Account of the
association established under sections 106A and 106B of the
Agricultural Act of 1949 (7 U.S.C. 1445-1, 1445-2),
respectively, shall be transferred to the association for
distribution to traditional producers of tobacco in accordance
with a plan approved by the Secretary.
``(c) Reimbursement to Commodity Credit Corporation.--There shall
be transferred from the Tobacco Trust Fund to each No Net Cost Tobacco
Fund or the No Net Cost Tobacco Account of an association established
under sections 106A and 106B of the Agricultural Act of 1949 (7 U.S.C.
1445-1, 1445-2), respectively, such amounts as the Secretary determines
will be adequate to reimburse the Commodity Credit Corporation for any
net losses that the Corporation may sustain under its loan agreements
with the association.''.
SEC. 1152. TOBACCO INSURANCE RESEARCH AND DEVELOPMENT.
(a) In General.--Section 522(b)(1) of the Federal Crop Insurance
Act (7 U.S.C. 1522(b)(1)) is amended--
(1) by redesignating subparagraphs (A) and (B) as clauses
(i) and (ii), respectively, and indenting appropriately;
(2) by striking ``The Corporation'' and inserting the
following--
``(A) In general.--The''; and
(3) by adding at the end the following:
``(B) Tobacco research and development.--Subject to
the availability of funds under subsection (e)(5), the
Corporation shall provide a payment to reimburse an
applicant for research and development costs directly
related to a policy that is--
``(i) submitted to the Board and approved
by the Board under section 508(h) for
reinsurance;
``(ii) if applicable, offered for sale to
producers; and
``(iii) addresses risk in the production of
tobacco.''.
(b) Assessments.--Section 522(e) of the Federal Crop Insurance Act
(7 U.S.C. 1522(e)) is amended by adding at the end the following:
``(5) Tobacco assessment.--
``(A) In general.--Effective for each marketing
year for a kind of tobacco for which a commodity-
specific plan of insurance is offered under this Act,
subject to subparagraphs (B) through (D), each producer
and purchaser of that kind of tobacco shall remit to
the Insurance Fund established under section 516(c) a
nonrefundable marketing assessment in an amount
determined by the Secretary pursuant to subparagraphs
(B) and (C).
``(B) Total amount.--The total amount of producer
and purchaser assessments for a kind of tobacco
collected under this paragraph shall be equal to the
amount that is necessary to carry out subsection
(b)(1)(B).
``(C) Administration.--Producer and purchaser
assessments for a kind of tobacco under this
paragraph--
``(ii) shall be determined in such a manner
that producers and purchasers share equally, to
the maximum extent practicable, in paying
assessments required under this paragraph; and
``(ii) shall not exceed 5 cents per pound.
``(D) Termination.--Effective beginning with the
2010 crop of each kind of tobacco, the Secretary may
terminate the collection of assessments for that kind
of tobacco if the Secretary determines that further
research and development under subsection (b)(1)(B)
would not be productive.''.
(c) Insurance Fund.--Section 516(c)(1) of the Federal Crop
Insurance Act (7 U.S.C. 1516(c)(1)) is amended by inserting
``assessments for tobacco research made available under section
522(e)(5),'' after ``under subsection (a)(2),''.
SEC. 1153. CONFORMING AMENDMENTS.
Section 320B(c)(1) of the Agricultural Adjustment Act of 1938 (7
U.S.C. 1314h(c)(1)) is amended--
(1) by inserting ``(A)'' after ``(1)'';
(2) by striking ``by'' at the end and inserting ``or''; and
(3) by adding at the end the following:
``(B) in the case of the 2003 marketing year, the price
support rate for the kind of tobacco involved in effect under
section 106 of the Agricultural Act of 1949 (7 U.S.C. 1445) at
the time of the violation; by''.
CHAPTER 3--IMPLEMENTATION
SEC. 1161. REGULATIONS.
(a) In General.--The Secretary of Agriculture may promulgate such
regulations as are necessary to implement this subtitle and the
amendments made by this subtitle.
(b) Procedure.--The promulgation of the regulations and
administration of this subtitle and the amendments made by this
subtitle shall be made without regard to--
(1) the notice and comment provisions of section 553 of
title 5, United States Code;
(2) the Statement of Policy of the Secretary of Agriculture
effective July 24, 1971 (36 Fed. Reg. 13804), relating to
notices of proposed rulemaking and public participation in
rulemaking; and
(3) chapter 35 of title 44, United States Code (commonly
known as the ``Paperwork Reduction Act'').
(c) Congressional Review of Agency Rulemaking.--In carrying out
this section, the Secretary shall use the authority provided under
section 808 of title 5, United States Code.
SEC. 1162. EFFECTIVE DATE.
This subtitle and the amendments made by this subtitle shall apply
to the 2004 and subsequent crops of each kind of tobacco.
Attest:
Secretary.
108th CONGRESS
2d Session
H. R. 4520
_______________________________________________________________________
AMENDMENT