[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4520 Engrossed in House (EH)]
2d Session
H. R. 4520
_______________________________________________________________________
AN ACT
To amend the Internal Revenue Code of 1986 to remove impediments in
such Code and make our manufacturing, service, and high-technology
businesses and workers more competitive and productive both at home and
abroad.
108th CONGRESS
2d Session
H. R. 4520
_______________________________________________________________________
AN ACT
To amend the Internal Revenue Code of 1986 to remove impediments in
such Code and make our manufacturing, service, and high-technology
businesses and workers more competitive and productive both at home and
abroad.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``American Jobs
Creation Act of 2004''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; etc.
TITLE I--END SANCTIONS AND REDUCE CORPORATE TAX RATES FOR DOMESTIC
MANUFACTURING AND SMALL CORPORATIONS
Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Reduced corporate income tax rate for domestic production
activities income.
Sec. 103. Reduced corporate income tax rate for small corporations.
TITLE II--JOB CREATION TAX INCENTIVES FOR MANUFACTURERS, SMALL
BUSINESSES, AND FARMERS
Subtitle A--Small Business Expensing
Sec. 201. 2-year extension of increased expensing for small business.
Subtitle B--Depreciation
Sec. 211. Recovery period for depreciation of certain leasehold
improvements and restaurant property.
Sec. 212. Modification of depreciation allowance for aircraft.
Sec. 213. Modification of placed in service rule for bonus depreciation
property.
Subtitle C--S Corporation Reform and Simplification
Sec. 221. Members of family treated as 1 shareholder.
Sec. 222. Increase in number of eligible shareholders to 100.
Sec. 223. Expansion of bank S corporation eligible shareholders to
include IRAs.
Sec. 224. Disregard of unexercised powers of appointment in determining
potential current beneficiaries of ESBT.
Sec. 225. Transfer of suspended losses incident to divorce, etc.
Sec. 226. Use of passive activity loss and at-risk amounts by qualified
subchapter S trust income beneficiaries.
Sec. 227. Exclusion of investment securities income from passive income
test for bank S corporations.
Sec. 228. Treatment of bank director shares.
Sec. 229. Relief from inadvertently invalid qualified subchapter S
subsidiary elections and terminations.
Sec. 230. Information returns for qualified subchapter S subsidiaries.
Sec. 231. Repayment of loans for qualifying employer securities.
Subtitle D--Alternative Minimum Tax Relief
Sec. 241. Foreign tax credit under alternative minimum tax.
Sec. 242. Expansion of exemption from alternative minimum tax for small
corporations.
Sec. 243. Income averaging for farmers not to increase alternative
minimum tax.
Subtitle E--Restructuring of Incentives for Alcohol Fuels, Etc.
Sec. 251. Reduced rates of tax on gasohol replaced with excise tax
credit; repeal of other alcohol-based fuel
incentives; etc.
Sec. 252. Alcohol fuel subsidies borne by general fund.
Subtitle F--Stock Options and Employee Stock Purchase Plan Stock
Options
Sec. 261. Exclusion of incentive stock options and employee stock
purchase plan stock options from wages.
Subtitle G--Incentives to Reinvest Foreign Earnings in United States
Sec. 271. Incentives to reinvest foreign earnings in United States.
Subtitle H--Other Incentive Provisions
Sec. 281. Special rules for livestock sold on account of weather-
related conditions.
Sec. 282. Payment of dividends on stock of cooperatives without
reducing patronage dividends.
Sec. 283. Capital gain treatment under section 631(b) to apply to
outright sales by landowners.
Sec. 284. Distributions from publicly traded partnerships treated as
qualifying income of regulated investment
companies.
Sec. 285. Improvements related to real estate investment trusts.
Sec. 286. Treatment of certain dividends of regulated investment
companies.
Sec. 287. Taxation of certain settlement funds.
Sec. 288. Expansion of human clinical trials qualifying for orphan drug
credit.
Sec. 289. Simplification of excise tax imposed on bows and arrows.
Sec. 290. Repeal of excise tax on fishing tackle boxes.
Sec. 291. Sonar devices suitable for finding fish.
Sec. 292. Income tax credit to distilled spirits wholesalers for cost
of carrying Federal excise taxes on bottled
distilled spirits.
Sec. 293. Suspension of occupational taxes relating to distilled
spirits, wine, and beer.
Sec. 294. Modification of unrelated business income limitation on
investment in certain small business
investment companies.
Sec. 295. Election to determine taxable income from certain
international shipping activities using per
ton rate.
Sec. 296. Charitable contribution deduction for certain expenses
incurred in support of Native Alaskan
subsistence whaling.
TITLE III--TAX REFORM AND SIMPLIFICATION FOR UNITED STATES BUSINESSES
Sec. 301. Interest expense allocation rules.
Sec. 302. Recharacterization of overall domestic loss.
Sec. 303. Reduction to 2 foreign tax credit baskets.
Sec. 304. Look-thru rules to apply to dividends from noncontrolled
section 902 corporations.
Sec. 305. Attribution of stock ownership through partnerships to apply
in determining section 902 and 960 credits.
Sec. 306. Clarification of treatment of certain transfers of intangible
property.
Sec. 307. United States property not to include certain assets of
controlled foreign corporation.
Sec. 308. Election not to use average exchange rate for foreign tax
paid other than in functional currency.
Sec. 309. Repeal of withholding tax on dividends from certain foreign
corporations.
Sec. 310. Provide equal treatment for interest paid by foreign
partnerships and foreign corporations.
Sec. 311. Look-thru treatment of payments between related controlled
foreign corporations under foreign personal
holding company income rules.
Sec. 312. Look-thru treatment for sales of partnership interests.
Sec. 313. Repeal of foreign personal holding company rules and foreign
investment company rules.
Sec. 314. Determination of foreign personal holding company income with
respect to transactions in commodities.
Sec. 315. Modifications to treatment of aircraft leasing and shipping
income.
Sec. 316. Modification of exceptions under subpart F for active
financing.
TITLE IV--EXTENSION OF CERTAIN EXPIRING PROVISIONS
Sec. 401. Allowance of nonrefundable personal credits against regular
and minimum tax liability.
Sec. 402. Extension of research credit.
Sec. 403. Extension of credit for electricity produced from certain
renewable resources.
Sec. 404. Indian employment tax credit.
Sec. 405. Work opportunity credit.
Sec. 406. Welfare-to-work credit.
Sec. 407. Certain expenses of elementary and secondary school teachers.
Sec. 408. Extension of accelerated depreciation benefit for property on
Indian reservations.
Sec. 409. Charitable contributions of computer technology and equipment
used for educational purposes.
Sec. 410. Expensing of environmental remediation costs.
Sec. 411. Availability of medical savings accounts.
Sec. 412. Taxable income limit on percentage depletion for oil and
natural gas produced from marginal
properties.
Sec. 413. Qualified zone academy bonds.
Sec. 414. District of Columbia.
Sec. 415. Extension of certain New York Liberty Zone bond financing.
Sec. 416. Disclosures relating to terrorist activities.
Sec. 417. Disclosure of return information relating to student loans.
Sec. 418. Cover over of tax on distilled spirits.
Sec. 419. Joint review of strategic plans and budget for the Internal
Revenue Service.
Sec. 420. Parity in the application of certain limits to mental health
benefits.
Sec. 421. Combined employment tax reporting project.
Sec. 422. Clean-fuel vehicles.
TITLE V--DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES
Sec. 501. Deduction of State and local general sales taxes in lieu of
State and local income taxes.
TITLE VI--REVENUE PROVISIONS
Subtitle A--Provisions to Reduce Tax Avoidance Through Individual and
Corporate Expatriation
Sec. 601. Tax treatment of expatriated entities and their foreign
parents.
Sec. 602. Excise tax on stock compensation of insiders in expatriated
corporations.
Sec. 603. Reinsurance of United States risks in foreign jurisdictions.
Sec. 604. Revision of tax rules on expatriation of individuals.
Sec. 605. Reporting of taxable mergers and acquisitions.
Sec. 606. Studies.
Subtitle B--Provisions Relating to Tax Shelters
Part I--Taxpayer-Related Provisions
Sec. 611. Penalty for failing to disclose reportable transactions.
Sec. 612. Accuracy-related penalty for listed transactions, other
reportable transactions having a
significant tax avoidance purpose, etc.
Sec. 613. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 614. Statute of limitations for taxable years for which required
listed transactions not reported.
Sec. 615. Disclosure of reportable transactions.
Sec. 616. Failure to furnish information regarding reportable
transactions.
Sec. 617. Modification of penalty for failure to maintain lists of
investors.
Sec. 618. Penalty on promoters of tax shelters.
Sec. 619. Modifications of substantial understatement penalty for
nonreportable transactions.
Sec. 620. Modification of actions to enjoin certain conduct related to
tax shelters and reportable transactions.
Sec. 621. Penalty on failure to report interests in foreign financial
accounts.
Sec. 622. Regulation of individuals practicing before the Department of
the Treasury.
Part II--Other Provisions
Sec. 631. Treatment of stripped interests in bond and preferred stock
funds, etc.
Sec. 632. Minimum holding period for foreign tax credit on withholding
taxes on income other than dividends.
Sec. 633. Disallowance of certain partnership loss transfers.
Sec. 634. No reduction of basis under section 734 in stock held by
partnership in corporate partner.
Sec. 635. Repeal of special rules for FASITs.
Sec. 636. Limitation on transfer of built-in losses on REMIC residuals.
Sec. 637. Clarification of banking business for purposes of determining
investment of earnings in United States
property.
Sec. 638. Alternative tax for certain small insurance companies.
Sec. 639. Denial of deduction for interest on underpayments
attributable to nondisclosed reportable
transactions.
Sec. 640. Clarification of rules for payment of estimated tax for
certain deemed asset sales.
Sec. 641. Recognition of gain from the sale of a principal residence
acquired in a like-kind exchange within 5
years of sale.
Sec. 642. Prevention of mismatching of interest and original issue
discount deductions and income inclusions
in transactions with related foreign
persons.
Sec. 643. Exclusion from gross income for interest on overpayments of
income tax by individuals.
Sec. 644. Deposits made to suspend running of interest on potential
underpayments.
Sec. 645. Partial payment of tax liability in installment agreements.
Sec. 646. Affirmation of consolidated return regulation authority.
Part III--Leasing
Sec. 647. Reform of tax treatment of certain leasing arrangements.
Sec. 648. Limitation on deductions allocable to property used by
governments or other tax-exempt entities.
Sec. 649. Effective date.
Subtitle C--Reduction of Fuel Tax Evasion
Sec. 651. Exemption from certain excise taxes for mobile machinery.
Sec. 652. Taxation of aviation-grade kerosene.
Sec. 653. Dye injection equipment.
Sec. 654. Authority to inspect on-site records.
Sec. 655. Registration of pipeline or vessel operators required for
exemption of bulk transfers to registered
terminals or refineries.
Sec. 656. Display of registration.
Sec. 657. Penalties for failure to register and failure to report.
Sec. 658. Collection from customs bond where importer not registered.
Sec. 659. Modifications of tax on use of certain vehicles.
Sec. 660. Modification of ultimate vendor refund claims with respect to
farming.
Sec. 661. Dedication of revenues from certain penalties to the Highway
Trust Fund.
Sec. 662. Taxable fuel refunds for certain ultimate vendors.
Sec. 663. Two-party exchanges.
Sec. 664. Simplification of tax on tires.
Subtitle D--Nonqualified Deferred Compensation Plans
Sec. 671. Treatment of nonqualified deferred compensation plans.
Subtitle E--Other Revenue Provisions
Sec. 681. Qualified tax collection contracts.
Sec. 682. Treatment of charitable contributions of patents and similar
property.
Sec. 683. Increased reporting for noncash charitable contributions.
Sec. 684. Donations of motor vehicles, boats, and aircraft.
Sec. 685. Extension of amortization of intangibles to sports
franchises.
Sec. 686. Modification of continuing levy on payments to Federal
venders.
Sec. 687. Modification of straddle rules.
Sec. 688. Addition of vaccines against hepatitis A to list of taxable
vaccines.
Sec. 689. Addition of vaccines against influenza to list of taxable
vaccines.
Sec. 690. Extension of IRS user fees.
Sec. 691. COBRA fees.
TITLE VII--MARKET REFORM FOR TOBACCO GROWERS
Sec. 701. Short title.
Sec. 702. Effective date.
Subtitle A--Termination of Federal Tobacco Quota and Price Support
Programs
Sec. 711. Termination of tobacco quota program and related provisions.
Sec. 712. Termination of tobacco price support program and related
provisions.
Sec. 713. Continuation of liability and no net loss assessments to
prevent losses on price support loans.
Subtitle B--Transitional Payments to Tobacco Quota Holders and Active
Producers of Tobacco
Sec. 721. Definitions of active tobacco producer and quota holder.
Sec. 722. Payments to tobacco quota holders.
Sec. 723. Transition payments for active producers of quota tobacco.
Sec. 724. Resolution of disputes.
Sec. 725. Source of funds for payments.
TITLE VIII--TRADE PROVISIONS
Sec. 801. Ceiling fans.
Sec. 802. Certain steam generators, and certain reactor vessel heads,
used in nuclear facilities.
TITLE I--END SANCTIONS AND REDUCE CORPORATE TAX RATES FOR DOMESTIC
MANUFACTURING AND SMALL CORPORATIONS
SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.
(a) In General.--Section 114 is hereby repealed.
(b) Conforming Amendments.--
(1) Subpart E of part III of subchapter N of chapter 1
(relating to qualifying foreign trade income) is hereby
repealed.
(2) The table of subparts for such part III is amended by
striking the item relating to subpart E.
(3) The table of sections for part III of subchapter B of
chapter 1 is amended by striking the item relating to section
114.
(4) The second sentence of section 56(g)(4)(B)(i) is
amended by striking ``114 or''.
(5) 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.
(6) 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).
(7) Section 903 is amended by striking ``114, 164(a),'' and
inserting ``164(a)''.
(8) Section 999(c)(1) is amended by striking
``941(a)(5),''.
(c) Effective Date.--Except as provided in subsection (d), the
amendments made by this section shall apply to transactions after
December 31, 2004.
(d) Transitional Rule for 2005 and 2006.--
(1) In general.--In the case of transactions during 2005 or
2006, the amount includible in gross income by reason of the
amendments made by this section shall not exceed the applicable
percentage of the amount which would have been so included but
for this subsection.
(2) Applicable percentage.--For purposes of paragraph (1),
the applicable percentage shall be as follows:
(A) For 2005, the applicable percentage shall be 20
percent.
(B) For 2006, the applicable percentage shall be 40
percent.
(e) Revocation of Election To Be Treated as Domestic Corporation.--
If, during the 1-year period beginning on the date of the enactment of
this Act, a corporation for which an election is in effect under
section 943(e) of the Internal Revenue Code of 1986 revokes such
election, no gain or loss shall be recognized with respect to property
treated as transferred under clause (ii) of section 943(e)(4)(B) of
such Code to the extent such property--
(1) was treated as transferred under clause (i) thereof, or
(2) was acquired during a taxable year to which such
election applies and before May 1, 2003, in the ordinary course
of its trade or business.
The Secretary of the Treasury (or such Secretary's delegate) may
prescribe such regulations as may be necessary to prevent the abuse of
the purposes of this subsection.
(f) 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--
(1) which is between the taxpayer and a person who is not a
related person (as defined in section 943(b)(3) of such Code,
as in effect on the day before the date of the enactment of
this Act), and
(2) which is in effect on January 14, 2002, and at all
times thereafter.
For purposes of this subsection, a binding contract shall include a
purchase option, renewal option, or replacement option which is
included in such contract and which is enforceable against the seller
or lessor.
SEC. 102. REDUCED CORPORATE INCOME TAX RATE FOR DOMESTIC PRODUCTION
ACTIVITIES INCOME.
(a) Limitation on Tax on Qualified Production Activities Income.--
Section 11 is amended by redesignating subsections (c) and (d) as
subsections (d) and (e), respectively, and by inserting after
subsection (b) the following new subsection:
``(c) Limitation on Tax on Qualified Production Activities
Income.--
``(1) In general.--If a corporation has qualified
production activities income for any taxable year, the tax
imposed by this section shall not exceed the sum of--
``(A) a tax computed at the rates and in the manner
as if this subsection had not been enacted on the
taxable income reduced by the amount of qualified
production activities income, plus
``(B) a tax equal to 32 percent (34 percent in the
case of taxable years beginning before January 1, 2007)
of the qualified production activities income (or, if
less, taxable income).
``(2) Qualified production activities income.--
``(A) In general.--The term `qualified production
activities income' for any taxable year means an amount
equal to the excess (if any) of--
``(i) the taxpayer's domestic production
gross receipts for such taxable year, over
``(ii) the sum of--
``(I) the cost of goods sold that
are allocable to such receipts,
``(II) other deductions, expenses,
or losses directly allocable to such
receipts, and
``(III) a ratable portion of other
deductions, expenses, and losses that
are not directly allocable to such
receipts or another class of income.
``(B) 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) Domestic production gross receipts.--For purposes of
this subsection, the term `domestic production gross receipts'
means the gross receipts of the taxpayer which are derived
from--
``(A) any lease, rental, license, sale, exchange,
or other disposition of--
``(i) qualifying production property which
was manufactured, produced, grown, or extracted
in whole or in significant part by the taxpayer
within the United States, or
``(ii) any qualified film produced by the
taxpayer, or
``(B) construction, engineering, or architectural
services performed in the United States for
construction projects in the United States.
``(4) Qualifying production property.--For purposes of this
subsection, the term `qualifying production property' means--
``(A) tangible personal property,
``(B) any computer software, and
``(C) any property described in section 168(f)(4).
``(5) Qualified film.--For purposes of this subsection--
``(A) In general.--The term `qualified film' means
any property described in section 168(f)(3) if not less
than 50 percent of the total compensation relating to
the production of such property is compensation for
services performed in the United States by actors,
production personnel, directors, and producers.
``(B) Exception.--Such term does not include
property with respect to which records are required to
be maintained under section 2257 of title 18, United
States Code.
``(6) Related persons.--For purposes of this subsection--
``(A) In general.--The term `domestic production
gross receipts' shall not include any gross receipts of
the taxpayer derived from property leased, licensed, or
rented by the taxpayer for use by any related person.
``(B) Related person.--For purposes of subparagraph
(A), a person shall be treated as related to another
person if such persons are treated as a single employer
under subsection (a) or (b) of section 52 or subsection
(m) or (o) of section 414, except that determinations
under subsections (a) and (b) of section 52 shall be
made without regard to section 1563(b).''.
(b) Special Rule Relating to Election To Treat Cutting of Timber as
a Sale or Exchange.--In the case of a corporation, 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 such taxpayer may make a further
election under such section, such election (and any revocation under
this section) shall not be taken into account.
(c) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2004.
SEC. 103. REDUCED CORPORATE INCOME TAX RATE FOR SMALL CORPORATIONS.
(a) In General.--Subsection (b) of section 11 (relating to tax
imposed on corporations) is amended by redesignating paragraph (2) as
paragraph (6) and by striking paragraph (1) and inserting the following
new paragraphs:
``(1) For taxable years beginning after 2012.--In the case
of taxable years beginning after 2012, the amount of the tax
imposed by subsection (a) shall be determined in accordance
with the following table:
``If taxable income is: The tax is:
Not over $50,000...............
15% of taxable income.
Over $50,000 but not over
$75,000.
$7,500, plus 25% of the excess
over $50,000.
Over $75,000 but not over
$20,000,000.
$13,750, plus 32% of the excess
over $75,000.
Over $20,000,000...............
$6,389,750, plus 35% of the
excess over
$20,000,000.
``(2) For taxable years beginning in 2011 or 2012.--In the
case of taxable years beginning in 2011 or 2012, the amount of
the tax imposed by subsection (a) shall be determined in
accordance with the following table:
``If taxable income is: The tax is:
Not over $50,000...............
15% of taxable income.
Over $50,000 but not over
$75,000.
$7,500, plus 25% of the excess
over $50,000.
Over $75,000 but not over
$5,000,000.
$13,750, plus 32% of the excess
over $75,000.
Over $5,000,000 but not over
$10,000,000.
$1,589,750, plus 34% of the
excess over $5,000,000.
Over $10,000,000...............
$3,289,750, plus 35% of the
excess over
$10,000,000.
``(3) For taxable years beginning in 2008, 2009, or 2010.--
In the case of taxable years beginning in 2008, 2009, or 2010,
the amount of the tax imposed by subsection (a) shall be
determined in accordance with the following table:
``If taxable income is: The tax is:
Not over $50,000...............
15% of taxable income.
Over $50,000 but not over
$75,000.
$7,500, plus 25% of the excess
over $50,000.
Over $75,000 but not over
$1,000,000.
$13,750, plus 32% of the excess
over $75,000.
Over $1,000,000 but not over
$10,000,000.
$309,750, plus 34% of the
excess over $1,000,000.
Over $10,000,000...............
$3,369,750, plus 35% of the
excess over
$10,000,000.
``(4) For taxable years beginning in 2005, 2006, or 2007.--
In the case of taxable years beginning in 2005, 2006, or 2007,
the amount of the tax imposed by subsection (a) shall be
determined in accordance with the following table:
``If taxable income is: The tax is:
Not over $50,000...............
15% of taxable income.
Over $50,000 but not over
$75,000.
$7,500, plus 25% of the excess
over $50,000.
Over $75,000 but not over
$1,000,000.
$13,750, plus 33% of the excess
over $75,000.
Over $1,000,000 but not over
$10,000,000.
$319,000, plus 34% of the
excess over $1,000,000.
Over $10,000,000...............
$3,379,000, plus 35% of the
excess over
$10,000,000.
``(5) Phaseout of lower rates for certain taxpayers.--
``(A) General rule for years before 2013.--
``(i) In general.--In the case of taxable
years beginning before 2013 with respect to a
corporation which has taxable income in excess
of the applicable amount for any taxable year,
the amount of tax determined under paragraph
(1), (2), (3) or (4) for such taxable year
shall be increased by the lesser of (I) 5
percent of such excess, or (II) the maximum
increase amount.
``(ii) Maximum increase amount.--For
purposes of clause (i)--
------------------------------------------------------------------------
The maximum
``In the case of any taxable The applicable increase amount
year beginning during: amount is: is:
------------------------------------------------------------------------
2005, 2006, or 2007............... $1,000,000 $21,000
2008, 2009, or 2010............... $1,000,000 $30,250
2011 or 2012...................... $5,000,000 $110,250.
------------------------------------------------------------------------
``(B) Higher income corporations.--In the case of a
corporation which has taxable income in excess of
$20,000,000 ($15,000,000 in the case of taxable years
beginning before 2013), the amount of the tax
determined under the foregoing provisions of this
subsection shall be increased by an additional amount
equal to the lesser of (i) 3 percent of such excess, or
(ii) $610,250 ($100,000 in the case of taxable years
beginning before 2013).''.
(b) Conforming Amendments.--
(1) Section 904(b)(3)(D)(ii) is amended to read as follows:
``(ii) in the case of a corporation,
section 1201(a) applies to such taxable
year.''.
(2) Section 1201(a) is amended by striking ``the last 2
sentences of section 11(b)(1)'' and inserting ``section
11(b)(5)''.
(3) Section 1561(a) is amended--
(A) by striking ``the last 2 sentences of section
11(b)(1)'' and inserting ``section 11(b)(5)'', and
(B) by striking ``such last 2 sentences'' and
inserting ``section 11(b)(5)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
TITLE II--JOB CREATION TAX INCENTIVES FOR MANUFACTURERS, SMALL
BUSINESSES, AND FARMERS
Subtitle A--Small Business Expensing
SEC. 201. 2-YEAR EXTENSION OF INCREASED EXPENSING FOR SMALL BUSINESS.
Subsections (b), (c), and (d) of section 179 are each amended by
striking ``2006'' each place it appears and inserting ``2008''.
Subtitle B--Depreciation
SEC. 211. RECOVERY PERIOD FOR DEPRECIATION OF CERTAIN LEASEHOLD
IMPROVEMENTS AND RESTAURANT PROPERTY.
(a) 15-Year Recovery Period.--Subparagraph (E) of section 168(e)(3)
(relating to classification of certain property) is amended by striking
``and'' at the end of clause (ii), by striking the period at the end of
clause (iii) and inserting a comma, and by adding at the end the
following new clauses:
``(iv) any qualified leasehold improvement
property placed in service before January 1,
2006, and
``(v) any qualified restaurant property
placed in service before January 1, 2006.''
(b) Qualified Leasehold Improvement Property.--Subsection (e) of
section 168 is amended by adding at the end the following new
paragraph:
``(6) Qualified leasehold improvement property.--The term
`qualified leasehold improvement property' has the meaning
given such term in section 168(k)(3) except that the following
special rules shall apply:
``(A) Improvements made by lessor.--In the case of
an improvement made by the person who was the lessor of
such improvement when such improvement was placed in
service, such improvement shall be qualified leasehold
improvement property (if at all) only so long as such
improvement is held by such person.
``(B) Exception for changes in form of business.--
Property shall not cease to be qualified leasehold
improvement property under subparagraph (A) by reason
of--
``(i) death,
``(ii) a transaction to which section
381(a) applies,
``(iii) a mere change in the form of
conducting the trade or business so long as the
property is retained in such trade or business
as qualified leasehold improvement property and
the taxpayer retains a substantial interest in
such trade or business,
``(iv) the acquisition of such property in
an exchange described in section 1031, 1033, or
1038 to the extent that the basis of such
property includes an amount representing the
adjusted basis of other property owned by the
taxpayer or a related person, or
``(v) the acquisition of such property by
the taxpayer in a transaction described in
section 332, 351, 361, 721, or 731 (or the
acquisition of such property by the taxpayer
from the transferee or acquiring corporation in
a transaction described in such section), to
the extent that the basis of the property in
the hands of the taxpayer is determined by
reference to its basis in the hands of the
transferor or distributor.''.
(c) Qualified Restaurant Property.--Subsection (e) of section 168
(as amended by subsection (b)) is further amended by adding at the end
the following new paragraph:
``(7) Qualified restaurant property.--The term `qualified
restaurant property' means any section 1250 property which is
an improvement to a building if--
``(A) such improvement is placed in service more
than 3 years after the date such building was first
placed in service, and
``(B) more than 50 percent of the building's square
footage is devoted to preparation of, and seating for
on-premises consumption of, prepared meals.''.
(d) Requirement To Use Straight Line Method.--
(1) Paragraph (3) of section 168(b) is amended by adding at
the end the following new subparagraphs:
``(G) Qualified leasehold improvement property
described in subsection (e)(6).
``(H) Qualified restaurant property described in
subsection (e)(7).''.
(2) Subparagraph (A) of section 168(b)(2) is amended by
inserting before the comma ``not referred to in paragraph
(3)''.
(e) Alternative System.--The table contained in section
168(g)(3)(B) is amended by adding at the end the following new items:
``(E)(iv).................................. 39
``(E)(v)................................... 39''.
(f) 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. 212. 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 take
effect as if included in the amendments made by section 101 of the Job
Creation and Worker Assistance Act of 2002.
SEC. 213. MODIFICATION OF 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 amendments made by this section shall take
effect as if included in the amendments made by section 101 of the Job
Creation and Worker Assistance Act of 2002; except that the
parenthetical material in section 168(k)(2)(D)(iii)(II) of the Internal
Revenue Code of 1986, as added by this section, shall apply to property
sold after June 4, 2004.
Subtitle C--S Corporation Reform and Simplification
SEC. 221. MEMBERS OF FAMILY TREATED AS 1 SHAREHOLDER.
(a) In General.--Paragraph (1) of section 1361(c) (relating to
special rules for applying subsection (b)) is amended to read as
follows:
``(1) Members of family treated as 1 shareholder.--
``(A) In general.--For purpose of subsection
(b)(1)(A)--
``(i) except as provided in clause (ii), a
husband and wife (and their estates) shall be
treated as 1 shareholder, and
``(ii) in the case of a family with respect
to which an election is in effect under
subparagraph (D), all members of the family
shall be treated as 1 shareholder.
``(B) Members of the family.--For purpose of
subparagraph (A)(ii)--
``(i) In general.--The term `members of the
family' means the common ancestor, lineal
descendants of the common ancestor, and the
spouses (or former spouses) of such lineal
descendants or common ancestor.
``(ii) Common Ancestor.--For purposes of
this paragraph, an individual shall not be
considered a common ancestor if, as of the
later of the effective date of this paragraph
or the time the election under section 1362(a)
is made, the individual is more than 3
generations removed from the youngest
generation of shareholders who would (but for
this clause) be members of the family. For
purposes of the preceding sentence, a spouse
(or former spouse) shall be treated as being of
the same generation as the individual to which
such spouse is (or was) married.
``(C) Effect of adoption, etc.--In determining
whether any relationship specified in subparagraph (B)
exists, the rules of section 152(b)(2) shall apply.
``(D) Election.--An election under subparagraph
(A)(ii)--
``(i) may, except as otherwise provided in
regulations prescribed by the Secretary, be
made by any member of the family, and
``(ii) shall remain in effect until
terminated as provided in regulations
prescribed by the Secretary.''.
(b) Relief From Inadvertent Invalid Election or Termination.--
Section 1362(f) (relating to inadvertent invalid elections or
terminations), as amended by section 229, is amended--
(1) by inserting ``or section 1361(c)(1)(A)(ii)'' after
``section 1361(b)(3)(B)(ii),'' in paragraph (1), and
(2) by inserting ``or section 1361(c)(1)(D)(iii)'' after
``section 1361(b)(3)(C),'' in paragraph (1)(B).
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 2004.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to elections and terminations made after December
31, 2004.
SEC. 222. INCREASE IN NUMBER OF ELIGIBLE SHAREHOLDERS TO 100.
(a) In General.--Section 1361(b)(1)(A) (defining small business
corporation) is amended by striking ``75'' and inserting ``100''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2004.
SEC. 223. EXPANSION OF BANK S CORPORATION ELIGIBLE SHAREHOLDERS TO
INCLUDE IRAS.
(a) In General.--Section 1361(c)(2)(A) (relating to certain trusts
permitted as shareholders) is amended by inserting after clause (v) the
following new clause:
``(vi) In the case of a corporation which
is a bank (as defined in section 581), a trust
which constitutes an individual retirement
account under section 408(a), including one
designated as a Roth IRA under section 408A,
but only to the extent of the stock held by
such trust in such bank as of the date of the
enactment of this clause.''.
(b) Treatment as Shareholder.--Section 1361(c)(2)(B) (relating to
treatment as shareholders) is amended by adding at the end the
following new clause:
``(vi) In the case of a trust described in
clause (vi) of subparagraph (A), the individual
for whose benefit the trust was created shall
be treated as a shareholder.''.
(c) Sale of Bank Stock in IRA Relating to S Corporation Election
Exempt From Prohibited Transaction Rules.--Section 4975(d) (relating to
exemptions) is amended by striking ``or'' at the end of paragraph (14),
by striking the period at the end of paragraph (15) and inserting ``;
or'', and by adding at the end the following new paragraph:
``(16) a sale of stock held by a trust which constitutes an
individual retirement account under section 408(a) to the
individual for whose benefit such account is established if--
``(A) such stock is in a bank (as defined in
section 581),
``(B) such stock is held by such trust as of the
date of the enactment of this paragraph,
``(C) such sale is pursuant to an election under
section 1362(a) by such bank,
``(D) such sale is for fair market value at the
time of sale (as established by an independent
appraiser) and the terms of the sale are otherwise at
least as favorable to such trust as the terms that
would apply on a sale to an unrelated party,
``(E) such trust does not pay any commissions,
costs, or other expenses in connection with the sale,
and
``(F) the stock is sold in a single transaction for
cash not later than 120 days after the S corporation
election is made.''.
(d) Conforming Amendment.--Section 512(e)(1) is amended by
inserting ``1361(c)(2)(A)(vi) or'' before ``1361(c)(6)''.
(e) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 224. DISREGARD OF UNEXERCISED POWERS OF APPOINTMENT IN DETERMINING
POTENTIAL CURRENT BENEFICIARIES OF ESBT.
(a) In General.--Section 1361(e)(2) (defining potential current
beneficiary) is amended--
(1) by inserting ``(determined without regard to any power
of appointment to the extent such power remains unexercised at
the end of such period)'' after ``of the trust'' in the first
sentence, and
(2) by striking ``60-day'' in the second sentence and
inserting ``1-year''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 225. TRANSFER OF SUSPENDED LOSSES INCIDENT TO DIVORCE, ETC.
(a) In General.--Section 1366(d)(2) (relating to indefinite
carryover of disallowed losses and deductions) is amended to read as
follows:
``(2) Indefinite carryover of disallowed losses and
deductions.--
``(A) In general.--Except as provided in
subparagraph (B), any loss or deduction which is
disallowed for any taxable year by reason of paragraph
(1) shall be treated as incurred by the corporation in
the succeeding taxable year with respect to that
shareholder.
``(B) Transfers of stock between spouses or
incident to divorce.--In the case of any transfer
described in section 1041(a) of stock of an S
corporation, any loss or deduction described in
subparagraph (A) with respect such stock shall be
treated as incurred by the corporation in the
succeeding taxable year with respect to the
transferee.''
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2004.
SEC. 226. USE OF PASSIVE ACTIVITY LOSS AND AT-RISK AMOUNTS BY QUALIFIED
SUBCHAPTER S TRUST INCOME BENEFICIARIES.
(a) In General.--Section 1361(d)(1) (relating to special rule for
qualified subchapter S trust) is amended--
(1) by striking ``and'' at the end of subparagraph (A),
(2) by striking the period at the end of subparagraph (B)
and inserting ``, and'', and
(3) by adding at the end the following new subparagraph:
``(C) for purposes of applying sections 465 and 469
to the beneficiary of the trust, the disposition of the
S corporation stock by the trust shall be treated as a
disposition by such beneficiary.''.
(b) Effective Date.--The amendments made by this section shall
apply to transfers made after December 31, 2004.
SEC. 227. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM PASSIVE INCOME
TEST FOR BANK S CORPORATIONS.
(a) In General.--Section 1362(d)(3) (relating to where passive
investment income exceeds 25 percent of gross receipts for 3
consecutive taxable years and corporation has accumulated earnings and
profits) is amended by adding at the end the following new
subparagraph:
``(F) Exception for banks; etc.--In the case of a
bank (as defined in section 581), 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))), or a
financial holding company (within the meaning of
section 2(p) of such Act), the term `passive investment
income' shall not include--
``(i) interest income earned by such bank
or company, or
``(ii) dividends on assets required to be
held by such bank or company, including stock
in the Federal Reserve Bank, the Federal Home
Loan Bank, or the Federal Agricultural Mortgage
Bank or participation certificates issued by a
Federal Intermediate Credit Bank.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2004.
SEC. 228. TREATMENT OF BANK DIRECTOR SHARES.
(a) In General.--Section 1361 (defining S corporation) is amended
by adding at the end the following new subsection:
``(f) Restricted Bank Director Stock.--
``(1) In general.--Restricted bank director stock shall not
be taken into account as outstanding stock of the S corporation
in applying this subchapter (other than section 1368(f)).
``(2) Restricted bank director stock.--For purposes of this
subsection, the term `restricted bank director stock' means
stock in a bank (as defined in section 581), 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))), or a financial
holding company (within the meaning of section 2(p) of such
Act), registered with the Federal Reserve System, if such
stock--
``(A) is required to be held by an individual under
applicable Federal or State law in order to permit such
individual to serve as a director, and
``(B) is subject to an agreement with such bank or
company (or a corporation which controls (within the
meaning of section 368(c)) such bank or company)
pursuant to which the holder is required to sell back
such stock (at the same price as the individual
acquired such stock) upon ceasing to hold the office of
director.
``(3) Cross reference.--
``For treatment of certain
distributions with respect to restricted bank director stock, see
section 1368(f).''.
(b) Distributions.--Section 1368 (relating to distributions) is
amended by adding at the end the following new subsection:
``(f) Restricted Bank Director Stock.--If a director receives a
distribution (not in part or full payment in exchange for stock) from
an S corporation with respect to any restricted bank director stock (as
defined in section 1361(f)), the amount of such distribution--
``(1) shall be includible in gross income of the director,
and
``(2) shall be deductible by the corporation for the
taxable year of such corporation in which or with which ends
the taxable year in which such amount in included in the gross
income of the director.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 229. RELIEF FROM INADVERTENTLY INVALID QUALIFIED SUBCHAPTER S
SUBSIDIARY ELECTIONS AND TERMINATIONS.
(a) In General.--Section 1362(f) (relating to inadvertent invalid
elections or terminations) is amended--
(1) by inserting ``, section 1361(b)(3)(B)(ii),'' after
``subsection (a)'' in paragraph (1),
(2) by inserting ``, section 1361(b)(3)(C),'' after
``subsection (d)'' in paragraph (1)(B),
(3) by amending paragraph (3)(A) to read as follows:
``(A) so that the corporation for which the
election was made is a small business corporation or a
qualified subchapter S subsidiary, as the case may be,
or'',
(4) by amending paragraph (4) to read as follows:
``(4) the corporation for which the election was made, and
each person who was a shareholder in such corporation at any
time during the period specified pursuant to this subsection,
agrees to make such adjustments (consistent with the treatment
of such corporation as an S corporation or a qualified
subchapter S subsidiary, as the case may be) as may be required
by the Secretary with respect to such period,'', and
(5) by inserting ``or a qualified subchapter S subsidiary,
as the case may be'' after ``S corporation'' in the matter
following paragraph (4).
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 230. INFORMATION RETURNS FOR QUALIFIED SUBCHAPTER S SUBSIDIARIES.
(a) In General.--Section 1361(b)(3)(A) (relating to treatment of
certain wholly owned subsidiaries) is amended by inserting ``and in the
case of information returns required under part III of subchapter A of
chapter 61'' after ``Secretary''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2004.
SEC. 231. REPAYMENT OF LOANS FOR QUALIFYING EMPLOYER SECURITIES.
(a) In General.--Subsection (f) of section 4975 (relating to other
definitions and special rules) is amended by adding at the end the
following new paragraph:
``(7) S corporation repayment of loans for qualifying
employer securities.--A plan shall not be treated as violating
the requirements of section 401 or 409 or subsection (e)(7), or
as engaging in a prohibited transaction for purposes of
subsection (d)(3), merely by reason of any distribution (as
described in section 1368(a)) with respect to S corporation
stock that constitutes qualifying employer securities, which in
accordance with the plan provisions is used to make payments on
a loan described in subsection (d)(3) the proceeds of which
were used to acquire such 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 apply
to distributions with respect to S corporation stock made after
December 31, 2004.
Subtitle D--Alternative Minimum Tax Relief
SEC. 241. 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. 242. EXPANSION OF EXEMPTION FROM ALTERNATIVE MINIMUM TAX FOR SMALL
CORPORATIONS.
(a) In General.--Subparagraphs (A) and (B) of section 55(e)(1) are
each amended by striking ``$7,500,000'' each place it appears and
inserting ``$20,000,000''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2005.
SEC. 243. INCOME AVERAGING FOR FARMERS NOT TO INCREASE ALTERNATIVE
MINIMUM TAX.
(a) In General.--Subsection (c) of section 55 (defining regular
tax) is amended by redesignating paragraph (2) as paragraph (3) and by
inserting after paragraph (1) the following new paragraph:
``(2) Coordination with income averaging for farmers.--
Solely for purposes of this section, section 1301 (relating to
averaging of farm income) shall not apply in computing the
regular tax liability.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2003.
Subtitle E--Restructuring of Incentives for Alcohol Fuels, Etc.
SEC. 251. REDUCED RATES OF TAX ON GASOHOL REPLACED WITH EXCISE TAX
CREDIT; REPEAL OF OTHER ALCOHOL-BASED FUEL INCENTIVES;
ETC.
(a) Excise Tax Credit for Alcohol Fuel Mixtures.--
(1) In general.--Subsection (f) of section 6427 is amended
to read as follows:
``(f) Alcohol Fuel Mixtures.--
``(1) In general.--The amount of credit which would (but
for section 40(c)) be determined under section 40(a)(1) for any
period--
``(A) shall, with respect to taxable events
occurring during such period, be treated--
``(i) as a payment of the taxpayer's
liability for tax imposed by section 4081, and
``(ii) as received at the time of the
taxable event, and
``(B) to the extent such amount of credit exceeds
such liability for such period, shall (except as
provided in subsection (k)) be paid subject to
subsection (i)(3) by the Secretary without interest.
``(2) Special rules.--
``(A) Only certain alcohol taken into account.--For
purposes of paragraph (1), section 40 shall be
applied--
``(i) by not taking into account alcohol
with a proof of less than 190, and
``(ii) by treating as alcohol the alcohol
gallon equivalent of ethyl tertiary butyl ether
or other ethers produced from such alcohol.
``(B) Treatment of refiners.--For purposes of
paragraph (1), in the case of a mixture--
``(i) the alcohol in which is described in
subparagraph (A)(ii), and
``(ii) which is produced by any person at a
refinery prior to any taxable event,
section 40 shall be applied by treating such person as
having sold such mixture at the time of its removal
from the refinery (and only at such time) to another
person for use as a fuel.
``(3) Mixtures not used as fuel.--Rules similar to the
rules of subparagraphs (A) and (D) of section 40(d)(3) shall
apply for purposes of this subsection.
``(4) Termination.--This section shall apply only to
periods to which section 40 applies, determined by substituting
in section 40(e)--
``(A) `December 31, 2010' for `December 31, 2007',
and
``(B) `January 1, 2011' for `January 1, 2008'.''
(2) Revision of rules for payment of credit.--Paragraph (3)
of section 6427(i) is amended to read as follows:
``(3) Special rule for alcohol mixture credit.--
``(A) In general.--A claim may be filed under
subsection (f)(1)(B) by any person for any period--
``(i) for which $200 or more is payable
under such subsection (f)(1)(B), and
``(ii) which is not less than 1 week.
In the case of an electronic claim, this subparagraph
shall be applied without regard to clause (i).
``(B) Payment of claim.--Notwithstanding subsection
(f)(1)(B), if the Secretary has not paid pursuant to a
claim filed under this section within 45 days of the
date of the filing of such claim (20 days in the case
of an electronic claim), the claim shall be paid with
interest from such date determined by using the
overpayment rate and method under section 6621.
``(C) 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.''
(b) Repeal of Other Incentives for Fuel Mixtures.--
(1) Subsection (b) of section 4041 is amended to read as
follows:
``(b) Exemption for Off-Highway Business Use.--
``(1) In general.--No tax shall be imposed by subsection
(a) or (d)(1) on liquids sold for use or used in an off-highway
business use.
``(2) Tax where other use.--If a liquid on which no tax was
imposed by reason of paragraph (1) is used otherwise than in an
off-highway business use, a tax shall be imposed by paragraph
(1)(B), (2)(B), or (3)(A)(ii) of subsection (a) (whichever is
appropriate) and by the corresponding provision of subsection
(d)(1) (if any).
``(3) Off-highway business use defined.--For purposes of
this subsection, the term `off-highway business use' has the
meaning given to such term by section 6421(e)(2); except that
such term shall not, for purposes of subsection (a)(1), include
use in a diesel-powered train.''
(2) Section 4041(k) is hereby repealed.
(3) Section 4081(c) is hereby repealed.
(4) Section 4091(c) is hereby repealed.
(c) Transfers to Highway Trust Fund.--
(1) Paragraph (4) of section 9503(b) is amended by adding
``or'' at the end of subparagraph (C), by striking the comma at
the end of subparagraph (D) and inserting a period, and by
striking subparagraphs (E) and (F).
(2) Paragraph (4) of section 9503(b), as amended by
paragraph (1), is further amended by adding ``or'' at the end
of subparagraph (B), by striking the comma at the end of
subparagraph (C) and inserting a period, and by striking
subparagraph (D).
(d) Conforming Amendments.--
(1) Subsection (c) of section 40 is amended to read as
follows:
``(c) Coordination With Excise Tax Benefits.--The amount of the
credit determined under this section with respect to any alcohol shall,
under regulations prescribed by the Secretary, be properly reduced to
take into account the benefit provided with respect to such alcohol
under section 6427(f).''
(2) Subparagraph (B) of section 40(d)(4) is amended by
striking ``under section 4041(k) or 4081(c)'' and inserting
``under section 6427(f)''.
(e) Effective Dates.--
(1) In general.--Except as provided by paragraph (2), the
amendments made by this section shall apply to fuel sold or
used after September 30, 2004.
(2) Subsection (c).--
(A) The amendments made by subsection (c)(1) shall
apply to taxes imposed after September 30, 2003.
(B) The amendments made by subsection (c)(2) shall
apply to taxes imposed after September 30, 2006.
SEC. 252. ALCOHOL FUEL SUBSIDIES BORNE BY GENERAL FUND.
(a) Transfers to Fund.--Section 9503(b)(1) is amended by adding at
the end the following new flush sentence:
``For purposes of this paragraph, the amount of taxes received
under section 4081 shall include any amount treated as a
payment under section 6427(f)(1)(A) and shall not be reduced by
the amount paid under section 6427(f)(1)(B).''.
(b) Transfers From Fund.--Subparagraph (A) of section 9503(c)(2) is
amended by adding at the end the following new sentence: ``Clauses
(i)(III) and (ii) shall not apply to claims under section
6427(f)(1)(B).''
(c) Effective Date.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to taxes received after September 30, 2004.
(2) Subsection (b).--The amendment made by subsection (b)
shall apply to amounts paid after September 30, 2004, and (to
the extent related to section 34 of the Internal Revenue Code
of 1986) to fuel used after such date.
Subtitle F--Stock Options and Employee Stock Purchase Plan Stock
Options
SEC. 261. EXCLUSION OF INCENTIVE STOCK OPTIONS AND EMPLOYEE STOCK
PURCHASE PLAN STOCK OPTIONS FROM WAGES.
(a) Exclusion From Employment Taxes.--
(1) Social security taxes.--
(A) Section 3121(a) (relating to definition of
wages) is amended by striking ``or'' at the end of
paragraph (20), by striking the period at the end of
paragraph (21) and inserting ``; or'', and by inserting
after paragraph (21) the following new paragraph:
``(22) remuneration on account of--
``(A) a transfer of a share of stock to any
individual pursuant to an exercise of an incentive
stock option (as defined in section 422(b)) or under an
employee stock purchase plan (as defined in section
423(b)), or
``(B) any disposition by the individual of such
stock.''.
(B) Section 209(a) of the Social Security Act is
amended by striking ``or'' at the end of paragraph
(17), by striking the period at the end of paragraph
(18) and inserting ``; or'', and by inserting after
paragraph (18) the following new paragraph:
``(19) Remuneration on account of--
``(A) a transfer of a share of stock to any
individual pursuant to an exercise of an incentive
stock option (as defined in section 422(b) of the
Internal Revenue Code of 1986) or under an employee
stock purchase plan (as defined in section 423(b) of
such Code), or
``(B) any disposition by the individual of such
stock.''.
(2) Railroad retirement taxes.--Subsection (e) of section
3231 is amended by adding at the end the following new
paragraph:
``(12) Qualified stock options.--The term `compensation'
shall not include any remuneration on account of--
``(A) a transfer of a share of stock to any
individual pursuant to an exercise of an incentive
stock option (as defined in section 422(b)) or under an
employee stock purchase plan (as defined in section
423(b)), or
``(B) any disposition by the individual of such
stock.''.
(3) Unemployment taxes.--Section 3306(b) (relating to
definition of wages) is amended by striking ``or'' at the end
of paragraph (17), by striking the period at the end of
paragraph (18) and inserting ``; or'', and by inserting after
paragraph (18) the following new paragraph:
``(19) remuneration on account of--
``(A) a transfer of a share of stock to any
individual pursuant to an exercise of an incentive
stock option (as defined in section 422(b)) or under an
employee stock purchase plan (as defined in section
423(b)), or
``(B) any disposition by the individual of such
stock.''.
(b) Wage Withholding Not Required on Disqualifying Dispositions.--
Section 421(b) (relating to effect of disqualifying dispositions) is
amended by adding at the end the following new sentence: ``No amount
shall be required to be deducted and withheld under chapter 24 with
respect to any increase in income attributable to a disposition
described in the preceding sentence.''.
(c) Wage Withholding Not Required on Compensation Where Option
Price Is Between 85 Percent and 100 Percent of Value of Stock.--Section
423(c) (relating to special rule where option price is between 85
percent and 100 percent of value of stock) is amended by adding at the
end the following new sentence: ``No amount shall be required to be
deducted and withheld under chapter 24 with respect to any amount
treated as compensation under this subsection.''.
(d) Effective Date.--The amendments made by this section shall
apply to stock acquired pursuant to options exercised after the date of
the enactment of this Act.
Subtitle G--Incentives to Reinvest Foreign Earnings in United States
SEC. 271. INCENTIVES TO REINVEST FOREIGN EARNINGS IN UNITED STATES.
(a) In General.--Subpart F of part III of subchapter N of chapter 1
(relating to controlled foreign corporations) is amended by adding at
the end the following new section:
``SEC. 965. TEMPORARY DIVIDENDS RECEIVED DEDUCTION.
``(a) Deduction.--
``(1) In general.--In the case of a corporation which is a
United States shareholder, there shall be allowed as a
deduction an amount equal to 85 percent of the dividends which
are received by such shareholder from controlled foreign
corporations during the election period.
``(2) Dividends paid indirectly from controlled foreign
corporations.--If, within the election period, a United States
shareholder receives a distribution from a controlled foreign
corporation which is excluded from gross income under section
959(a), such distribution shall be treated for purposes of this
section as a dividend to the extent of any amount included in
income by such United States shareholder under section
951(a)(1)(A) as a result of any dividend paid during the
election period to--
``(A) such controlled foreign corporation from
another controlled foreign corporation that is in a
chain of ownership described in section 958(a), or
``(B) any other controlled foreign corporation in
such chain of ownership, but only to the extent of
distributions described in section 959(b) which are
made during the election period to the controlled
foreign corporation from which such United States
shareholder received such distribution.
``(b) Limitations.--
``(1) In general.--The amount of dividends taken into
account under subsection (a) shall not exceed the greater of--
``(A) $500,000,000,
``(B) the amount shown on the applicable financial
statement as earnings permanently reinvested outside
the United States, or
``(C) in the case of an applicable financial
statement which fails to show a specific amount of
earnings permanently reinvested outside the United
States and which shows a specific amount of tax
liability attributable to such earnings, the amount of
such earnings determined in such manner as the
Secretary may prescribe.
Except as provided in subparagraph (C), if there is no
statement or such statement fails to show a specific amount of
such earnings or liability, such amount shall be treated as
being zero for purposes of this paragraph.
``(2) Dividends must be extraordinary.--The amount of
dividends taken into account under subsection (a) shall not
exceed the excess (if any) of--
``(A) the dividends received during the taxable
year by such shareholder from controlled foreign
corporations, over
``(B) the annual average for the base period years
of--
``(i) the dividends received during each
base period year by such shareholder from such
corporations,
``(ii) the amounts includible in such
shareholder's gross income for each base period
year under section 951(a)(1)(B) with respect to
such corporations, and
``(iii) the amounts that would have been
included for each base period year but for
section 959(a) with respect to such
corporations.
The amount taken into account under clause (iii) for
any base period year shall not include any amount which
is not includible in gross income by reason of an
amount described in clause (ii) with respect to a prior
taxable year.
``(3) Requirement to invest in united states.--Subsection
(a) shall not apply to any dividend received by a United States
shareholder unless the amount of the dividend is invested in
the United States pursuant to a plan describing the
expenditures to be made with such amount--
``(A) which, before the dividend is received, is
approved by the president or chief executive officer of
such shareholder, and
``(B) which is approved by the Board of Directors
(or management committee) of such shareholder no later
than its first meeting on or after the date the
dividend is received.
``(c) Definitions and Special Rules.--For purposes of this
section--
``(1) Election period.--The term `election period' means--
``(A) if this section applies to the taxpayer's
last taxable year beginning before the date of the
enactment of this section, any 6-month or shorter
period during such year which is after the date of the
enactment of this section and which is selected by the
taxpayer, and
``(B) if this section applies to the taxpayer's
first taxable year beginning on or after such date, the
1st 6 months of such taxable year.
``(2) Applicable financial statement.--The term `applicable
financial statement' means the most recently audited financial
statement (including notes and other documents which accompany
such statement)--
``(A) which is certified on or before March 31,
2003, as being prepared in accordance with generally
accepted accounting principles, and
``(B) which is used for the purposes of a statement
or report--
``(i) to creditors,
``(ii) to shareholders, or
``(iii) for any other substantial nontax
purpose.
In the case of a corporation required to file a financial
statement with the Securities and Exchange Commission, such
term means the most recent such statement filed on or before
March 31, 2003.
``(3) Base period years.--The base period years are the 3
taxable years--
``(A) which are among the 5 most recent taxable
years ending on or before March 31, 2003, and
``(B) which are determined by disregarding--
``(i) 1 taxable year for which the sum of
the amounts described in clauses (i), (ii), and
(iii) of subsection (b)(2)(B) is the largest,
and
``(ii) 1 taxable year for which such sum is
the smallest.
Rules similar to the rules of subparagraphs (A) and (B) of
section 41(f)(3) shall apply for purposes of this paragraph.
``(4) Coordination with dividends received deduction.--No
deduction shall be allowed under section 243 or 245 for any
dividend for which a deduction is allowed under this section.
``(d) Denial of Foreign Tax Credit.--
``(1) In general.--No credit shall be allowed under section
901 for any taxes paid or accrued (or treated as paid or
accrued) with respect to the deductible portion of any dividend
or of any amount described in subsection (a)(2). No deduction
shall be allowed under this chapter for any tax for which
credit is not allowable by reason of the preceding sentence.
``(2) Deductible portion.--For purposes of paragraph (1),
unless the taxpayer otherwise specifies, the deductible portion
of any dividend is the amount which bears the same ratio to the
amount of such dividend as the amount allowed as a deduction
under subsection (a) for the taxable year bears to the amount
described in subsection (b)(2)(A) for such year.
``(e) Increase in Tax on Included Amounts Not Reduced by Credits,
Etc.--
``(1) In general.--Any tax under this chapter by reason of
nondeductible CFC dividends shall not be treated as tax imposed
by this chapter for purposes of determining--
``(A) the amount of any credit allowable under this
chapter, or
``(B) the amount of the tax imposed by section 55.
Subparagraph (A) shall not apply to the credit under section 53
or to the credit under section 27(a) with respect to taxes
attributable to such dividends.
``(2) Inclusions may not be offset by net operating
losses.--
``(A) In general.--The taxable income of any United
States shareholder for any taxable year shall in no
event be less than the amount of nondeductible CFC
dividends received during such year.
``(B) Coordination with section 172.--The
nondeductible CFC dividends for any taxable year shall
not be taken into account--
``(i) in determining under section 172 the
amount of any net operating loss for such
taxable year, and
``(ii) in determining taxable income for
such taxable year for purposes of the 2nd
sentence of section 172(b)(2).
``(3) Nondeductible cfc dividends.--For purposes of this
subsection, the term `nondeductible CFC dividends' means the
excess of the amount of dividends taken into account under
subsection (a) over the deduction allowed under subsection (a)
for such dividends.
``(f) Election.--This section shall apply for the taxpayer's first
taxable year beginning on or after the date of the enactment of this
section if the taxpayer elects its application for such taxable year.
The taxpayer may elect to apply this section to the taxpayer's last
taxable year beginning before the date of the enactment of this section
in lieu of such first taxable year.''
(b) Alternative Minimum Tax.--Subparagraph (C) of section 56(g)(4)
is amended by adding at the end the following new clause:
``(v) Special rule for certain
distributions from controlled foreign
corporations.--Clause (i) shall not apply to
any deduction allowable under section 965.''.
(c) Clerical 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. Temporary dividends received
deduction.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years ending on or after the date of the enactment of
this Act.
Subtitle H--Other Incentive Provisions
SEC. 281. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF WEATHER-
RELATED CONDITIONS.
(a) Rules for Replacement of Involuntarily Converted Livestock.--
Subsection (e) of section 1033 (relating to involuntary conversions) is
amended--
(1) by striking ``Conditions.--For purposes'' and inserting
``Conditions.--
``(1) In general.--For purposes'', and
(2) by adding at the end the following new paragraph:
``(2) Extension of replacement period.--
``(A) In general.--In the case of drought, flood,
or other weather-related conditions described in
paragraph (1) which result in the area being designated
as eligible for assistance by the Federal Government,
subsection (a)(2)(B) shall be applied with respect to
any converted property by substituting `4 years' for `2
years'.
``(B) Further extension by secretary.--The
Secretary may extend on a regional basis the period for
replacement under this section (after the application
of subparagraph (A)) for such additional time as the
Secretary determines appropriate if the weather-related
conditions which resulted in such application continue
for more than 3 years.''.
(b) Income Inclusion Rules.--Subsection (e) of section 451
(relating to special rule for proceeds from livestock sold on account
of drought, flood, or other weather-related conditions) is amended by
adding at the end the following new paragraph:
``(3) Special election rules.--If section 1033(e)(2)
applies to a sale or exchange of livestock described in
paragraph (1), the election under paragraph (1) shall be deemed
valid if made during the replacement period described in such
section.''.
(c) Effective Date.--The amendments made by this section shall
apply to any taxable year with respect to which the due date (without
regard to extensions) for the return is after December 31, 2002.
SEC. 282. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITHOUT
REDUCING PATRONAGE DIVIDENDS.
(a) In General.--Subsection (a) of section 1388 (relating to
patronage dividend defined) is amended by adding at the end the
following: ``For purposes of paragraph (3), net earnings shall not be
reduced by amounts paid during the year as dividends on capital stock
or other proprietary capital interests of the organization to the
extent that the articles of incorporation or bylaws of such
organization or other contract with patrons provide that such dividends
are in addition to amounts otherwise payable to patrons which are
derived from business done with or for patrons during the taxable
year.''.
(b) Effective Date.--The amendment made by this section shall apply
to distributions in taxable years beginning after the date of the
enactment of this Act.
SEC. 283. 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 December 31, 2004.
SEC. 284. 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. 285. IMPROVEMENTS RELATED TO REAL ESTATE INVESTMENT TRUSTS.
(a) Expansion of Straight Debt Safe Harbor.--Section 856 (defining
real estate investment trust) is amended--
(1) in subsection (c) by striking paragraph (7), and
(2) by adding at the end the following new subsection:
``(m) Safe Harbor in Applying Subsection (c)(4).--
``(1) In general.--In applying subclause (III) of
subsection (c)(4)(B)(iii), except as otherwise determined by
the Secretary in regulations, the following shall not be
considered securities held by the trust:
``(A) Straight debt securities of an issuer which
meet the requirements of paragraph (2).
``(B) Any loan to an individual or an estate.
``(C) Any section 467 rental agreement (as defined
in section 467(d)), other than with a person described
in subsection (d)(2)(B).
``(D) Any obligation to pay rents from real
property (as defined in subsection (d)(1)).
``(E) Any security issued by a State or any
political subdivision thereof, the District of
Columbia, a foreign government or any political
subdivision thereof, or the Commonwealth of Puerto
Rico, but only if the determination of any payment
received or accrued under such security does not depend
in whole or in part on the profits of any entity not
described in this subparagraph or payments on any
obligation issued by such an entity,
``(F) Any security issued by a real estate
investment trust.
``(G) Any other arrangement as determined by the
Secretary.
``(2) Special rules relating to straight debt securities.--
``(A) In general.--For purposes of paragraph
(1)(A), securities meet the requirements of this
paragraph if such securities are straight debt, as
defined in section 1361(c)(5) (without regard to
subparagraph (B)(iii) thereof).
``(B) Special rules relating to certain
contingencies.--For purposes of subparagraph (A), any
interest or principal shall not be treated as failing
to satisfy section 1361(c)(5)(B)(i) solely by reason of
the fact that--
``(i) the time of payment of such interest
or principal is subject to a contingency, but
only if--
``(I) any such contingency does not
have the effect of changing the
effective yield to maturity, as
determined under section 1272, other
than a change in the annual yield to
maturity which does not exceed the
greater of \1/4\ of 1 percent or 5
percent of the annual yield to
maturity, or
``(II) neither the aggregate issue price
nor the aggregate face amount of the issuer's
debt instruments held by the trust exceeds
$1,000,000 and not more than 12 months of
unaccrued interest can be required to be
prepaid thereunder, or
``(ii) the time or amount of payment is
subject to a contingency upon a default or the
exercise of a prepayment right by the issuer of
the debt, but only if such contingency is
consistent with customary commercial practice.
``(C) Special rules relating to corporate or
partnership issuers.--In the case of an issuer which is
a corporation or a partnership, securities that
otherwise would be described in paragraph (1)(A) shall
be considered not to be so described if the trust
holding such securities and any of its controlled
taxable REIT subsidiaries (as defined in subsection
(d)(8)(A)(iv)) hold any securities of the issuer
which--
``(i) are not described in paragraph (1)
(prior to the application of this
subparagraph), and
``(ii) have an aggregate value greater than
1 percent of the issuer's outstanding
securities determined without regard to
paragraph (3)(A)(i).
``(3) Look-through rule for partnership securities.--
``(A) In general.--For purposes of applying
subclause (III) of subsection (c)(4)(B)(iii)--
``(i) a trust's interest as a partner in a
partnership (as defined in section 7701(a)(2))
shall not be considered a security, and
``(ii) the trust shall be deemed to own its
proportionate share of each of the assets of
the partnership.
``(B) Determination of trust's interest in
partnership assets.--For purposes of subparagraph (A),
with respect to any taxable year beginning after the
date of the enactment of this subparagraph--
``(i) the trust's interest in the
partnership assets shall be the trust's
proportionate interest in any securities issued
by the partnership (determined without regard
to subparagraph (A)(i) and paragraph (4), but
not including securities described in paragraph
(1)), and
``(ii) the value of any debt instrument
shall be the adjusted issue price thereof, as
defined in section 1272(a)(4).
``(4) Certain partnership debt instruments not treated as a
security.--For purposes of applying subclause (III) of
subsection (c)(4)(B)(iii)--
``(A) any debt instrument issued by a partnership
and not described in paragraph (1) shall not be
considered a security to the extent of the trust's
interest as a partner in the partnership, and
``(B) any debt instrument issued by a partnership
and not described in paragraph (1) shall not be
considered a security if at least 75 percent of the
partnership's gross income (excluding gross income from
prohibited transactions) is derived from sources
referred to in subsection (c)(3).
``(5) Secretarial guidance.--The Secretary is authorized to
provide guidance (including through the issuance of a written
determination, as defined in section 6110(b)) that an
arrangement shall not be considered a security held by the
trust for purposes of applying subclause (III) of subsection
(c)(4)(B)(iii) notwithstanding that such arrangement otherwise
could be considered a security under subparagraph (F) of
subsection (c)(5).''.
(b) Clarification of Application of Limited Rental Exception.--
Subparagraph (A) of section 856(d)(8) (relating to special rules for
taxable REIT subsidiaries) is amended to read as follows:
``(A) Limited rental exception.--
``(i) In general.--The requirements of this
subparagraph are met with respect to any
property if at least 90 percent of the leased
space of the property is rented to persons
other than taxable REIT subsidiaries of such
trust and other than persons described in
paragraph (2)(B).
``(ii) Rents must be substantially
comparable.--Clause (i) shall apply only to the
extent that the amounts paid to the trust as
rents from real property (as defined in
paragraph (1) without regard to paragraph
(2)(B)) from such property are substantially
comparable to such rents paid by the other
tenants of the trust's property for comparable
space.
``(iii) Times for testing rent
comparability.--The substantial comparability
requirement of clause (ii) shall be treated as
met with respect to a lease to a taxable REIT
subsidiary of the trust if such requirement is
met under the terms of the lease--
``(I) at the time such lease is
entered into,
``(II) at the time of each
extension of the lease, including a
failure to exercise a right to
terminate, and
``(III) at the time of any
modification of the lease between the
trust and the taxable REIT subsidiary
if the rent under such lease is
effectively increased pursuant to such
modification.
With respect to subclause (III), if the taxable
REIT subsidiary of the trust is a controlled
taxable REIT subsidiary of the trust, the term
`rents from real property' shall not in any
event include rent under such lease to the
extent of the increase in such rent on account
of such modification.
``(iv) Controlled taxable reit
subsidiary.--For purposes of clause (iii), the
term `controlled taxable REIT subsidiary'
means, with respect to any real estate
investment trust, any taxable REIT subsidiary
of such trust if such trust owns directly or
indirectly--
``(I) stock possessing more than 50
percent of the total voting power of
the outstanding stock of such
subsidiary, or
``(II) stock having a value of more
than 50 percent of the total value of
the outstanding stock of such
subsidiary.
``(v) Continuing qualification based on
third party actions.--If the requirements of
clause (i) are met at a time referred to in
clause (iii), such requirements shall continue
to be treated as met so long as there is no
increase in the space leased to any taxable
REIT subsidiary of such trust or to any person
described in paragraph (2)(B).
``(vi) Correction period.--If there is an
increase referred to in clause (v) during any
calendar quarter with respect to any property,
the requirements of clause (iii) shall be
treated as met during the quarter and the
succeeding quarter if such requirements are met
at the close of such succeeding quarter.''.
(c) Deletion of Customary Services Exception.--Subparagraph (B) of
section 857(b)(7) (relating to redetermined rents) is amended by
striking clause (ii) and by redesignating clauses (iii), (iv), (v),
(vi), and (vii) as clauses (ii), (iii), (iv), (v), and (vi),
respectively.
(d) Conformity With General Hedging Definition.--Subparagraph (G)
of section 856(c)(5) (relating to treatment of certain hedging
instruments) is amended to read as follows:
``(G) Treatment of certain hedging instruments.--
Except to the extent provided by regulations, any
income of a real estate investment trust from a hedging
transaction (as defined in clause (ii) or (iii) of
section 1221(b)(2)(A)) which is clearly identified
pursuant to section 1221(a)(7), including gain from the
sale or disposition of such a transaction, shall not
constitute gross income under paragraph (2) to the
extent that the transaction hedges any indebtedness
incurred or to be incurred by the trust to acquire or
carry real estate assets.''.
(e) Conformity With Regulated Investment Company Rules.--Clause (i)
of section 857(b)(5)(A) (relating to imposition of tax in case of
failure to meet certain requirements) is amended by striking ``90
percent'' and inserting ``95 percent''.
(f) Savings Provisions.--
(1) Rules of application for failure to satisfy section
856(c)(4).--Section 856(c) (relating to definition of real
estate investment trust) is amended by inserting after
paragraph (6) the following new paragraph:
``(7) Rules of application for failure to satisfy paragraph
(4).--
``(A) De minimis failure.--A corporation, trust, or
association that fails to meet the requirements of
paragraph (4)(B)(iii) for a particular quarter shall
nevertheless be considered to have satisfied the
requirements of such paragraph for such quarter if--
``(i) such failure is due to the ownership
of assets the total value of which does not
exceed the lesser of--
``(I) 1 percent of the total value
of the trust's assets at the end of the
quarter for which such measurement is
done, and
``(II) $10,000,000, and
``(ii)(I) the corporation, trust, or
association, following the identification of
such failure, disposes of assets in order to
meet the requirements of such paragraph within
6 months after the last day of the quarter in
which the corporation, trust or association's
identification of the failure to satisfy the
requirements of such paragraph occurred or such
other time period prescribed by the Secretary
and in the manner prescribed by the Secretary,
or
``(II) the requirements of such paragraph
are otherwise met within the time period
specified in subclause (I).
``(B) Failures exceeding de minimis amount.--A
corporation, trust, or association that fails to meet
the requirements of paragraph (4) for a particular
quarter shall nevertheless be considered to have
satisfied the requirements of such paragraph for such
quarter if--
``(i) such failure involves the ownership
of assets the total value of which exceeds the
de minimis standard described in subparagraph
(A)(i) at the end of the quarter for which such
measurement is done,
``(ii) following the corporation, trust, or
association's identification of the failure to
satisfy the requirements of such paragraph for
a particular quarter, a description of each
asset that causes the corporation, trust, or
association to fail to satisfy the requirements
of such paragraph at the close of such quarter
of any taxable year is set forth in a schedule
for such quarter filed in accordance with
regulations prescribed by the Secretary,
``(iii) the failure to meet the
requirements of such paragraph for a particular
quarter is due to reasonable cause and not due
to willful neglect,
``(iv) the corporation, trust, or
association pays a tax computed under
subparagraph (C), and
``(v)(I) the corporation, trust, or
association disposes of the assets set forth on
the schedule specified in clause (ii) within 6
months after the last day of the quarter in
which the corporation, trust or association's
identification of the failure to satisfy the
requirements of such paragraph occurred or such
other time period prescribed by the Secretary
and in the manner prescribed by the Secretary,
or
``(II) the requirements of such paragraph
are otherwise met within the time period
specified in subclause (I).
``(C) Tax.--For purposes of subparagraph (B)(iv)--
``(i) Tax imposed.--If a corporation,
trust, or association elects the application of
this subparagraph, there is hereby imposed a
tax on the failure described in subparagraph
(B) of such corporation, trust, or association.
Such tax shall be paid by the corporation,
trust, or association.
``(ii) Tax computed.--The amount of the tax
imposed by clause (i) shall be the greater of--
``(I) $50,000, or
``(II) the amount determined
(pursuant to regulations promulgated by
the Secretary) by multiplying the net
income generated by the assets
described in the schedule specified in
subparagraph (B)(ii) for the period
specified in clause (iii) by the
highest rate of tax specified in
section 11.
``(iii) Period.--For purposes of clause
(ii)(II), the period described in this clause
is the period beginning on the first date that
the failure to satisfy the requirements of such
paragraph (4) occurs as a result of the
ownership of such assets and ending on the
earlier of the date on which the trust disposes
of such assets or the end of the first quarter
when there is no longer a failure to satisfy
such paragraph (4).
``(iv) Administrative provisions.--For
purposes of subtitle F, the taxes imposed by
this subparagraph shall be treated as excise
taxes with respect to which the deficiency
procedures of such subtitle apply.''.
(2) Modification of rules of application for failure to
satisfy sections 856(c)(2) or 856(c)(3).--Paragraph (6) of
section 856(c) (relating to definition of real estate
investment trust) is amended by striking subparagraphs (A) and
(B), by redesignating subparagraph (C) as subparagraph (B), and
by inserting before subparagraph (B) (as so redesignated) the
following new subparagraph:
``(A) following the corporation, trust, or
association's identification of the failure to meet the
requirements of paragraph (2) or (3), or of both such
paragraphs, for any taxable year, a description of each
item of its gross income described in such paragraphs
is set forth in a schedule for such taxable year filed
in accordance with regulations prescribed by the
Secretary, and''.
(3) Reasonable cause exception to loss of reit status if
failure to satisfy requirements.--Subsection (g) of section 856
(relating to termination of election) is amended--
(A) in paragraph (1) by inserting before the period
at the end of the first sentence the following:
``unless paragraph (5) applies'', and
(B) by adding at the end the following new
paragraph:
``(5) Entities to which paragraph applies.--This paragraph
applies to a corporation, trust, or association--
``(A) which is not a real estate investment trust
to which the provisions of this part apply for the
taxable year due to one or more failures to comply with
one or more of the provisions of this part (other than
subsection (c)(6) or (c)(7) of section 856),
``(B) such failures are due to reasonable cause and
not due to willful neglect, and
``(C) if such corporation, trust, or association
pays (as prescribed by the Secretary in regulations and
in the same manner as tax) a penalty of $50,000 for
each failure to satisfy a provision of this part due to
reasonable cause and not willful neglect.''.
(4) Deduction of tax paid from amount required to be
distributed.--Subparagraph (E) of section 857(b)(2) is amended
by striking ``(7)'' and inserting ``(7) of this subsection,
section 856(c)(7)(B)(iii), and section 856(g)(1).''.
(5) Expansion of deficiency dividend procedure.--Subsection
(e) of section 860 is amended by striking ``or'' at the end of
paragraph (2), by striking the period at the end of paragraph
(3) and inserting ``; or'', and by adding at the end the
following new paragraph:
``(4) a statement by the taxpayer attached to its amendment
or supplement to a return of tax for the relevant tax year.''.
(g) 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, 2000.
(2) Subsections (c) through (f).--The amendments made by
subsections (c), (d), (e), and (f) shall apply to taxable years
beginning after the date of the enactment of this Act.
SEC. 286. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED INVESTMENT
COMPANIES.
(a) Treatment of Certain Dividends.--
(1) Nonresident alien individuals.--Section 871 (relating
to tax on nonresident alien individuals) is amended by
redesignating subsection (k) as subsection (l) and by inserting
after subsection (j) the following new subsection:
``(k) Exemption for Certain Dividends of Regulated Investment
Companies.--
``(1) Interest-related dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1)(A) of subsection (a) on any interest-
related dividend received from a regulated investment
company.
``(B) Exceptions.--Subparagraph (A) shall not
apply--
``(i) to any interest-related dividend
received from a regulated investment company by
a person to the extent such dividend is
attributable to interest (other than interest
described in subparagraph (E) (i) or (iii))
received by such company on indebtedness issued
by such person or by any corporation or
partnership with respect to which such person
is a 10-percent shareholder,
``(ii) to any interest-related dividend
with respect to stock of a regulated investment
company unless the person who would otherwise
be required to deduct and withhold tax from
such dividend under chapter 3 receives a
statement (which meets requirements similar to
the requirements of subsection (h)(5)) that the
beneficial owner of such stock is not a United
States person, and
``(iii) to any interest-related dividend
paid to any person within a foreign country (or
any interest-related dividend payment addressed
to, or for the account of, persons within such
foreign country) during any period described in
subsection (h)(6) with respect to such country.
Clause (iii) shall not apply to any dividend with
respect to any stock which was acquired on or before
the date of the publication of the Secretary's
determination under subsection (h)(6).
``(C) Interest-related dividend.--For purposes of
this paragraph, an interest-related dividend is any
dividend (or part thereof) which is designated by the
regulated investment company as an interest-related
dividend in a written notice mailed to its shareholders
not later than 60 days after the close of its taxable
year. If the aggregate amount so designated with
respect to a taxable year of the company (including
amounts so designated with respect to dividends paid
after the close of the taxable year described in
section 855) is greater than the qualified net interest
income of the company for such taxable year, the
portion of each distribution which shall be an
interest-related dividend shall be only that portion of
the amounts so designated which such qualified net
interest income bears to the aggregate amount so
designated.
``(D) Qualified net interest income.--For purposes
of subparagraph (C), the term `qualified net interest
income' means the qualified interest income of the
regulated investment company reduced by the deductions
properly allocable to such income.
``(E) Qualified interest income.--For purposes of
subparagraph (D), the term `qualified interest income'
means the sum of the following amounts derived by the
regulated investment company from sources within the
United States:
``(i) Any amount includible in gross income
as original issue discount (within the meaning
of section 1273) on an obligation payable 183
days or less from the date of original issue
(without regard to the period held by the
company).
``(ii) Any interest includible in gross
income (including amounts recognized as
ordinary income in respect of original issue
discount or market discount or acquisition
discount under part V of subchapter P and such
other amounts as regulations may provide) on an
obligation which is in registered form; except
that this clause shall not apply to--
``(I) any interest on an obligation
issued by a corporation or partnership
if the regulated investment company is
a 10-percent shareholder in such
corporation or partnership, and
``(II) any interest which is
treated as not being portfolio interest
under the rules of subsection (h)(4).
``(iii) Any interest referred to in
subsection (i)(2)(A) (without regard to the
trade or business of the regulated investment
company).
``(iv) Any interest-related dividend
includable in gross income with respect to
stock of another regulated investment company.
``(F) 10-percent shareholder.--For purposes of this
paragraph, the term `10-percent shareholder' has the
meaning given such term by subsection (h)(3)(B).
``(2) Short-term capital gain dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1)(A) of subsection (a) on any short-term
capital gain dividend received from a regulated
investment company.
``(B) Exception for aliens taxable under subsection
(a)(2).--Subparagraph (A) shall not apply in the case
of any nonresident alien individual subject to tax
under subsection (a)(2).
``(C) Short-term capital gain dividend.--For
purposes of this paragraph, a short-term capital gain
dividend is any dividend (or part thereof) which is
designated by the regulated investment company as a
short-term capital gain dividend in a written notice
mailed to its shareholders not later than 60 days after
the close of its taxable year. If the aggregate amount
so designated with respect to a taxable year of the
company (including amounts so designated with respect
to dividends paid after the close of the taxable year
described in section 855) is greater than the qualified
short-term gain of the company for such taxable year,
the portion of each distribution which shall be a
short-term capital gain dividend shall be only that
portion of the amounts so designated which such
qualified short-term gain bears to the aggregate amount
so designated.
``(D) Qualified short-term gain.--For purposes of
subparagraph (C), the term `qualified short-term gain'
means the excess of the net short-term capital gain of
the regulated investment company for the taxable year
over the net long-term capital loss (if any) of such
company for such taxable year. For purposes of this
subparagraph--
``(i) the net short-term capital gain of
the regulated investment company shall be
computed by treating any short-term capital
gain dividend includible in gross income with
respect to stock of another regulated
investment company as a short-term capital
gain, and
``(ii) the excess of the net short-term
capital gain for a taxable year over the net
long-term capital loss for a taxable year (to
which an election under section 4982(e)(4) does
not apply) shall be determined without regard
to any net capital loss or net short-term
capital loss attributable to transactions after
October 31 of such year, and any such net
capital loss or net short-term capital loss
shall be treated as arising on the 1st day of
the next taxable year.
To the extent provided in regulations, clause (ii)
shall apply also for purposes of computing the taxable
income of the regulated investment company.''
(2) Foreign corporations.--Section 881 (relating to tax on
income of foreign corporations not connected with United States
business) is amended by redesignating subsection (e) as
subsection (f) and by inserting after subsection (d) the
following new subsection:
``(e) Tax Not To Apply to Certain Dividends of Regulated Investment
Companies.--
``(1) Interest-related dividends.--
``(A) In general.--Except as provided in
subparagraph (B), no tax shall be imposed under
paragraph (1) of subsection (a) on any interest-related
dividend (as defined in section 871(k)(1)) received
from a regulated investment company.
``(B) Exception.--Subparagraph (A) shall not
apply--
``(i) to any dividend referred to in
section 871(k)(1)(B), and
``(ii) to any interest-related dividend
received by a controlled foreign corporation
(within the meaning of section 957(a)) to the
extent such dividend is attributable to
interest received by the regulated investment
company from a person who is a related person
(within the meaning of section 864(d)(4)) with
respect to such controlled foreign corporation.
``(C) Treatment of dividends received by controlled
foreign corporations.--The rules of subsection
(c)(5)(A) shall apply to any interest-related dividend
received by a controlled foreign corporation (within
the meaning of section 957(a)) to the extent such
dividend is attributable to interest received by the
regulated investment company which is described in
clause (ii) of section 871(k)(1)(E) (and not described
in clause (i) or (iii) of such section).
``(2) Short-term capital gain dividends.--No tax shall be
imposed under paragraph (1) of subsection (a) on any short-term
capital gain dividend (as defined in section 871(k)(2))
received from a regulated investment company.''.
(3) Withholding taxes.--
(A) Section 1441(c) (relating to exceptions) is
amended by adding at the end the following new
paragraph:
``(12) Certain dividends received from regulated investment
companies.--
``(A) In general.--No tax shall be required to be
deducted and withheld under subsection (a) from any
amount exempt from the tax imposed by section
871(a)(1)(A) by reason of section 871(k).
``(B) Special rule.--For purposes of subparagraph
(A), clause (i) of section 871(k)(1)(B) shall not apply
to any dividend unless the regulated investment company
knows that such dividend is a dividend referred to in
such clause. A similar rule shall apply with respect to
the exception contained in section 871(k)(2)(B).''.
(B) Section 1442(a) (relating to withholding of tax
on foreign corporations) is amended--
(i) by striking ``and the reference in
section 1441(c)(10)'' and inserting ``the
reference in section 1441(c)(10)'', and
(ii) by inserting before the period at the
end the following: ``, and the references in
section 1441(c)(12) to sections 871(a) and
871(k) shall be treated as referring to
sections 881(a) and 881(e) (except that for
purposes of applying subparagraph (A) of
section 1441(c)(12), as so modified, clause
(ii) of section 881(e)(1)(B) shall not apply to
any dividend unless the regulated investment
company knows that such dividend is a dividend
referred to in such clause)''.
(b) Estate Tax Treatment of Interest in Certain Regulated
Investment Companies.--Section 2105 (relating to property without the
United States for estate tax purposes) is amended by adding at the end
the following new subsection:
``(d) Stock in a RIC.--
``(1) In general.--For purposes of this subchapter, stock
in a regulated investment company (as defined in section 851)
owned by a nonresident not a citizen of the United States shall
not be deemed property within the United States in the
proportion that, at the end of the quarter of such investment
company's taxable year immediately preceding a decedent's date
of death (or at such other time as the Secretary may designate
in regulations), the assets of the investment company that were
qualifying assets with respect to the decedent bore to the
total assets of the investment company.
``(2) Qualifying assets.--For purposes of this subsection,
qualifying assets with respect to a decedent are assets that,
if owned directly by the decedent, would have been--
``(A) amounts, deposits, or debt obligations
described in subsection (b) of this section,
``(B) debt obligations described in the last
sentence of section 2104(c), or
``(C) other property not within the United
States.''
(c) Treatment of Regulated Investment Companies Under Section
897.--
(1) Paragraph (1) of section 897(h) is amended by striking
``REIT'' each place it appears and inserting ``qualified
investment entity''.
(2) Paragraphs (2) and (3) of section 897(h) are amended to
read as follows:
``(2) Sale of stock in domestically controlled entity not
taxed.--The term `United States real property interest' does
not include any interest in a domestically controlled qualified
investment entity.
``(3) Distributions by domestically controlled qualified
investment entities.--In the case of a domestically controlled
qualified investment entity, rules similar to the rules of
subsection (d) shall apply to the foreign ownership percentage
of any gain.''
(3) Subparagraphs (A) and (B) of section 897(h)(4) are
amended to read as follows:
``(A) Qualified investment entity.--The term
`qualified investment entity' means any real estate
investment trust and any regulated investment company.
``(B) Domestically controlled.--The term
`domestically controlled qualified investment entity'
means any qualified investment entity in which at all
times during the testing period less than 50 percent in
value of the stock was held directly or indirectly by
foreign persons.''
(4) Subparagraphs (C) and (D) of section 897(h)(4) are each
amended by striking ``REIT'' and inserting ``qualified
investment entity''.
(5) The subsection heading for subsection (h) of section
897 is amended by striking ``REITS'' and inserting ``Certain
Investment Entities''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
dividends with respect to taxable years of regulated investment
companies beginning after December 31, 2004.
(2) Estate tax treatment.--The amendment made by subsection
(b) shall apply to estates of decedents dying after December
31, 2004.
(3) Certain other provisions.--The amendments made by
subsection (c) (other than paragraph (1) thereof) shall take
effect after December 31, 2004.
SEC. 287. TAXATION OF CERTAIN SETTLEMENT FUNDS.
(a) In General.--Subsection (g) of section 468B (relating to
clarification of taxation of certain funds) is amended to read as
follows:
``(g) Clarification of Taxation of Certain Funds.--
``(1) In general.--Except as provided in paragraph (2),
nothing in any provision of law shall be construed as providing
that an escrow account, settlement fund, or similar fund is not
subject to current income tax. The Secretary shall prescribe
regulations providing for the taxation of any such account or
fund whether as a grantor trust or otherwise.
``(2) Exemption from tax for certain settlement funds.--An
escrow account, settlement fund, or similar fund shall be
treated as beneficially owned by the United States and shall be
exempt from taxation under this subtitle if--
``(A) it is established pursuant to a consent
decree entered by a judge of a United States District
Court,
``(B) it is created for the receipt of settlement
payments as directed by a government entity for the
sole purpose of resolving or satisfying one or more
claims asserting liability under the Comprehensive
Environmental Response, Compensation, and Liability Act
of 1980,
``(C) the authority and control over the
expenditure of funds therein (including the expenditure
of contributions thereto and any net earnings thereon)
is with such government entity, and
``(D) upon termination, any remaining funds will be
disbursed to such government entity for use in
accordance with applicable law.
For purposes of this paragraph, the term `government entity'
means the United States, any State or political subdivision
thereof, the District of Columbia, any possession of the United
States, and any agency or instrumentality of any of the
foregoing.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2004.
SEC. 288. EXPANSION OF HUMAN CLINICAL TRIALS QUALIFYING FOR ORPHAN DRUG
CREDIT.
(a) In General.--Paragraph (2) of section 45C(b) (relating to
qualified clinical testing expenses) is amended by adding at the end
the following new subparagraph:
``(C) Treatment of certain expenses incurred before
designation.--For purposes of subparagraph (A)(ii)(I),
if a drug is designated under section 526 of the
Federal Food, Drug, and Cosmetic Act not later than the
due date (including extensions) for filing the return
of tax under this subtitle for the taxable year in
which the application for such designation of such drug
was filed, such drug shall be treated as having been
designated on the date that such application was
filed.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to expenses incurred after the date of the enactment of this Act.
SEC. 289. SIMPLIFICATION OF EXCISE TAX IMPOSED ON BOWS AND ARROWS.
(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
December 31, 2004.
SEC. 290. REPEAL OF EXCISE TAX ON FISHING TACKLE BOXES.
(a) Repeal.--Paragraph (6) of section 4162(a) (defining sport
fishing equipment) is amended by striking subparagraph (C) and by
redesignating subparagraphs (D) through (J) as subparagraphs (C)
through (I), respectively.
(b) Effective Date.--The amendments made this section shall apply
to articles sold by the manufacturer, producer, or importer after
December 31, 2004.
SEC. 291. SONAR DEVICES SUITABLE FOR FINDING FISH.
(a) Not Treated as Sport Fishing Equipment.--Subsection (a) of
section 4162 (relating to sport fishing equipment defined) is amended
by inserting ``and'' at the end of paragraph (8), by striking ``, and''
at the end of paragraph (9) and inserting a period, and by striking
paragraph (10).
(b) Conforming Amendment.--Section 4162 is amended by striking
subsection (b) and by redesignating subsection (c) as subsection (b).
(c) Effective Date.--The amendments made this section shall apply
to articles sold by the manufacturer, producer, or importer after
December 31, 2004.
SEC. 292. INCOME TAX CREDIT TO DISTILLED SPIRITS WHOLESALERS FOR COST
OF CARRYING FEDERAL EXCISE TAXES ON BOTTLED DISTILLED
SPIRITS.
(a) In General.--Subpart A of part I of subchapter A of chapter 51
(relating to gallonage and occupational taxes) is amended by adding at
the end the following new section:
``SEC. 5011. INCOME TAX CREDIT FOR WHOLESALER'S AVERAGE COST OF
CARRYING EXCISE TAX.
``(a) In General.--For purposes of section 38, in the case of an
eligible wholesaler, the amount of the distilled spirits wholesalers
credit for any taxable year is the amount equal to the product of--
``(1) the number of cases of bottled distilled spirits--
``(A) which were bottled in the United States, and
``(B) which are purchased by such wholesaler during
the taxable year directly from the bottler of such
spirits, and
``(2) the average tax-financing cost per case for the most
recent calendar year ending before the beginning of such
taxable year.
``(b) Eligible Wholesaler.--For purposes of this section, the term
`eligible wholesaler' means any person who holds a permit under the
Federal Alcohol Administration Act as a wholesaler of distilled
spirits.
``(c) Average Tax-Financing Cost.--
``(1) In general.--For purposes of this section, the
average tax-financing cost per case for any calendar year is
the amount of interest which would accrue at the deemed
financing rate during a 60-day period on an amount equal to the
deemed Federal excise per case.
``(2) Deemed financing rate.--For purposes of paragraph
(1), the deemed financing rate for any calendar year is the
average of the corporate overpayment rates under paragraph (1)
of section 6621(a) (determined without regard to the last
sentence of such paragraph) for calendar quarters of such year.
``(3) Deemed federal excise tax based on case.--For
purposes of paragraph (1), the deemed Federal excise tax per
case of 12 80-proof 750ml bottles is $22.83.
``(4) Number of cases in lot.--For purposes of this
section, the number of cases in any lot of distilled spirits
shall be determined by dividing the number of liters in such
lot by 9.''
(b) Conforming Amendments.--
(1) Subsection (b) of section 38 is amended by striking
``plus'' at the end of paragraph (14), by striking the period
at the end of paragraph (15) and inserting ``, plus'', and by
adding at the end the following new paragraph:
``(16) in the case of an eligible wholesaler (as defined in
section 5011(b)), the distilled spirits wholesalers credit
determined under section 5011(a).''
(2) Subsection (d) of section 39 (relating to carryback and
carryforward of unused credits) is amended by adding at the end
the following new paragraph:
``(11) No carryback of section 5011 credit before january
1, 2005.--No portion of the unused business credit for any
taxable year which is attributable to the credit determined
under section 5011(a) may be carried back to a taxable year
beginning before January 1, 2005.''.
(3) The table of sections for subpart A of part I of
subchapter A of chapter 51 is amended by adding at the end the
following new item:
``Sec. 5011. Income tax credit for
wholesaler's average cost of
carrying excise tax.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 293. SUSPENSION OF OCCUPATIONAL TAXES RELATING TO DISTILLED
SPIRITS, WINE, AND BEER.
(a) In General.--Subpart G of part II of subchapter A of chapter 51
is amended by redesignating section 5148 as section 5149 and by
inserting after section 5147 the following new section:
``SEC. 5148. SUSPENSION OF OCCUPATIONAL TAX.
``(a) In General.--Notwithstanding sections 5081, 5091, 5111, 5121,
and 5131, the rate of tax imposed under such sections for the
suspension period shall be zero. During such period, persons engaged in
or carrying on a trade or business covered by such sections shall
register under section 5141 and shall comply with the recordkeeping
requirements under this part.
``(b) Suspension Period.--For purposes of subsection (a), the
suspension period is the period beginning on July 1, 2004, and ending
on June 30, 2007.''.
(b) Conforming Amendment.--Section 5117 is amended by adding at the
end the following new subsection:
``(d) Special Rule During Suspension Period.--Except as provided in
subsection (b) or by the Secretary, during the suspension period (as
defined in section 5148) it shall be unlawful for any dealer to
purchase distilled spirits for resale from any person other than a
wholesale dealer in liquors who is required to keep records under
section 5114.''.
(c) Clerical Amendment.--The table of sections for subpart G of
part II of subchapter A of chapter 51 is amended by striking the last
item and inserting the following new items:
``Sec. 5148. Suspension of occupational
tax.
``Sec. 5149. Cross references.''.
(d) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 294. MODIFICATION OF UNRELATED BUSINESS INCOME LIMITATION ON
INVESTMENT IN CERTAIN SMALL BUSINESS INVESTMENT
COMPANIES.
(a) In General.--Paragraph (6) of section 514(c) (relating to
acquisition indebtedness) is amended to read as follows:
``(6) Certain federal financing.--
``(A) In general.--For purposes of this section,
the term `acquisition indebtedness' does not include--
``(i) an obligation, to the extent that it
is insured by the Federal Housing
Administration, to finance the purchase,
rehabilitation, or construction of housing for
low and moderate income persons, or
``(ii) indebtedness incurred by a small
business investment company licensed under the
Small Business Investment Act of 1958 and
formed after the date of the enactment of the
American Jobs Creation Act of 2004, if such
indebtedness 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) Limitation.--Subparagraph (A)(ii) shall not
apply with respect to any small business investment
company during any period that--
``(i) any organization which is exempt from
tax under this title (other than a governmental
unit) owns more than 25 percent of the capital
or profits interest in such company, or
``(ii) organizations which are exempt from
tax under this title (including governmental
units other than any agency or instrumentality
of the United States) own, in the aggregate, 50
percent or more of the capital or profits
interest in such company.''.
(b) Effective Date.--The amendment made by this section shall apply
to indebtedness incurred by small business investment companies formed
after the date of the enactment of the American Jobs Creation Act of
2004.
SEC. 295. ELECTION TO DETERMINE TAXABLE INCOME FROM CERTAIN
INTERNATIONAL SHIPPING ACTIVITIES USING PER TON RATE.
(a) In General.--Chapter 1 of the Internal Revenue Code of 1986 is
amended by inserting after subchapter Q the following new subchapter:
``Subchapter R--Election To Determine Taxable Income From Certain
International Shipping Activities Using per Ton Rate
``Sec. 1352. Alternative tax on
qualifying shipping activities.
``Sec. 1353. Taxable income from
qualifying shipping activities.
``Sec. 1354. Qualifying shipping tax
election; revocation;
termination.
``Sec. 1355. Definitions and special
rules.
``Sec. 1356. Qualifying shipping
activities.
``Sec. 1357. Items not subject to regular
tax; depreciation; interest.
``Sec. 1358. Allocation of credits,
income, and deductions.
``Sec. 1359. Disposition of qualifying
shipping assets.
``SEC. 1352. ALTERNATIVE TAX ON QUALIFYING SHIPPING ACTIVITIES.
``(a) In General.--The taxable income of an electing corporation
from qualifying shipping activities shall be the amount determined
under this subchapter, and the corporate percentages of the items of
income, gain, loss, deduction, or credit of an electing corporation and
of other members of the electing group of such corporation which would
otherwise be taken into account by reason of its qualifying shipping
activities shall be taken into account to the extent provided in
section 1357.
``(b) Alternative Tax.--The taxable income of an electing
corporation from qualifying shipping activities, if otherwise taxable
under section 11, 55, 882, 887, or 1201(a) shall be subject to tax only
under this section at the maximum rate specified in section 11(b). The
income of a foreign corporation shall not be subject to tax under this
subchapter to the extent its income is excludible from gross income
under section 883(a)(1).
``SEC. 1353. TAXABLE INCOME FROM QUALIFYING SHIPPING ACTIVITIES.
``(a) In General.--For purposes of this subchapter, the taxable
income of an electing corporation from qualifying shipping activities
shall be its corporate income percentage of the sum of the amounts
determined under subsection (b) for each qualifying vessel operated by
such electing corporation or other electing entity.
``(b) Amounts.--For purposes of subsection (a), the amount of
taxable income of an electing entity for each qualifying vessel shall
equal the product of--
``(1) the daily notional taxable income from the operation
of the qualifying vessel in United States foreign trade, and
``(2) the number of days during the taxable year that the
electing entity operated such vessel as a qualifying vessel in
United States foreign trade.
``(c) Daily Notional Taxable Income.--For purposes of subsection
(b), the daily notional taxable income from the operation of a
qualifying vessel is 40 cents for each 100 tons of the net tonnage of
the vessel, up to 25,000 net tons, and 20 cents for each 100 tons of
the net tonnage of the vessel, in excess of 25,000 net tons.
``(d) Multiple Operators of Vessel.--If 2 or more persons have a
joint interest in a qualifying vessel and are treated as operators of
that vessel, the taxable income from the operation of such vessel for
that time (as determined under this section) shall be allocated among
such persons on the basis of their ownership and charter interests in
such vessel or on such other basis as the Secretary may prescribe by
regulations.
``(e) Noncorporate Percentage.--Notwithstanding any contrary
provision of this subchapter, the noncorporate percentage of any item
of income, gain, loss, deduction, or credit of any member of an
electing group shall be taken into account for all purposes of this
subtitle as if this subchapter were not in effect.
``SEC. 1354. QUALIFYING SHIPPING TAX ELECTION; REVOCATION; TERMINATION.
``(a) In General.--Except as provided in subsections (b) and (f), a
qualifying shipping tax election may be made in respect of any
qualifying entity.
``(b) Condition of Election.--An election may be made by a member
of a controlled group under this subsection for any taxable year only
if all qualifying entities that are members of the controlled group
join in the election.
``(c) When Made.--An election under subsection (a) may be made by a
qualifying entity in such form as prescribed by the Secretary. Such
election shall be filed with the qualifying entity's return for the
first taxable year to which the election shall apply, by the due date
for such return (including any applicable extensions).
``(d) Years for Which Effective.--An election under subsection (a)
shall be effective for the taxable year of the qualifying entity for
which it is made and for all succeeding taxable years of the entity,
until such election is terminated under subsection (e).
``(e) Termination.--
``(1) By revocation.--
``(A) In general.--An election under subsection (a)
may be terminated by revocation.
``(B) When effective.--Except as provided in
subparagraph (C)--
``(i) a revocation made during the taxable
year and on or before the 15th day of the 3rd
month thereof shall be effective on the 1st day
of such taxable year, and
``(ii) a revocation made during the taxable
year but after such 15th day shall be effective
on the 1st day of the following taxable year.
``(C) Revocation may specify prospective date.--If
the revocation specifies a date for revocation which is
on or after the day on which the revocation is made,
the revocation shall be effective on and after the date
so specified.
``(2) By entity ceasing to be qualifying entity.--
``(A) In general.--An election under subsection (a)
shall be terminated whenever (at any time on or after
the 1st day of the 1st taxable year for which the
entity is an electing entity) such entity ceases to be
a qualifying entity.
``(B) When effective.--Any termination under this
paragraph shall be effective on and after the date of
cessation.
``(f) Election After Termination.--If a qualifying entity has made
an election under subsection (a) and if such election has been
terminated under subsection (e), such entity (and any successor entity)
shall not be eligible to make an election under subsection (a) for any
taxable year before its 5th taxable year which begins after the 1st
taxable year for which such termination is effective, unless the
Secretary consents to such election.
``SEC. 1355. DEFINITIONS AND SPECIAL RULES.
``(a) Definitions.--For purposes of this subchapter:
``(1) The term `controlled group' means any group of trusts
and business entities whose members would be treated as a
single employer under the rules of section 52(a) (without
regard to paragraphs (1) and (2) thereof) and section 52(b)(1).
``(2) The term `corporate income percentage' means the
least aggregate share, expressed as a percentage, of any item
of income or gain of an electing corporation or electing group
of which such corporation is a member from qualifying shipping
activities that would, but for an election in effect under this
subchapter, be required to be reported on the Federal income
tax return of an electing corporation during any taxable
period. In the case of an electing group which includes two or
more electing corporations, the corporate income percentage of
each such corporation shall be determined on the basis of such
corporations' direct and indirect ownership and charter
interests in qualifying vessels of the electing group or on
such other basis as the Secretary may prescribe by regulations.
``(3) The term `corporate loss percentage' means the
greatest aggregate share, expressed as a percentage, of any
item of loss, deduction or credit of an electing corporation or
electing group of which such corporation is a member from
qualifying shipping activities that would, but for an election
in effect under this subchapter, be required to be reported on
the Federal income tax return of an electing corporation during
any taxable period.
``(4) The term `corporate percentages' means the corporate
income percentage and the corporate loss percentage.
``(5) The term `electing corporation' means any C
corporation that is an electing entity or that would, but for
an election in effect under this subchapter, be required to
report any item of income, gain, loss, deduction, or credit of
an electing entity on its Federal income tax return.
``(6) The term `electing entity' means any qualifying
entity for which an election is in effect under this
subchapter.
``(7) The term `electing group' means a controlled group of
which one or more members is an electing entity.
``(8) The term `noncorporate percentage' means the
difference between one hundred percent and the corporate income
percentage or corporate loss percentage, as applicable.
``(9) The term `qualifying entity' means a trust or
business entity that--
``(A) operates one or more qualifying vessels, and
``(B) meets the shipping activity requirement in
subsection (c).
``(10) The term `qualifying shipping assets' means any
qualifying vessel and other assets which are used in core
qualifying activities as described in section 1356(b).
``(11) The term `qualifying vessel' means a self-propelled
(or a combination self-propelled and non-self-propelled) United
States flag vessel of not less than 10,000 deadweight tons used
in the United States foreign trade.
``(12) The term `United States domestic trade' means the
transportation of goods or passengers between places in the
United States.
``(13) The term `United States flag vessel' means any
vessel documented under the laws of the United States.
``(14) The term `United States foreign trade' means the
transportation of goods or passengers between a place in the
United States and a foreign place or between foreign places.
``(b) Operating a Vessel.--For purposes of this subchapter:
``(1) Except as provided in paragraph (2), an entity is
treated as operating any vessel owned by, or chartered
(including a time charter) to, the entity.
``(2) An entity is treated as operating a vessel that it
has chartered out on bareboat charter terms only if--
``(A) the vessel is temporarily surplus to the
entity's requirements and the term of the charter does
not exceed three years; or
``(B) the vessel is bareboat chartered to a member
of a controlled group which includes such entity or to
an unrelated third party that sub-bareboats or time
charters the vessel to a member of such controlled
group (including the owner).
``(c) Shipping Activity Requirement.--For purposes of this section,
the shipping activity requirement is met for a taxable year only by an
entity described in paragraph (1), (2), or (3).
``(1) An entity in the first taxable year of its qualifying
shipping tax election if, for the preceding taxable year, the
test in paragraph (4) is met.
``(2) An entity in the second or any subsequent taxable
year of its qualifying shipping tax election if, for each of
the two preceding taxable years, the test in paragraph (4) is
met.
``(3) An entity that would be described in paragraph (1) or
(2) if the test in paragraph (4) were applied on an aggregate
basis to the controlled group of which such entity is a member,
and vessel charters between members of the controlled group
were disregarded.
``(4) The test in this paragraph is met if on average at
least 25 percent of the aggregate tonnage of qualifying vessels
operated by the entity were owned by the entity or chartered to
the entity on bareboat charter terms. For purposes of the
preceding sentence, vessels chartered (including time
chartered) to an entity by a member of a controlled group which
includes the entity, or by a third party that bareboat charters
the vessels from the entity or a member of the entity's
controlled group, shall be treated as chartered to the entity
on bareboat charter terms.
``(d) Effect of Temporarily Ceasing To Operate a Qualifying
Vessel.--
``(1) A temporary cessation by an electing entity in
operation of a qualifying vessel shall be disregarded for
purposes of subsections (b) and (c) if the electing entity
gives timely notice to the Secretary stating--
``(A) that it has temporarily ceased to operate the
qualifying vessel, and
``(B) its intention to resume operating the
qualifying vessel.
``(2) Notice shall be deemed timely if given not later than
the due date (including extensions) for the electing entity's
tax return (as set forth in section 6072(b)) for the taxable
year in which the temporary cessation begins.
``(3) The treatment provided by paragraph (1) shall
continue until the earlier of--
``(A) the electing entity abandoning its intention
to resume operation of the qualifying vessel, or
``(B) the electing entity resuming operation of the
qualifying vessel.
``(e) Effect of Temporarily Operating a Qualifying Vessel in the
United States Domestic Trade.--
``(1) The temporary operation in the United States domestic
trade of any qualifying vessel which had been used in the
United States foreign trade shall be disregarded for purposes
of this subchapter if the electing entity gives timely notice
to the Secretary stating--
``(A) that it temporarily operates or has operated
in the United States domestic trade a qualifying vessel
which had been used in the United States foreign trade,
and
``(B) its intention to resume operation of the
vessel in the United States foreign trade.
``(2) Notice shall be deemed timely if given not later than
the due date (including extensions) for the electing entity's
tax return (as set forth in section 6072(b)) for the taxable
year in which the temporary cessation begins.
``(3) The treatment provided by paragraph (1) shall
continue until the earlier of--
``(A) the electing entity abandoning its intention
to resume operations of the vessel in the United States
foreign trade, or
``(B) the electing entity resuming operation of the
vessel in the United States foreign trade.
``(f) Effect of Change in Use.--
``(1) Except as provided in subsection (e), a vessel that
is used other than for operations in the United States foreign
trade on other than a temporary basis ceases to be a qualifying
vessel when such use begins.
``(2) For purposes of this subsection, a change in use of a
vessel, other than a commencement of operation in the United
States domestic trade, is taken to be permanent unless there
are circumstances indicating that it is temporary.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.
``SEC. 1356. QUALIFYING SHIPPING ACTIVITIES.
``(a) Qualifying Shipping Activities.--For purposes of this
subchapter the `qualifying shipping activities' of an electing entity
consist of--
``(1) core qualifying activities,
``(2) qualifying secondary activities, and
``(3) qualifying incidental activities.
``(b) Core Qualifying Activities.--
``(1) The `core qualifying activities' of an electing
entity are--
``(A) its activities in operating qualifying
vessels in United States foreign trade, and
``(B) other activities of the electing entity and
other members of its electing group that are an
integral part of its business of operating qualifying
vessels in United States foreign trade, including
ownership or operation of barges, containers, chassis,
and other equipment that are the complement of, or used
in connection with, a qualifying vessel in United
States foreign trade, the inland haulage of cargo
shipped, or to be shipped, on qualifying vessels in
United States foreign trade, and the provision of
terminal, maintenance, repair, logistical, or other
vessel, container, or cargo-related services that are
an integral part of operating qualifying vessels in
United States foreign trade.
``(2) `Core qualifying activities' do not include the
provision by an entity of facilities or services to any person,
other than--
``(A) another member of such entity's electing
group,
``(B) a consignor, consignee, or other customer of
such entity's business of operating qualifying vessels
in United States foreign trade, or
``(C) a member of an alliance, joint venture, pool,
partnership or similar undertaking involving the
operation of qualifying vessels in United States
foreign trade of which such entity is a member.
``(c) Qualifying Secondary Activities.--For purposes of this
subsection--
``(1) the term `secondary activities' means activities that
are not core qualifying activities, and--
``(A) are the active management or operation of
vessels in the United States foreign trade,
``(B) the provision of vessel, container, or cargo-
related facilities or services to any person, or
``(C) such other activities as may be prescribed by
the Secretary pursuant to regulations, and
``(2) the `qualified secondary activities' of an electing
entity are its secondary activities and the secondary
activities of other members of its electing group, but only to
the extent that, without regard to this subchapter, the
aggregate gross income derived by the electing entity and the
other members of its electing group from such activities does
not exceed 20 percent of the aggregate gross income derived by
the electing entity and the other members of its electing group
from their core qualifying activities.
``(d) Qualifying Incidental Activities.--Shipping-related
activities carried on by an electing entity or another member of its
electing group are qualified incidental activities of the electing
entity if--
``(1) incidental to its core qualifying activities,
``(2) not qualifying secondary activities, and
``(3) without regard to this subchapter, the aggregate
gross income derived by the electing entity and other members
of its electing group from such activities does not exceed 0.1
percent of such entities' aggregate gross income from their
core qualifying activities.
``SEC. 1357. ITEMS NOT SUBJECT TO REGULAR TAX; DEPRECIATION; INTEREST.
``(a) Exclusion From Gross Income.--Gross income of an electing
entity shall not include the corporate income percentage of--
``(1) income from qualifying shipping activities in the
United States foreign trade,
``(2) income from money, bank deposits and other temporary
investments which are reasonably necessary to meet the working
capital requirements of qualifying shipping activities, and
``(3) income from money or other intangible assets
accumulated pursuant to a plan to purchase qualifying shipping
assets.
``(b) Electing Group Member.--Gross income of a member of an
electing group that is not an electing entity shall not include the
corporate income percentage of its income from qualifying shipping
activities that are taken into account under this subchapter as
qualifying shipping activities of an electing entity.
``(c) Denial of Losses, Deductions, and Credits.--
``(1) General rule.--Subject to paragraph (2), the
corporate loss percentage of each item of loss, deduction
(other than for interest expense), or credit of any taxpayer
with respect to any activity the income from which is excluded
from gross income under this section shall be disallowed.
``(2) Depreciation.--Notwithstanding paragraph (1), the
deduction for depreciation of a qualifying shipping asset shall
be allowed in determining the adjusted basis of such asset for
purposes of determining gain from its disposition.
``(A) Except as provided in subparagraph (B), the
straight line method of depreciation shall apply to the
corporate income percentage of qualifying shipping
assets the income from operation of which is excluded
from gross income under this section.
``(B) Subparagraph (A) shall not apply to any
qualifying shipping asset which is subject to a charter
entered into prior to the effective date of this
subchapter.
``(3) Interest.--The corporate loss percentage of an
electing entity's interest expense shall be disallowed in the
ratio that the fair market value of its qualifying vessel
assets bears to the fair market value of its total assets.
``(d) Section Inapplicable to Unrelated Persons.--This section
shall not apply to a taxpayer that is not a member of an electing
group.
``SEC. 1358. ALLOCATION OF CREDITS, INCOME, AND DEDUCTIONS.
``(a) Qualifying Shipping Activities.--For purposes of this
chapter, the qualifying shipping activities of an electing entity shall
be treated as a separate trade or business activity from all other
activities conducted by the entity.
``(b) Exclusion of Credits or Deductions.--
``(1) No deduction shall be allowed against the taxable
income of an electing corporation from qualifying shipping
activities, and no credit shall be allowed against the tax
imposed by section 1352(b).
``(2) No deduction shall be allowed for any net operating
loss attributable to the qualifying shipping activities of a
corporation to the extent that such loss is carried forward by
the corporation from a taxable year preceding the first taxable
year for which such corporation was an electing corporation.
``(c) Transactions Not at Arm's Length.--Section 482 shall apply in
accordance with this subsection to a transaction or series of
transactions--
``(1) as between an electing entity and another person, or
``(2) as between an entity's qualifying shipping activities
and other activities carried on by it.
``SEC. 1359. DISPOSITION OF QUALIFYING SHIPPING ASSETS.
``(a) In General.--If an electing entity sells or disposes of
qualifying shipping assets (as defined in subsection (c)) in an
otherwise taxable transaction, at the election of the entity no gain
shall be recognized if replacement qualifying shipping assets are
acquired during the period specified in subsection (b), except to the
extent that the amount realized upon such sale or disposition exceeds
the cost of the replacement qualifying shipping assets.
``(b) Period Within Which Property Must Be Replaced.--The period
referred to in subsection (a) shall be the period beginning one year
prior to the disposition of the qualifying shipping assets and ending--
``(1) 3 years after the close of the first taxable year in
which the gain is realized, or
``(2) subject to such terms and conditions as may be
specified by the Secretary, on such later date as the Secretary
may designate on application by the taxpayer. Such application
shall be made at such time and in such manner as the Secretary
may by regulations prescribe.
``(c) Time for Assessment of Deficiency Attributable to Gain.--If
an electing entity has made the election provided in subsection (a),
then--
``(1) the statutory period for the assessment of any
deficiency, for any taxable year in which any part of the gain
is realized, attributable to such gain shall not expire prior
to the expiration of 3 years from the date the Secretary is
notified by the entity (in such manner as the Secretary may by
regulations prescribe) of the replacement tonnage tax property
or of an intention not to replace, and
``(2) such deficiency may be assessed before the expiration
of such 3-year period notwithstanding the provisions of section
6212(c) or the provisions of any other law or rule of law which
would otherwise prevent such assessment.
``(d) Basis of Replacement Qualifying Shipping Assets.--In the case
of replacement qualifying shipping assets purchased by an electing
entity which resulted in the nonrecognition of any part of the gain
realized as the result of a sale or other disposition of qualifying
shipping assets, the basis shall be the cost of such property decreased
in the amount of the gain not so recognized; and if the property
purchased consists of more than one piece of property, the basis
determined under this sentence shall be allocated to the purchased
properties in proportion to their respective costs.
``(e) Replacement Qualifying Shipping Assets Must Be Acquired From
Unrelated Person in Certain Cases.--
``(1) In general.--Subsection (a) shall not apply if the
replacement qualifying shipping assets are acquired from a
related person except to the extent that the related person
acquired the replacement qualifying shipping assets from an
unrelated person during the period applicable under subsection
(b).
``(2) Related person.--For purposes of this subsection, a
person is related to another person if the person bears a
relationship to the other person described in section 267(b) or
707(b)(1).''.
(b) Technical and Conforming Amendment.--The second sentence of
section 56(g)(4)(B)(i), as amended by this Act, is further amended by
inserting ``or 1357'' after ``section 139A''.
(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. 296. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN EXPENSES
INCURRED IN SUPPORT OF NATIVE ALASKAN SUBSISTENCE
WHALING.
(a) In General.--Section 170 (relating to charitable, etc.,
contributions and gifts), as amended by this Act, is amended by
redesignating subsection (n) as subsection (o) and by inserting after
subsection (m) the following new subsection:
``(n) Expenses Paid by Certain Whaling Captains in Support of
Native Alaskan Subsistence Whaling.--
``(1) In general.--In the case of an individual who is
recognized by the Alaska Eskimo Whaling Commission as a whaling
captain charged with the responsibility of maintaining and
carrying out sanctioned whaling activities and who engages in
such activities during the taxable year, the amount described
in paragraph (2) (to the extent such amount does not exceed
$10,000 for the taxable year) shall be treated for purposes of
this section as a charitable contribution.
``(2) Amount described.--
``(A) In general.--The amount described in this
paragraph is the aggregate of the reasonable and
necessary whaling expenses paid by the taxpayer during
the taxable year in carrying out sanctioned whaling
activities.
``(B) Whaling expenses.--For purposes of
subparagraph (A), the term `whaling expenses' includes
expenses for--
``(i) the acquisition and maintenance of
whaling boats, weapons, and gear used in
sanctioned whaling activities,
``(ii) the supplying of food for the crew
and other provisions for carrying out such
activities, and
``(iii) storage and distribution of the
catch from such activities.
``(3) Sanctioned whaling activities.--For purposes of this
subsection, the term `sanctioned whaling activities' means
subsistence bowhead whale hunting activities conducted pursuant
to the management plan of the Alaska Eskimo Whaling
Commission.''.
(b) Effective Date.--The amendments made by subsection (a) shall
apply to contributions made after December 31, 2004.
TITLE III--TAX REFORM AND SIMPLIFICATION FOR UNITED STATES BUSINESSES
SEC. 301. 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. 302. 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. 303. REDUCTION TO 2 FOREIGN TAX CREDIT BASKETS.
(a) In General.--Paragraph (1) of section 904(d) (relating to
separate application of section with respect to certain categories of
income) is amended to read as follows:
``(1) In general.--The provisions of subsections (a), (b),
and (c) and sections 902, 907, and 960 shall be applied
separately with respect to--
``(A) passive category income, and
``(B) general category income.''
(b) Categories.--Paragraph (2) of section 904(d) is amended by
striking subparagraph (B), by redesignating subparagraph (A) as
subparagraph (B), and by inserting before subparagraph (B) (as so
redesignated) the following new subparagraph:
``(A) Categories.--
``(i) Passive category income.--The term
`passive category income' means passive income
and specified passive category income.
``(ii) General category income.--The term
`general category income' means income other
than passive category income.''.
(c) Specified Passive Category Income.--Subparagraph (B) of section
904(d)(2), as so redesignated, is amended by adding at the end the
following new clause:
``(v) Specified passive category income.--
The term `specified passive category income'
means--
``(I) dividends from a DISC or
former DISC (as defined in section
992(a)) to the extent such dividends
are treated as income from sources
without the United States,
``(II) taxable income attributable
to foreign trade income (within the
meaning of section 923(b)), and
``(III) distributions from a FSC
(or a former FSC) out of earnings and
profits attributable to foreign trade
income (within the meaning of section
923(b)) or interest or carrying charges
(as defined in section 927(d)(1))
derived from a transaction which
results in foreign trade income (as
defined in section 923(b)).''.
(d) Treatment of Financial Services.--Paragraph (2) of section
904(d) is amended by striking subparagraph (D), by redesignating
subparagraph (C) as subparagraph (D), and by inserting before
subparagraph (D) (as so redesignated) the following new subparagraph:
``(C) Treatment of financial services income and
companies.--
``(i) In general.--Financial services
income shall be treated as general category
income in the case of--
``(I) a member of a financial
services group, and
``(II) any other person if such
person is predominantly engaged in the
active conduct of a banking, insurance,
financing, or similar business.
``(ii) Financial services group.--The term
`financial services group' means any affiliated
group (as defined in section 1504(a) without
regard to paragraphs (2) and (3) of section
1504(b)) which is predominantly engaged in the
active conduct of a banking, insurance,
financing, or similar business. In determining
whether such a group is so engaged, there shall
be taken into account only the income of
members of the group that are--
``(I) United States corporations,
or
``(II) controlled foreign
corporations in which such United
States corporations own, directly or
indirectly, at least 80 percent of the
total voting power and value of the
stock.
``(iii) Pass-thru entities.--The Secretary
shall by regulation specify for purposes of
this subparagraph the treatment of financial
services income received or accrued by
partnerships and by other pass-thru entities
which are not members of a financial services
group.''.
(e) Conforming Amendments.--
(1) Clause (iii) of section 904(d)(2)(B) (relating to
exceptions from passive income), as so redesignated, is amended
by striking subclause (I) and by redesignating subclauses (II)
and (III) as subclauses (I) and (II), respectively.
(2) Clause (i) of section 904(d)(2)(D) (defining financial
services income), as so redesignated, is amended by adding
``or'' at the end of subclause (I) and by striking subclauses
(II) and (III) and inserting the following new subclause:
``(II) passive income (determined
without regard to subparagraph
(B)(iii)(II)).''
(3) Section 904(d)(2)(D) (defining financial services
income), as so redesignated, is amended by striking clause
(iii).
(4) Paragraph (3) of section 904(d) is amended to read as
follows:
``(3) Look-thru in case of controlled foreign
corporations.--
``(A) In general.--Except as otherwise provided in
this paragraph, dividends, interest, rents, and
royalties received or accrued by the taxpayer from a
controlled foreign corporation in which the taxpayer is
a United States shareholder shall not be treated as
passive category income.
``(B) Subpart f inclusions.--Any amount included in
gross income under section 951(a)(1)(A) shall be
treated as passive category income to the extent the
amount so included is attributable to passive category
income.
``(C) Interest, rents, and royalties.--Any
interest, rent, or royalty which is received or accrued
from a controlled foreign corporation in which the
taxpayer is a United States shareholder shall be
treated as passive category income to the extent it is
properly allocable (under regulations prescribed by the
Secretary) to passive category income of the controlled
foreign corporation.
``(D) Dividends.--Any dividend paid out of the
earnings and profits of any controlled foreign
corporation in which the taxpayer is a United States
shareholder shall be treated as passive category income
in proportion to the ratio of--
``(i) the portion of the earnings and
profits attributable to passive category
income, to
``(ii) the total amount of earnings and
profits.
``(E) Look-thru applies only where subpart f
applies.--If a controlled foreign corporation meets the
requirements of section 954(b)(3)(A) (relating to de
minimis rule) for any taxable year, for purposes of
this paragraph, none of its foreign base company income
(as defined in section 954(a) without regard to section
954(b)(5)) and none of its gross insurance income (as
defined in section 954(b)(3)(C)) for such taxable year
shall be treated as passive category income, except
that this sentence shall not apply to any income which
(without regard to this sentence) would be treated as
financial services income. Solely for purposes of
applying subparagraph (D), passive income of a
controlled foreign corporation shall not be treated as
passive category income if the requirements of section
954(b)(4) are met with respect to such income.
``(F) Coordination with high-taxed income
provisions.--
``(i) In determining whether any income of
a controlled foreign corporation is passive
category income, subclause (II) of paragraph
(2)(B)(iii) shall not apply.
``(ii) Any income of the taxpayer which is
treated as passive category income under this
paragraph shall be so treated notwithstanding
any provision of paragraph (2); except that the
determination of whether any amount is high-
taxed income shall be made after the
application of this paragraph.
``(G) Dividend.--For purposes of this paragraph,
the term `dividend' includes any amount included in
gross income in section 951(a)(1)(B). Any amount
included in gross income under section 78 to the extent
attributable to amounts included in gross income in
section 951(a)(1)(A) shall not be treated as a dividend
but shall be treated as included in gross income under
section 951(a)(1)(A).
``(H) Look-thru applies to passive foreign
investment company inclusion.--If--
``(i) a passive foreign investment company
is a controlled foreign corporation, and
``(ii) the taxpayer is a United States
shareholder in such controlled foreign
corporation,
any amount included in gross income under section 1293
shall be treated as income in a separate category to
the extent such amount is attributable to income in
such category.''.
(5) Treatment of income tax base differences.--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.--
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 shall be treated as imposed on income
described in paragraph (1)(B).''
(6) Paragraph (2) of section 904(d) is amended by adding at
the end the following new subparagraph:
``(K) Transitional rules for 2007 changes.--For
purposes of paragraph (1)--
``(i) taxes carried from any taxable year
beginning before January 1, 2007, to any
taxable year beginning on or after such date,
with respect to any item of income, shall be
treated as described in the subparagraph of
paragraph (1) in which such income would be
described were such taxes paid or accrued in a
taxable year beginning on or after such date,
and
``(ii) the Secretary may by regulations
provide for the allocation of any carryback of
taxes with respect to income to such a taxable
year for purposes of allocating such income
among the separate categories in effect for
such taxable year.''.
(7) Section 904(j)(3)(A)(i) is amended by striking
``subsection (d)(2)(A)'' and inserting ``subsection
(d)(2)(B)''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
SEC. 304. 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. 305. 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. 306. 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. 307. 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. 308. 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. 309. 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. 310. 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. 311. 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. 312. 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. 313. 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 642(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 642(b) 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(h)(1), as
redesignated by section 302, 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(h), 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 American Jobs Creation Act of 2004)'' 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. 314. 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.
SEC. 315. MODIFICATIONS TO TREATMENT OF AIRCRAFT LEASING AND SHIPPING
INCOME.
(a) Elimination of Foreign Base Company Shipping Income.--Section
954 (relating to foreign base company income) is amended--
(1) by striking paragraph (4) of subsection (a) (relating
to foreign base company shipping income), and
(2) by striking subsection (f) (relating to foreign base
company shipping income).
(b) Safe Harbor for Certain Leasing Activities.--Subparagraph (A)
of section 954(c)(2) is amended by adding at the end the following new
sentence: ``For purposes of the preceding sentence, rents derived from
leasing an aircraft or vessel in foreign commerce shall not fail to be
treated as derived in the active conduct of a trade or business if, as
determined under regulations prescribed by the Secretary, the active
leasing expenses are not less than 10 percent of the profit on the
lease.''.
(c) Conforming Amendments.--
(1) Section 952(c)(1)(B)(iii) is amended by striking
subclause (I) and redesignating subclauses (II) through (VI) as
subclauses (I) through (V), respectively.
(2) Subsection (b) of section 954 is amended--
(A) by striking ``the foreign base company shipping
income,'' in paragraph (5),
(B) by striking paragraphs (6) and (7), and
(C) by redesignating paragraph (8) as paragraph
(6).
(d) 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. 316. 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.
TITLE IV--EXTENSION OF CERTAIN EXPIRING PROVISIONS
SEC. 401. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR
AND MINIMUM TAX LIABILITY.
(a) In General.--Paragraph (2) of section 26(a) is amended--
(1) by striking ``rule for 2000, 2001, 2002, and 2003.--''
and inserting ``rule for taxable years 2000 through 2005.--'',
and
(2) by striking ``or 2003,'' and inserting ``2003, 2004, or
2005,''.
(b) Conforming Provisions.--
(1) Section 904(h) is amended by striking ``or 2003'' and
inserting ``2003, 2004, or 2005''.
(2) The amendments made by sections 201(b), 202(f), and
618(b) of the Economic Growth and Tax Relief Reconciliation Act
of 2001 shall not apply to taxable years beginning during 2004
or 2005.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 402. EXTENSION 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) Effective Date.--The amendments made by subsection (a) shall
apply to amounts paid or incurred after June 30, 2004.
SEC. 403. EXTENSION OF CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN
RENEWABLE RESOURCES.
(a) In General.--Subparagraphs (A) and (B) of section 45(c)(3)
(defining qualified facility) are both amended by striking ``2004'' and
inserting ``2006''.
(b) Effective Date.--The amendments made by this section shall
apply to facilities placed in service after December 31, 2003.
SEC. 404. INDIAN EMPLOYMENT TAX CREDIT.
Section 45A(f) (relating to termination) is amended by striking
``December 31, 2004'' and inserting ``December 31, 2005''.
SEC. 405. WORK OPPORTUNITY CREDIT.
(a) In General.--Subparagraph (B) of section 51(c)(4) is amended by
striking ``December 31, 2003'' and inserting ``December 31, 2005''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to individuals who begin work for the employer after December 31,
2003.
SEC. 406. WELFARE-TO-WORK CREDIT.
(a) In General.--Subsection (f) of section 51A is amended by
striking ``December 31, 2003'' and inserting ``December 31, 2005''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to individuals who begin work for the employer after December 31,
2003.
SEC. 407. CERTAIN EXPENSES OF ELEMENTARY AND SECONDARY SCHOOL TEACHERS.
(a) In General.--Subparagraph (D) of section 62(a)(2) (relating to
certain trade and business deductions of employees) is amended by
striking ``or 2003'' and inserting ``, 2003, 2004, or 2005''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2003.
SEC. 408. EXTENSION OF ACCELERATED DEPRECIATION BENEFIT FOR PROPERTY ON
INDIAN RESERVATIONS.
Paragraph (8) of section 168(j) (relating to termination) is
amended by striking ``December 31, 2004'' and inserting ``December 31,
2005''.
SEC. 409. CHARITABLE CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND EQUIPMENT
USED FOR EDUCATIONAL PURPOSES.
(a) In General.--Subparagraph (G) of section 170(e)(6) (relating to
special rule for contributions of computer technology and equipment for
educational purposes) is amended by striking ``December 31, 2003'' and
inserting ``December 31, 2005''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2003.
SEC. 410. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.
(a) In General.--Subsection (h) of section 198 (relating to
termination) is amended by striking ``December 31, 2003'' and inserting
``December 31, 2005''.
(b) Effective Date.--The amendments made by subsection (a) shall
apply to expenditures paid or incurred after December 31, 2003.
SEC. 411. AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS.
(a) In General.--Paragraphs (2) and (3)(B) of section 220(i)
(defining cut-off year) are each amended by striking ``2003'' each
place it appears in the text and headings and inserting ``2005''.
(b) Conforming Amendments.--
(1) Paragraph (2) of section 220(j) is amended--
(A) in the text by striking ``or 2002'' each place
it appears and inserting ``2002, or 2004'', and
(B) in the heading by striking ``or 2002'' and
inserting ``2002, or 2004''.
(2) Subparagraph (A) of section 220(j)(4) is amended by
striking ``and 2002'' and inserting ``2002, and 2004''.
(3) Subparagraph (C) of section 220(j)(2) is amended to
read as follows:
``(C) No limitation for 2000 or 2003.--The
numerical limitation shall not apply for 2000 or
2003.''.
(c) Effective Date.--The amendments made by this section shall take
effect on January 1, 2004.
(d) Time for Filing Reports, Etc.--
(1) The report required by section 220(j)(4) of the
Internal Revenue Code of 1986 to be made on August 1, 2004,
shall be treated as timely if made before the close of the 90-
day period beginning on the date of the enactment of this Act.
(2) The determination and publication required by section
220(j)(5) of such Code with respect to calendar year 2004 shall
be treated as timely if made before the close of the 120-day
period beginning on the date of the enactment of this Act. If
the determination under the preceding sentence is that 2004 is
a cut-off year under section 220(i) of such Code, the cut-off
date under such section 220(i) shall be the last day of such
120-day period.
SEC. 412. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR OIL AND
NATURAL GAS PRODUCED FROM MARGINAL PROPERTIES.
(a) In General.--Subparagraph (H) of section 613A(c)(6) is amended
by striking ``January 1, 2004'' and inserting ``January 1, 2006''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 2003.
SEC. 413. 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 the date of the enactment of this
Act.
SEC. 414. DISTRICT OF COLUMBIA.
(a) District of Columbia Enterprise 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) Section 1400B is amended by striking ``January 1,
2004'' each place it appears and inserting ``January 1, 2006''.
(2) Subsections (e)(2) and (g)(2) of section 1400B are each
amended by striking ``2008'' each place it appears in the
headings and text and inserting ``2010''.
(3) Subsection (d) of section 1400F 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 otherwise provided in this
subsection, the amendments made by this section shall take
effect on the date of the enactment of this Act.
(2) Tax-exempt economic development bonds.--The amendment
made by subsection (b) shall apply to obligations issued after
December 31, 2003.
SEC. 415. EXTENSION OF CERTAIN NEW YORK LIBERTY ZONE BOND FINANCING.
Subparagraph (D) of section 1400L(d)(2) is amended by striking
``2005'' and inserting ``2010''.
SEC. 416. DISCLOSURES RELATING TO TERRORIST ACTIVITIES.
(a) In General.--Clause (iv) of section 6103(i)(3)(C) and
subparagraph (E) of section 6103(i)(7) are both amended by striking
``December 31, 2003'' and inserting ``December 31, 2005''.
(b) Disclosure of taxpayer identity to law enforcement agencies
investigating terrorism.--Subparagraph (A) of section 6103(i)(7) is
amended by adding at the end the following new clause:
``(v) Taxpayer identity.--For purposes of
this subparagraph, a taxpayer's identity shall
not be treated as taxpayer return
information.''.
(c) Effective Dates.--
(1) In general.--The amendments made by subsection (a)
shall apply to disclosures on or after the date of the
enactment of this Act.
(2) Subsection (b).--The amendment made by subsection (b)
shall take effect as if included in section 201 of the Victims
of Terrorism Tax Relief Act of 2001.
SEC. 417. 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. 418. 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. 419. JOINT REVIEW OF STRATEGIC PLANS AND BUDGET FOR THE INTERNAL
REVENUE SERVICE.
(a) In General.--Paragraph (2) of section 8021(f) (relating to
joint reviews) is amended by striking ``2004'' and inserting ``2005''.
(b) Report.--Subparagraph (C) of section 8022(3) (regarding
reports) is amended--
(1) by striking ``2004'' and inserting ``2005'', and
(2) by striking ``with respect to--'' and all that follows
and inserting ``with respect to the matters addressed in the
joint review referred to in section 8021(f)(2).''.
(c) Time for Joint Review.--The joint review required by section
8021(f)(2) of the Internal Revenue Code of 1986 to be made before June
1, 2004, shall be treated as timely if made before June 1, 2005.
SEC. 420. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH
BENEFITS.
(a) In General.--Subsection (f) of section 9812 is amended by
striking ``and'' at the end of paragraph (1), by striking paragraph
(2), and by inserting after paragraph (1) the following new paragraphs:
``(2) on or after January 1, 2004, and before the date of
the enactment of American Jobs Creation Act of 2004, and
``(3) after December 31, 2005.''.
(b) Effective Date.--The amendments made by this section shall
apply to benefits for services furnished on or after December 31, 2003.
SEC. 421. COMBINED EMPLOYMENT TAX REPORTING PROJECT.
(a) In General.--Paragraph (1) of section 976(b) of the Taxpayer
Relief Act of 1997 (111 Stat. 898) is amended by striking ``for a
period ending with the date which is 5 years after the date of the
enactment of this Act'' and inserting ``during the period ending on
December 31, 2005''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to disclosures on or after the date of the enactment of this Act.
SEC. 422. CLEAN-FUEL VEHICLES.
(a) Credit for Qualified Electric Vehicles.--Paragraph (2) of
section 30(b) (relating to phaseout) is amended to read as follows:
``(2) Phaseout.--In the case of any qualified electric
vehicle placed in service after December 31, 2005, the credit
otherwise allowable under subsection (a) (determined after the
application of paragraph (1)) shall be reduced by 75
percent.''.
(b) Deduction for Qualified Clean-fuel Vehicle Property.--
Subparagraph (B) of section 179A(b)(1) (relating to phaseout) is
amended to read as follows:
``(B) Phaseout.--In the case of any qualified
clean-fuel vehicle property placed in service after
December 31, 2005, the limit otherwise applicable under
subparagraph (A) shall be reduced by 75 percent.''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2003.
TITLE V--DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES
SEC. 501. DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES IN LIEU OF
STATE AND LOCAL INCOME TAXES.
(a) In General.--Subsection (b) of section 164 (relating to
definitions and special rules) is amended by adding at the end the
following:
``(5) General sales taxes.--For purposes of subsection
(a)--
``(A) Election to deduct state and local sales
taxes in lieu of state and local income taxes.--
``(i) In general.--At the election of the
taxpayer for the taxable year, subsection (a)
shall be applied--
``(I) without regard to the
reference to State and local income
taxes, and
``(II) as if State and local
general sales taxes were referred to in
a paragraph thereof.
``(B) Definition of general sales tax.--The term
`general sales tax' means a tax imposed at one rate
with respect to the sale at retail of a broad range of
classes of items.
``(C) Special rules for food, etc.--In the case of
items of food, clothing, medical supplies, and motor
vehicles--
``(i) the fact that the tax does not apply
with respect to some or all of such items shall
not be taken into account in determining
whether the tax applies with respect to a broad
range of classes of items, and
``(ii) the fact that the rate of tax
applicable with respect to some or all of such
items is lower than the general rate of tax
shall not be taken into account in determining
whether the tax is imposed at one rate.
``(D) Items taxed at different rates.--Except in
the case of a lower rate of tax applicable with respect
to an item described in subparagraph (C), no deduction
shall be allowed under this paragraph for any general
sales tax imposed with respect to an item at a rate
other than the general rate of tax.
``(E) Compensating use taxes.--A compensating use
tax with respect to an item shall be treated as a
general sales tax. For purposes of the preceding
sentence, the term `compensating use tax' means, with
respect to any item, a tax which--
``(i) is imposed on the use, storage, or
consumption of such item, and
``(ii) is complementary to a general sales
tax, but only if a deduction is allowable under
this paragraph with respect to items sold at
retail in the taxing jurisdiction which are
similar to such item.
``(F) Special rule for motor vehicles.--In the case
of motor vehicles, if the rate of tax exceeds the
general rate, such excess shall be disregarded and the
general rate shall be treated as the rate of tax.
``(G) Separately stated general sales taxes.--If
the amount of any general sales tax is separately
stated, then, to the extent that the amount so stated
is paid by the consumer (other than in connection with
the consumer's trade or business) to the seller, such
amount shall be treated as a tax imposed on, and paid
by, such consumer.
``(H) Amount of deduction to be determined under
tables.--
``(i) In general.--The amount of the
deduction allowed under this paragraph shall be
determined under tables prescribed by the
Secretary.
``(ii) Requirements for tables.--The tables
prescribed under clause (i)--
``(I) shall reflect the provisions
of this paragraph,
``(II) shall be based on the
average consumption by taxpayers on a
State-by-State basis, as determined by
the Secretary, taking into account
filing status, number of dependents,
adjusted gross income, and rates of
State and local general sales taxation,
and
``(III) need only be determined
with respect to adjusted gross incomes
up to the applicable amount (as
determined under section 68(b)).
``(I) Application of paragraph.--This paragraph
shall apply to taxable years beginning after December
31, 2003, and before January 1, 2006.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
TITLE VI--REVENUE PROVISIONS
Subtitle A--Provisions to Reduce Tax Avoidance Through Individual and
Corporate Expatriation
SEC. 601. TAX TREATMENT OF EXPATRIATED ENTITIES AND THEIR FOREIGN
PARENTS.
(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 EXPATRIATED ENTITIES AND THEIR FOREIGN
PARENTS.
``(a) Tax on Inversion Gain of Expatriated Entities.--
``(1) In general.--The taxable income of an expatriated
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) Expatriated entity.--For purposes of this
subsection--
``(A) In general.--The term `expatriated entity'
means--
``(i) the domestic corporation or
partnership referred to in subparagraph (B)(i)
with respect to which a foreign corporation is
a surrogate foreign corporation, and
``(ii) any United States person who is
related (within the meaning of section 267(b)
or 707(b)(1)) to a domestic corporation or
partnership described in clause (i).
``(B) Surrogate foreign corporation.--A foreign
corporation shall be treated as a surrogate foreign
corporation if, pursuant to a plan (or a series of
related transactions)--
``(i) the entity completes after March 4,
2003, 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,
``(ii) after the acquisition at least 60
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
``(iii) after the acquisition the expanded
affiliated group which 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.
An entity otherwise described in clause (i) with
respect to any domestic corporation or partnership
trade or business shall be treated as not so described
if, on or before March 4, 2003, such entity acquired
directly or indirectly more than half of the properties
held directly or indirectly by such corporation or more
than half of the properties constituting such
partnership trade or business, as the case may be.
``(b) Definitions and Special Rules.--
``(1) 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.
``(2) Certain stock disregarded.--There shall not be taken
into account in determining ownership under subsection
(a)(2)(B)(ii)--
``(A) stock held by members of the expanded
affiliated group which includes the foreign
corporation, or
``(B) stock of such foreign corporation which is
sold in a public offering related to the acquisition
described in subsection (a)(2)(B)(i).
``(3) Plan deemed in certain cases.--If a foreign
corporation 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)(ii)
are met, such actions shall be treated as pursuant to a plan.
``(4) 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.
``(5) Special rule for related partnerships.--For purposes
of applying subsection (a)(2)(B)(ii) to the acquisition of a
trade or business 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.
``(6) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to determine whether a
corporation is a surrogate foreign corporation, including
regulations--
``(A) to treat warrants, options, contracts to
acquire stock, convertible debt interests, and other
similar interests as stock, and
``(B) to treat stock as not stock.
``(c) Other Definitions.--For purposes of this section--
``(1) Applicable period.--The term `applicable period'
means the period--
``(A) beginning on the first date properties are
acquired as part of the acquisition described in
subsection (a)(2)(B)(i), and
``(B) ending on the date which is 10 years after
the last date properties are acquired as part of such
acquisition.
``(2) Inversion gain.--The term `inversion gain' means the
income or gain recognized by reason of the transfer during the
applicable period of stock or other properties by an
expatriated entity, and any income received or accrued during
the applicable period by reason of a license of any property by
an expatriated entity--
``(A) as part of the acquisition described in
subsection (a)(2)(B)(i), or
``(B) after such acquisition if the transfer or
license is to a foreign related person.
Subparagraph (B) shall not apply to property described in
section 1221(a)(1) in the hands of the expatriated entity.
``(3) Foreign related person.--The term `foreign related
person' means, with respect to any expatriated entity, a
foreign person which--
``(A) is related (within the meaning of section
267(b) or 707(b)(1)) to such entity, or
``(B) is under the same common control (within the
meaning of section 482) as such entity.
``(d) Special Rules.--
``(1) Credits not allowed against tax on inversion gain.--
Credits (other than the credit allowed by section 901) shall be
allowed against the tax imposed by this chapter on an
expatriated entity for any taxable year described in subsection
(a) 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.
``(2) Special rules for partnerships.--In the case of an
expatriated entity which is a partnership--
``(A) subsection (a)(1) 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) gain recognized for the taxable year
by the partner by reason of the transfer during
the applicable period of any partnership
interest of the partner in such partnership to
the surrogate foreign corporation, and
``(C) the highest rate of tax specified in the rate
schedule applicable to the partner under this chapter
shall be substituted for the rate of tax referred to in
paragraph (1).
``(3) 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 subsection (a).
``(4) 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)(B)(i) 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)(B)(i) is completed.
``(e) Special Rule for Treaties.--Nothing in section 894 or 7852(d)
or in any other provision of law shall be construed as permitting an
exemption, by reason of any treaty obligation of the United States
heretofore or hereafter entered into, from the provisions of this
section.
``(f) Regulations.--The Secretary shall provide such regulations as
are necessary to carry out this section, including regulations
providing for such adjustments to the application of this section as
are necessary to prevent the avoidance of the purposes of this section,
including the avoidance of such purposes through--
``(1) the use of related persons, pass-through or other
noncorporate entities, or other intermediaries, or
``(2) transactions designed to have persons cease to be (or
not become) members of expanded affiliated groups or related
persons.''.
(b) 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
expatriated entities and their
foreign parents.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years ending after March 4, 2003.
SEC. 602. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN EXPATRIATED
CORPORATIONS.
(a) In General.--Subtitle D is amended by inserting after chapter
44 end the following new chapter:
``CHAPTER 45--PROVISIONS RELATING TO EXPATRIATED ENTITIES
``Sec. 4985. Stock compensation of
insiders in expatriated
corporations.
``SEC. 4985. STOCK COMPENSATION OF INSIDERS IN EXPATRIATED
CORPORATIONS.
``(a) Imposition of Tax.--In the case of an individual who is a
disqualified individual with respect to any expatriated corporation,
there is hereby imposed on such person a tax equal to 15 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 expatriation 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 a 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 expatriation date, on such date,
``(B) in the case of such compensation which is
canceled during the 6 months before the expatriation
date, on the day before such cancellation, and
``(C) in the case of such compensation which is
granted after the expatriation 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
expatriated 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)(B)(i) 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
expatriation 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 expatriation date
with respect to the stock acquired pursuant to such exercise,
and
``(2) any other specified stock compensation which is
exercised, sold, exchanged, distributed, cashed-out, or
otherwise paid during such period in a transaction in which
income, 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 expatriation
date--
``(A) is subject to the requirements of section
16(a) of the Securities Exchange Act of 1934 with
respect to such corporation or any member of the
expanded affiliated group which includes such
corporation, or
``(B) would be subject to such requirements if such
corporation or member were an issuer of equity
securities referred to in such section.
``(2) Expatriated corporation; expatriation date.--
``(A) Expatriated corporation.--The term
`expatriated corporation' means any corporation which
is an expatriated entity (as defined in section
7874(a)(2)). Such term includes any predecessor or
successor of such a corporation.
``(B) Expatriation date.--The term `expatriation
date' means, with respect to a corporation, the date on
which the corporation first becomes an expatriated
corporation.
``(3) Specified stock compensation.--
``(A) In general.--The term `specified stock
compensation' means payment (or right to payment)
granted by the expatriated 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
expatriated 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 ``45,'' before ``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 4985 directly or indirectly by the
expatriated 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 4985) on which tax is
imposed by section 4985''.
(2) The table of chapters for subtitle D is amended by
inserting after the item relating to chapter 44 the following
new item:
``Chapter 45. Provisions relating to
expatriated entities.''.
(d) Effective Date.--The amendments made by this section shall take
effect on March 4, 2003; except that periods before such date shall not
be taken into account in applying the periods in subsections (a) and
(e)(1) of section 4985 of the Internal Revenue Code of 1986, as added
by this section.
SEC. 603. 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 the date of the enactment of this
Act.
SEC. 604. REVISION OF TAX RULES ON EXPATRIATION OF INDIVIDUALS.
(a) Expatriation To Avoid Tax.--
(1) In general.--Subsection (a) of section 877 (relating to
treatment of expatriates) is amended to read as follows:
``(a) Treatment of Expatriates.--
``(1) In general.--Every nonresident alien individual to
whom this section applies and who, within the 10-year period
immediately preceding the close of the taxable year, lost
United States citizenship shall be taxable for such taxable
year in the manner provided in subsection (b) if the tax
imposed pursuant to such subsection (after any reduction in
such tax under the last sentence of such subsection) exceeds
the tax which, without regard to this section, is imposed
pursuant to section 871.
``(2) Individuals subject to this section.--This section
shall apply to any individual if--
``(A) the average annual net income tax (as defined
in section 38(c)(1)) of such individual for the period
of 5 taxable years ending before the date of the loss
of United States citizenship is greater than $124,000,
``(B) the net worth of the individual as of such
date is $2,000,000 or more, or
``(C) such individual fails to certify under
penalty of perjury that he has met the requirements of
this title for the 5 preceding taxable years or fails
to submit such evidence of such compliance as the
Secretary may require.
In the case of the loss of United States citizenship in any
calendar year after 2004, such $124,000 amount shall be
increased by an amount equal to such dollar amount multiplied
by the cost-of-living adjustment determined under section
1(f)(3) for such calendar year by substituting `2003' for
`1992' in subparagraph (B) thereof. Any increase under the
preceding sentence shall be rounded to the nearest multiple of
$1,000.''.
(2) Revision of exceptions from alternative tax.--
Subsection (c) of section 877 (relating to tax avoidance not
presumed in certain cases) is amended to read as follows:
``(c) Exceptions.--
``(1) In general.--Subparagraphs (A) and (B) of subsection
(a)(2) shall not apply to an individual described in paragraph
(2) or (3).
``(2) Dual citizens.--
``(A) In general.--An individual is described in
this paragraph if--
``(i) the individual became at birth a
citizen of the United States and a citizen of
another country and continues to be a citizen
of such other country, and
``(ii) the individual has had no
substantial contacts with the United States.
``(B) Substantial contacts.--An individual shall be
treated as having no substantial contacts with the
United States only if the individual--
``(i) was never a resident of the United
States (as defined in section 7701(b)),
``(ii) has never held a United States
passport, and
``(iii) was not present in the United
States for more than 30 days during any
calendar year which is 1 of the 10 calendar
years preceding the individual's loss of United
States citizenship.
``(3) Certain minors.--An individual is described in this
paragraph if--
``(A) the individual became at birth a citizen of
the United States,
``(B) neither parent of such individual was a
citizen of the United States at the time of such birth,
``(C) the individual's loss of United States
citizenship occurs before such individual attains age
18\1/2\, and
``(D) the individual was not present in the United
States for more than 30 days during any calendar year
which is 1 of the 10 calendar years preceding the
individual's loss of United States citizenship.''.
(3) Conforming amendment.--Section 2107(a) is amended to
read as follows:
``(a) Treatment of Expatriates.--A tax computed in accordance with
the table contained in section 2001 is hereby imposed on the transfer
of the taxable estate, determined as provided in section 2106, of every
decedent nonresident not a citizen of the United States if the date of
death occurs during a taxable year with respect to which the decedent
is subject to tax under section 877(b).''.
(b) Special Rules for Determining When an Individual Is No Longer a
United States Citizen or Long-Term Resident.--Section 7701 (relating to
definitions) is amended by redesignating subsection (n) as subsection
(o) and by inserting after subsection (m) the following new subsection:
``(n) Special Rules for Determining When an Individual Is No Longer
a United States Citizen or Long-Term Resident.--An individual who would
(but for this subsection) cease to be treated as a citizen or resident
of the United States shall continue to be treated as a citizen or
resident of the United States, as the case may be, until such
individual--
``(1) gives notice of an expatriating act or termination of
residency (with the requisite intent to relinquish citizenship
or terminate residency) to the Secretary of State or the
Secretary of Homeland Security, and
``(2) provides a statement in accordance with section
6039G.''.
(c) Physical Presence in the United States for More Than 30 Days.--
Section 877 (relating to expatriation to avoid tax) is amended by
adding at the end the following new subsection:
``(g) Physical Presence.--
``(1) In general.--This section shall not apply to any
individual to whom this section would otherwise apply for any
taxable year during the 10-year period referred to in
subsection (a) in which such individual is physically present
in the United States at any time on more than 30 days in the
calendar year ending in such taxable year, and such individual
shall be treated for purposes of this title as a citizen or
resident of the United States, as the case may be, for such
taxable year.
``(2) Exception.--
``(A) In general.--In the case of an individual
described in any of the following subparagraphs of this
paragraph, a day of physical presence in the United
States shall be disregarded if the individual is
performing services in the United States on such day
for an employer. The preceding sentence shall not apply
if--
``(i) such employer is related (within the
meaning of section 267 and 707) to such
individual, or
``(ii) such employer fails to meet such
requirements as the Secretary may prescribe by
regulations to prevent the avoidance of the
purposes of this paragraph.
Not more than 30 days during any calendar year may be
disregarded under this subparagraph.
``(B) Individuals with ties to other countries.--An
individual is described in this subparagraph if--
``(i) the individual becomes (not later
than the close of a reasonable period after
loss of United States citizenship or
termination of residency) a citizen or resident
of the country in which--
``(I) such individual was born,
``(II) if such individual is
married, such individual's spouse was
born, or
``(III) either of such individual's
parents were born, and
``(ii) the individual becomes fully liable
for income tax in such country.
``(C) Minimal prior physical presence in the united
states.--An individual is described in this
subparagraph if, for each year in the 10-year period
ending on the date of loss of United States citizenship
or termination of residency, the individual was
physically present in the United States for 30 days or
less. The rule of section 7701(b)(3)(D)(ii) shall apply
for purposes of this subparagraph.''.
(d) Transfers Subject to Gift Tax.--
(1) In general.--Subsection (a) of section 2501 (relating
to taxable transfers) is amended by striking paragraph (4), by
redesignating paragraph (5) as paragraph (4), and by striking
paragraph (3) and inserting the following new paragraph:
``(3) Exception.--
``(A) Certain individuals.--Paragraph (2) shall not
apply in the case of a donor to whom section 877(b)
applies for the taxable year which includes the date of
the transfer.
``(B) Credit for foreign gift taxes.--The tax
imposed by this section solely by reason of this
paragraph shall be credited with the amount of any gift
tax actually paid to any foreign country in respect of
any gift which is taxable under this section solely by
reason of this paragraph.''.
(2) Transfers of certain stock.--Subsection (a) of section
2501 is amended by adding at the end the following new
paragraph:
``(5) Transfers of certain stock.--
``(A) In general.--In the case of a transfer of
stock in a foreign corporation described in
subparagraph (B) by a donor to whom section 877(b)
applies for the taxable year which includes the date of
the transfer--
``(i) section 2511(a) shall be applied
without regard to whether such stock is
situated within the United States, and
``(ii) the value of such stock for purposes
of this chapter shall be its U.S.-asset value
determined under subparagraph (C).
``(B) Foreign corporation described.--A foreign
corporation is described in this subparagraph with
respect to a donor if--
``(i) the donor owned (within the meaning
of section 958(a)) at the time of such transfer
10 percent or more of the total combined voting
power of all classes of stock entitled to vote
of the foreign corporation, and
``(ii) such donor owned (within the meaning
of section 958(a)), or is considered to have
owned (by applying the ownership rules of
section 958(b)), at the time of such transfer,
more than 50 percent of--
``(I) the total combined voting
power of all classes of stock entitled
to vote of such corporation, or
``(II) the total value of the stock
of such corporation.
``(C) U.S.-asset value.--For purposes of
subparagraph (A), the U.S.-asset value of stock shall
be the amount which bears the same ratio to the fair
market value of such stock at the time of transfer as--
``(i) the fair market value (at such time)
of the assets owned by such foreign corporation
and situated in the United States, bears to
``(ii) the total fair market value (at such
time) of all assets owned by such foreign
corporation.''.
(e) Enhanced Information Reporting From Individuals Losing United
States Citizenship.--
(1) In general.--Subsection (a) of section 6039G is amended
to read as follows:
``(a) In General.--Notwithstanding any other provision of law, any
individual to whom section 877(b) applies for any taxable year shall
provide a statement for such taxable year which includes the
information described in subsection (b).''.
(2) Information to be provided.--Subsection (b) of section
6039G is amended to read as follows:
``(b) Information To Be Provided.--Information required under
subsection (a) shall include--
``(1) the taxpayer's TIN,
``(2) the mailing address of such individual's principal
foreign residence,
``(3) the foreign country in which such individual is
residing,
``(4) the foreign country of which such individual is a
citizen,
``(5) information detailing the income, assets, and
liabilities of such individual,
``(6) the number of days during any portion of which that
the individual was physically present in the United States
during the taxable year, and
``(7) such other information as the Secretary may
prescribe.''.
(3) Increase in penalty.--Subsection (d) of section 6039G
is amended to read as follows:
``(d) Penalty.--If--
``(1) an individual is required to file a statement under
subsection (a) for any taxable year, and
``(2) fails to file such a statement with the Secretary on
or before the date such statement is required to be filed or
fails to include all the information required to be shown on
the statement or includes incorrect information,
such individual shall pay a penalty of $10,000 unless it is shown that
such failure is due to reasonable cause and not to willful neglect.''.
(4) Conforming amendment.--Section 6039G is amended by
striking subsections (c), (f), and (g) and by redesignating
subsections (d) and (e) as subsection (c) and (d),
respectively.
(f) Effective Date.--The amendments made by this section shall
apply to individuals who expatriate after June 3, 2004.
SEC. 605. 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. RETURNS RELATING TO TAXABLE MERGERS AND ACQUISITIONS.
``(a) In General.--According to the forms or regulations prescribed
by the Secretary, the acquiring corporation in any taxable acquisition
shall make a return 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) Nominees.--According to the forms or regulations prescribed
by the Secretary--
``(1) 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).
``(2) Reporting to nominees.--In the case of stock held by
any person as a nominee, references in this section (other than
in subsection (c)) to a shareholder shall be treated as a
reference to the nominee.
``(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.--According to the
forms or regulations prescribed by the Secretary, every person required
to make a return under subsection (a) shall furnish to each shareholder
whose name is required to be set forth in such return a written
statement showing--
``(1) the name, address, and phone number of the
information contact of the person required to make such return,
``(2) the information required to be shown on such return
with respect to such shareholder, and
``(3) such other information as the Secretary may
prescribe.
The written statement required under the preceding sentence shall be
furnished to the shareholder on or before January 31 of the year
following the calendar year during which the taxable acquisition
occurred.''.
(b) Assessable Penalties.--
(1) Subparagraph (B) of section 6724(d)(1) (relating to
definitions) is amended by redesignating clauses (ii) through
(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) 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.
SEC. 606. STUDIES.
(a) Transfer Pricing Rules.--The Secretary of the Treasury or the
Secretary's delegate shall conduct a study regarding the effectiveness
of current transfer pricing rules and compliance efforts in ensuring
that cross-border transfers and other related-party transactions,
particularly transactions involving intangible assets, service
contracts, or leases cannot be used improperly to shift income out of
the United States. The study shall include a review of the
contemporaneous documentation and penalty rules under section 6662 of
the Internal Revenue Code of 1986, a review of the regulatory and
administrative guidance implementing the principles of section 482 of
such Code to transactions involving intangible property and services
and to cost-sharing arrangements, and an examination of whether
increased disclosure of cross-border transactions should be required.
The study shall set forth specific recommendations to address all
abuses identified in the study. Not later than June 30, 2005, such
Secretary or delegate shall submit to the Congress a report of such
study.
(b) Income Tax Treaties.--The Secretary of the Treasury or the
Secretary's delegate shall conduct a study of United States income tax
treaties to identify any inappropriate reductions in United States
withholding tax that provide opportunities for shifting income out of
the United States, and to evaluate whether existing anti-abuse
mechanisms are operating properly. The study shall include specific
recommendations to address all inappropriate uses of tax treaties. Not
later than June 30, 2005, such Secretary or delegate shall submit to
the Congress a report of such study.
(c) Impact of Corporate Expatriation Provisions.--The Secretary of
the Treasury or the Secretary's delegate shall conduct a study of the
impact of the provisions of this title on corporate expatriation. The
study shall include such recommendations as such Secretary or delegate
may have to improve the impact of such provisions in carrying out the
purposes of this title. Not later than December 31, 2005, such
Secretary or delegate shall submit to the Congress a report of such
study.
Subtitle B--Provisions Relating to Tax Shelters
Part I--Taxpayer-Related Provisions
SEC. 611. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTIONS.
(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.
``(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 paragraph (2), the
amount of the penalty under subsection (a) shall be--
``(A) $10,000 in the case of a natural person, and
``(B) $50,000 in any other case.
``(2) Listed transaction.--The amount of the penalty under
subsection (a) with respect to a listed transaction shall be--
``(A) $100,000 in the case of a natural person, and
``(B) $200,000 in any other case.
``(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.--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, and
``(B) rescinding the penalty would promote
compliance with the requirements of this title and
effective tax administration.
``(2) No judicial appeal.--Notwithstanding any other
provision of law, any determination under this subsection may
not be reviewed in any judicial proceeding.
``(3) 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) a statement of the facts and circumstances
relating to the violation,
``(B) the reasons for the rescission, and
``(C) the amount of the penalty rescinded.
``(e) Coordination With Other Penalties.--The penalty imposed by
this section shall be in addition to any other penalty imposed by this
title.''
(b) Conforming Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by inserting after the item
relating to section 6707 the following:
``Sec. 6707A. Penalty for failure to
include reportable transaction
information with return.''.
(c) Effective Date.--The amendments made by this section shall
apply to returns and statements the due date for which is after the
date of the enactment of this Act.
(d) Report.--The Commissioner of Internal Revenue shall annually
report to the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate--
(1) a summary of the total number and aggregate amount of
penalties imposed, and rescinded, under section 6707A of the
Internal Revenue Code of 1986, and
(2) a description of each penalty rescinded under section
6707(c) of such Code and the reasons therefor.
SEC. 612. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS, OTHER
REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX
AVOIDANCE PURPOSE, ETC.
(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 Transactions.--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.
``(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 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.
``(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.
``(B) No double penalty.--This section shall not
apply to any portion of an understatement on which a
penalty is imposed under section 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 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.''.
(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.''.
(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)) and
participates in the organization,
management, promotion, or sale of the
transaction or is related (within the
meaning of section 267(b) or 707(b)(1))
to any person who so participates,
``(II) is compensated directly or
indirectly by a material advisor with
respect to the transaction,
``(III) has a fee arrangement with
respect to the transaction which is
contingent on all or part of the
intended tax benefits from the
transaction being sustained, or
``(IV) as determined under
regulations prescribed by the
Secretary, has a 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, or
``(IV) fails to meet any other
requirement as the Secretary may
prescribe.''.
(2) Conforming amendments.--
(A) Paragraph (1) of section 6664(c) is amended by
striking ``this part'' and inserting ``section 6662 or
6663''.
(B) The heading for subsection (c) of section 6664
is amended by inserting ``for Underpayments'' after
``Exception''.
(d) Reduction in Penalty for Substantial Understatement of Income
Tax Not To Apply to Tax Shelters.--Subparagraph (C) of section
6662(d)(2) (relating to substantial understatement of income tax) is
amended to read as follows:
``(C) Reduction not to apply to tax shelters.--
``(i) In general.--Subparagraph (B) shall
not apply to any item attributable to a tax
shelter.
``(ii) Tax shelter.--For purposes of clause
(i), 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.''.
(e) Conforming Amendments.--
(1) Sections 461(i)(3)(C), 1274(b)(3), and 7525(b) are each
amended by striking ``section 6662(d)(2)(C)(iii)'' and
inserting ``section 6662(d)(2)(C)(ii)''.
(2) The heading for section 6662 is amended to read as
follows:
``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERPAYMENTS.''
(3) 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.''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.
SEC. 613. 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 6662(d)(2)(C)(ii)).''.
(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. 614. 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. 615. 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, or carrying out any reportable
transaction, and
``(ii) who directly or indirectly derives
gross income in excess of the threshold amount
(or such other amount as may be prescribed by
the Secretary) for such advice or assistance.
``(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) 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, ETC.
``(a) In General.--Each material advisor (as defined in section
6111) with respect to any reportable transaction (as defined in section
6707A(c)) shall (whether or not required to file a return under section
6111 with respect to such transaction) 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 a material advisor with respect to such
transaction, and
``(2) containing such other information as the Secretary
may by regulations require.''.
(3) Section 6112 is amended--
(A) by redesignating subsection (c) as subsection
(b),
(B) by inserting ``written'' before ``request'' in
subsection (b)(1) (as so redesignated), and
(C) by striking ``shall prescribe'' in subsection
(b)(2) (as so redesignated) and inserting ``may
prescribe''.
(4) 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, etc.''.
(5)(A) The heading for section 6708 is amended to read as
follows:
``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO
REPORTABLE TRANSACTIONS.''
(B) The item relating to section 6708 in the table of
sections for part I of subchapter B of chapter 68 is amended to
read as follows:
``Sec. 6708. Failure to maintain lists of
advisees with respect to
reportable transactions.''.
(c) Effective Date.--The amendments made by this section shall
apply to transactions with respect to which material aid, assistance,
or advice referred to in section 6111(b)(1)(A)(i) of the Internal
Revenue Code of 1986 (as added by this section) is provided after the
date of the enactment of this Act.
SEC. 616. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE
TRANSACTIONS.
(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 is filed under
section 6111.
Subparagraph (B) shall be applied by substituting `75 percent'
for `50 percent' in the case of an intentional failure or act
described in subsection (a).
``(c) Rescission Authority.--The provisions of section 6707A(d)
(relating to authority of Commissioner to rescind penalty) shall apply
to any penalty imposed under this section.
``(d) Reportable and Listed Transactions.--For purposes of this
section, 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. 617. 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) within 20 business days after the date of
such 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. 618. PENALTY ON PROMOTERS OF TAX SHELTERS.
(a) Penalty on Promoting Abusive Tax Shelters.--Section 6700(a) is
amended by adding at the end the following new sentence:
``Notwithstanding the first sentence, if an activity with respect to
which a penalty imposed under this subsection involves a statement
described in paragraph (2)(A), the amount of the penalty shall be equal
to 50 percent of the gross income derived (or to be derived) from such
activity by the person on which the penalty is imposed.''
(b) Effective Date.--The amendment made by this section shall apply
to activities after the date of the enactment of this Act.
SEC. 619. 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) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 620. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.
(a) In General.--Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by redesignating
subsection (c) as subsection (d) and by striking subsections (a) and
(b) and inserting the following new subsections:
``(a) Authority To Seek Injunction.--A civil action in the name of
the United States to enjoin any person from further engaging in
specified conduct may be commenced at the request of the Secretary. Any
action under this section shall be brought in the district court of the
United States for the district in which such person resides, has his
principal place of business, or has engaged in specified conduct. The
court may exercise its jurisdiction over such action (as provided in
section 7402(a)) separate and apart from any other action brought by
the United States against such person.
``(b) Adjudication and Decree.--In any action under subsection (a),
if the court finds--
``(1) that the person has engaged in any specified conduct,
and
``(2) that injunctive relief is appropriate to prevent
recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in
any other activity subject to penalty under this title.
``(c) Specified Conduct.--For purposes of this section, the term
`specified conduct' means any action, or failure to take action,
subject to penalty under section 6700, 6701, 6707, or 6708.''.
(b) Conforming Amendments.--
(1) The heading for section 7408 is amended to read as
follows:
``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX
SHELTERS AND REPORTABLE TRANSACTIONS.''
(2) The table of sections for subchapter A of chapter 76 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. 621. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL
ACCOUNTS.
(a) In General.--Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
``(5) Foreign financial agency transaction violation.--
``(A) Penalty authorized.--The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
``(B) Amount of penalty.--
``(i) In general.--Except as provided in
subparagraph (C), the amount of any civil
penalty imposed under subparagraph (A) shall
not exceed $5,000.
``(ii) Reasonable cause exception.--No
penalty shall be imposed under subparagraph (A)
with respect to any violation if--
``(I) such violation was due to
reasonable cause, and
``(II) the amount of the
transaction or the balance in the
account at the time of the transaction
was properly reported.
``(C) Willful violations.--In the case of any
person willfully violating, or willfully causing any
violation of, any provision of section 5314--
``(i) the maximum penalty under
subparagraph (B)(i) shall be increased to the
greater of--
``(I) $25,000, or
``(II) the amount (not exceeding
$100,000) determined under subparagraph
(D), and
``(ii) subparagraph (B)(ii) shall not
apply.
``(D) Amount.--The amount determined under this
subparagraph is--
``(i) in the case of a violation involving
a transaction, the amount of the transaction,
or
``(ii) in the case of a violation involving
a failure to report the existence of an account
or any identifying information required to be
provided with respect to an account, the
balance in the account at the time of the
violation.''.
(b) Effective Date.--The amendment made by this section shall apply
to violations occurring after the date of the enactment of this Act.
SEC. 622. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF
THE 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. Any such penalty imposed on an individual
may be in addition to, or in lieu of, any suspension, disbarment, or
censure of such individual.''
(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.''.
Part II--Other Provisions
SEC. 631. 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. 632. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON WITHHOLDING
TAXES ON INCOME OTHER THAN DIVIDENDS.
(a) In General.--Section 901 is amended by redesignating subsection
(l) as subsection (m) and by inserting after subsection (k) the
following new subsection:
``(l) Minimum Holding Period for Withholding Taxes on Gain and
Income Other Than Dividends etc.--
``(1) In general.--In no event shall a credit be allowed
under subsection (a) for any withholding tax (as defined in
subsection (k)) on any item of income or gain with respect to
any property if--
``(A) such property is held by the recipient of the
item for 15 days or less during the 30-day period
beginning on the date which is 15 days before the date
on which the right to receive payment of such item
arises, or
``(B) to the extent that the recipient of the item
is under an obligation (whether pursuant to a short
sale or otherwise) to make related payments with
respect to positions in substantially similar or
related property.
This paragraph shall not apply to any dividend to which
subsection (k) applies.
``(2) Exception for taxes paid by dealers.--
``(A) In general.--Paragraph (1) shall not apply to
any qualified tax with respect to any property held in
the active conduct in a foreign country of a business
as a dealer in such property.
``(B) Qualified tax.--For purposes of subparagraph
(A), the term `qualified tax' means a tax paid to a
foreign country (other than the foreign country
referred to in subparagraph (A)) if--
``(i) the item to which such tax is
attributable is subject to taxation on a net
basis by the country referred to in
subparagraph (A), and
``(ii) such country allows a credit against
its net basis tax for the full amount of the
tax paid to such other foreign country.
``(C) Dealer.--For purposes of subparagraph (A),
the term `dealer' means--
``(i) with respect to a security, any
person to whom paragraphs (1) and (2) of
subsection (k) would not apply by reason of
paragraph (4) thereof if such security were
stock, and
``(ii) with respect to any other property,
any person with respect to whom such property
is described in section 1221(a)(1).
``(D) Regulations.--The Secretary may prescribe
such regulations as may be appropriate to carry out
this paragraph, including regulations to prevent the
abuse of the exception provided by this paragraph and
to treat other taxes as qualified taxes.
``(3) Exceptions.--The Secretary may by regulation provide
that paragraph (1) shall not apply to property where the
Secretary determines that the application of paragraph (1) to
such property is not necessary to carry out the purposes of
this subsection.
``(4) Certain rules to apply.--Rules similar to the rules
of paragraphs (5), (6), and (7) of subsection (k) shall apply
for purposes of this subsection.
``(5) Determination of holding period.--Holding periods
shall be determined for purposes of this subsection without
regard to section 1235 or any similar rule.''.
(b) Conforming Amendment.--The heading of subsection (k) of section
901 is amended by inserting ``on Dividends'' after ``Taxes''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or accrued more than 30 days after the date of
the enactment of this Act.
SEC. 633. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANSFERS.
(a) Treatment of Contributed Property With Built-In Loss.--
Paragraph (1) of section 704(c) is amended by striking ``and'' at the
end of subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by adding at the end the
following:
``(C) if any property so contributed has a built-in
loss--
``(i) such built-in loss shall be taken
into account only in determining the amount of
items allocated to the contributing partner,
and
``(ii) except as provided in regulations,
in determining the amount of items allocated to
other partners, the basis of the contributed
property in the hands of the partnership shall
be treated as being equal to its fair market
value at the time of contribution.
For purposes of subparagraph (C), the term `built-in loss'
means the excess of the adjusted basis of the property
(determined without regard to subparagraph (C)(ii)) over its
fair market value at the time of contribution.''.
(b) Special Rules for Transfers of Partnership Interest if There Is
Substantial Built-In Loss.--
(1) Adjustment of partnership basis required.--Subsection
(a) of section 743 (relating to optional adjustment to basis of
partnership property) is amended by inserting before the period
``or unless the partnership has a substantial built-in loss
immediately after such transfer''.
(2) Adjustment.--Subsection (b) of section 743 is amended
by inserting ``or which has a substantial built-in loss
immediately after such transfer'' after ``section 754 is in
effect''.
(3) Substantial built-in loss.--Section 743 is amended by
adding at the end the following new subsection:
``(d) Substantial Built-In Loss.--
``(1) In general.--For purposes of this section, a
partnership has a substantial built-in loss with respect to a
transfer of an interest in a partnership if the partnership's
adjusted basis in the partnership property exceeds by more than
$250,000 the fair market value of such property.
``(2) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes of
paragraph (1) and section 734(d), including regulations
aggregating related partnerships and disregarding property
acquired by the partnership in an attempt to avoid such
purposes.''.
(4) Alternative rules for electing investment
partnerships.--
(A) In general.--Section 743 is amended by adding
at the end the following new subsection:
``(e) Alternative rules for electing investment partnerships.--
``(1) No adjustment of partnership basis.--For purposes of
this section, an electing investment partnership shall not be
treated as having a substantial built-in loss with respect to
any transfer occurring while the election under paragraph
(6)(A) is in effect.
``(2) Loss deferral for transferee partner.--In the case of
a transfer of an interest in an electing investment
partnership, the transferee partner's distributive share of
losses (without regard to gains) from the sale or exchange of
partnership property shall not be allowed except to the extent
that it is established that such losses exceed the loss (if
any) recognized by the transferor (or any prior transferor to
the extent not fully offset by a prior disallowance under this
paragraph) on the transfer of the partnership interest.
``(3) No reduction in partnership basis.--Losses disallowed
under paragraph (2) shall not decrease the transferee partner's
basis in the partnership interest.
``(4) Effect of termination of partnership.--This
subsection shall be applied without regard to any termination
of a partnership under section 708(b)(1)(B).
``(5) Certain basis reductions treated as losses.--In the
case of a transferee partner whose basis in property
distributed by the partnership is reduced under section
732(a)(2), the amount of the loss recognized by the transferor
on the transfer of the partnership interest which is taken into
account under paragraph (2) shall be reduced by the amount of
such basis reduction.
``(6) Electing investment partnership.--For purposes of
this subsection, the term `electing investment partnership'
means any partnership if--
``(A) the partnership makes an election to have
this subsection apply,
``(B) the partnership would be an investment
company under section 3(a)(1)(A) of the Investment
Company Act of 1940 but for an exemption under
paragraph (1) or (7) of section 3(c) of such Act,
``(C) such partnership has never been engaged in a
trade or business,
``(D) substantially all of the assets of such
partnership are held for investment,
``(E) at least 95 percent of the assets contributed
to such partnership consist of money,
``(F) no assets contributed to such partnership had
an adjusted basis in excess of fair market value at the
time of contribution,
``(G) all partnership interests of such partnership
are issued by such partnership pursuant to a private
offering and during the 24-month period beginning on
the date of the first capital contribution to such
partnership,
``(H) the partnership agreement of such partnership
has substantive restrictions on each partner's ability
to cause a redemption of the partner's interest, and
``(I) the partnership agreement of such partnership
provides for a term that is not in excess of 15 years.
The election described in subparagraph (A), once made, shall be
irrevocable except with the consent of the Secretary.
``(7) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes of
this subsection, including regulations for applying this
subsection to tiered partnerships.''.
(B) Information reporting.--Section 6031 is amended
by adding at the end the following new subsection:
``(f) Electing Investment Partnerships.--In the case of any
electing investment partnership (as defined in section 743(e)(6)), the
information required under subsection (b) to be furnished to any
partner to whom section 743(e)(2) applies shall include such
information as is necessary to enable the partner to compute the amount
of losses disallowed under section 743(e).''.
(5) Clerical amendments.--
(A) The section heading for section 743 is amended
to read as follows:
``SEC. 743. SPECIAL RULES WHERE SECTION 754 ELECTION OR SUBSTANTIAL
BUILT-IN LOSS.''
(B) The table of sections for subpart C of part II
of subchapter K of chapter 1 is amended by striking the
item relating to section 743 and inserting the
following new item:
``Sec. 743. Special rules where section
754 election or substantial
built-in loss.''.
(c) Adjustment to Basis of Undistributed Partnership Property if
There Is Substantial Basis Reduction.--
(1) Adjustment required.--Subsection (a) of section 734
(relating to optional adjustment to basis of undistributed
partnership property) is amended by inserting before the period
``or unless there is a substantial basis reduction''.
(2) Adjustment.--Subsection (b) of section 734 is amended
by inserting ``or unless there is a substantial basis
reduction'' after ``section 754 is in effect''.
(3) Substantial basis reduction.--Section 734 is amended by
adding at the end the following new subsection:
``(d) Substantial Basis Reduction.--
``(1) In general.--For purposes of this section, there is a
substantial basis reduction with respect to a distribution if
the sum of the amounts described in subparagraphs (A) and (B)
of subsection (b)(2) exceeds $250,000.
``(2) Regulations.--
``For regulations to carry out this
subsection, see section 743(d)(2).''.
(4) Clerical amendments.--
(A) The section heading for section 734 is amended
to read as follows:
``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY
WHERE SECTION 754 ELECTION OR SUBSTANTIAL BASIS
REDUCTION.''
(B) The table of sections for subpart B of part II
of subchapter K of chapter 1 is amended by striking the
item relating to section 734 and inserting the
following new item:
``Sec. 734. Adjustment to basis of
undistributed partnership
property where section 754
election or substantial basis
reduction.''.
(d) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to contributions made after the date of the
enactment of this Act.
(2) Subsection (b).--
(A) In general.--Except as provided in subparagraph
(B), the amendments made by subsection (b) shall apply
to transfers after the date of the enactment of this
Act.
(B) Transition rule.--In the case of an electing
investment partnership which is in existence on June 4,
2004, section 743(e)(6)(H) of the Internal Revenue Code
of 1986, as added by this section, shall not apply to
such partnership and section 743(e)(6)(I) of such Code,
as so added, shall be applied by substituting ``20
years'' for ``15 years''.
(3) Subsection (c).--The amendments made by subsection (c)
shall apply to distributions after the date of the enactment of
this Act.
SEC. 634. 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 related (within the meaning of sections 267(b)
and 707(b)(1)) to such corporation) which is a partner in the
partnership, and
``(2) any amount not allocable to stock by reason of
paragraph (1) shall be allocated under subsection (a) to other
partnership property.
Gain shall be recognized to the partnership to the extent that the
amount required to be allocated under paragraph (2) to other
partnership property exceeds the aggregate adjusted basis of such other
property immediately before the allocation required by paragraph
(2).''.
(b) Effective Date.--The amendment made by this section shall apply
to distributions after the date of the enactment of this Act.
SEC. 635. 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 January 1,
2005.
(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. 636. LIMITATION ON TRANSFER OF BUILT-IN LOSSES ON REMIC RESIDUALS.
(a) In General.--Section 362 (relating to basis to corporations) is
amended by adding at the end the following new subsection:
``(e) Limitation on Transfer of Built-in Losses on REMIC Residuals
in Section 351 Transactions.--If--
``(1) a residual interest (as defined in section
860G(a)(2)) in a REMIC is transferred in any transaction which
is described in subsection (a), and
``(2) the transferee's adjusted basis in such residual
interest would (but for this paragraph) exceed its fair market
value immediately after such transaction,
then, notwithstanding subsection (a), the transferee's adjusted basis
in such residual interest shall not exceed its fair market value
(whether or not greater than zero) immediately after such
transaction.''.
(b) Effective Date.--The amendment made by this section shall apply
to transactions after the date of the enactment of this Act.
SEC. 637. 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 from the
active conduct of a banking business which is derived
from persons who are not related persons.
``(B) Special rules.--For purposes of subparagraph
(A) all related persons shall be treated as 1 person in
applying the 80-percent test.
``(C) Related person.--For purposes of this
paragraph, a person is a related person to another
person if--
``(i) the related person bears a
relationship to such person specified in
section 267(b) or 707(b)(1), or
``(ii) such persons are members of the same
controlled group of corporations (as defined in
section 1563(a), except that `more than 50
percent' shall be substituted for `at least 80
percent' each place it appears therein).''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 638. ALTERNATIVE TAX FOR CERTAIN SMALL INSURANCE COMPANIES.
(a) In General.--Clause (i) of section 831(b)(2)(A) is amended by
striking ``$1,200,000'' and inserting ``$1,890,000''.
(b) Inflation Adjustment.--Paragraph (2) of section 831(b) is
amended by adding at the end the following new subparagraph:
``(C) Inflation adjustment.--In the case of any
taxable year beginning in a calendar year after 2004,
the $1,890,000 amount in subparagraph (A) shall be
increased by an amount equal to--
``(i) $1,890,000, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(f)(3) for such
calendar year by substituting `calendar year
2003' for `calendar year 1992' in subparagraph
(B) thereof.
If the amount as adjusted under the preceding sentence
is not a multiple of $1,000, such amount shall be
rounded to the next lowest multiple of $1,000.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 639. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO NONDISCLOSED REPORTABLE 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.--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 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.''.
(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. 640. 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. 641. 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. 642. 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. 643. EXCLUSION FROM GROSS INCOME FOR INTEREST ON OVERPAYMENTS OF
INCOME TAX BY INDIVIDUALS.
(a) In General.--Part III of subchapter B of chapter 1 (relating to
items specifically excluded from gross income) is amended by inserting
after section 139A the following new section:
``SEC. 139B. EXCLUSION FROM GROSS INCOME FOR INTEREST ON OVERPAYMENTS
OF INCOME TAX BY INDIVIDUALS.
``(a) In General.--In the case of an individual, gross income shall
not include interest paid under section 6611 on any overpayment of tax
imposed by this subtitle.
``(b) Exception.--Subsection (a) shall not apply in the case of a
failure to claim items resulting in the overpayment on the original
return if the Secretary determines that the principal purpose of such
failure is to take advantage of subsection (a).
``(c) Special Rule for Determining Modified Adjusted Gross
Income.--For purposes of this title, interest not included in gross
income under subsection (a) shall not be treated as interest which is
exempt from tax for purposes of sections 32(i)(2)(B) and 6012(d) or any
computation in which interest exempt from tax under this title is added
to adjusted gross income.''.
(b) Clerical Amendment.--The table of sections for part III of
subchapter B of chapter 1 is amended by inserting after the item
relating to section 139A the following new item:
``Sec. 139B. Exclusion from gross income
for interest on overpayments of
income tax by individuals.''.
(c) Effective Date.--The amendments made by this section shall
apply to interest received in calendar years beginning after the date
of the enactment of this Act.
SEC. 644. 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. 645. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT AGREEMENTS.
(a) In General.--
(1) Section 6159(a) (relating to authorization of
agreements) is amended--
(A) by striking ``satisfy liability for payment
of'' and inserting ``make payment on'', and
(B) by inserting ``full or partial'' after
``facilitate''.
(2) Section 6159(c) (relating to Secretary required to
enter into installment agreements in certain cases) is amended
in the matter preceding paragraph (1) by inserting ``full''
before ``payment''.
(b) Requirement To Review Partial Payment Agreements Every Two
Years.--Section 6159 is amended by redesignating subsections (d) and
(e) as subsections (e) and (f), respectively, and inserting after
subsection (c) the following new subsection:
``(d) Secretary Required To Review Installment Agreements for
Partial Collection Every Two Years.--In the case of an agreement
entered into by the Secretary under subsection (a) for partial
collection of a tax liability, the Secretary shall review the agreement
at least once every 2 years.''.
(c) Effective Date.--The amendments made by this section shall
apply to agreements entered into on or after the date of the enactment
of this Act.
SEC. 646. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.
(a) In General.--Section 1502 is amended by adding at the end the
following new sentence: ``In carrying out the preceding sentence, the
Secretary may prescribe rules that are different from the provisions of
chapter 1 that would apply if such corporations filed separate
returns.''.
(b) Result Not Overturned.--Notwithstanding the amendment made by
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 factual situation in Rite
Aid Corporation and Subsidiary Corporations v. United States, 255 F.3d
1357 (Fed. Cir. 2001).
(c) Effective Date.--This section, and the amendment made by this
section, shall apply to taxable years beginning before, on, or after
the date of the enactment of this Act.
Part III--Leasing
SEC. 647. REFORM OF TAX TREATMENT OF CERTAIN LEASING ARRANGEMENTS.
(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) Expansion of Short-Term Lease Exemption for Qualified
Technological Equipment.--Subparagraph (A) of section 168(h)(3) is
amended by adding at the end the following new sentence:
``Notwithstanding subsection (i)(3)(A)(i), in determining a lease term
for purposes of the preceding sentence, there shall not be taken into
account any option of the lessee to renew at the fair market value rent
determined at the time of renewal; except that the aggregate period not
taken into account by reason of this sentence shall not exceed 24
months.''.
SEC. 648. 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. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED BY
GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.
``(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 paragraphs (1)(C) and (3) thereof and
determined as if property described in section 167(f)(1)(B)
were tangible property). Such term shall not include property
which would (but for this sentence) be tax-exempt use property
solely by reason of section 168(h)(6) if any credit is
allowable under section 42 or 47 with respect to such property.
``(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) 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 any lender, or
to or for the benefit of the lessee to satisfy the
lessee's obligations or options under the lease. For
purposes of clause (ii), funds shall be treated as set
aside or expected to be set aside only if a reasonable
person would conclude, based on the facts and
circumstances, that such funds are set aside or
expected to be set aside.
``(B) Arrangements.--The arrangements referred to
in this subparagraph include a defeasance arrangement,
a loan by the lessee to the lessor or any lender, a
deposit arrangement, a letter of credit collateralized
with cash or cash equivalents, a payment undertaking
agreement, prepaid rent (within the meaning of the
regulations under section 467), a sinking fund
arrangement, a guaranteed investment contract,
financial guaranty insurance, and any similar
arrangement (whether or not such arrangement provides
credit support).
``(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 other than at
fair market value.--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 with respect to any arrangement which
involves--
``(I) a loan from the lessee to the
lessor or a lender,
``(II) any deposit received, letter
of credit issued, or payment
undertaking agreement entered into by a
lender otherwise involved in the
transaction, or
``(III) in the case of a
transaction which involves a lender,
any credit support made available to
the lessor in which any such lender
does not have a claim that 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.
``(2) Lessor must make substantial equity investment.--
``(A) In general.--A lease of property meets the
requirements of this paragraph if--
``(i) 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
``(ii) 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.
``(B) Risk of loss.--For purposes of clause (ii),
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.
``(C) Paragraph not to apply to short-term
leases.--This paragraph shall not apply to any lease
with a lease term of 5 years or less.
``(3) 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 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.
``(B) Exception.--The Secretary may by regulations
provide that the requirements of this paragraph are not
met where the lessee bears more than a minimal risk of
loss.
``(C) Paragraph not to apply to short-term
leases.--This paragraph shall not apply to any lease
with a lease term of 5 years or less.
``(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 a deduction 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.
``(4) Coordination with sections 1031 and 1033.--
``(A) In general.--Sections 1031(a) and 1033(a)
shall not apply if--
``(i) the exchanged or converted property
is tax-exempt use property subject to a lease
which was entered into before March 13, 2004,
and which would not have met the requirements
of subsection (d) had such requirements been in
effect when the lease was entered into, or
``(ii) the replacement property is tax-
exempt use property subject to a lease which
does not meet the requirements of subsection
(d).
``(B) Adjusted basis.--In the case of property
acquired by the lessor in a transaction to which
section 1031 or 1033 applies, the adjusted basis of
such property for purposes of this section shall be
equal to the lesser of--
``(i) the fair market value of the property
as of the beginning of the lease term, or
``(ii) the amount which would be the
lessor's adjusted basis if such sections did
not apply to such transaction.
``(f) Other Definitions.--For purposes of this section--
``(1) Related parties.--The terms `lessor', `lessee', and
`lender' each 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 provisions of this
section, including regulations 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. Limitation on deductions
allocable to property used by
governments or other tax-exempt
entities.''.
SEC. 649. EFFECTIVE DATE.
(a) In General.--Except as provided in this section, the amendments
made by this part shall apply to leases entered into after March 12,
2004.
(b) Exception.--
(1) In general.--The amendments made by this part shall not
apply to qualified transportation property.
(2) Qualified transportation property.--For purposes of
paragraph (1), the term ``qualified transportation property''
means domestic property subject to a lease with respect to
which a formal application--
(A) was submitted for approval to the Federal
Transit Administration (an agency of the Department of
Transportation) after June 30, 2003, and before March
13, 2004,
(B) is approved by the Federal Transit
Administration before January 1, 2005, and
(C) includes a description of such property and the
value of such property.
(3) Exchanges and conversion of tax-exempt use property.--
Section 470(e)(4) of the Internal Revenue Code of 1986, as
added by this section, shall apply to property exchanged or
converted after the date of the enactment of this Act.
Subtitle C--Reduction of Fuel Tax Evasion
SEC. 651. EXEMPTION FROM CERTAIN EXCISE TAXES FOR MOBILE MACHINERY.
(a) Exemption From Tax on Heavy Trucks and Trailers Sold at
Retail.--
(1) In general.--Section 4053 (relating to exemptions) is
amended by adding at the end the following new paragraph:
``(8) Mobile machinery.--Any vehicle which consists of a
chassis--
``(A) 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,
``(B) 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
``(C) 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) Exemption From Tax on Use of Certain Vehicles.--
(1) In general.--Section 4483 (relating to exemptions) is
amended by redesignating subsection (g) as subsection (h) and
by inserting after subsection (f) the following new subsection:
``(g) Exemption for Mobile Machinery.--No tax shall be imposed by
section 4481 on the use of any vehicle described in section 4053(8).''.
(2) Effective date.--The amendments made by this subsection
shall take effect on the day after the date of the enactment of
this Act.
(c) Exemption From Tax on Tires.--
(1) In General.--Section 4072(b)(2) is amended by adding at
the end the following flush sentence: ``Such term shall not
include tires of a type used exclusively on vehicles described
in section 4053(8).''.
(2) Effective date.--The amendment made by this subsection
shall take effect on the day after the date of the enactment of
this Act.
(d) Refund of Fuel Taxes.--
(1) 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 which meets the requirements described
in clause (ii).
``(ii) Requirements for mobile machinery.--
The requirements described in this clause are--
``(I) the design-based test, and
``(II) the use-based test.
``(iii) Design-based test.--For purposes of
clause (ii)(I), the design-based test is met if
the 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.
``(iv) Use-based test.--For purposes of
clause (ii)(II), the use-based test is met if
the use of the vehicle on public highways was
less than 7,500 miles during the taxpayer's
taxable year.''.
(2) No tax-free sales.--Subsection (b) of section 4082, as
amended by section 652, is amended by inserting before the
period at the end ``and such term shall not include any use
described in section 6421(e)(2)(C)''.
(3) 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 solely in any off-
highway business use described in section
6421(e)(2)(C).''.
(4) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after the date of the
enactment of this Act.
SEC. 652. 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) Certain refueler trucks, tankers, and tank wagons
treated as terminal.--Subsection (a) of section 4081 is amended
by adding at the end the following new paragraph:
``(3) Certain refueler trucks, tankers, and tank wagons
treated as terminal.--
``(A) In general.--In the case of aviation-grade
kerosene which is removed from any terminal directly
into the fuel tank of an aircraft (determined without
regard to any refueler truck, tanker, or tank wagon
which meets the requirements of subparagraph (B)), a
refueler truck, tanker, or tank wagon shall be treated
as part of such terminal if--
``(i) such truck, tanker, or wagon meets
the requirements of subparagraph (B) with
respect to an airport, and
``(ii) except in the case of exigent
circumstances identified by the Secretary in
regulations, no vehicle registered for highway
use is loaded with aviation-grade kerosene at
such terminal.
``(B) Requirements.--A refueler truck, tanker, or
tank wagon meets the requirements of this subparagraph
with respect to an airport if such truck, tanker, or
wagon--
``(i) is loaded with aviation-grade
kerosene at such terminal located within such
airport and delivers such kerosene only into
aircraft at such airport,
``(ii) has storage tanks, hose, and
coupling equipment designed and used for the
purposes of fueling aircraft,
``(iii) is not registered for highway use,
and
``(iv) is operated by--
``(I) the terminal operator of such
terminal, or
``(II) a person that makes a daily
accounting to such terminal operator of
each delivery of fuel from such truck,
tanker, or wagon.
``(C) Reporting.--The Secretary shall require under
section 4101(d) reporting by such terminal operator
of--
``(i) any information obtained under
subparagraph (B)(iv)(II), and
``(ii) any similar information maintained
by such terminal operator with respect to
deliveries of fuel made by trucks, tankers, or
wagons operated by such terminal operator.''.
(4) Liability for tax on aviation-grade kerosene used in
commercial aviation.--Subsection (a) of section 4081 is amended
by adding at the end the following new paragraph:
``(4) Liability for tax on aviation-grade kerosene used in
commercial aviation.--For purposes of paragraph (2)(C), the
person who uses the fuel for commercial aviation shall pay the
tax imposed under such paragraph. For purposes of the preceding
sentence, fuel shall be treated as used when such fuel is
removed into the fuel tank.''.
(5) 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.
(6) 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 by 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 sections 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) Sections 4101(a), 4103, 4221(a), and 6206 are
each amended by striking ``, 4081, or 4091'' and
inserting ``or 4081''.
(F) Section 6416(b)(2) is amended by striking
``4091 or''.
(G) Section 6416(b)(3) is amended by striking ``or
4091'' each place it appears.
(H) 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)''.
(I) Section 6427(j)(1) is amended by striking ``,
4081, and 4091'' and inserting ``and 4081''.
(J)(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 payment made 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)''.
(K) Subparagraph (B) of section 6724(d)(1) is
amended by striking clause (xv) and by redesignating
the succeeding clauses accordingly.
(L) Paragraph (2) of section 6724(d) is amended by
striking subparagraph (W) and by redesignating the
succeeding subparagraphs accordingly.
(M) 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''.
(N) 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).''.
(O) Subsection (b) of section 9508 is amended by
striking paragraph (3) and by redesignating paragraphs
(4) and (5) as paragraphs (3) and (4), respectively.
(P) Section 9508(c)(2)(A) is amended by striking
``sections 4081 and 4091'' and inserting ``section
4081''.
(Q) 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.''.
(R) 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''.
(S) The heading for subpart B of part III of
subchapter A of chapter 32, as redesignated by
paragraph (1), 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 (or the
Secretary's delegate) 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. 653. 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 180 days after the date
of the enactment of this Act, 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, 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 in addition
to the tax (if any).
``(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 on the 180th day after the date on which the
Secretary issues the regulations described in subsection (b).
SEC. 654. AUTHORITY TO INSPECT ON-SITE RECORDS.
(a) In General.--Section 4083(d)(1)(A) (relating to administrative
authority), as previously 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. 655. 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) Effective Date.--The amendments made by this section shall take
effect on October 1, 2004.
(c) Publication of Registered Persons.--Beginning on July 1, 2004,
the Secretary of the Treasury (or the Secretary's delegate) shall
periodically publish a current list of persons registered under section
4101 of the Internal Revenue Code of 1986 who are required to register
under such section.
SEC. 656. 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) is amended by inserting
after section 6716 the following new section:
``SEC. 6717. FAILURE TO DISPLAY TAX REGISTRATION ON VESSELS.
``(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 aggregate number of penalties (if any) imposed with respect to
prior months 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 is amended by inserting after the
item relating to section 6716 the following new item:
``Sec. 6717. Failure to display tax
registration on vessels.''.
(c) Effective Dates.--
(1) Subsection (a).--The amendments made by subsection (a)
shall take effect on October 1, 2004.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to penalties imposed after September 30, 2004.
SEC. 657. 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) is amended by inserting
after section 6717 the following new section:
``SEC. 6718. 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 is amended by inserting after the
item relating to section 6717 the following new item:
``Sec. 6718. 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 penalties imposed after September 30, 2004.
SEC. 658. COLLECTION FROM CUSTOMS BOND WHERE IMPORTER NOT REGISTERED.
(a) Tax at Point of Entry Where Importer Not Registered.--Subpart B
of part III of subchapter A of chapter 32, as redesignated by section
652(d), is amended by adding after section 4103 the following new
section:
``SEC. 4104. COLLECTION FROM CUSTOMS BOND WHERE IMPORTER NOT
REGISTERED.
``(a) In General.--The importer of record shall be jointly and
severally liable for the tax imposed by section 4081(a)(1)(A)(iii) if,
under regulations prescribed by the Secretary, any other person that is
not a person who is registered under section 4101 is liable for such
tax.
``(b) Collection From Customs Bond.--If any tax for which any
importer of record is liable under subsection (a), or for which any
importer of record that is not a person registered under section 4101
is otherwise liable, is not paid on or before the last date prescribed
for payment, the Secretary may collect such tax from the Customs bond
posted with respect to the importation of the taxable fuel to which the
tax relates. For purposes of determining the jurisdiction of any court
of the United States or any agency of the United States, any action by
the Secretary described in the preceding sentence shall be treated as
an action to collect the tax from a bond described in section
4101(b)(1) and not as an action to collect from a bond relating to the
importation of merchandise.''.
(b) Conforming Amendment.--The table of sections for subpart B of
part III of subchapter A of chapter 32, as redesignated by section
652(d), is amended by adding after the item related to section 4103 the
following new item:
``Sec. 4104. Collection from Customs bond
where importer not
registered.''.
(c) Effective Date.--The amendments made by this section shall
apply with respect to fuel entered after September 30, 2004.
SEC. 659. MODIFICATIONS OF TAX ON USE OF CERTAIN VEHICLES.
(a) Proration of Tax Where Vehicle Sold.--
(1) In general.--Subparagraph (A) of section 4481(c)(2)
(relating to where vehicle destroyed or stolen) is amended by
striking ``destroyed or stolen'' both places it appears and
inserting ``sold, destroyed, or stolen''.
(2) Conforming amendment.--The heading for section
4481(c)(2) is amended by striking ``destroyed or stolen'' and
inserting ``sold, destroyed, or stolen''.
(b) Repeal of Installment Payment.--
(1) Section 6156 (relating to installment payment of tax on
use of highway motor vehicles) is repealed.
(2) The table of sections for subchapter A of chapter 62 is
amended by striking the item relating to section 6156.
(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 is
amended by striking subsection (f).
(e) Effective Date.--The amendments made by this section shall
apply to taxable periods beginning after the date of the enactment of
this Act.
SEC. 660. 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 250 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 250
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. 661. 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 paid
under sections 6715, 6715A, 6717, 6718, 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. 662. 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 covered by such claim 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) is amended by adding at
the end the following new flush 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. 663. TWO-PARTY EXCHANGES.
(a) In General.--Subpart B of part III of subchapter A of chapter
32, as amended by this Act, is amended by adding after section 4104 the
following new section:
``SEC. 4105. TWO-PARTY EXCHANGES.
``(a) In General.--In a two-party exchange, the delivering person
shall not be liable for the tax imposed under 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 fuel 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 taxable
fuel 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 B of
part III of subchapter A of chapter 32, as amended by this Act, is
amended by adding after the item relating to section 4104 the following
new item:
``Sec. 4105. 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. 664. SIMPLIFICATION OF TAX ON TIRES.
(a) In General.--Subsection (a) of section 4071 is amended to read
as follows:
``(a) Imposition and Rate of Tax.--There is hereby imposed on
taxable tires sold by the manufacturer, producer, or importer thereof a
tax at the rate of 9.4 cents (4.7 cents in the case of a biasply tire)
for each 10 pounds so much of the maximum rated load capacity thereof
as exceeds 3,500 pounds.''
(b) Taxable Tire.--Section 4072 is amended by redesignating
subsections (a) and (b) as subsections (b) and (c), respectively, and
by inserting before subsection (b) (as so redesignated) the following
new subsection:
``(a) Taxable Tire.--For purposes of this chapter, the term
`taxable tire' means any tire of the type used on highway vehicles if
wholly or in part made of rubber and if marked pursuant to Federal
regulations for highway use.''
(c) Exemption for Tires Sold to Department of Defense.--Section
4073 is amended to read as follows:
``SEC. 4073. EXEMPTIONS.
``The tax imposed by section 4071 shall not apply to tires sold for
the exclusive use of the Department of Defense or the Coast Guard.''.
(d) Conforming Amendments.--
(1) Section 4071 is amended by striking subsection (c) and
by moving subsection (e) after subsection (b) and redesignating
subsection (e) as subsection (c).
(2) The item relating to section 4073 in the table of
sections for part II of subchapter A of chapter 32 is amended
to read as follows:
``Sec. 4073. Exemptions.''.
(e) Effective Date.--The amendments made by this section shall
apply to sales in calendar years beginning more than 30 days after the
date of the enactment of this Act.
Subtitle D--Nonqualified Deferred Compensation Plans
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.--In the case of a
nonqualified deferred compensation plan, all
compensation deferred under the plan for all taxable
years (to the extent not subject to a substantial risk
of forfeiture and not previously included in gross
income) shall be includible in gross income for the
taxable year unless at all times during the taxable
year the plan meets the requirements of paragraphs (2),
(3), and (4) and is operated in accordance with such
requirements.
``(B) Interest on tax liability 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 such taxable year
shall be increased by the amount of interest
determined under clause (ii).
``(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 plus 1 percentage
point 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) separation from service as determined
by the Secretary (except as provided in
subparagraph (B)(i)),
``(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 at 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) 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) Unforeseeable emergency.--For
purposes of subparagraph (A)(vi)--
``(I) In general.--The term
`unforeseeable emergency' means a
severe financial hardship to the
participant resulting from a sudden and
unexpected illness or accident of the
participant, the participant's spouse,
or a dependent (as defined in section
152(a)) of the participant, loss of the
participant's property due to casualty,
or other similar extraordinary and
unforeseeable circumstances arising as
a result of events beyond the control
of the participant.
``(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 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) 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 in regulations by the Secretary.
``(4) 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 not
later than the close of 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.
``(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, for purposes of section 83 such assets shall
be treated 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.
``(2) Employer's financial health.--In the case of
compensation deferred under a nonqualified deferred
compensation plan, there is a transfer of property within the
meaning of section 83 with respect to such compensation 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 amount
of interest determined under subparagraph (B).
``(B) Interest.--The interest determined under this
subparagraph for any taxable year is the amount of
interest at the underpayment rate plus 1 percentage
point 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 deferred
compensation is not subject to a substantial risk of
forfeiture.
``(c) No Inference on Earlier Income Inclusion or Requirement of
Later 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.
``(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) 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
(by regulation) may establish a minimum amount of deferrals
below which paragraph (13) does not apply and may provide that
paragraph (13) does not apply with respect to amounts of
deferrals which are not reasonably ascertainable.''.
(c) 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 of part I of
subchapter D of chapter 1 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.''.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to amounts deferred after June 3, 2004.
(2) Certain amounts deferred in 2004 under certain
irrevocable elections and binding arrangements.--The amendments
made by this section shall not apply to amounts deferred after
June 3, 2004, and before January 1, 2005, pursuant to an
irrevocable election or binding arrangement made before June 4,
2004.
(3) 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.
(e) 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.
(f) 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 before June 4, 2004,
may, without violating the requirements of paragraphs (2), (3), and (4)
of section 409A(a)(2) 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 June 3, 2004, if
such amounts are includible in income as earned.
Subtitle E--Other Revenue Provisions
SEC. 681. 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 5 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.--The Secretary may retain and use an amount not in
excess of 25 percent of the amount collected under any qualified tax
collection contract for the costs of services performed under such
contract. The Secretary shall keep adequate records regarding amounts
so retained and used. The amount credited as paid by any taxpayer shall
be determined without regard to this subsection.
``(d) No Federal Liability.--The United States shall not be liable
for any act or omission of any person performing services under a
qualified tax collection contract.
``(e) Application of Fair Debt Collection Practices Act.--The
provisions of the Fair Debt Collection Practices Act (15 U.S.C. 1692 et
seq.) shall apply to any qualified tax collection contract, except to
the extent superseded by section 6304, section 7602(c), or by any other
provision of this title.
``(f) Cross References.--
``(1) For damages for certain
unauthorized collection actions by persons performing services under a
qualified tax collection contract, see section 7433A.
``(2) For application of Taxpayer
Assistance Orders to persons performing services under a qualified tax
collection contract, see section 7811(a)(4).''.
(2) Conforming amendments.--
(A) Section 7809(a) is amended by inserting
``6306,'' before ``7651''.
(B) The table of sections for subchapter A of
chapter 64 is amended by adding at the end the
following new item:
``Sec. 6306. Qualified Tax Collection
Contracts.''.
(b) Civil Damages for Certain Unauthorized Collection Actions by
Persons Performing Services Under Qualified Tax Collection Contracts.--
(1) In general.--Subchapter B of chapter 76 (relating to
proceedings by taxpayers and third parties) is amended by
inserting after section 7433 the following new section:
``SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS
BY PERSONS PERFORMING SERVICES UNDER QUALIFIED TAX
COLLECTION CONTRACTS.
``(a) In General.--Subject to the modifications provided by
subsection (b), section 7433 shall apply to the acts and omissions of
any person performing services under a qualified tax collection
contract (as defined in section 6306(b)) to the same extent and in the
same manner as if such person were an employee of the Internal Revenue
Service.
``(b) Modifications.--For purposes of subsection (a)--
``(1) Any civil action brought under section 7433 by reason
of this section shall be brought against the person who entered
into the qualified tax collection contract with the Secretary
and shall not be brought against the United States.
``(2) Such person and not the United States shall be liable
for any damages and costs determined in such civil action.
``(3) Such civil action shall not be an exclusive remedy
with respect to such person.
``(4) Subsections (c), (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 qualified tax collection
contracts.''.
(c) Application of Taxpayer Assistance Orders to Persons Performing
Services Under a Qualified Tax Collection Contract.--Section 7811
(relating to taxpayer assistance orders) is amended by adding at the
end the following new subsection:
``(g) Application to Persons Performing Services Under a Qualified
Tax Collection Contract.--Any order issued or action taken by the
National Taxpayer Advocate pursuant to this section shall apply to
persons performing services under a qualified tax collection contract
(as defined in section 6306(b)) to the same extent and in the same
manner as such order or action applies to the Secretary.''.
(d) Ineligibility of Individuals Who Commit Misconduct to Perform
Under Contract.--Section 1203 of the Internal Revenue Service
Restructuring Act of 1998 (relating to termination of employment for
misconduct) is amended by adding at the end the following new
subsection:
``(e) Individuals Performing Services Under a Qualified Tax
Collection Contract.--An individual shall cease to be permitted to
perform any services under any qualified tax collection contract (as
defined in section 6306(b) of the Internal Revenue Code of 1986) if
there is a final determination by the Secretary of the Treasury under
such contract that such individual committed any act or omission
described under subsection (b) in connection with the performance of
such services.''.
(e) Effective Date.--The amendments made to this section shall take
effect on the date of the enactment of this Act.
SEC. 682. TREATMENT OF CHARITABLE CONTRIBUTIONS OF PATENTS AND SIMILAR
PROPERTY.
(a) In General.--Subparagraph (B) of section 170(e)(1) 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 (other
than a copyright described in section
1221(a)(3) or 1231(b)(1)(C)), 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) 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) Reduction in additional deductions to extent of
initial deduction.--With respect to any qualified intellectual
property contribution, the deduction allowed under subsection
(a) shall be increased under paragraph (1) only to the extent
that the aggregate amount of such increases with respect to
such contribution exceed the amount allowed as a deduction
under subsection (a) with respect to such contribution
determined without regard to this subsection.
``(3) 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.
``(4) 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.
``(5) 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.
``(6) 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.
``(7) 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 or After Applicable
Date of Contribution: Percentage:
1st.................................................... 100
2nd.................................................... 100
3rd.................................................... 90
4th.................................................... 80
5th.................................................... 70
6th.................................................... 60
7th.................................................... 50
8th.................................................... 40
9th.................................................... 30
10th................................................... 20
11th................................................... 10
12th................................................... 10.
``(8) 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 is reduced by reason of subsection (e)(1),
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.
``(9) Qualified intellectual property.--For purposes of
this subsection, the term `qualified intellectual property'
means property described in subsection (e)(1)(B)(iii) (other
than property contributed to or for the use of an organization
described in subsection (e)(1)(B)(ii)).
``(10) Other special rules.--
``(A) Application of limitations on charitable
contributions.--Any increase under this subsection of
the deduction provided under subsection (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 (3) 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.''.
(c) Reporting Requirements.--
(1) In general.--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 (10)(B) of section 170(m) and with
the modifications described in paragraphs (5) and (6)
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.''.
(2) Clerical amendment.--The table of sections for subpart
A of part II of subchapter A of chapter 61 is amended by
striking the item relating to section 6050L and inserting the
following new item:
``Sec. 6050L. Returns relating to certain
donated property.''.
(d) Coordination With Appraisal Requirements.--Subclause (I) of
section 170(f)(11)(A)(ii), as added by section 683, is amended by
inserting ``subsection (e)(1)(B)(iii) or'' before ``section
1221(a)(1)''.
(e) Anti-Abuse Rules.--The Secretary of the Treasury may prescribe
such regulations or other guidance as may be necessary or appropriate
to prevent the avoidance of the purposes of section 170(e)(1)(B)(iii)
of the Internal Revenue Code of 1986 (as added by subsection (a)),
including preventing--
(1) the circumvention of the reduction of the charitable
deduction by embedding or bundling the patent or similar
property as part of a charitable contribution of property that
includes the patent or similar property,
(2) the manipulation of the basis of the property to
increase the amount of the charitable deduction through the use
of related persons, pass-thru entities, or other
intermediaries, or through the use of any provision of law or
regulation (including the consolidated return regulations), and
(3) a donor from changing the form of the patent or similar
property to property of a form for which different deduction
rules would apply.
(f) Effective Date.--The amendments made by this section shall
apply to contributions made after June 3, 2004.
SEC. 683. INCREASED REPORTING FOR NONCASH CHARITABLE CONTRIBUTIONS.
(a) In General.--Subsection (f) of section 170 (relating to
disallowance of deduction in certain cases and special rules) is
amended by adding after paragraph (10) the following new paragraph:
``(11) Qualified appraisal and other documentation for
certain contributions.--
``(A) In general.--
``(i) Denial of deduction.--In the case of
an individual, partnership, or corporation, no
deduction shall be allowed under subsection (a)
for any contribution of property for which a
deduction of more than $500 is claimed unless
such person meets the requirements of
subparagraphs (B), (C), and (D), as the case
may be, with respect to such contribution.
``(ii) Exceptions.--
``(I) Readily valued property.--
Subparagraphs (C) and (D) shall not
apply to cash, property described in
section 1221(a)(1), and publicly traded
securities (as defined in section
6050L(a)(2)(B)).
``(II) Reasonable cause.--Clause
(i) shall not apply if it is shown that
the failure to meet such requirements
is due to reasonable cause and not to
willful neglect.
``(B) Property description for contributions of
more than $500.--In the case of contributions of
property for which a deduction of more than $500 is
claimed, the requirements of this subparagraph are met
if the individual, partnership or corporation includes
with the return for the taxable year in which the
contribution is made a description of such property and
such other information as the Secretary may require.
The requirements of this subparagraph shall not apply
to a C corporation which is not a personal service
corporation or a closely held C corporation.
``(C) Qualified appraisal for contributions of more
than $5,000.--In the case of contributions of property
for which a deduction of more than $5,000 is claimed,
the requirements of this subparagraph are met if the
individual, partnership, or corporation obtains a
qualified appraisal of such property and attaches to
the return for the taxable year in which such
contribution is made such information regarding such
property and such appraisal as the Secretary may
require.
``(D) Substantiation for contributions of more than
$500,000.--In the case of contributions of property for
which a deduction of more than $500,000 is claimed, the
requirements of this subparagraph are met if the
individual, partnership, or corporation attaches to the
return for the taxable year a qualified appraisal of
such property.
``(E) Qualified appraisal.--For purposes of this
paragraph, the term `qualified appraisal' means, with
respect to any property, an appraisal of such property
which is treated for purposes of this paragraph as a
qualified appraisal under regulations or other guidance
prescribed by the Secretary.
``(F) Aggregation of similar items of property.--
For purposes of determining thresholds under this
paragraph, property and all similar items of property
donated to 1 or more donees shall be treated as 1
property.
``(G) Special rule for pass-thru entities.--In the
case of a partnership or S corporation, this paragraph
shall be applied at the entity level, except that the
deduction shall be denied at the partner or shareholder
level.
``(H) Regulations.--The Secretary may prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this paragraph, including
regulations that may provide that some or all of the
requirements of this paragraph do not apply in
appropriate cases.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made after June 3, 2004.
SEC. 684. DONATIONS OF MOTOR VEHICLES, BOATS, AND AIRCRAFT.
(a) In General.--Subsection (f) of section 170 (relating to
disallowance of deduction in certain cases and special rules) is
amended by adding after paragraph (11) the following new paragraph:
``(12) Contributions of motor vehicles, boats, and
aircraft.--
``(A) In general.--Except as provided in
regulations or other guidance, in the case of a
contribution of a specified vehicle to which paragraph
(8) applies, no deduction shall be allowed under
subsection (a) for such contribution unless the
taxpayer obtains a qualified appraisal of the specified
vehicle on or before the date of such contribution.
``(B) Exception for inventory property.--
Subparagraph (A) shall not apply to property which is
described in section 1221(a)(1).
``(C) Specified vehicle.--For purposes of this
paragraph, the term `specified vehicle' means any--
``(i) motor vehicle manufactured primarily
for use on public streets, roads, and highways,
``(ii) boat, or
``(iii) aircraft.
``(D) Qualified appraisal.--For purposes of this
paragraph, the term `qualified appraisal' means any
appraisal which is treated for purposes of this
paragraph as a qualified appraisal under regulations or
other guidance prescribed by the Secretary.
``(E) 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) Effective Date.--The amendment made by subsection (a) shall
apply to contributions made after June 3, 2004.
SEC. 685. 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. 686. 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.
SEC. 687. 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) 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. 688. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF TAXABLE
VACCINES.
(a) In General.--Paragraph (1) of section 4132(a) (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) Effective Date.--
(1) Sales, etc.--The amendments made by subsection (a)
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. 689. 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 by 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. 690. 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,
2014''.
(b) Effective Date.--The amendment made by this section shall apply
to requests after the date of the enactment of this Act.
SEC. 691. COBRA FEES.
(a) Use of Merchandise Processing Fee.--Section 13031(f) of the
Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C.
58c(f)) is amended--
(1) in paragraph (1), by aligning subparagraph (B) with
subparagraph (A); and
(2) in paragraph (2), by striking ``commercial operations''
and all that follows through ``processing.'' and inserting
``customs revenue functions as defined in section 415 of the
Homeland Security Act of 2002 (other than functions performed
by the Office of International Affairs referred to in section
415(8) of that Act), and for automation (including the
Automation Commercial Environment computer system), and for no
other purpose. To the extent that funds in the Customs User Fee
Account are insufficient to pay the costs of such customs
revenue functions, customs duties in an amount equal to the
amount of such insufficiency shall be available, to the extent
provided for in appropriations Acts, to pay the costs of such
customs revenue functions in the amount of such insufficiency,
and shall be available for no other purpose. The provisions of
the first and second sentences of this paragraph specifying the
purposes for which amounts in the Customs User Fee Account may
be made available shall not be superseded except by a provision
of law which specifically modifies or supersedes such
provisions.''.
(b) Reimbursement of Appropriations From COBRA Fees.--Section
13031(f)(3) of the Consolidated Omnibus Budget Reconciliation Act of
1985 (19 U.S.C. 58c(f)(3)) is amended by adding at the end the
following:
``(E) Nothing in this paragraph shall be construed to preclude the
use of appropriated funds, from sources other than the fees collected
under subsection (a), to pay the costs set forth in clauses (i), (ii),
and (iii) of subparagraph (A).''.
(c) Sense of Congress; Effective Period for Collecting Fees;
Standard for Setting Fees.--
(1) Sense of congress.--The Congress finds that--
(A) the fees set forth in paragraphs (1) through
(8) of subsection (a) of section 13031 of the
Consolidated Omnibus Budget Reconciliation Act of 1985
have been reasonably related to the costs of providing
customs services in connection with the activities or
items for which the fees have been charged under such
paragraphs; and
(B) the fees collected under such paragraphs have
not exceeded, in the aggregate, the amounts paid for
the costs described in subsection (f)(3)(A) incurred in
providing customs services in connection with the
activities or items for which the fees were charged
under such paragraphs.
(2) Effective period; standard for setting fees.--Section
13031(j)(3) of the Consolidated Omnibus Budget Reconciliation
Act of 1985 is amended to read as follows:
``(3)(A) Fees may not be charged under paragraphs (9) and (10) of
subsection (a) after September 30, 2014.
``(B)(i) Subject to clause (ii), Fees may not be charged under
paragraphs (1) through (8) of subsection (a) after September 30, 2014.
``(ii) In fiscal year 2006 and in each succeeding fiscal year for
which fees under paragraphs (1) through (8) of subsection (a) are
authorized--
``(I) the Secretary of the Treasury shall charge fees under
each such paragraph in amounts that are reasonably related to
the costs of providing customs services in connection with the
activity or item for which the fee is charged under such
paragraph, except that in no case may the fee charged under any
such paragraph exceed by more than 10 percent the amount
otherwise prescribed by such paragraph;
``(II) the amount of fees collected under such paragraphs
may not exceed, in the aggregate, the amounts paid in that
fiscal year for the costs described in subsection (f)(3)(A)
incurred in providing customs services in connection with the
activity or item for which the fees are charged under such
paragraphs;
``(III) a fee may not be collected under any such paragraph
except to the extent such fee will be expended to pay the costs
described in subsection (f)(3)(A) incurred in providing customs
services in connection with the activity or item for which the
fee is charged under such paragraph; and
``(IV) any fee collected under any such paragraph shall be
available for expenditure only to pay the costs described in
subsection (f)(3)(A) incurred in providing customs services in
connection with the activity or item for which the fee is
charged under such paragraph.''.
(d) Clerical Amendments.--Section 13031 of the Consolidated Omnibus
Budget Reconciliation Act of 1985 is amended--
(1) in subsection (a)(5)(B), by striking ``$1.75'' and
inserting ``$1.75.'';
(2) in subsection (b)--
(A) in paragraph (1)(A), by aligning clause (iii)
with clause (ii);
(B) in paragraph (7), by striking ``paragraphs''
and inserting ``paragraph''; and
(C) in paragraph (9), by aligning subparagraph (B)
with subparagraph (A); and
(3) in subsection (e)(2), by aligning subparagraph (B) with
subparagraph (A).
(e) Study of All Fees Collected by Department of Homeland
Security.--The Secretary of the Treasury shall conduct a study of all
the fees collected by the Department of Homeland Security, and shall
submit to the Congress, not later than September 30, 2005, a report
containing the recommendations of the Secretary on--
(1) what fees should be eliminated;
(2) what the rate of fees retained should be; and
(3) any other recommendations with respect to the fees that
the Secretary considers appropriate.
TITLE VII--MARKET REFORM FOR TOBACCO GROWERS
SEC. 701. SHORT TITLE.
This title may be cited as the ``Fair and Equitable Tobacco Reform
Act of 2004''.
SEC. 702. EFFECTIVE DATE.
This title and the amendments made by this title shall apply
beginning with the 2005 marketing year of each kind of tobacco.
Subtitle A--Termination of Federal Tobacco Quota and Price Support
Programs
SEC. 711. TERMINATION OF TOBACCO QUOTA PROGRAM AND RELATED PROVISIONS.
(a) 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.
(b) Processing.--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,''.
(c) Declaration of Policy.--Section 2 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1282) is amended by striking
``tobacco,''.
(d) 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).
(e) 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,''.
(f) Administrative Provisions.--Section 361 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1361) is amended by striking
``tobacco,''.
(g) 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''.
(h) 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).
(i) 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).
(j) 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).
(k) Acreage-Poundage Quotas.--Section 4 of the Act of April 16,
1955 (Public Law 89-12; 7 U.S.C. 1314c note), is repealed.
(l) Burley Tobacco Acreage Allotments.--The Act of July 12, 1952 (7
U.S.C. 1315), is repealed.
(m) Transfer of Allotments.--Section 703 of the Food and
Agriculture Act of 1965 (7 U.S.C. 1316) is repealed.
(n) 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''.
(o) Tobacco Field Measurement.--Section 1112 of the Omnibus Budget
Reconciliation Act of 1987 (Public Law 100-203) is amended by striking
subsection (c).
SEC. 712. TERMINATION OF TOBACCO PRICE SUPPORT PROGRAM AND RELATED
PROVISIONS.
(a) 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.
(b) 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.
(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) 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. 713. CONTINUATION OF LIABILITY AND NO NET LOSS ASSESSMENTS TO
PREVENT LOSSES ON PRICE SUPPORT LOANS.
(a) Liability.--The amendments made by this subtitle shall not
affect the liability of any person under any provision of law so
amended with respect to any crop of tobacco planted before the
effective date applicable to that kind of tobacco under section 702.
(b) Assessment Authority.--
(1) Assessments to cover outstanding loan costs.--The
Commodity Credit Corporation shall impose and collect an
assessment on the sale of 2005 and subsequent crops of each
kind of tobacco and on the importation of tobacco in such
amounts as may be necessary to obtain funds sufficient to cover
any losses incurred by the Corporation with respect to price
support loans that--
(A) were made for that kind of tobacco under
section 106 of the Agricultural Act of 1949 (7 U.S.C.
1445), before the repeal of such section by section 712
of this Act; and
(B) remain outstanding on or after the date of the
enactment of this Act.
(2) Administration.--Assessments under paragraph (1) shall
be administered in the manner provided for in section 106B of
the Agricultural Act of 1949 (7 U.S.C. 1445-2), as in effect
the day before the date of the enactment of this Act. To cover
the costs of administering such assessments, the Commodity
Credit Corporation shall use funds remaining in the No Net Cost
Tobacco Funds and No Net Cost Tobacco Accounts established
pursuant to sections 106A and 106B of the Agricultural Act of
1949 (7 U.S.C. 1445-1, 1445-2).
Subtitle B--Transitional Payments to Tobacco Quota Holders and Active
Producers of Tobacco
SEC. 721. DEFINITIONS OF ACTIVE TOBACCO PRODUCER AND QUOTA HOLDER.
In this subtitle:
(1) Active tobacco producer.--The term ``active tobacco
producer'' means an owner, operator, landlord, tenant, or
sharecropper who--
(A) shared in the risk of producing tobacco on a
farm where tobacco was produced or considered planted
pursuant to a tobacco farm marketing quota or farm
acreage allotment established under part I of subtitle
B of title III of the Agricultural Adjustment Act of
1938 (7 U.S.C. 1311 et seq.) for the 2004 marketing
year; and
(B) was actively engaged on that farm.
(2) Considered planted.--The term ``considered planted''
means tobacco that was planted, but failed to be produced as a
result of a natural disaster, as determined by the Secretary.
(3) Tobacco quota holder.--The term ``tobacco quota
holder'' means a person that was an owner of a farm, as of July
1, 2004, for which a basic tobacco farm marketing quota or farm
acreage allotment for quota tobacco was established for the
2004 tobacco marketing year.
(4) Secretary.--The term ``Secretary'' means the Secretary
of Agriculture.
SEC. 722. PAYMENTS TO TOBACCO QUOTA HOLDERS.
(a) Payment Required.--The Secretary shall make payments to each
eligible tobacco quota holder for the termination of tobacco marketing
quotas and related price support under subtitle A, which shall
constitute full and fair compensation for any losses relating to such
termination.
(b) Eligibility.--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 satisfies the
definition of tobacco quota holder. The application shall be submitted
within such time, in such form, and in such manner as the Secretary may
require.
(c) Individual Base Quota Level.--
(1) In general.--The Secretary shall establish a base quota
level applicable to each eligible tobacco quota holder
identified under subsection (b).
(2) Poundage quotas.--Subject to adjustment under
subsection (d), for each kind of tobacco for which the
marketing quota is expressed in pounds, the base quota level
for each tobacco quota holder shall be equal to the basic
tobacco marketing quota under the Agriculture Adjustment Act of
1938 for the marketing year in effect on the date of the
enactment of this Act for quota tobacco on the farm owned by
the tobacco quota holder.
(3) Marketing quotas other than poundage quotas.--Subject
to adjustment under subsection (d), for each kind of tobacco
for which there is marketing quota or allotment on an acreage
basis, the base quota level for each tobacco quota holder shall
be the amount equal to the product obtained by multiplying--
(A) the basic tobacco farm marketing quota or
allotment for the marketing year in effect on the date
of the enactment of this Act, as established by the
Secretary for quota tobacco on the farm owned by the
tobacco quota holder; by
(B) the average county production yield per acre
for the county in which the farm is located for the
kind of tobacco for that marketing year.
(d) Treatment of Certain Contracts and Agreements.--
(1) Effect of purchase contract.--If there was an agreement
for the purchase of all or part of a farm described in
subsection (c) as of the date of the enactment of this Act, 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.
(2) Effect of agreement for permanent quota transfer.--If
the Secretary determines that there was in existence, as of the
day before the date of the enactment of this Act, 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.
(e) Total Payment Amounts Based on 2002 Marketing Year.--
(1) Calculation of annual payment amount.--During fiscal
years 2005 through 2009, the Secretary shall make payments to
all eligible tobacco quota holders identified under subsection
(b) in an annual amount equal to the product obtained by
multiplying, for each kind of tobacco--
(A) $1.40 per pound; by
(B) the total national basic marketing quota
established under the Agriculture Adjustment Act of
1938 for the 2002 marketing year for that kind of
tobacco.
(2) Marketing quotas other than poundage quotas.--For each
kind of tobacco for which there is a marketing quota or
allotment on an acreage basis, the Secretary shall convert the
tobacco farm marketing quotas or allotments established under
the Agriculture Adjustment Act of 1938 for the 2002 marketing
year for that kind of tobacco as the Secretary considers
appropriate.
(f) Individual Payment Amounts.--The annual payment amount for each
eligible tobacco quota holder with respect to a kind of tobacco under
this section shall bear the same ratio to the amount determined by the
Secretary under subsection (e) with respect to that kind of tobacco as
the individual base quota level of that eligible tobacco quota holder
under subsection (c) with respect to that kind of tobacco bears to the
total base quota levels of all eligible tobacco quota holders with
respect to that kind of tobacco.
(g) Death of Tobacco Quota Holder.--If a tobacco quota holder who
is entitled to payments under this section dies and is survived by a
spouse or one or more dependents, the right to receive the payments
shall transfer to the surviving spouse or, if there is no surviving
spouse, to the estate of the tobacco quota holder.
SEC. 723. TRANSITION PAYMENTS FOR ACTIVE PRODUCERS OF QUOTA TOBACCO.
(a) Transition Payments Required.--The Secretary shall make
transition payments under this section to eligible active producers of
quota tobacco.
(b) Eligibility.--To be eligible to receive a transition 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
satisfies the definition of active producer of quota tobacco. The
application shall be submitted within such time, in such form, and in
such manner as the Secretary may require.
(c) Current Production Base.--The Secretary shall establish a
production base applicable to each eligible active producer of quota
tobacco identified under subsection (b). A producer's production base
shall be equal to the quantity, in pounds, of quota tobacco subject to
the basic marketing quota marketed or considered planted by the
producer under the Agriculture Adjustment Act of 1938 for the marketing
year in effect on the date of the enactment of this Act.
(d) Total Payment Amounts Based on 2002 Marketing Year.--
(1) Calculation of annual payment amount.--During fiscal
years 2005 through 2009, the Secretary shall make payments to
all eligible active producers of quota tobacco identified under
subsection (b) in an annual amount equal to the product
obtained by multiplying, for each kind of tobacco--
(A) $0.60 per pound; by
(B) the total national effective marketing quota
established under the Agriculture Adjustment Act of
1938 for the 2002 marketing year for that kind of
tobacco.
(2) Marketing quotas other than poundage quotas.--For each
kind of tobacco for which there is a marketing quota or
allotment on an acreage basis, the Secretary shall convert the
tobacco farm marketing quotas or allotments established under
the Agriculture Adjustment Act of 1938 for the 2002 marketing
year for that kind of tobacco to a poundage basis before
executing the mathematical equation specified in paragraph (1).
(e) Individual Payment Amounts.--The annual payment amount for each
eligible active producer of quota tobacco identified under subsection
(b) with respect to a kind of tobacco under this section shall bear the
same ratio to the amount determined by the Secretary under subsection
(d) with respect to that kind of tobacco as the individual production
base of that eligible active producer under subsection (c) with respect
to that kind of tobacco bears to the total production bases determined
under that subsection for all eligible active producers of that kind of
tobacco.
(f) Death of Tobacco Producer.--If a tobacco producer who is
entitled to payments under this section dies and is survived by a
spouse or one or more dependents, the right to receive the payments
shall transfer to the surviving spouse or, if there is no surviving
spouse, to the estate of the tobacco producer.
SEC. 724. RESOLUTION OF DISPUTES.
Any dispute regarding the eligibility of a person to receive a
payment under this subtitle, or the amount of the payment, shall be
resolved by 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.
SEC. 725. SOURCE OF FUNDS FOR PAYMENTS.
There is hereby appropriated to the Secretary, from amounts in the
general fund of the Treasury, such amounts as the Secretary needs in
order to make the payments required by sections 722 and 723, except
that such amounts shall not exceed the lesser of--
(1) amounts received in the Treasury under chapter 52 of
the Internal Revenue Code of 1986 (relating to tobacco products
and cigarette papers and tubes) during the period beginning on
October 1, 2004, and ending on September 30, 2009, or
(2) $9,600,000,000.
TITLE VIII--TRADE PROVISIONS
SEC. 801. CEILING FANS.
(a) In General.--Subchapter II of chapter 99 of the Harmonized
Tariff Schedule of the United States is amended by inserting in
numerical sequence the following new heading:
`` 9902.84.14 Ceiling fans for Free No change No change On or before 12/
permanent 31/2006 ''
installation .
(provided for in
subheading
8414.51.00).......
(b) Effective Date.--The amendment made by this section applies to
goods entered, or withdrawn from warehouse, for consumption on or after
the 15th day after the date of enactment of this Act.
SEC. 802. CERTAIN STEAM GENERATORS, AND CERTAIN REACTOR VESSEL HEADS,
USED IN NUCLEAR FACILITIES.
(a) Certain Steam Generators.--Heading 9902.84.02 of the Harmonized
Tariff Schedule of the United States is amended by striking ``12/31/
2006'' and inserting ``12/31/2008''.
(b) Certain Reactor Vessel Heads.--Subchapter II of chapter 99 of
the Harmonized Tariff Schedule of the United States is amended by
inserting in numerical sequence the following new heading:
`` 9902.84.03 Reactor vessel Free No change No change On or before 12/
heads for 31/2008 ''
nuclear .
reactors
(provided for
in subheading
8401.40.00)....
(c) Effective Date.--
(1) Subsection (a).--The amendment made by subsection (a)
shall take effect on the date of the enactment of this Act.
(2) Subsection (b).--The amendment made by subsection (b)
shall apply to goods entered, or withdrawn from warehouse, for
consumption on or after the 15th day after the date of the
enactment of this Act.
Passed the House of Representatives June 17, 2004.
Attest:
Clerk.