[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.