[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 1409 Introduced in Senate (IS)]







108th CONGRESS
  1st Session
                                S. 1409

To provide funding for infrastructure investment to restore the United 
   States economy and to enhance the security of transportation and 
         environmental facilities throughout the United States.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 15, 2003

 Mrs. Feinstein (for herself and Mr. Durbin) introduced the following 
  bill; which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To provide funding for infrastructure investment to restore the United 
   States economy and to enhance the security of transportation and 
         environmental facilities throughout the United States.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Rebuild America 
Act of 2003''.
    (b) Table of Contents.--

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purposes.
               TITLE I--HIGHWAY INFRASTRUCTURE INVESTMENT

Sec. 101. Federal-aid highway program obligation ceiling.
              TITLE II--TRANSIT INFRASTRUCTURE INVESTMENT

Sec. 201. Additional authorizations for formula grants.
Sec. 202. Federal transit program obligation ceiling.
             TITLE III--AVIATION INFRASTRUCTURE INVESTMENT

Sec. 301. Increased funding for airport planning and development.
Sec. 302. Airport security improvement projects.
                TITLE IV--RAIL INFRASTRUCTURE INVESTMENT

                  Subtitle A--Credit for Amtrak Bonds

Sec. 401. Credit to holders of qualified Amtrak bonds.
                 Subtitle B--High-Speed Rail Provisions

Sec. 411. Department of Transportation approval for qualified Amtrak 
                            projects.
Sec. 412. Multiyear capital spending plan and oversight.
Sec. 413. Issuance of regulations.
Sec. 414. Sense of Congress regarding effect on Amtrak funding.
Sec. 415. Effective date.
                 Subtitle C--Amtrak Capital Investment

Sec. 421. Authorization of appropriations.
       Subtitle D--Capital Investment for Railroad Rehabilitation

Sec. 431. Capital grants for railroad track.
Sec. 432. Regulatory procedure amendments.
            TITLE V--PORT SECURITY INFRASTRUCTURE INVESTMENT

Sec. 501. Authorization of appropriations for grants to implement 
                            security plans.
           TITLE VI--ENVIRONMENTAL INFRASTRUCTURE INVESTMENT

Sec. 601. General authority for capitalization grants.
Sec. 602. Capitalization grants agreements.
Sec. 603. Water pollution control revolving funds.
Sec. 604. Authorization of appropriations for clean water State 
                            revolving funds.
Sec. 605. Wet weather.
Sec. 606. Safe drinking water State revolving funds.
          TITLE VII--WATER RESOURCES INFRASTRUCTURE INVESTMENT

Sec. 701. Increased funding for Corps of Engineers projects.
       TITLE VIII--ECONOMIC DEVELOPMENT INFRASTRUCTURE INVESTMENT

Sec. 801. Public works and economic development.
Sec. 802. Appalachian regional development.
Sec. 803. Delta regional development.
Sec. 804. Northern Great Plains regional development.
          TITLE IX--PUBLIC BUILDINGS INFRASTRUCTURE INVESTMENT

Sec. 901. Security enhancements for GSA properties.
                      TITLE X--GENERAL PROVISIONS

Sec. 1001. Priority consideration for security projects.
Sec. 1002. Temporary waiver of non-Federal share.
Sec. 1003. Maintenance of effort.
Sec. 1004. Labor standards.
Sec. 1005. Buy America.
                       TITLE XI--REVENUE OFFSETS

Sec. 1100. Amendment of 1986 code.
        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 1101. Clarification of economic substance doctrine.
Sec. 1102. Penalty for failing to disclose reportable transaction.
Sec. 1103. Accuracy-related penalty for listed transactions and other 
                            reportable transactions having a 
                            significant tax avoidance purpose.
Sec. 1104. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.
Sec. 1105. Modifications of substantial understatement penalty for 
                            nonreportable transactions.
Sec. 1106. Tax shelter exception to confidentiality privileges relating 
                            to taxpayer communications.
Sec. 1107. Disclosure of reportable transactions.
Sec. 1108. Modifications to penalty for failure to register tax 
                            shelters.
Sec. 1109. Modification of penalty for failure to maintain lists of 
                            investors.
Sec. 1110. Modification of actions to enjoin certain conduct related to 
                            tax shelters and reportable transactions.
Sec. 1111. Understatement of taxpayer's liability by income tax return 
                            preparer.
Sec. 1112. Penalty on failure to report interests in foreign financial 
                            accounts.
Sec. 1113. Frivolous tax submissions.
Sec. 1114. Regulation of individuals practicing before the Department 
                            of Treasury.
Sec. 1115. Penalty on promoters of tax shelters.
Sec. 1116. Statute of limitations for taxable years for which listed 
                            transactions not reported.
Sec. 1117. Denial of deduction for interest on underpayments 
                            attributable to nondisclosed reportable and 
                            noneconomic substance transactions.
                      Subtitle B--Other Provisions

Sec. 1121. Limitation on transfer or importation of built-in losses.
Sec. 1122. Disallowance of certain partnership loss transfers.
Sec. 1123. No reduction of basis under section 734 in stock held by 
                            partnership in corporate partner.
Sec. 1124. Repeal of special rules for FASITs.
Sec. 1125. Expanded disallowance of deduction for interest on 
                            convertible debt.
Sec. 1126. Expanded authority to disallow tax benefits under section 
                            269.
Sec. 1127. Modifications of certain rules relating to controlled 
                            foreign corporations.
Sec. 1128. Basis for determining loss always reduced by nontaxed 
                            portion of dividends.
Sec. 1129. Affirmation of consolidated return regulation authority.
Sec. 1130. Extension of customs user fees.
Subtitle C--Prevention of Corporate Expatriation To Avoid United States 
                               Income Tax

Sec. 1131. Prevention of corporate expatriation to avoid United States 
                            income tax.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--Congress finds the following:
            (1) Since January 2001, the unemployment rate has increased 
        from 4.2 percent to 6.1 percent, the highest level since July 
        1994.
            (2) Since January 2001, the number of unemployed people 
        increased from 5,950,000 people to 9,000,000, an increase of 
        more than 3,000,000, or more than 50 percent.
            (3) The increase in unemployment of the last two and one-
        half years has had a disproportionate effect on people of 
        color. The rate of unemployment for African Americans is 10.8 
        percent, twice the rate for whites. The unemployment rate for 
        Hispanic Americans is 8.2 percent, more than 50 percent higher 
than the rate for whites.
            (4) The number of unemployed private construction workers 
        is 715,000, an 80 percent increase over the comparable period 
        in calendar year 2000. The unemployment rate for construction 
        workers is 8.4 percent, 68 percent higher than the rate in May 
        2000.
            (5) Similarly, the number of unemployed manufacturing 
        workers is nearly 1,200,000, an increase of more than 25 
        percent since January 2001. In January 2003, the number of 
        production workers in manufacturing dropped below 11,000,000 
        for the first time since February 1946, and the number 
        continues to fall.
            (6) Moreover, after workers have lost their jobs, they have 
        had more trouble finding new jobs. The average length of 
        unemployment is almost 20 weeks, the longest it has been in 
        almost 2 decades. In the past 2 years, the number of workers 
        who are unemployed for longer than 6 months has increased by 
        1,300,000 to more than 1,900,000, an increase of more than 206 
        percent. One-half of the unemployed are out of work for more 
        than 10 weeks and one in 5 have been out of work for more than 
        6 months.
            (7) In addition, 4,600,000 people seeking full-time 
        employment are working only part-time. An additional 5,500,000 
        have completely dropped out of the labor force because they 
        cannot find work, and therefore are not counted as unemployed.
            (8) As labor markets tightened in the late 1990's, even 
        low- and middle-income workers seemed to gain some wage 
        bargaining power. But, with the Bush recession, family incomes 
        are falling across the board, and falling most rapidly among 
        lower-income workers.
            (9) In 75 urban areas, highway congestion alone costs 
        travelers 3,600,000,000 hours of delay, 5,700,000,000 gallons 
        of wasted fuel, and $67,500,000,000 in lost productivity and 
        wasted fuel each year (more than three times the 
        $22,000,000,000 cost in 1982).
            (10) Similarly, States indicate that 40 percent of assessed 
        waters, or 20,000 discrete areas of the Nation's lakes, rivers, 
        streams, and coastal waters, do not meet State water quality 
        standards.
            (11) States, cities, transit authorities, airport 
        authorities, and other entities have thousands of ready-to-go 
        infrastructure projects, which will create long-term capital 
        assets for the United States and which can help stimulate the 
        Nation's economy.
            (12) Each $1,000,000,000 of Federal funding invested in 
        infrastructure construction creates approximately 47,500 jobs 
        and $6,200,000,000 in economic activity.
    (b) Purposes.--The purposes of this Act are as follows:
            (1) To invest in the Nation's infrastructure to enhance the 
        safety, security, and efficiency of highway, transit, aviation, 
        rail, port, environmental, water resources, and public 
        buildings infrastructure.
            (2) To create jobs and economic activity to put people back 
        to work and stimulate the Nation's economy.
            (3) To create long-term capital assets for the Nation that 
        will help the United States address its enormous infrastructure 
        needs and improve its economic productivity.
            (4) To demonstrate the commitment of the Federal Government 
        to economic recovery, thereby increasing the confidence of 
        consumers and businesses.

               TITLE I--HIGHWAY INFRASTRUCTURE INVESTMENT

SEC. 101. FEDERAL-AID HIGHWAY PROGRAM OBLIGATION CEILING.

    Section 1102 of the Transportation Equity Act for the 21st Century 
(112 Stat. 115) is amended by adding at the end the following:
    ``(j) Increase in Obligation Limit for Fiscal Year 2003.--
Notwithstanding any other provision of law, limitations on obligations 
imposed by subsection (a) for fiscal year 2003 shall be 
$36,600,000,000. Such sum shall be distributed in accordance with this 
section, except that a program subject to a reduction in funds under 
subsection (f) shall receive an amount of obligation authority equal to 
the amount of contract authority available for such program in such 
fiscal year.''.

              TITLE II--TRANSIT INFRASTRUCTURE INVESTMENT

SEC. 201. ADDITIONAL AUTHORIZATIONS FOR FORMULA GRANTS.

    (a) From the Trust Fund.--Section 5338(a)(2)(A)(v) of title 49, 
United States Code, is amended by striking ``$3,071,200,000'' and 
inserting ``$5,471,200,000''.
    (b) From the General Fund.--Section 5338(a)(2)(B)(v) of title 49, 
United States Code, is amended by striking ``$767,800,000'' and 
inserting ``$1,367,800,000''.
    (c) Availability of Amounts.--Notwithstanding sections 5307(k)(2) 
and section 5336(i), any increase in the amounts apportioned to a 
recipient attributable to the amendments made by subsections (a) and 
(b) of this section may be obligated by the recipient for 1 year after 
the last day of the fiscal year in which the amount is apportioned. Not 
later than 30 days after the end of the 1-year period, an amount that 
is not obligated at the end of that period shall be added to the amount 
that may be apportioned under the urbanized area formula program of 
section 5336 of title 49, United States Code.

SEC. 202. FEDERAL TRANSIT PROGRAM OBLIGATION CEILING.

    Section 3040(5) of the Transportation Equity Act for the 21st 
Century (112 Stat. 394) is amended by striking ``$7,226,000,000'' and 
inserting ``$10,226,000,000''.

             TITLE III--AVIATION INFRASTRUCTURE INVESTMENT

SEC. 301. INCREASED FUNDING FOR AIRPORT PLANNING AND DEVELOPMENT.

    (a) In General.--Section 48103(5) of title 49, United States Code, 
is amended by striking ``$3,400,000,000'' and inserting 
``$5,400,000,000.''.

SEC. 302. AIRPORT SECURITY IMPROVEMENT PROJECTS.

    (a) Grant Authority.--Subject to the requirements of this section, 
the Under Secretary for Border and Transportation Security shall make 
grants to airport sponsors--
            (1) for projects to replace baggage conveyer systems 
        related to aviation security;
            (2) for projects to reconfigure terminal baggage areas as 
        needed to install explosive detection systems; and
            (3) for such other airport security improvement projects as 
        the Under Secretary determines appropriate.
    (b) Applications.--A sponsor seeking a grant under this section 
shall submit to the Under Secretary an application in such form and 
containing such information as the Under Secretary prescribes.
    (c) Approval.--The Under Secretary may approve an application of a 
sponsor for a grant under this section only if the Under Secretary 
determines that the project will improve security at an airport or 
improve the efficiency of the airport without lessening security.
    (d) Letters of Intent.--
            (1) Issuance.--The Under Secretary may issue a letter of 
        intent to a sponsor committing to obligate from future budget 
        authority an amount, not more than the Federal Government's 
        share of the project's cost, for an airport security 
        improvement project (including interest costs and costs of 
        formulating the project).
            (2) Schedule.--A letter of intent under this subsection 
        shall establish a schedule under which the Under Secretary will 
        reimburse the sponsor for the Government's share of the 
        project's costs, as amounts become available, if the sponsor, 
        after the Under Secretary issues the letter, carries out the 
        project without receiving amounts under this section.
            (3) Priority.--In making grants under this section in a 
        fiscal year, the Under Secretary shall fulfill intentions to 
        obligate under this subsection.
            (4) Notice to under secretary.--A sponsor that has been 
        issued a letter of intent under this subsection shall notify 
        the Under Secretary of the sponsors's intent to carry out an 
        airport security improvement project before the project begins.
            (5) Notice to congress.--The Under Secretary shall transmit 
        to the Committees on Appropriations and Transportation and 
        Infrastructure of the House of Representatives and the 
        Committees on Appropriations and Commerce, Science and 
        Transportation of the Senate a written notification at least 3 
        days before the issuance of a letter of intent under this 
        section.
            (6) Limitations.--A letter of intent issued under this 
        subsection is not an obligation of the Government under section 
        1501 of title 31, and the letter is not deemed to be an 
        administrative commitment for financing. An obligation or 
        administrative commitment may be made only as amounts are 
        provided in authorization and appropriations laws.
            (7) Applicability of certain requirements.--The 
        requirements that apply to grants and letters of intent issued 
        under chapter 471 shall apply to grants and letters of intent 
        issued under this section.
            (8) Statutory construction.--Nothing in this subsection 
        shall be construed to prohibit the obligation of amounts 
        pursuant to a letter of intent under this subsection in the 
        same fiscal year as the letter of intent is issued.
    (e) Federal Share.--The Government's share of the cost of a project 
under this section shall be 90 percent for a project at an airport 
having at least 0.25 percent of the total number of passenger boardings 
each year at all airports and 95 percent for a project at any other 
airport.
    (f) Sponsor Defined.--In this section, the term ``sponsor'' has the 
meaning given that term in section 47102.
    (g) Authorization of Appropriations.--There is authorized to be 
appropriated $1,000,000,000 for fiscal year 2003 to carry out this 
section.

                TITLE IV--RAIL INFRASTRUCTURE INVESTMENT

                  Subtitle A--Credit for Amtrak Bonds

SEC. 401. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

    (a) In General.--Part IV of subchapter A of chapter 1 of the 
Internal Revenue Code of 1986 (relating to credits against tax) is 
amended by adding at the end the following new subpart:

``Subpart H--Nonrefundable Credit for Holders of Qualified Amtrak Bonds

                              ``Sec. 54. Credit to holders of qualified 
                                        Amtrak bonds.

``SEC. 54. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

    ``(a) Allowance of Credit.--In the case of a taxpayer who holds a 
qualified Amtrak bond on a credit allowance date of such bond which 
occurs during the taxable year, there shall be allowed as a credit 
against the tax imposed by this chapter for such taxable year an amount 
equal to the sum of the credits determined under subsection (b) with 
respect to credit allowance dates during such year on which the 
taxpayer holds such bond.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit allowance date 
        for a qualified Amtrak bond is 25 percent of the annual credit 
        determined with respect to such bond.
            ``(2) Annual credit.--The annual credit determined with 
        respect to any qualified Amtrak bond is the product of--
                    ``(A) the applicable credit rate, multiplied by
                    ``(B) the outstanding face amount of the bond.
            ``(3) Applicable credit rate.--For purposes of paragraph 
        (2), the applicable credit rate with respect to an issue is the 
        rate equal to an average market yield (as of the day before the 
        date of sale of the issue) on outstanding long-term corporate 
        debt obligations (determined under regulations prescribed by 
        the Secretary).
            ``(4) Credit allowance date.--For purposes of this section, 
        the term `credit allowance date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
            ``(5) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month period ending 
        on a credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under subsection (a) 
        for any taxable year shall not exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                part (other than this subpart and subpart C).
            ``(2) Carryover of unused credit.--If the credit allowable 
        under subsection (a) exceeds the limitation imposed by 
        paragraph (1) for such taxable year, such excess shall be 
        carried to the succeeding taxable year and added to the credit 
        allowable under subsection (a) for such taxable year.
    ``(d) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section 
(determined without regard to subsection (c)) and the amount so 
included shall be treated as interest income.
    ``(e) Qualified Amtrak Bond.--For purposes of this part, the term 
`qualified Amtrak bond' means any bond issued as part of an issue if--
            ``(1) 95 percent or more of the proceeds from the sale of 
        such issue are to be used for expenditures incurred after the 
        date of the enactment of this section for any qualified 
        project,
            ``(2) the bond is issued by the National Railroad Passenger 
        Corporation, is in registered form, and meets the bond 
        limitation requirements under subsection (f),
            ``(3) the issuer designates such bond for purposes of this 
        section,
            ``(4) the issuer certifies that it meets the State 
        contribution requirement of subsection (k) with respect to such 
        project, as in effect on the date of the enactment of this 
        section,
            ``(5) the issuer certifies that it has obtained the written 
        approval of the Secretary of Transportation for such project in 
        accordance with section 26301 of title 49, United States Code, 
        as in effect on the date of the enactment of this section,
            ``(6) the term of each bond which is part of such issue 
        does not exceed 20 years,
            ``(7) the payment of principal with respect to such bond is 
        the obligation of the National Railroad Passenger Corporation, 
        and
            ``(8) the issue meets the requirements of subsection (g) 
        (relating to arbitrage).
    ``(f) Limitations on Amount of Bonds Designated.--
            ``(1) In general.--There is a qualified Amtrak bond 
        limitation for each fiscal year. Such limitation is--
                    ``(A) $1,400,000,000 for each of the fiscal years 
                2003 through 2012, and
                    ``(B) zero after fiscal year 2012.
            ``(2) Limits on bonds for northeast rail corridor and 
        individual states.--
                    ``(A) Northeast rail corridor.--Not more than 
                $3,000,000,000 of the limitation under paragraph (1) 
                may be designated for qualified projects on the 
                northeast rail corridor between Washington, D.C., and 
                Boston, Massachusetts.
                    ``(B) Individual states.--Not more than 
                $3,000,000,000 of the limitation under paragraph (1) 
                may be designated for any individual State. The dollar 
                limitation under this subparagraph is in addition to 
                the dollar limitation for the qualified projects 
                described in subparagraph (A).
            ``(3) Limit on bonds for other projects.--Not more than 
        $100,000,000 of the limitation under paragraph (1) for any 
        fiscal year may be designated for all qualified projects 
        described in subsection (j)(1)(C).
            ``(4) Carryover of unused limitation.--If for any fiscal 
        year--
                    ``(A) the limitation amount under paragraph (1), 
                exceeds
                    ``(B) the amount of bonds issued during such year 
                which are designated under subsection (e)(3),
        the limitation amount under paragraph (1) for the following 
        fiscal year (through fiscal year 2016) shall be increased by 
        the amount of such excess.
    ``(g) Special Rules Relating to Arbitrage.--
            ``(1) In general.--Subject to paragraph (2), an issue shall 
        be treated as meeting the requirements of this subsection if as 
        of the date of issuance, the issuer reasonably expects--
                    ``(A) to spend at least 95 percent of the proceeds 
                from the sale of the issue for 1 or more qualified 
projects within the 3-year period beginning on such date,
                    ``(B) to incur a binding commitment with a third 
                party to spend at least 10 percent of the proceeds from 
                the sale of the issue, or to commence construction, 
                with respect to such projects within the 6-month period 
                beginning on such date, and
                    ``(C) to proceed with due diligence to complete 
                such projects and to spend the proceeds from the sale 
                of the issue.
            ``(2) Rules regarding continuing compliance after 3-year 
        determination.--If at least 95 percent of the proceeds from the 
        sale of the issue is not expended for 1 or more qualified 
        projects within the 3-year period beginning on the date of 
        issuance, but the requirements of paragraph (1) are otherwise 
        met, an issue shall be treated as continuing to meet the 
        requirements of this subsection if either--
                    ``(A) the issuer uses all unspent proceeds from the 
                sale of the issue to redeem bonds of the issue within 
                90 days after the end of such 3-year period, or
                    ``(B) the following requirements are met:
                            ``(i) The issuer spends at least 75 percent 
                        of the proceeds from the sale of the issue for 
                        1 or more qualified projects within the 3-year 
                        period beginning on the date of issuance.
                            ``(ii) Either--
                                    ``(I) the issuer spends at least 95 
                                percent of the proceeds from the sale 
                                of the issue for 1 or more qualified 
                                projects within the 4-year period 
                                beginning on the date of issuance, or
                                    ``(II) the issuer pays to the 
                                Federal Government any earnings on the 
                                proceeds from the sale of the issue 
                                that accrue after the end of the 3-year 
                                period beginning on the date of 
                                issuance and uses all unspent proceeds 
                                from the sale of the issue to redeem 
                                bonds of the issue within 90 days after 
                                the end of the 4-year period beginning 
                                on the date of issuance.
    ``(h) Recapture of Portion of Credit Where Cessation of 
Compliance.--
            ``(1) In general.--If any bond which when issued purported 
        to be a qualified Amtrak bond ceases to be such a qualified 
        bond, the issuer shall pay to the United States (at the time 
        required by the Secretary) an amount equal to the sum of--
                    ``(A) the aggregate of the credits allowable under 
                this section with respect to such bond (determined 
                without regard to subsection (c)) for taxable years 
                ending during the calendar year in which such cessation 
                occurs and the 2 preceding calendar years, and
                    ``(B) interest at the underpayment rate under 
                section 6621 on the amount determined under 
                subparagraph (A) for each calendar year for the period 
                beginning on the first day of such calendar year.
            ``(2) Failure to pay.--If the issuer fails to timely pay 
        the amount required by paragraph (1) with respect to such bond, 
        the tax imposed by this chapter on each holder of any such bond 
        which is part of such issue shall be increased (for the taxable 
        year of the holder in which such cessation occurs) by the 
        aggregate decrease in the credits allowed under this section to 
        such holder for taxable years beginning in such 3 calendar 
        years which would have resulted solely from denying any credit 
        under this section with respect to such issue for such taxable 
        years.
            ``(3) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the taxable 
                year shall be increased under paragraph (2) only with 
                respect to credits allowed by reason of this section 
                which were used to reduce tax liability. In the case of 
                credits not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 shall be 
                appropriately adjusted.
                    ``(B) No credits against tax.--Any increase in tax 
                under paragraph (2) shall not be treated as a tax 
                imposed by this chapter for purposes of determining--
                            ``(i) the amount of any credit allowable 
                        under this part, or
                            ``(ii) the amount of the tax imposed by 
                        section 55.
    ``(i) Trust Account.--
            ``(1) In general.--The following amounts shall be held in a 
        trust account by a trustee independent of the National Railroad 
        Passenger Corporation:
                    ``(A) The proceeds from the sale of all bonds 
                designated for purposes of this section.
                    ``(B) The amount of any matching contributions with 
                respect to such bonds.
                    ``(C) The temporary period investment earnings on 
                proceeds from the sale of such bonds.
                    ``(D) Any earnings on any amounts described in 
                subparagraph (A), (B), or (C).
            ``(2) Use of funds.--Amounts in the trust account may be 
        used only to pay costs of qualified projects and redeem 
        qualified Amtrak bonds, except that amounts withdrawn from the 
        trust account to pay costs of qualified projects may not exceed 
        the aggregate proceeds from the sale of all qualified Amtrak 
        bonds issued under this section.
            ``(3) Use of remaining funds in trust account.--Upon the 
        redemption of all qualified Amtrak bonds issued under this 
        section, any remaining amounts in the trust account described 
        in paragraph (1) shall be available to the issuer for any 
        qualified project.
    ``(j) Qualified Project.--For purposes of this section--
            ``(1) In general.--The term `qualified project' means--
                    ``(A) the acquisition, financing, or refinancing of 
                equipment, rolling stock, and other capital 
                improvements (including the introduction of new high-
                speed technologies such as magnetic levitation 
                systems), including track or signal improvements or the 
                elimination of grade crossings, for the northeast rail 
                corridor between Washington, D.C., and Boston, 
                Massachusetts,
                    ``(B) the acquisition, financing, or refinancing of 
                equipment, rolling stock, and other capital 
                improvements (including the introduction of new high-
                speed technologies such as magnetic levitation 
                systems), including development of intermodal 
                facilities, track or signal improvements, or the 
                elimination of grade crossings, for the improvement of 
                train speeds or safety (or both) on the high-speed rail 
                corridors designated under section 104(d)(2) of title 
                23, United States Code, as in effect on the date of the 
                enactment of this section, and
                    ``(C) the acquisition, financing, or refinancing of 
                equipment, rolling stock, and other capital 
                improvements, including station rehabilitation or 
                construction, development of intermodal facilities, 
                track or signal improvements, or the elimination of 
                grade crossings, for the improvement of train speeds or 
                safety (or both) for other intercity passenger rail 
                corridors and for the Alaska Railroad.
            ``(2) Refinancing rules.--For purposes of paragraph (1), a 
        refinancing shall constitute a qualified project only if the 
        indebtedness being refinanced (including any obligation 
        directly or indirectly refinanced by such indebtedness) was 
        originally incurred by the issuer--
                    ``(A) after the date of the enactment of this 
                section,
                    ``(B) for a term of not more than 3 years,
                    ``(C) to finance or acquire capital improvements 
                described in paragraph (1), and
                    ``(D) in anticipation of being refinanced with 
                proceeds of a qualified Amtrak bond.
    ``(k) State Contribution Requirements.--
            ``(1) In general.--For purposes of subsection (e)(4), the 
        State contribution requirement of this subsection is met with 
        respect to any qualified project if the National Railroad 
        Passenger Corporation has received from 1 or more States, not 
        later than the date of issuance of the bond, matching 
        contributions of not less than 20 percent of the cost of the 
        qualified project.
            ``(2) No state contribution requirement for certain 
        qualified projects.--The State contribution requirement of this 
        subsection is zero with respect to the following projects:
                    ``(A) Any qualified project for the acquisition and 
                installation of platform facilities, performance of 
                railroad force account work necessary to complete 
                improvements below street grade, and any other 
                necessary improvements related to construction at the 
                railroad station at the James A. Farley Post Office 
                Building in New York City, New York.
                    ``(B) Any project described in subsection (j)(1)(C) 
                for the Alaska Railroad.
            ``(3) State matching contributions may not include federal 
        funds.--For purposes of this subsection, State matching 
        contributions shall not be derived, directly or indirectly, 
        from Federal funds, including any transfers from the Highway 
        Trust Fund under section 9503.
    ``(l) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Bond.--The term `bond' includes any obligation.
            ``(2) Treatment of changes in use.--For purposes of 
        subsection (e)(1), the proceeds from the sale of an issue shall 
        not be treated as used for a qualified project to the extent 
        that the issuer takes any action within its control which 
        causes such proceeds not to be used for a qualified project. 
        The Secretary shall prescribe regulations specifying remedial 
        actions that may be taken (including conditions to taking such 
        remedial actions) to prevent an action described in the 
        preceding sentence from causing a bond to fail to be a 
        qualified Amtrak bond.
            ``(3) Partnership; s corporation; and other pass-thru 
        entities.--Under regulations prescribed by the Secretary, in 
        the case of a partnership, trust, S corporation, or other pass-
        thru entity, rules similar to the rules of section 41(g) shall 
        apply with respect to the credit allowable under subsection 
        (a).
            ``(4) Bonds held by regulated investment companies.--If any 
        qualified Amtrak bond is held by a regulated investment 
        company, the credit determined under subsection (a) shall be 
        allowed to shareholders of such company under procedures 
        prescribed by the Secretary.
            ``(5) Reporting.--Issuers of qualified Amtrak bonds shall 
        submit reports similar to the reports required under section 
        149(e).''.
    (b) Amendments to Other Code Sections.--
            (1) Reporting.--Subsection (d) of section 6049 of the 
        Internal Revenue Code of 1986 (relating to returns regarding 
        payments of interest) is amended by adding at the end the 
        following new paragraph:
            ``(8) Reporting of credit on qualified amtrak bonds.--
                    ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 54(d) and such amounts shall 
                be treated as paid on the credit allowance date (as 
                defined in section 54(b)(4)).
                    ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A), subsection 
                (b)(4) shall be applied without regard to subparagraphs 
(A), (H), (I), (J), (K), and (L)(i) of such subsection.
                    ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''.
            (2) Treatment for estimated tax purposes.--
                    (A) Individual.--Section 6654 of such Code 
                (relating to failure by individual to pay estimated 
                income tax) is amended by redesignating subsection (m) 
                as subsection (n) and by inserting after subsection (l) 
                the following new subsection:
    ``(m) Special Rule for Holders of Qualified Amtrak Bonds.--For 
purposes of this section, the credit allowed by section 54 to a 
taxpayer by reason of holding a qualified Amtrak bond on a credit 
allowance date shall be treated as if it were a payment of estimated 
tax made by the taxpayer on such date.''.
                    (B) Corporate.--Section 6655 of such Code (relating 
                to failure by corporation to pay estimated income tax) 
                is amended by adding at the end of subsection (g) the 
                following new paragraph:
            ``(5) Special rule for holders of qualified amtrak bonds.--
        For purposes of this section, the credit allowed by section 54 
        to a taxpayer by reason of holding a qualified Amtrak bond on a 
        credit allowance date shall be treated as if it were a payment 
        of estimated tax made by the taxpayer on such date.''.
            (3) Exclusion from gross income of contributions by amtrak 
        to other rail carriers.--
                    (A) In general.--Section 118 of the Internal 
                Revenue Code of 1986 (relating to contributions to the 
                capital of a corporation) is amended by redesignating 
                subsections (d) and (e) as subsections (e) and (f), 
                respectively, and by inserting after subsection (c) the 
                following new subsection:
    ``(d) Special Rule for Contributions by Amtrak to Other Rail 
Carriers.--For purposes of this section, the term `contribution to the 
capital of the taxpayer' does not include any contribution by the 
National Railroad Passenger Corporation of personal or real property 
funded by the proceeds of qualified Amtrak bonds under section 54.''.
                    (B) Conforming amendment.--Subsection (b) of such 
                section 118 is amended by striking ``subsection (c)'' 
                and inserting ``subsections (c) and (d)''.
            (4) Protection of highway trust fund.--Section 9503 of such 
        Code (relating to Highway Trust Fund) is amended by adding at 
        the end the following new subsection:
    ``(g) Special Rule Relating to National Railroad Passenger 
Corporation.--Except as provided in subsection (c), as in effect on the 
date of the enactment of this subsection, amounts in the Highway Trust 
Fund may not be used to provide funds to the National Railroad 
Passenger Corporation for any purpose, including issuance of any 
qualified Amtrak bond pursuant to section 54. The preceding sentence 
may not be waived by any provision of law which is not contained or 
referenced in this title, whether such provision of law is a 
subsequently enacted provision or directly or indirectly seeks to waive 
the application of such sentence.''.
    (c) Clerical Amendments.--
            (1) The table of subparts for part IV of subchapter A of 
        chapter 1 is amended by adding at the end the following new 
        item:

                              ``Subpart H. Nonrefundable Credit for 
                                        Holders of Qualified Amtrak 
                                        Bonds.''.
            (2) Section 6401(b)(1) is amended by striking ``and G'' and 
        inserting ``G, and H''.
    (d) Annual Report by Treasury on Amtrak Trust Account.--The 
Secretary of the Treasury shall annually report to Congress as to 
whether the amount deposited in the trust account established by the 
National Railroad Passenger Corporation under section 54(i) of the 
Internal Revenue Code of 1986, as added by this section, is sufficient 
to fully repay at maturity the principal of any outstanding qualified 
Amtrak bonds issued pursuant to section 54 of such Code (as so added), 
together with amounts expected to be deposited into such account, as 
certified by the National Railroad Passenger Corporation in accordance 
with procedures prescribed by the Secretary of the Treasury.
    (e) Issuance of Regulations.--The Secretary of the Treasury shall 
issue regulations required under section 54 of the Internal Revenue 
Code of 1986 (as added by this section) not later than 90 days after 
the date of the enactment of this Act.
    (f) Effective Date.--The amendments made by this section shall 
apply to obligations issued after the date of enactment of this Act.

                 Subtitle B--High-Speed Rail Provisions

SEC. 411. DEPARTMENT OF TRANSPORTATION APPROVAL FOR QUALIFIED AMTRAK 
              PROJECTS.

    (a) Amendment.--Part D of subtitle V of title 49, United States 
Code, is amended by adding at the end the following new chapter:

               ``CHAPTER 263--HIGH-SPEED RAIL INITIATIVES

``Sec.
``26301. Department of Transportation approval for qualified high-speed 
                            rail projects.
``26302. Qualified projects.
``26303. State contribution requirements.''.
``Sec. 26301. Department of Transportation approval for qualified high-
              speed rail projects
    ``(a) In General.--The written approval of a qualified project by 
the Secretary of Transportation required for purposes of subsection 
(e)(5) of section 54 of the Internal Revenue Code of 1986 (relating to 
credit to holders of qualified Amtrak bonds) shall include--
            ``(1) the finding by the Inspector General of the 
        Department of Transportation described in subsection (b);
            ``(2) the certification by the Secretary of Transportation 
        described in subsection (c); and
            ``(3) the agreement by the National Railroad Passenger 
        Corporation described in subsection (d).
    ``(b) Finding by Inspector General.--For purposes of subsection 
(a), the finding described in this subsection is a finding by the 
Inspector General of the Department of Transportation that there is a 
reasonable likelihood that the proposed project will result in a 
positive financial contribution to the National Railroad Passenger 
Corporation and that the investment evaluation process includes 
consideration of a return on investment, leveraging of funds (including 
State capital and operating contributions), cost effectiveness, safety 
improvement, mobility improvement, and feasibility.
    ``(c) Certification.--For purposes of subsection (a), the 
certification described in this subsection is a certification by the 
Secretary of Transportation that the issuer of the qualified Amtrak 
bond--
            ``(1) except with respect to projects described in section 
        54(j)(1)(C) of the Internal Revenue Code of 1986, has entered 
        into a written agreement with the owners of rail properties 
        which are to be improved by the project to be funded by the 
        qualified Amtrak bond, as to the scope and estimated cost of 
        such project and the impact on rail freight capacity; and
            ``(2) has met the State contribution requirements described 
        in section 26303.
The National Railroad Passenger Corporation shall not exercise its 
rights under section 24308(a)(2) to resolve disputes with respect to a 
project to be funded by a qualified Amtrak bond, or with respect to the 
cost of such a project, unless the project is intended to result in 
railroad speeds of 79 miles per hour or less.
    ``(d) Agreement by Amtrak To Issue Additional Bonds for Projects of 
Other Carriers.--
            ``(1) In general.--For purposes of subsection (a), the 
        agreement described in this subsection is an agreement by the 
        National Railroad Passenger Corporation with the Secretary of 
        Transportation to issue bonds which meet the requirements of 
        section 54 of the Internal Revenue Code of 1986 for use in 
        financing projects described in paragraph (2).
            ``(2) Projects covered.--For purposes of paragraph (1), the 
        projects described in this paragraph are any project described 
        in subsection (j)(1)(B) or (j)(1)(C) of section 54 of the 
        Internal Revenue Code of 1986 for an intercity rail passenger 
        carrier other than the National Railroad Passenger Corporation 
        or for the Alaska Railroad.
            ``(3) Additional requirements.--Any project financed by 
        bonds referred to in paragraph (1) shall be carried out by the 
        intercity rail passenger carrier other than the National 
        Railroad Passenger Corporation, through a contract entered into 
        by the National Railroad Passenger Corporation with such 
        carrier. Such other intercity rail passenger carrier, in 
        carrying out the project, shall be subject to the provisions of 
        this subtitle governing the National Railroad Passenger 
        Corporation.
            ``(4) Definition.--For purposes of this subsection, the 
        term `intercity rail passenger carrier' means any rail carrier 
        (as such term is defined in section 24102(7)) that is part of 
        the interstate system of rail transportation and that provides 
        intercity rail passenger transportation (as such term is 
        defined in section 24102(5)).
    ``(e) Additional Selection Criteria.--In determining projects to be 
approved under this section (other than projects for the Alaska 
Railroad), or to be included in an agreement under subsection (d), the 
Secretary of Transportation shall give preference to--
            ``(1) any project with a State matching contribution rate 
        exceeding 20 percent;
            ``(2) projects expected to have a significant impact on air 
        traffic congestion;
            ``(3) projects expected to also improve commuter rail 
        operations;
            ``(4) projects that anticipate fares designed to recover 
        costs and generate a return on investment; and
            ``(5) projects that promote regional balance in 
        infrastructure investment and the national interest in ensuring 
        the development of a nationwide high-speed rail transportation 
        network.
``Sec. 26302. Qualified projects
    ``For purposes of this chapter:
            ``(1) In general.--The term `qualified project' means--
                    ``(A) the acquisition, financing, or refinancing of 
                equipment, rolling stock, and other capital 
                improvements (including the introduction of new high-
                speed technologies such as magnetic levitation 
                systems), including track or signal improvements or the 
                elimination of grade crossings, for the northeast rail 
                corridor between Washington, D.C., and Boston, 
                Massachusetts;
                    ``(B) the acquisition, financing, or refinancing of 
                equipment, rolling stock, and other capital 
                improvements (including the introduction of new high-
                speed technologies such as magnetic levitation 
                systems), including development of intermodal 
                facilities, track or signal improvements, or the 
                elimination of grade crossings, for the improvement of 
                train speeds or safety (or both) on the high-speed rail 
                corridors designated under section 104(d)(2) of title 
                23, United States Code, as in effect on the date of the 
                enactment of this section; and
                    ``(C) the acquisition, financing, or refinancing of 
                equipment, rolling stock, and other capital 
                improvements, including station rehabilitation or 
                construction, development of intermodal facilities, 
                track or signal improvements, or the elimination of 
                grade crossings, for the improvement of train speeds or 
                safety (or both) for other intercity passenger rail 
                corridors and for the Alaska Railroad.
            ``(2) Refinancing rules.--For purposes of paragraph (1), a 
        refinancing shall constitute a qualified project only if the 
        indebtedness being refinanced (including any obligation 
        directly or indirectly refinanced by such indebtedness) was 
        originally incurred by the issuer--
                    ``(A) after the date of the enactment of this 
                section;
                    ``(B) for a term of not more than 3 years;
                    ``(C) to finance or acquire capital improvements 
                described in paragraph (1); and
                    ``(D) in anticipation of being refinanced with 
                proceeds of a qualified Amtrak bond.
``Sec. 26303. State contribution requirements
    ``(a) In General.--For purposes of section 26301(c)(2), the State 
contribution requirement of this section is met with respect to any 
qualified project if the National Railroad Passenger Corporation has 
received from 1 or more States, not later than the date of issuance of 
the bond, matching contributions of not less than 20 percent of the 
cost of the qualified project.
    ``(b) No State Contribution Requirement for Certain Qualified 
Projects.--The State contribution requirement of this section is zero 
with respect to the following projects:
            ``(1) Any qualified project for the acquisition and 
        installation of platform facilities, performance of railroad 
        force account work necessary to complete improvements below 
        street grade, and any other necessary improvements related to 
        construction at the railroad station at the James A. Farley 
        Post Office Building in New York City, New York.
            ``(2) Any project described in subsection (j)(1)(C) of 
        section 54 of the Internal Revenue Code of 1986 for the Alaska 
        Railroad.
    ``(c) State Matching Contributions May Not Include Federal Funds.--
For purposes of this section, State matching contributions shall not be 
derived, directly or indirectly, from Federal funds, including any 
transfers from the Highway Trust Fund under section 9503 of the 
Internal Revenue Code of 1986.''.
    (b) Table of Chapters Amendment.--The table of chapters of subtitle 
V of title 49, United States Code, is amended by inserting after the 
item relating to chapter 261 the following new item:

``263. HIGH-SPEED RAIL INITIATIVES..........................   26301''.

SEC. 412. MULTIYEAR CAPITAL SPENDING PLAN AND OVERSIGHT.

    (a) Amendment.--Chapter 243 of title 49, United States Code, is 
amended by adding at the end the following new section:
``Sec. 24316. Multiyear capital spending plan and oversight
    ``(a) Amtrak Capital Spending Plan.--
            ``(1) In general.--The National Railroad Passenger 
        Corporation shall annually submit to the President and Congress 
        a multiyear capital spending plan, as approved by the Board of 
        Directors of the Corporation.
            ``(2) Contents of plan.--Such plan shall identify the 
        capital investment needs of the Corporation over a period of 
        not less than 5 years and the funding sources available to 
        finance such needs and shall prioritize such needs according to 
        corporate goals and strategies.
            ``(3) Initial submission date.--The first plan shall be 
        submitted before the issuance of any qualified Amtrak bonds by 
        the National Railroad Passenger Corporation pursuant to section 
        54 of the Internal Revenue Code of 1986.
    ``(b) Oversight of Qualified Projects.--The Secretary of 
Transportation shall contract for an annual independent assessment of 
the costs and benefits of the qualified projects financed by qualified 
Amtrak bonds pursuant to section 54 of the Internal Revenue Code of 
1986, including an assessment of the investment evaluation process of 
the Corporation. The annual assessment shall be included in the plan 
submitted under subsection (a).''.
    (b) Table of Sections Amendment.--The table of sections of chapter 
243 of title 49, United States Code, is amended by adding after the 
item relating to section 24315 the following new item:

``24316. Multiyear capital spending plan and oversight.''.

SEC. 413. ISSUANCE OF REGULATIONS.

    The Secretary of Transportation shall issue regulations for 
carrying out chapter 263 of title 49, United States Code (as added by 
section 411 of this Act), not later than 90 days after the date of the 
enactment of this Act.

SEC. 414. SENSE OF CONGRESS REGARDING EFFECT ON AMTRAK FUNDING.

    It is the sense of the Congress that the proceeds of qualified 
Amtrak bonds issued under section 54 of the Internal Revenue Code of 
1986 are intended to finance the construction of qualified projects (as 
defined in section 26302 of title 49, United States Code, as added by 
section 411 of this Act) and are not intended to meet the regular, 
ongoing capital funding needs of the National Railroad Passenger 
Corporation.

SEC. 415. EFFECTIVE DATE.

    The amendments made by this subtitle shall apply to obligations 
issued after the date of the enactment of this Act.

                 Subtitle C--Amtrak Capital Investment

SEC. 421. AUTHORIZATION OF APPROPRIATIONS.

    Section 24104(a) of title 49, United States Code, is amended--
            (1) by inserting ``(1)'' after ``In General.--'';
            (2) by redesignating paragraphs (1) through (5) as 
        subparagraphs (A) through (E), respectively; and
            (3) by adding at the end the following new paragraph:
    ``(2) There are authorized to be appropriated to the Secretary of 
Transportation $2,500,000,000 for fiscal year 2003 for the benefit of 
Amtrak for capital expenditures including--
            ``(A) New York, Washington, D.C., and Baltimore tunnel life 
        safety projects;
            ``(B) bridges, tracks, and other improvements to increase 
        the capacity and reliability of rail passenger transportation; 
        and
            ``(C) equipment, including acquisition of trainsets and 
        rolling stock, for operation in federally designated corridors.
At least \2/3\ of amounts expended under subparagraph (C) shall be for 
operations outside the Northeast Corridor.''.

       Subtitle D--Capital Investment for Railroad Rehabilitation

SEC. 431. CAPITAL GRANTS FOR RAILROAD TRACK.

    (a) Chapter 223.--
            (1) Amendment.--Chapter 223 of title 49, United States 
        Code, is amended to read as follows:

            ``CHAPTER 223--CAPITAL GRANTS FOR RAILROAD TRACK

``Sec.
``22301. Capital grants for railroad track.
``Sec. 22301. Capital grants for railroad track
    ``(a) Establishment of Program.--
            ``(1) Establishment.--The Secretary of Transportation shall 
        establish a program of capital grants for the rehabilitation, 
        preservation, or improvement of railroad track (including 
        roadbed, bridges, and related track structures) of class II and 
        class III railroads. Such grants shall be for rehabilitating, 
        preserving, or improving track used primarily for freight 
        transportation to a standard ensuring that the track can be 
        operated safely and efficiently, including grants for 
        rehabilitating, preserving, or improving track to handle 
        286,000 pound rail cars. Grants may be provided under this 
        chapter--
                    ``(A) directly to the class II or class III 
                railroad; or
                    ``(B) with the concurrence of the class II or class 
                III railroad, to a State or local government.
            ``(2) State cooperation.--Class II and class III railroad 
        applicants for a grant under this chapter are encouraged to 
        utilize the expertise and assistance of State transportation 
        agencies in applying for and administering such grants. State 
        transportation agencies are encouraged to provide such 
        expertise and assistance to such railroads.
            ``(3) Interim regulations.--Not later than December 31, 
        2003, the Secretary shall issue temporary regulations to 
        implement the program under this section. Subchapter II of 
        chapter 5 of title 5 does not apply to a temporary regulation 
        issued under this paragraph or to an amendment to such a 
        temporary regulation.
            ``(4) Final regulations.--Not later than October 1, 2004, 
        the Secretary shall issue final regulations to implement the 
        program under this section.
    ``(b) Maximum Federal Share.--The maximum Federal share for 
carrying out a project under this section shall be 80 percent of the 
project cost. The non-Federal share may be provided by any non-Federal 
source in cash, equipment, or supplies. Other in-kind contributions may 
be approved by the Secretary on a case by case basis consistent with 
this chapter.
    ``(c) Project Eligibility.--For a project to be eligible for 
assistance under this section the track must have been operated or 
owned by a class II or class III railroad as of the date of the 
enactment of this section.
    ``(d) Use of Funds.--Grants provided under this section shall be 
used to implement track capital projects as soon as possible. In no 
event shall grant funds be contractually obligated for a project later 
than the end of the third Federal fiscal year following the year in 
which the grant was awarded. Any funds not so obligated by the end of 
such fiscal year shall be returned to the Secretary for reallocation.
    ``(e) Additional Purpose.--In addition to making grants for 
projects as provided in subsection (a), the Secretary may also make 
grants to supplement direct loans or loan guarantees made under title V 
of the Railroad Revitalization and Regulatory Reform Act of 1976 (45 
U.S.C. 821 et seq.), for projects described in the last sentence of 
section 502(d) of such title. Grants made under this subsection may be 
used, in whole or in part, for paying credit risk premiums, lowering 
rates of interest, or providing for a holiday on principal payments. 
Credit risk premiums funded under this section shall be exempt from the 
non-Federal source requirement of section 502(f)(1) of the Railroad 
Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822(f)(1)).
    ``(f) Employee Protection.--The Secretary shall require as a 
condition of any grant made under this section that the recipient 
railroad provide a fair arrangement at least as protective of the 
interests of employees who are affected by the project to be funded 
with the grant as the terms imposed under section 11326(a), as in 
effect on the date of the enactment of this section.
    ``(g) Labor Standards.--
            ``(1) Prevailing wages.--The Secretary shall ensure that 
        laborers and mechanics employed by contractors and 
        subcontractors in construction work financed by a grant made 
        under this section will be paid wages not less than those 
        prevailing on similar construction in the locality, as 
        determined by the Secretary of Labor under section 3142 of 
        title 40 (known as the Davis-Bacon Act). The Secretary shall 
        make a grant under this section only after being assured that 
        required labor standards will be maintained on the construction 
        work.
            ``(2) Wage rates.--Wage rates in a collective bargaining 
        agreement negotiated under the Railway Labor Act (45 U.S.C. 151 
        et seq.) are deemed for purposes of this subsection to comply 
        with section 3142 of title 40 (known as the Davis-Bacon Act).
    ``(h) Authorization of Appropriations.--There is authorized to be 
appropriated to the Secretary of Transportation $500,000,000 for fiscal 
year 2003 for carrying out this section.''.
            (2) Conforming amendment.--The item relating to chapter 223 
        in the table of chapters of subtitle V of title 49, United 
        States Code, is amended to read as follows:

``223. CAPITAL GRANTS FOR RAILROAD TRACK....................   22301''.
    (b) Railroad Rehabilitation and Improvement Financing.--Section 502 
of the Railroad Revitalization and Regulatory Reform Act of 1976 (45 
U.S.C. 822(d)) is amended--
            (1) in subsection (d)--
                    (A) by striking ``$3,500,000,000'' and inserting 
                ``$5,000,000,000''; and
                    (B) by striking ``$1,000,000,000'' and inserting 
                ``$1,500,000,000''; and
            (2) by adding at the end the following new subsection:
    ``(i) Grants.--The Secretary may make grants to supplement direct 
loans or loan guarantees made under this title. Grants made under this 
subsection may be used, in whole or in part, for paying credit risk 
premiums, lowering rates of interest, or providing for a holiday on 
principal payments. Credit risk premiums funded under this subsection 
shall be exempt from the non-Federal source requirement of subsection 
(f)(1). There is authorized to be appropriated to the Secretary for 
fiscal year 2003 for carrying out this subsection $250,000,000.''.

SEC. 432. REGULATORY PROCEDURE AMENDMENTS.

    (a) Cohorts of Loans.--Section 502(f) of the Railroad 
Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822(f)) is 
amended--
            (1) in paragraph (2)--
                    (A) by striking ``and'' at the end of subparagraph 
                (D);
                    (B) by redesignating subparagraph (E) as 
                subparagraph (F); and
                    (C) by adding after subparagraph (D) the following 
                new subparagraph:
                    ``(E) the size and characteristics of the cohort of 
                which the loan or loan guarantee is a member; and''; 
                and
            (2) by adding at the end of paragraph (4) the following: 
        ``A cohort may include loans and loan guarantees. The Secretary 
        shall not establish any limit on the proportion of a cohort 
        that may be used for 1 loan or loan guarantee.''.
    (b) Conditions of Assistance.--Section 502 of the Railroad 
Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822) is 
amended--
            (1) in subsection (f)(2)(A), by inserting ``, if any'' 
        after ``collateral offered''; and
            (2) by adding at the end of subsection (h) the following:
``The Secretary shall not require an applicant for a direct loan or 
loan guarantee under this section to provide collateral. The Secretary 
shall not require that an applicant for a direct loan or loan guarantee 
under this section have previously sought the financial assistance 
requested from another source. The Secretary shall require recipients 
of direct loans or loan guarantees under this section to apply the 
standards of section 26106(a)(5) of title 49, United States Code, to 
their projects, except for projects primarily benefiting Class III 
freight railroads.''.
    (c) Time Limit for Approval or Disapproval.--Section 502 of the 
Railroad Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 
822), as amended by this Act, is further amended by adding at the end 
the following new subsection:
    ``(j) Time Limit for Approval or Disapproval.--Not later than 30 
days after receiving a complete application for a direct loan or loan 
guarantee under this section, the Secretary shall approve or disapprove 
the application.''.
    (d) Fees and Charges.--Section 503 of the Railroad Revitalization 
and Regulatory Reform Act of 1976 (45 U.S.C. 823) is amended by adding 
at the end the following new subsection:
    ``(l) Fees and Charges.--Except as provided in this title, the 
Secretary may not assess any fees, including user fees, or charges in 
connection with a direct loan or loan guarantee provided under section 
502.''.
    (e) Substantive Criteria and Standards.--Not later than 30 days 
after the date of the enactment of this Act, the Secretary of 
Transportation shall publish in the Federal Register and post on the 
Department of Transportation web site the substantive criteria and 
standards used by the Secretary to determine whether to approve or 
disapprove applications submitted under section 502 of the Railroad 
Revitalization and Regulatory Reform Act of 1976 (45 U.S.C. 822).

            TITLE V--PORT SECURITY INFRASTRUCTURE INVESTMENT

SEC. 501. AUTHORIZATION OF APPROPRIATIONS FOR GRANTS TO IMPLEMENT 
              SECURITY PLANS.

    For grants under section 70107 of title 46, United States Code, 
there is authorized to be appropriated to the Secretary of 
Transportation (in addition to any amounts appropriated before the date 
of the enactment of this Act) $2,500,000,000 for fiscal year 2003.

           TITLE VI--ENVIRONMENTAL INFRASTRUCTURE INVESTMENT

SEC. 601. GENERAL AUTHORITY FOR CAPITALIZATION GRANTS.

    Section 601(a) of the Federal Water Pollution Control Act (33 
U.S.C. 1381(a)) is amended by striking ``(1) for construction'' and all 
that follows through the period at the end and inserting ``to 
accomplish the objectives, goals, and policies of this Act.''.

SEC. 602. CAPITALIZATION GRANTS AGREEMENTS.

    (a) Requirements for Construction of Treatment Works.--Section 
602(b)(6) of the Federal Water Pollution Control Act (33 U.S.C. 
1382(b)(6)) is amended--
            (1) by striking ``treatment works'' the first place it 
        appears and inserting ``activities'';
            (2) by striking ``before fiscal year 1995'' and all that 
        follows through ``section 205(m) of this Act'' and inserting 
        ``with funds made available from a State water pollution 
        control revolving fund under this title''; and
            (3) by striking ``201(b)'' and all that follows through 
        ``218'' and inserting ``204(b)(1), 211''.
    (b) Assistance for Small Treatment Works.--Section 602 of the 
Federal Water Pollution Control Act (33 U.S.C. 1382) is amended by 
adding at the end the following:
    ``(c) Assistance for Small Treatment Works.--
            ``(1) Simplified procedures.--Not later than 1 year after 
        the date of the enactment of this subsection, the Administrator 
        shall assist the States in establishing simplified procedures 
        for small treatment works to obtain assistance under this 
        title.
            ``(2) Publication of manual.--Not later than 2 years after 
        the date of the enactment of this subsection, and after 
        providing notice and opportunity for public comment, the 
        Administrator shall publish a manual to assist small treatment 
        works in obtaining assistance under this title and publish in 
        the Federal Register notice of the availability of the manual.
            ``(3) Small treatment works defined.--For purposes of this 
        title, the term `small treatment works' means treatment works 
        for which a municipality or intermunicipal, interstate, or 
        State agency seeks assistance under this title and which serves 
        a population of 20,000 or fewer.''.

SEC. 603. WATER POLLUTION CONTROL REVOLVING FUNDS.

    (a) Projects and Activities Eligible for Assistance.--Section 
603(c) of the Federal Water Pollution Control Act (33 U.S.C. 1383(c)) 
is amended to read as follows:
    ``(c) Projects and Activities Eligible for Assistance.--
            ``(1) In general.--The amounts of funds available to each 
        State water pollution control revolving fund shall be used only 
        for providing financial assistance--
                    ``(A) to a municipality, intermunicipal agency, 
                interstate agency, or State agency for construction of 
                a publicly owned treatment works (as defined in section 
                212 of this Act);
                    ``(B) for implementation of lake protection 
                programs and projects under section 314;
                    ``(C) for implementation of a management program 
                established under section 319;
                    ``(D) for implementation of a conservation and 
                management plan established under section 320;
                    ``(E) for restoration or protection of publicly or 
                privately owned riparian areas, including acquisition 
                of property rights;
                    ``(F) to a municipality, intermunicipal agency, 
                interstate agency, or State agency for implementation 
                of measures to improve the efficiency of public water 
                use;
                    ``(G) for development and implementation of plans 
                by a public recipient to prevent water pollution;
                    ``(H) for acquisition of lands necessary to meet 
                any mitigation requirements related to construction of 
                a publicly owned treatment works; and
                    ``(I) for measures to increase the security of 
                publicly owned treatment works.
            ``(2) Fund amounts.--The water pollution control revolving 
        fund of a State shall be established, maintained, and credited 
with repayments, and the fund balance shall be available in perpetuity 
for providing financial assistance for activities described in 
paragraph (1). Fees charged by a State to recipients of such assistance 
may be deposited in the fund for the purpose of financing the cost of 
administration of this title.''.
    (b) Extended Repayment Period.--Section 603(d)(1) of the Federal 
Water Pollution Control Act (33 U.S.C. 1383(d)(1)) is amended--
            (1) in subparagraph (A) by striking ``20 years'' and 
        inserting ``the lesser of 30 years or the expected life of the 
        project to be financed with the proceeds of the loan''; and
            (2) in subparagraph (B) by striking ``not later than 20 
        years after project completion'' and inserting ``upon the 
        expiration of the term of the loan''.
    (c) Administrative Expenses.--Section 603(d)(7) of the Federal 
Water Pollution Control Act (33 U.S.C. 1383(d)(7)) is amended by 
inserting before the period at the end the following: ``or $400,000 per 
year, or \1/5\ percent per year of the current valuation of the fund, 
whichever is greatest, plus the amount of any fees collected by the 
State for such purpose regardless of the source''.
    (d) Technical and Planning Assistance for Small Systems.--Section 
603(d) of the Federal Water Pollution Control Act (33 U.S.C. 1383(d)) 
is amended--
            (1) by striking ``and'' at the end of paragraph (6);
            (2) by striking the period at the end of paragraph (7) and 
        inserting ``; and''; and
            (3) by adding at the end the following:
            ``(8) to provide to owners and operators of small treatment 
        works (as defined in section 602(c)) with technical and 
        planning assistance and assistance in financial management, 
        user fee analysis, budgeting, capital improvement planning, 
        facility operation and maintenance, repair schedules, and other 
        activities to improve wastewater treatment plant operations; 
        except that such amounts shall not exceed 2 percent of all 
        grant awards to such fund under this title.''.
    (e) Additional Subsidization.--Section 603 of the Federal Water 
Pollution Control Act is amended by adding at the end the following:
    ``(i) Additional Subsidization.--
            ``(1) In general.--In any case in which a State provides 
        assistance to a municipality or intermunicipal, interstate, or 
        State agency under subsection (d), the State may provide 
        additional subsidization, including forgiveness of principal 
        and negative interest loans--
                    ``(A) to benefit a municipality that--
                            ``(i) meets the State's affordability 
                        criteria established under paragraph (2); or
                            ``(ii) does not meet the State's 
                        affordability criteria if the recipient--
                                    ``(I) seeks additional 
                                subsidization to benefit individual 
                                ratepayers in the residential user rate 
                                class;
                                    ``(II) demonstrates to the State 
                                that such ratepayers will experience a 
                                significant hardship from the increase 
                                in rates necessary to finance the 
                                project or activity for which 
                                assistance is sought; and
                                    ``(III) ensures, as part of an 
                                assistance agreement between the State 
                                and the recipient, that the additional 
                                subsidization provided under this 
                                paragraph is directed through a user 
                                charge rate system (or other 
                                appropriate method) to such ratepayers; 
                                or
                    ``(B) to implement alternative processes, 
                materials, and techniques (including nonstructural 
                protection of surface waters, new or improved methods 
                of waste treatment, and pollutant trading) that may 
                result in increased environmental benefit when compared 
                to standard processes, materials, and techniques.
            ``(2) Affordability criteria.--
                    ``(A) Establishment.--On or before September 30, 
                2004, and after providing notice and an opportunity for 
                public comment, a State shall establish affordability 
                criteria to assist in identifying municipalities that 
                would experience a significant hardship raising the 
                revenue necessary to finance a project or activity 
                eligible for assistance under section 603(c)(1) if 
                additional subsidization is not provided. Such criteria 
                shall be based on income data, population trends, and 
                other data determined relevant by the State.
                    ``(B) Existing criteria.--If a State has previously 
                established, after providing notice and an opportunity 
                for public comment, affordability criteria that meet 
                the requirements of subparagraph (A), the State may use 
                the criteria for the purposes of this subsection. For 
                purposes of this Act, any such criteria shall be 
                treated as affordability criteria established under 
                this paragraph.
                    ``(C) Information to assist states.--The 
                Administrator may publish information to assist States 
                in establishing affordability criteria under 
                subparagraph (A).
            ``(3) Priority.--A State may give priority to a recipient 
        for a project or activity eligible for funding under section 
        603(c)(1) if the recipient meets the State's affordability 
        criteria.''.

SEC. 604. AUTHORIZATION OF APPROPRIATIONS FOR CLEAN WATER STATE 
              REVOLVING FUNDS.

    Section 607 of the Federal Water Pollution Control Act (33 U.S.C. 
1387) is amended--
            (1) by striking ``and'' at the end of paragraph (4);
            (2) by striking the period at the end of paragraph (5) and 
        inserting ``; and''; and
            (3) by adding at the end the following:
            ``(6) $8,500,000,000 for fiscal year 2003.''.

SEC. 605. WET WEATHER.

    Section 221(f) of the Federal Water Pollution Control Act (33 
U.S.C. 1301(f)) is amended by inserting after the first sentence the 
following: ``In addition, there is authorized to be appropriated to 
carry out this section an additional $1,500,000,000 for fiscal year 
2003.''.

SEC. 606. SAFE DRINKING WATER STATE REVOLVING FUNDS.

    Section 1452(m) of title XIV of the Public Health Service Act 
(commonly known as the ``Safe Drinking Water Act'') (42 U.S.C. 300j-
12(m)) is amended by inserting after the first sentence the following: 
``In addition, there is authorized to be appropriated to carry out this 
section an additional $1,500,000,000 for fiscal year 2003.''.

          TITLE VII--WATER RESOURCES INFRASTRUCTURE INVESTMENT

SEC. 701. INCREASED FUNDING FOR CORPS OF ENGINEERS PROJECTS.

    In addition to other amounts authorized to be appropriated, there 
are authorized to be appropriated to the Secretary of the Army 
$1,500,000,000 for fiscal year 2003, of which such sums as are 
necessary may be derived from the Harbor Maintenance Trust Fund and the 
Inland Waterways Trust Fund, to carry out construction, operation, and 
maintenance activities for authorized civil functions under the 
supervision of the Chief of Engineers. Such sums shall remain available 
until September 30, 2004.

       TITLE VIII--ECONOMIC DEVELOPMENT INFRASTRUCTURE INVESTMENT

SEC. 801. PUBLIC WORKS AND ECONOMIC DEVELOPMENT.

    Section 701 of the Public Works and Economic Development Act of 
1965 (42 U.S.C. 3231) is amended--
            (1) by inserting ``(a) In General.--'' before ``There are 
        authorized''; and
            (2) by adding at the end the following:
    ``(b) Additional Authorization.--In addition to amounts authorized 
by subsection (a), there are authorized to be appropriated to carry out 
this Act $1,025,000,000 for fiscal year 2003. Such sums shall remain 
available until September 30, 2004.''.

SEC. 802. APPALACHIAN REGIONAL DEVELOPMENT.

    Section 401 of the Appalachian Regional Development Act of 1965 (40 
U.S.C. App.) is amended by adding at the end the following:
    ``(c) Additional Authorization.--In addition to amounts authorized 
by subsection (a), there are authorized to be appropriated to the 
Commission to carry out this Act $175,000,000 for fiscal year 2003. 
Such sums shall remain available until September 30, 2004.''.

SEC. 803. DELTA REGIONAL DEVELOPMENT.

    Section 382M of the Consolidated Farm and Rural Development Act (7 
U.S.C. 2009aa-12) is amended--
            (1) by redesignating subsection (b) as subsection (c);
            (2) by inserting after subsection (a) the following:
    ``(b) Additional Authorization.--In addition to amounts authorized 
by subsection (a), there are authorized to be appropriated to the 
Authority to carry out this subtitle $175,000,000 for fiscal year 2003. 
Such sums shall remain available until September 30, 2004.''; and
            (3) in subsection (c) (as so redesignated) by striking 
        ``subsection (a)'' and inserting ``subsections (a) and (b)''.

SEC. 804. NORTHERN GREAT PLAINS REGIONAL DEVELOPMENT.

    Section 383M of the Consolidated Farm and Rural Development Act (7 
U.S.C. 2009bb-12) is amended--
            (1) in subsection (b) by striking ``subsection (a)'' and 
        inserting ``this section''; and
            (2) by adding at the end the following:
    ``(d) Additional Authorization for Fiscal Year 2003.--In addition 
to amounts authorized by subsection (a), there is authorized to be 
appropriated to the Authority to carry out this subtitle $175,000,000 
for fiscal year 2003. Such sums shall remain available until September 
30, 2004.''.

          TITLE IX--PUBLIC BUILDINGS INFRASTRUCTURE INVESTMENT

SEC. 901. SECURITY ENHANCEMENTS FOR GSA PROPERTIES.

    (a) Authorization of Appropriations.--In addition to other amounts 
credited to the Federal Buildings Fund established pursuant to section 
210(f) of the Federal Property and Administrative Services Act of 1949 
(40 U.S.C. 490(f)), there is authorized to be appropriated $500,000,000 
for fiscal year 2003 to be credited to the Fund. Such sums shall remain 
available until September 30, 2004.
    (b) Use of Funds.--Amounts credited to the Fund under this section 
shall be available to the Administrator of General Services to carry 
out projects and activities for enhancing the security of properties 
under the control of the General Services Administration, including 
general purpose office space, courthouses, and border crossing 
stations, and for other repair and alteration purposes.

                      TITLE X--GENERAL PROVISIONS

SEC. 1001. PRIORITY CONSIDERATION FOR SECURITY PROJECTS.

    The head of a Federal department or agency may provide financial 
assistance with any increase in funds authorized or made available by, 
or with any increase in obligation authority made available by, this 
Act (including the amendments made by this Act) only if the recipient 
of such assistance certifies to the head of such department or agency 
that the recipient will give priority consideration to programs or 
projects that enhance security, to the extent that such programs or 
projects are immediately ready to be implemented.

SEC. 1002. TEMPORARY WAIVER OF NON-FEDERAL SHARE.

    (a) In General.--Notwithstanding any other provision of law and 
subject to subsection (b), in providing financial assistance for a 
program or project with any increase in funds authorized or made 
available by, or with any increase in obligation authority made 
available by, this Act (including the amendments made by this Act 
(other than subtitle A of title I of this Act)), the head of a Federal 
department or agency, upon request of the recipient of such assistance, 
may increase the Federal share of the cost of the program or project to 
not to exceed 100 percent of such cost.
    (b) Repayments.--Before increasing the Federal share of the cost of 
a program or project under subsection (a), the head of a Federal 
department or agency shall enter into a legally binding agreement with 
the recipient of financial assistance for the program or project under 
which the recipient agrees to repay the United States for the increased 
Federal share of the program or project on or before September 30, 
2005.

SEC. 1003. MAINTENANCE OF EFFORT.

    The head of a Federal department or agency may provide financial 
assistance for a program or project with any increase in funds 
authorized or made available by, or with any increase in obligation 
authority made available by, this Act (including the amendments made by 
this Act) for a fiscal year only if the recipient of such assistance 
certifies to the head of such department or agency that the aggregate 
expenditure of funds of the recipient, exclusive of Federal funds, for 
such program or project will be maintained at a level that does not 
fall below the average level of such expenditure for the preceding 2 
fiscal years of the recipient.

SEC. 1004. LABOR STANDARDS.

    (a) Prevailing Wages.--The head of a Federal department or agency 
providing financial assistance with any increase in funds authorized or 
made available by, or with any increase in obligation authority made 
available by, this Act (including the amendments made by this Act) 
shall ensure that laborers and mechanics employed by contractors and 
subcontractors in construction work financed by such financial 
assistance will be paid wages not less than those prevailing on similar 
construction in the locality, as determined by section 3142 of title 
40, United States Code (known as the Davis-Bacon Act). The head of the 
department or agency shall provide such financial assistance only after 
being assured that required labor standards will be maintained on the 
construction work.
    (b) Wage Rates.--Wage rates in a collective bargaining agreement 
negotiated under the Railway Labor Act (45 U.S.C. 151 et seq.) are 
deemed for purposes of this section to comply with section 3142 of 
title 40, United States Code (known as the Davis-Bacon Act).

SEC. 1005. BUY AMERICA.

    (a) Preference.--The head of a Federal department or agency may 
provide financial assistance for a project with any increase in funds 
authorized or made available by, or with any increase in obligation 
authority made available by, this Act (including the amendments made by 
this Act) only if steel and manufactured goods used in the project are 
produced in the United States.
    (b) Waiver.--The head of a Federal department or agency may waive 
subsection (a) if the head of the Federal department or agency finds 
that--
            (1) applying subsection (a) would be inconsistent with the 
        public interest;
            (2) the steel and goods produced in the United States are 
        not produced in a sufficient and reasonably available amount or 
        are not of a satisfactory quality;
            (3) when procuring a facility or equipment with any 
        increase in funds or obligation authority described in 
        subsection (a)--
                    (A) the cost of components and subcomponents 
                produced in the United States is more than 60 percent 
                of the cost of all components of the facility or 
                equipment; and
                    (B) final assembly of the facility or equipment has 
                occurred in the United States; or
            (4) including domestic material will increase the cost of 
        the overall project by more than 25 percent.
    (c) Labor Costs.--In this section, labor costs involved in final 
assembly are not included in calculating the cost of components.

                       TITLE XI--REVENUE OFFSETS

SEC. 1100. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this title 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.

        Subtitle A--Provisions Designed To Curtail Tax Shelters

SEC. 1101. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701 is amended by redesignating 
subsection (m) as subsection (n) and by inserting after subsection (l) 
the following new subsection:
    ``(m) Clarification of Economic Substance Doctrine; Etc.--
            ``(1) General rules.--
                    ``(A) In general.--In applying the economic 
                substance doctrine, the determination of whether a 
                transaction has economic substance shall be made as 
                provided in this paragraph.
                    ``(B) Definition of economic substance.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--A transaction has 
                        economic substance only if--
                                    ``(I) the transaction changes in a 
                                meaningful way (apart from Federal tax 
                                effects and, if there are any Federal 
                                tax effects, also apart from any 
                                foreign, State, or local tax effects) 
                                the taxpayer's economic position, and
                                    ``(II) the taxpayer has a 
                                substantial nontax purpose for entering 
                                into such transaction and the 
                                transaction is a reasonable means of 
                                accomplishing such purpose.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance by 
                        reason of having a potential for profit 
                        unless--
                                    ``(I) the present value of the 
                                reasonably expected pre-tax profit from 
                                the transaction is substantial in 
                                relation to the present value of the 
                                expected net tax benefits that would be 
                                allowed if the transaction were 
                                respected, and
                                    ``(II) the reasonably expected pre-
                                tax profit from the transaction exceeds 
                                a risk-free rate of return.
                    ``(C) Treatment of fees and foreign taxes.--Fees 
                and other transaction expenses and foreign taxes shall 
                be taken into account as expenses in determining pre-
                tax profit under subparagraph (B)(ii).
            ``(2) Special rules for transactions with tax-indifferent 
        parties.--
                    ``(A) Special rules for financing transactions.--
                The form of a transaction which is in substance the 
                borrowing of money or the acquisition of financial 
                capital directly or indirectly from a tax-indifferent 
                party shall not be respected if the present value of 
                the deductions to be claimed with respect to the 
                transaction is substantially in excess of the present 
                value of the anticipated economic returns of the person 
                lending the money or providing the financial capital. A 
                public offering shall be treated as a borrowing, or an 
                acquisition of financial capital, from a tax-
                indifferent party if it is reasonably expected that at 
                least 50 percent of the offering will be placed with 
                tax-indifferent parties.
                    ``(B) Artificial income shifting and basis 
                adjustments.--The form of a transaction with a tax-
                indifferent party shall not be respected if--
                            ``(i) it results in an allocation of income 
                        or gain to the tax-indifferent party in excess 
                        of such party's economic income or gain, or
                            ``(ii) it results in a basis adjustment or 
                        shifting of basis on account of overstating the 
                        income or gain of the tax-indifferent party.
            ``(3) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Economic substance doctrine.--The term 
                `economic substance doctrine' means the common law 
                doctrine under which tax benefits under subtitle A with 
                respect to a transaction are not allowable if the 
                transaction does not have economic substance or lacks a 
                business purpose.
                    ``(B) Tax-indifferent party.--The term `tax-
                indifferent party' means any person or entity not 
                subject to tax imposed by subtitle A. A person shall be 
                treated as a tax-indifferent party with respect to a 
                transaction if the items taken into account with 
                respect to the transaction have no substantial impact 
                on such person's liability under subtitle A.
                    ``(C) Substantial nontax purpose.--In applying 
                subclause (II) of paragraph (1)(B)(i), a purpose of 
                achieving a financial accounting benefit shall not be 
                taken into account in determining whether a transaction 
                has a substantial nontax purpose if the origin of such 
                financial accounting benefit is a reduction of income 
                tax.
                    ``(D) Exception for personal transactions of 
                individuals.--In the case of an individual, this 
                subsection shall apply only to transactions entered 
                into in connection with a trade or business or an 
                activity engaged in for the production of income.
                    ``(E) Treatment of lessors.--In applying subclause 
                (I) of paragraph (1)(B)(ii) to the lessor of tangible 
                property subject to a lease, the expected net tax 
                benefits shall not include the benefits of 
                depreciation, or any tax credit, with respect to the 
                leased property and subclause (II) of paragraph 
                (1)(B)(ii) shall be disregarded in determining whether 
                any of such benefits are allowable.
            ``(4) Other common law doctrines not affected.--Except as 
        specifically provided in this subsection, the provisions of 
        this subsection shall not be construed as altering or 
        supplanting any other rule of law, and the requirements of this 
        subsection shall be construed as being in addition to any such 
        other rule of law.
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection. Such regulations may include 
        exemptions from the application of this subsection.''
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after February 13, 2003.

SEC. 1102. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.

    (a) In General.--Part I of subchapter B of chapter 68 (relating to 
assessable penalties) is amended by inserting after section 6707 the 
following new section:

``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION 
              INFORMATION WITH RETURN OR STATEMENT.

    ``(a) Imposition of Penalty.--Any person who fails to include on 
any return or statement any information with respect to a reportable 
transaction which is required under section 6011 to be included with 
such return or statement shall pay a penalty in the amount determined 
under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), the amount of the penalty under subsection (a) shall be 
        $50,000.
            ``(2) Listed transaction.--The amount of the penalty under 
        subsection (a) with respect to a listed transaction shall be 
        $100,000.
            ``(3) Increase in penalty for large entities and high net 
        worth individuals.--
                    ``(A) In general.--In the case of a failure under 
                subsection (a) by--
                            ``(i) a large entity, or
                            ``(ii) a high net worth individual,
                the penalty under paragraph (1) or (2) shall be twice 
                the amount determined without regard to this paragraph.
                    ``(B) Large entity.--For purposes of subparagraph 
                (A), the term `large entity' means, with respect to any 
                taxable year, a person (other than a natural person) 
                with gross receipts in excess of $10,000,000 for the 
                taxable year in which the reportable transaction occurs 
                or the preceding taxable year. Rules similar to the 
                rules of paragraph (2) and subparagraphs (B), (C), and 
                (D) of paragraph (3) of section 448(c) shall apply for 
                purposes of this subparagraph.
                    ``(C) High net worth individual.--For purposes of 
                subparagraph (A), the term `high net worth individual' 
                means, with respect to a reportable transaction, a 
                natural person whose net worth exceeds $2,000,000 
                immediately before the transaction.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Reportable transaction.--The term `reportable 
        transaction' means any transaction with respect to which 
        information is required to be included with a return or 
        statement because, as determined under regulations prescribed 
        under section 6011, such transaction is of a type which the 
        Secretary determines as having a potential for tax avoidance or 
        evasion.
            ``(2) Listed transaction.--Except as provided in 
        regulations, the term `listed transaction' means a reportable 
        transaction which is the same as, or substantially similar to, 
        a transaction specifically identified by the Secretary as a tax 
        avoidance transaction for purposes of section 6011.
    ``(d) Authority To Rescind Penalty.--
            ``(1) In general.--The Commissioner of Internal Revenue may 
        rescind all or any portion of any penalty imposed by this 
        section with respect to any violation if--
                    ``(A) the violation is with respect to a reportable 
                transaction other than a listed transaction,
                    ``(B) the person on whom the penalty is imposed has 
                a history of complying with the requirements of this 
                title,
                    ``(C) it is shown that the violation is due to an 
                unintentional mistake of fact;
                    ``(D) imposing the penalty would be against equity 
                and good conscience, and
                    ``(E) rescinding the penalty would promote 
                compliance with the requirements of this title and 
                effective tax administration.
            ``(2) Discretion.--The exercise of authority under 
        paragraph (1) shall be at the sole discretion of the 
        Commissioner and may be delegated only to the head of the 
        Office of Tax Shelter Analysis. The Commissioner, in the 
        Commissioner's sole discretion, may establish a procedure to 
        determine if a penalty should be referred to the Commissioner 
        or the head of such Office for a determination under paragraph 
        (1).
            ``(3) No appeal.--Notwithstanding any other provision of 
        law, any determination under this subsection may not be 
        reviewed in any administrative or judicial proceeding.
            ``(4) Records.--If a penalty is rescinded under paragraph 
        (1), the Commissioner shall place in the file in the Office of 
        the Commissioner the opinion of the Commissioner or the head of 
        the Office of Tax Shelter Analysis with respect to the 
        determination, including--
                    ``(A) the facts and circumstances of the 
                transaction,
                    ``(B) the reasons for the rescission, and
                    ``(C) the amount of the penalty rescinded.
            ``(5) Report.--The Commissioner shall each year report to 
        the Committee on Ways and Means of the House of Representatives 
        and the Committee on Finance of the Senate--
                    ``(A) a summary of the total number and aggregate 
                amount of penalties imposed, and rescinded, under this 
                section, and
                    ``(B) a description of each penalty rescinded under 
                this subsection and the reasons therefor.
    ``(e) Penalty Reported to SEC.--In the case of a person--
            ``(1) which is required to file periodic reports under 
        section 13 or 15(d) of the Securities Exchange Act of 1934 or 
        is required to be consolidated with another person for purposes 
        of such reports, and
            ``(2) which--
                    ``(A) is required to pay a penalty under this 
                section with respect to a listed transaction,
                    ``(B) is required to pay a penalty under section 
                6662A with respect to any reportable transaction at a 
                rate prescribed under section 6662A(c), or
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction,
the requirement to pay such penalty shall be disclosed in such reports 
filed by such person for such periods as the Secretary shall specify. 
Failure to make a disclosure in accordance with the preceding sentence 
shall be treated as a failure to which the penalty under subsection 
(b)(2) applies.
    ``(f) Coordination With Other Penalties.--The penalty imposed by 
this section is in addition to any penalty imposed under this title.''.
    (b) Conforming Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by inserting after the item 
relating to section 6707 the following:

                              ``Sec. 6707A. Penalty for failure to 
                                        include reportable transaction 
                                        information with return or 
                                        statement.''.
    (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.

SEC. 1103. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER 
              REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX 
              AVOIDANCE PURPOSE.

    (a) In General.--Subchapter A of chapter 68 is amended by inserting 
after section 6662 the following new section:

``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS 
              WITH RESPECT TO REPORTABLE TRANSACTIONS.

    ``(a) Imposition of Penalty.--If a taxpayer has a reportable 
transaction understatement for any taxable year, there shall be added 
to the tax an amount equal to 20 percent of the amount of such 
understatement.
    ``(b) Reportable Transaction Understatement.--For purposes of this 
section--
            ``(1) In general.--The term `reportable transaction 
        understatement' means the sum of--
                    ``(A) the product of--
                            ``(i) the amount of the increase (if any) 
                        in taxable income which results from a 
                        difference between the proper tax treatment of 
                        an item to which this section applies and the 
                        taxpayer's treatment of such item (as shown on 
                        the taxpayer's return of tax), and
                            ``(ii) the highest rate of tax imposed by 
                        section 1 (section 11 in the case of a taxpayer 
                        which is a corporation), and
                    ``(B) the amount of the decrease (if any) in the 
                aggregate amount of credits determined under subtitle A 
                which results from a difference between the taxpayer's 
                treatment of an item to which this section applies (as 
                shown on the taxpayer's return of tax) and the proper 
                tax treatment of such item.
        For purposes of subparagraph (A), any reduction of the excess 
        of deductions allowed for the taxable year over gross income 
        for such year, and any reduction in the amount of capital 
        losses which would (without regard to section 1211) be allowed 
        for such year, shall be treated as an increase in taxable 
        income.
            ``(2) Items to which section applies.--This section shall 
        apply to any item which is attributable to--
                    ``(A) any listed transaction, and
                    ``(B) any reportable transaction (other than a 
                listed transaction) if a significant purpose of such 
                transaction is the avoidance or evasion of Federal 
                income tax.
    ``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance 
Transactions.--
            ``(1) In general.--Subsection (a) shall be applied by 
        substituting `30 percent' for `20 percent' with respect to the 
        portion of any reportable transaction understatement with 
        respect to which the requirement of section 6664(d)(2)(A) is 
        not met.
            ``(2) Rules applicable to compromise of penalty.--
                    ``(A) In general.--If the 1st letter of proposed 
                deficiency which allows the taxpayer an opportunity for 
                administrative review in the Internal Revenue Service 
                Office of Appeals has been sent with respect to a 
                penalty to which paragraph (1) applies, only the 
                Commissioner of Internal Revenue may compromise all or 
                any portion of such penalty.
                    ``(B) Applicable rules.--The rules of paragraphs 
                (3), (4), and (5) of section 6707A(d) shall apply for 
                purposes of subparagraph (A).
    ``(d) Definitions of Reportable and Listed Transactions.--For 
purposes of this section, the terms `reportable transaction' and 
`listed transaction' have the respective meanings given to such terms 
by section 6707A(c).
    ``(e) Special Rules.--
            ``(1) Coordination with penalties, etc., on other 
        understatements.--In the case of an understatement (as defined 
        in section 6662(d)(2))--
                    ``(A) the amount of such understatement (determined 
                without regard to this paragraph) shall be increased by 
                the aggregate amount of reportable transaction 
                understatements and noneconomic substance transaction 
                understatements for purposes of determining whether 
                such understatement is a substantial understatement 
                under section 6662(d)(1), and
                    ``(B) the addition to tax under section 6662(a) 
                shall apply only to the excess of the amount of the 
                substantial understatement (if any) after the 
                application of subparagraph (A) over the aggregate 
                amount of reportable transaction understatements and 
                noneconomic substance transaction understatements.
            ``(2) Coordination with other penalties.--
                    ``(A) Application of fraud penalty.--References to 
                an underpayment in section 6663 shall be treated as 
                including references to a reportable transaction 
                understatement and a noneconomic substance transaction 
                understatement.
                    ``(B) No double penalty.--This section shall not 
                apply to any portion of an understatement on which a 
                penalty is imposed under section 6662B or 6663.
            ``(3) Special rule for amended returns.--Except as provided 
        in regulations, in no event shall any tax treatment included 
        with an amendment or supplement to a return of tax be taken 
        into account in determining the amount of any reportable 
        transaction understatement or noneconomic substance transaction 
        understatement if the amendment or supplement is filed after 
        the earlier of the date the taxpayer is first contacted by the 
        Secretary regarding the examination of the return or such other 
        date as is specified by the Secretary.
            ``(4) Noneconomic substance transaction understatement.--
        For purposes of this subsection, the term `noneconomic 
        substance transaction understatement' has the meaning given 
        such term by section 6662B(c).
            ``(5) Cross reference.--

                                ``For reporting of section 6662A(c) 
penalty to the Securities and Exchange Commission, see section 
6707A(e).''
    (b) Determination of Other Understatements.--Subparagraph (A) of 
section 6662(d)(2) is amended by adding at the end the following flush 
sentence:
                ``The excess under the preceding sentence shall be 
                determined without regard to items to which section 
                6662A applies and without regard to items with respect 
                to which a penalty is imposed by section 6662B.''
    (c) Reasonable Cause Exception.--
            (1) In general.--Section 6664 is amended by adding at the 
        end the following new subsection:
    ``(d) Reasonable Cause Exception for Reportable Transaction 
Understatements.--
            ``(1) In general.--No penalty shall be imposed under 
        section 6662A with respect to any portion of a reportable 
        transaction understatement if it is shown that there was a 
        reasonable cause for such portion and that the taxpayer acted 
        in good faith with respect to such portion.
            ``(2) Special rules.--Paragraph (1) shall not apply to any 
        reportable transaction understatement unless--
                    ``(A) the relevant facts affecting the tax 
                treatment of the item are adequately disclosed in 
                accordance with the regulations prescribed under 
                section 6011,
                    ``(B) there is or was substantial authority for 
                such treatment, and
                    ``(C) the taxpayer reasonably believed that such 
                treatment was more likely than not the proper 
                treatment.
        A taxpayer failing to adequately disclose in accordance with 
        section 6011 shall be treated as meeting the requirements of 
        subparagraph (A) if the penalty for such failure was rescinded 
        under section 6707A(d).
            ``(3) Rules relating to reasonable belief.--For purposes of 
        paragraph (2)(C)--
                    ``(A) In general.--A taxpayer shall be treated as 
                having a reasonable belief with respect to the tax 
                treatment of an item only if such belief--
                            ``(i) is based on the facts and law that 
                        exist at the time the return of tax which 
                        includes such tax treatment is filed, and
                            ``(ii) relates solely to the taxpayer's 
                        chances of success on the merits of such 
                        treatment and does not take into account the 
                        possibility that a return will not be audited, 
                        such treatment will not be raised on audit, or 
                        such treatment will be resolved through 
                        settlement if it is raised.
                    ``(B) Certain opinions may not be relied upon.--
                            ``(i) In general.--An opinion of a tax 
                        advisor may not be relied upon to establish the 
                        reasonable belief of a taxpayer if--
                                    ``(I) the tax advisor is described 
                                in clause (ii), or
                                    ``(II) the opinion is described in 
                                clause (iii).
                            ``(ii) Disqualified tax advisors.--A tax 
                        advisor is described in this clause if the tax 
                        advisor--
                                    ``(I) is a material advisor (within 
                                the meaning of section 6111(b)(1)) who 
                                participates in the organization, 
                                management, promotion, or sale of the 
                                transaction or who is related (within 
                                the meaning of section 267(b) or 
                                707(b)(1)) to any person who so 
                                participates,
                                    ``(II) is compensated directly or 
                                indirectly by a material advisor with 
                                respect to the transaction,
                                    ``(III) has a fee arrangement with 
                                respect to the transaction which is 
                                contingent on all or part of the 
                                intended tax benefits from the 
                                transaction being sustained, or
                                    ``(IV) as determined under 
                                regulations prescribed by the 
                                Secretary, has a continuing 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 amendment.--The heading for subsection (c) 
        of section 6664 is amended by inserting ``for Underpayments'' 
        after ``Exception''.
    (d) Conforming Amendments.--
            (1) Subparagraph (C) of section 461(i)(3) is amended by 
        striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
        1274(b)(3)(C)''.
            (2) Paragraph (3) of section 1274(b) is amended--
                    (A) by striking ``(as defined in section 
                6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(C) Tax shelter.--For purposes of subparagraph 
                (B), the term `tax shelter' means--
                            ``(i) a partnership or other entity,
                            ``(ii) any investment plan or arrangement, 
                        or
                            ``(iii) any other plan or arrangement,
                if a significant purpose of such partnership, entity, 
                plan, or arrangement is the avoidance or evasion of 
                Federal income tax.''
            (3) Section 6662(d)(2) is amended by striking subparagraphs 
        (C) and (D).
            (4) Section 6664(c)(1) is amended by striking ``this part'' 
        and inserting ``section 6662 or 6663''.
            (5) Subsection (b) of section 7525 is amended by striking 
        ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
        1274(b)(3)(C)''.
            (6)(A) The heading for section 6662 is amended to read as 
        follows:

``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERPAYMENTS.''

            (B) The table of sections for part II of subchapter A of 
        chapter 68 is amended by striking the item relating to section 
        6662 and inserting the following new items:

                              ``Sec. 6662. Imposition of accuracy-
                                        related penalty on 
                                        underpayments.
                              ``Sec. 6662A. Imposition of accuracy-
                                        related penalty on 
                                        understatements with respect to 
                                        reportable transactions.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 1104. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    (a) In General.--Subchapter A of chapter 68 is amended by inserting 
after section 6662A the following new section:

``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    ``(a) Imposition of Penalty.--If a taxpayer has an noneconomic 
substance transaction understatement for any taxable year, there shall 
be added to the tax an amount equal to 40 percent of the amount of such 
understatement.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `40 percent' with 
respect to the portion of any noneconomic substance transaction 
understatement with respect to which the relevant facts affecting the 
tax treatment of the item are adequately disclosed in the return or a 
statement attached to the return.
    ``(c) Noneconomic Substance Transaction Understatement.--For 
purposes of this section--
            ``(1) In general.--The term `noneconomic substance 
        transaction understatement' means any amount which would be an 
        understatement under section 6662A(b)(1) if section 6662A were 
        applied by taking into account items attributable to 
        noneconomic substance transactions rather than items to which 
        section 6662A would apply without regard to this paragraph.
            ``(2) Noneconomic substance transaction.--The term 
        `noneconomic substance transaction' means any transaction if--
                    ``(A) there is a lack of economic substance (within 
                the meaning of section 7701(m)(1)) for the transaction 
                giving rise to the claimed tax benefit or the 
                transaction was not respected under section 7701(m)(2), 
                or
                    ``(B) the transaction fails to meet the 
                requirements of any similar rule of law.
    ``(d) Rules Applicable to Compromise of Penalty.--
            ``(1) In general.--If the 1st letter of proposed deficiency 
        which allows the taxpayer an opportunity for administrative 
        review in the Internal Revenue Service Office of Appeals has 
        been sent with respect to a penalty to which this section 
        applies, only the Commissioner of Internal Revenue may 
        compromise all or any portion of such penalty.
            ``(2) Applicable rules.--The rules of paragraphs (3), (4), 
        and (5) of section 6707A(d) shall apply for purposes of 
        paragraph (1).
    ``(e) Coordination With Other Penalties.--Except as otherwise 
provided in this part, the penalty imposed by this section shall be in 
addition to any other penalty imposed by this title.
    ``(f) Cross References.--

                                ``(1) For coordination of penalty with 
understatements under section 6662 and other special rules, see section 
6662A(e).
                                ``(2) For reporting of penalty imposed 
under this section to the Securities and Exchange Commission, see 
section 6707A(e).''
    (b) Clerical Amendment.--The table of sections for part II of 
subchapter A of chapter 68 is amended by inserting after the item 
relating to section 6662A the following new item:

                              ``Sec. 6662B. Penalty for understatements 
                                        attributable to transactions 
                                        lacking economic substance, 
                                        etc.''
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after February 13, 2003.

SEC. 1105. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR 
              NONREPORTABLE TRANSACTIONS.

    (a) Substantial Understatement of Corporations.--Section 
6662(d)(1)(B) (relating to special rule for corporations) is amended to 
read as follows:
                    ``(B) Special rule for corporations.--In the case 
                of a corporation other than an S corporation or a 
                personal holding company (as defined in section 542), 
                there is a substantial understatement of income tax for 
                any taxable year if the amount of the understatement 
                for the taxable year exceeds the lesser of--
                            ``(i) 10 percent of the tax required to be 
                        shown on the return for the taxable year (or, 
                        if greater, $10,000), or
                            ``(ii) $10,000,000.''
    (b) Reduction for Understatement of Taxpayer Due to Position of 
Taxpayer or Disclosed Item.--
            (1) In general.--Section 6662(d)(2)(B)(i) (relating to 
        substantial authority) is amended to read as follows:
                            ``(i) the tax treatment of any item by the 
                        taxpayer if the taxpayer had reasonable belief 
                        that the tax treatment was more likely than not 
                        the proper treatment, or''.
            (2) Conforming amendment.--Section 6662(d) is amended by 
        adding at the end the following new paragraph:
            ``(3) Secretarial list.--For purposes of this subsection, 
        section 6664(d)(2), and section 6694(a)(1), the Secretary may 
        prescribe a list of positions for which the Secretary believes 
        there is not substantial authority or there is no reasonable 
        belief that the tax treatment is more likely than not the 
        proper tax treatment. Such list (and any revisions thereof) 
        shall be published in the Federal Register or the Internal 
        Revenue Bulletin.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 1106. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING 
              TO TAXPAYER COMMUNICATIONS.

    (a) In General.--Section 7525(b) (relating to section not to apply 
to communications regarding corporate tax shelters) is amended to read 
as follows:
    ``(b) Section Not To Apply To Communications Regarding Tax 
Shelters.--The privilege under subsection (a) shall not apply to any 
written communication which is--
            ``(1) between a federally authorized tax practitioner and--
                    ``(A) any person,
                    ``(B) any director, officer, employee, agent, or 
                representative of the person, or
                    ``(C) any other person holding a capital or profits 
                interest in the person, and
            ``(2) in connection with the promotion of the direct or 
        indirect participation of the person in any tax shelter (as 
        defined in section 1274(b)(3)(C)).''
    (b) Effective Date.--The amendment made by this section shall apply 
to communications made on or after the date of the enactment of this 
Act.

SEC. 1107. 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, promoting, selling, implementing, 
                        or carrying out any reportable transaction, and
                            ``(ii) who directly or indirectly derives 
                        gross income in excess of the threshold amount 
                        for such aid, assistance, or advice.
                    ``(B) Threshold amount.--For purposes of 
                subparagraph (A), the threshold amount is--
                            ``(i) $50,000 in the case of a reportable 
                        transaction substantially all of the tax 
                        benefits from which are provided to natural 
                        persons, and
                            ``(ii) $250,000 in any other case.
            ``(2) Reportable transaction.--The term `reportable 
        transaction' has the meaning given to such term by section 
        6707A(c).
    ``(c) Regulations.--The Secretary may prescribe regulations which 
provide--
            ``(1) that only 1 person shall be required to meet the 
        requirements of subsection (a) in cases in which 2 or more 
        persons would otherwise be required to meet such requirements,
            ``(2) exemptions from the requirements of this section, and
            ``(3) such rules as may be necessary or appropriate to 
        carry out the purposes of this section.''
    (b) Conforming Amendments.--
            (1) The item relating to section 6111 in the table of 
        sections for subchapter B of chapter 61 is amended to read as 
        follows:

                              ``Sec. 6111. Disclosure of reportable 
                                        transactions.''
            (2)(A) So much of section 6112 as precedes subsection (c) 
        thereof is amended to read as follows:

``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP 
              LISTS OF ADVISEES.

    ``(a) In General.--Each material advisor (as defined in section 
6111) with respect to any reportable transaction (as defined in section 
6707A(c)) shall maintain, in such manner as the Secretary may by 
regulations prescribe, a list--
            ``(1) identifying each person with respect to whom such 
        advisor acted as such a material advisor with respect to such 
        transaction, and
            ``(2) containing such other information as the Secretary 
        may by regulations require.
This section shall apply without regard to whether a material advisor 
is required to file a return under section 6111 with respect to such 
transaction.''
            (B) Section 6112 is amended by redesignating subsection (c) 
        as subsection (b).
            (C) Section 6112(b), as redesignated by subparagraph (B), 
        is amended--
                    (i) by inserting ``written'' before ``request'' in 
                paragraph (1)(A), and
                    (ii) by striking ``shall prescribe'' in paragraph 
                (2) and inserting ``may prescribe''.
            (D) The item relating to section 6112 in the table of 
        sections for subchapter B of chapter 61 is amended to read as 
        follows:

                              ``Sec. 6112. Material advisors of 
                                        reportable transactions must 
                                        keep lists of advisees.''
            (3)(A) The heading for section 6708 is amended to read as 
        follows:

``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO 
              REPORTABLE TRANSACTIONS.''

            (B) The item relating to section 6708 in the table of 
        sections for part I of subchapter B of chapter 68 is amended to 
        read as follows:

                              ``Sec. 6708. Failure to maintain lists of 
                                        advisees with respect to 
                                        reportable transactions.''
    (c) 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. 1108. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX 
              SHELTERS.

    (a) In General.--Section 6707 (relating to failure to furnish 
information regarding tax shelters) is amended to read as follows:

``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE 
              TRANSACTIONS.

    ``(a) In General.--If a person who is required to file a return 
under section 6111(a) with respect to any reportable transaction--
            ``(1) fails to file such return on or before the date 
        prescribed therefor, or
            ``(2) files false or incomplete information with the 
        Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the 
amount determined under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        penalty imposed under subsection (a) with respect to any 
        failure shall be $50,000.
            ``(2) Listed transactions.--The penalty imposed under 
        subsection (a) with respect to any listed transaction shall be 
        an amount equal to the greater of--
                    ``(A) $200,000, or
                    ``(B) 50 percent of the gross income derived by 
                such person with respect to aid, assistance, or advice 
                which is provided with respect to the reportable 
                transaction before the date the return including the 
                transaction is filed under section 6111.
        Subparagraph (B) shall be applied by substituting `75 percent' 
        for `50 percent' in the case of an intentional failure or act 
        described in subsection (a).
    ``(c) 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.--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. 1109. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF 
              INVESTORS.

    (a) In General.--Subsection (a) of section 6708 is amended to read 
as follows:
    ``(a) Imposition of Penalty.--
            ``(1) In general.--If any person who is required to 
        maintain a list under section 6112(a) fails to make such list 
        available upon written request to the Secretary in accordance 
        with section 6112(b)(1)(A) within 20 business days after the 
        date of the Secretary's request, such person shall pay a 
        penalty of $10,000 for each day of such failure after such 20th 
        day.
            ``(2) Reasonable cause exception.--No penalty shall be 
        imposed by paragraph (1) with respect to the failure on any day 
        if such failure is due to reasonable cause.''
    (b) Effective Date.--The amendment made by this section shall apply 
to requests made after the date of the enactment of this Act.

SEC. 1110. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO 
              TAX SHELTERS AND REPORTABLE TRANSACTIONS.

    (a) In General.--Section 7408 (relating to action to enjoin 
promoters of abusive tax shelters, etc.) is amended by redesignating 
subsection (c) as subsection (d) and by striking subsections (a) and 
(b) and inserting the following new subsections:
    ``(a) Authority To Seek Injunction.--A civil action in the name of 
the United States to enjoin any person from further engaging in 
specified conduct may be commenced at the request of the Secretary. Any 
action under this section shall be brought in the district court of the 
United States for the district in which such person resides, has his 
principal place of business, or has engaged in specified conduct. The 
court may exercise its jurisdiction over such action (as provided in 
section 7402(a)) separate and apart from any other action brought by 
the United States against such person.
    ``(b) Adjudication and Decree.--In any action under subsection (a), 
if the court finds--
            ``(1) that the person has engaged in any specified conduct, 
        and
            ``(2) that injunctive relief is appropriate to prevent 
        recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in 
any other activity subject to penalty under this title.
    ``(c) Specified Conduct.--For purposes of this section, the term 
`specified conduct' means any action, or failure to take action, 
subject to penalty under section 6700, 6701, 6707, or 6708.''
    (b) Conforming Amendments.--
            (1) The heading for section 7408 is amended to read as 
        follows:

``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX 
              SHELTERS AND REPORTABLE TRANSACTIONS.''

            (2) The table of sections for subchapter A of chapter 67 is 
        amended by striking the item relating to section 7408 and 
inserting the following new item:

        ``Sec. 7408. Actions to enjoin specified conduct related to tax 
                            shelters and reportable transactions.''
    (c) Effective Date.--The amendment made by this section shall take 
effect on the day after the date of the enactment of this Act.

SEC. 1111. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN 
              PREPARER.

    (a) Standards Conformed to Taxpayer Standards.--Section 6694(a) 
(relating to understatements due to unrealistic positions) is amended--
            (1) by striking ``realistic possibility of being sustained 
        on its merits'' in paragraph (1) and inserting ``reasonable 
        belief that the tax treatment in such position was more likely 
        than not the proper treatment'',
            (2) by striking ``or was frivolous'' in paragraph (3) and 
        inserting ``or there was no reasonable basis for the tax 
        treatment of such position'', and
            (3) by striking ``Unrealistic'' in the heading and 
        inserting ``Improper''.
    (b) Amount of Penalty.--Section 6694 is amended--
            (1) by striking ``$250'' in subsection (a) and inserting 
        ``$1,000'', and
            (2) by striking ``$1,000'' in subsection (b) and inserting 
        ``$5,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to documents prepared after the date of the enactment of this 
Act.

SEC. 1112. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL 
              ACCOUNTS.

    (a) In General.--Section 5321(a)(5) of title 31, United States 
Code, is amended to read as follows:
            ``(5) Foreign financial agency transaction violation.--
                    ``(A) Penalty authorized.--The Secretary of the 
                Treasury may impose a civil money penalty on any person 
                who violates, or causes any violation of, any provision 
                of section 5314.
                    ``(B) Amount of penalty.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), the amount of any civil 
                        penalty imposed under subparagraph (A) shall 
                        not exceed $5,000.
                            ``(ii) Reasonable cause exception.--No 
                        penalty shall be imposed under subparagraph (A) 
                        with respect to any violation if--
                                    ``(I) such violation was due to 
                                reasonable cause, and
                                    ``(II) the amount of the 
                                transaction or the balance in the 
                                account at the time of the transaction 
                                was properly reported.
                    ``(C) Willful violations.--In the case of any 
                person willfully violating, or willfully causing any 
                violation of, any provision of section 5314--
                            ``(i) the maximum penalty under 
                        subparagraph (B)(i) shall be increased to the 
                        greater of--
                                    ``(I) $25,000, or
                                    ``(II) the amount (not exceeding 
                                $100,000) determined under subparagraph 
                                (D), and
                            ``(ii) subparagraph (B)(ii) shall not 
                        apply.
                    ``(D) Amount.--The amount determined under this 
                subparagraph is--
                            ``(i) in the case of a violation involving 
                        a transaction, the amount of the transaction, 
                        or
                            ``(ii) in the case of a violation involving 
                        a failure to report the existence of an account 
                        or any identifying information required to be 
                        provided with respect to an account, the 
                        balance in the account at the time of the 
                        violation.''
    (b) Effective Date.--The amendment made by this section shall apply 
to violations occurring after the date of the enactment of this Act.

SEC. 1113. FRIVOLOUS TAX SUBMISSIONS.

    (a) Civil Penalties.--Section 6702 is amended to read as follows:

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

    ``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay 
a penalty of $5,000 if--
            ``(1) such person files what purports to be a return of a 
        tax imposed by this title but which--
                    ``(A) does not contain information on which the 
                substantial correctness of the self-assessment may be 
                judged, or
                    ``(B) contains information that on its face 
                indicates that the self-assessment is substantially 
                incorrect; and
            ``(2) the conduct referred to in paragraph (1)--
                    ``(A) is based on a position which the Secretary 
                has identified as frivolous under subsection (c), or
                    ``(B) reflects a desire to delay or impede the 
                administration of Federal tax laws.
    ``(b) Civil Penalty for Specified Frivolous Submissions.--
            ``(1) Imposition of penalty.--Except as provided in 
        paragraph (3), any person who submits a specified frivolous 
        submission shall pay a penalty of $5,000.
            ``(2) Specified frivolous submission.--For purposes of this 
        section--
                    ``(A) Specified frivolous submission.--The term 
                `specified frivolous submission' means a specified 
                submission if any portion of such submission--
                            ``(i) is based on a position which the 
                        Secretary has identified as frivolous under 
                        subsection (c), or
                            ``(ii) reflects a desire to delay or impede 
                        the administration of Federal tax laws.
                    ``(B) Specified submission.--The term `specified 
                submission' means--
                            ``(i) a request for a hearing under--
                                    ``(I) section 6320 (relating to 
                                notice and opportunity for hearing upon 
                                filing of notice of lien), or
                                    ``(II) section 6330 (relating to 
                                notice and opportunity for hearing 
                                before levy), and
                            ``(ii) an application under--
                                    ``(I) section 6159 (relating to 
                                agreements for payment of tax liability 
                                in installments),
                                    ``(II) section 7122 (relating to 
                                compromises), or
                                    ``(III) section 7811 (relating to 
                                taxpayer assistance orders).
            ``(3) Opportunity to withdraw submission.--If the Secretary 
        provides a person with notice that a submission is a specified 
        frivolous submission and such person withdraws such submission 
        within 30 days after such notice, the penalty imposed under 
        paragraph (1) shall not apply with respect to such submission.
    ``(c) Listing of Frivolous Positions.--The Secretary shall 
prescribe (and periodically revise) a list of positions which the 
Secretary has identified as being frivolous for purposes of this 
subsection. The Secretary shall not include in such list any position 
that the Secretary determines meets the requirement of section 
6662(d)(2)(B)(ii)(II).
    ``(d) Reduction of Penalty.--The Secretary may reduce the amount of 
any penalty imposed under this section if the Secretary determines that 
such reduction would promote compliance with and administration of the 
Federal tax laws.
    ``(e) Penalties in Addition to Other Penalties.--The penalties 
imposed by this section shall be in addition to any other penalty 
provided by law.''
    (b) Treatment of Frivolous Requests for Hearings Before Levy.--
            (1) Frivolous requests disregarded.--Section 6330 (relating 
        to notice and opportunity for hearing before levy) is amended 
        by adding at the end the following new subsection:
    ``(g) Frivolous Requests for Hearing, etc.--Notwithstanding any 
other provision of this section, if the Secretary determines that any 
portion of a request for a hearing under this section or section 6320 
meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), 
then the Secretary may treat such portion as if it were never submitted 
and such portion shall not be subject to any further administrative or 
judicial review.''
            (2) Preclusion from raising frivolous issues at hearing.--
        Section 6330(c)(4) is amended--
                    (A) by striking ``(A)'' and inserting ``(A)(i)'';
                    (B) by striking ``(B)'' and inserting ``(ii)'';
                    (C) by striking the period at the end of the first 
                sentence and inserting ``; or''; and
                    (D) by inserting after subparagraph (A)(ii) (as so 
                redesignated) the following:
                    ``(B) the issue meets the requirement of clause (i) 
                or (ii) of section 6702(b)(2)(A).''
            (3) Statement of grounds.--Section 6330(b)(1) is amended by 
        striking ``under subsection (a)(3)(B)'' and inserting ``in 
        writing under subsection (a)(3)(B) and states the grounds for 
        the requested hearing''.
    (c) Treatment of Frivolous Requests for Hearings Upon Filing of 
Notice of Lien.--Section 6320 is amended--
            (1) in subsection (b)(1), by striking ``under subsection 
        (a)(3)(B)'' and inserting ``in writing under subsection 
        (a)(3)(B) and states the grounds for the requested hearing'', 
        and
            (2) in subsection (c), by striking ``and (e)'' and 
        inserting ``(e), and (g)''.
    (d) Treatment of Frivolous Applications for Offers-in-Compromise 
and Installment Agreements.--Section 7122 is amended by adding at the 
end the following new subsection:
    ``(e) Frivolous Submissions, etc.--Notwithstanding any other 
provision of this section, if the Secretary determines that any portion 
of an application for an offer-in-compromise or installment agreement 
submitted under this section or section 6159 meets the requirement of 
clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may 
treat such portion as if it were never submitted and such portion shall 
not be subject to any further administrative or judicial review.''
    (e) Clerical Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by striking the item relating to 
section 6702 and inserting the following new item:

                              ``Sec. 6702. Frivolous tax submissions.''
    (f) Effective Date.--The amendments made by this section shall 
apply to submissions made and issues raised after the date on which the 
Secretary first prescribes a list under section 6702(c) of the Internal 
Revenue Code of 1986, as amended by subsection (a).

SEC. 1114. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT 
              OF TREASURY.

    (a) Censure; Imposition of Penalty.--
            (1) In general.--Section 330(b) of title 31, United States 
        Code, is amended--
                    (A) by inserting ``, or censure,'' after 
                ``Department'', and
                    (B) by adding at the end the following new flush 
                sentence:
``The Secretary may impose a monetary penalty on any representative 
described in the preceding sentence. If the representative was acting 
on behalf of an employer or any firm or other entity in connection with 
the conduct giving rise to such penalty, the Secretary may impose a 
monetary penalty on such employer, firm, or entity if it knew, or 
reasonably should have known, of such conduct. Such penalty shall not 
exceed the gross income derived (or to be derived) from the conduct 
giving rise to the penalty and may be in addition to, or in lieu of, 
any suspension, disbarment, or censure.''
            (2) Effective date.--The amendments made by this subsection 
        shall apply to actions taken after the date of the enactment of 
        this Act.
    (b) Tax Shelter Opinions, etc.--Section 330 of such title 31 is 
amended by adding at the end the following new subsection:
    ``(d) Nothing in this section or in any other provision of law 
shall be construed to limit the authority of the Secretary of the 
Treasury to impose standards applicable to the rendering of written 
advice with respect to any entity, transaction plan or arrangement, or 
other plan or arrangement, which is of a type which the Secretary 
determines as having a potential for tax avoidance or evasion.''

SEC. 1115. 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. 1116. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH LISTED 
              TRANSACTIONS NOT REPORTED.

    (a) In General.--Section 6501(e)(1) (relating to substantial 
omission of items for income taxes) is amended by adding at the end the 
following new subparagraph:
                    ``(C) 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 tax for such taxable year may be 
                assessed, or a proceeding in court for collection of 
                such tax may be begun without assessment, at any time 
                within 6 years after the time the return is filed. This 
                subparagraph shall not apply to any taxable year if the 
                time for assessment or beginning the proceeding in 
                court has expired before the time a transaction is 
                treated as a listed transaction under section 6011.''
    (b) Effective Date.--The amendment made by this section shall apply 
to transactions after the date of the enactment of this Act in taxable 
years ending after such date.

SEC. 1117. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND NONECONOMIC 
              SUBSTANCE TRANSACTIONS.

    (a) In General.--Section 163 (relating to deduction for interest) 
is amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following new subsection:
    ``(m) Interest on Unpaid Taxes Attributable to Nondisclosed 
Reportable Transactions and Noneconomic Substance Transactions.--No 
deduction shall be allowed under this chapter for any interest paid or 
accrued under section 6601 on any underpayment of tax which is 
attributable to--
            ``(1) the portion of any reportable transaction 
        understatement (as defined in section 6662A(b)) with respect to 
        which the requirement of section 6664(d)(2)(A) is not met, or
            ``(2) any noneconomic substance transaction understatement 
        (as defined in section 6662B(c)).''
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions after the date of the enactment of this Act in 
taxable years ending after such date.

                      Subtitle B--Other Provisions

SEC. 1121. 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 
                paragraph 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 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 the property so transferred would (but 
                        for this paragraph) exceed the fair market 
                        value of such property immediately after such 
                        transaction,
                then, notwithstanding subsection (a), the transferee's 
                aggregate adjusted bases of the property so transferred 
                shall not exceed the fair market value of such property 
                immediately after such transaction.
                    ``(B) Allocation of basis reduction.--The aggregate 
                reduction in basis by reason of subparagraph (A) shall 
                be allocated among the property so transferred in 
                proportion to their respective built-in losses 
                immediately before the transaction.
                    ``(C) Exception for transfers within affiliated 
                group.--Subparagraph (A) shall not apply to any 
                transaction if the transferor owns stock in the 
                transferee meeting the requirements of section 
                1504(a)(2). In the case of property to which 
                subparagraph (A) does not apply by reason of the 
                preceding sentence, the transferor's basis in the stock 
                received for such property shall not exceed its fair 
                market value immediately after the transfer.''
    (b) Comparable Treatment Where Liquidation.--Paragraph (1) of 
section 334(b) (relating to liquidation of subsidiary) is amended to 
read as follows:
            ``(1) In general.--If property is received by a corporate 
        distributee in a distribution in a complete liquidation to 
        which section 332 applies (or in a transfer described in 
        section 337(b)(1)), the basis of such property in the hands of 
        such distributee shall be the same as it would be in the hands 
        of the transferor; except that the basis of such property in 
        the hands of such distributee shall be the fair market value of 
        the property at the time of the distribution--
                    ``(A) in any case in which gain or loss is 
                recognized by the liquidating corporation with respect 
                to such property, or
                    ``(B) in any case in which the liquidating 
                corporation is a foreign corporation, the corporate 
                distributee is a domestic corporation, and the 
                corporate distributee's aggregate adjusted bases of 
                property described in section 362(e)(1)(B) which is 
                distributed in such liquidation would (but for this 
                subparagraph) exceed the fair market value of such 
                property immediately after such liquidation.''
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions after the date of the enactment of this Act.

SEC. 1122. 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 immediately after the 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 immediately after the contribution.''
    (b) Adjustment to Basis of Partnership Property on Transfer of 
Partnership Interest if There Is Substantial Built-In Loss.--
            (1) Adjustment 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 with respect to which there is 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 transferee 
        partner's proportionate share of the adjusted basis of the 
        partnership property exceeds by more than $250,000 the basis of 
        such partner's interest in the partnership.
            ``(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) Clerical amendments.--
                    (A) The section heading for section 743 is amended 
                to read as follows:

``SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY 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. Adjustment to basis of 
                                        partnership property where 
                                        section 754 election or 
                                        substantial built-in loss.''
    (c) Adjustment to Basis of Undistributed Partnership Property if 
There Is Substantial Basis Reduction.--
            (1) Adjustment required.--Subsection (a) of section 734 
        (relating to optional adjustment to basis of undistributed 
        partnership property) is amended by inserting before the period 
        ``or unless there is a substantial basis reduction''.
            (2) Adjustment.--Subsection (b) of section 734 is amended 
        by inserting ``or unless there is a substantial basis 
        reduction'' after ``section 754 is in effect''.
            (3) Substantial basis reduction.--Section 734 is amended by 
        adding at the end the following new subsection:
    ``(d) Substantial Basis Reduction.--
            ``(1) In general.--For purposes of this section, there is a 
        substantial basis reduction with respect to a distribution if 
        the sum of the amounts described in subparagraphs (A) and (B) 
        of subsection (b)(2) exceeds $250,000.
            ``(2) Regulations.--

                                ``For regulations to carry out this 
subsection, see section 743(d)(2).''
            (4) Clerical amendments.--
                    (A) The section heading for section 734 is amended 
                to read as follows:

``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY 
              WHERE SECTION 754 ELECTION OR SUBSTANTIAL BASIS 
              REDUCTION.''

                    (B) The table of sections for subpart B of part II 
                of subchapter K of chapter 1 is amended by striking the 
                item relating to section 734 and inserting the 
                following new item:

                              ``Sec. 734. Adjustment to basis of 
                                        undistributed partnership 
                                        property where section 754 
                                        election or substantial basis 
                                        reduction.''
    (d) Effective Dates.--
            (1) Subsection (a).--The amendment made by subsection (a) 
        shall apply to contributions made after the date of the 
        enactment of this Act.
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to transfers after the date of the enactment of 
        this Act.
            (3) Subsection (c).--The amendments made by subsection (c) 
        shall apply to distributions after the date of the enactment of 
        this Act.

SEC. 1123. 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 
        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. 1124. 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) Paragraph (5) 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).
            (6) Subparagraph (C) of section 1202(e)(4) is amended by 
        striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
            (7) Subparagraph (C) of section 7701(a)(19) is amended by 
        adding ``and'' at the end of clause (ix), by striking ``, and'' 
        at the end of clause (x) and inserting a period, and by 
        striking clause (xi).
            (8) 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 apply to taxable years 
        beginning after December 31, 2003.
            (2) Exception for existing fasits.--
                    (A) In general.--Paragraph (1) shall not apply to 
                any FASIT in existence on the date of the enactment of 
                this Act.
                    (B) Transfer of additional assets not permitted.--
                Except as provided in regulations prescribed by the 
                Secretary of the Treasury or the Secretary's delegate, 
                subparagraph (A) shall cease to apply as of the 
                earliest date after the date of the enactment of this 
                Act that any property is transferred to the FASIT.

SEC. 1125. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON 
              CONVERTIBLE DEBT.

    (a) In General.--Paragraph (2) of section 163(l) is amended by 
striking ``or a related party'' and inserting ``or equity held by the 
issuer (or any related party) in any other person''.
    (b) 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''.
    (c) Effective Date.--The amendments made by this section shall 
apply to debt instruments issued after the date of the enactment of 
this Act.

SEC. 1126. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER SECTION 
              269.

    (a) In General.--Subsection (a) of section 269 (relating to 
acquisitions made to evade or avoid income tax) is amended to read as 
follows:
    ``(a) In General.--If--
            ``(1)(A) any person acquires stock in a corporation, or
            ``(B) any corporation acquires, directly or indirectly, 
        property of another corporation and the basis of such property, 
        in the hands of the acquiring corporation, is determined by 
        reference to the basis in the hands of the transferor 
        corporation, and
            ``(2) the principal purpose for which such acquisition was 
        made is evasion or avoidance of Federal income tax by securing 
        the benefit of a deduction, credit, or other allowance,
then the Secretary may disallow such deduction, credit, or other 
allowance.''
    (b) Effective Date.--The amendment made by this section shall apply 
to stock and property acquired after February 13, 2003.

SEC. 1127. MODIFICATIONS OF CERTAIN RULES RELATING TO CONTROLLED 
              FOREIGN CORPORATIONS.

    (a) Limitation on Exception From PFIC Rules for United States 
Shareholders of Controlled Foreign Corporations.--Paragraph (2) of 
section 1297(e) (relating to passive investment company) is amended by 
adding at the end the following flush sentence:
        ``Such term shall not include any period if there is only a 
        remote likelihood of an inclusion in gross income under section 
        951(a)(1)(A)(i) of subpart F income of such corporation for 
        such period.''
    (b) Determination of Pro Rata Share of Subpart F Income.--
Subsection (a) of section 951 (relating to amounts included in gross 
income of United States shareholders) is amended by adding at the end 
the following new paragraph:
            ``(4) Special rules for determining pro rata share of 
        subpart f income.--The pro rata share under paragraph (2) shall 
        be determined by disregarding--
                    ``(A) any rights lacking substantial economic 
                effect, and
                    ``(B) stock owned by a shareholder who is a tax-
                indifferent party (as defined in section 7701(m)(3)) if 
                the amount which would (but for this paragraph) be 
                allocated to such shareholder does not reflect such 
                shareholder's economic share of the earnings and 
                profits of the corporation.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years on controlled foreign corporation beginning 
after February 13, 2003, and to taxable years of United States 
shareholder in which or with which such taxable years of controlled 
foreign corporations end.

SEC. 1128. BASIS FOR DETERMINING LOSS ALWAYS REDUCED BY NONTAXED 
              PORTION OF DIVIDENDS.

    (a) In General.--Section 1059 (relating to corporate shareholder's 
basis in stock reduced by nontaxed portion of extraordinary dividends) 
is amended by redesignating subsection (g) as subsection (h) and by 
inserting after subsection (f) the following new subsection:
    ``(g) Basis for Determining Loss Always Reduced by Nontaxed Portion 
of Dividends.--The basis of stock in a corporation (for purposes of 
determining loss) shall be reduced by the nontaxed portion of any 
dividend received with respect to such stock if this section does not 
otherwise apply to such dividend.''
    (b) Effective Date.--The amendment made by this section shall apply 
to dividends received after the date of the enactment of this Act.

SEC. 1129. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.

    (a) In General.--Section 1502 (relating to consolidated return 
regulations) is amended by adding at the end the following new 
sentence: ``In prescribing such regulations, the Secretary may 
prescribe rules applicable to corporations filing consolidated returns 
under section 1501 that are different from other provisions of this 
title that would apply if such corporations filed separate returns.''
    (b) Result Not Overturned.--Notwithstanding subsection (a), the 
Internal Revenue Code of 1986 shall be construed by treating Treasury 
regulation Sec. 1.1502-20(c)(1)(iii) (as in effect on January 1, 2001) 
as being inapplicable to the type of factual situation in 255 F.3d 1357 
(Fed. Cir. 2001).
    (c) Effective Date.--The provisions of this section shall apply to 
taxable years beginning before, on, or after the date of the enactment 
of this Act.

SEC. 1130. EXTENSION OF CUSTOMS USER FEES.

    Section 13031(j)(3) of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended by striking 
``September 30, 2003'' and inserting ``March 31, 2010''.

Subtitle C--Prevention of Corporate Expatriation To Avoid United States 
                               Income Tax

SEC. 1131. PREVENTION OF CORPORATE EXPATRIATION TO AVOID UNITED STATES 
              INCOME TAX.

    (a) In General.--Paragraph (4) of section 7701(a) (defining 
domestic) is amended to read as follows:
            ``(4) Domestic.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `domestic' when applied to a 
                corporation or partnership means created or organized 
                in the United States or under the law of the United 
                States or of any State unless, in the case of a 
                partnership, the Secretary provides otherwise by 
                regulations.
                    ``(B) Certain corporations treated as domestic.--
                            ``(i) In general.--The acquiring 
                        corporation in a corporate expatriation 
                        transaction shall be treated as a domestic 
                        corporation.
                            ``(ii) Corporate expatriation 
                        transaction.--For purposes of this 
                        subparagraph, the term `corporate expatriation 
                        transaction' means any transaction if--
                                    ``(I) a nominally foreign 
                                corporation (referred to in this 
                                subparagraph as the `acquiring 
                                corporation') acquires, as a result of 
                                such transaction, directly or 
                                indirectly substantially all of the 
                                properties held directly or indirectly 
                                by a domestic corporation, and
                                    ``(II) immediately after the 
                                transaction, more than 80 percent of 
                                the stock (by vote or value) of the 
                                acquiring corporation is held by former 
                                shareholders of the domestic 
                                corporation by reason of holding stock 
                                in the domestic corporation.
                            ``(iii) Lower stock ownership requirement 
                        in certain cases.--Subclause (II) of clause 
                        (ii) shall be applied by substituting `50 
                        percent' for `80 percent' with respect to any 
                        nominally foreign corporation if--
                                    ``(I) such corporation does not 
                                have substantial business activities 
                                (when compared to the total business 
                                activities of the expanded affiliated 
                                group) in the foreign country in which 
                                or under the law of which the 
                                corporation is created or organized, 
                                and
                                    ``(II) the stock of the corporation 
                                is publicly traded and the principal 
                                market for the public trading of such 
                                stock is in the United States.
                            ``(iv) Partnership transactions.--The term 
                        `corporate expatriation transaction' includes 
                        any transaction if--
                                    ``(I) a nominally foreign 
                                corporation (referred to in this 
                                subparagraph as the `acquiring 
                                corporation') acquires, as a result of 
                                such transaction, directly or 
                                indirectly properties constituting a 
                                trade or business of a domestic 
                                partnership,
                                    ``(II) immediately after the 
                                transaction, more than 80 percent of 
                                the stock (by vote or value) of the 
                                acquiring corporation is held by former 
                                partners of the domestic partnership or 
                                related foreign partnerships 
                                (determined without regard to stock of 
                                the acquiring corporation which is sold 
                                in a public offering related to the 
                                transaction), and
                                    ``(III) the acquiring corporation 
                                meets the requirements of subclauses 
                                (I) and (II) of clause (iii).
                            ``(v) Special rules.--For purposes of this 
                        subparagraph--
                                    ``(I) a series of related 
                                transactions shall be treated as 1 
                                transaction, and
                                    ``(II) stock held by members of the 
                                expanded affiliated group which 
                                includes the acquiring corporation 
                                shall not be taken into account in 
                                determining ownership.
                            ``(vi) Other definitions.--For purposes of 
                        this subparagraph--
                                    ``(I) Nominally foreign 
                                corporation.--The term `nominally 
                                foreign corporation' means any 
                                corporation which would (but for this 
                                subparagraph) be treated as a foreign 
                                corporation.
                                    ``(II) Expanded affiliated group.--
                                The term `expanded affiliated group' 
                                means an affiliated group (as defined 
                                in section 1504(a) without regard to 
                                section 1504(b)).
                                    ``(III) Related foreign 
                                partnership.--A foreign partnership is 
                                related to a domestic partnership if 
                                they are under common control (within 
                                the meaning of section 482), or they 
                                shared the same trademark or 
                                tradename.''
    (b) Effective Dates.--
            (1) In general.--The amendment made by this section shall 
        apply to corporate expatriation transactions completed after 
        September 11, 2001.
            (2) Special rule.--The amendment made by this section shall 
        also apply to corporate expatriation transactions completed on 
        or before September 11, 2001, but only with respect to taxable 
        years of the acquiring corporation beginning after December 31, 
        2003.
                                 <all>