[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4520 Enrolled Bill (ENR)]
H.R.4520
One Hundred Eighth Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Tuesday,
the twentieth day of January, two thousand and four
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--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR EXTRATERRITORIAL
INCOME
Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to domestic
production activities.
TITLE II--BUSINESS TAX INCENTIVES
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.
Subtitle C--Community Revitalization
Sec. 221. Modification of targeted areas and low-income communities for
new markets tax credit.
Sec. 222. Expansion of designated renewal community area based on 2000
census data.
Sec. 223. Modification of income requirement for census tracts within
high migration rural counties.
Subtitle D--S Corporation Reform and Simplification
Sec. 231. Members of family treated as 1 shareholder.
Sec. 232. Increase in number of eligible shareholders to 100.
Sec. 233. Expansion of bank S corporation eligible shareholders to
include IRAs.
Sec. 234. Disregard of unexercised powers of appointment in determining
potential current beneficiaries of ESBT.
Sec. 235. Transfer of suspended losses incident to divorce, etc.
Sec. 236. Use of passive activity loss and at-risk amounts by qualified
subchapter S trust income beneficiaries.
Sec. 237. Exclusion of investment securities income from passive income
test for bank S corporations.
Sec. 238. Relief from inadvertently invalid qualified subchapter S
subsidiary elections and terminations.
Sec. 239. Information returns for qualified subchapter S subsidiaries.
Sec. 240. Repayment of loans for qualifying employer securities.
Subtitle E--Other Business Incentives
Sec. 241. Phaseout of 4.3-cent motor fuel excise taxes on railroads and
inland waterway transportation which remain in general fund.
Sec. 242. Modification of application of income forecast method of
depreciation.
Sec. 243. Improvements related to real estate investment trusts.
Sec. 244. Special rules for certain film and television productions.
Sec. 245. Credit for maintenance of railroad track.
Sec. 246. Suspension of occupational taxes relating to distilled
spirits, wine, and beer.
Sec. 247. Modification of unrelated business income limitation on
investment in certain small business investment companies.
Sec. 248. Election to determine corporate tax on certain international
shipping activities using per ton rate.
Subtitle F--Stock Options and Employee Stock Purchase Plan Stock Options
Sec. 251. Exclusion of incentive stock options and employee stock
purchase plan stock options from wages.
TITLE III--TAX RELIEF FOR AGRICULTURE AND SMALL MANUFACTURERS
Subtitle A--Volumetric Ethanol Excise Tax Credit
Sec. 301. Alcohol and biodiesel excise tax credit and extension of
alcohol fuels income tax credit.
Sec. 302. Biodiesel income tax credit.
Sec. 303. Information reporting for persons claiming certain tax
benefits.
Subtitle B--Agricultural Incentives
Sec. 311. Special rules for livestock sold on account of weather-related
conditions.
Sec. 312. Payment of dividends on stock of cooperatives without reducing
patronage dividends.
Sec. 313. Apportionment of small ethanol producer credit.
Sec. 314. Coordinate farmers and fishermen income averaging and the
alternative minimum tax.
Sec. 315. Capital gain treatment under section 631(b) to apply to
outright sales by landowners.
Sec. 316. Modification to cooperative marketing rules to include value
added processing involving animals.
Sec. 317. Extension of declaratory judgment procedures to farmers'
cooperative organizations.
Sec. 318. Certain expenses of rural letter carriers.
Sec. 319. Treatment of certain income of cooperatives.
Sec. 320. Exclusion for payments to individuals under National Health
Service Corps loan repayment program and certain State loan
repayment programs.
Sec. 321. Modification of safe harbor rules for timber REITs.
Sec. 322. Expensing of certain reforestation expenditures.
Subtitle C--Incentives for Small Manufacturers
Sec. 331. Net income from publicly traded partnerships treated as
qualifying income of regulated investment companies.
Sec. 332. Simplification of excise tax imposed on bows and arrows.
Sec. 333. Reduction of excise tax on fishing tackle boxes.
Sec. 334. Sonar devices suitable for finding fish.
Sec. 335. Charitable contribution deduction for certain expenses
incurred in support of Native Alaskan subsistence whaling.
Sec. 336. Modification of depreciation allowance for aircraft.
Sec. 337. Modification of placed in service rule for bonus depreciation
property.
Sec. 338. Expensing of capital costs incurred in complying with
Environmental Protection Agency sulfur regulations.
Sec. 339. Credit for production of low sulfur diesel fuel.
Sec. 340. Expansion of qualified small-issue bond program.
Sec. 341. Oil and gas from marginal wells.
TITLE IV--TAX REFORM AND SIMPLIFICATION FOR UNITED STATES BUSINESSES
Sec. 401. Interest expense allocation rules.
Sec. 402. Recharacterization of overall domestic loss.
Sec. 403. Look-thru rules to apply to dividends from noncontrolled
section 902 corporations.
Sec. 404. Reduction to 2 foreign tax credit baskets.
Sec. 405. Attribution of stock ownership through partnerships to apply
in determining section 902 and 960 credits.
Sec. 406. Clarification of treatment of certain transfers of intangible
property.
Sec. 407. United States property not to include certain assets of
controlled foreign corporation.
Sec. 408. Translation of foreign taxes.
Sec. 409. Repeal of withholding tax on dividends from certain foreign
corporations.
Sec. 410. Equal treatment of interest paid by foreign partnerships and
foreign corporations.
Sec. 411. Treatment of certain dividends of regulated investment
companies.
Sec. 412. Look-thru treatment for sales of partnership interests.
Sec. 413. Repeal of foreign personal holding company rules and foreign
investment company rules.
Sec. 414. Determination of foreign personal holding company income with
respect to transactions in commodities.
Sec. 415. Modifications to treatment of aircraft leasing and shipping
income.
Sec. 416. Modification of exceptions under subpart F for active
financing.
Sec. 417. 10-year foreign tax credit carryover; 1-year foreign tax
credit carryback.
Sec. 418. Modification of the treatment of certain REIT distributions
attributable to gain from sales or exchanges of United States
real property interests.
Sec. 419. Exclusion of income derived from certain wagers on horse races
and dog races from gross income of nonresident alien
individuals.
Sec. 420. Limitation of withholding tax for Puerto Rico corporations.
Sec. 421. Foreign tax credit under alternative minimum tax.
Sec. 422. Incentives to reinvest foreign earnings in United States.
Sec. 423. Delay in effective date of final regulations governing
exclusion of income from international operation of ships or
aircraft.
Sec. 424. Study of earnings stripping provisions.
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--FAIR AND EQUITABLE TOBACCO REFORM
Sec. 601. Short title.
Subtitle A--Termination of Federal Tobacco Quota and Price Support
Programs
Sec. 611. Termination of tobacco quota program and related provisions.
Sec. 612. Termination of tobacco price support program and related
provisions.
Sec. 613. Conforming amendments.
Sec. 614. Continuation of liability for 2004 and earlier crop years.
Subtitle B--Transitional Payments to Tobacco Quota Holders and Producers
of Tobacco
Sec. 621. Definitions.
Sec. 622. Contract payments to tobacco quota holders.
Sec. 623. Contract payments for producers of quota tobacco.
Sec. 624. Administration.
Sec. 625. Use of assessments as source of funds for payments.
Sec. 626. Tobacco Trust Fund.
Sec. 627. Limitation on total expenditures.
Subtitle C--Implementation and Transition
Sec. 641. Treatment of tobacco loan pool stocks and outstanding loan
costs.
Sec. 642. Regulations.
Sec. 643. Effective date.
TITLE VII--MISCELLANEOUS PROVISIONS
Sec. 701. Brownfields demonstration program for qualified green building
and sustainable design projects.
Sec. 702. Exclusion of gain or loss on sale or exchange of certain
brownfield sites from unrelated business taxable income.
Sec. 703. Civil rights tax relief.
Sec. 704. Modification of class life for certain track facilities.
Sec. 705. Suspension of policyholders surplus account provisions.
Sec. 706. Certain Alaska natural gas pipeline property treated as 7-year
property.
Sec. 707. Extension of enhanced oil recovery credit to certain Alaska
facilities.
Sec. 708. Method of accounting for naval shipbuilders.
Sec. 709. Modification of minimum cost requirement for transfer of
excess pension assets.
Sec. 710. Expansion of credit for electricity produced from certain
renewable resources.
Sec. 711. Certain business credits allowed against regular and minimum
tax.
Sec. 712. Inclusion of primary and secondary medical strategies for
children and adults with sickle cell disease as medical
assistance under the Medicaid program.
Sec. 713. Ceiling fans.
Sec. 714. Certain steam generators, and certain reactor vessel heads and
pressurizers, used in nuclear facilities.
TITLE VIII--REVENUE PROVISIONS
Subtitle A--Provisions to Reduce Tax Avoidance Through Individual and
Corporate Expatriation
Sec. 801. Tax treatment of expatriated entities and their foreign
parents.
Sec. 802. Excise tax on stock compensation of insiders in expatriated
corporations.
Sec. 803. Reinsurance of United States risks in foreign jurisdictions.
Sec. 804. Revision of tax rules on expatriation of individuals.
Sec. 805. Reporting of taxable mergers and acquisitions.
Sec. 806. Studies.
Subtitle B--Provisions Relating to Tax Shelters
Part I--Taxpayer-Related Provisions
Sec. 811. Penalty for failing to disclose reportable transactions.
Sec. 812. Accuracy-related penalty for listed transactions, other
reportable transactions having a significant tax avoidance
purpose, etc.
Sec. 813. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 814. Statute of limitations for taxable years for which required
listed transactions not reported.
Sec. 815. Disclosure of reportable transactions.
Sec. 816. Failure to furnish information regarding reportable
transactions.
Sec. 817. Modification of penalty for failure to maintain lists of
investors.
Sec. 818. Penalty on promoters of tax shelters.
Sec. 819. Modifications of substantial understatement penalty for
nonreportable transactions.
Sec. 820. Modification of actions to enjoin certain conduct related to
tax shelters and reportable transactions.
Sec. 821. Penalty on failure to report interests in foreign financial
accounts.
Sec. 822. Regulation of individuals practicing before the Department of
the Treasury.
Part II--Other Provisions
Sec. 831. Treatment of stripped interests in bond and preferred stock
funds, etc.
Sec. 832. Minimum holding period for foreign tax credit on withholding
taxes on income other than dividends.
Sec. 833. Disallowance of certain partnership loss transfers.
Sec. 834. No reduction of basis under section 734 in stock held by
partnership in corporate partner.
Sec. 835. Repeal of special rules for FASITS.
Sec. 836. Limitation on transfer or importation of built-in losses.
Sec. 837. Clarification of banking business for purposes of determining
investment of earnings in United States property.
Sec. 838. Denial of deduction for interest on underpayments attributable
to nondisclosed reportable transactions.
Sec. 839. Clarification of rules for payment of estimated tax for
certain deemed asset sales.
Sec. 840. Recognition of gain from the sale of a principal residence
acquired in a like-kind exchange within 5 years of sale.
Sec. 841. Prevention of mismatching of interest and original issue
discount deductions and income inclusions in transactions with
related foreign persons.
Sec. 842. Deposits made to suspend running of interest on potential
underpayments.
Sec. 843. Partial payment of tax liability in installment agreements.
Sec. 844. Affirmation of consolidated return regulation authority.
Sec. 845. Expanded disallowance of deduction for interest on convertible
debt.
Part III--Leasing
Sec. 847. Reform of tax treatment of certain leasing arrangements.
Sec. 848. Limitation on deductions allocable to property used by
governments or other tax-exempt entities.
Sec. 849. Effective date.
Subtitle C--Reduction of Fuel Tax Evasion
Sec. 851. Exemption from certain excise taxes for mobile machinery.
Sec. 852. Modification of definition of off-highway vehicle.
Sec. 853. Taxation of aviation-grade kerosene.
Sec. 854. Dye injection equipment.
Sec. 855. Elimination of administrative review for taxable use of dyed
fuel.
Sec. 856. Penalty on untaxed chemically altered dyed fuel mixtures.
Sec. 857. Termination of dyed diesel use by intercity buses.
Sec. 858. Authority to inspect on-site records.
Sec. 859. Assessable penalty for refusal of entry.
Sec. 860. Registration of pipeline or vessel operators required for
exemption of bulk transfers to registered terminals or
refineries.
Sec. 861. Display of registration.
Sec. 862. Registration of persons within foreign trade zones, etc.
Sec. 863. Penalties for failure to register and failure to report.
Sec. 864. Electronic filing of required information reports.
Sec. 865. Taxable fuel refunds for certain ultimate vendors.
Sec. 866. Two-party exchanges.
Sec. 867. Modifications of tax on use of certain vehicles.
Sec. 868. Dedication of revenues from certain penalties to the Highway
Trust Fund.
Sec. 869. Simplification of tax on tires.
Sec. 870. Transmix and diesel fuel blend stocks treated as taxable fuel.
Sec. 871. Study regarding fuel tax compliance.
Subtitle D--Other Revenue Provisions
Sec. 881. Qualified tax collection contracts.
Sec. 882. Treatment of charitable contributions of patents and similar
property.
Sec. 883. Increased reporting for noncash charitable contributions.
Sec. 884. Donations of motor vehicles, boats, and airplanes.
Sec. 885. Treatment of nonqualified deferred compensation plans.
Sec. 886. Extension of amortization of intangibles to sports franchises.
Sec. 887. Modification of continuing levy on payments to Federal
vendors.
Sec. 888. Modification of straddle rules.
Sec. 889. Addition of vaccines against hepatitis A to list of taxable
vaccines.
Sec. 890. Addition of vaccines against influenza to list of taxable
vaccines.
Sec. 891. Extension of IRS user fees.
Sec. 892. COBRA fees.
Sec. 893. Prohibition on nonrecognition of gain through complete
liquidation of holding company.
Sec. 894. Effectively connected income to include certain foreign source
income.
Sec. 895. Recapture of overall foreign losses on sale of controlled
foreign corporation.
Sec. 896. Recognition of cancellation of indebtedness income realized on
satisfaction of debt with partnership interest.
Sec. 897. Denial of installment sale treatment for all readily tradable
debt.
Sec. 898. Modification of treatment of transfers to creditors in
divisive reorganizations.
Sec. 899. Clarification of definition of nonqualified preferred stock.
Sec. 900. Modification of definition of controlled group of
corporations.
Sec. 901. Class lives for utility grading costs.
Sec. 902. Consistent amortization of periods for intangibles.
Sec. 903. Freeze of provisions regarding suspension of interest where
Secretary fails to contact taxpayer.
Sec. 904. Increase in withholding from supplemental wage payments in
excess of $1,000,000.
Sec. 905. Treatment of sale of stock acquired pursuant to exercise of
stock options to comply with conflict-of-interest
requirements.
Sec. 906. Application of basis rules to nonresident aliens.
Sec. 907. Limitation of employer deduction for certain entertainment
expenses.
Sec. 908. Residence and source rules relating to United States
possessions.
Sec. 909. Sales or dispositions to implement Federal Energy Regulatory
Commission or State electric restructuring policy.
Sec. 910. Expansion of limitation on depreciation of certain passenger
automobiles.
TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR
EXTRATERRITORIAL INCOME
SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.
(a) In General.--Section 114 is hereby repealed.
(b) Conforming Amendments.--
(1) 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.--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 September 17, 2003, 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. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO DOMESTIC
PRODUCTION ACTIVITIES.
(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations) is amended by
adding at the end the following new section:
``SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.
``(a) Allowance of Deduction.--
``(1) In general.--There shall be allowed as a deduction an
amount equal to 9 percent of the lesser of--
``(A) the qualified production activities income of the
taxpayer for the taxable year, or
``(B) taxable income (determined without regard to this
section) for the taxable year.
``(2) Phasein.--In the case of any taxable year beginning after
2004 and before 2010, paragraph (1) and subsections (d)(1) and
(d)(6) shall be applied by substituting for the percentage
contained therein the transition percentage determined under the
following table:
``For taxable years
The transition
beginning in:
percentage is:
2005 or 2006..............................................
3
2007, 2008, or 2009.......................................
6.
``(b) Deduction Limited to Wages Paid.--
``(1) In general.--The amount of the deduction allowable under
subsection (a) for any taxable year shall not exceed 50 percent of
the W-2 wages of the employer for the taxable year.
``(2) W-2 wages.--For purposes of paragraph (1), the term `W-2
wages' means the sum of the aggregate amounts the taxpayer is
required to include on statements under paragraphs (3) and (8) of
section 6051(a) with respect to employment of employees of the
taxpayer during the calendar year ending during the taxpayer's
taxable year.
``(3) Acquisitions and dispositions.--The Secretary shall
provide for the application of this subsection in cases where the
taxpayer acquires, or disposes of, the major portion of a trade or
business or the major portion of a separate unit of a trade or
business during the taxable year.
``(c) Qualified Production Activities Income.--For purposes of this
section--
``(1) In general.--The term `qualified production activities
income' for any taxable year means an amount equal to the excess
(if any) of--
``(A) the taxpayer's domestic production gross receipts for
such taxable year, over
``(B) 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.
``(2) Allocation method.--The Secretary shall prescribe rules
for the proper allocation of items of income, deduction, expense,
and loss for purposes of determining income attributable to
domestic production activities.
``(3) Special rules for determining costs.--
``(A) In general.--For purposes of determining costs under
clause (i) of paragraph (1)(B), any item or service brought
into the United States shall be treated as acquired by
purchase, and its cost shall be treated as not less than its
value immediately after it entered the United States. A similar
rule shall apply in determining the adjusted basis of leased or
rented property where the lease or rental gives rise to
domestic production gross receipts.
``(B) Exports for further manufacture.--In the case of any
property described in subparagraph (A) that had been exported
by the taxpayer for further manufacture, the increase in cost
or adjusted basis under subparagraph (A) shall not exceed the
difference between the value of the property when exported and
the value of the property when brought back into the United
States after the further manufacture.
``(4) Domestic production gross receipts.--
``(A) In general.--The term `domestic production gross
receipts' means the gross receipts of the taxpayer which are
derived from--
``(i) any lease, rental, license, sale, exchange, or
other disposition of--
``(I) qualifying production property which was
manufactured, produced, grown, or extracted by the
taxpayer in whole or in significant part within the
United States,
``(II) any qualified film produced by the taxpayer,
or
``(III) electricity, natural gas, or potable water
produced by the taxpayer in the United States,
``(ii) construction performed in the United States, or
``(iii) engineering or architectural services performed
in the United States for construction projects in the
United States.
``(B) Exceptions.--Such term shall not include gross
receipts of the taxpayer which are derived from--
``(i) the sale of food and beverages prepared by the
taxpayer at a retail establishment, and
``(ii) the transmission or distribution of electricity,
natural gas, or potable water.
``(5) Qualifying production property.--The term `qualifying
production property' means--
``(A) tangible personal property,
``(B) any computer software, and
``(C) any property described in section 168(f)(4).
``(6) Qualified film.--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.
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.
``(7) Related persons.--
``(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).
``(d) Definitions and Special Rules.--
``(1) Application of section to pass-thru entities.--
``(A) In general.--In the case of an S corporation,
partnership, estate or trust, or other pass-thru entity--
``(i) subject to the provisions of paragraphs (2) and
(3), this section shall be applied at the shareholder,
partner, or similar level, and
``(ii) the Secretary shall prescribe rules for the
application of this section, including rules relating to--
``(I) restrictions on the allocation of the
deduction to taxpayers at the partner or similar level,
and
``(II) additional reporting requirements.
``(B) Application of wage limitation.--Notwithstanding
subparagraph (A)(i), for purposes of applying subsection (b), a
shareholder, partner, or similar person which is allocated
qualified production activities income from an S corporation,
partnership, estate, trust, or other pass-thru entity shall
also be treated as having been allocated W-2 wages from such
entity in an amount equal to the lesser of--
``(i) such person's allocable share of such wages
(without regard to this subparagraph), as determined under
regulations prescribed by the Secretary, or
``(ii) 2 times 9 percent of the qualified production
activities income allocated to such person for the taxable
year.
``(2) Application to individuals.--In the case of an
individual, subsection (a)(1)(B) shall be applied by substituting
`adjusted gross income' for `taxable income'. For purposes of the
preceding sentence, adjusted gross income shall be determined--
``(A) after application of sections 86, 135, 137, 219, 221,
222, and 469, and
``(B) without regard to this section.
``(3) Patrons of agricultural and horticultural cooperatives.--
``(A) In general.--If any amount described in paragraph (1)
or (3) of section 1385(a)--
``(i) is received by a person from an organization to
which part I of subchapter T applies which is engaged--
``(I) in the manufacturing, production, growth, or
extraction in whole or significant part of any
agricultural or horticultural product, or
``(II) in the marketing of agricultural or
horticultural products, and
``(ii) is allocable to the portion of the qualified
production activities income of the organization which, but
for this paragraph, would be deductible under subsection
(a) by the organization and is designated as such by the
organization in a written notice mailed to its patrons
during the payment period described in section 1382(d),
then such person shall be allowed a deduction under subsection
(a) with respect to such amount. The taxable income of the
organization shall not be reduced under section 1382 by reason
of any amount to which the preceding sentence applies.
``(B) Special rules.--For purposes of applying subparagraph
(A), in determining the qualified production activities income
which would be deductible by the organization under subsection
(a)--
``(i) there shall not be taken into account in
computing the organization's taxable income any deduction
allowable under subsection (b) or (c) of section 1382
(relating to patronage dividends, per-unit retain
allocations, and nonpatronage distributions), and
``(ii) in the case of an organization described in
subparagraph (A)(i)(II), the organization shall be treated
as having manufactured, produced, grown, or extracted in
whole or significant part any qualifying production
property marketed by the organization which its patrons
have so manufactured, produced, grown, or extracted.
``(4) Special rule for affiliated groups.--
``(A) In general.--All members of an expanded affiliated
group shall be treated as a single corporation for purposes of
this section.
``(B) Expanded affiliated group.--For purposes of this
section, the term `expanded affiliated group' means an
affiliated group as defined in section 1504(a), determined--
``(i) by substituting `50 percent' for `80 percent'
each place it appears, and
``(ii) without regard to paragraphs (2) and (4) of
section 1504(b).
``(C) Allocation of deduction.--Except as provided in
regulations, the deduction under subsection (a) shall be
allocated among the members of the expanded affiliated group in
proportion to each member's respective amount (if any) of
qualified production activities income.
``(5) Trade or business requirement.--This section shall be
applied by only taking into account items which are attributable to
the actual conduct of a trade or business.
``(6) Coordination with minimum tax.--The deduction under this
section shall be allowed for purposes of the tax imposed by section
55; except that for purposes of section 55, the deduction under
subsection (a) shall be 9 percent of the lesser of--
``(A) qualified production activities income (determined
without regard to part IV of subchapter A), or
``(B) alternative minimum taxable income (determined
without regard to this section) for the taxable year.
In the case of an individual, subparagraph (B) shall be applied by
substituting `adjusted gross income' for `alternative minimum
taxable income'. For purposes of the preceding sentence, adjusted
gross income shall be determined in the same manner as provided in
paragraph (2).
``(7) Regulations.--The Secretary shall prescribe such
regulations as are necessary to carry out the purposes of this
section.''.
(b) Minimum Tax.--Section 56(g)(4)(C) (relating to disallowance of
items not deductible in computing earnings and profits) is amended by
adding at the end the following new clause:
``(v) Deduction for domestic production.--Clause (i)
shall not apply to any amount allowable as a deduction
under section 199.''.
(c) Special Rule Relating to Election To Treat Cutting of Timber as
a Sale or Exchange.--Any election under section 631(a) of the Internal
Revenue Code of 1986 made for a taxable year ending on or before the
date of the enactment of this Act may be revoked by the taxpayer for
any taxable year ending after such date. For purposes of determining
whether such taxpayer may make a further election under such section,
such election (and any revocation under this section) shall not be
taken into account.
(d) Technical Amendments.--
(1) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), and
219(g)(3)(A)(ii) are each amended by inserting ``199,'' before
``221''.
(2) Clause (i) of section 221(b)(2)(C) is amended by inserting
by inserting ``199,'' before ``222''.
(3) Clause (i) of section 222(b)(2)(C) is amended by inserting
``199,'' before ``911''.
(4) Paragraph (1) of section 246(b) is amended by inserting
``199,'' after ``172,''.
(5) Clause (iii) of section 469(i)(3)(F) is amended by
inserting ``199,'' before ``219,''.
(6) Subsection (a) of section 613 is amended by inserting ``and
without the deduction under section 199'' after ``without
allowances for depletion''.
(7) Subsection (a) of section 1402 is amended by striking
``and'' at the end of paragraph (14), by striking the period at the
end of paragraph (15) and inserting ``, and'', and by inserting
after paragraph (15) the following new paragraph:
``(16) the deduction provided by section 199 shall not be
allowed.''.
(8) The table of sections for part VI of subchapter B of
chapter 1 is amended by adding at the end the following new item:
``Sec. 199. Income attributable to domestic production
activities.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
TITLE II--BUSINESS TAX INCENTIVES
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.
Subtitle C--Community Revitalization
SEC. 221. MODIFICATION OF TARGETED AREAS AND LOW-INCOME COMMUNITIES FOR
NEW MARKETS TAX CREDIT.
(a) Targeted areas.--Paragraph (2) of section 45D(e) (relating to
targeted areas) is amended to read as follows:
``(2) Targeted populations.--The Secretary shall prescribe
regulations under which 1 or more targeted populations (within the
meaning of section 103(20) of the Riegle Community Development and
Regulatory Improvement Act of 1994 (12 U.S.C. 4702(20))) may be
treated as low-income communities. Such regulations shall include
procedures for determining which entities are qualified active low-
income community businesses with respect to such populations.''.
(b) Tracts with Low Population.--Subsection (e) of section 45D
(defining low-income community) is amended by adding at the end the
following:
``(4) Tracts with low population.--A population census tract
with a population of less than 2,000 shall be treated as a low-
income community for purposes of this section if such tract--
``(A) is within an empowerment zone the designation of
which is in effect under section 1391, and
``(B) is contiguous to 1 or more low-income communities
(determined without regard to this paragraph).''.
(c) Effective Dates.--
(1) Targeted areas.--The amendment made by subsection (a) shall
apply to designations made by the Secretary of the Treasury after
the date of the enactment of this Act.
(2) Tracts with low population.--The amendment made by
subsection (b) shall apply to investments made after the date of
the enactment of this Act.
SEC. 222. EXPANSION OF DESIGNATED RENEWAL COMMUNITY AREA BASED ON 2000
CENSUS DATA.
(a) In General.--Section 1400E (relating to designation of renewal
communities) is amended by adding at the end the following new
subsection:
``(g) Expansion of Designated Area Based on 2000 Census.--
``(1) In general.--At the request of all governments which
nominated an area as a renewal community, the Secretary of Housing
and Urban Development may expand the area of such community to
include any census tract if--
``(A)(i) at the time such community was nominated, such
community would have met the requirements of this section using
1990 census data even if such tract had been included in such
community, and
``(ii) such tract has a poverty rate using 2000 census data
which exceeds the poverty rate for such tract using 1990 census
data, or
``(B)(i) such community would be described in subparagraph
(A)(i) but for the failure to meet one or more of the
requirements of paragraphs (2)(C)(i), (3)(C), and (3)(D) of
subsection (c) using 1990 census data,
``(ii) such community, including such tract, has a
population of not more than 200,000 using either 1990 census
data or 2000 census data,
``(iii) such tract meets the requirement of subsection
(c)(3)(C) using 2000 census data, and
``(iv) such tract meets the requirement of subparagraph
(A)(ii).
``(2) Exception for certain census tracts with low population
in 1990.--In the case of any census tract which did not have a
poverty rate determined by the Bureau of the Census using 1990
census data, paragraph (1)(B) shall be applied without regard to
clause (iv) thereof.
``(3) Special rule for certain census tracts with low
population in 2000.--At the request of all governments which
nominated an area as a renewal community, the Secretary of Housing
and Urban Development may expand the area of such community to
include any census tract if--
``(A) either--
``(i) such tract has no population using 2000 census
data, or
``(ii) no poverty rate for such tract is determined by
the Bureau of the Census using 2000 census data,
``(B) such tract is one of general distress, and
``(C) such community, including such tract, meets the
requirements of subparagraphs (A) and (B) of subsection (c)(2).
``(4) Period in effect.--Any expansion under this subsection
shall take effect as provided in subsection (b).''.
(b) Effective Date.--The amendment made by subsection (a) shall
take effect as if included in the amendments made by section 101 of the
Community Renewal Tax Relief Act of 2000.
SEC. 223. MODIFICATION OF INCOME REQUIREMENT FOR CENSUS TRACTS WITHIN
HIGH MIGRATION RURAL COUNTIES.
(a) In general.--Section 45D(e) (relating to low-income community),
as amended by this Act, is amended by inserting after paragraph (4) the
following new paragraph:
``(5) Modification of income requirement for census tracts
within high migration rural counties.--
``(A) In general.--In the case of a population census tract
located within a high migration rural county, paragraph
(1)(B)(i) shall be applied by substituting `85 percent' for `80
percent'.
``(B) High migration rural county.--For purposes of this
paragraph, the term `high migration rural county' means any
county which, during the 20-year period ending with the year in
which the most recent census was conducted, has a net out-
migration of inhabitants from the county of at least 10 percent
of the population of the county at the beginning of such
period.''.
(b) Effective Date.--The amendment made by this section shall take
effect as if included in the amendment made by section 121(a) of the
Community Renewal Tax Relief Act of 2000.
Subtitle D--S Corporation Reform and Simplification
SEC. 231. 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 6 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 this Act, 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. 232. 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. 233. 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. 234. 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. 235. 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. 236. 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. 237. 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. 238. 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 or the termination occurred 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 or the
termination occurred, 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 elections made and terminations made after December 31, 2004.
SEC. 239. 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. 240. 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, 1997.
Subtitle E--Other Business Incentives
SEC. 241. PHASEOUT OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND
INLAND WATERWAY TRANSPORTATION WHICH REMAIN IN GENERAL
FUND.
(a) Taxes on Trains.--
(1) In general.--Clause (ii) of section 4041(a)(1)(C) is
amended by striking subclauses (I), (II), and (III) and inserting
the following new subclauses:
``(I) 3.3 cents per gallon after December 31, 2004,
and before July 1, 2005,
``(II) 2.3 cents per gallon after June 30, 2005,
and before January 1, 2007, and
``(III) 0 after December 31, 2006.''.
(2) Conforming amendments.--
(A) Subsection (d) of section 4041 is amended by
redesignating paragraph (3) as paragraph (4) and by inserting
after paragraph (2) the following new paragraph:
``(3) Diesel fuel used in trains.--In the case of any sale for
use or use after December 31, 2006, there is hereby imposed a tax
of 0.1 cent per gallon on any liquid other than gasoline (as
defined in section 4083)--
``(A) sold by any person to an owner, lessee, or other
operator of a diesel-powered train for use as a fuel in such
train, or
``(B) used by any person as a fuel in a diesel-powered
train unless there was a taxable sale of such fuel under
subparagraph (A).
No tax shall be imposed by this paragraph on the sale or use of any
liquid if tax was imposed on such liquid under section 4081.''.
(B) Subsection (f) of section 4082 is amended by striking
``section 4041(a)(1)'' and inserting ``subsections (a)(1) and
(d)(3) of section 4041''.
(C) Subparagraph (B) of section 6421(f)(3) is amended to
read as follows:
``(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed the rate applicable under
section 4041(a)(1)(C)(ii).''.
(D) Subparagraph (B) of section 6427(l)(3) is amended to
read as follows:
``(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed the rate applicable under
section 4041(a)(1)(C)(ii).''.
(b) Fuel Used on Inland Waterways.--Subparagraph (C) of section
4042(b)(2) is amended to read as follows:
``(C) The deficit reduction rate is--
``(i) 3.3 cents per gallon after December 31, 2004, and
before July 1, 2005,
``(ii) 2.3 cents per gallon after June 30, 2005, and
before January 1, 2007, and
``(iii) 0 after December 31, 2006.''.
(c) Effective Date.--The amendments made by this section shall take
effect on January 1, 2005.
SEC. 242. MODIFICATION OF APPLICATION OF INCOME FORECAST METHOD OF
DEPRECIATION.
(a) In General.--Section 167(g) (relating to depreciation under
income forecast method) is amended by adding at the end the following
new paragraph:
``(7) Treatment of participations and residuals.--
``(A) In general.--For purposes of determining the
depreciation deduction allowable with respect to a property
under this subsection, the taxpayer may include participations
and residuals with respect to such property in the adjusted
basis of such property for the taxable year in which the
property is placed in service, but only to the extent that such
participations and residuals relate to income estimated (for
purposes of this subsection) to be earned in connection with
the property before the close of the 10th taxable year referred
to in paragraph (1)(A).
``(B) Participations and residuals.--For purposes of this
paragraph, the term `participations and residuals' means, with
respect to any property, costs the amount of which by contract
varies with the amount of income earned in connection with such
property.
``(C) Special rules relating to recomputation years.--If
the adjusted basis of any property is determined under this
paragraph, paragraph (4) shall be applied by substituting `for
each taxable year in such period' for `for such period'.
``(D) Other special rules.--
``(i) Participations and residuals.--Notwithstanding
subparagraph (A), the taxpayer may exclude participations
and residuals from the adjusted basis of such property and
deduct such participations and residuals in the taxable
year that such participations and residuals are paid.
``(ii) Coordination with other rules.--Deductions
computed in accordance with this paragraph shall be
allowable notwithstanding paragraph (1)(B), section 263,
263A, 404, 419, or 461(h).
``(E) Authority to make adjustments.--The Secretary shall
prescribe appropriate adjustments to the basis of property and
to the look-back method for the additional amounts allowable as
a deduction solely by reason of this paragraph.''.
(b) Determination of Income.--Section 167(g)(5) (relating to
special rules) is amended by redesignating subparagraphs (E) and (F) as
subparagraphs (F) and (G), respectively, and inserting after
subparagraph (D) the following new subparagraph:
``(E) Treatment of distribution costs.--For purposes of
this subsection, the income with respect to any property shall
be the taxpayer's gross income from such property.''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act.
SEC. 243. 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. 244. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION PRODUCTIONS.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
inserting after section 180 the following new section:
``SEC. 181. TREATMENT OF CERTAIN QUALIFIED FILM AND TELEVISION
PRODUCTIONS.
``(a) Election To Treat Costs as Expenses.--
``(1) In general.--A taxpayer may elect to treat the cost of
any qualified film or television production as an expense which is
not chargeable to capital account. Any cost so treated shall be
allowed as a deduction.
``(2) Dollar limitation.--
``(A) In general.--Paragraph (1) shall not apply to any
qualified film or television production the aggregate cost of
which exceeds $15,000,000.
``(B) Higher dollar limitation for productions in certain
areas.--In the case of any qualified film or television
production the aggregate cost of which is significantly
incurred in an area eligible for designation as--
``(i) a low-income community under section 45D, or
``(ii) a distressed county or isolated area of distress
by the Delta Regional Authority established under section
2009aa-1 of title 7, United States Code,
subparagraph (A) shall be applied by substituting `$20,000,000'
for `$15,000,000'.
``(b) No Other Deduction or Amortization Deduction Allowable.--With
respect to the basis of any qualified film or television production to
which an election is made under subsection (a), no other depreciation
or amortization deduction shall be allowable.
``(c) Election.--
``(1) In general.--An election under this section with respect
to any qualified film or television production shall be made in
such manner as prescribed by the Secretary and by the due date
(including extensions) for filing the taxpayer's return of tax
under this chapter for the taxable year in which costs of the
production are first incurred.
``(2) Revocation of election.--Any election made under this
section may not be revoked without the consent of the Secretary.
``(d) Qualified Film or Television Production.--For purposes of
this section--
``(1) In general.--The term `qualified film or television
production' means any production described in paragraph (2) if 75
percent of the total compensation of the production is qualified
compensation.
``(2) Production.--
``(A) In general.--A production is described in this
paragraph if such production is property described in section
168(f)(3). For purposes of a television series, only the first
44 episodes of such series may be taken into account.
``(B) Exception.--A production is not described in this
paragraph if records are required under section 2257 of title
18, United States Code, to be maintained with respect to any
performer in such production.
``(3) Qualified compensation.--For purposes of paragraph (1)--
``(A) In general.--The term `qualified compensation' means
compensation for services performed in the United States by
actors, directors, producers, and other relevant production
personnel.
``(B) Participations and residuals excluded.--The term
`compensation' does not include participations and residuals
(as defined in section 167(g)(7)(B)).
``(e) Application of Certain Other Rules.--For purposes of this
section, rules similar to the rules of subsections (b)(2) and (c)(4) of
section 194 shall apply.
``(f) Termination.--This section shall not apply to qualified film
and television productions commencing after December 31, 2008.''.
(b) Conforming Amendment.--The table of sections for part VI of
subchapter B of chapter 1 is amended by inserting after the item
relating to section 180 the following new item:
``Sec. 181. Treatment of certain qualified film and television
productions.''.
(c) Effective Date.--The amendments made by this section shall
apply to qualified film and television productions (as defined in
section 181(d)(1) of the Internal Revenue Code of 1986, as added by
this section) commencing after the date of the enactment of this Act.
SEC. 245. CREDIT FOR MAINTENANCE OF RAILROAD TRACK.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits) is amended by adding at the end
the following new section:
``SEC. 45G. RAILROAD TRACK MAINTENANCE CREDIT.
``(a) General Rule.--For purposes of section 38, the railroad track
maintenance credit determined under this section for the taxable year
is an amount equal to 50 percent of the qualified railroad track
maintenance expenditures paid or incurred by an eligible taxpayer
during the taxable year.
``(b) Limitation.--The credit allowed under subsection (a) for any
taxable year shall not exceed the product of--
``(1) $3,500, and
``(2) the number of miles of railroad track owned or leased by
the eligible taxpayer as of the close of the taxable year.
A mile of railroad track may be taken into account by a person other
than the owner only if such mile is assigned to such person by the
owner for purposes of this subsection. Any mile which is so assigned
may not be taken into account by the owner for purposes of this
subsection.
``(c) Eligible Taxpayer.--For purposes of this section, the term
`eligible taxpayer' means--
``(1) any Class II or Class III railroad, and
``(2) any person who transports property using the rail
facilities of a person described in paragraph (1) or who furnishes
railroad-related property or services to such a person.
``(d) Qualified Railroad Track Maintenance Expenditures.--For
purposes of this section, the term `qualified railroad track
maintenance expenditures' means expenditures (whether or not otherwise
chargeable to capital account) for maintaining railroad track
(including roadbed, bridges, and related track structures) owned or
leased as of January 1, 2005, by a Class II or Class III railroad.
``(e) Other Definitions and Special Rules.--
``(1) Class ii or Class iii railroad.--For purposes of this
section, the terms `Class II railroad' and `Class III railroad'
have the respective meanings given such terms by the Surface
Transportation Board.
``(2) Controlled groups.--Rules similar to the rules of
paragraph (1) of section 41(f) shall apply for purposes of this
section.
``(3) Basis adjustment.--For purposes of this subtitle, if a
credit is allowed under this section with respect to any railroad
track, the basis of such track shall be reduced by the amount of
the credit so allowed.
``(f) Application of Section.--This section shall apply to
qualified railroad track maintenance expenditures paid or incurred
during taxable years beginning after December 31, 2004, and before
January 1, 2008.''.
(b) Limitation on Carryback.--
(1) In general.--Subsection (d) of section 39 is amended to
read as follows:
``(d) Transitional Rule.--No portion of the unused business credit
for any taxable year which is attributable to a credit specified in
section 38(b) or any portion thereof may be carried back to any taxable
year before the first taxable year for which such specified credit or
such portion is allowable (without regard to subsection (a)).''.
(2) Effective date.--The amendment made by paragraph (1) shall
apply with respect to taxable years ending after December 31, 2003.
(c) Conforming Amendments.--
(1) Section 38(b) (relating to general business credit) is
amended by striking ``plus'' at the end of paragraph (14), by
striking the period at the end of paragraph (15) and inserting ``,
plus'', and by adding at the end the following new paragraph:
``(16) the railroad track maintenance credit determined under
section 45G(a).''.
(2) Subsection (a) of section 1016 is amended by striking
``and'' at the end of paragraph (27), by striking the period at the
end of paragraph (28) and inserting ``, and'', and by inserting
after paragraph (28) the following new paragraph:
``(29) in the case of railroad track with respect to which a
credit was allowed under section 45G, to the extent provided in
section 45G(e)(3).''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 is amended by inserting after the
item relating to section 45F the following new item:
``Sec. 45G. Railroad track maintenance credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 246. 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, 2005, and ending
on June 30, 2008.''.
(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. 247. 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 after the date of the enactment
of the American Jobs Creation Act of 2004 under the Small
Business Investment Act of 1958 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 after the date of the enactment of this Act by
a small business investment company licensed after the date of the
enactment of this Act.
SEC. 248. ELECTION TO DETERMINE CORPORATE TAX ON CERTAIN INTERNATIONAL
SHIPPING ACTIVITIES USING PER TON RATE.
(a) In General.--Chapter 1 is amended by inserting after subchapter
Q the following new subchapter:
``Subchapter R--Election To Determine Corporate Tax on Certain
International Shipping Activities Using Per Ton Rate
``Sec. 1352. Alternative tax on qualifying shipping activities.
``Sec. 1353. Notional shipping income.
``Sec. 1354. Alternative 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 vessels.
``SEC. 1352. ALTERNATIVE TAX ON QUALIFYING SHIPPING ACTIVITIES.
``In the case of an electing corporation, the tax imposed by
section 11 shall be the amount equal to the sum of--
``(1) the tax imposed by section 11 determined after the
application of this subchapter, and
``(2) a tax equal to--
``(A) the highest rate of tax specified in section 11,
multiplied by
``(B) the notional shipping income for the taxable year.
``SEC. 1353. NOTIONAL SHIPPING INCOME.
``(a) In General.--For purposes of this subchapter, the notional
shipping income of an electing corporation shall be the sum of the
amounts determined under subsection (b) for each qualifying vessel
operated by such electing corporation.
``(b) Amounts.--
``(1) In general.--For purposes of subsection (a), the amount
of notional shipping income of an electing corporation for each
qualifying vessel for the taxable year shall equal the product of--
``(A) the daily notional shipping income, and
``(B) the number of days during the taxable year that the
electing corporation operated such vessel as a qualifying
vessel in United States foreign trade.
``(2) Treatment of vessels the income from which is not
otherwise subject to tax.--In the case of a qualifying vessel any
of the income from which is not included in gross income by reason
of section 883 or otherwise, the amount of notional shipping income
from such vessel for the taxable year shall be the amount which
bears the same ratio to such shipping income (determined without
regard to this paragraph) as the gross income from the operation of
such vessel in the United States foreign trade bears to the sum of
such gross income and the income so excluded.
``(c) Daily Notional Shipping Income.--For purposes of subsection
(b), the daily notional shipping income from the operation of a
qualifying vessel is--
``(1) 40 cents for each 100 tons of so much of the net tonnage
of the vessel as does not exceed 25,000 net tons, and
``(2) 20 cents for each 100 tons of so much of the net tonnage
of the vessel as exceeds 25,000 net tons.
``(d) Multiple Operators of Vessel.--If for any period 2 or more
persons are operators of a qualifying vessel, the notional shipping
income from the operation of such vessel for such period shall be
allocated among such persons on the basis of their respective ownership
and charter interests in such vessel or on such other basis as the
Secretary may prescribe by regulations.
``SEC. 1354. ALTERNATIVE TAX ELECTION; REVOCATION; TERMINATION.
``(a) In General.--A qualifying vessel operator may elect the
application of this subchapter.
``(b) Time and Manner; Years for Which Effective.--An election
under this subchapter--
``(1) shall be made in such form as prescribed by the
Secretary, and
``(2) shall be effective for the taxable year for which made
and all succeeding taxable years until terminated under subsection
(d).
Such election may be effective for any taxable year only if made before
the due date (including extensions) for filing the corporation's return
for such taxable year.
``(c) Consistent Elections By Members of Controlled Groups.--An
election under subsection (a) by a member of a controlled group shall
apply to all qualifying vessel operators that are members of such
group.
``(d) 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 3d 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 for taxable years beginning on and after the date
so specified.
``(2) By person ceasing to be qualifying vessel operator.--
``(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 corporation is an electing
corporation) such corporation ceases to be a qualifying vessel
operator.
``(B) When effective.--Any termination under this paragraph
shall be effective on and after the date of cessation.
``(C) Annualization.--The Secretary shall prescribe such
annualization and other rules as are appropriate in the case of
a termination under this paragraph.
``(e) Election After Termination.--If a qualifying vessel operator
has made an election under subsection (a) and if such election has been
terminated under subsection (d), such operator (and any successor
operator) 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) Electing corporation.--The term `electing corporation'
means any corporation for which an election is in effect under this
subchapter.
``(2) Electing group; controlled group.--
``(A) Electing group.--The term `electing group' means a
controlled group of which one or more members is an electing
corporation.
``(B) Controlled group.--The term `controlled group' means
any group which would be treated as a single employer under
subsection (a) or (b) of section 52 if paragraphs (1) and (2)
of section 52(a) did not apply.
``(3) Qualifying vessel operator.--The term `qualifying vessel
operator' means any corporation--
``(A) who operates one or more qualifying vessels, and
``(B) who meets the shipping activity requirement in
subsection (c).
``(4) Qualifying vessel.--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 exclusively in the United States foreign trade
during the period that the election under this subchapter is in
effect.
``(5) United states flag vessel.--The term `United States flag
vessel' means any vessel documented under the laws of the United
States.
``(6) United states domestic trade.--The term `United States
domestic trade' means the transportation of goods or passengers
between places in the United States.
``(7) United states foreign trade.--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.
``(8) Charter.--The term `charter' includes an operating
agreement.
``(b) Operating a Vessel.--For purposes of this subchapter--
``(1) In general.--Except as provided in paragraph (2), a
person is treated as operating any vessel during any period if such
vessel is--
``(A) owned by, or chartered (including a time charter) to,
the person, and
``(B) is in use as a qualifying vessel during such period.
``(2) Bareboat charters.--A person is treated as operating and
using a vessel that it has chartered out on bareboat charter terms
only if--
``(A)(i) the vessel is temporarily surplus to the person's
requirements and the term of the charter does not exceed 3
years, or
``(ii) the vessel is bareboat chartered to a member of a
controlled group which includes such person or to an unrelated
person who sub-bareboats or time charters the vessel to such a
member (including the owner of the vessel), and
``(B) the vessel is used as a qualifying vessel by the
person to whom ultimately chartered.
``(c) Shipping Activity Requirement.--For purposes of this
section--
``(1) In general.--Except as otherwise provided in this
subsection, a corporation meets the shipping activity requirement
of this subsection for any taxable year only if the requirement of
paragraph (4) is met for each of the 2 preceding taxable years.
``(2) Special rule for 1st year of election.--A corporation
meets the shipping activity requirement of this subsection for the
first taxable year for which the election under section 1354(a) is
in effect only if the requirement of paragraph (4) is met for the
preceding taxable year.
``(3) Controlled groups.--A corporation who is a member of a
controlled group meets the shipping activity requirement of this
subsection only if such requirement is met determined--
``(A) by treating all members of such group as 1 person,
and
``(B) by disregarding vessel charters between members of
such group.
``(4) Requirement.--The requirement of this paragraph is met
for any taxable year if, on average during such year, at least 25
percent of the aggregate tonnage of qualifying vessels used by the
corporation were owned by such corporation or chartered to such
corporation on bareboat charter terms.
``(d) Activities Carried on Partnerships, Etc.--In applying this
subchapter to a partner in a partnership--
``(1) each partner shall be treated as operating vessels
operated by the partnership,
``(2) each partner shall be treated as conducting the
activities conducted by the partnership, and
``(3) the extent of a partner's ownership or charter interest
in any vessel owned by or chartered to the partnership shall be
determined on the basis of the partner's interest in the
partnership.
A similar rule shall apply with respect to other pass-thru entities.
``(e) Effect of Temporarily Ceasing To Operate a Qualifying
Vessel.--
``(1) In general.--For purposes of subsections (b) and (c), an
electing corporation shall be treated as continuing to use a
qualifying vessel during any period of temporary cessation if the
electing corporation 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.--Notice shall be deemed timely if given not later
than the due date (including extensions) for the corporation's tax
return for the taxable year in which the temporary cessation
begins.
``(3) Period disregard in effect.--The period of temporary
cessation under paragraph (1) shall continue until the earlier of
the date on which--
``(A) the electing corporation abandons its intention to
resume operation of the qualifying vessel, or
``(B) the electing corporation resumes operation of the
qualifying vessel.
``(f) Effect of Temporarily Operating a Qualifying Vessel in the
United States Domestic Trade.--
``(1) In general.--For purposes of this subchapter, an electing
corporation shall be treated as continuing to use a qualifying
vessel in the United States foreign trade during any period of
temporary use in the United States domestic trade if the electing
corporation 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.--Notice shall be deemed timely if given not later
than the due date (including extensions) for the corporation's tax
return for the taxable year in which the temporary cessation
begins.
``(3) Period disregard in effect.--The period of temporary use
under paragraph (1) continues until the earlier of the date of
which--
``(A) the electing corporation abandons its intention to
resume operations of the vessel in the United States foreign
trade, or
``(B) the electing corporation resumes operation of the
vessel in the United States foreign trade.
``(4) No disregard if domestic trade use exceeds 30 days.--
Paragraph (1) shall not apply to any qualifying vessel which is
operated in the United States domestic trade for more than 30 days
during the taxable year.
``(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 term `qualifying shipping activities' means--
``(1) core qualifying activities,
``(2) qualifying secondary activities, and
``(3) qualifying incidental activities.
``(b) Core Qualifying Activities.--For purposes of this subchapter,
the term `core qualifying activities' means activities in operating
qualifying vessels in United States foreign trade.
``(c) Qualifying Secondary Activities.--For purposes of this
section--
``(1) In general.--The term `qualifying secondary activities'
means secondary activities but only to the extent that, without
regard to this subchapter, the gross income derived by such
corporation from such activities does not exceed 20 percent of the
gross income derived by the corporation from its core qualifying
activities.
``(2) Secondary activities.--The term `secondary activities'
means--
``(A) the active management or operation of vessels other
than qualifying vessels in the United States foreign trade,
``(B) the provision of vessel, barge, container, or cargo-
related facilities or services to any person,
``(C) other activities of the electing corporation 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--
``(i) 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,
``(ii) the inland haulage of cargo shipped, or to be
shipped, on qualifying vessels in United States foreign
trade, and
``(iii) the provision of terminal, maintenance, repair,
logistical, or other vessel, barge, container, or cargo-
related services that are an integral part of operating
qualifying vessels in United States foreign trade, and
``(D) such other activities as may be prescribed by the
Secretary pursuant to regulations.
``(3) Coordination with core activities.--
``(A) In general.--Such term shall not include any core
qualifying activities.
``(B) Nonelecting corporations.--In the case of a
corporation (other than an electing corporation) which is a
member of an electing group, any core qualifying activities of
the corporation shall be treated as qualifying secondary
activities (and not as core qualifying activities).
``(d) Qualifying Incidental Activities.--For purposes of this
section, the term `qualified incidental activities' means shipping-
related activities if--
``(1) they are incidental to the corporation's core qualifying
activities,
``(2) they are not qualifying secondary activities, and
``(3) without regard to this subchapter, the gross income
derived by such corporation from such activities does not exceed
0.1 percent of the corporation's gross income from its core
qualifying activities.
``(e) Application of Gross Income Tests in Case of Electing
Group.--In the case of an electing group, subsections (c)(1) and (d)(3)
shall be applied as if such group were 1 entity, and the limitations
under such subsections shall be allocated among the corporations in
such group.
``SEC. 1357. ITEMS NOT SUBJECT TO REGULAR TAX; DEPRECIATION; INTEREST.
``(a) Exclusion From Gross Income.--Gross income of an electing
corporation shall not include its income from qualifying shipping
activities.
``(b) Electing Group Member.--Gross income of a corporation (other
than an electing corporation) which is a member of an electing group
shall not include its income from qualifying shipping activities
conducted by such member.
``(c) Denial of Losses, Deductions, and Credits.--
``(1) General rule.--Subject to paragraph (2), 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.--
``(A) In general.--Notwithstanding paragraph (1), the
adjusted basis (for purposes of determining gain) of any
qualifying vessel shall be determined as if the deduction for
depreciation had been allowed.
``(B) Method.--
``(i) In general.--Except as provided in clause (ii),
the straight-line method of depreciation shall apply to
qualifying vessels the income from operation of which is
excluded from gross income under this section.
``(ii) Exception.--Clause (i) shall not apply to any
qualifying vessel which is subject to a charter entered
into before the date of the enactment of this subchapter.
``(3) Interest.--
``(A) In general.--Except as provided in subparagraph (B),
the interest expense of an electing corporation shall be
disallowed in the ratio that the fair market value of such
corporation's qualifying vessels bears to the fair market value
of such corporation's total assets.
``(B) Electing group.--In the case of a corporation which
is a member of an electing group, the interest expense of such
corporation shall be disallowed in the ratio that the fair
market value of such corporation's qualifying vessels bears to
the fair market value of the electing groups total assets.
``SEC. 1358. ALLOCATION OF CREDITS, INCOME, AND DEDUCTIONS.
``(a) Qualifying Shipping Activities.--For purposes of this
chapter, the qualifying shipping activities of an electing corporation
shall be treated as a separate trade or business activity distinct from
all other activities conducted by such corporation.
``(b) Exclusion of Credits or Deductions.--
``(1) No deduction shall be allowed against the notional
shipping income of an electing corporation, and no credit shall be
allowed against the tax imposed by section 1352(a)(2).
``(2) No deduction shall be allowed for any net operating loss
attributable to the qualifying shipping activities of any person to
the extent that such loss is carried forward by such person from a
taxable year preceding the first taxable year for which such person
was an electing corporation.
``(c) Transactions Not at Arm's Length.--Section 482 applies in
accordance with this subsection to a transaction or series of
transactions--
``(1) as between an electing corporation and another person, or
``(2) as between an person's qualifying shipping activities and
other activities carried on by it.
``SEC. 1359. DISPOSITION OF QUALIFYING VESSELS.
``(a) In General.--If any qualifying vessel operator sells or
disposes of any qualifying vessel in an otherwise taxable transaction,
at the election of such operator, no gain shall be recognized if any
replacement qualifying vessel is 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
vessel.
``(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 vessel 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) Application of Section to Noncorporate Operators.--For
purposes of this section, the term `qualifying vessel operator'
includes any person who would be a qualifying vessel operator were such
person a corporation.
``(d) Time for Assessment of Deficiency Attributable to Gain.--If a
qualifying vessel operator 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
such operator (in such manner as the Secretary may by regulations
prescribe) of the replacement qualifying vessel 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.
``(e) Basis of Replacement Qualifying Vessel.--In the case of any
replacement qualifying vessel purchased by the qualifying vessel
operator which resulted in the nonrecognition of any part of the gain
realized as the result of a sale or other disposition of a qualifying
vessel, the basis shall be the cost of the replacement qualifying
vessel 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.''.
(b) Technical Amendments.--
(1) 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''.
(2) The table of subchapters for chapter 1 is amended by
inserting after the item relating to subchapter S the following new
item:
``Subchapter R. Election to determine corporate tax on certain
international shipping activities using per ton
rate.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
Subtitle F--Stock Options and Employee Stock Purchase Plan Stock
Options
SEC. 251. 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.
TITLE III--TAX RELIEF FOR AGRICULTURE AND SMALL MANUFACTURERS
Subtitle A--Volumetric Ethanol Excise Tax Credit
SEC. 301. ALCOHOL AND BIODIESEL EXCISE TAX CREDIT AND EXTENSION OF
ALCOHOL FUELS INCOME TAX CREDIT.
(a) In General.--Subchapter B of chapter 65 (relating to rules of
special application) is amended by inserting after section 6425 the
following new section:
``SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL MIXTURES.
``(a) Allowance of Credits.--There shall be allowed as a credit
against the tax imposed by section 4081 an amount equal to the sum of--
``(1) the alcohol fuel mixture credit, plus
``(2) the biodiesel mixture credit.
``(b) Alcohol Fuel Mixture Credit.--
``(1) In general.--For purposes of this section, the alcohol
fuel mixture credit is the product of the applicable amount and the
number of gallons of alcohol used by the taxpayer in producing any
alcohol fuel mixture for sale or use in a trade or business of the
taxpayer.
``(2) Applicable amount.--For purposes of this subsection--
``(A) In general.--Except as provided in subparagraph (B),
the applicable amount is 51 cents.
``(B) Mixtures not containing ethanol.--In the case of an
alcohol fuel mixture in which none of the alcohol consists of
ethanol, the applicable amount is 60 cents.
``(3) Alcohol fuel mixture.--For purposes of this subsection,
the term `alcohol fuel mixture' means a mixture of alcohol and a
taxable fuel which--
``(A) is sold by the taxpayer producing such mixture to any
person for use as a fuel, or
``(B) is used as a fuel by the taxpayer producing such
mixture.
For purposes of subparagraph (A), a mixture produced by any person
at a refinery prior to a taxable event which includes ethyl
tertiary butyl ether or other ethers produced from alcohol shall be
treated as sold at the time of its removal from the refinery (and
only at such time) to another person for use as a fuel.
``(4) Other definitions.--For purposes of this subsection--
``(A) Alcohol.--The term `alcohol' includes methanol and
ethanol but does not include--
``(i) alcohol produced from petroleum, natural gas, or
coal (including peat), or
``(ii) alcohol with a proof of less than 190
(determined without regard to any added denaturants).
Such term also includes an alcohol gallon equivalent of ethyl
tertiary butyl ether or other ethers produced from such
alcohol.
``(B) Taxable fuel.--The term `taxable fuel' has the
meaning given such term by section 4083(a)(1).
``(5) Termination.--This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2010.
``(c) Biodiesel Mixture Credit.--
``(1) In general.--For purposes of this section, the biodiesel
mixture credit is the product of the applicable amount and the
number of gallons of biodiesel used by the taxpayer in producing
any biodiesel mixture for sale or use in a trade or business of the
taxpayer.
``(2) Applicable amount.--For purposes of this subsection--
``(A) In general.--Except as provided in subparagraph (B),
the applicable amount is 50 cents.
``(B) Amount for agri-biodiesel.--In the case of any
biodiesel which is agri-biodiesel, the applicable amount is
$1.00.
``(3) Biodiesel mixture.--For purposes of this section, the
term `biodiesel mixture' means a mixture of biodiesel and diesel
fuel (as defined in section 4083(a)(3)), determined without regard
to any use of kerosene, which--
``(A) is sold by the taxpayer producing such mixture to any
person for use as a fuel, or
``(B) is used as a fuel by the taxpayer producing such
mixture.
``(4) Certification for biodiesel.--No credit shall be allowed
under this subsection unless the taxpayer obtains a certification
(in such form and manner as prescribed by the Secretary) from the
producer of the biodiesel which identifies the product produced and
the percentage of biodiesel and agri-biodiesel in the product.
``(5) Other definitions.--Any term used in this subsection
which is also used in section 40A shall have the meaning given such
term by section 40A.
``(6) Termination.--This subsection shall not apply to any
sale, use, or removal for any period after December 31, 2006.
``(d) Mixture Not Used As a Fuel, Etc.--
``(1) Imposition of tax.--If--
``(A) any credit was determined under this section with
respect to alcohol or biodiesel used in the production of any
alcohol fuel mixture or biodiesel mixture, respectively, and
``(B) any person--
``(i) separates the alcohol or biodiesel from the
mixture, or
``(ii) without separation, uses the mixture other than
as a fuel,
then there is hereby imposed on such person a tax equal to the
product of the applicable amount and the number of gallons of
such alcohol or biodiesel.
``(2) Applicable laws.--All provisions of law, including
penalties, shall, insofar as applicable and not inconsistent with
this section, apply in respect of any tax imposed under paragraph
(1) as if such tax were imposed by section 4081 and not by this
section.
``(e) Coordination With Exemption From Excise Tax.--Rules similar
to the rules under section 40(c) shall apply for purposes of this
section.''.
(b) Registration Requirement.--Section 4101(a)(1) (relating to
registration), as amended by section 861, is amended by inserting ``and
every person producing or importing biodiesel (as defined in section
40A(d)(1)) or alcohol (as defined in section 6426(b)(4)(A))'' before
``shall register with the Secretary''.
(c) Additional Amendments.--
(1) Section 40(c) is amended by striking ``subsection (b)(2),
(k), or (m) of section 4041, section 4081(c), or section 4091(c)''
and inserting ``section 4041(b)(2), section 6426, or section
6427(e)''.
(2) Paragraph (4) of section 40(d) is amended to read as
follows:
``(4) Volume of alcohol.--For purposes of determining under
subsection (a) the number of gallons of alcohol with respect to
which a credit is allowable under subsection (a), the volume of
alcohol shall include the volume of any denaturant (including
gasoline) which is added under any formulas approved by the
Secretary to the extent that such denaturants do not exceed 5
percent of the volume of such alcohol (including denaturants).''.
(3) Section 40(e)(1) is amended--
(A) by striking ``2007'' in subparagraph (A) and inserting
``2010'', and
(B) by striking ``2008'' in subparagraph (B) and inserting
``2011''.
(4) Section 40(h) is amended--
(A) by striking ``2007'' in paragraph (1) and inserting
``2010'', and
(B) by striking ``, 2006, or 2007'' in the table contained
in paragraph (2) and inserting ``through 2010''.
(5) Section 4041(b)(2)(B) is amended by striking ``a substance
other than petroleum or natural gas'' and inserting ``coal
(including peat)''.
(6) Section 4041 is amended by striking subsection (k).
(7) Section 4081 is amended by striking subsection (c).
(8) Paragraph (2) of section 4083(a) is amended to read as
follows:
``(2) Gasoline.--The term `gasoline'--
``(A) includes any gasoline blend, other than qualified
methanol or ethanol fuel (as defined in section 4041(b)(2)(B)),
partially exempt methanol or ethanol fuel (as defined in
section 4041(m)(2)), or a denatured alcohol, and
``(B) includes, to the extent prescribed in regulations--
``(i) any gasoline blend stock, and
``(ii) any product commonly used as an additive in
gasoline (other than alcohol).
For purposes of subparagraph (B)(i), the term `gasoline blend
stock' means any petroleum product component of gasoline.''.
(9) Section 6427 is amended by inserting after subsection (d)
the following new subsection:
``(e) Alcohol or Biodiesel Used To Produce Alcohol Fuel and
Biodiesel Mixtures.--Except as provided in subsection (k)--
``(1) Used to produce a mixture.--If any person produces a
mixture described in section 6426 in such person's trade or
business, the Secretary shall pay (without interest) to such person
an amount equal to the alcohol fuel mixture credit or the biodiesel
mixture credit with respect to such mixture.
``(2) Coordination with other repayment provisions.--No amount
shall be payable under paragraph (1) with respect to any mixture
with respect to which an amount is allowed as a credit under
section 6426.
``(3) Termination.--This subsection shall not apply with
respect to--
``(A) any alcohol fuel mixture (as defined in section
6426(b)(3)) sold or used after December 31, 2010, and
``(B) any biodiesel mixture (as defined in section
6426(c)(3)) sold or used after December 31, 2006.''.
(10) Section 6427(i)(3) is amended--
(A) by striking ``subsection (f)'' both places it appears
in subparagraph (A) and inserting ``subsection (e)(1)'',
(B) by striking ``gasoline, diesel fuel, or kerosene used
to produce a qualified alcohol mixture (as defined in section
4081(c)(3))'' in subparagraph (A) and inserting ``a mixture
described in section 6426'',
(C) by adding at the end of subparagraph (A) the following
new flush sentence:
``In the case of an electronic claim, this subparagraph shall
be applied without regard to clause (i).'',
(D) by striking ``subsection (f)(1)'' in subparagraph (B)
and inserting ``subsection (e)(1)'',
(E) by striking ``20 days of the date of the filing of such
claim'' in subparagraph (B) and inserting ``45 days of the date
of the filing of such claim (20 days in the case of an
electronic claim)'', and
(F) by striking ``alcohol mixture'' in the heading and
inserting ``alcohol fuel and biodiesel mixture''.
(11) Section 9503(b)(1) is amended by adding at the end the
following new flush sentence:
``For purposes of this paragraph, taxes received under sections
4041 and 4081 shall be determined without reduction for credits
under section 6426.''.
(12) Section 9503(b)(4) is amended--
(A) by adding ``or'' at the end of subparagraph (C),
(B) by striking the comma at the end of subparagraph
(D)(iii) and inserting a period, and
(C) by striking subparagraphs (E) and (F).
(13) Section 9503(c)(2)(A) is amended by adding at the end the
following: ``Clauses (i)(III) and (ii) shall not apply to claims
under section 6427(e).''.
(14) The table of sections for subchapter B of chapter 65 is
amended by inserting after the item relating to section 6425 the
following new item:
``Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.''.
(d) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to fuel
sold or used after December 31, 2004.
(2) Registration requirement.--The amendment made by subsection
(b) shall take effect on April 1, 2005.
(3) Extension of alcohol fuels credit.--The amendments made by
paragraphs (3), (4), and (14) of subsection (c) shall take effect
on the date of the enactment of this Act.
(4) Repeal of general fund retention of certain alcohol fuels
taxes.--The amendments made by subsection (c)(12) shall apply to
fuel sold or used after September 30, 2004.
(e) Format for Filing.--The Secretary of the Treasury shall
describe the electronic format for filing claims described in section
6427(i)(3)(B) of the Internal Revenue Code of 1986 (as amended by
subsection (c)(10)(C)) not later than December 31, 2004.
SEC. 302. BIODIESEL INCOME TAX CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by inserting after
section 40 the following new section:
``SEC. 40A. BIODIESEL USED AS FUEL.
``(a) General Rule.--For purposes of section 38, the biodiesel
fuels credit determined under this section for the taxable year is an
amount equal to the sum of--
``(1) the biodiesel mixture credit, plus
``(2) the biodiesel credit.
``(b) Definition of Biodiesel Mixture Credit and Biodiesel
Credit.--For purposes of this section--
``(1) Biodiesel mixture credit.--
``(A) In general.--The biodiesel mixture credit of any
taxpayer for any taxable year is 50 cents for each gallon of
biodiesel used by the taxpayer in the production of a qualified
biodiesel mixture.
``(B) Qualified biodiesel mixture.--The term `qualified
biodiesel mixture' means a mixture of biodiesel and diesel fuel
(as defined in section 4083(a)(3)), determined without regard
to any use of kerosene, which--
``(i) is sold by the taxpayer producing such mixture to
any person for use as a fuel, or
``(ii) is used as a fuel by the taxpayer producing such
mixture.
``(C) Sale or use must be in trade or business, etc.--
Biodiesel used in the production of a qualified biodiesel
mixture shall be taken into account--
``(i) only if the sale or use described in subparagraph
(B) is in a trade or business of the taxpayer, and
``(ii) for the taxable year in which such sale or use
occurs.
``(D) Casual off-farm production not eligible.--No credit
shall be allowed under this section with respect to any casual
off-farm production of a qualified biodiesel mixture.
``(2) Biodiesel credit.--
``(A) In general.--The biodiesel credit of any taxpayer for
any taxable year is 50 cents for each gallon of biodiesel which
is not in a mixture with diesel fuel and which during the
taxable year--
``(i) is used by the taxpayer as a fuel in a trade or
business, or
``(ii) is sold by the taxpayer at retail to a person
and placed in the fuel tank of such person's vehicle.
``(B) User credit not to apply to biodiesel sold at
retail.--No credit shall be allowed under subparagraph (A)(i)
with respect to any biodiesel which was sold in a retail sale
described in subparagraph (A)(ii).
``(3) Credit for agri-biodiesel.--In the case of any biodiesel
which is agri-biodiesel, paragraphs (1)(A) and (2)(A) shall be
applied by substituting `$1.00' for `50 cents'.
``(4) Certification for biodiesel.--No credit shall be allowed
under this section unless the taxpayer obtains a certification (in
such form and manner as prescribed by the Secretary) from the
producer or importer of the biodiesel which identifies the product
produced and the percentage of biodiesel and agri-biodiesel in the
product.
``(c) Coordination With Credit Against Excise Tax.--The amount of
the credit determined under this section with respect to any biodiesel
shall be properly reduced to take into account any benefit provided
with respect to such biodiesel solely by reason of the application of
section 6426 or 6427(e).
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Biodiesel.--The term `biodiesel' means the monoalkyl
esters of long chain fatty acids derived from plant or animal
matter which meet--
``(A) the registration requirements for fuels and fuel
additives established by the Environmental Protection Agency
under section 211 of the Clean Air Act (42 U.S.C. 7545), and
``(B) the requirements of the American Society of Testing
and Materials D6751.
``(2) Agri-biodiesel.--The term `agri-biodiesel' means
biodiesel derived solely from virgin oils, including esters derived
from virgin vegetable oils from corn, soybeans, sunflower seeds,
cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice
bran, and mustard seeds, and from animal fats.
``(3) Mixture or biodiesel not used as a fuel, etc.--
``(A) Mixtures.--If--
``(i) any credit was determined under this section with
respect to biodiesel used in the production of any
qualified biodiesel mixture, and
``(ii) any person--
``(I) separates the biodiesel from the mixture, or
``(II) without separation, uses the mixture other
than as a fuel,
then there is hereby imposed on such person a tax equal to the
product of the rate applicable under subsection (b)(1)(A) and
the number of gallons of such biodiesel in such mixture.
``(B) Biodiesel.--If--
``(i) any credit was determined under this section with
respect to the retail sale of any biodiesel, and
``(ii) any person mixes such biodiesel or uses such
biodiesel other than as a fuel,
then there is hereby imposed on such person a tax equal to the
product of the rate applicable under subsection (b)(2)(A) and
the number of gallons of such biodiesel.
``(C) Applicable laws.--All provisions of law, including
penalties, shall, insofar as applicable and not inconsistent
with this section, apply in respect of any tax imposed under
subparagraph (A) or (B) as if such tax were imposed by section
4081 and not by this chapter.
``(4) Pass-thru in the case of estates and trusts.--Under
regulations prescribed by the Secretary, rules similar to the rules
of subsection (d) of section 52 shall apply.
``(e) Termination.--This section shall not apply to any sale or use
after December 31, 2006.''.
(b) Credit Treated as Part of General Business Credit.--Section
38(b) (relating to current year business credit), as amended by this
Act, is amended by striking ``plus'' at the end of paragraph (15), by
striking the period at the end of paragraph (16) and inserting ``,
plus'', and by inserting after paragraph (16) the following new
paragraph:
``(17) the biodiesel fuels credit determined under section
40A(a).''.
(c) Conforming Amendments.--
(1)(A) Section 87 is amended to read as follows:
``SEC. 87. ALCOHOL AND BIODIESEL FUELS CREDITS.
``Gross income includes--
``(1) the amount of the alcohol fuel credit determined with
respect to the taxpayer for the taxable year under section 40(a),
and
``(2) the biodiesel fuels credit determined with respect to the
taxpayer for the taxable year under section 40A(a).''.
(B) The item relating to section 87 in the table of sections
for part II of subchapter B of chapter 1 is amended by striking
``fuel credit'' and inserting ``and biodiesel fuels credits''.
(2) Section 196(c) is amended by striking ``and'' at the end of
paragraph (9), by striking the period at the end of paragraph (10)
and inserting ``, and'', and by adding at the end the following new
paragraph:
``(11) the biodiesel fuels credit determined under section
40A(a).''.
(3) The table of sections for subpart D of part IV of
subchapter A of chapter 1 is amended by adding after the item
relating to section 40 the following new item:
``Sec. 40A. Biodiesel used as fuel.''.
(d) Effective Date.--The amendments made by this section shall
apply to fuel produced, and sold or used, after December 31, 2004, in
taxable years ending after such date.
SEC. 303. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN TAX
BENEFITS.
(a) In General.--Subpart C of part III of subchapter A of chapter
32 is amended by adding at the end the following new section:
``SEC. 4104. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN TAX
BENEFITS.
``(a) In General.--The Secretary shall require any person claiming
tax benefits--
``(1) under the provisions of section 34, 40, and 40A, to file
a return at the time such person claims such benefits (in such
manner as the Secretary may prescribe), and
``(2) under the provisions of section 4041(b)(2), 6426, or
6427(e) to file a quarterly return (in such manner as the Secretary
may prescribe).
``(b) Contents of Return.--Any return filed under this section
shall provide such information relating to such benefits and the
coordination of such benefits as the Secretary may require to ensure
the proper administration and use of such benefits.
``(c) Enforcement.--With respect to any person described in
subsection (a) and subject to registration requirements under this
title, rules similar to rules of section 4222(c) shall apply with
respect to any requirement under this section.''.
(b) Conforming Amendment.--The table of sections for subpart C of
part III of subchapter A of chapter 32 is amended by adding at the end
the following new item:
``Sec. 4104. Information reporting for persons claiming certain tax
benefits.''.
(c) Effective Date.--The amendments made by this section shall take
effect on January 1, 2005.
Subtitle B--Agricultural Incentives
SEC. 311. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF WEATHER-
RELATED CONDITIONS.
(a) Replacement of Livestock With Other Farm Property.--Subsection
(f) of section 1033 (relating to involuntary conversions) is amended--
(1) by inserting ``drought, flood, or other weather-related
conditions, or'' after ``because of'',
(2) by inserting ``in the case of soil contamination or other
environmental contamination'' after ``including real property'',
and
(3) by striking ``Where There Has Been Environmental
Contamination'' in the heading and inserting ``in Certain Cases''.
(b) Extension of Replacement Period of Involuntarily Converted
Livestock.--Subsection (e) of section 1033 (relating to involuntary
conversions) is amended--
(1) by striking ``Conditions.--For purposes'' and inserting
``Conditions.--
``(1) In general.--For purposes'', and
(2) by adding at the end the following new paragraph:
``(2) Extension of replacement period.--
``(A) In general.--In the case of drought, flood, or other
weather-related conditions described in paragraph (1) which
result in the area being designated as eligible for assistance
by the Federal Government, subsection (a)(2)(B) shall be
applied with respect to any converted property by substituting
`4 years' for `2 years'.
``(B) Further extension by secretary.--The Secretary may
extend on a regional basis the period for replacement under
this section (after the application of subparagraph (A)) for
such additional time as the Secretary determines appropriate if
the weather-related conditions which resulted in such
application continue for more than 3 years.''.
(c) Income Inclusion Rules.--Section 451(e) (relating to special
rule for proceeds from livestock sold on account of drought, flood, or
other weather-related conditions) is amended by adding at the end the
following new paragraph:
``(3) Special election rules.--If section 1033(e)(2) applies to
a sale or exchange of livestock described in paragraph (1), the
election under paragraph (1) shall be deemed valid if made during
the replacement period described in such section.''.
(d) Effective Date.--The amendments made by this section shall
apply to any taxable year with respect to which the due date (without
regard to extensions) for the return is after December 31, 2002.
SEC. 312. 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. 313. APPORTIONMENT OF SMALL ETHANOL PRODUCER CREDIT.
(a) Allocation of Alcohol Fuels Credit to Patrons of a
Cooperative.--Section 40(g) (relating to definitions and special rules
for eligible small ethanol producer credit) is amended by adding at the
end the following new paragraph:
``(6) Allocation of small ethanol producer credit to patrons of
cooperative.--
``(A) Election to allocate.--
``(i) In general.--In the case of a cooperative
organization described in section 1381(a), any portion of
the credit determined under subsection (a)(3) for the
taxable year may, at the election of the organization, be
apportioned pro rata among patrons of the organization on
the basis of the quantity or value of business done with or
for such patrons for the taxable year.
``(ii) Form and effect of election.--An election under
clause (i) for any taxable year shall be made on a timely
filed return for such year. Such election, once made, shall
be irrevocable for such taxable year.
``(B) Treatment of organizations and patrons.--
``(i) Organizations.--The amount of the credit not
apportioned to patrons pursuant to subparagraph (A) shall
be included in the amount determined under subsection
(a)(3) for the taxable year of the organization.
``(ii) Patrons.--The amount of the credit apportioned
to patrons pursuant to subparagraph (A) shall be included
in the amount determined under such subsection for the
first taxable year of each patron ending on or after the
last day of the payment period (as defined in section
1382(d)) for the taxable year of the organization or, if
earlier, for the taxable year of each patron ending on or
after the date on which the patron receives notice from the
cooperative of the apportionment.
``(iii) Special rules for decrease in credits for
taxable year.--If the amount of the credit of the
organization determined under such subsection for a taxable
year is less than the amount of such credit shown on the
return of the organization for such year, an amount equal
to the excess of--
``(I) such reduction, over
``(II) the amount not apportioned to such patrons
under subparagraph (A) for the taxable year,
shall be treated as an increase in tax imposed by this
chapter on the organization. Such increase shall not be
treated as tax imposed by this chapter for purposes of
determining the amount of any credit under this chapter or
for purposes of section 55.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years ending after the date of the enactment of this Act.
SEC. 314. COORDINATE FARMERS AND FISHERMEN INCOME AVERAGING AND THE
ALTERNATIVE MINIMUM TAX.
(a) In General.--Section 55(c) (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 and
fishermen.--Solely for purposes of this section, section 1301
(relating to averaging of farm and fishing income) shall not apply
in computing the regular tax.''.
(b) Allowing Income Averaging for Fishermen.--
(1) In general.--Section 1301(a) is amended by striking
``farming business'' and inserting ``farming business or fishing
business''.
(2) Definition of elected farm income.--
(A) In general.--Clause (i) of section 1301(b)(1)(A) is
amended by inserting ``or fishing business'' before the
semicolon.
(B) Conforming amendment.--Subparagraph (B) of section
1301(b)(1) is amended by inserting ``or fishing business''
after ``farming business'' both places it occurs.
(3) Definition of fishing business.--Section 1301(b) is amended
by adding at the end the following new paragraph:
``(4) Fishing business.--The term `fishing business' means the
conduct of commercial fishing as defined in section 3 of the
Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C.
1802).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 315. 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. 316. MODIFICATION TO COOPERATIVE MARKETING RULES TO INCLUDE VALUE
ADDED PROCESSING INVOLVING ANIMALS.
(a) In General.--Section 1388 (relating to definitions and special
rules) is amended by adding at the end the following new subsection:
``(k) Cooperative Marketing Includes Value-Added Processing
Involving Animals.--For purposes of section 521 and this subchapter,
the marketing of the products of members or other producers shall
include the feeding of such products to cattle, hogs, fish, chickens,
or other animals and the sale of the resulting animals or animal
products.''.
(b) Conforming Amendment.--Section 521(b) is amended by adding at
the end the following new paragraph:
``(7) Cross Reference.--
``For treatment of value-added processing involving animals,
see section 1388(k).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 317. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO FARMERS'
COOPERATIVE ORGANIZATIONS.
(a) In General.--Section 7428(a)(1) (relating to declaratory
judgments of tax exempt organizations) is amended by striking ``or'' at
the end of subparagraph (B) and by adding at the end the following new
subparagraph:
``(D) with respect to the initial classification or
continuing classification of a cooperative as an organization
described in section 521(b) which is exempt from tax under
section 521(a), or''.
(b) Effective Date.--The amendments made by this section shall
apply with respect to pleadings filed after the date of the enactment
of this Act.
SEC. 318. CERTAIN EXPENSES OF RURAL LETTER CARRIERS.
(a) In General.--Section 162(o) (relating to treatment of certain
reimbursed expenses of rural mail carriers) is amended by redesignating
paragraph (2) as paragraph (3) and by inserting after paragraph (1) the
following:
``(2) Special rule where expenses exceed reimbursements.--
Notwithstanding paragraph (1)(A), if the expenses incurred by an
employee for the use of a vehicle in performing services described
in paragraph (1) exceed the qualified reimbursements for such
expenses, such excess shall be taken into account in computing the
miscellaneous itemized deductions of the employee under section
67.''.
(b) Conforming Amendment.--The heading for section 162(o) is
amended by striking ``Reimbursed''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 319. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.
(a) Income From Open Access and Nuclear Decommissioning
Transactions.--
(1) In general.--Subparagraph (C) of section 501(c)(12) is
amended by striking clause (ii) and adding at the end the
following:
``(ii) from any provision or sale of electric energy
transmission services or ancillary services if such
services are provided on a nondiscriminatory open access
basis under an open access transmission tariff approved or
accepted by FERC or under an independent transmission
provider agreement approved or accepted by FERC (other than
income received or accrued directly or indirectly from a
member),
``(iii) from the provision or sale of electric energy
distribution services or ancillary services if such
services are provided on a nondiscriminatory open access
basis to distribute electric energy not owned by the mutual
or electric cooperative company--
``(I) to end-users who are served by distribution
facilities not owned by such company or any of its
members (other than income received or accrued directly
or indirectly from a member), or
``(II) generated by a generation facility not owned
or leased by such company or any of its members and
which is directly connected to distribution facilities
owned by such company or any of its members (other than
income received or accrued directly or indirectly from
a member),
``(iv) from any nuclear decommissioning transaction, or
``(v) from any asset exchange or conversion
transaction.
Clauses (ii) through (v) shall not apply to taxable years
beginning after December 31, 2006.''.
(2) Definitions and special rules.--Paragraph (12) of section
501(c) is amended by adding at the end the following new
subparagraphs:
``(E) For purposes of subparagraph (C)(ii), the term `FERC'
means the Federal Energy Regulatory Commission and references
to such term shall be treated as including the Public Utility
Commission of Texas with respect to any ERCOT utility (as
defined in section 212(k)(2)(B) of the Federal Power Act (16
U.S.C. 824k(k)(2)(B))).
``(F) For purposes of subparagraph (C)(iii), the term
`nuclear decommissioning transaction' means--
``(i) any transfer into a trust, fund, or instrument
established to pay any nuclear decommissioning costs if the
transfer is in connection with the transfer of the mutual
or cooperative electric company's interest in a nuclear
power plant or nuclear power plant unit,
``(ii) any distribution from any trust, fund, or
instrument established to pay any nuclear decommissioning
costs, or
``(iii) any earnings from any trust, fund, or
instrument established to pay any nuclear decommissioning
costs.
``(G) For purposes of subparagraph (C)(iv), the term `asset
exchange or conversion transaction' means any voluntary
exchange or involuntary conversion of any property related to
generating, transmitting, distributing, or selling electric
energy by a mutual or cooperative electric company, the gain
from which qualifies for deferred recognition under section
1031 or 1033, but only if the replacement property acquired by
such company pursuant to such section constitutes property
which is used, or to be used, for--
``(i) generating, transmitting, distributing, or
selling electric energy, or
``(ii) producing, transmitting, distributing, or
selling natural gas.''.
(b) Treatment of Income From Load Loss Transactions, Etc.--
Paragraph (12) of section 501(c), as amended by subsection (a)(2), is
amended by adding after subparagraph (G) the following new
subparagraph:
``(H)(i) In the case of a mutual or cooperative electric
company described in this paragraph or an organization
described in section 1381(a)(2)(C), income received or accrued
from a load loss transaction shall be treated as an amount
collected from members for the sole purpose of meeting losses
and expenses.
``(ii) For purposes of clause (i), the term `load loss
transaction' means any wholesale or retail sale of electric
energy (other than to members) to the extent that the aggregate
sales during the recovery period do not exceed the load loss
mitigation sales limit for such period.
``(iii) For purposes of clause (ii), the load loss
mitigation sales limit for the recovery period is the sum of
the annual load losses for each year of such period.
``(iv) For purposes of clause (iii), a mutual or
cooperative electric company's annual load loss for each year
of the recovery period is the amount (if any) by which--
``(I) the megawatt hours of electric energy sold during
such year to members of such electric company are less than
``(II) the megawatt hours of electric energy sold
during the base year to such members.
``(v) For purposes of clause (iv)(II), the term `base year'
means--
``(I) the calendar year preceding the start-up year, or
``(II) at the election of the mutual or cooperative
electric company, the second or third calendar years
preceding the start-up year.
``(vi) For purposes of this subparagraph, the recovery
period is the 7-year period beginning with the start-up year.
``(vii) For purposes of this subparagraph, the start-up
year is the first year that the mutual or cooperative electric
company offers nondiscriminatory open access or the calendar
year which includes the date of the enactment of this
subparagraph, if later, at the election of such company.
``(viii) A company shall not fail to be treated as a mutual
or cooperative electric company for purposes of this paragraph
or as a corporation operating on a cooperative basis for
purposes of section 1381(a)(2)(C) by reason of the treatment
under clause (i).
``(ix) For purposes of subparagraph (A), in the case of a
mutual or cooperative electric company, income received, or
accrued, indirectly from a member shall be treated as an amount
collected from members for the sole purpose of meeting losses
and expenses.
``(x) This subparagraph shall not apply to taxable years
beginning after December 31, 2006.''.
(c) Exception From Unrelated Business Taxable Income.--Subsection
(b) of section 512 (relating to modifications) is amended by adding at
the end the following new paragraph:
``(18) Treatment of mutual or cooperative electric companies.--
In the case of a mutual or cooperative electric company described
in section 501(c)(12), there shall be excluded income which is
treated as member income under subparagraph (H) thereof.''.
(d) Cross Reference.--Section 1381 is amended by adding at the end
the following new subsection:
``(c) Cross Reference.--
``For treatment of income from load loss transactions of
organizations described in subsection (a)(2)(C), see section
501(c)(12)(H).''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 320. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER NATIONAL HEALTH
SERVICE CORPS LOAN REPAYMENT PROGRAM AND CERTAIN STATE
LOAN REPAYMENT PROGRAMS.
(a) In General.--Section 108(f) (relating to student loans) is
amended by adding at the end the following new paragraph:
``(4) Payments under national health service corps loan
repayment program and certain state loan repayment programs.--In
the case of an individual, gross income shall not include any
amount received under section 338B(g) of the Public Health Service
Act or under a State program described in section 338I of such
Act.''.
(b) Treatment for Purposes of Employment Taxes.--Each of the
following provisions is amended by inserting ``108(f)(4),'' after
``74(c),'':
(1) Section 3121(a)(20).
(2) Section 3231(e)(5).
(3) Section 3306(b)(16).
(4) Section 3401(a)(19).
(5) Section 209(a)(17) of the Social Security Act.
(c) Effective Date.--The amendments made by this section shall
apply to amounts received by an individual in taxable years beginning
after December 31, 2003.
SEC. 321. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITS.
(a) Expansion of Prohibited Transaction Safe Harbor.--Section
857(b)(6) (relating to income from prohibited transactions) is amended
by redesignating subparagraphs (D) and (E) as subparagraphs (E) and
(F), respectively, and by inserting after subparagraph (C) the
following new subparagraph:
``(D) Certain sales not to constitute prohibited
transactions.--For purposes of this part, the term `prohibited
transaction' does not include a sale of property which is a
real estate asset (as defined in section 856(c)(5)(B)) if--
``(i) the trust held the property for not less than 4
years in connection with the trade or business of producing
timber,
``(ii) the aggregate expenditures made by the trust, or
a partner of the trust, during the 4-year period preceding
the date of sale which--
``(I) are includible in the basis of the property
(other than timberland acquisition expenditures), and
``(II) are directly related to operation of the
property for the production of timber or for the
preservation of the property for use as timberland,
do not exceed 30 percent of the net selling price of the
property,
``(iii) the aggregate expenditures made by the trust,
or a partner of the trust, during the 4-year period
preceding the date of sale which--
``(I) are includible in the basis of the property
(other than timberland acquisition expenditures), and
``(II) are not directly related to operation of the
property for the production of timber, or for the
preservation of the property for use as timberland,
do not exceed 5 percent of the net selling price of the
property,
``(iv)(I) during the taxable year the trust does not
make more than 7 sales of property (other than sales of
foreclosure property or sales to which section 1033
applies), or
``(II) the aggregate adjusted bases (as determined for
purposes of computing earnings and profits) of property
(other than sales of foreclosure property or sales to which
section 1033 applies) sold during the taxable year does not
exceed 10 percent of the aggregate bases (as so determined)
of all of the assets of the trust as of the beginning of
the taxable year,
``(v) in the case that the requirement of clause
(iv)(I) is not satisfied, substantially all of the
marketing expenditures with respect to the property were
made through an independent contractor (as defined in
section 856(d)(3)) from whom the trust itself does not
derive or receive any income, and
``(vi) the sales price of the property sold by the
trust is not based in whole or in part on income or
profits, including income or profits derived from the sale
or operation of such property.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 322. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.
(a) In General.--So much of subsection (b) of section 194 (relating
to amortization of reforestation expenditures) as precedes paragraph
(2) is amended to read as follows:
``(b) Treatment as Expenses.--
``(1) Election to treat certain reforestation expenditures as
expenses.--
``(A) In general.--In the case of any qualified timber
property with respect to which the taxpayer has made (in
accordance with regulations prescribed by the Secretary) an
election under this subsection, the taxpayer shall treat
reforestation expenditures which are paid or incurred during
the taxable year with respect to such property as an expense
which is not chargeable to capital account. The reforestation
expenditures so treated shall be allowed as a deduction.
``(B) Dollar limitation.--The aggregate amount of
reforestation expenditures which may be taken into account
under subparagraph (A) with respect to each qualified timber
property for any taxable year shall not exceed $10,000 ($5,000
in the case of a separate return by a married individual (as
defined in section 7703)).''.
(b) Net Amortizable Basis.--Section 194(c)(2) (defining amortizable
basis) is amended by inserting ``which have not been taken into account
under subsection (b)'' after ``expenditures''.
(c) Conforming Amendments.--
(1) Section 194(b) is amended by striking paragraphs (3) and
(4).
(2) Section 194(b)(2) is amended by striking ``paragraph (1)''
both places it appears and inserting ``paragraph (1)(B)''.
(3) Section 194(c) is amended by striking paragraph (4) and
inserting the following new paragraphs:
``(4) Treatment of trusts and estates.--
``(A) In general.--Except as provided in subparagraph (B),
this section shall not apply to trusts and estates.
``(B) Amortization deduction allowed to estates.--The
benefit of the deduction for amortization provided by
subsection (a) shall be allowed to estates in the same manner
as in the case of an individual. The allowable deduction shall
be apportioned between the income beneficiary and the fiduciary
under regulations prescribed by the Secretary. Any amount so
apportioned to a beneficiary shall be taken into account for
purposes of determining the amount allowable as a deduction
under subsection (a) to such beneficiary.
``(5) Application with other deductions.--No deduction shall be
allowed under any other provision of this chapter with respect to
any expenditure with respect to which a deduction is allowed or
allowable under this section to the taxpayer.''.
(4) The heading for section 194 is amended by striking
``amortization'' and inserting ``treatment''.
(5) The item relating to section 194 in the table of sections
for part VI of subchapter B of chapter 1 is amended by striking
``Amortization'' and inserting ``Treatment''.
(d) Repeal of Reforestation Credit.--
(1) In general.--Section 46 (relating to amount of credit) is
amended--
(A) by adding ``and'' at the end of paragraph (1),
(B) by striking ``, and'' at the end of paragraph (2) and
inserting a period, and
(C) by striking paragraph (3).
(2) Conforming amendments.--
(A) Section 48 is amended--
(i) by striking subsection (b),
(ii) by striking ``this subsection'' in paragraph (5)
of subsection (a) and inserting ``subsection (a)'', and
(iii) by redesignating such paragraph (5) as subsection
(b).
(B) The heading for section 48 is amended by striking ``;
reforestation credit''.
(C) The item relating to section 48 in the table of
sections for subpart E of part IV of subchapter A of chapter 1
is amended by striking ``, reforestation credit''.
(D) Section 50(c)(3) is amended by striking ``or
reforestation credit''.
(e) Effective Date.--The amendments made by this section shall
apply with respect to expenditures paid or incurred after the date of
the enactment of this Act.
Subtitle C--Incentives for Small Manufacturers
SEC. 331. NET INCOME 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) net 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. 332. 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
the date which is 30 days after the date of the enactment of this Act.
SEC. 333. REDUCTION OF EXCISE TAX ON FISHING TACKLE BOXES.
(a) In General.--Subsection (a) of section 4161 (relating to sport
fishing equipment) is amended by redesignating paragraph (3) as
paragraph (4) and by inserting after paragraph (2) the following new
paragraph:
``(3) 3 percent rate of tax for tackle boxes.--In the case of
fishing tackle boxes, paragraph (1) shall be applied by
substituting `3 percent' for `10 percent'.''.
(b) Effective Date.--The amendments made this section shall apply
to articles sold by the manufacturer, producer, or importer after
December 31, 2004.
SEC. 334. 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. 335. 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.
``(4) Substantiation of expenses.--The Secretary shall issue
guidance requiring that the taxpayer substantiate the whaling
expenses for which a deduction is claimed under this subsection,
including by maintaining appropriate written records with respect
to the time, place, date, amount, and nature of the expense, as
well as the taxpayer's eligibility for such deduction, and that (to
the extent provided by the Secretary) such substantiation be
provided as part of the taxpayer's return of tax.''.
(b) Effective Date.--The amendments made by subsection (a) shall
apply to contributions made after December 31, 2004.
SEC. 336. 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. 337. MODIFICATION OF PLACED IN SERVICE RULE FOR BONUS DEPRECIATION
PROPERTY.
(a) In General.--Subclause (II) of section 168(k)(2)(E)(iii)
(relating to syndication), as amended by the Working Families Tax
Relief Act of 2004 and as redesignated by this Act, is amended by
inserting before the comma at the end the following: ``(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)''.
(b) Effective Date.--The amendment made by this section shall apply
to property sold after June 4, 2004.
SEC. 338. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH
ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.
(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations) is amended by
inserting after section 179A the following new section:
``SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH
ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.
``(a) Allowance of Deduction.--In the case of a small business
refiner (as defined in section 45H(c)(1)) which elects the application
of this section, there shall be allowed as a deduction an amount equal
to 75 percent of qualified capital costs (as defined in section
45H(c)(2)) which are paid or incurred by the taxpayer during the
taxable year.
``(b) Reduced Percentage.--In the case of a small business refiner
with average daily domestic refinery runs for the 1-year period ending
on December 31, 2002, in excess of 155,000 barrels, the number of
percentage points described in subsection (a) shall be reduced (not
below zero) by the product of such number (before the application of
this subsection) and the ratio of such excess to 50,000 barrels.
``(c) Basis Reduction.--
``(1) In general.--For purposes of this title, the basis of any
property shall be reduced by the portion of the cost of such
property taken into account under subsection (a).
``(2) Ordinary income recapture.--For purposes of section 1245,
the amount of the deduction allowable under subsection (a) with
respect to any property which is of a character subject to the
allowance for depreciation shall be treated as a deduction allowed
for depreciation under section 167.''.
``(d) Coordination With Other Provisions.--Section 280B shall not
apply to amounts which are treated as expenses under this section.''.
(b) Conforming Amendments.--
(1) Section 263(a)(1), as amended by this Act, is amended by
striking ``or'' at the end of subparagraph (G), by striking the
period at the end of subparagraph (H) and inserting ``, or'', and
by adding at the end the following new subparagraph:
``(I) expenditures for which a deduction is allowed under
section 179B.''.
(2) Section 263A(c)(3) is amended by inserting ``179B,'' after
``section''.
(3) Section 312(k)(3)(B) is amended by striking ``or 179A''
each place it appears in the heading and text and inserting ``179A,
or 179B''.
(4) Section 1016(a) is amended by striking ``and'' at the end
of paragraph (28), by striking the period at the end of paragraph
(29) and inserting ``, and'', and by inserting after paragraph (29)
the following new paragraph:
``(30) to the extent provided in section 179B(c).''.
(5) Paragraphs (2)(C) and (3)(C) of section 1245(a) are each
amended by inserting ``179B,'' after ``179A,''.
(6) The table of sections for part VI of subchapter B of
chapter 1, as amended by this Act, is amended by inserting after
the item relating to section 179A the following new item:
``Sec. 179B. Deduction for capital costs incurred in complying
with Environmental Protection Agency sulfur
regulations.''.
(c) Effective Date.--The amendment made by this section shall apply
to expenses paid or incurred after December 31, 2002, in taxable years
ending after such date.
SEC. 339. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits), as amended by this Act, is
amended by inserting after section 45G the following new section:
``SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
``(a) In General.--For purposes of section 38, the amount of the
low sulfur diesel fuel production credit determined under this section
with respect to any facility of a small business refiner is an amount
equal to 5 cents for each gallon of low sulfur diesel fuel produced
during the taxable year by such small business refiner at such
facility.
``(b) Maximum Credit.--
``(1) In general.--The aggregate credit determined under
subsection (a) for any taxable year with respect to any facility
shall not exceed--
``(A) 25 percent of the qualified capital costs incurred by
the small business refiner with respect to such facility,
reduced by
``(B) the aggregate credits determined under this section
for all prior taxable years with respect to such facility.
``(2) Reduced percentage.--In the case of a small business
refiner with average daily domestic refinery runs for the 1-year
period ending on December 31, 2002, in excess of 155,000 barrels,
the number of percentage points described in paragraph (1) shall be
reduced (not below zero) by the product of such number (before the
application of this paragraph) and the ratio of such excess to
50,000 barrels.
``(c) Definitions and Special Rule.--For purposes of this section--
``(1) Small business refiner.--The term `small business
refiner' means, with respect to any taxable year, a refiner of
crude oil--
``(A) with respect to which not more than 1,500 individuals
are engaged in the refinery operations of the business on any
day during such taxable year, and
``(B) the average daily domestic refinery run or average
retained production of which for all facilities of the taxpayer
for the 1-year period ending on December 31, 2002, did not
exceed 205,000 barrels.
``(2) Qualified capital costs.--The term `qualified capital
costs' means, with respect to any facility, those costs paid or
incurred during the applicable period for compliance with the
applicable EPA regulations with respect to such facility, including
expenditures for the construction of new process operation units or
the dismantling and reconstruction of existing process units to be
used in the production of low sulfur diesel fuel, associated
adjacent or offsite equipment (including tankage, catalyst, and
power supply), engineering, construction period interest, and
sitework.
``(3) Applicable epa regulations.--The term `applicable EPA
regulations' means the Highway Diesel Fuel Sulfur Control
Requirements of the Environmental Protection Agency.
``(4) Applicable period.--The term `applicable period' means,
with respect to any facility, the period beginning on January 1,
2003, and ending on the earlier of the date which is 1 year after
the date on which the taxpayer must comply with the applicable EPA
regulations with respect to such facility or December 31, 2009.
``(5) Low sulfur diesel fuel.--The term `low sulfur diesel
fuel' means diesel fuel with a sulfur content of 15 parts per
million or less.
``(d) Reduction in Basis.--For purposes of this subtitle, if a
credit is determined under this section for any expenditure with
respect to any property, the increase in basis of such property which
would (but for this subsection) result from such expenditure shall be
reduced by the amount of the credit so determined.
``(e) Special Rule for Determination of Refinery Runs.--For
purposes this section and section 179B(b), in the calculation of
average daily domestic refinery run or retained production, only
refineries which on April 1, 2003, were refineries of the refiner or a
related person (within the meaning of section 613A(d)(3)), shall be
taken into account.
``(f) Certification.--
``(1) Required.--No credit shall be allowed unless, not later
than the date which is 30 months after the first day of the first
taxable year in which the low sulfur diesel fuel production credit
is determined with respect to a facility, the small business
refiner obtains certification from the Secretary, after
consultation with the Administrator of the Environmental Protection
Agency, that the taxpayer's qualified capital costs with respect to
such facility will result in compliance with the applicable EPA
regulations.
``(2) Contents of application.--An application for
certification shall include relevant information regarding unit
capacities and operating characteristics sufficient for the
Secretary, after consultation with the Administrator of the
Environmental Protection Agency, to determine that such qualified
capital costs are necessary for compliance with the applicable EPA
regulations.
``(3) Review period.--Any application shall be reviewed and
notice of certification, if applicable, shall be made within 60
days of receipt of such application. In the event the Secretary
does not notify the taxpayer of the results of such certification
within such period, the taxpayer may presume the certification to
be issued until so notified.
``(4) Statute of limitations.--With respect to the credit
allowed under this section--
``(A) the statutory period for the assessment of any
deficiency attributable to such credit shall not expire before
the end of the 3-year period ending on the date that the review
period described in paragraph (3) ends with respect to the
taxpayer, and
``(B) such deficiency may be assessed before the expiration
of such 3-year period notwithstanding the provisions of any
other law or rule of law which would otherwise prevent such
assessment.
``(g) Cooperative Organizations.--
``(1) Apportionment of credit.--
``(A) In general.--In the case of a cooperative
organization described in section 1381(a), any portion of the
credit determined under subsection (a) for the taxable year
may, at the election of the organization, be apportioned among
patrons eligible to share in patronage dividends on the basis
of the quantity or value of business done with or for such
patrons for the taxable year.
``(B) Form and effect of election.--An election under
subparagraph (A) for any taxable year shall be made on a timely
filed return for such year. Such election, once made, shall be
irrevocable for such taxable year.
``(2) Treatment of organizations and patrons.--
``(A) Organizations.--The amount of the credit not
apportioned to patrons pursuant to paragraph (1) shall be
included in the amount determined under subsection (a) for the
taxable year of the organization.
``(B) Patrons.--The amount of the credit apportioned to
patrons pursuant to paragraph (1) shall be included in the
amount determined under subsection (a) for the first taxable
year of each patron ending on or after the last day of the
payment period (as defined in section 1382(d)) for the taxable
year of the organization or, if earlier, for the taxable year
of each patron ending on or after the date on which the patron
receives notice from the cooperative of the apportionment.
``(3) Special rule.--If the amount of a credit which has been
apportioned to any patron under this subsection is decreased for
any reason--
``(A) such amount shall not increase the tax imposed on
such patron, and
``(B) the tax imposed by this chapter on such organization
shall be increased by such amount.
The increase under subparagraph (B) shall not be treated as tax
imposed by this chapter for purposes of determining the amount of
any credit under this chapter or for purposes of section 55.''.
(b) Credit Made Part of General Business Credit.--Subsection (b) of
section 38 (relating to general business credit), as amended by this
Act, is amended by striking ``plus'' at the end of paragraph (16), by
striking the period at the end of paragraph (17) and inserting ``,
plus'', and by inserting after paragraph (17) the following new
paragraph:
``(18) the low sulfur diesel fuel production credit determined
under section 45H(a).''.
(c) Denial of Double Benefit.--Section 280C (relating to certain
expenses for which credits are allowable) is amended by adding at the
end the following new subsection:
``(d) Low Sulfur Diesel Fuel Production Credit.--No deduction shall
be allowed for that portion of the expenses otherwise allowable as a
deduction for the taxable year which is equal to the amount of the
credit determined for the taxable year under section 45H(a).''.
(d) Basis Adjustment.--Section 1016(a) (relating to adjustments to
basis), as amended by this Act, is amended by striking ``and'' at the
end of paragraph (29), by striking the period at the end of paragraph
(30) and inserting ``, and'', and by inserting after paragraph (30) the
following new paragraph:
``(31) in the case of a facility with respect to which a credit
was allowed under section 45H, to the extent provided in section
45H(d).''.
(e) Deduction for Certain Unused Business Credits.--Section 196(c)
(defining qualified business credits), as amended by this Act, is
amended by striking ``and'' at the end of paragraph (10), by striking
the period at the end of paragraph (11) and inserting ``, and'', and by
adding after paragraph (11) the following new paragraph:
``(12) the low sulfur diesel fuel production credit determined
under section 45H(a).''.
(e) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by inserting after the item relating to section 45G the
following new item:
``Sec. 45H. Credit for production of low sulfur diesel fuel.''.
(f) Effective Date.--The amendments made by this section shall
apply to expenses paid or incurred after December 31, 2002, in taxable
years ending after such date.
SEC. 340. EXPANSION OF QUALIFIED SMALL-ISSUE BOND PROGRAM.
(a) In General.--Section 144(a)(4) (relating to $10,000,000 limit
in certain cases) is amended by adding at the end the following new
subparagraph:
``(G) Additional capital expenditures not taken into
account.--With respect to bonds issued after September 30,
2009, in addition to any capital expenditure described in
subparagraph (C), capital expenditures of not to exceed
$10,000,000 shall not be taken into account for purposes of
applying subparagraph (A)(ii).''.
(b) Conforming Amendment.--Subparagraph (F) of section 144(a)(4) is
amended by adding at the end the following new sentence: ``This
subparagraph shall not apply to bonds issued after September 30,
2009.''.
SEC. 341. OIL AND GAS FROM MARGINAL WELLS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business credits), as amended by this Act, is amended by
inserting after section 45H the following:
``SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.
``(a) General Rule.--For purposes of section 38, the marginal well
production credit for any taxable year is an amount equal to the
product of--
``(1) the credit amount, and
``(2) the qualified credit oil production and the qualified
natural gas production which is attributable to the taxpayer.
``(b) Credit Amount.--For purposes of this section--
``(1) In general.--The credit amount is--
``(A) $3 per barrel of qualified crude oil production, and
``(B) 50 cents per 1,000 cubic feet of qualified natural
gas production.
``(2) Reduction as oil and gas prices increase.--
``(A) In general.--The $3 and 50 cents amounts under
paragraph (1) shall each be reduced (but not below zero) by an
amount which bears the same ratio to such amount (determined
without regard to this paragraph) as--
``(i) the excess (if any) of the applicable reference
price over $15 ($1.67 for qualified natural gas
production), bears to
``(ii) $3 ($0.33 for qualified natural gas production).
The applicable reference price for a taxable year is the
reference price of the calendar year preceding the calendar
year in which the taxable year begins.
``(B) Inflation adjustment.--In the case of any taxable
year beginning in a calendar year after 2005, each of the
dollar amounts contained in subparagraph (A) shall be increased
to an amount equal to such dollar amount multiplied by the
inflation adjustment factor for such calendar year (determined
under section 43(b)(3)(B) by substituting `2004' for `1990').
``(C) Reference price.--For purposes of this paragraph, the
term `reference price' means, with respect to any calendar
year--
``(i) in the case of qualified crude oil production,
the reference price determined under section 29(d)(2)(C),
and
``(ii) in the case of qualified natural gas production,
the Secretary's estimate of the annual average wellhead
price per 1,000 cubic feet for all domestic natural gas.
``(c) Qualified Crude Oil and Natural Gas Production.--For purposes
of this section--
``(1) In general.--The terms `qualified crude oil production'
and `qualified natural gas production' mean domestic crude oil or
natural gas which is produced from a qualified marginal well.
``(2) Limitation on amount of production which may qualify.--
``(A) In general.--Crude oil or natural gas produced during
any taxable year from any well shall not be treated as
qualified crude oil production or qualified natural gas
production to the extent production from the well during the
taxable year exceeds 1,095 barrels or barrel-of-oil equivalents
(as defined in section 29(d)(5)).
``(B) Proportionate reductions.--
``(i) Short taxable years.--In the case of a short
taxable year, the limitations under this paragraph shall be
proportionately reduced to reflect the ratio which the
number of days in such taxable year bears to 365.
``(ii) Wells not in production entire year.--In the
case of a well which is not capable of production during
each day of a taxable year, the limitations under this
paragraph applicable to the well shall be proportionately
reduced to reflect the ratio which the number of days of
production bears to the total number of days in the taxable
year.
``(3) Definitions.--
``(A) Qualified marginal well.--The term `qualified
marginal well' means a domestic well--
``(i) the production from which during the taxable year
is treated as marginal production under section 613A(c)(6),
or
``(ii) which, during the taxable year--
``(I) has average daily production of not more than
25 barrel-of-oil equivalents (as so defined), and
``(II) produces water at a rate not less than 95
percent of total well effluent.
``(B) Crude oil, etc.--The terms `crude oil', `natural
gas', `domestic', and `barrel' have the meanings given such
terms by section 613A(e).
``(d) Other Rules.--
``(1) Production attributable to the taxpayer.--In the case of
a qualified marginal well in which there is more than one owner of
operating interests in the well and the crude oil or natural gas
production exceeds the limitation under subsection (c)(2),
qualifying crude oil production or qualifying natural gas
production attributable to the taxpayer shall be determined on the
basis of the ratio which taxpayer's revenue interest in the
production bears to the aggregate of the revenue interests of all
operating interest owners in the production.
``(2) Operating interest required.--Any credit under this
section may be claimed only on production which is attributable to
the holder of an operating interest.
``(3) Production from nonconventional sources excluded.--In the
case of production from a qualified marginal well which is eligible
for the credit allowed under section 29 for the taxable year, no
credit shall be allowable under this section unless the taxpayer
elects not to claim the credit under section 29 with respect to the
well.''.
(b) Credit Treated as Business Credit.--Section 38(b), as amended
by this Act, is amended by striking ``plus'' at the end of paragraph
(17), by striking the period at the end of paragraph (18) and inserting
``, plus'', and by inserting after paragraph (18) the following:
``(19) the marginal oil and gas well production credit
determined under section 45I(a).''.
(c) Carryback.--Subsection (a) of section 39 (relating to carryback
and carryforward of unused credits generally) is amended by adding at
the end the following:
``(3) 5-year carryback for marginal oil and gas well production
credit.--Notwithstanding subsection (d), in the case of the
marginal oil and gas well production credit--
``(A) this section shall be applied separately from the
business credit (other than the marginal oil and gas well
production credit),
``(B) paragraph (1) shall be applied by substituting `5
taxable years' for `1 taxable years' in subparagraph (A)
thereof, and
``(C) paragraph (2) shall be applied--
``(i) by substituting `25 taxable years' for `21
taxable years' in subparagraph (A) thereof, and
``(ii) by substituting `24 taxable years' for `20
taxable years' in subparagraph (B) thereof.''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by inserting after section 45H the following:
``Sec. 45I. Credit for producing oil and gas from marginal
wells.''.
(e) Effective Date.--The amendments made by this section shall
apply to production in taxable years beginning after December 31, 2004.
TITLE IV--TAX REFORM AND SIMPLIFICATION FOR UNITED STATES BUSINESSES
SEC. 401. 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)(D)(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) Anti-abuse 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. 402. 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. 403. 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 from a taxable year beginning on or after
January 1, 2003, to a taxable year beginning before such
date for purposes of allocating such dividend among the
separate categories in effect for the taxable year to which
carried.''.
(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. 404. 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), as amended by section 403(b)(3), 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) 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.--
``(i) In general.--In the case of taxable years
beginning after December 31, 2006, 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).
``(ii) Special rule for years before 2007.--
``(I) In general.--In the case of taxes paid or
accrued in taxable years beginning after December 31,
2004, and before January 1, 2007, a taxpayer may elect
to treat tax imposed under the law of a foreign country
or possession of the United States on an amount which
does not constitute income under United States tax
principles as tax imposed on income described in
subparagraph (C) or (I) of paragraph (1).
``(II) Election irrevocable.--Any such election
shall apply to the taxable year for which made and all
subsequent taxable years described in subclause (I)
unless revoked with the consent of the Secretary.''.
(f) 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 and amended by section 404(b)(3), 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) 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
from a taxable year beginning on or after January 1, 2007,
to a taxable year beginning before such date for purposes
of allocating such income among the separate categories in
effect for the taxable year to which carried.''.
(6) Section 904(j)(3)(A)(i) is amended by striking ``subsection
(d)(2)(A)'' and inserting ``subsection (d)(2)(B)''.
(g) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
(2) Transitional rule relating to income tax base difference.--
Section 904(d)(2)(H)(ii) of the Internal Revenue Code of 1986, as
added by subsection (e), shall apply to taxable years beginning
after December 31, 2004.
SEC. 405. 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. 406. 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. 407. 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. 408. TRANSLATION OF FOREIGN TAXES.
(a) Elective Exception for Taxes Paid Other Than in Functional
Currency.--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) Special Rule for Regulated Investment Companies.--
(1) In general.--Section 986(a)(1), as amended by subsection
(a), is amended by redesignating subparagraph (E) as subparagraph
(F) and by inserting after subparagraph (D) the following:
``(E) Special rule for regulated investment companies.--In
the case of a regulated investment company which takes into
account income on an accrual basis, subparagraphs (A) through
(D) shall not apply and foreign income taxes paid or accrued
with respect to such income shall be translated into dollars
using the exchange rate as of the date the income accrues.''.
(2) Conforming amendment.--Section 986(a)(2) is amended by
inserting ``or (E)'' after ``subparagraph (A)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 409. 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. 410. EQUAL TREATMENT OF 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. 411. 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, the term `interest-related dividend' means 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.
Such term shall not include any dividend with respect to any
taxable year of the company beginning after December 31, 2007.
``(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, the term `short-term capital gain dividend'
means 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. Such term shall not include any dividend with
respect to any taxable year of the company beginning after
December 31, 2007.
``(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 (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.
``(3) Termination.--This subsection shall not apply to estates
of decedents dying after December 31, 2007.''.
(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.--
``(i) In general.--The term `qualified investment
entity' means--
``(I) any real estate investment trust, and
``(II) any regulated investment company.
``(ii) Termination.--Clause (i)(II) shall not apply
after December 31, 2007.
``(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. 412. LOOK-THRU TREATMENT FOR SALES OF PARTNERSHIP INTERESTS.
(a) In General.--Section 954(c) (defining foreign personal holding
company income) is amended by adding after paragraph (3) the following
new paragraph:
``(4) 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. 413. 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) 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''.
(3) Paragraph (2) of section 245(a) is amended by striking
``foreign personal holding company or''.
(4) Section 312 is amended by striking subsection (j).
(5) 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)''.
(6) Subsection (e) of section 443 is amended by striking
paragraph (3) and by redesignating paragraphs (4) and (5) as
paragraphs (3) and (4), respectively.
(7) 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).
(8) 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).
(9) Paragraph (1) of section 562(b) is amended by striking ``or
a foreign personal holding company described in section 552''.
(10) 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)''.
(11) 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)''.
(12) 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.
(13)(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.''.
(14) 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).''.
(15)(A) Subparagraph (A) of section 904(h)(1), as redesignated
by this Act, 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''.
(16) Section 951 is amended by striking subsections (c) and (d)
and by redesignating subsections (e) and (f) as subsections (c) and
(d), respectively.
(17) Paragraph (3) of section 989(b) is amended by striking ``,
551(a),''.
(18) Paragraph (5) of section 1014(b) is amended by inserting
``and before January 1, 2005,'' after ``August 26, 1937,''.
(19) Subsection (a) of section 1016 is amended by striking
paragraph (13).
(20)(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.
(21) Section 1223 is amended by striking paragraph (10) and by
redesignating the following paragraphs accordingly.
(22) Subsection (d) of section 1248 is amended by striking
paragraph (5) and by redesignating paragraphs (6) and (7) as
paragraphs (5) and (6), respectively.
(23) Paragraph (2) of section 1260(c) is amended by striking
subparagraphs (H) and (I) and by redesignating subparagraph (J) as
subparagraph (H).
(24)(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''.
(25) 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.''.
(26) Section 6035 is hereby repealed.
(27) 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.
(28) 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.''.
(29) 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).
(30) Sections 170(f)(10)(A), 508(d), 4947, and 4948(c)(4) are
each amended by striking ``556(b)(2),'' each place it appears.
(31) The table of parts for subchapter G of chapter 1 is
amended by striking the item relating to part III.
(32) 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.
(33) 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)(27).--The amendments made by subsection
(c)(27) shall apply to disclosures of return or return information
with respect to taxable years beginning after December 31, 2004.
SEC. 414. 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,
as amended by this Act, is amended by adding after paragraph (4) the
following new paragraph:
``(5) 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. 415. 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. 416. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR ACTIVE
FINANCING.
(a) In General.--Section 954(h)(3) is amended by adding at the end
the following:
``(E) Direct conduct of activities.--For purposes of
subparagraph (A)(ii)(II), an activity shall be treated as
conducted directly by an eligible controlled foreign
corporation or qualified business unit in its home country if
the activity is performed by employees of a related person
and--
``(i) the related person is an eligible controlled
foreign corporation the home country of which is the same
as the home country of the corporation or unit to which
subparagraph (A)(ii)(II) is being applied,
``(ii) the activity is performed in the home country of
the related person, and
``(iii) the related person is compensated on an arm's-
length basis for the performance of the activity by its
employees and such compensation is treated as earned by
such person in its home country for purposes of the home
country's tax laws.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years of such foreign corporations beginning after December
31, 2004, and to taxable years of United States shareholders with or
within which such taxable years of such foreign corporations end.
SEC. 417. 10-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-YEAR FOREIGN TAX
CREDIT CARRYBACK.
(a) General Rule.--Section 904(c) (relating to carryback and
carryover of excess tax paid) is amended--
(1) by striking ``in the second preceding taxable year,'', and
(2) by striking ``, and in the first, second, third, fourth, or
fifth'' and inserting ``and in any of the first 10''.
(b) Excess Extraction Taxes.--Paragraph (1) of section 907(f) is
amended--
(1) by striking ``in the second preceding taxable year,'',
(2) by striking ``, and in the first, second, third, fourth, or
fifth'' and inserting ``and in any of the first 10'', and
(3) by striking the last sentence.
(c) Effective Date.--
(1) Carryback.--The amendments made by subsections (a)(1) and
(b)(1) shall apply to excess foreign taxes arising in taxable years
beginning after the date of the enactment of this Act.
(2) Carryover.--The amendments made by subsections (a)(2) and
(b)(2) shall apply to excess foreign taxes which (without regard to
the amendments made by this section) may be carried to any taxable
year ending after the date of the enactment of this Act.
SEC. 418. MODIFICATION OF THE TREATMENT OF CERTAIN REIT DISTRIBUTIONS
ATTRIBUTABLE TO GAIN FROM SALES OR EXCHANGES OF UNITED
STATES REAL PROPERTY INTERESTS.
(a) In General.--Paragraph (1) of section 897(h) (relating to look-
through of distributions) is amended by adding at the end the following
new sentence: ``Notwithstanding the preceding sentence, any
distribution by a REIT with respect to any class of stock which is
regularly traded on an established securities market located in the
United States shall not be treated as gain recognized from the sale or
exchange of a United States real property interest if the shareholder
did not own more than 5 percent of such class of stock at any time
during the taxable year.''.
(b) Conforming Amendment.--Paragraph (3) of section 857(b)
(relating to capital gains) is amended by adding at the end the
following new subparagraph:
``(F) Certain distributions.--In the case of a shareholder
of a real estate investment trust to whom section 897 does not
apply by reason of the second sentence of section 897(h)(1),
the amount which would be included in computing long-term
capital gains for such shareholder under subparagraph (B) or
(D) (without regard to this subparagraph)--
``(i) shall not be included in computing such
shareholder's long-term capital gains, and
``(ii) shall be included in such shareholder's gross
income as a dividend from the real estate investment
trust.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 419. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON HORSE
RACES AND DOG RACES FROM GROSS INCOME OF NONRESIDENT
ALIEN INDIVIDUALS.
(a) In General.--Subsection (b) of section 872 (relating to
exclusions) is amended by redesignating paragraphs (5), (6), and (7) as
paragraphs (6), (7), and (8), respectively, and inserting after
paragraph (4) the following new paragraph:
``(5) Income derived from wagering transactions in certain
parimutuel pools.--Gross income derived by a nonresident alien
individual from a legal wagering transaction initiated outside the
United States in a parimutuel pool with respect to a live horse
race or dog race in the United States.''.
(b) Conforming Amendment.--Section 883(a)(4) is amended by striking
``(5), (6), and (7)'' and inserting ``(6), (7), and (8)''.
(c) Effective Date.--The amendments made by this section shall
apply to wagers made after the date of the enactment of this Act.
SEC. 420. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO CORPORATIONS.
(a) In General.--Subsection (b) of section 881 is amended by
redesignating paragraph (2) as paragraph (3) and by inserting after
paragraph (1) the following new paragraph:
``(2) Commonwealth of puerto rico.--
``(A) In general.--If dividends are received during a
taxable year by a corporation--
``(i) created or organized in, or under the law of, the
Commonwealth of Puerto Rico, and
``(ii) with respect to which the requirements of
subparagraphs (A), (B), and (C) of paragraph (1) are met
for the taxable year,
subsection (a) shall be applied for such taxable year by
substituting `10 percent' for `30 percent'.
``(B) Applicability.--If, on or after the date of the
enactment of this paragraph, an increase in the rate of the
Commonwealth of Puerto Rico's withholding tax which is
generally applicable to dividends paid to United States
corporations not engaged in a trade or business in the
Commonwealth to a rate greater than 10 percent takes effect,
this paragraph shall not apply to dividends received on or
after the effective date of the increase.''.
(b) Withholding.--Subsection (c) of section 1442 (relating to
withholding of tax on foreign corporations) is amended--
(1) by striking ``For purposes'' and inserting the following:
``(1) Guam, american samoa, the northern mariana islands, and
the virgin islands.--For purposes'', and
(2) by adding at the end the following new paragraph:
``(2) Commonwealth of puerto rico.--
``(A) In general.--If dividends are received during a
taxable year by a corporation--
``(i) created or organized in, or under the law of, the
Commonwealth of Puerto Rico, and
``(ii) with respect to which the requirements of
subparagraphs (A), (B), and (C) of section 881(b)(1) are
met for the taxable year,
subsection (a) shall be applied for such taxable year by
substituting `10 percent' for `30 percent'.
``(B) Applicability.--If, on or after the date of the
enactment of this paragraph, an increase in the rate of the
Commonwealth of Puerto Rico's withholding tax which is
generally applicable to dividends paid to United States
corporations not engaged in a trade or business in the
Commonwealth to a rate greater than 10 percent takes effect,
this paragraph shall not apply to dividends received on or
after the effective date of the increase.''.
(c) Conforming Amendments.--
(1) Subsection (b) of section 881 is amended by striking ``Guam
and Virgin Islands Corporations'' in the heading and inserting
``Possessions''.
(2) Paragraph (1) of section 881(b) is amended by striking ``In
general'' in the heading and inserting ``Guam, american samoa, the
northern mariana islands, and the virgin islands''.
(d) Effective Date.--The amendments made by this section shall
apply to dividends paid after the date of the enactment of this Act.
SEC. 421. 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. 422. 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 and for which the election under this
section is in effect for the taxable year, there shall be allowed
as a deduction an amount equal to 85 percent of the cash dividends
which are received during such taxable year by such shareholder
from controlled foreign corporations.
``(2) Dividends paid indirectly from controlled foreign
corporations.--If, within the taxable year for which the election
under this section is in effect, a United States shareholder
receives a cash 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
cash 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 cash dividend during such taxable year 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 cash
distributions described in section 959(b) which are made during
such taxable year 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 equal to the amount of such liability divided by 0.35.
The amounts described in subparagraphs (B) and (C) shall be treated
as being zero if there is no such statement or such statement fails
to show a specific amount of such earnings or liability, as the
case may be.
``(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 controlled foreign
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 controlled foreign
corporations, and
``(iii) the amounts that would have been included for
each base period year but for section 959(a) with respect
to controlled foreign 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. Amounts
described in subparagraph (B) for any base period year shall be
such amounts as shown on the most recent return filed for such
year; except that amended returns filed after June 30, 2003,
shall not be taken into account.
``(3) Reduction of benefit if increase in related party
indebtedness.--The amount of dividends which would (but for this
paragraph) be taken into account under subsection (a) shall be
reduced by the excess (if any) of--
``(A) the amount of indebtedness of the controlled foreign
corporation to any related person (as defined in section
954(d)(3)) as of the close of the taxable year for which the
election under this section is in effect, over
``(B) the amount of indebtedness of the controlled foreign
corporation to any related person (as so defined) as of the
close of October 3, 2004.
All controlled foreign corporations with respect to which the
taxpayer is a United States shareholder shall be treated as 1
controlled foreign corporation for purposes of this paragraph.
``(4) 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 domestic reinvestment plan which--
``(A) is approved by the taxpayer's president, chief
executive officer, or comparable official before the payment of
such dividend and subsequently approved by the taxpayer's board
of directors, management committee, executive committee, or
similar body, and
``(B) provides for the reinvestment of such dividend in the
United States (other than as payment for executive
compensation), including as a source for the funding of worker
hiring and training, infrastructure, research and development,
capital investments, or the financial stabilization of the
corporation for the purposes of job retention or creation.
``(c) Definitions and Special Rules.--For purposes of this
section--
``(1) Applicable financial statement.--The term `applicable
financial statement' means, with respect to a United States
shareholder, the most recently audited financial statement
(including notes and other documents which accompany such
statement) which includes such shareholder--
``(A) which is certified on or before June 30, 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 June 30, 2003.
``(2) Base period years.--
``(A) In general.--The base period years are the 3 taxable
years--
``(i) which are among the 5 most recent taxable years
ending on or before June 30, 2003, and
``(ii) 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.
``(B) Shorter period.--If the taxpayer has fewer than 5
taxable years ending on or before June 30, 2003, then in lieu
of applying subparagraph (A), the base period years shall
include all the taxable years of the taxpayer ending on or
before June 30, 2003.
``(C) Mergers, acquisitions, etc.--
``(i) In general.--Rules similar to the rules of
subparagraphs (A) and (B) of section 41(f)(3) shall apply
for purposes of this paragraph.
``(ii) Spin-offs, etc.--If there is a distribution to
which section 355 (or so much of section 356 as relates to
section 355) applies during the 5-year period referred to
in subparagraph (A)(i) and the controlled corporation
(within the meaning of section 355) is a United States
shareholder--
``(I) the controlled corporation shall be treated
as being in existence during the period that the
distributing corporation (within the meaning of section
355) is in existence, and
``(II) for purposes of applying subsection (b)(2)
to the controlled corporation and the distributing
corporation, amounts described in subsection (b)(2)(B)
which are received or includible by the distributing
corporation or controlled corporation (as the case may
be) before the distribution referred to in subclause
(I) from a controlled foreign corporation shall be
allocated between such corporations in proportion to
their respective interests as United States
shareholders of such controlled foreign corporation
immediately after such distribution.
Subclause (II) shall not apply if neither the controlled
corporation nor the distributing corporation is a United
States shareholder of such controlled foreign corporation
immediately after such distribution.
``(3) Dividend.--The term `dividend' shall not include amounts
includible in gross income as a dividend under section 78, 367, or
1248. In the case of a liquidation under section 332 to which
section 367(b) applies, the preceding sentence shall not apply to
the extent the United States shareholder actually receives cash as
part of the liquidation.
``(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.
``(5) Controlled groups.--
``(A) In general.--All United States shareholders which are
members of an affiliated group filing a consolidated return
under section 1501 shall be treated as one United States
shareholder.
``(B) Application of $500,000,000 limit.--All corporations
which are treated as a single employer under section 52(a)
shall be limited to one $500,000,000 amount in subsection
(b)(1)(A), and such amount shall be divided among such
corporations under regulations prescribed by the Secretary.
``(C) Permanently reinvested earnings.--If a financial
statement is an applicable financial statement for more than 1
United States shareholder, the amount applicable under
subparagraph (B) or (C) of subsection (b)(1) shall be divided
among such shareholders under regulations prescribed by the
Secretary.
``(d) Denial of Foreign Tax Credit; Denial of Certain Expenses.--
``(1) Foreign tax credit.--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--
``(A) any dividend, or
``(B) any amount described in subsection (a)(2) which is
included in income under section 951(a)(1)(A).
No deduction shall be allowed under this chapter for any tax for
which credit is not allowable by reason of the preceding sentence.
``(2) Expenses.--No deduction shall be allowed for expenses
properly allocated and apportioned to the deductible portion
described in paragraph (1).
``(3) Deductible portion.--For purposes of paragraph (1),
unless the taxpayer otherwise specifies, the deductible portion of
any dividend or other amount is the amount which bears the same
ratio to the amount of such dividend or other amount 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) Limitation on reduction in taxable income, etc.--
``(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.--The taxpayer may elect to apply this section to--
``(1) the taxpayer's last taxable year which begins before the
date of the enactment of this section, or
``(2) the taxpayer's first taxable year which begins during the
1-year period beginning on such date.
Such election may be made for a taxable year only if made before the
due date (including extensions) for filing the return of tax for such
taxable year.''.
(b) Alternative Minimum Tax.--Subparagraph (C) of section 56(g)(4)
is amended by inserting after clause (v) the following new clause:
``(vi) 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.
SEC. 423. DELAY IN EFFECTIVE DATE OF FINAL REGULATIONS GOVERNING
EXCLUSION OF INCOME FROM INTERNATIONAL OPERATION OF SHIPS
OR AIRCRAFT.
Notwithstanding the provisions of Treasury regulation Sec. 1.883-5,
the final regulations issued by the Secretary of the Treasury relating
to income derived by foreign corporations from the international
operation of ships or aircraft (Treasury regulations Sec. 1.883-1
through Sec. 1.883-5) shall apply to taxable years of a foreign
corporation seeking qualified foreign corporation status beginning
after September 24, 2004.
SEC. 424. STUDY OF EARNINGS STRIPPING PROVISIONS.
(a) In General.--The Secretary of the Treasury or the Secretary's
delegate shall conduct a study of the effectiveness of the provisions
of the Internal Revenue Code of 1986 applicable to earnings stripping,
including a study of--
(1) the effectiveness of section 163(j) of such Code in
preventing the shifting of income outside the United States,
(2) whether any deficiencies of such provisions place United
States-based businesses at a competitive disadvantage relative to
foreign-based businesses,
(3) the impact of earnings stripping activities on the United
States tax base,
(4) whether laws of foreign countries facilitate stripping of
earnings out of the United States, and
(5) whether changes to the earning stripping rules would affect
jobs in the United States.
(b) Report.--Not later than June 30, 2005, the Secretary shall
submit to the Congress a report of the study conducted under this
section, including specific recommendations as to how to improve the
provisions of such Code applicable to earnings stripping.
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 may be determined under tables.--
``(i) In general.--At the election of the taxpayer for
the taxable year, the amount of the deduction allowed under
this paragraph for such year shall be--
``(I) the amount determined under this paragraph
(without regard to this subparagraph) with respect to
motor vehicles, boats, and other items specified by the
Secretary, and
``(II) the amount determined under tables
prescribed by the Secretary with respect to items to
which subclause (I) does not apply.
``(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) of items to which clause (i)(I) does not
apply, 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--FAIR AND EQUITABLE TOBACCO REFORM
SEC. 601. SHORT TITLE.
This title may be cited as the ``Fair and Equitable Tobacco Reform
Act of 2004''.
Subtitle A--Termination of Federal Tobacco Quota and Price Support
Programs
SEC. 611. 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) Tobacco Inspections.--Section 213 of the Tobacco Adjustment Act
of 1983 (7 U.S.C. 511r) is repealed.
(c) Tobacco Control.--The Act of April 25, 1936 (commonly known as
the Tobacco Control Act; 7 U.S.C. 515 et seq.), is repealed.
(d) Processing Tax.--Section 9(b) of the Agricultural Adjustment
Act (7 U.S.C. 609(b)), reenacted with amendments by the Agricultural
Marketing Agreement Act of 1937, is amended--
(1) in paragraph (2), by striking ``tobacco,''; and
(2) in paragraph (6)(B)(i), by striking ``, or, in the case of
tobacco, is less than the fair exchange value by not more than 10
per centum,''.
(e) Declaration of Policy.--Section 2 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1282) is amended by striking
``tobacco,''.
(f) 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).
(g) 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,''.
(h) Administrative Provisions.--Section 361 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1361) is amended by striking
``tobacco,''.
(i) 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''.
(j) Reports and Records.--Section 373 of the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1373) is amended--
(1) by striking ``rice, or tobacco'' each place it appears in
subsections (a) and (b) and inserting ``or rice''; and
(2) in subsection (a)--
(A) in the first sentence, by striking ``all persons
engaged in the business of redrying, prizing, or stemming
tobacco for producers,''; and
(B) in the last sentence, by striking ``$500;'' and all
that follows through the period at the end of the sentence and
inserting ``$500.''.
(k) 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).
(l) 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).
(m) 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).
(n) Acreage-Poundage Quotas.--Section 4 of the Act of April 16,
1955 (Public Law 89-12; 7 U.S.C. 1314c note), is repealed.
(o) Burley Tobacco Acreage Allotments.--The Act of July 12, 1952 (7
U.S.C. 1315), is repealed.
(p) Transfer of Allotments.--Section 703 of the Food and
Agriculture Act of 1965 (7 U.S.C. 1316) is repealed.
(q) 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''.
(r) Tobacco Field Measurement.--Section 1112 of the Omnibus Budget
Reconciliation Act of 1987 (Public Law 100-203; 101 Stat. 1330-8) is
amended by striking subsection (c).
(s) Burley Tobacco Import Review.--Section 3 of Public Law 98-59 (7
U.S.C. 625) is repealed.
SEC. 612. 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. 613. CONFORMING AMENDMENTS.
Section 320B(c)(1) of the Agricultural Adjustment Act of 1938 (7
U.S.C. 1314h(c)(1)) is amended--
(1) by inserting ``(A)'' after ``(1)'';
(2) by striking ``by'' at the end and inserting ``or''; and
(3) by adding at the end the following:
``(B) in the case of the 2004 marketing year, the price support
rate for the kind of tobacco involved in effect under section 106
of the Agricultural Act of 1949 (7 U.S.C. 1445) at the time of the
violation; by''.
SEC. 614. CONTINUATION OF LIABILITY FOR 2004 AND EARLIER CROP YEARS.
The amendments made by this subtitle shall not affect the liability
of any person under any provision of law so amended with respect to the
2004 or an earlier crop of each kind of tobacco.
Subtitle B--Transitional Payments to Tobacco Quota Holders and
Producers of Tobacco
SEC. 621. DEFINITIONS.
In this subtitle and subtitle C:
(1) Agricultural act of 1949.--The term ``Agricultural Act of
1949'' means the Agricultural Act of 1949 (7 U.S.C. 1421 et seq.),
as in effect on the day before the date of the enactment of this
title.
(2) Agricultural adjustment act of 1938.--The term
``Agricultural Adjustment Act of 1938'' means the Agricultural
Adjustment Act of 1938 (7 U.S.C. 1281 et seq.), as in effect on the
day before the date of the enactment of this title.
(3) 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.
(4) Contract.--The term ``contract'' means a contract entered
into under section 622 or 623.
(5) Contract payment.--The term ``contract payment'' means a
payment made under section 622 or 623 pursuant to a contract.
(6) Producer of quota tobacco.--The term ``producer of quota
tobacco'' means an owner, operator, landlord, tenant, or
sharecropper that shared in the risk of producing tobacco on a farm
where tobacco was produced or considered planted pursuant to a
tobacco farm poundage 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.).
(7) Quota tobacco.--The term `quota tobacco' means a kind of
tobacco that is subject to a farm marketing quota or farm acreage
allotment for the 2004 tobacco marketing year under a marketing
quota or allotment program established under part I of subtitle B
of title III of the Agricultural Adjustment Act of 1938 (7 U.S.C.
1311 et seq.).
(8) Tobacco.--The term ``tobacco'' means each of the following
kinds of tobacco:
(A) Flue-cured tobacco, comprising types 11, 12, 13, and
14.
(B) Fire-cured tobacco, comprising types 22 and 23.
(C) Dark air-cured tobacco, comprising types 35 and 36.
(D) Virginia sun-cured tobacco, comprising type 37.
(E) Virginia fire-cured tobacco, comprising type 21.
(F) Burley tobacco, comprising type 31.
(G) Cigar-filler and cigar-binder tobacco, comprising types
42, 43, 44, 53, 54, and 55.
(9) Tobacco quota holder.--The term ``tobacco quota holder''
means a person that was an owner of a farm, as of the date of
enactment of this title, for which a basic tobacco farm marketing
quota or farm acreage allotment for quota tobacco was established
for the 2004 tobacco marketing year.
(10) Tobacco trust fund.--The term ``Tobacco Trust Fund'' means
the Tobacco Trust Fund established under section 626.
(11) Secretary.--The term ``Secretary'' means the Secretary of
Agriculture.
SEC. 622. CONTRACT PAYMENTS TO TOBACCO QUOTA HOLDERS.
(a) Contract Offered.--The Secretary shall offer to enter into a
contract with each tobacco quota holder under which the tobacco quota
holder shall be entitled to receive payments under this section in
exchange for the termination of tobacco marketing quotas and related
price support under the amendments made by sections 611 and 612. The
contract payments shall constitute full and fair consideration for the
termination of such tobacco marketing quotas and related price support.
(b) Eligibility.--To be eligible to enter into a contract to
receive a contract payment under this section, a person shall submit to
the Secretary an application containing such information as the
Secretary may require to demonstrate to the satisfaction of the
Secretary that the person is a tobacco quota holder. The application
shall be submitted within such time, in such form, and in such manner
as the Secretary may require.
(c) Base Quota Level.--
(1) Establishment.--The Secretary shall establish a base quota
level applicable to each 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 quota for quota tobacco
established for the 2002 tobacco marketing year under a marketing
quota program established under part I of subtitle B of title III
of the Agriculture Adjustment Act of 1938 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 quantity
equal to the product obtained by multiplying--
(A) the basic tobacco farm marketing quota or allotment for
the 2002 marketing year established by the Secretary for quota
tobacco owned by the tobacco quota holder; by
(B) the average production yield, per acre, for the period
covering the 2001, 2002, and 2003 crop years for that kind of
tobacco in the county in which the quota tobacco is located.
(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 title, and the parties to
the sale are unable to agree to the disposition of eligibility for
contract payments, the Secretary, taking into account any transfer
of quota that has been agreed to, shall provide for the equitable
division of the contract payments among the parties by adjusting
the determination of who is the tobacco quota holder with respect
to particular pounds or allotment 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 title, 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) Contract Payments.--
(1) Calculation of total payment amount.--The total amount of
contract payments to which an eligible tobacco quota holder is
entitled under this section, with respect to a kind of tobacco,
shall be equal to the product obtained by multiplying--
(A) $7.00 per pound; by
(B) the base quota level of the tobacco quota holder
determined under subsection (c) with respect to that kind of
tobacco.
(2) Annual payment.--During each of fiscal years 2005 through
2014, the Secretary shall make a contract payment under this
section to each eligible tobacco quota holder, with respect to a
kind of tobacco, in an amount equal to \1/10\ of the amount
determined under paragraph (1) for the tobacco quota holder for
that kind of tobacco.
(f) Death of Tobacco Quota Holder.--If a tobacco quota holder who
is entitled to contract 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. 623. CONTRACT PAYMENTS FOR PRODUCERS OF QUOTA TOBACCO.
(a) Contract Offered.--The Secretary shall offer to enter into a
contract with each producer of quota tobacco under which the producer
of quota tobacco shall be entitled to receive payments under this
section in exchange for the termination of tobacco marketing quotas and
related price support under the amendments made by sections 611 and
612. The contract payments shall constitute full and fair consideration
for the termination of such tobacco marketing quotas and related price
support.
(b) Eligibility.--
(1) Application and determination.--To be eligible to enter
into a contract to receive a contract payment under this section, a
person shall submit to the Secretary an application containing such
information as the Secretary may require to demonstrate to the
satisfaction of the Secretary that the person is a producer of
quota tobacco. The application shall be submitted within such time,
in such form, and in such manner as the Secretary may require.
(2) Effect of Multiple Producers for Same Quota Tobacco.--If,
on the basis of the applications submitted under paragraph (1) or
other information, the Secretary determines that two or more
persons are a producer of the same quota tobacco, the Secretary
shall provide for an equitable distribution among the persons of
the contract payments made under this section with respect to that
quota tobacco, based on relative share of such persons in the risk
of producing the quota tobacco and such other factors as the
Secretary considers appropriate.
(c) Base Quota Level.--
(1) Establishment.--The Secretary shall establish a base quota
level applicable to each producer of quota tobacco, as determined
under this subsection.
(2) Flue-cured and burley tobacco.--In the case of Flue-cured
tobacco (types 11, 12, 13, and 14) and Burley tobacco (type 31),
the base quota level for each producer of quota tobacco shall be
equal to the effective tobacco marketing quota (irrespective of
disaster lease and transfers) under part I of subtitle B of title
III of the Agriculture Adjustment Act of 1938 for the 2002
marketing year for quota tobacco produced on the farm.
(3) Other kinds of tobacco.--In the case of each kind of
tobacco (other than tobacco covered by paragraph (2)), for the
purpose of calculating a contract payment to a producer of quota
tobacco, the base quota level for the producer of quota tobacco
shall be the quantity obtained by multiplying--
(A) the basic tobacco farm acreage allotment for the 2002
marketing year established by the Secretary for quota tobacco
produced on the farm; by
(B) the average annual yield, per acre, of quota tobacco
produced on the farm for the period covering the 2001, 2002,
and 2003 crop years.
(d) Contract Payments.--
(1) Calculation of total payment amount.--Subject to subsection
(b)(2), the total amount of contract payments to which an eligible
producer of quota tobacco is entitled under this section, with
respect to a kind of tobacco, shall be equal to the product
obtained by multiplying--
(A) subject to paragraph (2), $3.00 per pound; by
(B) the base quota level of the producer of quota tobacco
determined under subsection (c) with respect to that kind of
tobacco.
(2) Annual payment.--During each of fiscal years 2005 through
2014, the Secretary shall make a contract payment under this
section to each eligible producer of tobacco, with respect to a
kind of tobacco, in an amount equal to \1/10\ of the amount
determined under paragraph (1) for the producer for that kind of
tobacco.
(3) Variable payment rates.--The rate for payments to a
producer of quota tobacco under paragraph (1)(A) shall be equal
to--
(A) in the case of a producer of quota tobacco that
produced quota tobacco marketed, or considered planted, under a
marketing quota in all three of the 2002, 2003, or 2004 tobacco
marketing years, the rate prescribed under paragraph (1)(A);
(B) in the case of a producer of quota tobacco that
produced quota tobacco marketed, or considered planted, under a
marketing quota in only two of those tobacco marketing years,
\2/3\ of the rate prescribed under paragraph (1)(A);
(C) in the case of a producer of quota tobacco that
produced quota tobacco marketed, or considered planted, under a
marketing quota in only one of those tobacco marketing years,
\1/3\ of the rate prescribed under paragraph (1)(A).
(e) Death of Tobacco Producer.--If a producer of quota tobacco who
is entitled to contract payments under this section dies and is
survived by a spouse or one or more dependents, the right to receive
the contract payments shall transfer to the surviving spouse or, if
there is no surviving spouse, to the estate of the producer.
SEC. 624. ADMINISTRATION.
(a) Time for Payment of Contract Payments.--Contract payments
required to be made for a fiscal year shall be made by the Secretary as
soon as practicable.
(b) Use of County Committees to Resolve Disputes.--Any dispute
regarding the eligibility of a person to enter into a contract or to
receive contract payments, and any dispute regarding the amount of a
contract payment, may be appealed to the county committee established
under section 8 of the Soil Conservation and Domestic Allotment Act (16
U.S.C. 590h) for the county or other area in which the farming
operation of the person is located.
(c) Role of National Appeals Division.--Any adverse determination
of a county committee under subsection (b) may be appealed to the
National Appeals Division established under subtitle H of the
Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 6991 et
seq.).
(d) Use of Financial Institutions.--The Secretary may use a
financial institution to manage assets, make contract payments, and
otherwise carry out this title.
(e) Payment to Financial Institutions.--The Secretary shall permit
a tobacco quota holder or producer of quota tobacco entitled to
contract payments to assign to a financial institution the right to
receive the contract payments. Upon receiving notification of the
assignment, the Secretary shall make subsequent contract payments for
the tobacco quota holder or producer of quota tobacco directly to the
financial institution designated by the tobacco quota holder or
producer of quota tobacco. The Secretary shall make information
available to tobacco quota holders and producers of quota tobacco
regarding their ability to elect to have the Secretary make payments
directly to a financial institution under this subsection so that they
may obtain a lump sum or other payment.
SEC. 625. USE OF ASSESSMENTS AS SOURCE OF FUNDS FOR PAYMENTS.
(a) Definitions.--In this section:
(1) Base period.--The term ``base period' means the one-year
period ending the June 30 before the beginning of a fiscal year.
(2) Gross domestic volume.--The term ``gross domestic volume''
means the volume of tobacco products--
(A) removed (as defined by section 5702 of the Internal
Revenue Code of 1986); and
(B) not exempt from tax under chapter 52 of the Internal
Revenue Code of 1986 at the time of their removal under that
chapter or the Harmonized Tariff Schedule of the United States
(19 U.S.C. 1202).
(3) Market share.--The term ``market share'' means the share of
each manufacturer or importer of a class of tobacco product
(expressed as a decimal to the fourth place) of the total volume of
domestic sales of the class of tobacco product during the base
period for a fiscal year for an assessment under this section.
(b) Quarterly Assessments.--
(1) Imposition of assessment.--The Secretary, acting through
the Commodity Credit Corporation, shall impose quarterly
assessments during each of fiscal years 2005 through 2014,
calculated in accordance with this section, on each tobacco product
manufacturer and tobacco product importer that sells tobacco
products in domestic commerce in the United States during that
fiscal year.
(2) Amounts.--Beginning with the calendar quarter ending on
December 31 of each of fiscal years 2005 through 2014, the
assessment payments over each four-calendar quarter period shall be
sufficient to cover--
(A) the contract payments made under sections 622 and 623
during that period; and
(B) other expenditures from the Tobacco Trust Fund made
during the base quarter periods corresponding to the four
calendar quarters of that period.
(3) Deposit.--Assessments collected under this section shall be
deposited in the Tobacco Trust Fund.
(c) Assessments for Classes of Tobacco Products.--
(1) Initial allocation.--The percentage of the total amount
required by subsection (b) to be assessed against, and paid by, the
manufacturers and importers of each class of tobacco product in
fiscal year 2005 shall be as follows:
(A) For cigarette manufacturers and importers, 96.331
percent.
(B) For cigar manufacturers and importers, 2.783 percent.
(C) For snuff manufacturers and importers, 0.539 percent.
(D) For roll-your-own tobacco manufacturers and importers,
0.171 percent.
(E) For chewing tobacco manufacturers and importers, 0.111
percent.
(F) For pipe tobacco manufacturers and importers, 0.066
percent.
(2) Subsequent allocations.--For subsequent fiscal years, the
Secretary shall periodically adjust the percentage of the total
amount required under subsection (b) to be assessed against, and
paid by, the manufacturers and importers of each class of tobacco
product specified in paragraph (1) to reflect changes in the share
of gross domestic volume held by that class of tobacco product.
(3) Effect of insufficient amounts.--If the Secretary
determines that the assessment imposed under subsection (b) will
result in insufficient amounts to carry out this subtitle during a
fiscal year, the Secretary shall assess such additional amounts as
the Secretary determines to be necessary to carry out this subtitle
during that fiscal year. The additional amount shall be allocated
to manufacturers and importers of each class of tobacco product
specified in paragraph (1) in the same manner and based on the same
percentages applicable under paragraph (1) or (2) for that fiscal
year.
(d) Notification and Timing of Assessments.--
(1) Notification of assessments.--The Secretary shall provide
each manufacturer or importer subject to an assessment under
subsection (b) with written notice setting forth the amount to be
assessed against the manufacturer or importer for each quarterly
payment period. The notice for a quarterly period shall be provided
not later than 30 days before the date payment is due under
paragraph (3).
(2) Content.--The notice shall include the following
information with respect to the quarterly period used by the
Secretary in calculating the amount:
(A) The total combined assessment for all manufacturers and
importers of tobacco products.
(B) The total assessment with respect to the class of
tobacco products manufactured or imported by the manufacturer
or importer.
(C) Any adjustments to the percentage allocations among the
classes of tobacco products made pursuant to paragraph (2) or
(3) of subsection (c).
(D) The volume of gross sales of the applicable class of
tobacco product treated as made by the manufacturer or importer
for purposes of calculating the manufacturer's or importer's
market share under subsection (f).
(E) The total volume of gross sales of the applicable class
of tobacco product that the Secretary treated as made by all
manufacturers and importers for purposes of calculating the
manufacturer's or importer's market share under subsection (f).
(F) The manufacturer's or importer's market share of the
applicable class of tobacco product, as determined by the
Secretary under subsection (f).
(G) The market share, as determined by the Secretary under
subsection (f), of each other manufacturer and importer, for
each applicable class of tobacco product.
(3) Timing of assessment payments.--
(A) Collection date.--Assessments shall be collected at the
end of each calendar year quarter, except that the Secretary
shall ensure that the final assessment due under this section
is collected not later than September 30, 2014.
(B) Base period quarter.--The assessment for a calendar
year quarter shall correspond to the base period quarter that
ended at the end of the preceding calendar year quarter.
(e) Allocation of Assessment Within Each Class of Tobacco
Product.--
(1) Pro rata basis.--The assessment for each class of tobacco
product specified in subsection (c)(1) shall be allocated on a pro
rata basis among manufacturers and importers based on each
manufacturer's or importer's share of gross domestic volume.
(2) Limitation.--No manufacturer or importer shall be required
to pay an assessment that is based on a share that is in excess of
the manufacturer's or importer's share of domestic volume.
(f) Allocation of Total Assessments by Market Share.--The amount of
the assessment for each class of tobacco product specified in
subsection (c)(1) to be paid by each manufacturer or importer of that
class of tobacco product shall be determined for each quarterly payment
period by multiplying--
(1) the market share of the manufacturer or importer, as
calculated with respect to that payment period, of the class of
tobacco product; by
(2) the total amount of the assessment for that quarterly
payment period under subsection (c), for the class of tobacco
product.
(g) Determination of Volume of Domestic Sales.--
(1) In general.--The calculation of the volume of domestic
sales of a class of tobacco product by a manufacturer or importer,
and by all manufacturers and importers as a group, shall be made by
the Secretary based on information provided by the manufacturers
and importers pursuant to subsection (h), as well as any other
relevant information provided to or obtained by the Secretary.
(2) Gross domestic volume.--The volume of domestic sales shall
be calculated based on gross domestic volume.
(3) Measurement.--For purposes of the calculations under this
subsection and the certifications under subsection (h) by the
Secretary, the volumes of domestic sales shall be measured by--
(A) in the case of cigarettes and cigars, the number of
cigarettes and cigars; and
(B) in the case of the other classes of tobacco products
specified in subsection (c)(1), in terms of number of pounds,
or fraction thereof, of those products.
(h) Measurement of Volume of Domestic Sales.--
(1) Submission of information.--Each manufacturer and importer
of tobacco products shall submit to the Secretary a certified copy
of each of the returns or forms described by paragraph (2) that are
required to be filed with a Federal agency on the same date that
those returns or forms are filed, or required to be filed, with the
agency.
(2) Returns and forms.--The returns and forms described by this
paragraph are those returns and forms that relate to--
(A) the removal of tobacco products into domestic commerce
(as defined by section 5702 of the Internal Revenue Code of
1986); and
(B) the payment of the taxes imposed under charter 52 of
the Internal Revenue Code of 1986, including AFT Form 5000.24
and United States Customs Form 7501 under currently applicable
regulations.
(3) Effect of failure to provide required information.--Any
person that knowingly fails to provide information required under
this subsection or that provides false information under this
subsection shall be subject to the penalties described in section
1003 of title 18, United States Code. The Secretary may also assess
against the person a civil penalty in an amount not to exceed two
percent of the value of the kind of tobacco products manufactured
or imported by the person during the fiscal year in which the
violation occurred, as determined by the Secretary.
(i) Challenge to Assessment.--
(1) Appeal to secretary.--A manufacturer or importer subject to
this section may contest an assessment imposed on the manufacturer
or importer under this section by notifying the Secretary, not
later than 30 business days after receiving the assessment
notification required by subsection (d), that the manufacturer or
importer intends to contest the assessment.
(2) Information.--Not later than 180 days after the date of the
enactment of this title, the Secretary shall establish by
regulation a procedure under which a manufacturer or importer
contesting an assessment under this subsection may present
information to the Secretary to demonstrate that the assessment
applicable to the manufacturer or importer is incorrect. In
challenging the assessment, the manufacturer or importer may use
any information that is available, including third party data on
industry or individual company sales volumes.
(3) Revision.--If a manufacturer or importer establishes that
the initial determination of the amount of an assessment is
incorrect, the Secretary shall revise the amount of the assessment
so that the manufacturer or importer is required to pay only the
amount correctly determined.
(4) Time for review.--Not later than 30 days after receiving
notice from a manufacturer or importer under paragraph (1), the
Secretary shall--
(A) decide whether the information provided to the
Secretary under paragraph (2), and any other information that
the Secretary determines is appropriate, is sufficient to
establish that the original assessment was incorrect; and
(B) make any revisions necessary to ensure that each
manufacturer and importer pays only its correct pro rata share
of total gross domestic volume from all sources.
(5) Immediate payment of undisputed amounts.--The regulations
promulgated by the Secretary under paragraph (2) shall provide for
the immediate payment by a manufacturer or importer challenging an
assessment of that portion of the assessment that is not in
dispute. The manufacturer and importer may place into escrow, in
accordance with such regulations, only the portion of the
assessment being challenged in good faith pending final
determination of the claim.
(j) Judicial Review.--
(1) In general.--Any manufacturer or importer aggrieved by a
determination of the Secretary with respect to the amount of any
assessment may seek review of the determination in the United
States District Court for the District of Columbia or for the
district in which the manufacturer or importer resides or has its
principal place of business at any time following exhaustion of the
administrative remedies available under subsection (i).
(2) Time limits.--Administrative remedies shall be deemed
exhausted if no decision by the Secretary is made within the time
limits established under subsection (i)(4).
(3) Excessive assessments.--The court shall restrain collection
of the excessive portion of any assessment or order a refund of
excessive assessments already paid, along with interest calculated
at the rate prescribed in section 3717 of title 31, United States
Code, if it finds that the Secretary's determination is not
supported by a preponderance of the information available to the
Secretary.
(k) Termination Date.--The authority provided by this section to
impose assessments terminates on September 30, 2014.
SEC. 626. TOBACCO TRUST FUND.
(a) Establishment.--There is established in the Commodity Credit
Corporation a revolving trust fund, to be known as the ``Tobacco Trust
Fund'', which shall be used in carrying out this subtitle. The Tobacco
Trust Fund shall consist of the following:
(1) Assessments collected under section 625.
(2) Such amounts as are necessary from the Commodity Credit
Corporation.
(3) Any interest earned on investment of amounts in the Tobacco
Trust Fund under subsection (c).
(b) Expenditures.--
(1) Authorized expenditures.--Subject to paragraph (2), and
notwithstanding any other provision of law, the Secretary shall use
amounts in the Tobacco Trust Fund, in such amounts as the Secretary
determines are necessary--
(A) to make payments under sections 622 and 623;
(B) to provide reimbursement under section 641(c);
(C) to reimburse the Commodity Credit Corporation for costs
incurred by the Commodity Credit Corporation under paragraph
(2); and
(D) to make payments to financial institutions to satisfy
contractual obligations under section 622 or 623.
(2) Expenditures by commodity credit corporation.--
Notwithstanding any other provision of law, the Secretary shall use
the funds, facilities, and authorities of the Commodity Credit
Corporation to make payments described in paragraph (1). Not later
than January 1, 2015, the Secretary shall use amounts in the
Tobacco Trust Fund to fully reimburse, with interest, the Commodity
Credit Corporation for all funds of the Commodity Credit
Corporation expended under the authority of this paragraph.
Administrative costs incurred by the Secretary or the Commodity
Credit Corporation to carry out this title may not be paid using
amounts in the Tobacco Trust Fund.
(c) Investment of Amounts.--
(1) In general.--The Commodity Credit Corporation shall invest
such portion of the amounts in the Tobacco Trust Fund as are not,
in the judgment of the Commodity Credit Corporation, required to
meet current expenditures.
(2) Interest-bearing obligations.--Investments may be made only
in interest-bearing obligations of the United States.
(3) Acquisition of obligations.--For the purpose of investments
under paragraph (1), obligations may be acquired--
(A) on original issue at the issue price; or
(B) by purchase of outstanding obligations at the market
price.
(4) Sale of obligations.--Any obligation acquired by the
Tobacco Trust Fund may be sold by the Commodity Credit Corporation
at the market price.
(5) Credits to fund.--The interest on, and the proceeds from
the sale or redemption of, any obligations held in the Tobacco
Trust Fund shall be credited to and form a part of the Fund.
SEC. 627. LIMITATION ON TOTAL EXPENDITURES.
The total amount expended by the Secretary from the Tobacco Trust
Fund to make payments under sections 622 and 623 and for the other
authorized purposes of the Fund shall not exceed $10,140,000,000.
Subtitle C--Implementation and Transition
SEC. 641. TREATMENT OF TOBACCO LOAN POOL STOCKS AND OUTSTANDING LOAN
COSTS.
(a) Disposal of Stocks.--To provide for the orderly disposition of
quota tobacco held by an association that has entered into a loan
agreement with the Commodity Credit Corporation under section 106A or
106B of the Agricultural Act of 1949 (7 U.S.C. 1445-1, 1445-2)
(referred to in this section as an ``association''), loan pool stocks
for each kind of tobacco held by the association shall be disposed of
in accordance with this section.
(b) Disposal by Associations.--For each kind of tobacco held by an
association, the association shall be responsible for the disposal of a
specific quantity of the loan pool stocks for that kind of tobacco held
by the association. The quantity transferred to the association for
disposal shall be equal to the quantity determined by dividing--
(1) the amount of funds held by the association in the No Net
Cost Tobacco Fund and the No Net Cost Tobacco Account established
under sections 106A and 106B of the Agricultural Act of 1949 (7
U.S.C. 1445-1, 1445-2) for the kind of tobacco; by
(2) the average list price per pound for the kind of tobacco,
as determined by the Secretary.
(c) Disposal of Remainder by Commodity Credit Corporation.--
(1) Disposal.--Any loan pool stocks of a kind of tobacco of an
association that are not transferred to the association under
subsection (b) for disposal shall be disposed of by Commodity
Credit Corporation in a manner determined by the Secretary.
(2) Reimbursement.--As required by section 626(b)(1)(B), the
Secretary shall transfer from the Tobacco Trust Fund to the No Net
Cost Tobacco Fund or the No Net Cost Tobacco Account of an
association established under section 106A or 106B of the
Agricultural Act of 1949 (7 U.S.C. 1445-1, 1445-2) such amounts as
the Secretary determines will be adequate to reimburse the
Commodity Credit Corporation for any net losses that the
Corporation may sustain under its loan agreements with the
association.
(d) Transfer of Remaining No Net Cost Funds.--Any funds in the No
Net Cost Tobacco Fund or the No Net Cost Tobacco Account of an
association established under sections 106A and 106B of the
Agricultural Act of 1949 (7 U.S.C. 1445-1, 1445-2) that remain after
the application of subsections (b) and (c) shall be transferred to the
association for distribution to producers of quota tobacco in
accordance with a plan approved by the Secretary.
SEC. 642. REGULATIONS.
(a) In General.--The Secretary may promulgate such regulations as
are necessary to implement this title and the amendments made by this
title.
(b) Procedure.--The promulgation of the regulations and
administration of this title and the amendments made by this title
shall be made without regard to--
(1) the notice and comment provisions of section 553 of title
5, United States Code;
(2) the Statement of Policy of the Secretary of Agriculture
effective July 24, 1971 (36 Fed. Reg. 13804), relating to notices
of proposed rulemaking and public participation in rulemaking; and
(3) chapter 35 of title 44, United States Code (commonly known
as the ``Paperwork Reduction Act'').
(c) Congressional Review of Agency Rulemaking.--In carrying out
this section, the Secretary shall use the authority provided under
section 808 of title 5, United States Code.
SEC. 643. EFFECTIVE DATE.
This title and the amendments made by this title shall apply to the
2005 and subsequent crops of each kind of tobacco.
TITLE VII--MISCELLANEOUS PROVISIONS
SEC. 701. BROWNFIELDS DEMONSTRATION PROGRAM FOR QUALIFIED GREEN
BUILDING AND SUSTAINABLE DESIGN PROJECTS.
(a) Treatment as Exempt Facility Bond.--Subsection (a) of section
142 (relating to the definition of exempt facility bond) is amended by
striking ``or'' at the end of paragraph (12), by striking the period at
the end of paragraph (13) and inserting ``, or'', and by inserting at
the end the following new paragraph:
``(14) qualified green building and sustainable design
projects.''.
(b) Qualified Green Building and Sustainable Design Projects.--
Section 142 (relating to exempt facility bonds) is amended by adding at
the end thereof the following new subsection:
``(l) Qualified Green Building and Sustainable Design Projects.--
``(1) In general.--For purposes of subsection (a)(14), the term
`qualified green building and sustainable design project' means any
project which is designated by the Secretary, after consultation
with the Administrator of the Environmental Protection Agency, as a
qualified green building and sustainable design project and which
meets the requirements of clauses (i), (ii), (iii), and (iv) of
paragraph (4)(A).
``(2) Designations.--
``(A) In general.--Within 60 days after the end of the
application period described in paragraph (3)(A), the
Secretary, after consultation with the Administrator of the
Environmental Protection Agency, shall designate qualified
green building and sustainable design projects. At least one of
the projects designated shall be located in, or within a 10-
mile radius of, an empowerment zone as designated pursuant to
section 1391, and at least one of the projects designated shall
be located in a rural State. No more than one project shall be
designated in a State. A project shall not be designated if
such project includes a stadium or arena for professional
sports exhibitions or games.
``(B) Minimum conservation and technology innovation
objectives.--The Secretary, after consultation with the
Administrator of the Environmental Protection Agency, shall
ensure that, in the aggregate, the projects designated shall--
``(i) reduce electric consumption by more than 150
megawatts annually as compared to conventional generation,
``(ii) reduce daily sulfur dioxide emissions by at
least 10 tons compared to coal generation power,
``(iii) expand by 75 percent the domestic solar
photovoltaic market in the United States (measured in
megawatts) as compared to the expansion of that market from
2001 to 2002, and
``(iv) use at least 25 megawatts of fuel cell energy
generation.
``(3) Limited designations.--A project may not be designated
under this subsection unless--
``(A) the project is nominated by a State or local
government within 180 days of the enactment of this subsection,
and
``(B) such State or local government provides written
assurances that the project will satisfy the eligibility
criteria described in paragraph (4).
``(4) Application.--
``(A) In general.--A project may not be designated under
this subsection unless the application for such designation
includes a project proposal which describes the energy
efficiency, renewable energy, and sustainable design features
of the project and demonstrates that the project satisfies the
following eligibility criteria:
``(i) Green building and sustainable design.--At least
75 percent of the square footage of commercial buildings
which are part of the project is registered for United
States Green Building Council's LEED certification and is
reasonably expected (at the time of the designation) to
receive such certification. For purposes of determining
LEED certification as required under this clause, points
shall be credited by using the following:
``(I) For wood products, certification under the
Sustainable Forestry Initiative Program and the
American Tree Farm System.
``(II) For renewable wood products, as credited for
recycled content otherwise provided under LEED
certification.
``(III) For composite wood products, certification
under standards established by the American National
Standards Institute, or such other voluntary standards
as published in the Federal Register by the
Administrator of the Environmental Protection Agency.
``(ii) Brownfield redevelopment.--The project includes
a brownfield site as defined by section 101(39) of the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (42 U.S.C. 9601), including a site
described in subparagraph (D)(ii)(II)(aa) thereof.
``(iii) State and local support.--The project receives
specific State or local government resources which will
support the project in an amount equal to at least
$5,000,000. For purposes of the preceding sentence, the
term `resources' includes tax abatement benefits and
contributions in kind.
``(iv) Size.--The project includes at least one of the
following:
``(I) At least 1,000,000 square feet of building.
``(II) At least 20 acres.
``(v) Use of tax benefit.--The project proposal
includes a description of the net benefit of the tax-exempt
financing provided under this subsection which will be
allocated for financing of one or more of the following:
``(I) The purchase, construction, integration, or
other use of energy efficiency, renewable energy, and
sustainable design features of the project.
``(II) Compliance with certification standards
cited under clause (i).
``(III) The purchase, remediation, and foundation
construction and preparation of the brownfields site.
``(vi) Prohibited facilities.--An issue shall not be
treated as an issue described in subsection (a)(14) if any
proceeds of such issue are used to provide any facility the
principal business of which is the sale of food or
alcoholic beverages for consumption on the premises.
``(vii) Employment.--The project is projected to
provide permanent employment of at least 1,500 full time
equivalents (150 full time equivalents in rural States)
when completed and construction employment of at least
1,000 full time equivalents (100 full time equivalents in
rural States).
The application shall include an independent analysis which
describes the project's economic impact, including the amount
of projected employment.
``(B) Project description.--Each application described in
subparagraph (A) shall contain for each project a description
of--
``(i) the amount of electric consumption reduced as
compared to conventional construction,
``(ii) the amount of sulfur dioxide daily emissions
reduced compared to coal generation,
``(iii) the amount of the gross installed capacity of
the project's solar photovoltaic capacity measured in
megawatts, and
``(iv) the amount, in megawatts, of the project's fuel
cell energy generation.
``(5) Certification of use of tax benefit.--No later than 30
days after the completion of the project, each project must certify
to the Secretary that the net benefit of the tax-exempt financing
was used for the purposes described in paragraph (4).
``(6) Definitions.--For purposes of this subsection--
``(A) Rural state.--The term `rural State' means any State
which has--
``(i) a population of less than 4,500,000 according to
the 2000 census,
``(ii) a population density of less than 150 people per
square mile according to the 2000 census, and
``(iii) increased in population by less than half the
rate of the national increase between the 1990 and 2000
censuses.
``(B) Local government.--The term `local government' has
the meaning given such term by section 1393(a)(5).
``(C) Net benefit of tax-exempt financing.--The term `net
benefit of tax-exempt financing' means the present value of the
interest savings (determined by a calculation established by
the Secretary) which result from the tax-exempt status of the
bonds.
``(7) Aggregate face amount of tax-exempt financing.--
``(A) In general.--An issue shall not be treated as an
issue described in subsection (a)(14) if the aggregate face
amount of bonds issued by the State or local government
pursuant thereto for a project (when added to the aggregate
face amount of bonds previously so issued for such project)
exceeds an amount designated by the Secretary as part of the
designation.
``(B) Limitation on amount of bonds.--The Secretary may not
allocate authority to issue qualified green building and
sustainable design project bonds in an aggregate face amount
exceeding $2,000,000,000.
``(8) Termination.--Subsection (a)(14) shall not apply with
respect to any bond issued after September 30, 2009.
``(9) Treatment of current refunding bonds.--Paragraphs (7)(B)
and (8) shall not apply to any bond (or series of bonds) issued to
refund a bond issued under subsection (a)(14) before October 1,
2009, if--
``(A) the average maturity date of the issue of which the
refunding bond is a part is not later than the average maturity
date of the bonds to be refunded by such issue,
``(B) the amount of the refunding bond does not exceed the
outstanding amount of the refunded bond, and
``(C) the net proceeds of the refunding bond are used to
redeem the refunded bond not later than 90 days after the date
of the issuance of the refunding bond.
For purposes of subparagraph (A), average maturity shall be
determined in accordance with section 147(b)(2)(A).''.
(c) Exemption From General State Volume Caps.--Paragraph (3) of
section 146(g) (relating to exception for certain bonds) is amended--
(1) by striking ``or (13)'' and inserting ``(13), or (14)'',
and
(2) by striking ``and qualified public educational facilities''
and inserting ``qualified public educational facilities, and
qualified green building and sustainable design projects''.
(d) Accountability.--Each issuer shall maintain, on behalf of each
project, an interest bearing reserve account equal to 1 percent of the
net proceeds of any bond issued under this section for such project.
Not later than 5 years after the date of issuance, the Secretary of the
Treasury, after consultation with the Administrator of the
Environmental Protection Agency, shall determine whether the project
financed with such bonds has substantially complied with the terms and
conditions described in section 142(l)(4) of the Internal Revenue Code
of 1986 (as added by this section). If the Secretary, after such
consultation, certifies that the project has substantially complied
with such terms and conditions and meets the commitments set forth in
the application for such project described in section 142(l)(4) of such
Code, amounts in the reserve account, including all interest, shall be
released to the project. If the Secretary determines that the project
has not substantially complied with such terms and conditions, amounts
in the reserve account, including all interest, shall be paid to the
United States Treasury.
(e) Effective Date.--The amendments made by this section shall
apply to bonds issued after December 31, 2004.
SEC. 702. EXCLUSION OF GAIN OR LOSS ON SALE OR EXCHANGE OF CERTAIN
BROWNFIELD SITES FROM UNRELATED BUSINESS TAXABLE INCOME.
(a) In General.--Subsection (b) of section 512 (relating to
unrelated business taxable income) is amended by adding at the end the
following new paragraph:
``(18) Treatment of gain or loss on sale or exchange of certain
brownfield sites.--
``(A) In general.--Notwithstanding paragraph (5)(B), there
shall be excluded any gain or loss from the qualified sale,
exchange, or other disposition of any qualifying brownfield
property by an eligible taxpayer.
``(B) Eligible taxpayer.--For purposes of this paragraph--
``(i) In general.--The term `eligible taxpayer' means,
with respect to a property, any organization exempt from
tax under section 501(a) which--
``(I) acquires from an unrelated person a
qualifying brownfield property, and
``(II) pays or incurs eligible remediation
expenditures with respect to such property in an amount
which exceeds the greater of $550,000 or 12 percent of
the fair market value of the property at the time such
property was acquired by the eligible taxpayer,
determined as if there was not a presence of a
hazardous substance, pollutant, or contaminant on the
property which is complicating the expansion,
redevelopment, or reuse of the property.
``(ii) Exception.--Such term shall not include any
organization which is--
``(I) potentially liable under section 107 of the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 with respect to the qualifying
brownfield property,
``(II) affiliated with any other person which is so
potentially liable through any direct or indirect
familial relationship or any contractual, corporate, or
financial relationship (other than a contractual,
corporate, or financial relationship which is created
by the instruments by which title to any qualifying
brownfield property is conveyed or financed or by a
contract of sale of goods or services), or
``(III) the result of a reorganization of a
business entity which was so potentially liable.
``(C) Qualifying brownfield property.--For purposes of this
paragraph--
``(i) In general.--The term `qualifying brownfield
property' means any real property which is certified,
before the taxpayer incurs any eligible remediation
expenditures (other than to obtain a Phase I environmental
site assessment), by an appropriate State agency (within
the meaning of section 198(c)(4)) in the State in which
such property is located as a brownfield site within the
meaning of section 101(39) of the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980 (as in effect on the date of the enactment of this
paragraph).
``(ii) Request for certification.--Any request by an
eligible taxpayer for a certification described in clause
(i) shall include a sworn statement by the eligible
taxpayer and supporting documentation of the presence of a
hazardous substance, pollutant, or contaminant on the
property which is complicating the expansion,
redevelopment, or reuse of the property given the
property's reasonably anticipated future land uses or
capacity for uses of the property (including a Phase I
environmental site assessment and, if applicable, evidence
of the property's presence on a local, State, or Federal
list of brownfields or contaminated property) and other
environmental assessments prepared or obtained by the
taxpayer.
``(D) Qualified sale, exchange, or other disposition.--For
purposes of this paragraph--
``(i) In general.--A sale, exchange, or other
disposition of property shall be considered as qualified
if--
``(I) such property is transferred by the eligible
taxpayer to an unrelated person, and
``(II) within 1 year of such transfer the eligible
taxpayer has received a certification from the
Environmental Protection Agency or an appropriate State
agency (within the meaning of section 198(c)(4)) in the
State in which such property is located that, as a
result of the eligible taxpayer's remediation actions,
such property would not be treated as a qualifying
brownfield property in the hands of the transferee.
For purposes of subclause (II), before issuing such
certification, the Environmental Protection Agency or
appropriate State agency shall respond to comments received
pursuant to clause (ii)(V) in the same form and manner as
required under section 117(b) of the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980 (as in effect on the date of the enactment of this
paragraph).
``(ii) Request for certification.--Any request by an
eligible taxpayer for a certification described in clause
(i) shall be made not later than the date of the transfer
and shall include a sworn statement by the eligible
taxpayer certifying the following:
``(I) Remedial actions which comply with all
applicable or relevant and appropriate requirements
(consistent with section 121(d) of the Comprehensive
Environmental Response, Compensation, and Liability Act
of 1980) have been substantially completed, such that
there are no hazardous substances, pollutants, or
contaminants which complicate the expansion,
redevelopment, or reuse of the property given the
property's reasonably anticipated future land uses or
capacity for uses of the property.
``(II) The reasonably anticipated future land uses
or capacity for uses of the property are more
economically productive or environmentally beneficial
than the uses of the property in existence on the date
of the certification described in subparagraph (C)(i).
For purposes of the preceding sentence, use of property
as a landfill or other hazardous waste facility shall
not be considered more economically productive or
environmentally beneficial.
``(III) A remediation plan has been implemented to
bring the property into compliance with all applicable
local, State, and Federal environmental laws,
regulations, and standards and to ensure that the
remediation protects human health and the environment.
``(IV) The remediation plan described in subclause
(III), including any physical improvements required to
remediate the property, is either complete or
substantially complete, and, if substantially complete,
sufficient monitoring, funding, institutional controls,
and financial assurances have been put in place to
ensure the complete remediation of the property in
accordance with the remediation plan as soon as is
reasonably practicable after the sale, exchange, or
other disposition of such property.
``(V) Public notice and the opportunity for comment
on the request for certification was completed before
the date of such request. Such notice and opportunity
for comment shall be in the same form and manner as
required for public participation required under
section 117(a) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 (as
in effect on the date of the enactment of this
paragraph). For purposes of this subclause, public
notice shall include, at a minimum, publication in a
major local newspaper of general circulation.
``(iii) Attachment to tax returns.--A copy of each of
the requests for certification described in clause (ii) of
subparagraph (C) and this subparagraph shall be included in
the tax return of the eligible taxpayer (and, where
applicable, of the qualifying partnership) for the taxable
year during which the transfer occurs.
``(iv) Substantial completion.--For purposes of this
subparagraph, a remedial action is substantially complete
when any necessary physical construction is complete, all
immediate threats have been eliminated, and all long-term
threats are under control.
``(E) Eligible remediation expenditures.--For purposes of
this paragraph--
``(i) In general.--The term `eligible remediation
expenditures' means, with respect to any qualifying
brownfield property, any amount paid or incurred by the
eligible taxpayer to an unrelated third person to obtain a
Phase I environmental site assessment of the property, and
any amount so paid or incurred after the date of the
certification described in subparagraph (C)(i) for goods
and services necessary to obtain a certification described
in subparagraph (D)(i) with respect to such property,
including expenditures--
``(I) to manage, remove, control, contain, abate,
or otherwise remediate a hazardous substance,
pollutant, or contaminant on the property,
``(II) to obtain a Phase II environmental site
assessment of the property, including any expenditure
to monitor, sample, study, assess, or otherwise
evaluate the release, threat of release, or presence of
a hazardous substance, pollutant, or contaminant on the
property,
``(III) to obtain environmental regulatory
certifications and approvals required to manage the
remediation and monitoring of the hazardous substance,
pollutant, or contaminant on the property, and
``(IV) regardless of whether it is necessary to
obtain a certification described in subparagraph
(D)(i)(II), to obtain remediation cost-cap or stop-loss
coverage, re-opener or regulatory action coverage, or
similar coverage under environmental insurance
policies, or financial guarantees required to manage
such remediation and monitoring.
``(ii) Exceptions.--Such term shall not include--
``(I) any portion of the purchase price paid or
incurred by the eligible taxpayer to acquire the
qualifying brownfield property,
``(II) environmental insurance costs paid or
incurred to obtain legal defense coverage, owner/
operator liability coverage, lender liability coverage,
professional liability coverage, or similar types of
coverage,
``(III) any amount paid or incurred to the extent
such amount is reimbursed, funded, or otherwise
subsidized by grants provided by the United States, a
State, or a political subdivision of a State for use in
connection with the property, proceeds of an issue of
State or local government obligations used to provide
financing for the property the interest of which is
exempt from tax under section 103, or subsidized
financing provided (directly or indirectly) under a
Federal, State, or local program provided in connection
with the property, or
``(IV) any expenditure paid or incurred before the
date of the enactment of this paragraph.
For purposes of subclause (III), the Secretary may issue
guidance regarding the treatment of government-provided
funds for purposes of determining eligible remediation
expenditures.
``(F) Determination of gain or loss.--For purposes of this
paragraph, the determination of gain or loss shall not include
an amount treated as gain which is ordinary income with respect
to section 1245 or section 1250 property, including amounts
deducted as section 198 expenses which are subject to the
recapture rules of section 198(e), if the taxpayer had deducted
such amounts in the computation of its unrelated business
taxable income.
``(G) Special rules for partnerships.--
``(i) In general.--In the case of an eligible taxpayer
which is a partner of a qualifying partnership which
acquires, remediates, and sells, exchanges, or otherwise
disposes of a qualifying brownfield property, this
paragraph shall apply to the eligible taxpayer's
distributive share of the qualifying partnership's gain or
loss from the sale, exchange, or other disposition of such
property.
``(ii) Qualifying partnership.--The term `qualifying
partnership' means a partnership which--
``(I) has a partnership agreement which satisfies
the requirements of section 514(c)(9)(B)(vi) at all
times beginning on the date of the first certification
received by the partnership under subparagraph (C)(i),
``(II) satisfies the requirements of subparagraphs
(B)(i), (C), (D), and (E), if `qualified partnership'
is substituted for `eligible taxpayer' each place it
appears therein (except subparagraph (D)(iii)), and
``(III) is not an organization which would be
prevented from constituting an eligible taxpayer by
reason of subparagraph (B)(ii).
``(iii) Requirement that tax-exempt partner be a
partner since first certification.--This paragraph shall
apply with respect to any eligible taxpayer which is a
partner of a partnership which acquires, remediates, and
sells, exchanges, or otherwise disposes of a qualifying
brownfield property only if such eligible taxpayer was a
partner of the qualifying partnership at all times
beginning on the date of the first certification received
by the partnership under subparagraph (C)(i) and ending on
the date of the sale, exchange, or other disposition of the
property by the partnership.
``(iv) Regulations.--The Secretary shall prescribe such
regulations as are necessary to prevent abuse of the
requirements of this subparagraph, including abuse
through--
``(I) the use of special allocations of gains or
losses, or
``(II) changes in ownership of partnership
interests held by eligible taxpayers.
``(H) Special rules for multiple properties.--
``(i) In general.--An eligible taxpayer or a qualifying
partnership of which the eligible taxpayer is a partner may
make a 1-time election to apply this paragraph to more than
1 qualifying brownfield property by averaging the eligible
remediation expenditures for all such properties acquired
during the election period. If the eligible taxpayer or
qualifying partnership makes such an election, the election
shall apply to all qualified sales, exchanges, or other
dispositions of qualifying brownfield properties the
acquisition and transfer of which occur during the period
for which the election remains in effect.
``(ii) Election.--An election under clause (i) shall be
made with the eligible taxpayer's or qualifying
partnership's timely filed tax return (including
extensions) for the first taxable year for which the
taxpayer or qualifying partnership intends to have the
election apply. An election under clause (i) is effective
for the period--
``(I) beginning on the date which is the first day
of the taxable year of the return in which the election
is included or a later day in such taxable year
selected by the eligible taxpayer or qualifying
partnership, and
``(II) ending on the date which is the earliest of
a date of revocation selected by the eligible taxpayer
or qualifying partnership, the date which is 8 years
after the date described in subclause (I), or, in the
case of an election by a qualifying partnership of
which the eligible taxpayer is a partner, the date of
the termination of the qualifying partnership.
``(iii) Revocation.--An eligible taxpayer or qualifying
partnership may revoke an election under clause (i)(II) by
filing a statement of revocation with a timely filed tax
return (including extensions). A revocation is effective as
of the first day of the taxable year of the return in which
the revocation is included or a later day in such taxable
year selected by the eligible taxpayer or qualifying
partnership. Once an eligible taxpayer or qualifying
partnership revokes the election, the eligible taxpayer or
qualifying partnership is ineligible to make another
election under clause (i) with respect to any qualifying
brownfield property subject to the revoked election.
``(I) Recapture.--If an eligible taxpayer excludes gain or
loss from a sale, exchange, or other disposition of property to
which an election under subparagraph (H) applies, and such
property fails to satisfy the requirements of this paragraph,
the unrelated business taxable income of the eligible taxpayer
for the taxable year in which such failure occurs shall be
determined by including any previously excluded gain or loss
from such sale, exchange, or other disposition allocable to
such taxpayer, and interest shall be determined at the
overpayment rate established under section 6621 on any
resulting tax for the period beginning with the due date of the
return for the taxable year during which such sale, exchange,
or other disposition occurred, and ending on the date of
payment of the tax.
``(J) Related persons.--For purposes of this paragraph, a
person shall be treated as related to another person if--
``(i) such person bears a relationship to such other
person described in section 267(b) (determined without
regard to paragraph (9) thereof), or section 707(b)(1),
determined by substituting `25 percent' for `50 percent'
each place it appears therein, and
``(ii) in the case such other person is a nonprofit
organization, if such person controls directly or
indirectly more than 25 percent of the governing body of
such organization.
``(K) Termination.--Except for purposes of determining the
average eligible remediation expenditures for properties
acquired during the election period under subparagraph (H),
this paragraph shall not apply to any property acquired by the
eligible taxpayer or qualifying partnership after December 31,
2009.''.
(b) Exclusion From Definition of Debt-Financed Property.--Section
514(b)(1) (defining debt-financed property) is amended by striking
``or'' at the end of subparagraph (C), by striking the period at the
end of subparagraph (D) and inserting ``; or'', and by inserting after
subparagraph (D) the following new subparagraph:
``(E) any property the gain or loss from the sale,
exchange, or other disposition of which would be excluded by
reason of the provisions of section 512(b)(18) in computing the
gross income of any unrelated trade or business.''.
(c) Savings Clause.--Nothing in the amendments made by this section
shall affect any duty, liability, or other requirement imposed under
any other Federal or State law. Notwithstanding section 128(b) of the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, a certification provided by the Environmental Protection
Agency or an appropriate State agency (within the meaning of section
198(c)(4) of the Internal Revenue Code of 1986) shall not affect the
liability of any person under section 107(a) of such Act.
(d) Effective Date.--The amendments made by this section shall
apply to any gain or loss on the sale, exchange, or other disposition
of any property acquired by the taxpayer after December 31, 2004.
SEC. 703. CIVIL RIGHTS TAX RELIEF.
(a) Deduction Allowed Whether or Not Taxpayer Itemizes Other
Deductions.--Subsection (a) of section 62 (defining adjusted gross
income) is amended by inserting after paragraph (18) the following new
item:
``(19) Costs involving discrimination suits, etc.--Any
deduction allowable under this chapter for attorney fees and court
costs paid by, or on behalf of, the taxpayer in connection with any
action involving a claim of unlawful discrimination (as defined in
subsection (e)) or a claim of a violation of subchapter III of
chapter 37 of title 31, United States Code or a claim made under
section 1862(b)(3)(A) of the Social Security Act (42 U.S.C.
1395y(b)(3)(A)). The preceding sentence shall not apply to any
deduction in excess of the amount includible in the taxpayer's
gross income for the taxable year on account of a judgment or
settlement (whether by suit or agreement and whether as lump sum or
periodic payments) resulting from such claim.''.
(b) Unlawful Discrimination Defined.--Section 62 is amended by
adding at the end the following new subsection:
``(e) Unlawful Discrimination Defined.--For purposes of subsection
(a)(19), the term `unlawful discrimination' means an act that is
unlawful under any of the following:
``(1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C.
1202).
``(2) Section 201, 202, 203, 204, 205, 206, or 207 of the
Congressional Accountability Act of 1995 (2 U.S.C. 1311, 1312,
1313, 1314, 1315, 1316, or 1317).
``(3) The National Labor Relations Act (29 U.S.C. 151 et seq.).
``(4) The Fair Labor Standards Act of 1938 (29 U.S.C. 201 et
seq.).
``(5) Section 4 or 15 of the Age Discrimination in Employment
Act of 1967 (29 U.S.C. 623 or 633a).
``(6) Section 501 or 504 of the Rehabilitation Act of 1973 (29
U.S.C. 791 or 794).
``(7) Section 510 of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1140).
``(8) Title IX of the Education Amendments of 1972 (20 U.S.C.
1681 et seq.).
``(9) The Employee Polygraph Protection Act of 1988 (29 U.S.C.
2001 et seq.).
``(10) The Worker Adjustment and Retraining Notification Act
(29 U.S.C. 2102 et seq.).
``(11) Section 105 of the Family and Medical Leave Act of 1993
(29 U.S.C. 2615).
``(12) Chapter 43 of title 38, United States Code (relating to
employment and reemployment rights of members of the uniformed
services).
``(13) Section 1977, 1979, or 1980 of the Revised Statutes (42
U.S.C. 1981, 1983, or 1985).
``(14) Section 703, 704, or 717 of the Civil Rights Act of 1964
(42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
``(15) Section 804, 805, 806, 808, or 818 of the Fair Housing
Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
``(16) Section 102, 202, 302, or 503 of the Americans with
Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or 12203).
``(17) Any provision of Federal law (popularly known as
whistleblower protection provisions) prohibiting the discharge of
an employee, the discrimination against an employee, or any other
form of retaliation or reprisal against an employee for asserting
rights or taking other actions permitted under Federal law.
``(18) Any provision of Federal, State, or local law, or common
law claims permitted under Federal, State, or local law--
``(i) providing for the enforcement of civil rights, or
``(ii) regulating any aspect of the employment
relationship, including claims for wages, compensation, or
benefits, or prohibiting the discharge of an employee, the
discrimination against an employee, or any other form of
retaliation or reprisal against an employee for asserting
rights or taking other actions permitted by law.''.
(c) Effective Date.--The amendments made by this section shall
apply to fees and costs paid after the date of the enactment of this
Act with respect to any judgment or settlement occurring after such
date.
SEC. 704. MODIFICATION OF CLASS LIFE FOR CERTAIN TRACK FACILITIES.
(a) 7-Year Property.--Subparagraph (C) of section 168(e)(3)
(relating to classification of certain property) is amended by
redesignating clause (ii) as clause (iii) and by inserting after clause
(i) the following new clause:
``(ii) any motorsports entertainment complex, and''.
(b) Definition.--Section 168(i) (relating to definitions and
special rules) is amended by adding at the end the following new
paragraph:
``(15) Motorsports entertainment complex.--
``(A) In general.--The term `motorsports entertainment
complex' means a racing track facility which--
``(i) is permanently situated on land, and
``(ii) during the 36-month period following the first
day of the month in which the asset is placed in service,
hosts 1 or more racing events for automobiles (of any
type), trucks, or motorcycles which are open to the public
for the price of admission.
``(B) Ancillary and support facilities.--Such term shall
include, if owned by the taxpayer who owns the complex and
provided for the benefit of patrons of the complex--
``(i) ancillary facilities and land improvements in
support of the complex's activities (including parking
lots, sidewalks, waterways, bridges, fences, and
landscaping),
``(ii) support facilities (including food and beverage
retailing, souvenir vending, and other nonlodging
accommodations), and
``(iii) appurtenances associated with such facilities
and related attractions and amusements (including ticket
booths, race track surfaces, suites and hospitality
facilities, grandstands and viewing structures, props,
walls, facilities that support the delivery of
entertainment services, other special purpose structures,
facades, shop interiors, and buildings).
``(C) Exception.--Such term shall not include any
transportation equipment, administrative services assets,
warehouses, administrative buildings, hotels, or motels.
``(D) Termination.--This paragraph shall not apply to any
property placed in service after December 31, 2007.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to any property placed in service after the date of the
enactment of this Act.
(2) Special rule for asset class 80.0.--In the case of race
track facilities placed in service after the date of the enactment
of this Act, such facilities shall not be treated as theme and
amusement facilities classified under asset class 80.0.
(3) No inference.--Nothing in this section or the amendments
made by this section shall be construed to affect the treatment of
property placed in service on or before the date of the enactment
of this Act.
SEC. 705. SUSPENSION OF POLICYHOLDERS SURPLUS ACCOUNT PROVISIONS.
(a) Distributions To Shareholders From Pre-1984 Policyholders
Surplus Account.--Section 815 (relating to distributions to
shareholders from pre-1984 policyholders surplus account) is amended by
adding at the end the following:
``(g) Special Rules Applicable During 2005 and 2006.--In the case
of any taxable year of a stock life insurance company beginning after
December 31, 2004, and before January 1, 2007--
``(1) the amount under subsection (a)(2) for such taxable year
shall be treated as zero, and
``(2) notwithstanding subsection (b), in determining any
subtractions from an account under subsections (c)(3) and (d)(3),
any distribution to shareholders during such taxable year shall be
treated as made first out of the policyholders surplus account,
then out of the shareholders surplus account, and finally out of
other accounts.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2004.
SEC. 706. CERTAIN ALASKA NATURAL GAS PIPELINE PROPERTY TREATED AS 7-
YEAR PROPERTY.
(a) In General.--Section 168(e)(3)(C) (defining 7-year property),
as amended by this Act, is amended by striking ``and'' at the end of
clause (ii), by redesignating clause (iii) as clause (iv), and by
inserting after clause (ii) the following new clause:
``(iii) any Alaska natural gas pipeline, and''.
(b) Alaska Natural Gas Pipeline.--Section 168(i) (relating to
definitions and special rules), as amended by this Act, is amended by
inserting after paragraph (15) the following new paragraph:
``(16) Alaska natural gas pipeline.--The term `Alaska natural
gas pipeline' means the natural gas pipeline system located in the
State of Alaska which--
``(A) has a capacity of more than 500,000,000,000 Btu of
natural gas per day, and
``(B) is--
``(i) placed in service after December 31, 2013, or
``(ii) treated as placed in service on January 1, 2014,
if the taxpayer who places such system in service before
January 1, 2014, elects such treatment.
Such term includes the pipe, trunk lines, related equipment, and
appurtenances used to carry natural gas, but does not include any
gas processing plant.''.
(c) Alternative System.--The table contained in section
168(g)(3)(B) (relating to special rule for certain property assigned to
classes) is amended by inserting after the item relating to
subparagraph (C)(ii) the following new item:
``(C)(iii)........................................................
22''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2004.
SEC. 707. EXTENSION OF ENHANCED OIL RECOVERY CREDIT TO CERTAIN ALASKA
FACILITIES.
(a) In General.--Section 43(c)(1) (defining qualified enhanced oil
recovery costs) is amended by adding at the end the following new
subparagraph:
``(D) Any amount which is paid or incurred during the
taxable year to construct a gas treatment plant which--
``(i) is located in the area of the United States
(within the meaning of section 638(1)) lying north of 64
degrees North latitude,
``(ii) prepares Alaska natural gas for transportation
through a pipeline with a capacity of at least
2,000,000,000,000 Btu of natural gas per day, and
``(iii) produces carbon dioxide which is injected into
hydrocarbon-bearing geological formations.''.
(b) Alaska Natural Gas.--Section 43(c) is amended by adding at the
end the following new paragraph:
``(5) Alaska natural gas.--For purposes of paragraph (1)(D)--
``(1) In general.--The term `Alaska natural gas' means natural
gas entering the Alaska natural gas pipeline (as defined in section
168(i)(16) (determined without regard to subparagraph (B) thereof))
which is produced from a well--
``(A) located in the area of the State of Alaska lying
north of 64 degrees North latitude, determined by excluding the
area of the Alaska National Wildlife Refuge (including the
continental shelf thereof within the meaning of section
638(1)), and
``(B) pursuant to the applicable State and Federal
pollution prevention, control, and permit requirements from
such area (including the continental shelf thereof within the
meaning of section 638(1)).
``(2) Natural gas.--The term `natural gas' has the meaning
given such term by section 613A(e)(2).''.
(c) Effective Date.--The amendment made by this section shall apply
to costs paid or incurred in taxable years beginning after December 31,
2004.
SEC. 708. METHOD OF ACCOUNTING FOR NAVAL SHIPBUILDERS.
(a) In General.--In the case of a qualified naval ship contract,
the taxable income of such contract during the 5-taxable year period
beginning with the taxable year in which the contract commencement date
occurs shall be determined under a method identical to the method used
in the case of a qualified ship contract (as defined in section
10203(b)(2)(B) of the Revenue Act of 1987).
(b) Recapture of Tax Benefit.--In the case of a qualified naval
ship contract to which subsection (a) applies, the taxpayer's tax
imposed by chapter 1 of the Internal Revenue Code of 1986 for the first
taxable year following the 5-taxable year period described in
subsection (a) shall be increased by the excess (if any) of--
(1) the amount of tax which would have been imposed during such
period if this section had not been enacted, over
(2) the amount of tax so imposed during such period.
(c) Qualified Naval Ship Contract.--For purposes of this section:
(1) In general.--The term ``qualified naval ship contract''
means any contract or portion thereof that is for the construction
in the United States of 1 ship or submarine for the Federal
Government if the taxpayer reasonably expects the acceptance date
will occur no later than 9 years after the construction
commencement date.
(2) Acceptance date.--The term ``acceptance date'' means the
date 1 year after the date on which the Federal Government issues a
letter of acceptance or other similar document for the ship or
submarine.
(3) Construction commencement date.--The term ``construction
commencement date'' means the date on which the physical
fabrication of any section or component of the ship or submarine
begins in the taxpayer's shipyard.
(d) Effective Date.--This section shall apply to contracts for
ships or submarines with respect to which the construction commencement
date occurs after the date of the enactment of this Act.
SEC. 709. MODIFICATION OF MINIMUM COST REQUIREMENT FOR TRANSFER OF
EXCESS PENSION ASSETS.
(a) Amendments of ERISA.--
(1) Section 101(e)(3) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by striking
``Pension Funding Equity Act of 2004'' and inserting ``American
Jobs Creation Act of 2004''.
(2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is
amended by striking ``Pension Funding Equity Act of 2004'' and
inserting ``American Jobs Creation Act of 2004''.
(3) Paragraph (13) of section 408(b) of such Act (29 U.S.C.
1108(b)(3)) is amended by striking ``Pension Funding Equity Act of
2004'' and inserting ``American Jobs Creation Act of 2004''.
(b) Minimum Cost Requirements.--
(1) In general.--Section 420(c)(3)(E) is amended by adding at
the end the following new clause:
``(ii) Insignificant cost reductions permitted.--
``(I) In general.--An eligible employer shall not
be treated as failing to meet the requirements of this
paragraph for any taxable year if, in lieu of any
reduction of retiree health coverage permitted under
the regulations prescribed under clause (i), the
employer reduces applicable employer cost by an amount
not in excess of the reduction in costs which would
have occurred if the employer had made the maximum
permissible reduction in retiree health coverage under
such regulations. In applying such regulations to any
subsequent taxable year, any reduction in applicable
employer cost under this clause shall be treated as if
it were an equivalent reduction in retiree health
coverage.
``(II) Eligible employer.--For purposes of
subclause (I), an employer shall be treated as an
eligible employer for any taxable year if, for the
preceding taxable year, the qualified current retiree
health liabilities of the employer were at least 5
percent of the gross receipts of the employer. For
purposes of this subclause, the rules of paragraphs
(2), (3)(B), and (3)(C) of section 448(c) shall apply
in determining the amount of an employer's gross
receipts.''.
(2) Conforming amendment.--Section 420(c)(3)(E) is amended by
striking ``The Secretary'' and inserting:
``(i) In general.--The Secretary''.
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years ending after the date of the enactment
of this Act.
SEC. 710. EXPANSION OF CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN
RENEWABLE RESOURCES.
(a) Expansion of Qualified Energy Resources.--Subsection (c) of
section 45 (relating to electricity produced from certain renewable
resources) is amended to read as follows:
``(c) Qualified Energy Resources and Refined Coal.--For purposes of
this section:
``(1) In general.--The term `qualified energy resources'
means--
``(A) wind,
``(B) closed-loop biomass,
``(C) open-loop biomass,
``(D) geothermal energy,
``(E) solar energy,
``(F) small irrigation power, and
``(G) municipal solid waste.
``(2) Closed-loop biomass.--The term `closed-loop biomass'
means any organic material from a plant which is planted
exclusively for purposes of being used at a qualified facility to
produce electricity.
``(3) Open-loop biomass.--
``(A) In general.--The term `open-loop biomass' means--
``(i) any agricultural livestock waste nutrients, or
``(ii) any solid, nonhazardous, cellulosic waste
material which is segregated from other waste materials and
which is derived from--
``(I) any of the following forest-related
resources: mill and harvesting residues, precommercial
thinnings, slash, and brush,
``(II) solid wood waste materials, including waste
pallets, crates, dunnage, manufacturing and
construction wood wastes (other than pressure-treated,
chemically-treated, or painted wood wastes), and
landscape or right-of-way tree trimmings, but not
including municipal solid waste, gas derived from the
biodegradation of solid waste, or paper which is
commonly recycled, or
``(III) agriculture sources, including orchard tree
crops, vineyard, grain, legumes, sugar, and other crop
by-products or residues.
Such term shall not include closed-loop biomass or biomass
burned in conjunction with fossil fuel (cofiring) beyond such
fossil fuel required for startup and flame stabilization.
``(B) Agricultural livestock waste nutrients.--
``(i) In general.--The term `agricultural livestock
waste nutrients' means agricultural livestock manure and
litter, including wood shavings, straw, rice hulls, and
other bedding material for the disposition of manure.
``(ii) Agricultural livestock.--The term `agricultural
livestock' includes bovine, swine, poultry, and sheep.
``(4) Geothermal energy.--The term `geothermal energy' means
energy derived from a geothermal deposit (within the meaning of
section 613(e)(2)).
``(5) Small irrigation power.--The term `small irrigation
power' means power--
``(A) generated without any dam or impoundment of water
through an irrigation system canal or ditch, and
``(B) the nameplate capacity rating of which is not less
than 150 kilowatts but is less than 5 megawatts.
``(6) Municipal solid waste.--The term `municipal solid waste'
has the meaning given the term `solid waste' under section 2(27) of
the Solid Waste Disposal Act (42 U.S.C. 6903).
``(7) Refined coal.--
``(A) In general.--The term `refined coal' means a fuel
which--
``(i) is a liquid, gaseous, or solid synthetic fuel
produced from coal (including lignite) or high carbon fly
ash, including such fuel used as a feedstock,
``(ii) is sold by the taxpayer with the reasonable
expectation that it will be used for purpose of producing
steam,
``(iii) is certified by the taxpayer as resulting (when
used in the production of steam) in a qualified emission
reduction, and
``(iv) is produced in such a manner as to result in an
increase of at least 50 percent in the market value of the
refined coal (excluding any increase caused by materials
combined or added during the production process), as
compared to the value of the feedstock coal.
``(B) Qualified emission reduction.--The term `qualified
emission reduction' means a reduction of at least 20 percent of
the emissions of nitrogen oxide and either sulfur dioxide or
mercury released when burning the refined coal (excluding any
dilution caused by materials combined or added during the
production process), as compared to the emissions released when
burning the feedstock coal or comparable coal predominantly
available in the marketplace as of January 1, 2003.''.
(b) Expansion of Qualified Facilities.--
(1) In general.--Section 45 is amended by redesignating
subsection (d) as subsection (e) and by inserting after subsection
(c) the following new subsection:
``(d) Qualified Facilities.--For purposes of this section:
``(1) Wind facility.--In the case of a facility using wind to
produce electricity, the term `qualified facility' means any
facility owned by the taxpayer which is originally placed in
service after December 31, 1993, and before January 1, 2006.
``(2) Closed-loop biomass facility.--
``(A) In general.--In the case of a facility using closed-
loop biomass to produce electricity, the term `qualified
facility' means any facility--
``(i) owned by the taxpayer which is originally placed
in service after December 31, 1992, and before January 1,
2006, or
``(ii) owned by the taxpayer which before January 1,
2006, is originally placed in service and modified to use
closed-loop biomass to co-fire with coal, with other
biomass, or with both, but only if the modification is
approved under the Biomass Power for Rural Development
Programs or is part of a pilot project of the Commodity
Credit Corporation as described in 65 Fed. Reg. 63052.
``(B) Special rules.--In the case of a qualified facility
described in subparagraph (A)(ii)--
``(i) the 10-year period referred to in subsection (a)
shall be treated as beginning no earlier than the date of
the enactment of this clause,
``(ii) the amount of the credit determined under
subsection (a) with respect to the facility shall be an
amount equal to the amount determined without regard to
this clause multiplied by the ratio of the thermal content
of the closed-loop biomass used in such facility to the
thermal content of all fuels used in such facility, and
``(iii) if the owner of such facility is not the
producer of the electricity, the person eligible for the
credit allowable under subsection (a) shall be the lessee
or the operator of such facility.
``(3) Open-loop biomass facilities.--
``(A) In general.--In the case of a facility using open-
loop biomass to produce electricity, the term `qualified
facility' means any facility owned by the taxpayer which--
``(i) in the case of a facility using agricultural
livestock waste nutrients--
``(I) is originally placed in service after the
date of the enactment of this subclause and before
January 1, 2006, and
``(II) the nameplate capacity rating of which is
not less than 150 kilowatts, and
``(ii) in the case of any other facility, is originally
placed in service before January 1, 2006.
``(B) Credit eligibility.--In the case of any facility
described in subparagraph (A), if the owner of such facility is
not the producer of the electricity, the person eligible for
the credit allowable under subsection (a) shall be the lessee
or the operator of such facility.
``(4) Geothermal or solar energy facility.--In the case of a
facility using geothermal or solar energy to produce electricity,
the term `qualified facility' means any facility owned by the
taxpayer which is originally placed in service after the date of
the enactment of this paragraph and before January 1, 2006. Such
term shall not include any property described in section 48(a)(3)
the basis of which is taken into account by the taxpayer for
purposes of determining the energy credit under section 48.
``(5) Small irrigation power facility.--In the case of a
facility using small irrigation power to produce electricity, the
term `qualified facility' means any facility owned by the taxpayer
which is originally placed in service after the date of the
enactment of this paragraph and before January 1, 2006.
``(6) Landfill gas facilities.--In the case of a facility
producing electricity from gas derived from the biodegradation of
municipal solid waste, the term `qualified facility' means any
facility owned by the taxpayer which is originally placed in
service after the date of the enactment of this paragraph and
before January 1, 2006.
``(7) Trash combustion facilities.--In the case of a facility
which burns municipal solid waste to produce electricity, the term
`qualified facility' means any facility owned by the taxpayer which
is originally placed in service after the date of the enactment of
this paragraph and before January 1, 2006.
``(8) Refined coal production facility.--The term `refined coal
production facility' means a facility which is placed in service
after the date of the enactment of this paragraph and before
January 1, 2009.''.
(2) Rules for refined coal production facilities.--Subsection
(e) of section 45, as so redesignated, is amended by adding at the
end the following new paragraph:
``(8) Refined coal production facilities.--
``(A) Determination of credit amount.--In the case of a
producer of refined coal, the credit determined under this
section (without regard to this paragraph) for any taxable year
shall be increased by an amount equal to $4.375 per ton of
qualified refined coal--
``(i) produced by the taxpayer at a refined coal
production facility during the 10-year period beginning on
the date the facility was originally placed in service, and
``(ii) sold by the taxpayer--
``(I) to an unrelated person, and
``(II) during such 10-year period and such taxable
year.
``(B) Phaseout of credit.--The amount of the increase
determined under subparagraph (A) shall be reduced by an amount
which bears the same ratio to the amount of the increase
(determined without regard to this subparagraph) as--
``(i) the amount by which the reference price of fuel
used as a feedstock (within the meaning of subsection
(c)(7)(A)) for the calendar year in which the sale occurs
exceeds an amount equal to 1.7 multiplied by the reference
price for such fuel in 2002, bears to
``(ii) $8.75.
``(C) Application of rules.--Rules similar to the rules of
the subsection (b)(3) and paragraphs (1) through (5) and (9) of
this subsection shall apply for purposes of determining the
amount of any increase under this paragraph.''.
(3) Conforming amendments.--
(A) Section 45(e), as so redesignated, is amended by
striking ``subsection (c)(3)(A)'' in paragraph (7)(A)(i) and
inserting ``subsection (d)(1)''.
(B) The heading of section 45 and the item relating to such
section in the table of sections for subpart D of part IV of
subchapter A of chapter 1 are each amended by inserting before
the period at the end ``, etc''.
(C) Paragraph (2) of section 45(b) is amended by striking
``The 1.5 cent amount'' and all that follows through
``paragraph (1)'' and inserting ``The 1.5 cent amount in
subsection (a), the 8 cent amount in paragraph (1), the $4.375
amount in subsection (e)(8)(A), and in subsection (e)(8)(B)(i)
the reference price of fuel used as a feedstock (within the
meaning of subsection (c)(7)(A)) in 2002''.
(c) Special Credit Rate and Period for Electricity Produced and
Sold After Enactment Date.--Section 45(b) is amended by adding at the
end the following new paragraph:
``(4) Credit rate and period for electricity produced and sold
from certain facilities.--
``(A) Credit rate.--In the case of electricity produced and
sold in any calendar year after 2003 at any qualified facility
described in paragraph (3), (5), (6), or (7) of subsection (d),
the amount in effect under subsection (a)(1) for such calendar
year (determined before the application of the last sentence of
paragraph (2) of this subsection) shall be reduced by one-half.
``(B) Credit period.--
``(i) In general.--Except as provided in clause (ii),
in the case of any facility described in paragraph (3),
(4), (5), (6), or (7) of subsection (d), the 5-year period
beginning on the date the facility was originally placed in
service shall be substituted for the 10-year period in
subsection (a)(2)(A)(ii).
``(ii) Certain open-loop biomass facilities.--In the
case of any facility described in subsection (d)(3)(A)(ii)
placed in service before the date of the enactment of this
paragraph, the 5-year period beginning on the date of the
enactment of this Act shall be substituted for the 10-year
period in subsection (a)(2)(A)(ii).''.
(d) Coordination With Other Credits.--Section 45(e), as
redesignated and amended by this section, is amended by inserting after
paragraph (8) the following new paragraph:
``(9) Coordination with credit for producing fuel from a
nonconventional source.--The term `qualified facility' shall not
include any facility the production from which is allowed as a
credit under section 29 for the taxable year or any prior taxable
year.''.
(e) Coordination With Section 48.--Section 48(a)(3) (defining
energy property) is amended by adding at the end the following new
sentence: ``Such term shall not include any property which is part of a
facility the production from which is allowed as a credit under section
45 for the taxable year or any prior taxable year.''.
(f) Elimination of Certain Credit Reductions.--Section 45(b)(3)
(relating to credit reduced for grants, tax-exempt bonds, subsidized
energy financing, and other credits) is amended--
(1) by inserting ``the lesser of \1/2\ or'' before ``a
fraction'' in the matter preceding subparagraph (A), and
(2) by adding at the end the following new sentence: ``This
paragraph shall not apply with respect to any facility described in
subsection (d)(2)(A)(ii).''.
(g) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
electricity produced and sold after the date of the enactment of
this Act, in taxable years ending after such date.
(2) Certain biomass facilities.--With respect to any facility
described in section 45(d)(3)(A)(ii) of the Internal Revenue Code
of 1986, as added by subsection (b)(1), which is placed in service
before the date of the enactment of this Act, the amendments made
by this section shall apply to electricity produced and sold after
December 31, 2004, in taxable years ending after such date.
(3) Credit rate and period for new facilities.--The amendments
made by subsection (c) shall apply to electricity produced and sold
after December 31, 2004, in taxable years ending after such date.
(4) Nonapplication of amendments to preeffective date poultry
waste facilities.--The amendments made by this section shall not
apply with respect to any poultry waste facility (within the
meaning of section 45(c)(3)(C), as in effect on the day before the
date of the enactment of this Act) placed in service before January
1, 2004.
(5) Refined coal production facilities.--Section 45(e)(8) of
the Internal Revenue Code of 1986, as added by this section, shall
apply to refined coal produced and sold after the date of the
enactment of this Act.
SEC. 711. CERTAIN BUSINESS RELATED CREDITS ALLOWED AGAINST REGULAR AND
MINIMUM TAX.
(a) In General.--Subsection (c) of section 38 (relating to
limitation based on amount of tax) is amended by redesignating
paragraph (4) as paragraph (5) and by inserting after paragraph (3) the
following new paragraph:
``(4) Special rules for specified credits.--
``(A) In general.--In the case of specified credits--
``(i) this section and section 39 shall be applied
separately with respect to such credits, and
``(ii) in applying paragraph (1) to such credits--
``(I) the tentative minimum tax shall be treated as
being zero, and
``(II) the limitation under paragraph (1) (as
modified by subclause (I)) shall be reduced by the
credit allowed under subsection (a) for the taxable
year (other than the specified credits).
``(B) Specified credits.--For purposes of this subsection,
the term `specified credits' includes--
``(i) for taxable years beginning after December 31,
2004, the credit determined under section 40,
``(ii) the credit determined under section 45 to the
extent that such credit is attributable to electricity or
refined coal produced--
``(I) at a facility which is originally placed in
service after the date of the enactment of this
paragraph, and
``(II) during the 4-year period beginning on the
date that such facility was originally placed in
service''.
(b) Conforming Amendments.--Paragraph (2)(A)(ii)(II) and
(3)(A)(ii)(II) of section 38(c) are each amended by inserting ``or the
specified credits'' after ``employee credit''.
(c) Effective Date.--Except as otherwise provided, the amendments
made by this section shall apply to taxable years ending after the date
of the enactment of this Act.
SEC. 712. INCLUSION OF PRIMARY AND SECONDARY MEDICAL STRATEGIES FOR
CHILDREN AND ADULTS WITH SICKLE CELL DISEASE AS MEDICAL
ASSISTANCE UNDER THE MEDICAID PROGRAM.
(a) Optional Medical Assistance.--
(1) In general.--Section 1905 of the Social Security Act (42
U.S.C. 1396d) is amended--
(A) in subsection (a)--
(i) by striking ``and'' at the end of paragraph (26);
(ii) by redesignating paragraph (27) as paragraph (28);
and
(iii) by inserting after paragraph (26), the following:
``(27) subject to subsection (x), primary and secondary medical
strategies and treatment and services for individuals who have
Sickle Cell Disease; and''; and
(B) by adding at the end the following:
``(x) For purposes of subsection (a)(27), the strategies,
treatment, and services described in that subsection include the
following:
``(1) Chronic blood transfusion (with deferoxamine chelation)
to prevent stroke in individuals with Sickle Cell Disease who have
been identified as being at high risk for stroke.
``(2) Genetic counseling and testing for individuals with
Sickle Cell Disease or the sickle cell trait to allow health care
professionals to treat such individuals and to prevent symptoms of
Sickle Cell Disease.
``(3) Other treatment and services to prevent individuals who
have Sickle Cell Disease and who have had a stroke from having
another stroke.''.
(2) Rule of construction.--Nothing in subsections (a)(27) or
(x) of section 1905 of the Social Security Act (42 U.S.C. 1396d),
as added by paragraph (1), shall be construed as implying that a
State medicaid program under title XIX of such Act could not have
treated, prior to the date of enactment of this Act, any of the
primary and secondary medical strategies and treatment and services
described in such subsections as medical assistance under such
program, including as early and periodic screening, diagnostic, and
treatment services under section 1905(r) of such Act.
(b) Federal Reimbursement for Education and Other Services Related
to the Prevention and Treatment of Sickle Cell Disease.--Section
1903(a)(3) of the Social Security Act (42 U.S.C. 1396b(a)(3)) is
amended--
(1) in subparagraph (D), by striking ``plus'' at the end and
inserting ``and''; and
(2) by adding at the end the following:
``(E) 50 percent of the sums expended with respect to costs
incurred during such quarter as are attributable to providing--
``(i) services to identify and educate individuals who
are likely to be eligible for medical assistance under this
title and who have Sickle Cell Disease or who are carriers
of the sickle cell gene, including education regarding how
to identify such individuals; or
``(ii) education regarding the risks of stroke and
other complications, as well as the prevention of stroke
and other complications, in individuals who are likely to
be eligible for medical assistance under this title and who
have Sickle Cell Disease; plus''.
(c) Demonstration Program for the Development and Establishment of
Systemic Mechanisms for the Prevention and Treatment of Sickle Cell
Disease.--
(1) Authority to conduct demonstration program.--
(A) In general.--The Administrator, through the Bureau of
Primary Health Care and the Maternal and Child Health Bureau,
shall conduct a demonstration program by making grants to up to
40 eligible entities for each fiscal year in which the program
is conducted under this section for the purpose of developing
and establishing systemic mechanisms to improve the prevention
and treatment of Sickle Cell Disease, including through--
(i) the coordination of service delivery for
individuals with Sickle Cell Disease;
(ii) genetic counseling and testing;
(iii) bundling of technical services related to the
prevention and treatment of Sickle Cell Disease;
(iv) training of health professionals; and
(v) identifying and establishing other efforts related
to the expansion and coordination of education, treatment,
and continuity of care programs for individuals with Sickle
Cell Disease.
(B) Grant award requirements.--
(i) Geographic diversity.--The Administrator shall, to
the extent practicable, award grants under this section to
eligible entities located in different regions of the
United States.
(ii) Priority.--In awarding grants under this
subsection, the Administrator shall give priority to
awarding grants to eligible entities that are--
(I) Federally-qualified health centers that have a
partnership or other arrangement with a comprehensive
Sickle Cell Disease treatment center that does not
receive funds from the National Institutes of Health;
or
(II) Federally-qualified health centers that intend
to develop a partnership or other arrangement with a
comprehensive Sickle Cell Disease treatment center that
does not receive funds from the National Institutes of
Health.
(2) Additional requirements.--An eligible entity awarded a
grant under this subsection shall use funds made available under
the grant to carry out, in addition to the activities described in
paragraph (1)(A), the following activities:
(A) To facilitate and coordinate the delivery of education,
treatment, and continuity of care for individuals with Sickle
Cell Disease under--
(i) the entity's collaborative agreement with a
community-based Sickle Cell Disease organization or a
nonprofit entity that works with individuals who have
Sickle Cell Disease;
(ii) the Sickle Cell Disease newborn screening program
for the State in which the entity is located; and
(iii) the maternal and child health program under title
V of the Social Security Act (42 U.S.C. 701 et seq.) for
the State in which the entity is located.
(B) To train nursing and other health staff who provide
care for individuals with Sickle Cell Disease.
(C) To enter into a partnership with adult or pediatric
hematologists in the region and other regional experts in
Sickle Cell Disease at tertiary and academic health centers and
State and county health offices.
(D) To identify and secure resources for ensuring
reimbursement under the medicaid program, State children's
health insurance program, and other health programs for the
prevention and treatment of Sickle Cell Disease.
(3) National coordinating center.--
(A) Establishment.--The Administrator shall enter into a
contract with an entity to serve as the National Coordinating
Center for the demonstration program conducted under this
subsection.
(B) Activities described.--The National Coordinating Center
shall--
(i) collect, coordinate, monitor, and distribute data,
best practices, and findings regarding the activities
funded under grants made to eligible entities under the
demonstration program;
(ii) develop a model protocol for eligible entities
with respect to the prevention and treatment of Sickle Cell
Disease;
(iii) develop educational materials regarding the
prevention and treatment of Sickle Cell Disease; and
(iv) prepare and submit to Congress a final report that
includes recommendations regarding the effectiveness of the
demonstration program conducted under this subsection and
such direct outcome measures as--
(I) the number and type of health care resources
utilized (such as emergency room visits, hospital
visits, length of stay, and physician visits for
individuals with Sickle Cell Disease); and
(II) the number of individuals that were tested and
subsequently received genetic counseling for the sickle
cell trait.
(4) Application.--An eligible entity desiring a grant under
this subsection shall submit an application to the Administrator at
such time, in such manner, and containing such information as the
Administrator may require.
(5) Definitions.--In this subsection:
(A) Administrator.--The term ``Administrator'' means the
Administrator of the Health Resources and Services
Administration.
(B) Eligible entity.--The term ``eligible entity'' means a
Federally-qualified health center, a nonprofit hospital or
clinic, or a university health center that provides primary
health care, that--
(i) has a collaborative agreement with a community-
based Sickle Cell Disease organization or a nonprofit
entity with experience in working with individuals who have
Sickle Cell Disease; and
(ii) demonstrates to the Administrator that either the
Federally-qualified health center, the nonprofit hospital
or clinic, the university health center, the organization
or entity described in clause (i), or the experts described
in paragraph (2)(C), has at least 5 years of experience in
working with individuals who have Sickle Cell Disease.
(C) Federally-qualified health center.--The term
``Federally-qualified health center'' has the meaning given
that term in section 1905(l)(2)(B) of the Social Security Act
(42 U.S.C. 1396d(l)(2)(B)).
(6) Authorization of appropriations.--There is authorized to be
appropriated to carry out this subsection, $10,000,000 for each of
fiscal years 2005 through 2009.
(d) Effective Date.--The amendments made by subsections (a) and (b)
take effect on the date of enactment of this Act and apply to medical
assistance and services provided under title XIX of the Social Security
Act (42 U.S.C. 1396 et seq.) on or after that date.
SEC. 713. 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
permanent 12/31/2006 ''.
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. 714. CERTAIN STEAM GENERATORS, AND CERTAIN REACTOR VESSEL HEADS
AND PRESSURIZERS, 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 and Pressurizers.--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
heads and 12/31/2008 ''.
pressurizers
for 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 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.
TITLE VIII--REVENUE PROVISIONS
Subtitle A--Provisions to Reduce Tax Avoidance Through Individual and
Corporate Expatriation
SEC. 801. 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.
``(3) Coordination with subsection (b).--Paragraph (1) shall
not apply to any entity which is treated as a domestic corporation
under subsection (b).
``(b) Inverted Corporations Treated as Domestic Corporations.--
Notwithstanding section 7701(a)(4), a foreign corporation shall be
treated for purposes of this title as a domestic corporation if such
corporation would be a surrogate foreign corporation if subsection
(a)(2) were applied by substituting `80 percent' for `60 percent'.
``(c) 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.
``(d) 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.
``(e) 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.
``(f) 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.
``(g) 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. 802. 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--
``(1) the rate of tax specified in section 1(h)(1)(C),
multiplied by
``(2) 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. 803. 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. 804. 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. 805. 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. 806. 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) Effectiveness of Corporate Expatriation Provisions.--The
Secretary of the Treasury or the Secretary's delegate shall conduct a
study of the effectiveness 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 effectiveness of such
provisions in carrying out the purposes of this title. Not later than
December 31, 2006, 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. 811. 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 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) Penalty Reported to SEC.--In the case of a person--
``(1) which is required to file periodic reports under section
13 or 15(d) of the Securities Exchange Act of 1934 or is required
to be consolidated with another person for purposes of such
reports, and
``(2) which--
``(A) is required to pay a penalty under this section with
respect to a listed transaction,
``(B) is required to pay a penalty under section 6662A with
respect to any reportable transaction at a rate prescribed
under section 6662A(c), or
``(C) is required to pay a penalty under section 6662(h)
with respect to any reportable transaction and would (but for
section 6662A(e)(2)(C)) have been subject to penalty under
section 6662A at a rate prescribed under section 6662A(c),
the requirement to pay such penalty shall be disclosed in such reports
filed by such person for such periods as the Secretary shall specify.
Failure to make a disclosure in accordance with the preceding sentence
shall be treated as a failure to which the penalty under subsection
(b)(2) applies.
``(f) Coordination With Other Penalties.--The penalty imposed by
this section 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. 812. 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 Listed and Other Avoidance
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.
``(C) Coordination with valuation penalties.--
``(i) Section 6662(e).--Section 6662(e) shall not apply
to any portion of an understatement on which a penalty is
imposed under this section.
``(ii) Section 6662(h).--This section shall not apply
to any portion of an understatement on which a penalty is
imposed under section 6662(h).
``(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) Clerical Amendments.--
(1) The heading for section 6662 is amended to read as follows:
``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERPAYMENTS.''.
(2) 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. 813. 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. 814. 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. 815. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) In General.--Section 6111 (relating to registration of tax
shelters) is amended to read as follows:
``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
``(a) In General.--Each material advisor with respect to any
reportable transaction shall make a return (in such form as the
Secretary may prescribe) setting forth--
``(1) information identifying and describing the transaction,
``(2) information describing any potential tax benefits
expected to result from the transaction, and
``(3) such other information as the Secretary may prescribe.
Such return shall be filed not later than the date specified by the
Secretary.
``(b) Definitions.--For purposes of this section:
``(1) Material advisor.--
``(A) In general.--The term `material advisor' means any
person--
``(i) who provides any material aid, assistance, or
advice with respect to organizing, managing, promoting,
selling, implementing, insuring, or carrying out any
reportable transaction, and
``(ii) who directly or indirectly derives gross income
in excess of the threshold amount (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. 816. 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. 817. 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. 818. 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. 819. 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) Secretarial List.--
(1) In general.--Section 6662(d) is amended by adding at the
end the following new paragraph:
``(3) Secretarial list.--The Secretary may prescribe a list of
positions which the Secretary believes do not meet the 1 or more of
the standards specified in paragraph (2)(B)(i), section 6664(d)(2),
and section 6694(a)(1). Such list (and any revisions thereof) shall
be published in the Federal Register or the Internal Revenue
Bulletin.''.
(2) Conforming amendment.--Paragraph (2) of section 6662(d) is
amended by striking subparagraph (D).
(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. 820. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.
(a) In General.--Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by redesignating
subsection (c) as subsection (d) and by striking subsections (a) and
(b) and inserting the following new subsections:
``(a) Authority To Seek Injunction.--A civil action in the name of
the United States to enjoin any person from further engaging in
specified conduct may be commenced at the request of the Secretary. Any
action under this section shall be brought in the district court of the
United States for the district in which such person resides, has his
principal place of business, or has engaged in specified conduct. The
court may exercise its jurisdiction over such action (as provided in
section 7402(a)) separate and apart from any other action brought by
the United States against such person.
``(b) Adjudication and Decree.--In any action under subsection (a),
if the court finds--
``(1) that the person has engaged in any specified conduct, and
``(2) that injunctive relief is appropriate to prevent
recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in
any other activity subject to penalty under this title.
``(c) Specified Conduct.--For purposes of this section, the term
`specified conduct' means any action, or failure to take action, which
is--
``(1) subject to penalty under section 6700, 6701, 6707, or
6708, or
``(2) in violation of any requirement under regulations issued
under section 330 of title 31, United States Code.''.
(b) Conforming Amendments.--(1) The heading for section 7408 is
amended to read as follows:
``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX
SHELTERS AND REPORTABLE TRANSACTIONS.''.
(2) The table of sections for subchapter A of chapter 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. 821. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL
ACCOUNTS.
(a) In General.--Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
``(5) Foreign financial agency transaction violation.--
``(A) Penalty authorized.--The Secretary of the Treasury
may impose a civil money penalty on any person who violates, or
causes any violation of, any provision of section 5314.
``(B) Amount of penalty.--
``(i) In general.--Except as provided in subparagraph
(C), the amount of any civil penalty imposed under
subparagraph (A) shall not exceed $10,000.
``(ii) Reasonable cause exception.--No penalty shall be
imposed under subparagraph (A) with respect to any
violation if--
``(I) such violation was due to reasonable cause,
and
``(II) the amount of the transaction or the balance
in the account at the time of the transaction was
properly reported.
``(C) Willful violations.--In the case of any person
willfully violating, or willfully causing any violation of, any
provision of section 5314--
``(i) the maximum penalty under subparagraph (B)(i)
shall be increased to the greater of--
``(I) $100,000, or
``(II) 50 percent of the amount determined under
subparagraph (D), and
``(ii) subparagraph (B)(ii) shall not apply.
``(D) Amount.--The amount determined under this
subparagraph is--
``(i) in the case of a violation involving a
transaction, the amount of the transaction, or
``(ii) in the case of a violation involving a failure
to report the existence of an account or any identifying
information required to be provided with respect to an
account, the balance in the account at the time of the
violation.''.
(b) Effective Date.--The amendment made by this section shall apply
to violations occurring after the date of the enactment of this Act.
SEC. 822. 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 and may be in addition to, or in lieu of,
any suspension, disbarment, or censure of the representative.''.
(2) Effective date.--The amendments made by this subsection
shall apply to actions taken after the date of the enactment of
this Act.
(b) Tax Shelter Opinions, Etc.--Section 330 of such title 31 is
amended by adding at the end the following new subsection:
``(d) Nothing in this section or in any other provision of law
shall be construed to limit the authority of the Secretary of the
Treasury to impose standards applicable to the rendering of written
advice with respect to any entity, transaction plan or arrangement, or
other plan or arrangement, which is of a type which the Secretary
determines as having a potential for tax avoidance or evasion.''.
Part II--Other Provisions
SEC. 831. 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. 832. 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 31-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. 833. 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 after
subsection (d) 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
before the date which is 24 months after 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) Special rule for securitization partnerships.--Section 743
is amended by adding after subsection (e) the following new
subsection:
``(f) Exception for Securitization Partnerships.--
``(1) No adjustment of partnership basis.--For purposes of this
section, a securitization partnership shall not be treated as
having a substantial built-in loss with respect to any transfer.
``(2) Securitization partnership.--For purposes of paragraph
(1), the term `securitization partnership' means any partnership
the sole business activity of which is to issue securities which
provide for a fixed principal (or similar) amount and which are
primarily serviced by the cash flows of a discrete pool (either
fixed or revolving) of receivables or other financial assets that
by their terms convert into cash in a finite period, but only if
the sponsor of the pool reasonably believes that the receivables
and other financial assets comprising the pool are not acquired so
as to be disposed of.''.
(6) 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 the
following: ``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) Exception for securitization partnerships.--Section 734 is
amended by inserting after subsection (d) the following new
subsection:
``(e) Exception for Securitization Partnerships.--For purposes of
this section, a securitization partnership (as defined in section
743(f)) shall not be treated as having a substantial basis reduction
with respect to any distribution of property to a partner.''.
(5) 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. 834. 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. 835. 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. 836. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN LOSSES.
(a) In General.--Section 362 (relating to basis to corporations) is
amended by adding at the end the following new subsection:
``(e) Limitations on Built-In Losses.--
``(1) Limitation on importation of built-in losses.--
``(A) In general.--If in any transaction described in
subsection (a) or (b) there would (but for this subsection) be
an importation of a net built-in loss, the basis of each
property described in subparagraph (B) which is acquired in
such transaction shall (notwithstanding subsections (a) and
(b)) be its fair market value immediately after such
transaction.
``(B) Property described.--For purposes of subparagraph
(A), property is described in this subparagraph if--
``(i) gain or loss with respect to such property is not
subject to tax under this subtitle in the hands of the
transferor immediately before the transfer, and
``(ii) gain or loss with respect to such property is
subject to such tax in the hands of the transferee
immediately after such transfer.
In any case in which the transferor is a partnership, the
preceding sentence shall be applied by treating each partner in
such partnership as holding such partner's proportionate share
of the property of such partnership.
``(C) Importation of net built-in loss.--For purposes of
subparagraph (A), there is an importation of a net built-in
loss in a transaction if the transferee's aggregate adjusted
bases of property described in subparagraph (B) which is
transferred in such transaction would (but for this paragraph)
exceed the fair market value of such property immediately after
such transaction.
``(2) Limitation on transfer of built-in losses in section 351
transactions.--
``(A) In general.--If--
``(i) property is transferred by a transferor in any
transaction which is described in subsection (a) and which
is not described in paragraph (1) of this subsection, and
``(ii) the transferee's aggregate adjusted bases of
such property so transferred would (but for this paragraph)
exceed the fair market value of such property immediately
after such transaction,
then, notwithstanding subsection (a), the transferee's
aggregate adjusted bases of the property so transferred shall
not exceed the fair market value of such property immediately
after such transaction.
``(B) Allocation of basis reduction.--The aggregate
reduction in basis by reason of subparagraph (A) shall be
allocated among the property so transferred in proportion to
their respective built-in losses immediately before the
transaction.
``(C) Election to apply limitation to transferor's stock
basis.--
``(i) In general.--If the transferor and transferee of
a transaction described in subparagraph (A) both elect the
application of this subparagraph--
``(I) subparagraph (A) shall not apply, and
``(II) the transferor's basis in the stock received
for property to which subparagraph (A) does not apply
by reason of the election shall not exceed its fair
market value immediately after the transfer.
``(ii) Election.--An election under clause (i) shall be
included with the return of tax for the taxable year in
which the transaction occurred, shall be in such form and
manner as the Secretary may prescribe, and, once made,
shall be irrevocable.''.
(b) Comparable Treatment Where Liquidation.--Paragraph (1) of
section 334(b) (relating to liquidation of subsidiary) is amended to
read as follows:
``(1) In general.--If property is received by a corporate
distributee in a distribution in a complete liquidation to which
section 332 applies (or in a transfer described in section
337(b)(1)), the basis of such property in the hands of such
distributee shall be the same as it would be in the hands of the
transferor; except that the basis of such property in the hands of
such distributee shall be the fair market value of the property at
the time of the distribution--
``(A) in any case in which gain or loss is recognized by
the liquidating corporation with respect to such property, or
``(B) in any case in which the liquidating corporation is a
foreign corporation, the corporate distributee is a domestic
corporation, and the corporate distributee's aggregate adjusted
bases of property described in section 362(e)(1)(B) which is
distributed in such liquidation would (but for this
subparagraph) exceed the fair market value of such property
immediately after such liquidation.''.
(c) Effective Dates.--
(1) In general.--The amendment made by subsection (a) shall
apply to transactions after the date of the enactment of this Act.
(2) Liquidations.--The amendment made by subsection (b) shall
apply to liquidations after the date of the enactment of this Act.
SEC. 837. 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--
``(i) any bank (as defined by section 2(c) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(c)), without
regard to subparagraphs (C) and (G) of paragraph (2) of
such section), or
``(ii) any corporation not described in clause (i) with
respect to which a bank holding company (as defined by
section 2(a) of such Act) or financial holding company (as
defined by section 2(p) of such Act) owns directly or
indirectly more than 80 percent by vote or value of the
stock of such corporation;''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 838. 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. 839. 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. 840. 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. 841. 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 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
is includible (determined without regard to properly
allocable deductions and qualified deficits under section
952(c)(1)(B)) 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 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 is includible (determined without regard to
properly allocable deductions and qualified deficits under
section 952(c)(1)(B)) 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. 842. 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), except as provided in paragraph (4), 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 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. 843. 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. 844. 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.
SEC. 845. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON
CONVERTIBLE DEBT.
(a) In General.--Paragraph (2) of section 163(l) is amended by
inserting ``or equity held by the issuer (or any related party) in any
other person'' after ``or a related party''.
(b) Capitalization Allowed With Respect to Equity of Persons Other
Than Issuer and Related Parties.--Section 163(l) is amended by
redesignating paragraphs (4) and (5) as paragraphs (5) and (6) and by
inserting after paragraph (3) the following new paragraph:
``(4) Capitalization allowed with respect to equity of persons
other than issuer and related parties.--If the disqualified debt
instrument of a corporation is payable in equity held by the issuer
(or any related party) in any other person (other than a related
party), the basis of such equity shall be increased by the amount
not allowed as a deduction by reason of paragraph (1) with respect
to the instrument.''.
(c) Exception for Certain Instruments Issued by Dealers in
Securities.--Section 163(l), as amended by subsection (b), is amended
by redesignating paragraphs (5) and (6) as paragraphs (6) and (7) and
by inserting after paragraph (4) the following new paragraph:
``(5) Exception for certain instruments issued by dealers in
securities.--For purposes of this subsection, the term
`disqualified debt instrument' does not include indebtedness issued
by a dealer in securities (or a related party) which is payable in,
or by reference to, equity (other than equity of the issuer or a
related party) held by such dealer in its capacity as a dealer in
securities. For purposes of this paragraph, the term `dealer in
securities' has the meaning given such term by section 475.''.
(d) Conforming Amendment.--Paragraph (3) of section 163(l) is
amended by striking ``or a related party'' in the material preceding
subparagraph (A) and inserting ``or any other person''.
(e) Effective Date.--The amendments made by this section shall
apply to debt instruments issued after October 3, 2004.
Part III--Leasing
SEC. 847. 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 and Amortization Periods for
Intangibles Leased to Tax-Exempt Entity.--
(1) Computer software.--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)).''.
(2) Certain interests or rights acquired separately.--Paragraph
(2) of section 167(f) is amended by adding at the end the following
new sentence: ``If such property would be tax-exempt use property
as defined in subsection (h) of section 168 if such section applied
to such property, the useful life under such regulations shall not
be less than 125 percent of the lease term (within the meaning of
section 168(i)(3)).''.
(3) Section 197 intangibles.--Section 197(f) (relating to
special rules) is amended by adding at the end the following new
paragraph:
``(10) Tax-exempt use property subject to lease.--In the case
of any section 197 intangible which would be tax-exempt use
property as defined in subsection (h) of section 168 if such
section applied to such intangible, the amortization period under
this section 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.''.
(e) Treatment of Certain Indian Tribal Governments As Tax-Exempt
Entities.--Section 168(h)(2)(A) 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 inserting at the end the following:
``(iv) any Indian tribal government described in
section 7701(a)(40).
For purposes of applying this subsection, any Indian tribal
government referred to in clause (iv) shall be treated in the
same manner as a State.''.
SEC. 848. 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),
except that such section shall be applied--
``(A) without regard to paragraphs (1)(C) and (3) thereof,
and
``(B) as if property described in--
``(i) section 167(f)(1)(B),
``(ii) section 167(f)(2), and
``(iii) section 197 intangible,
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.--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.
``(4) Property with more than 7-year class life.--In the case
of a lease--
``(A) of property with a class life (as defined in section
168(i)(1)) of more than 7 years, other than fixed-wing aircraft
and vessels, and
``(B) under which the lessee has the option to purchase the
property,
the lease meets the requirements of this paragraph only if the
purchase price under the option equals the fair market value of the
property (determined at the time of exercise).
``(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 purposes 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. 849. 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, 2006, 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
section 848, shall apply to property exchanged or converted after
the date of the enactment of this Act.
(4) Intangibles and indian tribal governments.--The amendments
made subsections (b)(2), (b)(3), and (e) of section 847, and the
treatment of property described in clauses (ii) and (iii) of
section 470(c)(2)(B) of the Internal Revenue Code of 1986 (as added
by section 848) as tangible property, shall apply to leases entered
into after October 3, 2004.
Subtitle C--Reduction of Fuel Tax Evasion
SEC. 851. 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. This clause shall be applied
without regard to use of the vehicle by any organization
which is described in section 501(c) and exempt from tax
under section 501(a).''.
(2) No tax-free sales.--Subsection (b) of section 4082 is
amended by inserting before the period at the end the following:
``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. 852. MODIFICATION OF DEFINITION OF OFF-HIGHWAY VEHICLE.
(a) In General.--Section 7701(a) (relating to definitions) is
amended by adding at the end the following new paragraph:
``(48) Off-highway vehicles.--
``(A) Off-highway transportation vehicles.--
``(i) In general.--A vehicle shall not be treated as a
highway vehicle if such vehicle is specially designed for
the primary function of transporting a particular type of
load other than over the public highway and because of this
special design such vehicle's capability to transport a
load over the public highway is substantially limited or
impaired.
``(ii) Determination of vehicle's design.--For purposes
of clause (i), a vehicle's design is determined solely on
the basis of its physical characteristics.
``(iii) Determination of substantial limitation or
impairment.--For purposes of clause (i), in determining
whether substantial limitation or impairment exists,
account may be taken of factors such as the size of the
vehicle, whether such vehicle is subject to the licensing,
safety, and other requirements applicable to highway
vehicles, and whether such vehicle can transport a load at
a sustained speed of at least 25 miles per hour. It is
immaterial that a vehicle can transport a greater load off
the public highway than such vehicle is permitted to
transport over the public highway.
``(B) Nontransportation trailers and semitrailers.--A
trailer or semitrailer shall not be treated as a highway
vehicle if it is specially designed to function only as an
enclosed stationary shelter for the carrying on of an off-
highway function at an off-highway site.''.
(c) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendment made by this section shall take effect on the date of the
enactment of this Act.
(2) Fuel taxes.--With respect to taxes imposed under subchapter
B of chapter 31 and part III of subchapter A of chapter 32, the
amendment made by this section shall apply to taxable periods
beginning after the date of the enactment of this Act.
SEC. 853. 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.--
(A) In general.--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.--For purposes of paragraph (2)(C), a
refueler truck, tanker, or tank wagon shall be treated as part
of a terminal if--
``(i) such terminal is located within a secured area of
an airport,
``(ii) any aviation-grade kerosene which is loaded in
such truck, tanker, or wagon at such terminal is for
delivery only into aircraft at the airport in which such
terminal is located,
``(iii) such truck, tanker, or wagon meets the
requirements of subparagraph (B) with respect to such
terminal, and
``(iv) 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 a terminal if such truck, tanker, or wagon--
``(i) has storage tanks, hose, and coupling equipment
designed and used for the purposes of fueling aircraft,
``(ii) is not registered for highway use, and
``(iii) 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)(iii)(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.''.
(B) List of airports with secured terminals.--Not later
than December 15, 2004, the Secretary of the Treasury shall
publish and maintain a list of airports which include a secured
area in which a terminal is located (within the meaning of
section 4081(a)(3)(A)(i) of the Internal Revenue Code of 1986,
as added by this paragraph).
(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 applicable under section 4081(a)(2)(A)(iv)
which is in effect at the time of such sale or use.''.
(B) Section 4041(d)(2) is amended by striking ``section
4091'' and inserting ``section 4081''.
(C) Section 4041 is amended by striking subsection (e).
(D) Section 4041 is amended by striking subsection (i).
(E) Section 4041(m)(1) is amended to read as follows:
``(1) In general.--In the case of the sale or use of any
partially exempt methanol or ethanol fuel the rate of the tax
imposed by subsection (a)(2) shall be--
``(A) after September 30, 1997, and before October 1,
2005--
``(i) in the case of fuel none of the alcohol in which
consists of ethanol, 9.15 cents per gallon, and
``(ii) in any other case, 11.3 cents per gallon, and
``(B) after September 30, 2005--
``(i) in the case of fuel none of the alcohol in which
consists of ethanol, 2.15 cents per gallon, and
``(ii) in any other case, 4.3 cents per gallon.''.
(F) Sections 4101(a), 4103, 4221(a), and 6206 are each
amended by striking ``, 4081, or 4091'' and inserting ``or
4081''.
(G) Section 6416(b)(2) is amended by striking ``4091 or''.
(H) Section 6416(b)(3) is amended by striking ``or 4091''
each place it appears.
(I) Section 6416(d) is amended by striking ``or to the tax
imposed by section 4091 in the case of refunds described in
section 4091(d)''.
(J) Section 6427(j)(1) is amended by striking ``, 4081, and
4091'' and inserting ``and 4081''.
(K)(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)''.
(L) Subparagraph (B) of section 6724(d)(1), as amended by
section 805, is amended by striking clause (xvi) and by
redesignating the succeeding clauses accordingly.
(M) Paragraph (2) of section 6724(d), as amended by section
805, is amended by striking subparagraph (X) and by
redesignating the succeeding subparagraphs accordingly.
(N) 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''.
(O) 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).''.
(P) Subsection (b) of section 9508 is amended by striking
paragraph (3) and by redesignating paragraphs (4) and (5) as
paragraphs (3) and (4), respectively.
(Q) Section 9508(c)(2)(A) is amended by striking ``sections
4081 and 4091'' and inserting ``section 4081''.
(R) 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.''.
(S) 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''.
(T) 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
December 31, 2004.
(f) Floor Stocks Tax.--
(1) In general.--There is hereby imposed on aviation-grade
kerosene held on January 1, 2005, 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 sum of--
(i) the tax imposed before such date on such kerosene
under section 4091 of the Internal Revenue Code of 1986, as
in effect on such date, and
(ii) in the case of kerosene held exclusively for such
person's own use, the amount which such person would (but
for this clause) reasonably expect (as of such date) to be
paid as a refund under section 6427(l) of such Code with
respect to such kerosene.
(2) Exception for fuel held in aircraft fuel tank.--Paragraph
(1) shall not apply to kerosene held in the fuel tank of an
aircraft on January 1, 2005.
(3) Liability for tax and method of payment.--
(A) Liability for tax.--The person holding the kerosene on
January 1, 2005, 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.
(4) 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) in any case in which tax was not imposed by section
4091 of such Code, 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) of such
Code to the extent of the remainder.
(5) Held by a person.--For purposes of this subsection,
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).
(6) 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. 854. 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. 855. ELIMINATION OF ADMINISTRATIVE REVIEW FOR TAXABLE USE OF DYED
FUEL.
(a) In General.--Section 6715 is amended by inserting at the end
the following new subsection:
``(e) No Administrative Appeal for Third and Subsequent
Violations.--In the case of any person who is found to be subject to
the penalty under this section after a chemical analysis of such fuel
and who has been penalized under this section at least twice after the
date of the enactment of this subsection, no administrative appeal or
review shall be allowed with respect to such finding except in the case
of a claim regarding--
``(1) fraud or mistake in the chemical analysis, or
``(2) mathematical calculation of the amount of the penalty.''.
(b) Effective Date.--The amendment made by this section shall apply
to penalties assessed after the date of the enactment of this Act.
SEC. 856. PENALTY ON UNTAXED CHEMICALLY ALTERED DYED FUEL MIXTURES.
(a) In General.--Section 6715(a) (relating to dyed fuel sold for
use or used in taxable use, etc.) is amended by striking ``or'' in
paragraph (2), by inserting ``or'' at the end of paragraph (3), and by
inserting after paragraph (3) the following new paragraph:
``(4) any person who has knowledge that a dyed fuel which has
been altered as described in paragraph (3) sells or holds for sale
such fuel for any use which the person knows or has reason to know
is not a nontaxable use of such fuel,''.
(b) Conforming Amendment.--Section 6715(a)(3) is amended by
striking ``alters, or attempts to alter,'' and inserting ``alters,
chemically or otherwise, or attempts to so alter,''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 857. TERMINATION OF DYED DIESEL USE BY INTERCITY BUSES.
(a) In General.--Paragraph (3) of section 4082(b) (relating to
nontaxable use) is amended to read as follows:
``(3) any use described in section 4041(a)(1)(C)(iii)(II).''.
(b) Ultimate Vendor Refund.--Subsection (b) of section 6427 is
amended by adding at the end the following new paragraph:
``(4) Refunds for use of diesel fuel in certain intercity
buses.--With respect to any fuel to which paragraph (2)(A) applies,
if the ultimate purchaser of such fuel waives (at such time and in
such form and manner as the Secretary shall prescribe) the right to
payment under paragraph (1) and assigns such right to the ultimate
vendor, then the Secretary shall pay the amount which would be paid
under paragraph (1) to such ultimate vendor, but only if such
ultimate vendor--
``(A) is registered under section 4101, and
``(B) meets the requirements of subparagraph (A), (B), or
(D) of section 6416(a)(1).''.
(c) Payment of Refunds.--Subparagraph (A) of section 6427(i)(4), as
amended by this Act, is amended by inserting ``subsections (b)(4) and''
after ``filed under''.
(d) Effective Date.--The amendments made by this section shall
apply to fuel sold after December 31, 2004.
SEC. 858. AUTHORITY TO INSPECT ON-SITE RECORDS.
(a) In General.--Section 4083(d)(1)(A) (relating to administrative
authority), as amended by this Act, is amended by striking ``and'' at
the end of clause (i) and by inserting after clause (ii) the following
new clause:
``(iii) inspecting any books and records and any
shipping papers pertaining to such fuel, and''.
(b) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 859. ASSESSABLE PENALTY FOR REFUSAL OF ENTRY.
(a) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties), as amended by this Act, is amended by inserting
after section 6716 the following new section:
``SEC. 6717. REFUSAL OF ENTRY.
``(a) In General.--In addition to any other penalty provided by
law, any person who refuses to admit entry or refuses to permit any
other action by the Secretary authorized by section 4083(d)(1) shall
pay a penalty of $1,000 for such refusal.
``(b) Joint and Several Liability.--
``(1) In general.--If a penalty is imposed under this section
on any business entity, each officer, employee, or agent of such
entity or other contracting party who willfully participated in any
act giving rise to such penalty shall be jointly and severally
liable with such entity for such penalty.
``(2) Affiliated groups.--If a business entity described in
paragraph (1) is part of an affiliated group (as defined in section
1504(a)), the parent corporation of such entity shall be jointly
and severally liable with such entity for the penalty imposed under
this section.
``(c) Reasonable Cause Exception.--No penalty shall be imposed
under this section with respect to any failure if it is shown that such
failure is due to reasonable cause.''.
(b) Conforming Amendments.--(1) Section 4083(d)(3), as amended by
this Act, is amended--
(A) by striking ``entry.--The penalty'' and inserting:
``entry.--
``(A) Forfeiture.--The penalty'', and
(B) by adding at the end the following new subparagraph:
``(B) Assessable penalty.--For additional assessable
penalty for the refusal to admit entry or other refusal to
permit an action by the Secretary authorized by paragraph (1),
see section 6717.''.
(2) The table of sections for part I of subchapter B of chapter 68,
as amended by this Act, is amended by inserting after the item relating
to section 6716 the following new item:
``Sec. 6717. Refusal of entry.''.
(c) Effective Date.--The amendments made by this section shall take
effect on January 1, 2005.
SEC. 860. 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 March 1, 2005.
(c) Publication of Registered Persons.--Beginning on January 1,
2005, the Secretary of the Treasury (or the Secretary's delegate) shall
periodically publish under section 6103(k)(7) of the Internal Revenue
Code of 1986 a current list of persons registered under section 4101 of
such Code who are required to register under such section.
SEC. 861. 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 identification device
prescribed by the Secretary on each vessel used by such operator to
transport any taxable fuel.''.
(b) Civil Penalty for Failure To Display Registration.--
(1) In general.--Part I of subchapter B of chapter 68 (relating
to assessable penalties), as amended by this Act, is amended by
inserting after section 6717 the following new section:
``SEC. 6718. 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, as amended by this Act, is amended by
inserting after the item relating to section 6717 the following new
item:
``Sec. 6718. Failure to display tax registration on vessels.''.
(c) Effective Dates.--
(1) Subsection (a).--The amendments made by subsection (a)
shall take effect on January 1, 2005.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to penalties imposed after December 31, 2004.
SEC. 862. REGISTRATION OF PERSONS WITHIN FOREIGN TRADE ZONES, ETC.
(a) In General.--Section 4101(a), as amended by this Act, is
amended by redesignating paragraph (2) as paragraph (3), and by
inserting after paragraph (1) the following new paragraph:
``(2) Registration of persons within foreign trade zones,
etc.--The Secretary shall require registration by any person
which--
``(A) operates a terminal or refinery within a foreign
trade zone or within a customs bonded storage facility, or
``(B) holds an inventory position with respect to a taxable
fuel in such a terminal.''.
(b) Technical Amendment.--Section 6718(a), as added by this Act, is
amended by striking ``section 4101(a)(2)'' and inserting ``section
4101(a)(3)''.
(c) Effective Date.--The amendments made by this section shall take
effect on January 1, 2005.
SEC. 863. PENALTIES FOR FAILURE TO REGISTER AND FAILURE TO REPORT.
(a) Increased Penalty.--Subsection (a) of section 7272 (relating to
penalty for failure to register) is amended by inserting ``($10,000 in
the case of a failure to register under section 4101)'' after ``$50''.
(b) Increased Criminal Penalty.--Section 7232 (relating to failure
to register under section 4101, false representations of registration
status, etc.) is amended by striking ``$5,000'' and inserting
``$10,000''.
(c) Assessable Penalty for Failure to Register.--
(1) In general.--Part I of subchapter B of chapter 68 (relating
to assessable penalties), as amended by this Act, is amended by
inserting after section 6718 at the end the following new section:
``SEC. 6719. FAILURE TO REGISTER.
``(a) Failure to Register.--Every person who is required to
register under section 4101 and fails to do so shall pay a penalty in
addition to the tax (if any).
``(b) Amount of Penalty.--The amount of the penalty under
subsection (a) shall be--
``(1) $10,000 for each initial failure to register, and
``(2) $1,000 for each day thereafter such person fails to
register.
``(c) Reasonable Cause Exception.--No penalty shall be imposed
under this section with respect to any failure if it is shown that such
failure is due to reasonable cause.''.
(2) Clerical amendment.--The table of sections for part I of
subchapter B of chapter 68, as amended by this Act, is amended by
inserting after the item relating to section 6718 the following new
item:
``Sec. 6719. 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 December 31, 2004.
SEC. 864. ELECTRONIC FILING OF REQUIRED INFORMATION REPORTS.
(a) In General.--Section 4101(d) is amended by adding at the end
the following new flush sentence:
``Any person who is required to report under this subsection and who
has 25 or more reportable transactions in a month shall file such
report in electronic format.''.
(b) Effective Date.--The amendment made by this section shall apply
on January 1, 2006.
SEC. 865. 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.
``(B) Timing of claims.--The procedure and timing of any
claim under subparagraph (A) shall be the same as for claims
under section 6427(i)(4), except that the rules of section
6427(i)(3)(B) regarding electronic claims shall not apply
unless the ultimate vendor has certified to the Secretary for
the most recent quarter of the taxable year that all ultimate
purchasers of the vendor are certified and entitled to a refund
under subparagraph (C) or (D) of subsection (b)(2).''.
(b) Effective Date.--The amendments made by this section shall take
effect on January 1, 2005.
SEC. 866. TWO-PARTY EXCHANGES.
(a) In General.--Subpart C of part III of subchapter A of chapter
32, as amended by this Act, is amended by inserting 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 to a receiving person who is so registered where all of
the following occur:
``(1) The transaction includes a transfer from the delivering
person, who holds the inventory position for taxable fuel in the
terminal as reflected in the records of the terminal operator.
``(2) The exchange transaction occurs before or contemporaneous
with completion of removal across the rack from the terminal by the
receiving person.
``(3) The terminal operator in its books and records treats the
receiving person as the person that removes the product across the
terminal rack for purposes of reporting the transaction to the
Secretary.
``(4) The transaction is the subject of a written contract.''.
(b) Conforming Amendment.--The table of sections for subpart C of
part III of subchapter A of chapter 32, as amended by this Act, is
amended by adding after the last item 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. 867. 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. 868. 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, 6719, 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 on or after the date of the enactment of
this Act.
SEC. 869. 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 9.45 cents (4.725 cents in the case of a biasply
tire or super single tire) for each 10 pounds so much of the maximum
rated load capacity thereof as exceeds 3,500 pounds.''.
(b) Biasply and Super Single Tires.--Section 4072 is amended by
adding at the end the following new subsections:
``(c) Biasply.--For purposes of this part, the term `biasply tire'
means a pneumatic tire on which the ply cords that extend to the beads
are laid at alternate angles substantially less than 90 degrees to the
centerline of the tread.
``(d) Super single tire.--For purposes of this part, the term
`super single tire' means a single tire greater than 13 inches in cross
section width designed to replace 2 tires in a dual fitment.''.
(b) Taxable Tire.--Section 4072, as amended by subsection (a), is
amended by redesignating subsections (a), (b), (c), and (d) as
subsections (b), (c), (d), and (e) 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.
SEC. 870. TRANSMIX AND DIESEL FUEL BLEND STOCKS TREATED AS TAXABLE
FUEL.
(a) In General.--Paragraph (3) of section 4083(a) is amended to
read as follows:
``(3) Diesel fuel.--
``(A) In general.--The term `diesel fuel' means--
``(i) any liquid (other than gasoline) which is
suitable for use as a fuel in a diesel-powered highway
vehicle, or a diesel-powered train,
``(ii) transmix, and
``(iii) diesel fuel blend stocks identified by the
Secretary.
``(B) Transmix.--For purposes of subparagraph (A), the term
`transmix' means a byproduct of refined products pipeline
operations created by the mixing of different specification
products during pipeline transportation.''.
(b) Conforming Amendment.--Subsection (h) of section 6427 is
amended to read as follows:
``(h) Blend Stocks Not Used for Producing Taxable Fuel.--
``(1) Gasoline blend stocks or additives not used for producing
gasoline.--Except as provided in subsection (k), if any gasoline
blend stock or additive (within the meaning of section 4083(a)(2))
is not used by any person to produce gasoline and such person
establishes that the ultimate use of such gasoline blend stock or
additive is not to produce gasoline, the Secretary shall pay
(without interest) to such person an amount equal to the aggregate
amount of the tax imposed on such person with respect to such
gasoline blend stock or additive.
``(2) Diesel fuel blend stocks or additives not used for
producing diesel.--Except as provided in subsection (k), if any
diesel fuel blend stock is not used by any person to produce diesel
fuel and such person establishes that the ultimate use of such
diesel fuel blend stock is not to produce diesel fuel, the
Secretary shall pay (without interest) to such person an amount
equal to the aggregate amount of the tax imposed on such person
with respect to such diesel fuel blend stock.''.
(c) Effective Date.--The amendment made by this section shall apply
to fuel removed, sold, or used after December 31, 2004.
SEC. 871. STUDY REGARDING FUEL TAX COMPLIANCE.
(a) In General.--Not later than January 31, 2005, the Secretary of
the Treasury shall submit to the Committee on Finance of the Senate and
the Committee on Ways and Means of the House of Representatives a
report regarding compliance with the tax imposed under subchapter B of
chapter 31 and part III of subchapter A of chapter 32 of the Internal
Revenue Code of 1986. Such report shall include the information,
analysis, and recommendations specified in subsections (b), (c), and
(d).
(b) Taxable Fuel Blendstocks.--The Secretary shall identify
chemical products to be added to the list of blendstocks from lab
analysis of fuel samples collected by the Internal Revenue Service
which have been blended with taxable fuel but are not treated as
blendstocks. The Secretary shall include statistics regarding the
frequency in which a chemical product has been collected, and whether
the sample contained an above normal concentration of the chemical
product.
(c) Waste Products Added to Taxable Fuels.--The report shall
include a discussion of Internal Revenue Service findings regarding the
addition of waste products to taxable fuel and any recommendations to
address the taxation of such products.
(d) Erroneous Claims of Fuel Tax Exemptions.--The report shall
include a discussion of Internal Revenue Service findings regarding
sales of taxable fuel to entities claiming exempt status as a State or
local government and the frequency of erroneous certifications of tax
exempt status. The Secretary, in consultation with representatives of
State and local governments, shall provide recommendations to address
such erroneous claims, including recommendations on the feasibility of
a State maintained list of exempt governmental entities within the
State.
Subtitle D--Other Revenue Provisions
SEC. 881. 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--
``(1) an amount not in excess of 25 percent of the amount
collected under any qualified tax collection contract for the costs
of services performed under such contract, and
``(2) an amount not in excess of 25 percent of such amount
collected for collection enforcement activities of the Internal
Revenue Service.
The Secretary shall keep adequate records regarding amounts so retained
and used. The amount credited as paid by any taxpayer shall be
determined without regard to this subsection.
``(d) No Federal Liability.--The United States shall not be liable
for any act or omission of any person performing services under a
qualified tax collection contract.
``(e) Application of Fair Debt Collection Practices Act.--The
provisions of the Fair Debt Collection Practices Act (15 U.S.C. 1692 et
seq.) shall apply to any qualified tax collection contract, except to
the extent superseded by section 6304, section 7602(c), or by any other
provision of this title.
``(f) 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(g).''.
(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) Biennial Report.--The Secretary of the Treasury shall
biennially submit (beginning in 2005) to the Committee on Finance of
the Senate and the Committee on Ways and Means of the House of
Representatives a report with respect to qualified tax collection
contracts under section 6306 of the Internal Revenue Code of 1986 (as
added by this section) which includes--
(1) a complete cost benefit analysis,
(2) the impact of such contracts on collection enforcement
staff levels in the Internal Revenue Service,
(3) the impact of such contracts on the total number and amount
of unpaid assessments, and on the number and amount of assessments
collected by Internal Revenue Service personnel after initial
contact by a contractor,
(4) the amounts collected and the collection costs incurred
(directly and indirectly) by the Internal Revenue Service,
(5) an evaluation of contractor performance,
(6) a disclosure safeguard report in a form similar to that
required under section 6103(p)(5) of such Code, and
(7) a measurement plan which includes a comparison of the best
practices used by the private collectors with the Internal Revenue
Service's own collection techniques and mechanisms to identify and
capture information on successful collection techniques used by the
contractors which could be adopted by the Internal Revenue Service.
(f) Effective Date.--The amendments made to this section shall take
effect on the date of the enactment of this Act.
SEC. 882. 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 this Act, 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. 883. 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), publicly traded securities (as
defined in section 6050L(a)(2)(B)), and any qualified
vehicle described in paragraph (12)(A)(ii) for which an
acknowledgement under paragraph (12)(B)(iii) is
provided.
``(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. 884. DONATIONS OF MOTOR VEHICLES, BOATS, AND AIRPLANES.
(a) In General.--Subsection (f) of section 170 (relating to
disallowance of deduction in certain cases and special rules), as
amended by this Act, is amended by inserting after paragraph (11) the
following new paragraph:
``(12) Contributions of used motor vehicles, boats, and
airplanes.--
``(A) In general.--In the case of a contribution of a
qualified vehicle the claimed value of which exceeds $500--
``(i) paragraph (8) shall not apply and no deduction
shall be allowed under subsection (a) for such contribution
unless the taxpayer substantiates the contribution by a
contemporaneous written acknowledgement of the contribution
by the donee organization that meets the requirements of
subparagraph (B) and includes the acknowledgement with the
taxpayer's return of tax which includes the deduction, and
``(ii) if the organization sells the vehicle without
any significant intervening use or material improvement of
such vehicle by the organization, the amount of the
deduction allowed under subsection (a) shall not exceed the
gross proceeds received from such sale.
``(B) Content of acknowledgement.--An acknowledgement meets
the requirements of this subparagraph if it includes the
following information:
``(i) The name and taxpayer identification number of
the donor.
``(ii) The vehicle identification number or similar
number.
``(iii) In the case of a qualified vehicle to which
subparagraph (A)(ii) applies--
``(I) a certification that the vehicle was sold in
an arm's length transaction between unrelated parties,
``(II) the gross proceeds from the sale, and
``(III) a statement that the deductible amount may
not exceed the amount of such gross proceeds.
``(iv) In the case of a qualified vehicle to which
subparagraph (A)(ii) does not apply--
``(I) a certification of the intended use or
material improvement of the vehicle and the intended
duration of such use, and
``(II) a certification that the vehicle would not
be transferred in exchange for money, other property,
or services before completion of such use or
improvement.
``(C) Contemporaneous.--For purposes of subparagraph (A),
an acknowledgement shall be considered to be contemporaneous if
the donee organization provides it within 30 days of--
``(i) the sale of the qualified vehicle, or
``(ii) in the case of an acknowledgement including a
certification described in subparagraph (B)(iv), the
contribution of the qualified vehicle.
``(D) Information to secretary.--A donee organization
required to provide an acknowledgement under this paragraph
shall provide to the Secretary the information contained in the
acknowledgement. Such information shall be provided at such
time and in such manner as the Secretary may prescribe.
``(E) Qualified vehicle.--For purposes of this paragraph,
the term `qualified vehicle' means any--
``(i) motor vehicle manufactured primarily for use on
public streets, roads, and highways,
``(ii) boat, or
``(iii) airplane.
Such term shall not include any property which is described in
section 1221(a)(1).
``(F) Regulations or other guidance.--The Secretary shall
prescribe such regulations or other guidance as may be
necessary to carry out the purposes of this paragraph. The
Secretary may prescribe regulations or other guidance which
exempts sales by the donee organization which are in direct
furtherance of such organization's charitable purpose from the
requirements of subparagraphs (A)(ii) and (B)(iv)(II).''.
(b) Penalty for Fraudulent Acknowledgments.--
(1) In general.--Part I of subchapter B of chapter 68 (relating
to assessable penalties), as amended by this Act, is amended by
inserting after section 6719 the following new section:
``SEC. 6720. FRAUDULENT ACKNOWLEDGMENTS WITH RESPECT TO DONATIONS OF
MOTOR VEHICLES, BOATS, AND AIRPLANES.
``Any donee organization required under section 170(f)(12)(A) to
furnish a contemporaneous written acknowledgment to a donor which
knowingly furnishes a false or fraudulent acknowledgment, or which
knowingly fails to furnish such acknowledgment in the manner, at the
time, and showing the information required under section 170(f)(12), or
regulations prescribed thereunder, shall for each such act, or for each
such failure, be subject to a penalty equal to--
``(1) in the case of an acknowledgment with respect to a
qualified vehicle to which section 170(f)(12)(A)(ii) applies, the
greater of--
``(A) the product of the highest rate of tax specified in
section 1 and the sales price stated on the acknowledgment, or
``(B) the gross proceeds from the sale of such vehicle, and
``(2) in the case of an acknowledgment with respect to any
other qualified vehicle to which section 170(f)(12) applies, the
greater of--
``(A) the product of the highest rate of tax specified in
section 1 and the claimed value of the vehicle, or
``(B) $5,000.''.
(2) Conforming amendment.--The table of sections for part I of
subchapter B of chapter 68, as amended by this Act, is amended by
inserting after the item relating to section 6719 the following new
item:
``Sec. 6720. Fraudulent acknowledgments with respect to
donations of motor vehicles, boats, and airplanes.''.
(c) Effective Date.--The amendments made by this section shall
apply to contributions made after December 31, 2004.
SEC. 885. 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) Plan failures.--
``(A) Gross income inclusion.--
``(i) In general.--If at any time during a taxable year
a nonqualified deferred compensation plan--
``(I) fails to meet the requirements of paragraphs
(2), (3), and (4), or
``(II) is not operated in accordance with such
requirements,
all compensation deferred under the plan for the taxable
year and all preceding taxable years shall be includible in
gross income for the taxable year to the extent not subject
to a substantial risk of forfeiture and not previously
included in gross income.
``(ii) Application only to affected participants.--
Clause (i) shall only apply with respect to all
compensation deferred under the plan for participants with
respect to whom the failure relates.
``(B) Interest and additional tax payable with respect to
previously deferred compensation.--
``(i) In general.--If compensation is required to be
included in gross income under subparagraph (A) for a
taxable year, the tax imposed by this chapter for the
taxable year shall be increased by the sum of--
``(I) the amount of interest determined under
clause (ii), and
``(II) an amount equal to 20 percent of the
compensation which is required to be included in gross
income.
``(ii) Interest.--For purposes of clause (i), the
interest determined under this clause for any taxable year
is the amount of interest at the underpayment rate 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 any
specified employee, the requirement of subparagraph (A)(i)
is met only if distributions may not be made before the
date which is 6 months after the date of separation from
service (or, if earlier, the date of death of the
employee). For purposes of the preceding sentence, a
specified employee is a key employee (as defined in section
416(i) without regard to paragraph (5) thereof) of a
corporation any 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 an 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.--
``(i) In general.--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.
``(ii) First year of eligibility.--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.
``(iii) Performance-based compensation.--In the case of
any performance-based compensation based on services
performed over a period of at least 12 months, such
election may be made no later than 6 months before the end
of the period.
``(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 of 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 (or such trust
or other arrangement) are located outside of the United States,
or
``(B) at the time transferred if such assets (or such trust
or other arrangement) are subsequently transferred outside of
the United States.
This paragraph shall not apply to assets located in a foreign
jurisdiction if substantially all of the services to which the
nonqualified deferred compensation relates are performed in such
jurisdiction.
``(2) Employer's financial health.--In the case of 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,
whether or not such assets are available to satisfy claims of
general creditors.
``(3) Income inclusion for offshore trusts and employer's
financial health.--For each taxable year that assets treated as
transferred under this subsection remain set aside in a trust or
other arrangement subject to paragraph (1) or (2), any increase in
value in, or earnings with respect to, such assets shall be treated
as an additional transfer of property under this subsection (to the
extent not previously included in income).
``(4) Interest on tax liability payable with respect to
transferred property.--
``(A) In general.--If amounts are required to be included
in gross income by reason of paragraph (1) or (2) for a taxable
year, the tax imposed by this chapter for such taxable year
shall be increased by the sum of--
``(i) the amount of interest determined under
subparagraph (B), and
``(ii) an amount equal to 20 percent of the amounts
required to be included in gross income.
``(B) Interest.--For purposes of subparagraph (A), the
interest determined under this subparagraph for any taxable
year is the amount of interest at the underpayment rate 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 amounts are 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)
(without regard to subparagraph (A)(iii)),
``(B) any eligible deferred compensation plan (within the
meaning of section 457(b)), and
``(C) any plan described in section 415(m).
``(3) Plan includes arrangements, etc.--The term `plan'
includes any agreement or arrangement, including an agreement or
arrangement that includes one person.
``(4) Substantial risk of forfeiture.--The rights of a person
to compensation are subject to a substantial risk of forfeiture if
such person's rights to such compensation are conditioned upon the
future performance of substantial services by any individual.
``(5) Treatment of earnings.--References to deferred
compensation shall be treated as including references to income
(whether actual or notional) attributable to such compensation or
such income.
``(6) Aggregation rules.--Except as provided by the Secretary,
rules similar to the rules of subsections (b) and (c) of section
414 shall apply.
``(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) Treatment of Deferred Amounts.--
(1) W-2 forms.--
(A) 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 for the year under a
nonqualified deferred compensation plan (within the meaning of
section 409A(d)).''.
(B) Threshold.--Subsection (a) of section 6051 is amended
by adding at the end the following: ``In the case of the
amounts required to be shown by paragraph (13), the Secretary
may (by regulation) establish a minimum amount of deferrals
below which paragraph (13) does not apply.''.
(2) Wage withholding.--Section 3401(a) (defining wages) is
amended by adding at the end the following flush sentence: ``The
term `wages' includes any amount includible in gross income of an
employee under section 409A and payment of such amount shall be
treated as having been made in the taxable year in which the amount
is so includible.''.
(3) Other reporting.--Section 6041 (relating to information at
source) is amended by adding at the end the following new
subsection:
``(g) Nonqualified Deferred Compensation.--Subsection (a) shall
apply to--
``(1) any deferrals for the year under a nonqualified deferred
compensation plan (within the meaning of section 409A(d)), whether
or not paid, except that this paragraph shall not apply to
deferrals which are required to be reported under section
6051(a)(13) (without regard to any de minimis exception), and
``(2) any amount includible under section 409A and which is not
treated as wages under section 3401(a).''.
(c) Clerical Amendment.--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 December 31, 2004.
(2) Special rules.--
(A) Earnings.--The amendments made by this section shall
apply to earnings on deferred compensation only to the extent
that such amendments apply to such compensation.
(B) Material modifications.--For purposes of this
subsection, amounts deferred in taxable years beginning before
January 1, 2005, shall be treated as amounts deferred in a
taxable year beginning on or after such date if the plan under
which the deferral is made is materially modified after October
3, 2004, unless such modification is pursuant to the guidance
issued under subsection (f).
(3) Exception for nonelective deferred compensation.--The
amendments made by this section shall not apply to any nonelective
deferred compensation to which section 457 of the Internal Revenue
Code of 1986 does not apply by reason of section 457(e)(12) of such
Code, but only if such compensation is provided under a
nonqualified deferred compensation plan--
(A) which was in existence on May 1, 2004,
(B) which was providing nonelective deferred compensation
described in such section 457(e)(12) on such date, and
(C) which is established or maintained by an organization
incorporated on July 2, 1974.
If, after May 1, 2004, a plan described in the preceding sentence
adopts a plan amendment which provides a material change in the
classes of individuals eligible to participate in the plan, this
paragraph shall not apply to any nonelective deferred compensation
provided under the plan on or after the date of the adoption of the
amendment.
(e) 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 60 days after the date of the enactment
of this Act, the Secretary of the Treasury shall issue guidance
providing a limited period during which a nonqualified deferred
compensation plan adopted before December 31, 2004, may, without
violating the requirements of paragraphs (2), (3), and (4) of section
409A(a) of the Internal Revenue Code of 1986 (as added by this
section), be amended--
(1) to provide that a participant may terminate participation
in the plan, or cancel an outstanding deferral election with regard
to amounts deferred after December 31, 2004, but only if amounts
subject to the termination or cancellation are includible in income
of the participant as earned (or, if later, when no longer subject
to substantial risk of forfeiture), and
(2) to conform to the requirements of such section 409A with
regard to amounts deferred after December 31, 2004.
SEC. 886. 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. 887. MODIFICATION OF CONTINUING LEVY ON PAYMENTS TO FEDERAL
VENDORS.
(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. 888. 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.--In the case of stock, the term `personal
property' includes stock only if--
``(i) such stock is of a type which is actively traded
and at least 1 of the positions offsetting such stock is a
position with respect to such stock or substantially
similar or related property, or
``(ii) such stock is 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. 889. 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. 890. 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. 891. 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. 892. 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.
SEC. 893. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH COMPLETE
LIQUIDATION OF HOLDING COMPANY.
(a) In General.--Section 332 is amended by adding at the end the
following new subsection:
``(d) Recognition of Gain on Liquidation of Certain Holding
Companies.--
``(1) In general.--In the case of any distribution to a foreign
corporation in complete liquidation of an applicable holding
company--
``(A) subsection (a) and section 331 shall not apply to
such distribution, and
``(B) such distribution shall be treated as a distribution
to which section 301 applies.
``(2) Applicable holding company.--For purposes of this
subsection:
``(A) In general.--The term `applicable holding company'
means any domestic corporation--
``(i) which is a common parent of an affiliated group,
``(ii) stock of which is directly owned by the
distributee foreign corporation,
``(iii) substantially all of the assets of which
consist of stock in other members of such affiliated group,
and
``(iv) which has not been in existence at all times
during the 5 years immediately preceding the date of the
liquidation.
``(B) Affiliated group.--For purposes of this subsection,
the term `affiliated group' has the meaning given such term by
section 1504(a) (without regard to paragraphs (2) and (4) of
section 1504(b)).
``(3) Coordination with subpart f.--If the distributee of a
distribution described in paragraph (1) is a controlled foreign
corporation (as defined in section 957), then notwithstanding
paragraph (1) or subsection (a), such distribution shall be treated
as a distribution to which section 331 applies.
``(4) Regulations.--The Secretary shall provide such
regulations as appropriate to prevent the abuse of this subsection,
including regulations which provide, for the purposes of clause
(iv) of paragraph (2)(A), that a corporation is not in existence
for any period unless it is engaged in the active conduct of a
trade or business or owns a significant ownership interest in
another corporation so engaged.''.
(b) Effective Date.--The amendment made by this section shall apply
to distributions in complete liquidation occurring on or after the date
of the enactment of this Act.
SEC. 894. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN FOREIGN
SOURCE INCOME.
(a) In General.--Section 864(c)(4)(B) (relating to treatment of
income from sources without the United States as effectively connected
income) is amended by adding at the end the following new flush
sentence:
``Any income or gain which is equivalent to any item of income
or gain described in clause (i), (ii), or (iii) shall be
treated in the same manner as such item for purposes of this
subparagraph.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 895. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF CONTROLLED
FOREIGN CORPORATION.
(a) In General.--Section 904(f)(3) (relating to dispositions) is
amending by adding at the end the following new subparagraph:
``(D) Application to certain dispositions of stock in
controlled foreign corporation.--
``(i) In general.--This paragraph shall apply to an
applicable disposition in the same manner as if it were a
disposition of property described in subparagraph (A),
except that the exception contained in subparagraph (C)(i)
shall not apply.
``(ii) Applicable disposition.--For purposes of clause
(i), the term `applicable disposition' means any
disposition of any share of stock in a controlled foreign
corporation in a transaction or series of transactions if,
immediately before such transaction or series of
transactions, the taxpayer owned more than 50 percent (by
vote or value) of the stock of the controlled foreign
corporation. Such term shall not include a disposition
described in clause (iii) or (iv), except that clause (i)
shall apply to any gain recognized on any such disposition.
``(iii) Exception for certain exchanges where ownership
percentage retained.--A disposition shall not be treated as
an applicable disposition under clause (ii) if it is part
of a transaction or series of transactions--
``(I) to which section 351 or 721 applies, or under
which the transferor receives stock in a foreign
corporation in exchange for the stock in the controlled
foreign corporation and the stock received is exchanged
basis property (as defined in section 7701(a)(44)), and
``(II) immediately after which, the transferor owns
(by vote or value) at least the same percentage of
stock in the controlled foreign corporation (or, if the
controlled foreign corporation is not in existence
after such transaction or series of transactions, in
another foreign corporation stock in which was received
by the transferor in exchange for stock in the
controlled foreign corporation) as the percentage of
stock in the controlled foreign corporation which the
taxpayer owned immediately before such transaction or
series of transactions.
``(iv) Exception for certain asset acquisitions.--A
disposition shall not be treated as an applicable
disposition under clause (ii) if it is part of a
transaction or series of transactions in which the taxpayer
(or any member of a controlled group of corporations filing
a consolidated return under section 1501 which includes the
taxpayer) acquires the assets of a controlled foreign
corporation in exchange for the shares of the controlled
foreign corporation in a liquidation described in section
332 or a reorganization described in section 368(a)(1).
``(v) Controlled foreign corporation.--For purposes of
this subparagraph, the term `controlled foreign
corporation' has the meaning given such term by section
957.
``(vi) Stock ownership.--For purposes of this
subparagraph, ownership of stock shall be determined under
the rules of subsections (a) and (b) of section 958.''.
(b) Effective Date.--The amendment made by this section shall apply
to dispositions after the date of the enactment of this Act.
SEC. 896. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME REALIZED
ON SATISFACTION OF DEBT WITH PARTNERSHIP INTEREST.
(a) In General.--Paragraph (8) of section 108(e) (relating to
general rules for discharge of indebtedness (including discharges not
in title 11 cases or insolvency)) is amended to read as follows:
``(8) Indebtedness satisfied by corporate stock or partnership
interest.--For purposes of determining income of a debtor from
discharge of indebtedness, if--
``(A) a debtor corporation transfers stock, or
``(B) a debtor partnership transfers a capital or profits
interest in such partnership,
to a creditor in satisfaction of its recourse or nonrecourse
indebtedness, such corporation or partnership shall be treated as
having satisfied the indebtedness with an amount of money equal to
the fair market value of the stock or interest. In the case of any
partnership, any discharge of indebtedness income recognized under
this paragraph shall be included in the distributive shares of
taxpayers which were the partners in the partnership immediately
before such discharge.''.
(b) Effective Date.--The amendment made by this section shall apply
with respect to cancellations of indebtedness occurring on or after the
date of the enactment of this Act.
SEC. 897. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL READILY TRADABLE
DEBT.
(a) In General.--Section 453(f)(4)(B) (relating to purchaser
evidences of indebtedness payable on demand or readily tradable) is
amended by striking ``is issued by a corporation or a government or
political subdivision thereof and''.
(b) Effective Date.--The amendment made by this section shall apply
to sales occurring on or after the date of the enactment of this Act.
SEC. 898. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS IN
DIVISIVE REORGANIZATIONS.
(a) In General.--Section 361(b)(3) (relating to treatment of
transfers to creditors) is amended by adding at the end the following
new sentence: ``In the case of a reorganization described in section
368(a)(1)(D) with respect to which stock or securities of the
corporation to which the assets are transferred are distributed in a
transaction which qualifies under section 355, this paragraph shall
apply only to the extent that the sum of the money and the fair market
value of other property transferred to such creditors does not exceed
the adjusted bases of such assets transferred.''.
(b) Liabilities in Excess of Basis.--Section 357(c)(1)(B) is
amended by inserting ``with respect to which stock or securities of the
corporation to which the assets are transferred are distributed in a
transaction which qualifies under section 355'' after ``section
368(a)(1)(D)''.
(c) Effective Date.--The amendments made by this section shall
apply to transfers of money or other property, or liabilities assumed,
in connection with a reorganization occurring on or after the date of
the enactment of this Act.
SEC. 899. CLARIFICATION OF DEFINITION OF NONQUALIFIED PREFERRED STOCK.
(a) In General.--Section 351(g)(3)(A) is amended by adding at the
end the following: ``Stock shall not be treated as participating in
corporate growth to any significant extent unless there is a real and
meaningful likelihood of the shareholder actually participating in the
earnings and growth of the corporation.''.
(b) Effective Date.--The amendment made by this section shall apply
to transactions after May 14, 2003.
SEC. 900. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF
CORPORATIONS.
(a) In General.--Section 1563(a)(2) (relating to brother-sister
controlled group) is amended by striking ``possessing--'' and all that
follows through ``(B)'' and inserting ``possessing''.
(b) Application of Existing Rules to Other Code Provisions.--
Section 1563(f) (relating to other definitions and rules) is amended by
adding at the end the following new paragraph:
``(5) Brother-sister controlled group definition for provisions
other than this part.--
``(A) In general.--Except as specifically provided in an
applicable provision, subsection (a)(2) shall be applied to an
applicable provision as if it read as follows:
``(2) Brother-sister controlled group.--Two or more
corporations if 5 or fewer persons who are individuals, estates, or
trusts own (within the meaning of subsection (d)(2) stock
possessing--
``(A) at least 80 percent of the total combined voting
power of all classes of stock entitled to vote, or at least 80
percent of the total value of shares of all classes of stock,
of each corporation, and
``(B) more than 50 percent of the total combined voting
power of all classes of stock entitled to vote or more than 50
percent of the total value of shares of all classes of stock of
each corporation, taking into account the stock ownership of
each such person only to the extent such stock ownership is
identical with respect to each such corporation.'
``(B) Applicable provision.--For purposes of this
paragraph, an applicable provision is any provision of law
(other than this part) which incorporates the definition of
controlled group of corporations under subsection (a).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 901. CLASS LIVES FOR UTILITY GRADING COSTS.
(a) Gas Utility Property.--Section 168(e)(3)(E) (defining 15-year
property), as amended by this Act, is amended by striking ``and'' at
the end of clause (iv), by striking the period at the end of clause (v)
and inserting ``, and'', and by adding at the end the following new
clause:
``(vi) initial clearing and grading land improvements
with respect to gas utility property.''.
(b) Electric Utility Property.--Section 168(e)(3) is amended by
adding at the end the following new subparagraph:
``(F) 20-year property.--The term `20-year property' means
initial clearing and grading land improvements with respect to
any electric utility transmission and distribution plant.''.
(c) Conforming Amendment.--The table contained in section
168(g)(3)(B), as amended by this Act, is amended by inserting after the
item relating to subparagraph (E)(v) the following new items:
``(E)(vi).................................................
20''.
``(F).....................................................
25''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act.
SEC. 902. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.
(a) Start-Up Expenditures.--
(1) Allowance of deduction.--Paragraph (1) of section 195(b)
(relating to start-up expenditures) is amended to read as follows:
``(1) Allowance of deduction.--If a taxpayer elects the
application of this subsection with respect to any start-up
expenditures--
``(A) the taxpayer shall be allowed a deduction for the
taxable year in which the active trade or business begins in an
amount equal to the lesser of--
``(i) the amount of start-up expenditures with respect
to the active trade or business, or
``(ii) $5,000, reduced (but not below zero) by the
amount by which such start-up expenditures exceed $50,000,
and
``(B) the remainder of such start-up expenditures shall be
allowed as a deduction ratably over the 180-month period
beginning with the month in which the active trade or business
begins.''.
(2) Conforming amendment.--Subsection (b) of section 195 is
amended by striking ``Amortize'' and inserting ``Deduct'' in the
heading.
(b) Organizational Expenditures.--Subsection (a) of section 248
(relating to organizational expenditures) is amended to read as
follows:
``(a) Election to Deduct.--If a corporation elects the application
of this subsection (in accordance with regulations prescribed by the
Secretary) with respect to any organizational expenditures--
``(1) the corporation shall be allowed a deduction for the
taxable year in which the corporation begins business in an amount
equal to the lesser of--
``(A) the amount of organizational expenditures with
respect to the taxpayer, or
``(B) $5,000, reduced (but not below zero) by the amount by
which such organizational expenditures exceed $50,000, and
``(2) the remainder of such organizational expenditures shall
be allowed as a deduction ratably over the 180-month period
beginning with the month in which the corporation begins
business.''.
(c) Treatment of Organizational and Syndication Fees or
Partnerships.--
(1) In general.--Section 709(b) (relating to amortization of
organization fees) is amended by redesignating paragraph (2) as
paragraph (3) and by amending paragraph (1) to read as follows:
``(1) Allowance of deduction.--If a taxpayer elects the
application of this subsection (in accordance with regulations
prescribed by the Secretary) with respect to any organizational
expenses--
``(A) the taxpayer shall be allowed a deduction for the
taxable year in which the partnership begins business in an
amount equal to the lesser of--
``(i) the amount of organizational expenses with
respect to the partnership, or
``(ii) $5,000, reduced (but not below zero) by the
amount by which such organizational expenses exceed
$50,000, and
``(B) the remainder of such organizational expenses shall
be allowed as a deduction ratably over the 180-month period
beginning with the month in which the partnership begins
business.
``(2) Dispositions before close of amortization period.--In any
case in which a partnership is liquidated before the end of the
period to which paragraph (1)(B) applies, any deferred expenses
attributable to the partnership which were not allowed as a
deduction by reason of this section may be deducted to the extent
allowable under section 165.''.
(2) Conforming amendment.--Subsection (b) of section 709 is
amended by striking ``Amortization'' and inserting ``Deduction'' in
the heading.
(d) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred after the date of the enactment of
this Act.
SEC. 903. FREEZE OF PROVISIONS REGARDING SUSPENSION OF INTEREST WHERE
SECRETARY FAILS TO CONTACT TAXPAYER.
(a) In General.--Section 6404(g) (relating to suspension of
interest and certain penalties where Secretary fails to contact
taxpayer) is amended by striking ``1-year period (18-month period in
the case of taxable years beginning before January 1, 2004)'' both
places it appears and inserting ``18-month period''.
(b) Exception for Gross Misstatement.--Section 6404(g)(2) (relating
to exceptions) is amended by striking ``or'' at the end of subparagraph
(C), by redesignating subparagraph (D) as subparagraph (E), and by
inserting after subparagraph (C) the following new subparagraph:
``(D) any interest, penalty, addition to tax, or additional
amount with respect to any gross misstatement; or''.
(c) Exception for Listed and Reportable Transactions.--Section
6404(g)(2) (relating to exceptions), as amended by subsection (b), is
amended by striking ``or'' at the end of subparagraph (D), by
redesignating subparagraph (E) as subparagraph (F), and by inserting
after subparagraph (D) the following new subparagraph:
``(E) any interest, penalty, addition to tax, or additional
amount with respect to any reportable transaction with respect
to which the requirement of section 6664(d)(2)(A) is not met
and any listed transaction (as defined in 6707A(c)); or''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2003.
(2) Exception for reportable or listed transactions.--The
amendments made by subsection (c) shall apply with respect to
interest accruing after October 3, 2004.
SEC. 904. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE PAYMENTS IN
EXCESS OF $1,000,000.
(a) In General.--If an employer elects under Treasury Regulation
31.3402(g)-1 to determine the amount to be deducted and withheld from
any supplemental wage payment by using a flat percentage rate, the rate
to be used in determining the amount to be so deducted and withheld
shall not be less than 28 percent (or the corresponding rate in effect
under section 1(i)(2) of the Internal Revenue Code of 1986 for taxable
years beginning in the calendar year in which the payment is made).
(b) Special Rule for Large Payments.--
(1) In general.--Notwithstanding subsection (a), if the
supplemental wage payment, when added to all such payments
previously made by the employer to the employee during the calendar
year, exceeds $1,000,000, the rate used with respect to such excess
shall be equal to the maximum rate of tax in effect under section 1
of such Code for taxable years beginning in such calendar year.
(2) Aggregation.--All persons treated as a single employer
under subsection (a) or (b) of section 52 of the Internal Revenue
Code of 1986 shall be treated as a single employer for purposes of
this subsection.
(c) Conforming Amendment.--Section 13273 of the Revenue
Reconciliation Act of 1993 (Public Law 103-66) is repealed.
(d) Effective Date.--The provisions of, and the amendment made by,
this section shall apply to payments made after December 31, 2004.
SEC. 905. TREATMENT OF SALE OF STOCK ACQUIRED PURSUANT TO EXERCISE OF
STOCK OPTIONS TO COMPLY WITH CONFLICT-OF-INTEREST
REQUIREMENTS.
(a) In General.--Section 421 (relating to general rules for certain
stock options) is amended by adding at the end the following new
subsection:
``(d) Certain Sales To Comply With Conflict-of-Interest
Requirements.--If--
``(1) a share of stock is transferred to an eligible person (as
defined in section 1043(b)(1)) pursuant to such person's exercise
of an option to which this part applies, and
``(2) such share is disposed of by such person pursuant to a
certificate of divestiture (as defined in section 1043(b)(2)),
such disposition shall be treated as meeting the requirements of
section 422(a)(1) or 423(a)(1), whichever is applicable.''.
(b) Effective Date.--The amendment made by this section shall apply
to sales after the date of the enactment of this Act.
SEC. 906. APPLICATION OF BASIS RULES TO NONRESIDENT ALIENS.
(a) In General.--Section 72 (relating to annuities and certain
proceeds of endowment and life insurance contracts) is amended by
redesignating subsection (w) as subsection (x) and by inserting after
subsection (v) the following new subsection:
``(w) Application of Basis Rules to Nonresident Aliens.--
``(1) In general.--Notwithstanding any other provision of this
section, for purposes of determining the portion of any
distribution which is includible in gross income of a distributee
who is a citizen or resident of the United States, the investment
in the contract shall not include any applicable nontaxable
contributions or applicable nontaxable earnings.
``(2) Applicable nontaxable contribution.--For purposes of this
subsection, the term `applicable nontaxable contribution' means any
employer or employee contribution--
``(A) which was made with respect to compensation--
``(i) for labor or personal services performed by an
employee who, at the time the labor or services were
performed, was a nonresident alien for purposes of the laws
of the United States in effect at such time, and
``(ii) which is treated as from sources without the
United States, and
``(B) which was not subject to income tax (and would have
been subject to income tax if paid as cash compensation when
the services were rendered) under the laws of the United States
or any foreign country.
``(3) Applicable nontaxable earnings.--For purposes of this
subsection, the term `applicable nontaxable earnings' means
earnings--
``(A) which are paid or accrued with respect to any
employer or employee contribution which was made with respect
to compensation for labor or personal services performed by an
employee,
``(B) with respect to which the employee was at the time
the earnings were paid or accrued a nonresident alien for
purposes of the laws of the United States, and
``(C) which were not subject to income tax under the laws
of the United States or any foreign country.
``(4) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions of this
subsection, including regulations treating contributions and
earnings as not subject to tax under the laws of any foreign
country where appropriate to carry out the purposes of this
subsection.''.
(b) Basis.--Section 83 (relating to property transferred in
connection with the performance of services is amended by adding after
paragraph (3) of subsection (c) the following new paragraph:
``(4) For purposes of determining an individual's basis in
property transferred in connection with the performance of
services, rules similar to the rules of section 72(w) shall
apply.''.
(c) Effective Date.--The amendments made by this section shall
apply to distributions on or after the date of the enactment of this
Act.
SEC. 907. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN ENTERTAINMENT
EXPENSES.
(a) In General.--Paragraph (2) of section 274(e) (relating to
expenses treated as compensation) is amended to read as follows:
``(2) Expenses treated as compensation.--
``(A) In general.--Except as provided in subparagraph (B),
expenses for goods, services, and facilities, to the extent
that the expenses are treated by the taxpayer, with respect to
the recipient of the entertainment, amusement, or recreation,
as compensation to an employee on the taxpayer's return of tax
under this chapter and as wages to such employee for purposes
of chapter 24 (relating to withholding of income tax at source
on wages).
``(B) Specified individuals.--
``(i) In general.--In the case of a recipient who is a
specified individual, subparagraph (A) and paragraph (9)
shall each be applied by substituting `to the extent that
the expenses do not exceed the amount of the expenses
which' for `to the extent that the expenses'.
``(ii) Specified individual.--For purposes of clause
(i), the term `specified individual' means any individual
who--
``(I) is subject to the requirements of section
16(a) of the Securities Exchange Act of 1934 with
respect to the taxpayer, or
``(II) would be subject to such requirements if the
taxpayer were an issuer of equity securities referred
to in such section.''.
(b) Effective Date.--The amendment made by this section shall apply
to expenses incurred after the date of the enactment of this Act.
SEC. 908. RESIDENCE AND SOURCE RULES RELATING TO UNITED STATES
POSSESSIONS.
(a) Residence and Source Rules.--Subpart D of part III of
subchapter N of chapter 1 (relating to possessions of the United
States) is amended by adding at the end the following new section:
``SEC. 937. RESIDENCE AND SOURCE RULES INVOLVING POSSESSIONS.
``(a) Bona Fide Resident.--For purposes of this subpart, section
865(g)(3), section 876, section 881(b), paragraphs (2) and (3) of
section 901(b), section 957(c), section 3401(a)(8)(C), and section
7654(a), except as provided in regulations, the term `bona fide
resident' means a person--
``(1) who is present for at least 183 days during the taxable
year in Guam, American Samoa, the Northern Mariana Islands, Puerto
Rico, or the Virgin Islands, as the case may be, and
``(2) who does not have a tax home (determined under the
principles of section 911(d)(3) without regard to the second
sentence thereof) outside such specified possession during the
taxable year and does not have a closer connection (determined
under the principles of section 7701(b)(3)(B)(ii)) to the United
States or a foreign country than to such specified possession.
For purposes of paragraph (1), the determination as to whether a person
is present for any day shall be made under the principles of section
7701(b).
``(b) Source Rules.--Except as provided in regulations, for
purposes of this title--
``(1) except as provided in paragraph (2), rules similar to the
rules for determining whether income is income from sources within
the United States or is effectively connected with the conduct of a
trade or business within the United States shall apply for purposes
of determining whether income is from sources within a possession
specified in subsection (a)(1) or effectively connected with the
conduct of a trade or business within any such possession, and
``(2) any income treated as income from sources within the
United States or as effectively connected with the conduct of a
trade or business within the United States shall not be treated as
income from sources within any such possession or as effectively
connected with the conduct of a trade or business within any such
possession.
``(c) Reporting Requirement.--
``(1) In general.--If, for any taxable year, an individual
takes the position for United States income tax reporting purposes
that the individual became, or ceases to be, a bona fide resident
of a possession specified in subsection (a)(1), such individual
shall file with the Secretary, at such time and in such manner as
the Secretary may prescribe, notice of such position.
``(2) Transition rule.--If, for any of an individual's 3
taxable years ending before the individual's first taxable year
ending after the date of the enactment of this subsection, the
individual took a position described in paragraph (1), the
individual shall file with the Secretary, at such time and in such
manner as the Secretary may prescribe, notice of such position.''.
(b) Penalty.--Section 6688 is amended--
(1) by inserting ``under section 937(c) or'' before ``by
regulations'', and
(2) by striking ``$100'' and inserting ``$1,000''.
(c) Conforming and Clerical Amendments.--
(1) Section 931(d) is amended to read as follows:
``(d) Employees of the United States.--Amounts paid for services
performed as an employee of the United States (or any agency thereof)
shall be treated as not described in paragraph (1) or (2) of subsection
(a).''.
(2) Section 932 is amended by striking ``at the close of the
taxable year'' and inserting ``during the entire taxable year''
each place it appears.
(3) Section 934(b)(4) is amended by striking ``the Virgin
Islands or'' each place it appears.
(4) Section 935, as in effect before the effective date of its
repeal, is amended--
(A) by striking ``for the taxable year who'' in subsection
(a) and inserting ``who, during the entire taxable year'',
(B) by inserting ``bona fide'' before ``resident'' in
subsection (a)(1),
(C) in subsection (b)(1)--
(i) by inserting ``(other a bona fide resident of Guam
during the entire taxable year)'' after ``United States''
in subparagraph (A), and
(ii) by inserting ``bona fide'' before ``resident'' in
subparagraph (B), and
(D) in subsection (b)(2) by striking ``residence and''.
(5) Section 957(c) is amended--
(A) in paragraph (2)(B) by striking ``conduct of an
active'' and inserting ``active conduct of a'', and
(B) in the last sentence by striking ``derived from sources
within a possession, was effectively connected with the conduct
of a trade or business within a possession, or''.
(6) The table of sections of subpart D of part III of
subchapter N of chapter 1 is amended by adding at the end the
following new item:
``Sec. 937. Residence and source rules involving possessions.''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years ending after the date of the enactment of this Act.
(2) 183-day rule.--Section 937(a)(1) of the Internal Revenue
Code of 1986 (as added by this section) shall apply to taxable
years beginning after the date of the enactment of this Act.
(3) Sourcing.--Section 937(b)(2) of such Code (as so added)
shall apply to income earned after the date of the enactment of
this Act.
SEC. 909. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY REGULATORY
COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY.
(a) In General.--Section 451 (relating to general rule for taxable
year of inclusion) is amended by adding at the end the following new
subsection:
``(i) Special Rule for Sales or Dispositions To Implement Federal
Energy Regulatory Commission or State Electric Restructuring Policy.--
``(1) In general.--In the case of any qualifying electric
transmission transaction for which the taxpayer elects the
application of this section, qualified gain from such transaction
shall be recognized--
``(A) in the taxable year which includes the date of such
transaction to the extent the amount realized from such
transaction exceeds--
``(i) the cost of exempt utility property which is
purchased by the taxpayer during the 4-year period
beginning on such date, reduced (but not below zero) by
``(ii) any portion of such cost previously taken into
account under this subsection, and
``(B) ratably over the 8-taxable year period beginning with
the taxable year which includes the date of such transaction,
in the case of any such gain not recognized under subparagraph
(A).
``(2) Qualified gain.--For purposes of this subsection, the
term `qualified gain' means, with respect to any qualifying
electric transmission transaction in any taxable year--
``(A) any ordinary income derived from such transaction
which would be required to be recognized under section 1245 or
1250 for such taxable year (determined without regard to this
subsection), and
``(B) any income derived from such transaction in excess of
the amount described in subparagraph (A) which is required to
be included in gross income for such taxable year (determined
without regard to this subsection).
``(3) Qualifying electric transmission transaction.--For
purposes of this subsection, the term `qualifying electric
transmission transaction' means any sale or other disposition
before January 1, 2007, of--
``(A) property used in the trade or business of providing
electric transmission services, or
``(B) any stock or partnership interest in a corporation or
partnership, as the case may be, whose principal trade or
business consists of providing electric transmission services,
but only if such sale or disposition is to an independent
transmission company.
``(4) Independent transmission company.--For purposes of this
subsection, the term `independent transmission company' means--
``(A) an independent transmission provider approved by the
Federal Energy Regulatory Commission,
``(B) a person--
``(i) who the Federal Energy Regulatory Commission
determines in its authorization of the transaction under
section 203 of the Federal Power Act (16 U.S.C. 824b) or by
declaratory order is not a market participant within the
meaning of such Commission's rules applicable to
independent transmission providers, and
``(ii) whose transmission facilities to which the
election under this subsection applies are under the
operational control of a Federal Energy Regulatory
Commission-approved independent transmission provider
before the close of the period specified in such
authorization, but not later than the close of the period
applicable under subsection (a)(2)(B) as extended under
paragraph (2), or
``(C) in the case of facilities subject to the jurisdiction
of the Public Utility Commission of Texas--
``(i) a person which is approved by that Commission as
consistent with Texas State law regarding an independent
transmission provider, or
``(ii) a political subdivision or affiliate thereof
whose transmission facilities are under the operational
control of a person described in clause (i).
``(5) Exempt utility property.--For purposes of this
subsection:
``(A) In general.--The term `exempt utility property' means
property used in the trade or business of--
``(i) generating, transmitting, distributing, or
selling electricity, or
``(ii) producing, transmitting, distributing, or
selling natural gas.
``(B) Nonrecognition of gain by reason of acquisition of
stock.--Acquisition of control of a corporation shall be taken
into account under this subsection with respect to a qualifying
electric transmission transaction only if the principal trade
or business of such corporation is a trade or business referred
to in subparagraph (A).
``(6) Special rule for consolidated groups.--In the case of a
corporation which is a member of an affiliated group filing a
consolidated return, any exempt utility property purchased by
another member of such group shall be treated as purchased by such
corporation for purposes of applying paragraph (1)(A).
``(7) Time for assessment of deficiencies.--If the taxpayer has
made the election under paragraph (1) and any gain is recognized by
such taxpayer as provided in paragraph (1)(B), then--
``(A) the statutory period for the assessment of any
deficiency, for any taxable year in which any part of the gain
on the transaction 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 taxpayer (in such manner as the
Secretary may by regulations prescribe) of the purchase of
exempt utility property or of an intention not to purchase such
property, and
``(B) such deficiency may be assessed before the expiration
of such 3-year period notwithstanding any law or rule of law
which would otherwise prevent such assessment.
``(8) Purchase.--For purposes of this subsection, the taxpayer
shall be considered to have purchased any property if the
unadjusted basis of such property is its cost within the meaning of
section 1012.
``(9) Election.--An election under paragraph (1) shall be made
at such time and in such manner as the Secretary may require and,
once made, shall be irrevocable.
``(10) Nonapplication of installment sales treatment.--Section
453 shall not apply to any qualifying electric transmission
transaction with respect to which an election to apply this
subsection is made.''.
(b) Effective Date.--The amendments made by this section shall
apply to transactions occurring after the date of the enactment of this
Act, in taxable years ending after such date.
SEC. 910. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN PASSENGER
AUTOMOBILES.
(a) In General.--Section 179(b) (relating to limitations) is
amended by adding at the end the following new paragraph:
``(6) Limitation on cost taken into account for certain
passenger vehicles.--
``(A) In general.--The cost of any sport utility vehicle
for any taxable year which may be taken into account under this
section shall not exceed $25,000.
``(B) Sport utility vehicle.--For purposes of subparagraph
(A)--
``(i) In general.--The term `sport utility vehicle'
means any 4-wheeled vehicle--
``(I) which is primarily designed or which can be
used to carry passengers over public streets, roads, or
highways (except any vehicle operated exclusively on a
rail or rails),
``(II) which is not subject to section 280F, and
``(III) which is rated at not more than 14,000
pounds gross vehicle weight.
``(ii) Certain vehicles excluded.--Such term does not
include any vehicle which--
``(I) is designed to have a seating capacity of
more than 9 persons behind the driver's seat,
``(II) is equipped with a cargo area of at least 6
feet in interior length which is an open area or is
designed for use as an open area but is enclosed by a
cap and is not readily accessible directly from the
passenger compartment, or
``(III) has an integral enclosure, fully enclosing
the driver compartment and load carrying device, does
not have seating rearward of the driver's seat, and has
no body section protruding more than 30 inches ahead of
the leading edge of the windshield.''.
(b) Effective Date.--The amendment made by this section shall apply
to property placed in service after the date of the enactment of this
Act.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.