[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 1637 Reported in Senate (RS)]






                                                       Calendar No. 381
108th CONGRESS
  1st Session
                                S. 1637

                          [Report No. 108-192]

  To amend the Internal Revenue Code of 1986 to comply with the World 
  Trade Organization rulings on the FSC/ETI benefit in a manner that 
   preserves jobs and production activities in the United States, to 
  reform and simplify the international taxation rules of the United 
                    States, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 18, 2003

 Mr. Frist (for Mr. Grassley) (for himself, Mr. Baucus, Mr. Hatch, Mr. 
 Graham of Florida, Mr. Smith, Mr. Daschle, Mrs. Murray, Ms. Cantwell, 
and Mr. Chafee) introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

                            November 7, 2003

              Reported by Mr. Grassley, with an amendment
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to comply with the World 
  Trade Organization rulings on the FSC/ETI benefit in a manner that 
   preserves jobs and production activities in the United States, to 
  reform and simplify the international taxation rules of the United 
                    States, and for other purposes.

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

<DELETED>SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF 
              CONTENTS.</DELETED>

<DELETED>    (a) Short Title.--This Act may be cited as the ``Jumpstart 
Our Business Strength (JOBS) Act''.</DELETED>
<DELETED>    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.</DELETED>
<DELETED>    (c) Table of Contents.--</DELETED>

<DELETED>Sec. 1. Short title; amendment of 1986 Code; table of 
                            contents.
   <DELETED>TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                        EXTRATERRITORIAL INCOME

<DELETED>Sec. 101. Repeal of exclusion for extraterritorial income.
<DELETED>Sec. 102. Deduction relating to income attributable to United 
                            States production activities.
            <DELETED>TITLE II--INTERNATIONAL TAX PROVISIONS

             <DELETED>Subtitle A--International Tax Reform

<DELETED>Sec. 201. 20-year foreign tax credit carryforward.
<DELETED>Sec. 202. Look-thru rules to apply to dividends from 
                            noncontrolled section 902 corporations.
<DELETED>Sec. 203. Foreign tax credit under alternative minimum tax.
<DELETED>Sec. 204. Recharacterization of overall domestic loss.
<DELETED>Sec. 205. Interest expense allocation rules.
<DELETED>Sec. 206. Determination of foreign personal holding company 
                            income with respect to transactions in 
                            commodities.
         <DELETED>Subtitle B--International Tax Simplification

<DELETED>Sec. 211. Repeal of foreign personal holding company rules and 
                            foreign investment company rules.
<DELETED>Sec. 212. Expansion of de minimis rule under subpart F.
<DELETED>Sec. 213. Attribution of stock ownership through partnerships 
                            to apply in determining section 902 and 960 
                            credits.
<DELETED>Sec. 214. Application of uniform capitalization rules to 
                            foreign persons.
<DELETED>Sec. 215. Repeal of withholding tax on dividends from certain 
                            foreign corporations.
<DELETED>Sec. 216. Repeal of special capital gains tax on aliens 
                            present in the United States for 183 days 
                            or more.

   <DELETED>TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                   EXTRATERRITORIAL INCOME</DELETED>

<DELETED>SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL 
              INCOME.</DELETED>

<DELETED>    (a) In General.--Section 114 is hereby repealed.</DELETED>
<DELETED>    (b) Conforming Amendments.--</DELETED>
        <DELETED>    (1)(A) Subpart E of part III of subchapter N of 
        chapter 1 (relating to qualifying foreign trade income) is 
        hereby repealed.</DELETED>
        <DELETED>    (B) The table of subparts for such part III is 
        amended by striking the item relating to subpart E.</DELETED>
        <DELETED>    (2) The table of sections for part III of 
        subchapter B of chapter 1 is amended by striking the item 
        relating to section 114.</DELETED>
        <DELETED>    (3) The second sentence of section 56(g)(4)(B)(i) 
        is amended by striking ``or under section 114''.</DELETED>
        <DELETED>    (4) Section 275(a) is amended--</DELETED>
                <DELETED>    (A) by inserting ``or'' at the end of 
                paragraph (4)(A), by striking ``or'' at the end of 
                paragraph (4)(B) and inserting a period, and by 
                striking subparagraph (C), and</DELETED>
                <DELETED>    (B) by striking the last 
                sentence.</DELETED>
        <DELETED>    (5) Paragraph (3) of section 864(e) is amended--
        </DELETED>
                <DELETED>    (A) by striking:</DELETED>
        <DELETED>    ``(3) Tax-exempt assets not taken into account.--
        </DELETED>
                <DELETED>    ``(A) In general.--For purposes of''; and 
                inserting:</DELETED>
        <DELETED>    ``(3) Tax-exempt assets not taken into account.--
        For purposes of'', and</DELETED>
                <DELETED>    (B) by striking subparagraph 
                (B).</DELETED>
        <DELETED>    (6) Section 903 is amended by striking ``114, 
        164(a),'' and inserting ``164(a)''.</DELETED>
        <DELETED>    (7) Section 999(c)(1) is amended by striking 
        ``941(a)(5),''.</DELETED>
<DELETED>    (c) Effective Date.--</DELETED>
        <DELETED>    (1) In general.--The amendments made by this 
        section shall apply to transactions occurring after the date of 
        the enactment of this Act.</DELETED>
        <DELETED>    (2) Binding contracts.--The amendments made by 
        this section shall not apply to any transaction in the ordinary 
        course of a trade or business which occurs pursuant to a 
        binding contract--</DELETED>
                <DELETED>    (A) which is between the taxpayer and a 
                person who is not a related person (as defined in 
                section 943(b)(3) of such Code, as in effect on the day 
                before the date of the enactment of this Act), 
                and</DELETED>
                <DELETED>    (B) which is in effect on September 17, 
                2003, and at all times thereafter.</DELETED>
<DELETED>    (d) Revocation of Section 943(e) Elections.--</DELETED>
        <DELETED>    (1) In general.--In the case of a corporation that 
        elected to be treated as a domestic corporation under section 
        943(e) of the Internal Revenue Code of 1986 (as in effect on 
        the day before the date of the enactment of this Act)--
        </DELETED>
                <DELETED>    (A) the corporation may, during the 1-year 
                period beginning on the date of the enactment of this 
                Act, revoke such election, effective as of such date of 
                enactment, and</DELETED>
                <DELETED>    (B) if the corporation does revoke such 
                election--</DELETED>
                        <DELETED>    (i) such corporation shall be 
                        treated as a domestic corporation transferring 
                        (as of such date of enactment) all of its 
                        property to a foreign corporation in connection 
                        with an exchange described in section 354 of 
                        such Code, and</DELETED>
                        <DELETED>    (ii) no gain or loss shall be 
                        recognized on such transfer.</DELETED>
        <DELETED>    (2) Exception.--Subparagraph (B)(ii) of paragraph 
        (1) shall not apply to gain on any asset held by the revoking 
        corporation if--</DELETED>
                <DELETED>    (A) the basis of such asset is determined 
                in whole or in part by reference to the basis of such 
                asset in the hands of the person from whom the revoking 
                corporation acquired such asset,</DELETED>
                <DELETED>    (B) the asset was acquired by transfer 
                (not as a result of the election under section 943(e) 
                of such Code) occurring on or after the 1st day on 
                which its election under section 943(e) of such Code 
                was effective, and</DELETED>
                <DELETED>    (C) a principal purpose of the acquisition 
                was the reduction or avoidance of tax (other than a 
                reduction in tax under section 114 of such Code, as in 
                effect on the day before the date of the enactment of 
                this Act).</DELETED>
<DELETED>    (e) General Transition.--</DELETED>
        <DELETED>    (1) In general.--In the case of a taxable year 
        ending after the date of the enactment of this Act and 
        beginning before January 1, 2007, for purposes of chapter 1 of 
        such Code, a current FSC/ETI beneficiary shall be allowed a 
        deduction equal to the transition amount determined under this 
        subsection with respect to such beneficiary for such 
        year.</DELETED>
        <DELETED>    (2) Current fsc/eti beneficiary.--The term 
        ``current FSC/ETI beneficiary'' means any corporation which 
        entered into one or more transactions during its taxable year 
        beginning in calendar year 2002 with respect to which FSC/ETI 
        benefits were allowable.</DELETED>
        <DELETED>    (3) Transition amount.--For purposes of this 
        subsection--</DELETED>
                <DELETED>    (A) In general.--The transition amount 
                applicable to any current FSC/ETI beneficiary for any 
                taxable year is the phaseout percentage of the base 
                period amount.</DELETED>
                <DELETED>    (B) Phaseout percentage.--</DELETED>
                        <DELETED>    (i) In general.--In the case of a 
                        taxpayer using the calendar year as its taxable 
                        year, the phaseout percentage shall be 
                        determined under the following table:</DELETED>

<DELETED>                                       The phaseout
<DELETED>            Years:                     percentage is:
    <DELETED>            2004......
                                        <DELETED>                 80 
    <DELETED>            2005......
                                        <DELETED>                 80 
    <DELETED>            2006......
                                        <DELETED>                 60.
                        <DELETED>    (ii) Special rule for 2003.--The 
                        phaseout percentage for 2003 shall be the 
                        amount that bears the same ratio to 100 percent 
                        as the number of days after the date of the 
                        enactment of this Act bears to 365.</DELETED>
                        <DELETED>    (iii) Special rule for fiscal year 
                        taxpayers.--In the case of a taxpayer not using 
                        the calendar year as its taxable year, the 
                        phaseout percentage is the weighted average of 
                        the phaseout percentages determined under the 
                        preceding provisions of this paragraph with 
                        respect to calendar years any portion of which 
                        is included in the taxpayer's taxable year. The 
                        weighted average shall be determined on the 
                        basis of the respective portions of the taxable 
                        year in each calendar year.</DELETED>
        <DELETED>    (4) Base period amount.--For purposes of this 
        subsection, the base period amount is the aggregate FSC/ETI 
        benefits for the taxpayer's taxable year beginning in calendar 
        year 2002.</DELETED>
        <DELETED>    (5) FSC/ETI benefit.--For purposes of this 
        subsection, the term ``FSC/ETI benefit'' means--</DELETED>
                <DELETED>    (A) amounts excludable from gross income 
                under section 114 of such Code, and</DELETED>
                <DELETED>    (B) the exempt foreign trade income of 
                related foreign sales corporations from property 
                acquired from the taxpayer (determined without regard 
                to section 923(a)(5) of such Code (relating to special 
                rule for military property), as in effect on the day 
                before the date of the enactment of the FSC Repeal and 
                Extraterritorial Income Exclusion Act of 
                2000).</DELETED>
        <DELETED>In determining the FSC/ETI benefit there shall be 
        excluded any amount attributable to a transaction with respect 
        to which the taxpayer is the lessor unless the leased property 
        was manufactured or produced in whole or in part by the 
        taxpayer.</DELETED>
        <DELETED>    (6) Special rule for farm cooperatives.--
        Determinations under this subsection with respect to an 
        organization described in section 943(g)(1) of such Code, as in 
        effect on the day before the date of the enactment of this Act, 
        shall be made at the cooperative level and the purposes of this 
        subsection shall be carried out in a manner similar to section 
        250(h) of such Code, as added by this Act. Such determinations 
        shall be in accordance with such requirements and procedures as 
        the Secretary may prescribe.</DELETED>
        <DELETED>    (7) Certain rules to apply.--Rules similar to the 
        rules of section 41(f) of such Code shall apply for purposes of 
        this subsection.</DELETED>
        <DELETED>    (8) Coordination with binding contract rule.--The 
        deduction determined under paragraph (1) for any taxable year 
        shall be reduced by the phaseout percentage of any FSC/ETI 
        benefit realized for the taxable year by reason of subsection 
        (c)(2), except that for purposes of this paragraph the phaseout 
        percentage for 2003 shall be treated as being equal to 100 
        percent.</DELETED>
        <DELETED>    (9) Special rule for taxable year which includes 
        date of enactment.--In the case of a taxable year which 
        includes the date of the enactment of this Act, the deduction 
        allowed under this subsection to any current FSC/ETI 
        beneficiary shall in no event exceed--</DELETED>
                <DELETED>    (A) 100 percent of such beneficiary's base 
                period amount for calendar year 2003, reduced 
                by</DELETED>
                <DELETED>    (B) the aggregate FSC/ETI benefits of such 
                beneficiary with respect to transactions occurring 
                during the portion of the taxable year ending on the 
                date of the enactment of this Act.</DELETED>

<DELETED>SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED 
              STATES PRODUCTION ACTIVITIES.</DELETED>

<DELETED>    (a) In General.--Part VIII of subchapter B of chapter 1 
(relating to special deductions for corporations) is amended by adding 
at the end the following new section:</DELETED>

<DELETED>``SEC. 250. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION 
              ACTIVITIES.</DELETED>

<DELETED>    ``(a) In General.--In the case of a corporation, there 
shall be allowed as a deduction an amount equal to 9 percent of the 
qualified production activities income of the corporation for the 
taxable year.</DELETED>
<DELETED>    ``(b) Phasein.--In the case of taxable years beginning in 
2004, 2005, 2006, 2007, or 2008, subsection (a) shall be applied by 
substituting for the percentage contained therein the transition 
percentage determined under the following table:</DELETED>

<DELETED>            ``Taxable                  The transition
        years
<DELETED>            beginning in:              percentage is:

    <DELETED>            2004......
                                        <DELETED>                1 
    <DELETED>            2005......
                                        <DELETED>                2 
    <DELETED>            2006......
                                        <DELETED>                3 
    <DELETED>            2007 or 
        2008.
                                        <DELETED>                6.
<DELETED>    ``(c) Qualified Production Activities Income.--For 
purposes of this section--</DELETED>
        <DELETED>    ``(1) In general.--The term `qualified production 
        activities income' means an amount equal to the applicable 
        percentage of the portion of the modified taxable income of the 
        taxpayer which is attributable to domestic production 
        activities.</DELETED>
        <DELETED>    ``(2) Applicable percentage.--For purposes of this 
        subsection, the term `applicable percentage' means--</DELETED>
                <DELETED>    ``(A) in the case of taxable years 
                beginning before 2012, a percentage equal to the 
                domestic/worldwide fraction,</DELETED>
                <DELETED>    ``(B) in the case of taxable years 
                beginning in 2012, a percentage (not greater than 100 
                percent) equal to twice the domestic/worldwide 
                fraction, and</DELETED>
                <DELETED>    ``(C) in the case of taxable years 
                beginning after 2012, 100 percent.</DELETED>
<DELETED>    ``(d) Determination of Income Attributable to Domestic 
Production Activities.--For purposes of this section--</DELETED>
        <DELETED>    ``(1) In general.--The portion of the modified 
        taxable income which is attributable to domestic production 
        activities is so much of the modified taxable income for the 
        taxable year as does not exceed--</DELETED>
                <DELETED>    ``(A) the taxpayer's domestic production 
                gross receipts for such taxable year, reduced 
                by</DELETED>
                <DELETED>    ``(B) the sum of--</DELETED>
                        <DELETED>    ``(i) the costs of goods sold that 
                        are allocable to such receipts,</DELETED>
                        <DELETED>    ``(ii) other deductions, expenses, 
                        or losses directly allocable to such receipts, 
                        and</DELETED>
                        <DELETED>    ``(iii) a proper share of other 
                        deductions, expenses, and losses that are not 
                        directly allocable to such receipts or another 
                        class of income.</DELETED>
        <DELETED>    ``(2) Allocation method.--The Secretary shall 
        prescribe rules for the proper allocation of items of income, 
        deduction, expense, and loss for purposes of determining income 
        attributable to domestic production activities.</DELETED>
        <DELETED>    ``(3) Special rules for determining costs.--
        </DELETED>
                <DELETED>    ``(A) In general.--For purposes of 
                determining costs under clause (i) of paragraph (1)(B), 
                any item or service brought into the United States 
                without a transfer price meeting the requirements of 
                section 482 shall be treated as acquired by purchase, 
                and its cost shall be treated as not less than its 
                value when it entered the United States. A similar rule 
                shall apply in determining the adjusted basis of leased 
                or rented property where the lease or rental gives rise 
                to domestic production gross receipts.</DELETED>
                <DELETED>    ``(B) Exports for further manufacture.--In 
                the case of any property described in subparagraph (A) 
                that had been exported by the taxpayer for further 
                manufacture, the increase in cost or adjusted basis 
                under subparagraph (A) shall not exceed the difference 
                between the value of the property when exported and the 
                value of the property when brought back into the United 
                States after the further manufacture.</DELETED>
        <DELETED>    ``(4) Modified taxable income.--The term `modified 
        taxable income' means taxable income computed without regard to 
        the deduction allowable under this section.</DELETED>
<DELETED>    ``(e) Domestic Production Gross Receipts.--For purposes of 
this section, the term `domestic production gross receipts' means the 
gross receipts of the taxpayer which are derived from--</DELETED>
        <DELETED>    ``(1) any sale, exchange, or other disposition of, 
        or</DELETED>
        <DELETED>    ``(2) any lease, rental, or license of,</DELETED>
<DELETED>qualifying production property which was manufactured, 
produced, grown, or extracted in whole or in significant part by the 
taxpayer within the United States.</DELETED>
<DELETED>    ``(f) Qualifying Production Property.--For purposes of 
this section--</DELETED>
        <DELETED>    ``(1) In general.--Except as otherwise provided in 
        this paragraph, the term `qualifying production property' 
        means--</DELETED>
                <DELETED>    ``(A) any tangible personal 
                property,</DELETED>
                <DELETED>    ``(B) any computer software, and</DELETED>
                <DELETED>    ``(C) any property described in section 
                168(f) (3) or (4).</DELETED>
        <DELETED>    ``(2) Exclusions from qualifying production 
        property.--The term `qualifying production property' shall not 
        include--</DELETED>
                <DELETED>    ``(A) consumable property that is sold, 
                leased, or licensed by the taxpayer as an integral part 
                of the provision of services,</DELETED>
                <DELETED>    ``(B) oil or gas (or any primary product 
                thereof),</DELETED>
                <DELETED>    ``(C) electricity,</DELETED>
                <DELETED>    ``(D) water supplied by pipeline to the 
                consumer,</DELETED>
                <DELETED>    ``(E) any unprocessed timber which is 
                softwood,</DELETED>
                <DELETED>    ``(F) utility services, or</DELETED>
                <DELETED>    ``(G) any property (not described in 
                paragraph (1)(B)) which is a film, tape, recording, 
                book, magazine, newspaper, or similar property the 
                market for which is primarily topical or otherwise 
                essentially transitory in nature.</DELETED>
        <DELETED>For purposes of subparagraph (E), the term 
        `unprocessed timber' means any log, cant, or similar form of 
        timber.</DELETED>
<DELETED>    ``(g) Domestic/Worldwide Fraction.--For purposes of this 
section--</DELETED>
        <DELETED>    ``(1) In general.--The term `domestic/worldwide 
        fraction' means a fraction--</DELETED>
                <DELETED>    ``(A) the numerator of which is the value 
                of the domestic production of the taxpayer, 
                and</DELETED>
                <DELETED>    ``(B) the denominator of which is the 
                value of the worldwide production of the 
                taxpayer.</DELETED>
        <DELETED>    ``(2) Value of domestic production.--The value of 
        domestic production is the excess of--</DELETED>
                <DELETED>    ``(A) the domestic production gross 
                receipts, over</DELETED>
                <DELETED>    ``(B) the cost of purchased inputs 
                allocable to such receipts that are deductible under 
                this chapter for the taxable year.</DELETED>
        <DELETED>    ``(3) Purchased inputs.--</DELETED>
                <DELETED>    ``(A) In general.--Purchased inputs are 
                any of the following items acquired by 
                purchase:</DELETED>
                        <DELETED>    ``(i) Services (other than 
                        services of employees) used in manufacture, 
                        production, growth, or extraction 
                        activities.</DELETED>
                        <DELETED>    ``(ii) Items consumed in 
                        connection with such activities.</DELETED>
                        <DELETED>    ``(iii) Items incorporated as part 
                        of the property being manufactured, produced, 
                        grown, or extracted.</DELETED>
                <DELETED>    ``(B) Special rule.--Rules similar to the 
                rules of subsection (d)(3) shall apply for purposes of 
                this subsection.</DELETED>
        <DELETED>    ``(4) Value of worldwide production.--</DELETED>
                <DELETED>    ``(A) In general.--The value of worldwide 
                production shall be determined under the principles of 
                paragraph (2), except that--</DELETED>
                        <DELETED>    ``(i) worldwide production gross 
                        receipts shall be taken into account, 
                        and</DELETED>
                        <DELETED>    ``(ii) paragraph (3)(B) shall not 
                        apply.</DELETED>
                <DELETED>    ``(B) Worldwide production gross 
                receipts.--The worldwide production gross receipts is 
                the amount that would be determined under subsection 
                (e) if such subsection were applied without any 
                reference to the United States.</DELETED>
        <DELETED>    ``(5) Special rule for affiliated groups.--
        </DELETED>
                <DELETED>    ``(A) In general.--In the case of a 
                taxpayer that is a member of an expanded affiliated 
                group, the domestic/worldwide fraction shall be the 
                amount determined under the preceding provisions of 
                this subsection by treating all members of such group 
                as a single corporation.</DELETED>
                <DELETED>    ``(B) Expanded affiliated group.--The term 
                `expanded affiliated group' means an affiliated group 
                as defined in section 1504(a), determined--</DELETED>
                        <DELETED>    ``(i) by substituting `50 percent' 
                        for `80 percent' each place it appears, 
                        and</DELETED>
                        <DELETED>    ``(ii) without regard to 
                        paragraphs (2), (3), (4), and (8) of section 
                        1504(b).</DELETED>
<DELETED>    ``(h) Definitions and Special Rules.--</DELETED>
        <DELETED>    ``(1) Exclusion for patrons of agricultural and 
        horticultural cooperatives.--</DELETED>
                <DELETED>    ``(A) In general.--If any amount described 
                in paragraph (1) or (3) of section 1385 (a)--</DELETED>
                        <DELETED>    ``(i) is received by a person from 
                        an organization to which part I of subchapter T 
                        applies which is engaged in the marketing of 
                        agricultural or horticultural products, 
                        and</DELETED>
                        <DELETED>    ``(ii) is allocable to the portion 
                        of the qualified production activities income 
                        of the organization which is deductible under 
                        subsection (a) (determined as if the 
                        organization were a corporation if it is not) 
                        and designated as such by the organization in a 
                        written notice mailed to its patrons during the 
                        payment period described in section 
                        1382(a),</DELETED>
                <DELETED>then such person shall be allowed an exclusion 
                from gross income with respect to such amount. The 
                taxable income of the organization shall not be reduced 
                under section 1382 by the portion of any such amount 
                with respect to which an exclusion is allowable to a 
                person by reason of this paragraph.</DELETED>
                <DELETED>    ``(B) Special rules.--For purposes of 
                applying subparagraph (A), in determining the qualified 
                production activities income of the organization under 
                this section--</DELETED>
                        <DELETED>    ``(i) there shall not be taken 
                        into account in computing the organization's 
                        modified taxable income any deduction allowable 
                        under subsection (b) or (c) of section 1382 
                        (relating to patronage dividends, per-unit 
                        retain allocations, and nonpatronage 
                        distributions), and</DELETED>
                        <DELETED>    ``(ii) the organization shall be 
                        treated as having manufactured, produced, 
                        grown, or extracted in whole or significant 
                        part any qualifying production property 
                        marketed by the organization which its patrons 
                        have so manufactured, produced, grown, or 
                        extracted.</DELETED>
        <DELETED>    ``(2) Special rule for partnerships.--For purposes 
        of this section, a corporation's distributive share of any 
        partnership item shall be taken into account as if directly 
        realized by the corporation.</DELETED>
        <DELETED>    ``(3) Coordination with minimum tax.--The 
        deduction under this section shall be allowed for purposes of 
        the tax imposed by section 55; except that for purposes of 
        section 55, alternative minimum taxable income shall be taken 
        into account in determining the deduction under this 
        section.</DELETED>
        <DELETED>    ``(4) Ordering rule.--The amount of any other 
        deduction allowable under this chapter shall be determined as 
        if this section had not been enacted.</DELETED>
        <DELETED>    ``(5) Coordination with transition rules.--For 
        purposes of this section--</DELETED>
                <DELETED>    ``(A) domestic production gross receipts 
                shall not include gross receipts from any transaction 
                if the binding contract transition relief of section 
                101(c)(2) of the Jumpstart Our Business Strength (JOBS) 
                Act applies to such transaction, and</DELETED>
                <DELETED>    ``(B) any deduction allowed under section 
                101(e) of such Act shall be disregarded in determining 
                the portion of the taxable income which is attributable 
                to domestic production gross receipts.''.</DELETED>
<DELETED>    (b) Deduction Allowed to Shareholders of S Corporations.--
</DELETED>
        <DELETED>    (1) In general.--Section 1363(b) (relating to 
        computation of S corporation's taxable income) is amended by 
        striking ``and'' at the end of paragraph (3), by striking the 
        period at the end of paragraph (4) and inserting ``, and'', and 
        by adding at the end the following new paragraph:</DELETED>
        <DELETED>    ``(5) the deduction under section 250 shall be 
        allowed to the S corporation.''</DELETED>
        <DELETED>    (2) Increase in basis.--Section 1367(a)(1) 
        (relating to increases in basis) is amended by striking ``and'' 
        at the end of subparagraph (B), by striking the period at the 
        end of subparagraph (C) and inserting ``, and'', and by adding 
        at the end the following new subparagraph:</DELETED>
                <DELETED>    ``(D) any deduction allowed under section 
                250.''</DELETED>
<DELETED>    (c) Minimum Tax.--Section 56(g)(4)(C) (relating to 
disallowance of items not deductible in computing earnings and profits) 
is amended by adding at the end the following new clause:</DELETED>
                        <DELETED>    ``(v) Deduction for domestic 
                        production.--Clause (i) shall not apply to any 
                        amount allowable as a deduction under section 
                        250.''</DELETED>
<DELETED>    (d) Clerical Amendment.--The table of sections for part 
VIII of subchapter B of chapter 1 is amended by adding at the end the 
following new item:</DELETED>

                              <DELETED>``Sec. 250. Income attributable 
                                        to domestic production 
                                        activities.''

<DELETED>    (e) Effective Date.--</DELETED>
        <DELETED>    (1) In general.--The amendments made by this 
        section shall apply to taxable years ending after the date of 
        the enactment of this Act.</DELETED>
        <DELETED>    (2) Application of section 15.--Section 15 of the 
        Internal Revenue Code of 1986 shall apply to the amendments 
        made by this section as if they were changes in a rate of 
        tax.</DELETED>

       <DELETED>TITLE II--INTERNATIONAL TAX PROVISIONS</DELETED>

        <DELETED>Subtitle A--International Tax Reform</DELETED>

<DELETED>SEC. 201. 20-YEAR FOREIGN TAX CREDIT CARRYFORWARD.</DELETED>

<DELETED>    (a) General Rule.--Section 904(c) (relating to carryback 
and carryover of excess tax paid) is amended by striking ``in the 
first, second, third, fourth, or fifth'' and inserting ``in any of the 
first 20''.</DELETED>
<DELETED>    (b) Excess Extraction Taxes.--Paragraph (1) of section 
907(f) is amended by striking ``in the first, second, third, fourth, or 
fifth'' and inserting ``in any of the first 20''.</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to excess foreign taxes which (without regard to the 
amendments made by this section) may be carried to any taxable year 
beginning after December 31, 2004.</DELETED>

<DELETED>SEC. 202. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM 
              NONCONTROLLED SECTION 902 CORPORATIONS.</DELETED>

<DELETED>    (a) In General.--Section 904(d)(4) (relating to look-thru 
rules apply to dividends from noncontrolled section 902 corporations) 
is amended to read as follows:</DELETED>
        <DELETED>    ``(4) Look-thru applies to dividends from 
        noncontrolled section 902 corporations.--</DELETED>
                <DELETED>    ``(A) In general.--For purposes of this 
                subsection, any dividend from a noncontrolled section 
                902 corporation with respect to the taxpayer shall be 
                treated as income described in a subparagraph of 
                paragraph (1) in proportion to the ratio of--</DELETED>
                        <DELETED>    ``(i) the portion of earnings and 
                        profits attributable to income described in 
                        such subparagraph, to</DELETED>
                        <DELETED>    ``(ii) the total amount of 
                        earnings and profits.</DELETED>
                <DELETED>    ``(B) Special rules.--For purposes of this 
                paragraph--</DELETED>
                        <DELETED>    ``(i) Earnings and profits.--
                        </DELETED>
                                <DELETED>    ``(I) In general.--The 
                                rules of section 316 shall 
                                apply.</DELETED>
                                <DELETED>    ``(II) Regulations.--The 
                                Secretary may prescribe regulations 
                                regarding the treatment of 
                                distributions out of earnings and 
                                profits for periods before the 
                                taxpayer's acquisition of the stock to 
                                which the distributions 
                                relate.</DELETED>
                        <DELETED>    ``(ii) Inadequate 
                        substantiation.--If the Secretary determines 
                        that the proper subparagraph of paragraph (1) 
                        in which a dividend is described has not been 
                        substantiated, such dividend shall be treated 
                        as income described in paragraph 
                        (1)(A).</DELETED>
                        <DELETED>    ``(iii) Look-thru with respect to 
                        carryforwards of credit.--Rules similar to 
                        subparagraph (A) also shall apply to any 
                        carryforward under subsection (c) from a 
                        taxable year beginning before January 1, 2003, 
                        of tax allocable to a dividend from a 
                        noncontrolled section 902 corporation with 
                        respect to the taxpayer. The Secretary may by 
                        regulations provide for the allocation of any 
                        carryback of tax allocable to a dividend from a 
                        noncontrolled section 902 corporation to such a 
                        taxable year for purposes of allocating such 
                        dividend among the separate categories in 
                        effect for such taxable year.</DELETED>
                        <DELETED>    ``(iv) Coordination with high-
                        taxed income provisions.--Rules similar to the 
                        rules of paragraph (3)(F) shall apply for 
                        purposes of this paragraph.''.</DELETED>
<DELETED>    (b) Conforming Amendments.--</DELETED>
        <DELETED>    (1) Section 904(d)(2)(E) is amended--</DELETED>
                <DELETED>    (A) by inserting ``or (4)'' after 
                ``paragraph (3)'' in clause (i), and</DELETED>
                <DELETED>    (B) by striking clauses (ii) and (iv) and 
                by redesignating clause (iii) as clause (ii).</DELETED>
        <DELETED>    (2) Clause (i) of section 864(d)(5)(A) is amended 
        to read as follows:</DELETED>
                        <DELETED>    ``(i) Subclause (I) of section 
                        904(d)(2)(B)(iii).''</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 
2002.</DELETED>

<DELETED>SEC. 203. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM 
              TAX.</DELETED>

<DELETED>    (a) In General.--</DELETED>
        <DELETED>    (1) Subsection (a) of section 59 is amended by 
        striking paragraph (2) and by redesignating paragraphs (3) and 
        (4) as paragraphs (2) and (3), respectively.</DELETED>
        <DELETED>    (2) Section 53(d)(1)(B)(i)(II) of such Code is 
        amended by striking ``and if section 59(a)(2) did not 
        apply''.</DELETED>
<DELETED>    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 
2004.</DELETED>

<DELETED>SEC. 204. RECHARACTERIZATION OF OVERALL DOMESTIC 
              LOSS.</DELETED>

<DELETED>    (a) General Rule.--Section 904 is amended by redesignating 
subsections (g), (h), (i), (j), and (k) as subsections (h), (i), (j), 
(k), and (l) respectively, and by inserting after subsection (f) the 
following new subsection:</DELETED>
<DELETED>    ``(g) Recharacterization of Overall Domestic Loss.--
</DELETED>
        <DELETED>    ``(1) General rule.--For purposes of this subpart 
        and section 936, in the case of any taxpayer who sustains an 
        overall domestic loss for any taxable year beginning after 
        December 31, 2006, that portion of the taxpayer's taxable 
        income from sources within the United States for each 
        succeeding taxable year which is equal to the lesser of--
        </DELETED>
                <DELETED>    ``(A) the amount of such loss (to the 
                extent not used under this paragraph in prior taxable 
                years), or</DELETED>
                <DELETED>    ``(B) 50 percent of the taxpayer's taxable 
                income from sources within the United States for such 
                succeeding taxable year,</DELETED>
        <DELETED>shall be treated as income from sources without the 
        United States (and not as income from sources within the United 
        States).</DELETED>
        <DELETED>    ``(2) Overall domestic loss defined.--For purposes 
        of this subsection--</DELETED>
                <DELETED>    ``(A) In general.--The term `overall 
                domestic loss' means any domestic loss to the extent 
                such loss offsets taxable income from sources without 
                the United States for the taxable year or for any 
                preceding taxable year by reason of a carryback. For 
                purposes of the preceding sentence, the term `domestic 
                loss' means the amount by which the gross income for 
                the taxable year from sources within the United States 
                is exceeded by the sum of the deductions properly 
                apportioned or allocated thereto (determined without 
                regard to any carryback from a subsequent taxable 
                year).</DELETED>
                <DELETED>    ``(B) Taxpayer must have elected foreign 
                tax credit for year of loss.--The term `overall 
                domestic loss' shall not include any loss for any 
                taxable year unless the taxpayer chose the benefits of 
                this subpart for such taxable year.</DELETED>
        <DELETED>    ``(3) Characterization of subsequent income.--
        </DELETED>
                <DELETED>    ``(A) In general.--Any income from sources 
                within the United States that is treated as income from 
                sources without the United States under paragraph (1) 
                shall be allocated among and increase the income 
                categories in proportion to the loss from sources 
                within the United States previously allocated to those 
                income categories.</DELETED>
                <DELETED>    ``(B) Income category.--For purposes of 
                this paragraph, the term `income category' has the 
                meaning given such term by subsection 
                (f)(5)(E)(i).</DELETED>
        <DELETED>    ``(4) Coordination with subsection (f).--The 
        Secretary shall prescribe such regulations as may be necessary 
        to coordinate the provisions of this subsection with the 
        provisions of subsection (f).''</DELETED>
<DELETED>    (b) Conforming Amendments.--</DELETED>
        <DELETED>    (1) Section 535(d)(2) is amended by striking 
        ``section 904(g)(6)'' and inserting ``section 
        904(h)(6)''.</DELETED>
        <DELETED>    (2) Subparagraph (A) of section 936(a)(2) is 
        amended by striking ``section 904(f)'' and inserting 
        ``subsections (f) and (g) of section 904''.</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to losses for taxable years beginning after December 31, 
2006.</DELETED>

<DELETED>SEC. 205. INTEREST EXPENSE ALLOCATION RULES.</DELETED>

<DELETED>    (a) Election To Allocate on Worldwide Basis.-- Section 864 
is amended by redesignating subsection (f) as subsection (g) and by 
inserting after subsection (e) the following new subsection:</DELETED>
<DELETED>    ``(f) Election To Allocate Interest, etc. on Worldwide 
Basis.--For purposes of this subchapter, at the election of the 
worldwide affiliated group--</DELETED>
        <DELETED>    ``(1) Allocation and apportionment of interest 
        expense.--</DELETED>
                <DELETED>    ``(A) In general.--The taxable income of 
                each domestic corporation which is a member of a 
                worldwide affiliated group shall be determined by 
                allocating and apportioning interest expense of each 
                member as if all members of such group were a single 
                corporation.</DELETED>
                <DELETED>    ``(B) Treatment of worldwide affiliated 
                group.--The taxable income of the domestic members of a 
                worldwide affiliated group from sources outside the 
                United States shall be determined by allocating and 
                apportioning the interest expense of such domestic 
                members to such income in an amount equal to the excess 
                (if any) of--</DELETED>
                        <DELETED>    ``(i) the total interest expense 
                        of the worldwide affiliated group multiplied by 
                        the ratio which the foreign assets of the 
                        worldwide affiliated group bears to all the 
                        assets of the worldwide affiliated group, 
                        over</DELETED>
                        <DELETED>    ``(ii) the interest expense of all 
                        foreign corporations which are members of the 
                        worldwide affiliated group to the extent such 
                        interest expense of such foreign corporations 
                        would have been allocated and apportioned to 
                        foreign source income if this subsection were 
                        applied to a group consisting of all the 
                        foreign corporations in such worldwide 
                        affiliated group.</DELETED>
                <DELETED>    ``(C) Worldwide affiliated group.--For 
                purposes of this paragraph, the term `worldwide 
                affiliated group' means a group consisting of--
                </DELETED>
                        <DELETED>    ``(i) the includible members of an 
                        affiliated group (as defined in section 
                        1504(a), determined without regard to 
                        paragraphs (2) and (4) of section 1504(b)), 
                        and</DELETED>
                        <DELETED>    ``(ii) all controlled foreign 
                        corporations in which such members in the 
                        aggregate meet the ownership requirements of 
                        section 1504(a)(2) either directly or 
                        indirectly through applying paragraph (2) of 
                        section 958(a) or through applying rules 
                        similar to the rules of such paragraph to stock 
                        owned directly or indirectly by domestic 
                        partnerships, trusts, or estates.</DELETED>
        <DELETED>    ``(2) Allocation and apportionment of other 
        expenses.--Expenses other than interest which are not directly 
        allocable or apportioned to any specific income producing 
        activity shall be allocated and apportioned as if all members 
        of the affiliated group were a single corporation. For purposes 
        of the preceding sentence, the term `affiliated group' has the 
        meaning given such term by section 1504 (determined without 
        regard to paragraph (4) of section 1504(b)).</DELETED>
        <DELETED>    ``(3) Treatment of tax-exempt assets; basis of 
        stock in nonaffiliated 10-percent owned corporations.--The 
        rules of paragraphs (3) and (4) of subsection (e) shall apply 
        for purposes of this subsection; except that paragraph (4) 
        shall be applied on worldwide affiliated group basis.</DELETED>
        <DELETED>    ``(4) Treatment of certain financial 
        institutions.--</DELETED>
                <DELETED>    ``(A) In general.--For purposes of 
                paragraph (1), any corporation described in 
                subparagraph (B) shall be treated as an includible 
                corporation for purposes of section 1504 only for 
                purposes of applying this subsection separately to 
                corporations so described.</DELETED>
                <DELETED>    ``(B) Description.--A corporation is 
                described in this subparagraph if--</DELETED>
                        <DELETED>    ``(i) such corporation is a 
                        financial institution described in section 581 
                        or 591,</DELETED>
                        <DELETED>    ``(ii) the business of such 
                        financial institution is predominantly with 
                        persons other than related persons (within the 
                        meaning of subsection (d)(4)) or their 
                        customers, and</DELETED>
                        <DELETED>    ``(iii) such financial institution 
                        is required by State or Federal law to be 
                        operated separately from any other entity which 
                        is not such an institution.</DELETED>
                <DELETED>    ``(C) Treatment of bank and financial 
                holding companies.--To the extent provided in 
                regulations--</DELETED>
                        <DELETED>    ``(i) a bank holding company 
                        (within the meaning of section 2(a) of the Bank 
                        Holding Company Act of 1956),</DELETED>
                        <DELETED>    ``(ii) a financial holding company 
                        (within the meaning of section 2(p) of the Bank 
                        Holding Company Act of 1956), and</DELETED>
                        <DELETED>    ``(iii) any subsidiary of a 
                        financial institution described in section 581 
                        or 591, or of any such bank or financial 
                        holding company, if such subsidiary is 
                        predominantly engaged (directly or indirectly) 
                        in the active conduct of a banking, financing, 
                        or similar business,</DELETED>
                <DELETED>shall be treated as a corporation described in 
                subparagraph (B).</DELETED>
        <DELETED>    ``(5) Election to expand financial institution 
        group of worldwide group.--</DELETED>
                <DELETED>    ``(A) In general.--If a worldwide 
                affiliated group elects the application of this 
                subsection, all financial corporations which--
                </DELETED>
                        <DELETED>    ``(i) are members of such 
                        worldwide affiliated group, but</DELETED>
                        <DELETED>    ``(ii) are not corporations 
                        described in paragraph (4)(B),</DELETED>
                <DELETED>shall be treated as described in paragraph 
                (4)(B) for purposes of applying paragraph (4)(A). This 
                subsection (other than this paragraph) shall apply to 
                any such group in the same manner as this subsection 
                (other than this paragraph) applies to the pre-election 
                worldwide affiliated group of which such group is a 
                part.</DELETED>
                <DELETED>    ``(B) Financial corporation.--For purposes 
                of this paragraph, the term `financial corporation' 
                means any corporation if at least 80 percent of its 
                gross income is income described in section 
                904(d)(2)(D)(ii) and the regulations thereunder which 
                is derived from transactions with persons who are not 
                related (within the meaning of section 267(b) or 
                707(b)(1)) to the corporation. For purposes of the 
                preceding sentence, there shall be disregarded any item 
                of income or gain from a transaction or series of 
                transactions a principal purpose of which is the 
                qualification of any corporation as a financial 
                corporation.</DELETED>
                <DELETED>    ``(C) Antiabuse rules.--In the case of a 
                corporation which is a member of an electing financial 
                institution group, to the extent that such 
                corporation--</DELETED>
                        <DELETED>    ``(i) distributes dividends or 
                        makes other distributions with respect to its 
                        stock after the date of the enactment of this 
                        paragraph to any member of the pre-election 
                        worldwide affiliated group (other than to a 
                        member of the electing financial institution 
                        group) in excess of the greater of--</DELETED>
                                <DELETED>    ``(I) its average annual 
                                dividend (expressed as a percentage of 
                                current earnings and profits) during 
                                the 5-taxable-year period ending with 
                                the taxable year preceding the taxable 
                                year, or</DELETED>
                                <DELETED>    ``(II) 25 percent of its 
                                average annual earnings and profits for 
                                such 5-taxable-year period, 
                                or</DELETED>
                        <DELETED>    ``(ii) deals with any person in 
                        any manner not clearly reflecting the income of 
                        the corporation (as determined under principles 
                        similar to the principles of section 
                        482),</DELETED>
                <DELETED>an amount of indebtedness of the electing 
                financial institution group equal to the excess 
                distribution or the understatement or overstatement of 
                income, as the case may be, shall be recharacterized 
                (for the taxable year and subsequent taxable years) for 
                purposes of this paragraph as indebtedness of the 
                worldwide affiliated group (excluding the electing 
                financial institution group). If a corporation has not 
                been in existence for 5 taxable years, this 
                subparagraph shall be applied with respect to the 
                period it was in existence.</DELETED>
                <DELETED>    ``(D) Election.--An election under this 
                paragraph with respect to any financial institution 
                group may be made only by the common parent of the pre-
                election worldwide affiliated group and may be made 
                only for the first taxable year beginning after 
                December 31, 2009, in which such affiliated group 
                includes 1 or more financial corporations. Such an 
                election, once made, shall apply to all financial 
                corporations which are members of the electing 
                financial institution group for such taxable year and 
                all subsequent years unless revoked with the consent of 
                the Secretary.</DELETED>
                <DELETED>    ``(E) Definitions relating to groups.--For 
                purposes of this paragraph--</DELETED>
                        <DELETED>    ``(i) Pre-election worldwide 
                        affiliated group.--The term `pre-election 
                        worldwide affiliated group' means, with respect 
                        to a corporation, the worldwide affiliated 
                        group of which such corporation would (but for 
                        an election under this paragraph) be a member 
                        for purposes of applying paragraph 
                        (1).</DELETED>
                        <DELETED>    ``(ii) Electing financial 
                        institution group.--The term `electing 
                        financial institution group' means the group of 
                        corporations to which this subsection applies 
                        separately by reason of the application of 
                        paragraph (4)(A) and which includes financial 
                        corporations by reason of an election under 
                        subparagraph (A).</DELETED>
                <DELETED>    ``(F) Regulations.--The Secretary shall 
                prescribe such regulations as may be appropriate to 
                carry out this subsection, including regulations--
                </DELETED>
                        <DELETED>    ``(i) providing for the direct 
                        allocation of interest expense in other 
                        circumstances where such allocation would be 
                        appropriate to carry out the purposes of this 
                        subsection,</DELETED>
                        <DELETED>    ``(ii) preventing assets or 
                        interest expense from being taken into account 
                        more than once, and</DELETED>
                        <DELETED>    ``(iii) dealing with changes in 
                        members of any group (through acquisitions or 
                        otherwise) treated under this paragraph as an 
                        affiliated group for purposes of this 
                        subsection.</DELETED>
        <DELETED>    ``(6) Election.--An election to have this 
        subsection apply with respect to any worldwide affiliated group 
        may be made only by the common parent of the domestic 
        affiliated group referred to in paragraph (1)(C) and may be 
        made only for the first taxable year beginning after December 
        31, 2009, in which a worldwide affiliated group exists which 
        includes such affiliated group and at least one foreign 
        corporation. Such an election, once made, shall apply to such 
        common parent and all other corporations which are members of 
        such worldwide affiliated group for such taxable year and all 
        subsequent years unless revoked with the consent of the 
        Secretary.''.</DELETED>
<DELETED>    (b) Expansion of Regulatory Authority.--Paragraph (7) of 
section 864(e) is amended--</DELETED>
        <DELETED>    (1) by inserting before the comma at the end of 
        subparagraph (B) ``and in other circumstances where such 
        allocation would be appropriate to carry out the purposes of 
        this subsection'', and</DELETED>
        <DELETED>    (2) by striking ``and'' at the end of subparagraph 
        (E), by redesignating subparagraph (F) as subparagraph (G), and 
        by inserting after subparagraph (E) the following new 
        subparagraph:</DELETED>
                <DELETED>    ``(F) preventing assets or interest 
                expense from being taken into account more than once, 
                and''.</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 
2009.</DELETED>

<DELETED>SEC. 206. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY 
              INCOME WITH RESPECT TO TRANSACTIONS IN 
              COMMODITIES.</DELETED>

<DELETED>    (a) In General.--Clauses (i) and (ii) of section 
954(c)(1)(C) (relating to commodity transactions) are amended to read 
as follows:</DELETED>
                        <DELETED>    ``(i) arise out of commodity 
                        hedging transactions (as defined in paragraph 
                        (6)(A)),</DELETED>
                        <DELETED>    ``(ii) are active business gains 
                        or losses from the sale of commodities, but 
                        only if substantially all of the controlled 
                        foreign corporation's commodities are property 
                        described in paragraph (1), (2), or (8) of 
                        section 1221(a), or''.</DELETED>
<DELETED>    (b) Definition and Special Rules.--Subsection (c) of 
section 954 is amended by adding after paragraph (5) the following new 
paragraph:</DELETED>
        <DELETED>    ``(6) Definition and special rules relating to 
        commodity transactions.--</DELETED>
                <DELETED>    ``(A) Commodity hedging transactions.--For 
                purposes of paragraph (1)(C)(i), the term `commodity 
                hedging transaction' means any transaction with respect 
                to a commodity if such transaction--</DELETED>
                        <DELETED>    ``(i) is a hedging transaction as 
                        defined in section 1221(b)(2), determined--
                        </DELETED>
                                <DELETED>    ``(I) without regard to 
                                subparagraph (A)(ii) thereof,</DELETED>
                                <DELETED>    ``(II) by applying 
                                subparagraph (A)(i) thereof by 
                                substituting `ordinary property or 
                                property described in section 1231(b)' 
                                for `ordinary property', and</DELETED>
                                <DELETED>    ``(III) by substituting 
                                `controlled foreign corporation' for 
                                `taxpayer' each place it appears, 
                                and</DELETED>
                        <DELETED>    ``(ii) is clearly identified as 
                        such in accordance with section 
                        1221(a)(7).</DELETED>
                <DELETED>    ``(B) Regulations.--The Secretary shall 
                prescribe such regulations as are appropriate to carry 
                out the purposes of paragraph (1)(C) in the case of 
                transactions involving related parties.''</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to transactions entered into after December 31, 
2004.</DELETED>

    <DELETED>Subtitle B--International Tax Simplification</DELETED>

<DELETED>SEC. 211. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND 
              FOREIGN INVESTMENT COMPANY RULES.</DELETED>

<DELETED>    (a) General Rule.--The following provisions are hereby 
repealed:</DELETED>
        <DELETED>    (1) Part III of subchapter G of chapter 1 
        (relating to foreign personal holding companies).</DELETED>
        <DELETED>    (2) Section 1246 (relating to gain on foreign 
        investment company stock).</DELETED>
        <DELETED>    (3) Section 1247 (relating to election by foreign 
        investment companies to distribute income currently).</DELETED>
<DELETED>    (b) Exemption of Foreign Corporations From Personal 
Holding Company Rules.--</DELETED>
        <DELETED>    (1) In general.--Subsection (c) of section 542 
        (relating to exceptions) is amended--</DELETED>
                <DELETED>    (A) by striking paragraph (5) and 
                inserting the following:</DELETED>
        <DELETED>    ``(5) a foreign corporation,'',</DELETED>
                <DELETED>    (B) by striking paragraphs (7) and (10) 
                and by redesignating paragraphs (8) and (9) as 
                paragraphs (7) and (8), respectively,</DELETED>
                <DELETED>    (C) by inserting ``and'' at the end of 
                paragraph (7) (as so redesignated), and</DELETED>
                <DELETED>    (D) by striking ``; and'' at the end of 
                paragraph (8) (as so redesignated) and inserting a 
                period.</DELETED>
        <DELETED>    (2) Treatment of income from personal service 
        contracts.--Paragraph (1) of section 954(c) is amended by 
        adding at the end the following new subparagraph:</DELETED>
                <DELETED>    ``(I) Personal service contracts.--
                </DELETED>
                        <DELETED>    ``(i) Amounts received under a 
                        contract under which the corporation is to 
                        furnish personal services if--</DELETED>
                                <DELETED>    ``(I) some person other 
                                than the corporation has the right to 
                                designate (by name or by description) 
                                the individual who is to perform the 
                                services, or</DELETED>
                                <DELETED>    ``(II) the individual who 
                                is to perform the services is 
                                designated (by name or by description) 
                                in the contract, and</DELETED>
                        <DELETED>    ``(ii) amounts received from the 
                        sale or other disposition of such a 
                        contract.</DELETED>
                <DELETED>This subparagraph shall apply with respect to 
                amounts received for services under a particular 
                contract only if at some time during the taxable year 
                25 percent or more in value of the outstanding stock of 
                the corporation is owned, directly or indirectly, by or 
                for the individual who has performed, is to perform, or 
                may be designated (by name or by description) as the 
                one to perform, such services.''</DELETED>
<DELETED>    (c) Conforming Amendments.--</DELETED>
        <DELETED>    (1) Section 1(h) is amended--</DELETED>
                <DELETED>    (A) in paragraph (10), by inserting 
                ``and'' at the end of subparagraph (F), by striking 
                subparagraph (G), and by redesignating subparagraph (H) 
                as subparagraph (G), and</DELETED>
                <DELETED>    (B) by striking ``a foreign personal 
                holding company (as defined in section 552), a foreign 
                investment company (as defined in section 1246(b)), 
                or'' in paragraph (11)(C)(iii).</DELETED>
        <DELETED>    (2) Paragraph (2) of section 171(c) is amended--
        </DELETED>
                <DELETED>    (A) by striking ``, or by a foreign 
                personal holding company, as defined in section 552'', 
                and</DELETED>
                <DELETED>    (B) by striking ``, or foreign personal 
                holding company''.</DELETED>
        <DELETED>    (3) Paragraph (2) of section 245(a) is amended by 
        striking ``foreign personal holding company or''.</DELETED>
        <DELETED>    (4) Section 312 is amended by striking subsection 
        (j).</DELETED>
        <DELETED>    (5) Subsection (m) of section 312 is amended by 
        striking ``, a foreign investment company (within the meaning 
        of section 1246(b)), or a foreign personal holding company 
        (within the meaning of section 552)''.</DELETED>
        <DELETED>    (6) Subsection (e) of section 443 is amended by 
        striking paragraph (3) and by redesignating paragraphs (4) and 
        (5) as paragraphs (3) and (4), respectively.</DELETED>
        <DELETED>    (7) Subparagraph (B) of section 465(c)(7) is 
        amended by adding ``or'' at the end of clause (i), by striking 
        clause (ii), and by redesignating clause (iii) as clause 
        (ii).</DELETED>
        <DELETED>    (8) Paragraph (1) of section 543(b) is amended by 
        inserting ``and'' at the end of subparagraph (A), by striking 
        ``, and'' at the end of subparagraph (B) and inserting a 
        period, and by striking subparagraph (C).</DELETED>
        <DELETED>    (9) Paragraph (1) of section 562(b) is amended by 
        striking ``or a foreign personal holding company described in 
        section 552''.</DELETED>
        <DELETED>    (10) Section 563 is amended--</DELETED>
                <DELETED>    (A) by striking subsection (c),</DELETED>
                <DELETED>    (B) by redesignating subsection (d) as 
                subsection (c), and</DELETED>
                <DELETED>    (C) by striking ``subsection (a), (b), or 
                (c)'' in subsection (c) (as so redesignated) and 
                inserting ``subsection (a) or (b)''.</DELETED>
        <DELETED>    (11) Subsection (d) of section 751 is amended by 
        adding ``and'' at the end of paragraph (2), by striking 
        paragraph (3), by redesignating paragraph (4) as paragraph (3), 
        and by striking ``paragraph (1), (2), or (3)'' in paragraph (3) 
        (as so redesignated) and inserting ``paragraph (1) or 
        (2)''.</DELETED>
        <DELETED>    (12) Paragraph (2) of section 864(d) is amended by 
        striking subparagraph (A) and by redesignating subparagraphs 
        (B) and (C) as subparagraphs (A) and (B), 
        respectively.</DELETED>
        <DELETED>    (13)(A) Subparagraph (A) of section 898(b)(1) is 
        amended to read as follows:</DELETED>
                <DELETED>    ``(A) which is treated as a controlled 
                foreign corporation for any purpose under subpart F of 
                part III of this subchapter, and''.</DELETED>
        <DELETED>    (B) Subparagraph (B) of section 898(b)(2) is 
        amended by striking ``and sections 551(f) and 554, whichever 
        are applicable,''.</DELETED>
        <DELETED>    (C) Paragraph (3) of section 898(b) is amended to 
        read as follows:</DELETED>
        <DELETED>    ``(3) United states shareholder.--The term `United 
        States shareholder' has the meaning given to such term by 
        section 951(b), except that, in the case of a foreign 
        corporation having related person insurance income (as defined 
        in section 953(c)(2)), the Secretary may treat any person as a 
        United States shareholder for purposes of this section if such 
        person is treated as a United States shareholder under section 
        953(c)(1).''</DELETED>
        <DELETED>    (D) Subsection (c) of section 898 is amended to 
        read as follows:</DELETED>
<DELETED>    ``(c) Determination of Required Year.--</DELETED>
        <DELETED>    ``(1) In general.--The required year is--
        </DELETED>
                <DELETED>    ``(A) the majority U.S. shareholder year, 
                or</DELETED>
                <DELETED>    ``(B) if there is no majority U.S. 
                shareholder year, the taxable year prescribed under 
                regulations.</DELETED>
        <DELETED>    ``(2) 1-month deferral allowed.--A specified 
        foreign corporation may elect, in lieu of the taxable year 
        under paragraph (1)(A), a taxable year beginning 1 month 
        earlier than the majority U.S. shareholder year.</DELETED>
        <DELETED>    ``(3) Majority u.s. shareholder year.--</DELETED>
                <DELETED>    ``(A) In general.--For purposes of this 
                subsection, the term `majority U.S. shareholder year' 
                means the taxable year (if any) which, on each testing 
                day, constituted the taxable year of--</DELETED>
                        <DELETED>    ``(i) each United States 
                        shareholder described in subsection (b)(2)(A), 
                        and</DELETED>
                        <DELETED>    ``(ii) each United States 
                        shareholder not described in clause (i) whose 
                        stock was treated as owned under subsection 
                        (b)(2)(B) by any shareholder described in such 
                        clause.</DELETED>
                <DELETED>    ``(B) Testing day.--The testing days shall 
                be--</DELETED>
                        <DELETED>    ``(i) the first day of the 
                        corporation's taxable year (determined without 
                        regard to this section), or</DELETED>
                        <DELETED>    ``(ii) the days during such 
                        representative period as the Secretary may 
                        prescribe.''</DELETED>
        <DELETED>    (14) Clause (ii) of section 904(d)(2)(A) is 
        amended to read as follows:</DELETED>
                        <DELETED>    ``(ii) Certain amounts included.--
                        Except as provided in clause (iii), the term 
                        `passive income' includes, except as provided 
                        in subparagraph (E)(iii) or paragraph (3)(I), 
                        any amount includible in gross income under 
                        section 1293 (relating to certain passive 
                        foreign investment companies).''</DELETED>
        <DELETED>    (15)(A) Subparagraph (A) of section 904(g)(1), as 
        redesignated by section 204, is amended by adding ``or'' at the 
        end of clause (i), by striking clause (ii), and by 
        redesignating clause (iii) as clause (ii).</DELETED>
        <DELETED>    (B) The paragraph heading of paragraph (2) of 
        section 904(g), as so redesignated, is amended by striking 
        ``foreign personal holding or''.</DELETED>
        <DELETED>    (16) Section 951 is amended by striking 
        subsections (c) and (d) and by redesignating subsections (e) 
        and (f) as subsections (c) and (d), respectively.</DELETED>
        <DELETED>    (17) Paragraph (3) of section 989(b) is amended by 
        striking ``, 551(a),''.</DELETED>
        <DELETED>    (18) Paragraph (5) of section 1014(b) is amended 
        by inserting ``and before January 1, 2005,'' after ``August 26, 
        1937,''.</DELETED>
        <DELETED>    (19) Subsection (a) of section 1016 is amended by 
        striking paragraph (13).</DELETED>
        <DELETED>    (20)(A) Paragraph (3) of section 1212(a) is 
        amended to read as follows:</DELETED>
        <DELETED>    ``(3) Special rules on carrybacks.--A net capital 
        loss of a corporation shall not be carried back under paragraph 
        (1)(A) to a taxable year--</DELETED>
                <DELETED>    ``(A) for which it is a regulated 
                investment company (as defined in section 851), 
                or</DELETED>
                <DELETED>    ``(B) for which it is a real estate 
                investment trust (as defined in section 
                856).''</DELETED>
        <DELETED>    (B) The amendment made by subparagraph (A) shall 
        apply to taxable years beginning after December 31, 
        2004.</DELETED>
        <DELETED>    (21) Section 1223 is amended by striking paragraph 
        (10) and by redesignating the following paragraphs 
        accordingly.</DELETED>
        <DELETED>    (22) Subsection (d) of section 1248 is amended by 
        striking paragraph (5) and by redesignating paragraphs (6) and 
        (7) as paragraphs (5) and (6), respectively.</DELETED>
        <DELETED>    (23) Paragraph (2) of section 1260(c) is amended 
        by striking subparagraphs (H) and (I) and by redesignating 
        subparagraph (J) as subparagraph (H).</DELETED>
        <DELETED>    (24)(A) Subparagraph (F) of section 1291(b)(3) is 
        amended by striking ``551(d), 959(a),'' and inserting 
        ``959(a)''.</DELETED>
        <DELETED>    (B) Subsection (e) of section 1291 is amended by 
        inserting ``(as in effect on the day before the date of the 
        enactment of the Jumpstart Our Business Strength (JOBS) Act)'' 
        after ``section 1246''.</DELETED>
        <DELETED>    (25) Paragraph (2) of section 1294(a) is amended 
        to read as follows:</DELETED>
        <DELETED>    ``(2) Election not permitted where amounts 
        otherwise includible under section 951.--The taxpayer may not 
        make an election under paragraph (1) with respect to the 
        undistributed PFIC earnings tax liability attributable to a 
        qualified electing fund for the taxable year if any amount is 
        includible in the gross income of the taxpayer under section 
        951 with respect to such fund for such taxable 
        year.''</DELETED>
        <DELETED>    (26) Section 6035 is hereby repealed.</DELETED>
        <DELETED>    (27) Subparagraph (D) of section 6103(e)(1) is 
        amended by striking clause (iv) and redesignating clauses (v) 
        and (vi) as clauses (iv) and (v), respectively.</DELETED>
        <DELETED>    (28) Subparagraph (B) of section 6501(e)(1) is 
        amended to read as follows:</DELETED>
                <DELETED>    ``(B) Constructive dividends.--If the 
                taxpayer omits from gross income an amount properly 
                includible therein under section 951(a), the tax may be 
                assessed, or a proceeding in court for the collection 
                of such tax may be done without assessing, at any time 
                within 6 years after the return was filed.''</DELETED>
        <DELETED>    (29) Subsection (a) of section 6679 is amended--
        </DELETED>
                <DELETED>    (A) by striking ``6035, 6046, and 6046A'' 
                in paragraph (1) and inserting ``6046 and 6046A'', 
                and</DELETED>
                <DELETED>    (B) by striking paragraph (3).</DELETED>
        <DELETED>    (30) Sections 170(f)(10)(A), 508(d), 4947, and 
        4948(c)(4) are each amended by striking ``556(b)(2),'' each 
        place it appears.</DELETED>
        <DELETED>    (31) The table of parts for subchapter G of 
        chapter 1 is amended by striking the item relating to part 
        III.</DELETED>
        <DELETED>    (32) The table of sections for part IV of 
        subchapter P of chapter 1 is amended by striking the items 
        relating to sections 1246 and 1247.</DELETED>
        <DELETED>    (33) The table of sections for subpart A of part 
        III of subchapter A of chapter 61 is amended by striking the 
        item relating to section 6035.</DELETED>
<DELETED>    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years of foreign corporations beginning after 
December 31, 2004, and taxable years of United States shareholders of 
such corporations ending with or within such taxable years of such 
corporations.</DELETED>

<DELETED>SEC. 212. EXPANSION OF DE MINIMIS RULE UNDER SUBPART 
              F.</DELETED>

<DELETED>    (a) In General.--Clause (ii) of section 954(b)(3)(A) 
(relating to de minimis, etc., rules) is amended by striking 
``$1,000,000'' and inserting ``$5,000,000''.</DELETED>
<DELETED>    (b) Technical Amendments.--</DELETED>
        <DELETED>    (1) Clause (ii) of section 864(d)(5)(A) is amended 
        by striking ``$1,000,000'' and inserting 
        ``$5,000,000''.</DELETED>
        <DELETED>    (2) Clause (i) of section 881(c)(5)(A) is amended 
        by striking ``$1,000,000'' and inserting 
        ``$5,000,000''.</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years of foreign corporations beginning after 
December 31, 2004, and taxable years of United States shareholders of 
such corporations ending with or within such taxable years of such 
corporations.</DELETED>

<DELETED>SEC. 213. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS 
              TO APPLY IN DETERMINING SECTION 902 AND 960 
              CREDITS.</DELETED>

<DELETED>    (a) In General.--Subsection (c) of section 902 is amended 
by redesignating paragraph (7) as paragraph (8) and by inserting after 
paragraph (6) the following new paragraph:</DELETED>
        <DELETED>    ``(7) Constructive ownership through 
        partnerships.--Stock owned, directly or indirectly, by or for a 
        partnership shall be considered as being owned proportionately 
        by its partners. Stock considered to be owned by a person by 
        reason of the preceding sentence shall, for purposes of 
        applying such sentence, be treated as actually owned by such 
        person. The Secretary may prescribe such regulations as may be 
        necessary to carry out the purposes of this paragraph, 
        including rules to account for special partnership allocations 
        of dividends, credits, and other incidents of ownership of 
        stock in determining proportionate ownership.''</DELETED>
<DELETED>    (b) Clarification of Comparable Attribution Under Section 
901(b)(5).--Paragraph (5) of section 901(b) is amended by striking 
``any individual'' and inserting ``any person''.</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to taxes of foreign corporations for taxable years of such 
corporations beginning after the date of the enactment of this 
Act.</DELETED>

<DELETED>SEC. 214. APPLICATION OF UNIFORM CAPITALIZATION RULES TO 
              FOREIGN PERSONS.</DELETED>

<DELETED>    (a) In General.--Section 263A(c) (relating to exceptions) 
is amended by adding at the end the following new paragraph:</DELETED>
        <DELETED>    ``(7) Foreign persons.--Except for purposes of 
        applying sections 871(b)(1) and 882(a)(1), this section shall 
        not apply to any taxpayer who is not a United States person if 
        such taxpayer capitalizes costs of produced property or 
        property acquired for resale by applying the method used to 
        ascertain the income, profit, or loss for purposes of reports 
        or statements to shareholders, partners, other proprietors, or 
        beneficiaries, or for credit purposes.''</DELETED>
<DELETED>    (b) Effective Date.--</DELETED>
        <DELETED>    (1) In general.--The amendment made by subsection 
        (a) shall apply to taxable years beginning after December 31, 
        2004.</DELETED>
        <DELETED>    (2) Change in method of accounting.--In the case 
        of any taxpayer required by the amendment made by this section 
        to change its method of accounting for its first taxable year 
        beginning after December 31, 2004--</DELETED>
                <DELETED>    (A) such change shall be treated as 
                initiated by the taxpayer,</DELETED>
                <DELETED>    (B) such change shall be treated as made 
                with the consent of the Secretary of the Treasury, 
                and</DELETED>
                <DELETED>    (C) the net amount of the adjustments 
                required to be taken into account by the taxpayer under 
                section 481 of the Internal Revenue Code of 1986 shall 
                be taken into account in such first year.</DELETED>

<DELETED>SEC. 215. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN 
              FOREIGN CORPORATIONS.</DELETED>

<DELETED>    (a) In General.--Paragraph (2) of section 871(i) (relating 
to tax not to apply to certain interest and dividends) is amended by 
adding at the end the following new subparagraph:</DELETED>
                <DELETED>    ``(D) Dividends paid by a foreign 
                corporation which are treated under section 
                861(a)(2)(B) as income from sources within the United 
                States.''.</DELETED>
<DELETED>    (b) Effective Date.--The amendment made by this section 
shall apply to payments made after December 31, 2004.</DELETED>

<DELETED>SEC. 216. REPEAL OF SPECIAL CAPITAL GAINS TAX ON ALIENS 
              PRESENT IN THE UNITED STATES FOR 183 DAYS OR 
              MORE.</DELETED>

<DELETED>    (a) In General.--Subsection (a) of section 871 is amended 
by striking paragraph (2) and by redesignating paragraph (3) as 
paragraph (2).</DELETED>
<DELETED>    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 
2003.</DELETED>

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Jumpstart Our 
Business Strength (JOBS) Act''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--

Sec. 1. Short title; amendment of 1986 Code; table of contents.

        TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                        EXTRATERRITORIAL INCOME

Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to United States 
                            production activities.

                 TITLE II--INTERNATIONAL TAX PROVISIONS

                  Subtitle A--International Tax Reform

Sec. 201. 20-year foreign tax credit carryover; 1-year foreign tax 
                            credit carryback.
Sec. 202. Look-thru rules to apply to dividends from noncontrolled 
                            section 902 corporations.
Sec. 203. Foreign tax credit under alternative minimum tax.
Sec. 204. Recharacterization of overall domestic loss.
Sec. 205. Interest expense allocation rules.
Sec. 206. Determination of foreign personal holding company income with 
                            respect to transactions in commodities.

              Subtitle B--International Tax Simplification

Sec. 211. Repeal of foreign personal holding company rules and foreign 
                            investment company rules.
Sec. 212. Expansion of de minimis rule under subpart F.
Sec. 213. Attribution of stock ownership through partnerships to apply 
                            in determining section 902 and 960 credits.
Sec. 214. Application of uniform capitalization rules to foreign 
                            persons.
Sec. 215. Repeal of withholding tax on dividends from certain foreign 
                            corporations.
Sec. 216. Repeal of special capital gains tax on aliens present in the 
                            United States for 183 days or more.

          Subtitle C--Additional International Tax Provisions

Sec. 221. Active leasing income from aircraft and vessels.
Sec. 222. Look-thru treatment of payments between related controlled 
                            foreign corporations under foreign personal 
                            holding company income rules.
Sec. 223. Look-thru treatment for sales of partnership interests.
Sec. 224. Election not to use average exchange rate for foreign tax 
                            paid other than in functional currency.
Sec. 225. Treatment of income tax base differences.
Sec. 226. Modification of exceptions under subpart F for active 
                            financing.
Sec. 227. United States property not to include certain assets of 
                            controlled foreign corporation.
Sec. 228. Provide equal treatment for interest paid by foreign 
                            partnerships and foreign corporations.
Sec. 229. Clarification of treatment of certain transfers of intangible 
                            property.
Sec. 230. Modification of the treatment of certain REIT distributions 
                            attributable to gain from sales or 
                            exchanges of United States real property 
                            interests.
Sec. 231. Toll tax on excess qualified foreign distribution amount.
Sec. 232. Exclusion of income derived from certain wagers on horse 
                            races and dog races from gross income of 
                            nonresident alien individuals.
Sec. 233. Limitation of withholding tax for Puerto Rico corporations.
Sec. 234. Report on WTO dispute settlement panels and the appellate 
                            body.
Sec. 235. Study of impact of international tax laws on taxpayers other 
                            than large corporations.
Sec. 236. Consultative role for Senate Committee on Finance in 
                            connection with the review of proposed tax 
                            treaties.

       TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS

                     Subtitle A--General Provisions

Sec. 301. Expansion of qualified small-issue bond program.
Sec. 302. Expensing of broadband Internet access expenditures.
Sec. 303. Exemption of natural aging process in determination of 
                            production period for distilled spirits 
                            under section 263A.
Sec. 304. Modification of active business definition under section 355.
Sec. 305. Exclusion of certain indebtedness of small business 
                            investment companies from acquisition 
                            indebtedness.
Sec. 306. Modified taxation of imported archery products.
Sec. 307. Modification to cooperative marketing rules to include value 
                            added processing involving animals.
Sec. 308. Extension of declaratory judgment procedures to farmers' 
                            cooperative organizations.
Sec. 309. Temporary suspension of personal holding company tax.
Sec. 310. Increase in section 179 expensing.
Sec. 311. Three-year carryback of net operating losses.

              Subtitle B--Manufacturing Relating to Films

Sec. 321. Special rules for certain film and television productions.
Sec. 322. Modification of application of income forecast method of 
                            depreciation.

              Subtitle C--Manufacturing Relating to Timber

Sec. 331. Expensing of certain reforestation expenditures.
Sec. 332. Election to treat cutting of timber as a sale or exchange.
Sec. 333. Capital gain treatment under section 631(b) to apply to 
                            outright sales by landowners.
Sec. 334. Modification of safe harbor rules for timber REITS.

                    TITLE IV--ADDITIONAL PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 401. Clarification of economic substance doctrine.
Sec. 402. Penalty for failing to disclose reportable transaction.
Sec. 403. Accuracy-related penalty for listed transactions and other 
                            reportable transactions having a 
                            significant tax avoidance purpose.
Sec. 404. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.
Sec. 405. Modifications of substantial understatement penalty for 
                            nonreportable transactions.
Sec. 406. Tax shelter exception to confidentiality privileges relating 
                            to taxpayer communications.
Sec. 407. Disclosure of reportable transactions.
Sec. 408. Modifications to penalty for failure to register tax 
                            shelters.
Sec. 409. Modification of penalty for failure to maintain lists of 
                            investors.
Sec. 410. Modification of actions to enjoin certain conduct related to 
                            tax shelters and reportable transactions.
Sec. 411. Understatement of taxpayer's liability by income tax return 
                            preparer.
Sec. 412. Penalty on failure to report interests in foreign financial 
                            accounts.
Sec. 413. Frivolous tax submissions.
Sec. 414. Regulation of individuals practicing before the Department of 
                            Treasury.
Sec. 415. Penalty on promoters of tax shelters.
Sec. 416. Statute of limitations for taxable years for which required 
                            listed transactions not reported.
Sec. 417. Denial of deduction for interest on underpayments 
                            attributable to nondisclosed reportable and 
                            noneconomic substance transactions.
Sec. 418. Authorization of appropriations for tax law enforcement.

           Subtitle B--Other Corporate Governance Provisions

Sec. 421. Affirmation of consolidated return regulation authority.
Sec. 422. Signing of corporate tax returns by chief executive officer.
Sec. 423. Denial of deduction for certain fines, penalties, and other 
                            amounts.
Sec. 424. Disallowance of deduction for punitive damages.
Sec. 425. Increase in criminal monetary penalty limitation for the 
                            underpayment or overpayment of tax due to 
                            fraud.

            Subtitle C--Enron-Related Tax Shelter Provisions

Sec. 431. Limitation on transfer or importation of built-in losses.
Sec. 432. No reduction of basis under section 734 in stock held by 
                            partnership in corporate partner.
Sec. 433. Repeal of special rules for FASITs.
Sec. 434. Expanded disallowance of deduction for interest on 
                            convertible debt.
Sec. 435. Expanded authority to disallow tax benefits under section 
                            269.
Sec. 436. Modification of interaction between subpart F and passive 
                            foreign investment company rules.

           Subtitle D--Provisions To Discourage Expatriation

Sec. 441. Tax treatment of inverted corporate entities.
Sec. 442. Imposition of mark-to-market tax on individuals who 
                            expatriate.
Sec. 443. Excise tax on stock compensation of insiders of inverted 
                            corporations.
Sec. 444. Reinsurance of United States risks in foreign jurisdictions.
Sec. 445. Reporting of taxable mergers and acquisitions.

                     Subtitle E--International Tax

Sec. 451. Clarification of banking business for purposes of determining 
                            investment of earnings in United States 
                            property.
Sec. 452. Prohibition on nonrecognition of gain through complete 
                            liquidation of holding company.
Sec. 453. Prevention of mismatching of interest and original issue 
                            discount deductions and income inclusions 
                            in transactions with related foreign 
                            persons.
Sec. 454. Effectively connected income to include certain foreign 
                            source income.
Sec. 455. Recapture of overall foreign losses on sale of controlled 
                            foreign corporation.
Sec. 456. Minimum holding period for foreign tax credit on withholding 
                            taxes on income other than dividends.

                  Subtitle F--Other Revenue Provisions

                     Part I--Financial Instruments

Sec. 461. Treatment of stripped interests in bond and preferred stock 
                            funds, etc.
Sec. 462. Application of earnings stripping rules to partnerships and S 
                            corporations.
Sec. 463. Recognition of cancellation of indebtedness income realized 
                            on satisfaction of debt with partnership 
                            interest.
Sec. 464. Modification of straddle rules.
Sec. 465. Denial of installment sale treatment for all readily 
                            tradeable debt.

                 Part II--Corporations and Partnerships

Sec. 466. Modification of treatment of transfers to creditors in 
                            divisive reorganizations.
Sec. 467. Clarification of definition of nonqualified preferred stock.
Sec. 468. Modification of definition of controlled group of 
                            corporations.
Sec. 469. Mandatory basis adjustments in connection with partnership 
                            distributions and transfers of partnership 
                            interests.

                Part III--Depreciation and Amortization

Sec. 471. Extension of amortization of intangibles to sports 
                            franchises.
Sec. 472. Services contracts treated in the same manner as leases for 
                            rules relating to tax-exempt use of 
                            property.
Sec. 473. Class lives for utility grading costs.
Sec. 474. Expansion of limitation on depreciation of certain passenger 
                            automobiles.
Sec. 475. Consistent amortization of periods for intangibles.
Sec. 476. Limitation on deductions allocable to property used by 
                            governments or other tax-exempt entities.

                   Part IV--Administrative Provisions

Sec. 481. Clarification of rules for payment of estimated tax for 
                            certain deemed asset sales.
Sec. 482. Extension of IRS user fees.
Sec. 483. Doubling of certain penalties, fines, and interest on 
                            underpayments related to certain offshore 
                            financial arrangement.
Sec. 484. Partial payment of tax liability in installment agreements.
Sec. 485. Extension of customs user fees.
Sec. 486. Deposits made to suspend running of interest on potential 
                            underpayments.
Sec. 487. Qualified tax collection contracts.

                    Part V--Miscellaneous Provisions

Sec. 491. Addition of vaccines against hepatitis A to list of taxable 
                            vaccines.
Sec. 492. Recognition of gain from the sale of a principal residence 
                            acquired in a like-kind exchange within 5 
                            years of sale.
Sec. 493. Clarification of exemption from tax for small property and 
                            casualty insurance companies.
Sec. 494. Definition of insurance company for section 831.
Sec. 495. Limitations on deduction for charitable contributions of 
                            patents and similar property.
Sec. 496. Repeal of 10-percent rehabilitation tax credit.
Sec. 497. Increase in age of minor children whose unearned income is 
                            taxed as if parent's income.

        TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                        EXTRATERRITORIAL INCOME

SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

    (a) In General.--Section 114 is hereby repealed.
    (b) Conforming Amendments.--
            (1)(A) Subpart E of part III of subchapter N of chapter 1 
        (relating to qualifying foreign trade income) is hereby 
        repealed.
            (B) The table of subparts for such part III is amended by 
        striking the item relating to subpart E.
            (2) The table of sections for part III of subchapter B of 
        chapter 1 is amended by striking the item relating to section 
        114.
            (3) The second sentence of section 56(g)(4)(B)(i) is 
        amended by striking ``or under section 114''.
            (4) Section 275(a) is amended--
                    (A) by inserting ``or'' at the end of paragraph 
                (4)(A), by striking ``or'' at the end of paragraph 
                (4)(B) and inserting a period, and by striking 
                subparagraph (C), and
                    (B) by striking the last sentence.
            (5) Paragraph (3) of section 864(e) is amended--
                    (A) by striking:
            ``(3) Tax-exempt assets not taken into account.--
                    ``(A) In general.--For purposes of''; and 
                inserting:
            ``(3) Tax-exempt assets not taken into account.--For 
        purposes of'', and
                    (B) by striking subparagraph (B).
            (6) Section 903 is amended by striking ``114, 164(a),'' and 
        inserting ``164(a)''.
            (7) Section 999(c)(1) is amended by striking 
        ``941(a)(5),''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to transactions occurring after the date of the enactment 
        of this Act.
            (2) Binding contracts.--The amendments made by this section 
        shall not apply to any transaction in the ordinary course of a 
        trade or business which occurs pursuant to a binding contract--
                    (A) which is between the taxpayer and a person who 
                is not a related person (as defined in section 
                943(b)(3) of such Code, as in effect on the day before 
                the date of the enactment of this Act), and
                    (B) which is in effect on September 17, 2003, and 
                at all times thereafter.
    (d) Revocation of Section 943(e) Elections.--
            (1) In general.--In the case of a corporation that elected 
        to be treated as a domestic corporation under section 943(e) of 
        the Internal Revenue Code of 1986 (as in effect on the day 
        before the date of the enactment of this Act)--
                    (A) the corporation may, during the 1-year period 
                beginning on the date of the enactment of this Act, 
                revoke such election, effective as of such date of 
                enactment, and
                    (B) if the corporation does revoke such election--
                            (i) such corporation shall be treated as a 
                        domestic corporation transferring (as of such 
                        date of enactment) all of its property to a 
                        foreign corporation in connection with an 
                        exchange described in section 354 of such Code, 
                        and
                            (ii) no gain or loss shall be recognized on 
                        such transfer.
            (2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall 
        not apply to gain on any asset held by the revoking corporation 
        if--
                    (A) the basis of such asset is determined in whole 
                or in part by reference to the basis of such asset in 
                the hands of the person from whom the revoking 
                corporation acquired such asset,
                    (B) the asset was acquired by transfer (not as a 
                result of the election under section 943(e) of such 
                Code) occurring on or after the 1st day on which its 
                election under section 943(e) of such Code was 
                effective, and
                    (C) a principal purpose of the acquisition was the 
                reduction or avoidance of tax (other than a reduction 
                in tax under section 114 of such Code, as in effect on 
                the day before the date of the enactment of this Act).
    (e) General Transition.--
            (1) In general.--In the case of a taxable year ending after 
        the date of the enactment of this Act and beginning before 
        January 1, 2007, for purposes of chapter 1 of such Code, a 
        current FSC/ETI beneficiary shall be allowed a deduction equal 
        to the transition amount determined under this subsection with 
        respect to such beneficiary for such year.
            (2) Current fsc/eti beneficiary.--The term ``current FSC/
        ETI beneficiary'' means any corporation which entered into one 
        or more transactions during its taxable year beginning in 
        calendar year 2002 with respect to which FSC/ETI benefits were 
        allowable.
            (3) Transition amount.--For purposes of this subsection--
                    (A) In general.--The transition amount applicable 
                to any current FSC/ETI beneficiary for any taxable year 
                is the phaseout percentage of the base period amount.
                    (B) Phaseout percentage.--
                            (i) In general.--In the case of a taxpayer 
                        using the calendar year as its taxable year, 
                        the phaseout percentage shall be determined 
                        under the following table:

                                                The phaseout
            Years:                              percentage is:
                2004...............
                                                         80 
                2005...............
                                                         80 
                2006...............
                                                         60.
                            (ii) Special rule for 2003.--The phaseout 
                        percentage for 2003 shall be the amount that 
                        bears the same ratio to 100 percent as the 
                        number of days after the date of the enactment 
                        of this Act bears to 365.
                            (iii) Special rule for fiscal year 
                        taxpayers.--In the case of a taxpayer not using 
                        the calendar year as its taxable year, the 
                        phaseout percentage is the weighted average of 
                        the phaseout percentages determined under the 
                        preceding provisions of this paragraph with 
                        respect to calendar years any portion of which 
                        is included in the taxpayer's taxable year. The 
                        weighted average shall be determined on the 
                        basis of the respective portions of the taxable 
                        year in each calendar year.
                    (C) Short taxable year.--The Secretary shall 
                prescribe guidance for the computation of the 
                transition amount in the case of a short taxable year.
            (4) Base period amount.--For purposes of this subsection, 
        the base period amount is the FSC/ETI benefit for the 
        taxpayer's taxable year beginning in calendar year 2002.
            (5) FSC/ETI benefit.--For purposes of this subsection, the 
        term ``FSC/ETI benefit'' means--
                    (A) amounts excludable from gross income under 
                section 114 of such Code, and
                    (B) the exempt foreign trade income of related 
                foreign sales corporations from property acquired from 
                the taxpayer (determined without regard to section 
                923(a)(5) of such Code (relating to special rule for 
                military property), as in effect on the day before the 
                date of the enactment of the FSC Repeal and 
                Extraterritorial Income Exclusion Act of 2000).
        In determining the FSC/ETI benefit there shall be excluded any 
        amount attributable to a transaction with respect to which the 
        taxpayer is the lessor unless the leased property was 
        manufactured or produced in whole or in significant part by the 
        taxpayer.
            (6) Special rule for agricultural and horticultural 
        cooperatives.--Determinations under this subsection with 
        respect to an organization described in section 943(g)(1) of 
        such Code, as in effect on the day before the date of the 
        enactment of this Act, shall be made at the cooperative level 
        and the purposes of this subsection shall be carried out in a 
        manner similar to section 199(h)(2) of such Code, as added by 
        this Act. Such determinations shall be in accordance with such 
        requirements and procedures as the Secretary may prescribe.
            (7) Certain rules to apply.--Rules similar to the rules of 
        section 41(f) of such Code shall apply for purposes of this 
        subsection.
            (8) Coordination with binding contract rule.--The deduction 
        determined under paragraph (1) for any taxable year shall be 
        reduced by the phaseout percentage of any FSC/ETI benefit 
        realized for the taxable year by reason of subsection (c)(2) or 
        section 5(c)(1)(B) of the FSC Repeal and Extraterritorial 
        Income Exclusion Act of 2000, except that for purposes of this 
        paragraph the phaseout percentage for 2003 shall be treated as 
        being equal to 100 percent.
            (9) Special rule for taxable year which includes date of 
        enactment.--In the case of a taxable year which includes the 
        date of the enactment of this Act, the deduction allowed under 
        this subsection to any current FSC/ETI beneficiary shall in no 
        event exceed--
                    (A) 100 percent of such beneficiary's base period 
                amount for calendar year 2003, reduced by
                    (B) the FSC/ETI benefit of such beneficiary with 
                respect to transactions occurring during the portion of 
                the taxable year ending on the date of the enactment of 
                this Act.

SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED STATES 
              PRODUCTION ACTIVITIES.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations) is amended by 
adding at the end the following new section:

``SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

    ``(a) Allowance of Deduction.--
            ``(1) In general.--There shall be allowed as a deduction an 
        amount equal to 9 percent of the qualified production 
        activities income of the taxpayer for the taxable year.
            ``(2) Phasein.--In the case of taxable years beginning in 
        2003, 2004, 2005, 2006, 2007, or 2008, paragraph (1) shall be 
        applied by substituting for the percentage contained therein 
        the transition percentage determined under the following table:

            ``Taxable years                     The transition
            beginning in:                       percentage is:
                2003 or 2004.......
                                                        1 
                2005...............
                                                        2 
                2006...............
                                                        3 
                2007 or 2008.......
                                                        6.
    ``(b) Deduction Limited to Wages Paid.--
            ``(1) In general.--The amount of the deduction allowable 
        under subsection (a) for any taxable year shall not exceed 50 
        percent of the W-2 wages of the employer for the taxable year.
            ``(2) W-2 wages.--For purposes of paragraph (1), the term 
        `W-2 wages' means the sum of the aggregate amounts the taxpayer 
        is required to include on statements under paragraphs (3) and 
        (8) of section 6051(a) with respect to employment of employees 
        of the taxpayer during the taxpayer's taxable year.
            ``(3) Special rules.--
                    ``(A) Pass-thru entities.--In the case of an S 
                corporation, partnership, estate or trust, or other 
                pass-thru entity, the limitation under this subsection 
                shall apply at the entity level.
                    ``(B) Acquisitions and dispositions.--The Secretary 
                shall provide for the application of this subsection in 
                cases where the taxpayer acquires, or disposes of, the 
                major portion of a trade or business or the major 
                portion of a separate unit of a trade or business 
                during the taxable year.
    ``(c) Qualified Production Activities Income.--For purposes of this 
section--
            ``(1) In general.--The term `qualified production 
        activities income' means an amount equal to the portion of the 
        modified taxable income of the taxpayer which is attributable 
        to domestic production activities.
            ``(2) Reduction for taxable years beginning before 2013.--
        The amount otherwise determined under paragraph (1) (the 
        `unreduced amount') shall not exceed--
                    ``(A) in the case of taxable years beginning before 
                2010, the product of the unreduced amount and the 
                domestic/worldwide fraction, and
                    ``(B) in the case of taxable years beginning in 
                2010, 2011, or 2012, an amount equal to the sum of--
                            ``(i) the product of the unreduced amount 
                        and the domestic/worldwide fraction, plus
                            ``(ii) the applicable percentage of an 
                        amount equal to the unreduced amount minus the 
                        amount determined under clause (i).
        For purposes of subparagraph (B)(ii), the applicable percentage 
        is 25 percent for 2010, 50 percent for 2011, and 75 percent for 
        2012.
    ``(d) Determination of Income Attributable to Domestic Production 
Activities.--For purposes of this section--
            ``(1) In general.--The portion of the modified taxable 
        income which is attributable to domestic production activities 
        is so much of the modified taxable income for the taxable year 
        as does not exceed--
                    ``(A) the taxpayer's domestic production gross 
                receipts for such taxable year, reduced by
                    ``(B) the sum of--
                            ``(i) the costs of goods sold that are 
                        allocable to such receipts,
                            ``(ii) other deductions, expenses, or 
                        losses directly allocable to such receipts, and
                            ``(iii) a proper share of other deductions, 
                        expenses, and losses that are not directly 
                        allocable to such receipts or another class of 
                        income.
            ``(2) Allocation method.--The Secretary shall prescribe 
        rules for the proper allocation of items of income, deduction, 
        expense, and loss for purposes of determining income 
        attributable to domestic production activities.
            ``(3) Special rules for determining costs.--
                    ``(A) In general.--For purposes of determining 
                costs under clause (i) of paragraph (1)(B), any item or 
                service brought into the United States shall be treated 
                as acquired by purchase, and its cost shall be treated 
                as not less than its fair market value immediately 
                after it entered the United States. A similar rule 
                shall apply in determining the adjusted basis of leased 
                or rented property where the lease or rental gives rise 
                to domestic production gross receipts.
                    ``(B) Exports for further manufacture.--In the case 
                of any property described in subparagraph (A) that had 
                been exported by the taxpayer for further manufacture, 
                the increase in cost or adjusted basis under 
                subparagraph (A) shall not exceed the difference 
                between the value of the property when exported and the 
                value of the property when brought back into the United 
                States after the further manufacture.
            ``(4) Modified taxable income.--The term `modified taxable 
        income' means taxable income computed without regard to the 
        deduction allowable under this section.
    ``(e) Domestic Production Gross Receipts.--For purposes of this 
section--
            ``(1) In general.--The term `domestic production gross 
        receipts' means the gross receipts of the taxpayer which are 
        derived from--
                    ``(A) any sale, exchange, or other disposition of, 
                or
                    ``(B) any lease, rental, or license of,
        qualifying production property which was manufactured, 
        produced, grown, or extracted in whole or in significant part 
        by the taxpayer within the United States.
            ``(2) Special rules for certain property.--In the case of 
        any qualifying production property described in subsection 
        (f)(1)(C)--
                    ``(A) such property shall be treated for purposes 
                of paragraph (1) as produced in significant part by the 
                taxpayer within the United States if more than 50 
                percent of the aggregate development and production 
                costs are incurred by the taxpayer within the United 
                States, and
                    ``(B) if a taxpayer acquires such property before 
                such property begins to generate substantial gross 
                receipts, any development or production costs incurred 
                before the acquisition shall be treated as incurred by 
                the taxpayer for purposes of subparagraph (A) and 
                paragraph (1).
    ``(f) Qualifying Production Property.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided in this 
        paragraph, the term `qualifying production property' means--
                    ``(A) any tangible personal property,
                    ``(B) any computer software, and
                    ``(C) any property described in section 168(f) (3) 
                or (4), including any underlying copyright or 
                trademark.
            ``(2) Exclusions from qualifying production property.--The 
        term `qualifying production property' shall not include--
                    ``(A) consumable property that is sold, leased, or 
                licensed by the taxpayer as an integral part of the 
                provision of services,
                    ``(B) oil or gas,
                    ``(C) electricity,
                    ``(D) water supplied by pipeline to the consumer,
                    ``(E) utility services, or
                    ``(F) any film, tape, recording, book, magazine, 
                newspaper, or similar property the market for which is 
                primarily topical or otherwise essentially transitory 
                in nature.
    ``(g) Domestic/Worldwide Fraction.--For purposes of this section--
            ``(1) In general.--The term `domestic/worldwide fraction' 
        means a fraction (not greater than 1)--
                    ``(A) the numerator of which is the value of the 
                domestic production of the taxpayer, and
                    ``(B) the denominator of which is the value of the 
                worldwide production of the taxpayer.
            ``(2) Value of domestic production.--The value of domestic 
        production is the excess (if any) of--
                    ``(A) the domestic production gross receipts, over
                    ``(B) the cost of purchased inputs allocable to 
                such receipts that are deductible under this chapter 
                for the taxable year.
            ``(3) Purchased inputs.--
                    ``(A) In general.--Purchased inputs are any of the 
                following items acquired by purchase:
                            ``(i) Services (other than services of 
                        employees) used in manufacture, production, 
                        growth, or extraction activities.
                            ``(ii) Items consumed in connection with 
                        such activities.
                            ``(iii) Items incorporated as part of the 
                        property being manufactured, produced, grown, 
                        or extracted.
                    ``(B) Special rule.--Rules similar to the rules of 
                subsection (d)(3) shall apply for purposes of this 
                subsection.
            ``(4) Value of worldwide production.--
                    ``(A) In general.--The value of worldwide 
                production shall be determined under the principles of 
                paragraph (2), except that--
                            ``(i) worldwide production gross receipts 
                        shall be taken into account, and
                            ``(ii) paragraph (3)(B) shall not apply.
                    ``(B) Worldwide production gross receipts.--The 
                worldwide production gross receipts is the amount that 
                would be determined under subsection (e) if such 
                subsection were applied without any reference to the 
                United States.
    ``(h) Definitions and Special Rules.--
            ``(1) Application of section to pass-thru entities.--In the 
        case of an S corporation, partnership, estate or trust, or 
        other pass-thru entity--
                    ``(A) subject to the provisions of paragraph (2) 
                and subsection (b)(3)(A), this section shall be applied 
                at the shareholder, partner, or similar level, and
                    ``(B) the Secretary shall prescribe rules for the 
                application of this section, including rules relating 
                to--
                            ``(i) restrictions on the allocation of the 
                        deduction to taxpayers at the partner or 
                        similar level, and
                            ``(ii) additional reporting requirements.
            ``(2) Exclusion for patrons of agricultural and 
        horticultural cooperatives.--
                    ``(A) In general.--If any amount described in 
                paragraph (1) or (3) of section 1385 (a)--
                            ``(i) is received by a person from an 
                        organization to which part I of subchapter T 
                        applies which is engaged in the marketing of 
                        agricultural or horticultural products, and
                            ``(ii) is allocable to the portion of the 
                        qualified production activities income of the 
                        organization which is deductible under 
                        subsection (a) and designated as such by the 
                        organization in a written notice mailed to its 
                        patrons during the payment period described in 
                        section 1382(d),
                then such person shall be allowed an exclusion from 
                gross income with respect to such amount. The taxable 
                income of the organization shall not be reduced under 
                section 1382 by the portion of any such amount with 
                respect to which an exclusion is allowable to a person 
                by reason of this paragraph.
                    ``(B) Special rules.--For purposes of applying 
                subparagraph (A), in determining the qualified 
                production activities income of the organization under 
                this section--
                            ``(i) there shall not be taken into account 
                        in computing the organization's modified 
                        taxable income any deduction allowable under 
                        subsection (b) or (c) of section 1382 (relating 
                        to patronage dividends, per-unit retain 
                        allocations, and nonpatronage distributions), 
                        and
                            ``(ii) the organization shall be treated as 
                        having manufactured, produced, grown, or 
                        extracted in whole or significant part any 
                        qualifying production property marketed by the 
                        organization which its patrons have so 
                        manufactured, produced, grown, or extracted.
            ``(3) Special rule for affiliated groups.--
                    ``(A) In general.--All members of an expanded 
                affiliated group shall be treated as a single 
                corporation for purposes of this section.
                    ``(B) Expanded affiliated group.--The term 
                `expanded affiliated group' means an affiliated group 
                as defined in section 1504(a), determined--
                            ``(i) by substituting `50 percent' for `80 
                        percent' each place it appears, and
                            ``(ii) without regard to paragraphs (2) and 
                        (4) of section 1504(b).
                For purposes of determining the domestic/worldwide 
                fraction under subsection (g), clause (ii) shall be 
                applied by also disregarding paragraphs (3) and (8) of 
                section 1504(b).
            ``(4) Coordination with minimum tax.--The deduction under 
        this section shall be allowed for purposes of the tax imposed 
        by section 55; except that for purposes of section 55, 
        alternative minimum taxable income shall be taken into account 
        in determining the deduction under this section.
            ``(5) Ordering rule.--The amount of any other deduction 
        allowable under this chapter shall be determined as if this 
        section had not been enacted.
            ``(6) Trade or business requirement.--This section shall be 
        applied by only taking into account items which are 
        attributable to the actual conduct of a trade or business.
            ``(7) Possessions, etc.--
                    ``(A) In general.--For purposes of subsections (d) 
                and (e), the term `United States' includes the 
                Commonwealth of Puerto Rico, Guam, American Samoa, the 
                Commonwealth of the Northern Mariana Islands, and the 
                Virgin Islands of the United States.
                    ``(B) Special rules for applying wage limitation.--
                For purposes of applying the limitation under 
                subsection (b) for any taxable year--
                            ``(i) the determination of W-2 wages of a 
                        taxpayer shall be made without regard to any 
                        exclusion under section 3401(a)(8) for 
                        remuneration paid for services performed in a 
                        jurisdiction described in subparagraph (A), and
                            ``(ii) in determining the amount of any 
                        credit allowable under section 30A or 936 for 
                        the taxable year, there shall not be taken into 
                        account any wages which are taken into account 
                        in applying such limitation.
            ``(8) Coordination with transition rules.--For purposes of 
        this section--
                    ``(A) domestic production gross receipts shall not 
                include gross receipts from any transaction if the 
                binding contract transition relief of section 101(c)(2) 
                of the Jumpstart Our Business Strength (JOBS) Act 
                applies to such transaction, and
                    ``(B) any deduction allowed under section 101(e) of 
                such Act shall be disregarded in determining the 
                portion of the taxable income which is attributable to 
                domestic production gross receipts.''.
    (b) Minimum Tax.--Section 56(g)(4)(C) (relating to disallowance of 
items not deductible in computing earnings and profits) is amended by 
adding at the end the following new clause:
                            ``(v) Deduction for domestic production.--
                        Clause (i) shall not apply to any amount 
                        allowable as a deduction under section 199.''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 is amended by adding at the end the following 
new item:

                              ``Sec. 199. Income attributable to 
                                        domestic production 
                                        activities.''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years ending after the date of the enactment 
        of this Act.
            (2) Application of section 15.--Section 15 of the Internal 
        Revenue Code of 1986 shall apply to the amendments made by this 
        section as if they were changes in a rate of tax.

                 TITLE II--INTERNATIONAL TAX PROVISIONS

                  Subtitle A--International Tax Reform

SEC. 201. 20-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-YEAR FOREIGN TAX 
              CREDIT CARRYBACK.

    (a) General Rule.--Section 904(c) (relating to carryback and 
carryover of excess tax paid) is amended--
            (1) by striking ``in the second preceding taxable year,'', 
        and
            (2) by striking ``, and in the first, second, third, 
        fourth, or fifth'' and inserting ``and in any of the first 
        20''.
    (b) Excess Extraction Taxes.--Paragraph (1) of section 907(f) is 
amended--
            (1) by striking ``in the second preceding taxable year,'',
            (2) by striking ``, and in the first, second, third, 
        fourth, or fifth'' and inserting ``and in any of the first 
        20'', and
            (3) by striking the last sentence.
    (c) Effective Date.--
            (1) Carryback.--The amendments made by subsections (a)(1) 
        and (b)(1) shall apply to excess foreign taxes arising in 
        taxable years beginning after the date of the enactment of this 
        Act.
            (2) Carryover.--The amendments made by subsections (a)(2) 
        and (b)(2) shall apply to excess foreign taxes which (without 
        regard to the amendments made by this section) may be carried 
        to any taxable year ending after the date of the enactment of 
        this Act.

SEC. 202. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM NONCONTROLLED 
              SECTION 902 CORPORATIONS.

    (a) In General.--Section 904(d)(4) (relating to look-thru rules 
apply to dividends from noncontrolled section 902 corporations) is 
amended to read as follows:
            ``(4) Look-thru applies to dividends from noncontrolled 
        section 902 corporations.--
                    ``(A) In general.--For purposes of this subsection, 
                any dividend from a noncontrolled section 902 
                corporation with respect to the taxpayer shall be 
                treated as income described in a subparagraph of 
                paragraph (1) in proportion to the ratio of--
                            ``(i) the portion of earnings and profits 
                        attributable to income described in such 
                        subparagraph, to
                            ``(ii) the total amount of earnings and 
                        profits.
                    ``(B) Earnings and profits of controlled foreign 
                corporations.--In the case of any distribution from a 
                controlled foreign corporation to a United States 
                shareholder, rules similar to the rules of subparagraph 
                (A) shall apply in determining the extent to which 
                earnings and profits of the controlled foreign 
                corporation which are attributable to dividends 
                received from a noncontrolled section 902 corporation 
                may be treated as income in a separate category.
                    ``(C) Special rules.--For purposes of this 
                paragraph--
                            ``(i) Earnings and profits.--
                                    ``(I) In general.--The rules of 
                                section 316 shall apply.
                                    ``(II) Regulations.--The Secretary 
                                may prescribe regulations regarding the 
                                treatment of distributions out of 
                                earnings and profits for periods before 
                                the taxpayer's acquisition of the stock 
                                to which the distributions relate.
                            ``(ii) Inadequate substantiation.--If the 
                        Secretary determines that the proper 
                        subparagraph of paragraph (1) in which a 
                        dividend is described has not been 
                        substantiated, such dividend shall be treated 
                        as income described in paragraph (1)(A).
                            ``(iii) Coordination with high-taxed income 
                        provisions.--Rules similar to the rules of 
                        paragraph (3)(F) shall apply for purposes of 
                        this paragraph.
                            ``(iv) Look-thru with respect to carryover 
                        of credit.--Rules similar to subparagraph (A) 
                        also shall apply to any carryforward under 
                        subsection (c) from a taxable year beginning 
                        before January 1, 2003, of tax allocable to a 
                        dividend from a noncontrolled section 902 
                        corporation with respect to the taxpayer. The 
                        Secretary may by regulations provide for the 
                        allocation of any carryback of tax allocable to 
                        a dividend from a noncontrolled section 902 
                        corporation to such a taxable year for purposes 
                        of allocating such dividend among the separate 
                        categories in effect for such taxable year.''.
    (b) Conforming Amendments.--
            (1) Subparagraph (E) of section 904(d)(1) is hereby 
        repealed.
            (2) Section 904(d)(2)(C)(iii) is amended by adding ``and'' 
        at the end of subclause (I), by striking subclause (II), and by 
        redesignating subclause (III) as subclause (II).
            (3) The last sentence of section 904(d)(2)(D) is amended to 
        read as follows: ``Such term does not include any financial 
        services income.''.
            (4) Section 904(d)(2)(E) is amended--
                    (A) by inserting ``or (4)'' after ``paragraph (3)'' 
                in clause (i), and
                    (B) by striking clauses (ii) and (iv) and by 
                redesignating clause (iii) as clause (ii).
            (5) Section 904(d)(3)(F) is amended by striking ``(D), or 
        (E)'' and inserting ``or (D)''.
            (6) Section 864(d)(5)(A)(i) is amended by striking 
        ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 203. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.

    (a) In General.--
            (1) Subsection (a) of section 59 is amended by striking 
        paragraph (2) and by redesignating paragraphs (3) and (4) as 
        paragraphs (2) and (3), respectively.
            (2) Section 53(d)(1)(B)(i)(II) is amended by striking ``and 
        if section 59(a)(2) did not apply''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 204. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.

    (a) General Rule.--Section 904 is amended by redesignating 
subsections (g), (h), (i), (j), and (k) as subsections (h), (i), (j), 
(k), and (l) respectively, and by inserting after subsection (f) the 
following new subsection:
    ``(g) Recharacterization of Overall Domestic Loss.--
            ``(1) General rule.--For purposes of this subpart and 
        section 936, in the case of any taxpayer who sustains an 
        overall domestic loss for any taxable year beginning after 
        December 31, 2006, that portion of the taxpayer's taxable 
        income from sources within the United States for each 
        succeeding taxable year which is equal to the lesser of--
                    ``(A) the amount of such loss (to the extent not 
                used under this paragraph in prior taxable years), or
                    ``(B) 50 percent of the taxpayer's taxable income 
                from sources within the United States for such 
                succeeding taxable year,
        shall be treated as income from sources without the United 
        States (and not as income from sources within the United 
        States).
            ``(2) Overall domestic loss defined.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `overall domestic loss' 
                means any domestic loss to the extent such loss offsets 
                taxable income from sources without the United States 
                for the taxable year or for any preceding taxable year 
                by reason of a carryback. For purposes of the preceding 
                sentence, the term `domestic loss' means the amount by 
                which the gross income for the taxable year from 
                sources within the United States is exceeded by the sum 
                of the deductions properly apportioned or allocated 
                thereto (determined without regard to any carryback 
                from a subsequent taxable year).
                    ``(B) Taxpayer must have elected foreign tax credit 
                for year of loss.--The term `overall domestic loss' 
                shall not include any loss for any taxable year unless 
                the taxpayer chose the benefits of this subpart for 
                such taxable year.
            ``(3) Characterization of subsequent income.--
                    ``(A) In general.--Any income from sources within 
                the United States that is treated as income from 
                sources without the United States under paragraph (1) 
                shall be allocated among and increase the income 
                categories in proportion to the loss from sources 
                within the United States previously allocated to those 
                income categories.
                    ``(B) Income category.--For purposes of this 
                paragraph, the term `income category' has the meaning 
                given such term by subsection (f)(5)(E)(i).
            ``(4) Coordination with subsection (f).--The Secretary 
        shall prescribe such regulations as may be necessary to 
        coordinate the provisions of this subsection with the 
        provisions of subsection (f).''.
    (b) Conforming Amendments.--
            (1) Section 535(d)(2) is amended by striking ``section 
        904(g)(6)'' and inserting ``section 904(h)(6)''.
            (2) Subparagraph (A) of section 936(a)(2) is amended by 
        striking ``section 904(f)'' and inserting ``subsections (f) and 
        (g) of section 904''.
    (c) Effective Date.--The amendments made by this section shall 
apply to losses for taxable years beginning after December 31, 2006.

SEC. 205. INTEREST EXPENSE ALLOCATION RULES.

    (a) Election To Allocate on Worldwide Basis.--Section 864 is 
amended by redesignating subsection (f) as subsection (g) and by 
inserting after subsection (e) the following new subsection:
    ``(f) Election To Allocate Interest, etc. on Worldwide Basis.--For 
purposes of this subchapter, at the election of the worldwide 
affiliated group--
            ``(1) Allocation and apportionment of interest expense.--
                    ``(A) In general.--The taxable income of each 
                domestic corporation which is a member of a worldwide 
                affiliated group shall be determined by allocating and 
                apportioning interest expense of each member as if all 
                members of such group were a single corporation.
                    ``(B) Treatment of worldwide affiliated group.--The 
                taxable income of the domestic members of a worldwide 
                affiliated group from sources outside the United States 
                shall be determined by allocating and apportioning the 
                interest expense of such domestic members to such 
                income in an amount equal to the excess (if any) of--
                            ``(i) the total interest expense of the 
                        worldwide affiliated group multiplied by the 
                        ratio which the foreign assets of the worldwide 
                        affiliated group bears to all the assets of the 
                        worldwide affiliated group, over
                            ``(ii) the interest expense of all foreign 
                        corporations which are members of the worldwide 
                        affiliated group to the extent such interest 
                        expense of such foreign corporations would have 
                        been allocated and apportioned to foreign 
                        source income if this subsection were applied 
                        to a group consisting of all the foreign 
                        corporations in such worldwide affiliated 
                        group.
                    ``(C) Worldwide affiliated group.--For purposes of 
                this paragraph, the term `worldwide affiliated group' 
                means a group consisting of--
                            ``(i) the includible members of an 
                        affiliated group (as defined in section 
                        1504(a), determined without regard to 
                        paragraphs (2) and (4) of section 1504(b)), and
                            ``(ii) all controlled foreign corporations 
                        in which such members in the aggregate meet the 
                        ownership requirements of section 1504(a)(2) 
                        either directly or indirectly through applying 
                        paragraph (2) of section 958(a) or through 
                        applying rules similar to the rules of such 
                        paragraph to stock owned directly or indirectly 
                        by domestic partnerships, trusts, or estates.
            ``(2) Allocation and apportionment of other expenses.--
        Expenses other than interest which are not directly allocable 
        or apportioned to any specific income producing activity shall 
        be allocated and apportioned as if all members of the 
        affiliated group were a single corporation. For purposes of the 
        preceding sentence, the term `affiliated group' has the meaning 
        given such term by section 1504 (determined without regard to 
        paragraph (4) of section 1504(b)).
            ``(3) Treatment of tax-exempt assets; basis of stock in 
        nonaffiliated 10-percent owned corporations.--The rules of 
        paragraphs (3) and (4) of subsection (e) shall apply for 
        purposes of this subsection, except that paragraph (4) shall be 
        applied on a worldwide affiliated group basis.
            ``(4) Treatment of certain financial institutions.--
                    ``(A) In general.--For purposes of paragraph (1), 
                any corporation described in subparagraph (B) shall be 
                treated as an includible corporation for purposes of 
                section 1504 only for purposes of applying this 
                subsection separately to corporations so described.
                    ``(B) Description.--A corporation is described in 
                this subparagraph if--
                            ``(i) such corporation is a financial 
                        institution described in section 581 or 591,
                            ``(ii) the business of such financial 
                        institution is predominantly with persons other 
                        than related persons (within the meaning of 
                        subsection (d)(4)) or their customers, and
                            ``(iii) such financial institution is 
                        required by State or Federal law to be operated 
                        separately from any other entity which is not 
                        such an institution.
                    ``(C) Treatment of bank and financial holding 
                companies.--To the extent provided in regulations--
                            ``(i) a bank holding company (within the 
                        meaning of section 2(a) of the Bank Holding 
                        Company Act of 1956 (12 U.S.C. 1841(a)),
                            ``(ii) a financial holding company (within 
                        the meaning of section 2(p) of the Bank Holding 
                        Company Act of 1956 (12 U.S.C. 1841(p)), and
                            ``(iii) any subsidiary of a financial 
                        institution described in section 581 or 591, or 
                        of any such bank or financial holding company, 
                        if such subsidiary is predominantly engaged 
                        (directly or indirectly) in the active conduct 
                        of a banking, financing, or similar business,
                shall be treated as a corporation described in 
                subparagraph (B).
            ``(5) Election to expand financial institution group of 
        worldwide group.--
                    ``(A) In general.--If a worldwide affiliated group 
                elects the application of this subsection, all 
                financial corporations which--
                            ``(i) are members of such worldwide 
                        affiliated group, but
                            ``(ii) are not corporations described in 
                        paragraph (4)(B),
                shall be treated as described in paragraph (4)(B) for 
                purposes of applying paragraph (4)(A). This subsection 
                (other than this paragraph) shall apply to any such 
                group in the same manner as this subsection (other than 
                this paragraph) applies to the pre-election worldwide 
                affiliated group of which such group is a part.
                    ``(B) Financial corporation.--For purposes of this 
                paragraph, the term `financial corporation' means any 
                corporation if at least 80 percent of its gross income 
                is income described in section 904(d)(2)(C)(ii) and the 
                regulations thereunder which is derived from 
                transactions with persons who are not related (within 
                the meaning of section 267(b) or 707(b)(1)) to the 
                corporation. For purposes of the preceding sentence, 
                there shall be disregarded any item of income or gain 
                from a transaction or series of transactions a 
                principal purpose of which is the qualification of any 
                corporation as a financial corporation.
                    ``(C) Antiabuse rules.--In the case of a 
                corporation which is a member of an electing financial 
                institution group, to the extent that such 
                corporation--
                            ``(i) distributes dividends or makes other 
                        distributions with respect to its stock after 
                        the date of the enactment of this paragraph to 
                        any member of the pre-election worldwide 
                        affiliated group (other than to a member of the 
                        electing financial institution group) in excess 
                        of the greater of--
                                    ``(I) its average annual dividend 
                                (expressed as a percentage of current 
                                earnings and profits) during the 5-
                                taxable-year period ending with the 
                                taxable year preceding the taxable 
                                year, or
                                    ``(II) 25 percent of its average 
                                annual earnings and profits for such 5-
                                taxable-year period, or
                            ``(ii) deals with any person in any manner 
                        not clearly reflecting the income of the 
                        corporation (as determined under principles 
                        similar to the principles of section 482),
                an amount of indebtedness of the electing financial 
                institution group equal to the excess distribution or 
                the understatement or overstatement of income, as the 
                case may be, shall be recharacterized (for the taxable 
                year and subsequent taxable years) for purposes of this 
                paragraph as indebtedness of the worldwide affiliated 
                group (excluding the electing financial institution 
                group). If a corporation has not been in existence for 
                5 taxable years, this subparagraph shall be applied 
                with respect to the period it was in existence.
                    ``(D) Election.--An election under this paragraph 
                with respect to any financial institution group may be 
                made only by the common parent of the pre-election 
                worldwide affiliated group and may be made only for the 
                first taxable year beginning after December 31, 2008, 
                in which such affiliated group includes 1 or more 
                financial corporations. Such an election, once made, 
                shall apply to all financial corporations which are 
                members of the electing financial institution group for 
                such taxable year and all subsequent years unless 
                revoked with the consent of the Secretary.
                    ``(E) Definitions relating to groups.--For purposes 
                of this paragraph--
                            ``(i) Pre-election worldwide affiliated 
                        group.--The term `pre-election worldwide 
                        affiliated group' means, with respect to a 
                        corporation, the worldwide affiliated group of 
                        which such corporation would (but for an 
                        election under this paragraph) be a member for 
                        purposes of applying paragraph (1).
                            ``(ii) Electing financial institution 
                        group.--The term `electing 
financial institution group' means the group of corporations to which 
this subsection applies separately by reason of the application of 
paragraph (4)(A) and which includes financial corporations by reason of 
an election under subparagraph (A).
                    ``(F) Regulations.--The Secretary shall prescribe 
                such regulations as may be appropriate to carry out 
                this subsection, including regulations--
                            ``(i) providing for the direct allocation 
                        of interest expense in other circumstances 
                        where such allocation would be appropriate to 
                        carry out the purposes of this subsection,
                            ``(ii) preventing assets or interest 
                        expense from being taken into account more than 
                        once, and
                            ``(iii) dealing with changes in members of 
                        any group (through acquisitions or otherwise) 
                        treated under this paragraph as an affiliated 
                        group for purposes of this subsection.
            ``(6) Election.--An election to have this subsection apply 
        with respect to any worldwide affiliated group may be made only 
        by the common parent of the domestic affiliated group referred 
        to in paragraph (1)(C) and may be made only for the first 
        taxable year beginning after December 31, 2008, in which a 
        worldwide affiliated group exists which includes such 
        affiliated group and at least 1 foreign corporation. Such an 
        election, once made, shall apply to such common parent and all 
        other corporations which are members of such worldwide 
        affiliated group for such taxable year and all subsequent years 
        unless revoked with the consent of the Secretary.''.
    (b) Expansion of Regulatory Authority.--Paragraph (7) of section 
864(e) is amended--
            (1) by inserting before the comma at the end of 
        subparagraph (B) ``and in other circumstances where such 
        allocation would be appropriate to carry out the purposes of 
        this subsection'', and
            (2) by striking ``and'' at the end of subparagraph (E), by 
        redesignating subparagraph (F) as subparagraph (G), and by 
        inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) preventing assets or interest expense from 
                being taken into account more than once, and''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

SEC. 206. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY INCOME WITH 
              RESPECT TO TRANSACTIONS IN COMMODITIES.

    (a) In General.--Clauses (i) and (ii) of section 954(c)(1)(C) 
(relating to commodity transactions) are amended to read as follows:
                            ``(i) arise out of commodity hedging 
                        transactions (as defined in paragraph (4)(A)),
                            ``(ii) are active business gains or losses 
                        from the sale of commodities, but only if 
                        substantially all of the controlled foreign 
                        corporation's commodities are property 
                        described in paragraph (1), (2), or (8) of 
                        section 1221(a), or''.
    (b) Definition and Special Rules.--Subsection (c) of section 954 is 
amended by adding after paragraph (3) the following new paragraph:
            ``(4) Definition and special rules relating to commodity 
        transactions.--
                    ``(A) Commodity hedging transactions.--For purposes 
                of paragraph (1)(C)(i), the term `commodity hedging 
                transaction' means any transaction with respect to a 
                commodity if such transaction--
                            ``(i) is a hedging transaction as defined 
                        in section 1221(b)(2), determined--
                                    ``(I) without regard to 
                                subparagraph (A)(ii) thereof,
                                    ``(II) by applying subparagraph 
                                (A)(i) thereof by substituting 
                                `ordinary property or property 
                                described in section 1231(b)' for 
                                `ordinary property', and
                                    ``(III) by substituting `controlled 
                                foreign corporation' for `taxpayer' 
                                each place it appears, and
                            ``(ii) is clearly identified as such in 
                        accordance with section 1221(a)(7).
                    ``(B) Treatment of dealer activities under 
                paragraph (1)(C).--Commodities with respect to which 
                gains and losses are not taken into account under 
                paragraph (2)(C) in computing a controlled foreign 
                corporation's foreign personal holding company income 
                shall not be taken into account in applying the 
                substantially all test under paragraph (1)(C)(ii) to 
                such corporation.
                    ``(C) Regulations.--The Secretary shall prescribe 
                such regulations as are appropriate to carry out the 
                purposes of paragraph (1)(C) in the case of 
                transactions involving related parties.''.
    (c) Modification of Exception for Dealers.--Clause (i) of section 
954(c)(2)(C) is amended by inserting ``and transactions involving 
physical settlement'' after ``(including hedging transactions''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after December 31, 2004.

              Subtitle B--International Tax Simplification

SEC. 211. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN 
              INVESTMENT COMPANY RULES.

    (a) General Rule.--The following provisions are hereby repealed:
            (1) Part III of subchapter G of chapter 1 (relating to 
        foreign personal holding companies).
            (2) Section 1246 (relating to gain on foreign investment 
        company stock).
            (3) Section 1247 (relating to election by foreign 
        investment companies to distribute income currently).
    (b) Exemption of Foreign Corporations From Personal Holding Company 
Rules.--
            (1) In general.--Subsection (c) of section 542 (relating to 
        exceptions) is amended--
                    (A) by striking paragraph (5) and inserting the 
                following:
            ``(5) a foreign corporation,'',
                    (B) by striking paragraphs (7) and (10) and by 
                redesignating paragraphs (8) and (9) as paragraphs (7) 
                and (8), respectively,
                    (C) by inserting ``and'' at the end of paragraph 
                (7) (as so redesignated), and
                    (D) by striking ``; and'' at the end of paragraph 
                (8) (as so redesignated) and inserting a period.
            (2) Treatment of income from personal service contracts.--
        Paragraph (1) of section 954(c) is amended by adding at the end 
        the following new subparagraph:
                    ``(I) Personal service contracts.--
                            ``(i) Amounts received under a contract 
                        under which the corporation is to furnish 
                        personal services if--
                                    ``(I) some person other than the 
                                corporation has the right to designate 
                                (by name or by description) the 
                                individual who is to perform the 
                                services, or
                                    ``(II) the individual who is to 
                                perform the services is designated (by 
                                name or by description) in the 
                                contract, and
                            ``(ii) amounts received from the sale or 
                        other disposition of such a contract.
                This subparagraph shall apply with respect to amounts 
                received for services under a particular contract only 
                if at some time during the taxable year 25 percent or 
                more in value of the outstanding stock of the 
                corporation is owned, directly or indirectly, by or for 
                the individual who has performed, is to perform, or may 
                be designated (by name or by description) as the one to 
                perform, such services.''.
    (c) Conforming Amendments.--
            (1) Section 1(h) is amended--
                    (A) in paragraph (10), by inserting ``and'' at the 
                end of subparagraph (F), by striking subparagraph (G), 
                and by redesignating subparagraph (H) as subparagraph 
                (G), and
                    (B) by striking ``a foreign personal holding 
                company (as defined in section 552), a foreign 
                investment company (as defined in section 1246(b)), 
                or'' in paragraph (11)(C)(iii).
            (2) Section 163(e)(3)(B), as amended by this Act, is 
        amended by striking ``which is a foreign personal holding 
        company (as defined in section 552), a controlled foreign 
        corporation (as defined in section 957), or'' and inserting 
        ``which is a controlled foreign corporation (as defined in 
        section 957) or''.
            (3) Paragraph (2) of section 171(c) is amended--
                    (A) by striking ``, or by a foreign personal 
                holding company, as defined in section 552'', and
                    (B) by striking ``, or foreign personal holding 
                company''.
            (4) Paragraph (2) of section 245(a) is amended by striking 
        ``foreign personal holding company or''.
            (5) Section 267(a)(3)(B), as amended by this Act, is 
        amended by striking ``to a foreign personal holding company (as 
        defined in section 552), a controlled foreign corporation (as 
        defined in section 957), or'' and inserting ``to a controlled 
        foreign corporation (as defined in section 957) or''.
            (6) Section 312 is amended by striking subsection (j).
            (7) Subsection (m) of section 312 is amended by striking 
        ``, a foreign investment company (within the meaning of section 
        1246(b)), or a foreign personal holding company (within the 
        meaning of section 552)''.
            (8) Subsection (e) of section 443 is amended by striking 
        paragraph (3) and by redesignating paragraphs (4) and (5) as 
        paragraphs (3) and (4), respectively.
            (9) Subparagraph (B) of section 465(c)(7) is amended by 
        adding ``or'' at the end of clause (i), by striking clause 
        (ii), and by redesignating clause (iii) as clause (ii).
            (10) Paragraph (1) of section 543(b) is amended by 
        inserting ``and'' at the end of subparagraph (A), by striking 
        ``, and'' at the end of subparagraph (B) and inserting a 
        period, and by striking subparagraph (C).
            (11) Paragraph (1) of section 562(b) is amended by striking 
        ``or a foreign personal holding company described in section 
        552''.
            (12) Section 563 is amended--
                    (A) by striking subsection (c),
                    (B) by redesignating subsection (d) as subsection 
                (c), and
                    (C) by striking ``subsection (a), (b), or (c)'' in 
                subsection (c) (as so redesignated) and inserting 
                ``subsection (a) or (b)''.
            (13) Subsection (d) of section 751 is amended by adding 
        ``and'' at the end of paragraph (2), by striking paragraph (3), 
        by redesignating paragraph (4) as paragraph (3), and by 
        striking ``paragraph (1), (2), or (3)'' in paragraph (3) (as so 
        redesignated) and inserting ``paragraph (1) or (2)''.
            (14) Paragraph (2) of section 864(d) is amended by striking 
        subparagraph (A) and by redesignating subparagraphs (B) and (C) 
        as subparagraphs (A) and (B), respectively.
            (15)(A) Subparagraph (A) of section 898(b)(1) is amended to 
        read as follows:
                    ``(A) which is treated as a controlled foreign 
                corporation for any purpose under subpart F of part III 
                of this subchapter, and''.
            (B) Subparagraph (B) of section 898(b)(2) is amended by 
        striking ``and sections 551(f) and 554, whichever are 
        applicable,''.
            (C) Paragraph (3) of section 898(b) is amended to read as 
        follows:
            ``(3) United states shareholder.--The term `United States 
        shareholder' has the meaning given to such term by section 
        951(b), except that, in the case of a foreign corporation 
        having related person insurance income (as defined in section 
        953(c)(2)), the Secretary may treat any person as a United 
        States shareholder for purposes of this section if such person 
        is treated as a United States shareholder under section 
        953(c)(1).''.
            (D) Subsection (c) of section 898 is amended to read as 
        follows:
    ``(c) Determination of Required Year.--
            ``(1) In general.--The required year is--
                    ``(A) the majority U.S. shareholder year, or
                    ``(B) if there is no majority U.S. shareholder 
                year, the taxable year prescribed under regulations.
            ``(2) 1-month deferral allowed.--A specified foreign 
        corporation may elect, in lieu of the taxable year under 
        paragraph (1)(A), a taxable year beginning 1 month earlier than 
        the majority U.S. shareholder year.
            ``(3) Majority u.s. shareholder year.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `majority U.S. shareholder year' means the 
                taxable year (if any) which, on each testing day, 
                constituted the taxable year of--
                            ``(i) each United States shareholder 
                        described in subsection (b)(2)(A), and
                            ``(ii) each United States shareholder not 
                        described in clause (i) whose stock was treated 
                        as owned under subsection (b)(2)(B) by any 
                        shareholder described in such clause.
                    ``(B) Testing day.--The testing days shall be--
                            ``(i) the first day of the corporation's 
                        taxable year (determined without regard to this 
                        section), or
                            ``(ii) the days during such representative 
                        period as the Secretary may prescribe.''.
            (16) Clause (ii) of section 904(d)(2)(A) is amended to read 
        as follows:
                            ``(ii) Certain amounts included.--Except as 
                        provided in clause (iii), the term `passive 
                        income' includes, except as provided in 
                        subparagraph (E)(iii) or paragraph (3)(I), any 
                        amount includible in gross income under section 
                        1293 (relating to certain passive foreign 
                        investment companies).''.
            (17)(A) Subparagraph (A) of section 904(g)(1), as 
        redesignated by section 204, is amended by adding ``or'' at the 
        end of clause (i), by striking clause (ii), and by 
        redesignating clause (iii) as clause (ii).
            (B) The paragraph heading of paragraph (2) of section 
        904(g), as so redesignated, is amended by striking ``foreign 
        personal holding or''.
            (18) Section 951 is amended by striking subsections (c) and 
        (d) and by redesignating subsections (e) and (f) as subsections 
        (c) and (d), respectively.
            (19) Paragraph (3) of section 989(b) is amended by striking 
        ``, 551(a),''.
            (20) Paragraph (5) of section 1014(b) is amended by 
        inserting ``and before January 1, 2005,'' after ``August 26, 
        1937,''.
            (21) Subsection (a) of section 1016 is amended by striking 
        paragraph (13).
            (22)(A) Paragraph (3) of section 1212(a) is amended to read 
        as follows:
            ``(3) Special rules on carrybacks.--A net capital loss of a 
        corporation shall not be carried back under paragraph (1)(A) to 
        a taxable year--
                    ``(A) for which it is a regulated investment 
                company (as defined in section 851), or
                    ``(B) for which it is a real estate investment 
                trust (as defined in section 856).''.
            (B) The amendment made by subparagraph (A) shall apply to 
        taxable years beginning after December 31, 2004.
            (23) Section 1223 is amended by striking paragraph (10) and 
        by redesignating the following paragraphs accordingly.
            (24) Subsection (d) of section 1248 is amended by striking 
        paragraph (5) and by redesignating paragraphs (6) and (7) as 
        paragraphs (5) and (6), respectively.
            (25) Paragraph (2) of section 1260(c) is amended by 
        striking subparagraphs (H) and (I) and by redesignating 
        subparagraph (J) as subparagraph (H).
            (26)(A) Subparagraph (F) of section 1291(b)(3) is amended 
        by striking ``551(d), 959(a),'' and inserting ``959(a)''.
            (B) Subsection (e) of section 1291 is amended by inserting 
        ``(as in effect on the day before the date of the enactment of 
the Jumpstart Our Business Strength (JOBS) Act)'' after ``section 
1246''.
            (27) Paragraph (2) of section 1294(a) is amended to read as 
        follows:
            ``(2) Election not permitted where amounts otherwise 
        includible under section 951.--The taxpayer may not make an 
        election under paragraph (1) with respect to the undistributed 
        PFIC earnings tax liability attributable to a qualified 
        electing fund for the taxable year if any amount is includible 
        in the gross income of the taxpayer under section 951 with 
        respect to such fund for such taxable year.''.
            (28) Section 6035 is hereby repealed.
            (29) Subparagraph (D) of section 6103(e)(1) is amended by 
        striking clause (iv) and redesignating clauses (v) and (vi) as 
        clauses (iv) and (v), respectively.
            (30) Subparagraph (B) of section 6501(e)(1) is amended to 
        read as follows:
                    ``(B) Constructive dividends.--If the taxpayer 
                omits from gross income an amount properly includible 
                therein under section 951(a), the tax may be assessed, 
                or a proceeding in court for the collection of such tax 
                may be done without assessing, at any time within 6 
                years after the return was filed.''.
            (31) Subsection (a) of section 6679 is amended--
                    (A) by striking ``6035, 6046, and 6046A'' in 
                paragraph (1) and inserting ``6046 and 6046A'', and
                    (B) by striking paragraph (3).
            (32) Sections 170(f)(10)(A), 508(d), 4947, and 4948(c)(4) 
        are each amended by striking ``556(b)(2),'' each place it 
        appears.
            (33) The table of parts for subchapter G of chapter 1 is 
        amended by striking the item relating to part III.
            (34) The table of sections for part IV of subchapter P of 
        chapter 1 is amended by striking the items relating to sections 
        1246 and 1247.
            (35) The table of sections for subpart A of part III of 
        subchapter A of chapter 61 is amended by striking the item 
        relating to section 6035.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2004, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 212. EXPANSION OF DE MINIMIS RULE UNDER SUBPART F.

    (a) In General.--Clause (ii) of section 954(b)(3)(A) (relating to 
de minimis, etc., rules) is amended by striking ``$1,000,000'' and 
inserting ``$5,000,000''.
    (b) Technical Amendments.--
            (1) Clause (ii) of section 864(d)(5)(A) is amended by 
        striking ``$1,000,000'' and inserting ``$5,000,000''.
            (2) Clause (i) of section 881(c)(5)(A) is amended by 
        striking ``$1,000,000'' and inserting ``$5,000,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2004, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 213. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS TO APPLY 
              IN DETERMINING SECTION 902 AND 960 CREDITS.

    (a) In General.--Subsection (c) of section 902 is amended by 
redesignating paragraph (7) as paragraph (8) and by inserting after 
paragraph (6) the following new paragraph:
            ``(7) Constructive ownership through partnerships.--Stock 
        owned, directly or indirectly, by or for a partnership shall be 
        considered as being owned proportionately by its partners. 
        Stock considered to be owned by a person by reason of the 
        preceding sentence shall, for purposes of applying such 
        sentence, be treated as actually owned by such person. The 
        Secretary may prescribe such regulations as may be necessary to 
        carry out the purposes of this paragraph, including rules to 
        account for special partnership allocations of dividends, 
        credits, and other incidents of ownership of stock in 
        determining proportionate ownership.''.
    (b) Clarification of Comparable Attribution Under Section 
901(b)(5).--Paragraph (5) of section 901(b) is amended by striking 
``any individual'' and inserting ``any person''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxes of foreign corporations for taxable years of such 
corporations beginning after the date of the enactment of this Act.

SEC. 214. APPLICATION OF UNIFORM CAPITALIZATION RULES TO FOREIGN 
              PERSONS.

    (a) In General.--Section 263A(c) (relating to exceptions) is 
amended by adding at the end the following new paragraph:
            ``(7) Foreign persons.--Except for purposes of applying 
        sections 871(b)(1) and 882(a)(1), this section shall not apply 
        to any taxpayer who is not a United States person if such 
        taxpayer capitalizes costs of produced property or property 
        acquired for resale by applying the method used to ascertain 
        the income, profit, or loss for purposes of reports or 
        statements to shareholders, partners, other proprietors, or 
        beneficiaries, or for credit purposes.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection (a) shall 
        apply to taxable years beginning after December 31, 2004.
            (2) Change in method of accounting.--In the case of any 
        taxpayer required by the amendment made by this section to 
        change its method of accounting for its first taxable year 
        beginning after December 31, 2004--
                    (A) such change shall be treated as initiated by 
                the taxpayer,
                    (B) such change shall be treated as made with the 
                consent of the Secretary of the Treasury, and
                    (C) the net amount of the adjustments required to 
                be taken into account by the taxpayer under section 481 
                of the Internal Revenue Code of 1986 shall be taken 
into account in such first year.

SEC. 215. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN FOREIGN 
              CORPORATIONS.

    (a) In General.--Paragraph (2) of section 871(i) (relating to tax 
not to apply to certain interest and dividends) is amended by adding at 
the end the following new subparagraph:
                    ``(D) Dividends paid by a foreign corporation which 
                are treated under section 861(a)(2)(B) as income from 
                sources within the United States.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to payments made after December 31, 2004.

SEC. 216. REPEAL OF SPECIAL CAPITAL GAINS TAX ON ALIENS PRESENT IN THE 
              UNITED STATES FOR 183 DAYS OR MORE.

    (a) In General.--Subsection (a) of section 871 is amended by 
striking paragraph (2) and by redesignating paragraph (3) as paragraph 
(2).
    (b) Conforming Amendment.--Section 1441(g) is amended is amended by 
striking ``section 871(a)(3)'' and inserting ``section 871(a)(2)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

          Subtitle C--Additional International Tax Provisions

SEC. 221. ACTIVE LEASING INCOME FROM AIRCRAFT AND VESSELS.

    (a) In General.--Section 954(c)(2) is amended by adding at the end 
the following new subparagraph:
                    ``(D) Certain rents, etc.--
                            ``(i) In general.--Foreign personal holding 
                        company income shall not include qualified 
                        leasing income derived from or in connection 
                        with the leasing or rental of any aircraft or 
                        vessel.
                            ``(ii) Qualified leasing income.--For 
                        purposes of this subparagraph, the term 
                        `qualified leasing income' means rents and 
                        gains derived in the active conduct of a trade 
                        or business of leasing with respect to which 
                        the controlled foreign corporation conducts 
                        substantial activity, but only if--
                                    ``(I) the leased property is used 
                                by the lessee or other end-user in 
                                foreign commerce and predominantly 
                                outside the United States, and
                                    ``(II) the lessee or other end-user 
                                is not a related person (as defined in 
                                subsection (d)(3)).
                        Any amount not treated as foreign personal 
                        holding income under this subparagraph shall 
                        not be treated as foreign base company shipping 
                        income.''.
    (b) Conforming Amendment.--Section 954(c)(1)(B) is amended by 
inserting ``or (2)(D)'' after ``paragraph (2)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2006, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 222. LOOK-THRU TREATMENT OF PAYMENTS BETWEEN RELATED CONTROLLED 
              FOREIGN CORPORATIONS UNDER FOREIGN PERSONAL HOLDING 
              COMPANY INCOME RULES.

    (a) In General.--Subsection (c) of section 954, as amended by this 
Act, is amended by adding after paragraph (4) the following new 
paragraph:
            ``(5) Look-thru in the case of related controlled foreign 
        corporations.--For purposes of this subsection, dividends, 
        interest, rents, and royalties received or accrued from a 
        controlled foreign corporation which is a related person (as 
        defined in subsection (b)(9)) shall not be treated as foreign 
        personal holding company income to the extent attributable or 
        properly allocable (determined under rules similar to the rules 
        of subparagraphs (C) and (D) of section 904(d)(3)) to income of 
        the related person which is not subpart F income (as defined in 
        section 952). The Secretary shall prescribe such regulations as 
        may be appropriate to prevent the abuse of the purposes of this 
        paragraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of foreign corporations beginning after December 31, 
2004, and to taxable years of United States shareholders with or within 
which such taxable years of foreign corporations end.

SEC. 223. LOOK-THRU TREATMENT FOR SALES OF PARTNERSHIP INTERESTS.

    (a) In General.--Section 954(c) (defining foreign personal holding 
company income), as amended by this Act, is amended by adding after 
paragraph (5) the following new paragraph:
            ``(6) Look-thru rule for certain partnership sales.--
                    ``(A) In general.--In the case of any sale by a 
                controlled foreign corporation of an interest in a 
                partnership with respect to which such corporation is a 
                25-percent owner, such corporation shall be treated for 
                purposes of this subsection as selling the 
                proportionate share of the assets of the partnership 
                attributable to such interest. The Secretary shall 
                prescribe such regulations as may be appropriate to 
                prevent abuse of the purposes of this paragraph, 
                including regulations providing for coordination of 
                this paragraph with the provisions of subchapter K.
                    ``(B) 25-percent owner.--For purposes of this 
                paragraph, the term `25-percent owner' means a 
                controlled foreign corporation which owns directly 25 
                percent or more of the capital or profits interest in a 
                partnership. For purposes of the preceding sentence, if 
                a controlled foreign corporation is a shareholder or 
                partner of a corporation or partnership, the controlled 
                foreign corporation shall be treated as owning directly 
                its proportionate share of any such capital or profits 
interest held directly or indirectly by such corporation or 
partnership''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of foreign corporations beginning after December 31, 
2004, and to taxable years of United States shareholders with or within 
which such taxable years of foreign corporations end.

SEC. 224. ELECTION NOT TO USE AVERAGE EXCHANGE RATE FOR FOREIGN TAX 
              PAID OTHER THAN IN FUNCTIONAL CURRENCY.

    (a) In General.--Paragraph (1) of section 986(a) (relating to 
determination of foreign taxes and foreign corporation's earnings and 
profits) is amended by redesignating subparagraph (D) as subparagraph 
(E) and by inserting after subparagraph (C) the following new 
subparagraph:
                    ``(D) Elective exception for taxes paid other than 
                in functional currency.--
                            ``(i) In general.--At the election of the 
                        taxpayer, subparagraph (A) shall not apply to 
                        any foreign income taxes the liability for 
                        which is denominated in any currency other than 
                        in the taxpayer's functional currency.
                            ``(ii) Application to qualified business 
                        units.--An election under this subparagraph may 
                        apply to foreign income taxes attributable to a 
                        qualified business unit in accordance with 
                        regulations prescribed by the Secretary.
                            ``(iii) Election.--Any such election shall 
                        apply to the taxable year for which made and 
                        all subsequent taxable years unless revoked 
                        with the consent of the Secretary.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 225. TREATMENT OF INCOME TAX BASE DIFFERENCES.

    (a) In General.--Paragraph (2) of section 904(d) is amended by 
redesignating subparagraphs (H) and (I) as subparagraphs (I) and (J), 
respectively, and by inserting after subparagraph (G) the following new 
subparagraph:
                    ``(H) Treatment of income tax base differences.--
                            ``(i) In general.--A taxpayer may elect to 
                        treat tax imposed under the law of a foreign 
                        country or possession of the United States on 
                        an amount which does not constitute income 
                        under United States tax principles as tax 
                        imposed on income described in subparagraph (C) 
                        or (I) of paragraph (1).
                            ``(ii) Election irrevocable.--Any such 
                        election shall apply to the taxable year for 
                        which made and all subsequent taxable years 
                        unless revoked with the consent of the 
                        Secretary.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 226. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR ACTIVE 
              FINANCING.

    (a) In General.--Section 954(h)(3) is amended by adding at the end 
the following:
                    ``(E) Direct conduct of activities.--For purposes 
                of subparagraph (A)(ii)(II), an activity shall be 
                treated as conducted directly by an eligible controlled 
                foreign corporation or qualified business unit in its 
                home country if the activity is performed by employees 
                of a related person and--
                            ``(i) the related person is an eligible 
                        controlled foreign corporation the home country 
                        of which is the same as the home country of the 
                        corporation or unit to which subparagraph 
                        (A)(ii)(II) is being applied,
                            ``(ii) the activity is performed in the 
                        home country of the related person, and
                            ``(iii) the related person is compensated 
                        on an arm's-length basis for the performance of 
                        the activity by its employees and such 
                        compensation is treated as earned by such 
                        person in its home country for purposes of the 
                        home country's tax laws.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of such foreign corporations beginning after December 
31, 2004, and to taxable years of United States shareholders with or 
within which such taxable years of such foreign corporations end.

SEC. 227. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS OF 
              CONTROLLED FOREIGN CORPORATION.

    (a) In General.--Section 956(c)(2) (relating to exceptions from 
property treated as United States property) is amended by striking 
``and'' at the end of subparagraph (J), by striking the period at the 
end of subparagraph (K) and inserting a semicolon, and by adding at the 
end the following new subparagraphs:
                    ``(L) securities acquired and held by a controlled 
                foreign corporation in the ordinary course of its 
                business as a dealer in securities if--
                            ``(i) the dealer accounts for the 
                        securities as securities held primarily for 
                        sale to customers in the ordinary course of 
                        business, and
                            ``(ii) the dealer disposes of the 
                        securities (or such securities mature while 
                        held by the dealer) within a period consistent 
                        with the holding of securities for sale to 
                        customers in the ordinary course of business; 
                        and
                    ``(M) an obligation of a United States person 
                which--
                            ``(i) is not a domestic corporation, and
                            ``(ii) is not--
                                    ``(I) a United States shareholder 
                                (as defined in section 951(b)) of the 
                                controlled foreign corporation, or
                                    ``(II) a partnership, estate, or 
                                trust in which the controlled foreign 
                                corporation, or any related person (as 
                                defined in section 954(d)(3)), is a 
                                partner, beneficiary, or trustee 
                                immediately after the acquisition of 
                                any obligation of such partnership, 
                                estate, or trust by the controlled 
                                foreign corporation.''.
    (b) Conforming Amendment.--Section 956(c)(2) is amended by striking 
``and (K)'' in the last sentence and inserting ``, (K), and (L)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after December 
31, 2004, and to taxable years of United States shareholders with or 
within which such taxable years of foreign corporations end.

SEC. 228. PROVIDE EQUAL TREATMENT FOR INTEREST PAID BY FOREIGN 
              PARTNERSHIPS AND FOREIGN CORPORATIONS.

    (a) In General.--Paragraph (1) of section 861(a) is amended by 
striking ``and'' at the end of subparagraph (A), by striking the period 
at the end of subparagraph (B) and inserting ``, and'', and by adding 
at the end the following new subparagraph:
                    ``(C) in the case of a foreign partnership in which 
                United States persons do not hold directly or 
                indirectly 20 percent or more of either the capital or 
                profits interests, any interest not paid by a trade or 
                business engaged in by the partnership in the United 
                States and not allocable to income which is effectively 
                connected (or treated as effectively connected) with 
                the conduct of a trade or business in the United 
                States.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 229. CLARIFICATION OF TREATMENT OF CERTAIN TRANSFERS OF INTANGIBLE 
              PROPERTY.

    (a) In General.--Subparagraph (C) of section 367(d)(2) is amended 
by adding at the end the following new sentence: ``For purposes of 
applying section 904(d), any such amount shall be treated in the same 
manner as if such amount were a royalty.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts treated as received pursuant to section 367(d)(2) of the 
Internal Revenue Code of 1986 on or after August 5, 1997.

SEC. 230. MODIFICATION OF THE TREATMENT OF CERTAIN REIT DISTRIBUTIONS 
              ATTRIBUTABLE TO GAIN FROM SALES OR EXCHANGES OF UNITED 
              STATES REAL PROPERTY INTERESTS.

    (a) In General.--Paragraph (1) of section 897(h) (relating to look-
through of distributions) is amended by adding at the end the following 
new sentence: ``Notwithstanding the preceding sentence, any 
distribution by a REIT with respect to any class of stock which is 
regularly traded on an established securities market located in the 
United States shall not be treated as gain recognized from the sale or 
exchange of a United States real property interest if the shareholder 
did not own more than 5 percent of such class of stock at any time 
during the taxable year.''.
    (b) Conforming Amendment.--Paragraph (3) of section 857(b) 
(relating to capital gains) is amended by adding at the end the 
following new subparagraph:
                    ``(F) Certain distributions.--In the case of a 
                shareholder of a real estate investment trust to whom 
                section 897 does not apply by reason of the second 
                sentence of section 897(h)(1), the amount which would 
                be included in computing long-term capital gains for 
                such shareholder under subparagraph (B) or (D) (without 
                regard to this subparagraph)--
                            ``(i) shall not be included in computing 
                        such shareholder's long-term capital gains, and
                            ``(ii) shall be included in such 
                        shareholder's gross income as a dividend from 
                        the real estate investment trust.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 231. TOLL TAX ON EXCESS QUALIFIED FOREIGN DISTRIBUTION AMOUNT.

    (a) In General.--Subpart F of part III of subchapter N of chapter 1 
is amended by adding at the end the following new section:

``SEC. 965. TOLL TAX IMPOSED ON EXCESS QUALIFIED FOREIGN DISTRIBUTION 
              AMOUNT.

    ``(a) Toll Tax Imposed on Excess Qualified Foreign Distribution 
Amount.--If a corporation elects the application of this section, a tax 
shall be imposed on the taxpayer in an amount equal to 5.25 percent 
of--
            ``(1) the taxpayer's excess qualified foreign distribution 
        amount, and
            ``(2) the amount determined under section 78 which is 
        attributable to such excess qualified foreign distribution 
        amount.
Such tax shall be imposed in lieu of the tax imposed under section 11 
or 55 on the amounts described in paragraphs (1) and (2) for such 
taxable year.
    ``(b) Excess Qualified Foreign Distribution Amount.--For purposes 
of this section--
            ``(1) In general.--The term `excess qualified foreign 
        distribution amount' means the excess (if any) of--
                    ``(A) the aggregate dividends received by the 
                taxpayer during the taxable year which are--
                            ``(i) from 1 or more corporations which are 
                        controlled foreign corporations in which the 
                        taxpayer is a United States shareholder on the 
                        date such dividends are paid, and
                            ``(ii) described in a domestic reinvestment 
                        plan which--
                                    ``(I) is approved by the taxpayer's 
                                president, chief executive officer, or 
                                comparable official before the payment 
                                of such dividends and subsequently 
                                approved by the taxpayer's board of 
                                directors, management committee, 
                                executive committee, or similar body, 
                                and
                                    ``(II) provides for the 
                                reinvestment of such dividends in the 
                                United States (other than as payment 
                                for executive compensation), including 
                                as a source for the funding of worker 
                                hiring and training, infrastructure, 
                                research and development, capital 
                                investments, or the financial 
                                stabilization of the corporation for 
                                the purposes of job retention or 
                                creation, over
                    ``(B) the base dividend amount.
            ``(2) Base dividend amount.--The term `base dividend 
        amount' means an amount designated under subsection (c)(7), but 
        not less than the average amount of dividends received during 
        the fixed base period from 1 or more corporations which are 
        controlled foreign corporations in which the taxpayer is a 
        United States shareholder on the date such dividends are paid.
            ``(3) Fixed base period.--
                    ``(A) In general.--The term `fixed base period' 
                means each of 3 taxable years which are among the 5 
                most recent taxable years of the taxpayer ending on or 
                before December 31, 2002, determined by disregarding--
                            ``(i) the 1 taxable year for which the 
                        taxpayer had the highest amount of dividends 
                        from 1 or more corporations which are 
                        controlled foreign corporations relative to the 
                        other 4 taxable years, and
                            ``(ii) the 1 taxable year for which the 
                        taxpayer had the lowest amount of dividends 
                        from such corporations relative to the other 4 
                        taxable years.
                    ``(B) Shorter period.--If the taxpayer has fewer 
                than 5 taxable years ending on or before December 31, 
                2002, then in lieu of applying subparagraph (A), the 
                fixed base period shall include all the taxable years 
                of the taxpayer ending on or before December 31, 2002.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Dividends.--The term `dividend' has the meaning given 
        such term by section 316, except that the term shall include 
        amounts described in section 951(a)(1)(B), but shall not 
        include amounts described in sections 78 and 959.
            ``(2) Controlled foreign corporations and united states 
        shareholders.--The term `controlled foreign corporation' has 
        the meaning given such term by section 957(a) and the term 
        `United States shareholder' has the meaning given such term by 
        section 951(b).
            ``(3) Foreign tax credits.--The amount of any income, war, 
        profits, or excess profit taxes paid (or deemed paid under 
        sections 902 and 960) or accrued by the taxpayer with respect 
        to the excess qualified foreign distribution amount for which a 
        credit would be allowable under section 901 in the absence of 
        this section, shall be reduced by 85 percent. No deduction 
        shall be allowed under this chapter for the portion of any tax 
        for which credit is not allowable by reason of the preceding 
        sentence.
            ``(4) Foreign tax credit limitation.--For purposes of 
        section 904, there shall be disregarded 85 percent of--
                    ``(A) the excess qualified foreign distribution 
                amount,
                    ``(B) the amount determined under section 78 which 
                is attributable to such excess qualified foreign 
                distribution amount, and
                    ``(C) the amounts (including assets, gross income, 
                and other relevant bases of apportionment) which are 
                attributable to the excess qualified foreign 
                distribution amount which would, determined without 
                regard to this section, be used to apportion the 
                expenses, losses, and deductions of the taxpayer under 
                section 861 and 864 in determining its taxable income 
                from sources without the United States.
        For purposes of applying subparagraph (C), the principles of 
        section 864(e)(3)(A) shall apply.
            ``(5) Treatment of acquisitions and dispositions.--Rules 
        similar to the rules of section 41(f)(3) shall apply in the 
        case of acquisitions or dispositions of controlled foreign 
        corporations occurring on or after the first day of the 
        earliest taxable year taken into account in determining the 
        fixed base period.
            ``(6) Treatment of consolidated groups.--Members of an 
        affiliated group of corporations filing a consolidated return 
        under section 1501 shall be treated as a single taxpayer for 
        purposes of this section.
            ``(7) Designation of dividends.--Subject to subsection 
        (b)(2), the taxpayer shall designate the particular dividends 
        received during the taxable year from 1 or more corporations 
        which are controlled foreign corporations in which it is a 
        United States shareholder which are dividends excluded from the 
        excess qualified foreign distribution amount. The total amount 
        of such designated dividends shall equal the base dividend 
        amount.
            ``(8) Treatment of expenses, losses, and deductions.--Any 
        expenses, losses, or deductions of the taxpayer allowable under 
        subchapter B--
                    ``(A) shall not be applied to reduce the amounts 
                described in subsection (a)(1), and
                    ``(B) shall be applied to reduce other income of 
                the taxpayer (determined without regard to the amounts 
                described in subsection (a)(1)).
    ``(d) Election.--
            ``(1) In general.--An election under this section shall be 
        made on the taxpayer's timely filed income tax return for the 
        first taxable year (determined by taking extensions into 
        account) ending 120 days or more after the date of the 
        enactment of this section, and, once made, may be revoked only 
        with the consent of the Secretary.
            ``(2) All controlled foreign corporations.--The election 
        shall apply to all corporations which are controlled foreign 
        corporations in which the taxpayer is a United States 
        shareholder during the taxable year.
            ``(3) Consolidated groups.--If a taxpayer is a member of an 
        affiliated group of corporations filing a consolidated return 
        under section 1501 for the taxable year, an election under this 
        section shall be made by the common parent of the affiliated 
        group which includes the taxpayer and shall apply to all 
        members of the affiliated group.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary and appropriate to carry out the purposes of this 
section, including regulations under section 55 and regulations 
addressing corporations which, during the fixed base period or 
thereafter, join or leave an affiliated group of corporations filing a 
consolidated return.''.
    (b) Conforming Amendment.--The table of sections for subpart F of 
part III of subchapter N of chapter 1 is amended by adding at the end 
the following new item:

                              ``Sec. 965. Toll tax imposed on excess 
                                        qualified foreign distribution 
                                        amount.''.
    (c) Effective Date.--The amendments made by this section shall 
apply only to the first taxable year of the electing taxpayer ending 
120 days or more after the date of the enactment of this Act.

SEC. 232. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON HORSE 
              RACES AND DOG RACES FROM GROSS INCOME OF NONRESIDENT 
              ALIEN INDIVIDUALS.

    (a) In General.--Subsection (b) of section 872 (relating to 
exclusions) is amended by redesignating paragraphs (5), (6), and (7) as 
paragraphs (6), (7), and (8), respectively, and inserting after 
paragraph (4) the following new paragraph:
            ``(5) Income derived from wagering transactions in certain 
        parimutuel pools.--Gross income derived by a nonresident alien 
        individual from a legal wagering transaction initiated outside 
        the United States in a parimutuel pool with respect to a live 
        horse race or dog race in the United States.''.
    (b) Conforming Amendment.--Section 883(a)(4) is amended by striking 
``(5), (6), and (7)'' and inserting ``(6), (7), and (8)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to wagers made after the date of the enactment of this Act.

SEC. 233. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO CORPORATIONS.

    (a) In General.--Subsection (b) of section 881 is amended by 
redesignating paragraph (2) as paragraph (3) and by inserting after 
paragraph (1) the following new paragraph:
            ``(2) Commonwealth of puerto rico.--If dividends are 
        received during a taxable year by a corporation--
                    ``(A) created or organized in, or under the law of, 
                the Commonwealth of Puerto Rico, and
                    ``(B) with respect to which the requirements of 
                subparagraphs (A), (B), and (C) of paragraph (1) are 
                met for the taxable year,
        subsection (a) shall be applied for such taxable year by 
        substituting `10 percent' for `30 percent'.''.
    (b) Withholding.--Subsection (c) of section 1442 (relating to 
withholding of tax on foreign corporations) is amended--
            (1) by striking ``For purposes'' and inserting the 
        following:
            ``(1) Guam, american samoa, the northern mariana islands, 
        and the virgin islands.--For purposes'', and
            (2) by adding at the end the following new paragraph:
            ``(2) Commonwealth of puerto rico.--If dividends are 
        received during a taxable year by a corporation--
                    ``(A) created or organized in, or under the law of, 
                the Commonwealth of Puerto Rico, and
                    ``(B) with respect to which the requirements of 
                subparagraphs (A), (B), and (C) of section 881(b)(1) 
                are met for the taxable year,
        subsection (a) shall be applied for such taxable year by 
        substituting `10 percent' for `30 percent'.''.
    (b) Conforming Amendments.--
            (1) Subsection (b) of section 881 is amended by striking 
        ``Guam and Virgin Islands Corporations'' in the heading and 
        inserting ``Possessions''.
            (2) Paragraph (1) of section 881(b) is amended by striking 
        ``In general'' in the heading and inserting ``Guam, american 
        samoa, the northern mariana islands, and the virgin islands''.
    (c) Effective Date.--The amendments made by this section shall 
apply to dividends paid after the date of the enactment of this Act.

SEC. 234. REPORT ON WTO DISPUTE SETTLEMENT PANELS AND THE APPELLATE 
              BODY.

    Not later than March 31, 2004, the Secretary of Commerce, in 
consultation with the United States Trade Representative, shall 
transmit a report to the Committee on Finance of the Senate and the 
Committee on Ways and Means of the House of Representatives, regarding 
whether dispute settlement panels and the Appellate Body of the World 
Trade Organization have--
            (1) added to or diminished the rights of the United States 
        by imposing obligations or restrictions on the use of 
        antidumping, countervailing, and safeguard measures not agreed 
        to under the Agreement on Implementation of Article VI of the 
        General Agreement on Tariffs and Trade of 1994, the Agreement 
        on Subsidies and Countervailing Measures, and the Agreement on 
        Safeguards;
            (2) appropriately applied the standard of review contained 
        in Article 17.6 of the Agreement on Implementation of Article 
        VI of the General Agreement on Tariffs and Trade of 1994; or
            (3) exceeded their authority or terms of reference under 
        the Agreements referred to in paragraph (1).

SEC. 235. STUDY OF IMPACT OF INTERNATIONAL TAX LAWS ON TAXPAYERS OTHER 
              THAN LARGE CORPORATIONS.

    (a) Study.--The Secretary of the Treasury or the Secretary's 
delegate shall conduct a study of the impact of Federal international 
tax rules on taxpayers other than large corporations, including the 
burdens placed on such taxpayers in complying with such rules.
    (b) Report.--Not later than 180 days after the date of the 
enactment of this Act, the Secretary shall report to the Committee on 
Finance of the Senate and the Committee on Ways and Means of the House 
of Representatives the results of the study conducted under subsection 
(a), including any recommendations for legislative or administrative 
changes to reduce the compliance burden on taxpayers other than large 
corporations and for such other purposes as the Secretary determines 
appropriate.

SEC. 236. CONSULTATIVE ROLE FOR SENATE COMMITTEE ON FINANCE IN 
              CONNECTION WITH THE REVIEW OF PROPOSED TAX TREATIES.

    Paragraph 1(j) of Rule XXV of the Standing Rules of the Senate is 
amended by adding at the end the following:
    ``(3)(A) Notwithstanding any other rule of the Senate, the 
Committee on Foreign Relations shall consult with the Committee on 
Finance with respect to any proposed treaty on taxation prior to 
reporting such treaty to the Senate.
    ``(B) The Committee on Foreign Relations shall request in writing 
the views of the Committee on Finance with respect to any proposed 
treaty on taxation which is referred to the Committee on Foreign 
Relations. Not less than 120 days after the date on which such request 
is made, the Committee on Finance shall respond to such request in 
writing. If the Committee on Finance does not provide such written 
response during such 120 day period, the Committee on Finance shall be 
deemed to have waived the opportunity to submit such views.
    ``(C) The Committee on Foreign Relations shall consider the views 
submitted by the Committee on Finance and shall include such views in 
any report of the treaty to the Senate.''.

       TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS

                     Subtitle A--General Provisions

SEC. 301. EXPANSION OF QUALIFIED SMALL-ISSUE BOND PROGRAM.

    (a) In General.--Subparagraph (F) of section 144(a)(4) (relating to 
$10,000,000 limit in certain cases) is amended to read as follows:
                    ``(F) Additional capital expenditures not taken 
                into account.--With respect to any issue, in addition 
                to any capital expenditure described in subparagraph 
                (C), capital expenditures of not to exceed $10,000,000 
                shall not be taken into account for purposes of 
                applying subparagraph (A)(ii).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to bonds issued after the date of the enactment of this Act.

SEC. 302. EXPENSING OF BROADBAND INTERNET ACCESS EXPENDITURES.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations) is amended by 
inserting after section 190 the following new section:

``SEC. 191. BROADBAND EXPENDITURES.

    ``(a) Treatment of Expenditures.--
            ``(1) In general.--A taxpayer may elect to treat any 
        qualified broadband expenditure which is paid or incurred by 
        the taxpayer as an expense which is not chargeable to capital 
        account. Any expenditure which is so treated shall be allowed 
        as a deduction.
            ``(2) Election.--An election under paragraph (1) shall be 
        made at such time and in such manner as the Secretary may 
        prescribe by regulation.
    ``(b) Qualified Broadband Expenditures.--For purposes of this 
section--
            ``(1) In general.--The term `qualified broadband 
        expenditure' means, with respect to any taxable year, any 
        direct or indirect costs incurred during 2004 and properly 
        taken into account for such taxable year with respect to--
                    ``(A) the purchase or installation of qualified 
                equipment (including any upgrades thereto), and
                    ``(B) the connection of such qualified equipment to 
                any qualified subscriber.
            ``(2) Certain satellite expenditures excluded.--Such term 
        shall not include any costs incurred with respect to the 
        launching of any satellite equipment.
            ``(3) Leased equipment.--Such term shall include so much of 
        the purchase price paid by the lessor of qualified equipment 
        subject to a lease described in subsection (c)(2)(B) as is 
        attributable to expenditures incurred by the lessee which would 
        otherwise be described in paragraph (1).
    ``(c) When Expenditures Taken Into Account.--For purposes of this 
section--
            ``(1) In general.--Qualified broadband expenditures with 
        respect to qualified equipment shall be taken into account with 
        respect to the first taxable year in which--
                    ``(A) current generation broadband services are 
                provided through such equipment to qualified 
                subscribers, or
                    ``(B) next generation broadband services are 
                provided through such equipment to qualified 
                subscribers.
            ``(2) Limitation.--
                    ``(A) In general.--Qualified expenditures shall be 
                taken into account under paragraph (1) only with 
                respect to qualified equipment--
                            ``(i) the original use of which commences 
                        with the taxpayer, and
                            ``(ii) which is placed in service, after 
December 31, 2003.
                    ``(B) Sale-leasebacks.--For purposes of 
                subparagraph (A), if property--
                            ``(i) is originally placed in service after 
                        December 31, 2003, by any person, and
                            ``(ii) sold and leased back by such person 
                        within 3 months after the date such property 
                        was originally placed in service,
                such property shall be treated as originally placed in 
                service not earlier than the date on which such 
                property is used under the leaseback referred to in 
                clause (ii).
    ``(d) Special Allocation Rules.--
            ``(1) Current generation broadband services.--For purposes 
        of determining the amount of qualified broadband expenditures 
        under subsection (a)(1) with respect to qualified equipment 
        through which current generation broadband services are 
        provided, if the qualified equipment is capable of serving both 
        qualified subscribers and other subscribers, the qualified 
        broadband expenditures shall be multiplied by a fraction--
                    ``(A) the numerator of which is the sum of the 
                number of potential qualified subscribers within the 
                rural areas and the underserved areas which the 
                equipment is capable of serving with current generation 
                broadband services, and
                    ``(B) the denominator of which is the total 
                potential subscriber population of the area which the 
                equipment is capable of serving with current generation 
                broadband services.
            ``(2) Next generation broadband services.--For purposes of 
        determining the amount of qualified broadband expenditures 
        under subsection (a)(1) with respect to qualified equipment 
        through which next generation broadband services are provided, 
        if the qualified equipment is capable of serving both qualified 
        subscribers and other subscribers, the qualified expenditures 
        shall be multiplied by a fraction--
                    ``(A) the numerator of which is the sum of--
                            ``(i) the number of potential qualified 
                        subscribers within the rural areas and 
                        underserved areas, plus
                            ``(ii) the number of potential qualified 
                        subscribers within the area consisting only of 
                        residential subscribers not described in clause 
                        (i),
                which the equipment is capable of serving with next 
                generation broadband services, and
                    ``(B) the denominator of which is the total 
                potential subscriber population of the area which the 
                equipment is capable of serving with next generation 
                broadband services.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Antenna.--The term `antenna' means any device used to 
        transmit or receive signals through the electromagnetic 
        spectrum, including satellite equipment.
            ``(2) Cable operator.--The term `cable operator' has the 
        meaning given such term by section 602(5) of the Communications 
        Act of 1934 (47 U.S.C. 522(5)).
            ``(3) Commercial mobile service carrier.--The term 
        `commercial mobile service carrier' means any person authorized 
        to provide commercial mobile radio service as defined in 
        section 20.3 of title 47, Code of Federal Regulations.
            ``(4) Current generation broadband service.--The term 
        `current generation broadband service' means the transmission 
        of signals at a rate of at least 1,000,000 bits per second to 
        the subscriber and at least 128,000 bits per second from the 
        subscriber.
            ``(5) Multiplexing or demultiplexing.--The term 
        `multiplexing' means the transmission of 2 or more signals over 
        a single channel, and the term `demultiplexing' means the 
        separation of 2 or more signals previously combined by 
        compatible multiplexing equipment.
            ``(6) Next generation broadband service.--The term `next 
        generation broadband service' means the transmission of signals 
        at a rate of at least 22,000,000 bits per second to the 
        subscriber and at least 5,000,000 bits per second from the 
        subscriber.
            ``(7) Nonresidential subscriber.--The term `nonresidential 
        subscriber' means any person who purchases broadband services 
        which are delivered to the permanent place of business of such 
        person.
            ``(8) Open video system operator.--The term `open video 
        system operator' means any person authorized to provide service 
        under section 653 of the Communications Act of 1934 (47 U.S.C. 
        573).
            ``(9) Other wireless carrier.--The term `other wireless 
        carrier' means any person (other than a telecommunications 
        carrier, commercial mobile service carrier, cable operator, 
        open video system operator, or satellite carrier) providing 
        current generation broadband services or next generation 
        broadband service to subscribers through the radio transmission 
        of energy.
            ``(10) Packet switching.--The term `packet switching' means 
        controlling or routing the path of any digitized transmission 
        signal which is assembled into packets or cells.
            ``(11) Provider.--The term `provider' means, with respect 
        to any qualified equipment--
                    ``(A) a cable operator,
                    ``(B) a commercial mobile service carrier,
                    ``(C) an open video system operator,
                    ``(D) a satellite carrier,
                    ``(E) a telecommunications carrier, or
                    ``(F) any other wireless carrier,
        providing current generation broadband services or next 
        generation broadband services to subscribers through such 
        qualified equipment.
            ``(12) Provision of services.--A provider shall be treated 
        as providing services to 1 or more subscribers if--
                    ``(A) such a subscriber has been passed by the 
                provider's equipment and can be connected to such 
                equipment for a standard connection fee,
                    ``(B) the provider is physically able to deliver 
                current generation broadband services or next 
generation broadband services, as applicable, to such a subscriber 
without making more than an insignificant investment with respect to 
such subscriber,
                    ``(C) the provider has made reasonable efforts to 
                make such subscribers aware of the availability of such 
                services,
                    ``(D) such services have been purchased by 1 or 
                more such subscribers, and
                    ``(E) such services are made available to such 
                subscribers at average prices comparable to those at 
                which the provider makes available similar services in 
                any areas in which the provider makes available such 
                services.
            ``(13) Qualified equipment.--
                    ``(A) In general.--The term `qualified equipment' 
                means equipment which provides current generation 
                broadband services or next generation broadband 
                services--
                            ``(i) at least a majority of the time 
                        during periods of maximum demand to each 
                        subscriber who is utilizing such services, and
                            ``(ii) in a manner substantially the same 
                        as such services are provided by the provider 
                        to subscribers through equipment with respect 
                        to which no deduction is allowed under 
                        subsection (a)(1).
                    ``(B) Only certain investment taken into account.--
                Except as provided in subparagraph (C) or (D), 
                equipment shall be taken into account under 
                subparagraph (A) only to the extent it--
                            ``(i) extends from the last point of 
                        switching to the outside of the unit, building, 
                        dwelling, or office owned or leased by a 
                        subscriber in the case of a telecommunications 
                        carrier,
                            ``(ii) extends from the customer side of 
                        the mobile telephone switching office to a 
                        transmission/receive antenna (including such 
                        antenna) owned or leased by a subscriber in the 
                        case of a commercial mobile service carrier,
                            ``(iii) extends from the customer side of 
                        the headend to the outside of the unit, 
                        building, dwelling, or office owned or leased 
                        by a subscriber in the case of a cable operator 
                        or open video system operator, or
                            ``(iv) extends from a transmission/receive 
                        antenna (including such antenna) which 
                        transmits and receives signals to or from 
                        multiple subscribers, to a transmission/receive 
                        antenna (including such antenna) on the outside 
                        of the unit, building, dwelling, or office 
                        owned or leased by a subscriber in the case of 
                        a satellite carrier or other wireless carrier, 
                        unless such other wireless carrier is also a 
                        telecommunications carrier.
                    ``(C) Packet switching equipment.--Packet switching 
                equipment, regardless of location, shall be taken into 
                account under subparagraph (A) only if it is deployed 
                in connection with equipment described in subparagraph 
                (B) and is uniquely designed to perform the function of 
                packet switching for current generation broadband 
                services or next generation broadband services, but 
                only if such packet switching is the last in a series 
                of such functions performed in the transmission of a 
                signal to a subscriber or the first in a series of such 
                functions performed in the transmission of a signal 
                from a subscriber.
                    ``(D) Multiplexing and demultiplexing equipment.--
                Multiplexing and demultiplexing equipment shall be 
                taken into account under subparagraph (A) only to the 
                extent it is deployed in connection with equipment 
                described in subparagraph (B) and is uniquely designed 
                to perform the function of multiplexing and 
                demultiplexing packets or cells of data and making 
                associated application adaptions, but only if such 
                multiplexing or demultiplexing equipment is located 
                between packet switching equipment described in 
                subparagraph (C) and the subscriber's premises.
            ``(14) Qualified subscriber.--The term `qualified 
        subscriber' means--
                    ``(A) with respect to the provision of current 
                generation broadband services--
                            ``(i) any nonresidential subscriber 
                        maintaining a permanent place of business in a 
                        rural area or underserved area, or
                            ``(ii) any residential subscriber residing 
                        in a dwelling located in a rural area or 
                        underserved area which is not a saturated 
                        market, and
                    ``(B) with respect to the provision of next 
                generation broadband services--
                            ``(i) any nonresidential subscriber 
                        maintaining a permanent place of business in a 
                        rural area or underserved area, or
                            ``(ii) any residential subscriber.
            ``(15) Residential subscriber.--The term `residential 
        subscriber' means any individual who purchases broadband 
        services which are delivered to such individual's dwelling.
            ``(16) Rural area.--The term `rural area' means any census 
        tract which--
                    ``(A) is not within 10 miles of any incorporated or 
                census designated place containing more than 25,000 
                people, and
                    ``(B) is not within a county or county equivalent 
                which has an overall population density of more than 
                500 people per square mile of land.
            ``(17) Rural subscriber.--The term `rural subscriber' means 
        any residential subscriber residing in a dwelling located in a 
        rural area or nonresidential subscriber maintaining a permanent 
        place of business located in a rural area.
            ``(18) Satellite carrier.--The term `satellite carrier' 
        means any person using the facilities of a satellite or 
        satellite service licensed by the Federal Communications 
        Commission and operating in the Fixed-Satellite Service under 
        part 25 of title 47 of the Code of Federal Regulations or the 
        Direct Broadcast Satellite Service under part 100 of title 47 
        of such Code to establish and operate a channel of 
        communications for distribution of signals, and owning or 
        leasing a capacity or service on a satellite in order to 
        provide such point-to-multipoint distribution.
            ``(19) Saturated market.--The term `saturated market' means 
        any census tract in which, as of the date of the enactment of 
        this section--
                    ``(A) current generation broadband services have 
                been provided by a single provider to 85 percent or 
                more of the total number of potential residential 
                subscribers residing in dwellings located within such 
                census tract, and
                    ``(B) such services can be utilized--
                            ``(i) at least a majority of the time 
                        during periods of maximum demand by each such 
                        subscriber who is utilizing such services, and
                            ``(ii) in a manner substantially the same 
                        as such services are provided by the provider 
                        to subscribers through equipment with respect 
                        to which no deduction is allowed under 
                        subsection (a)(1).
            ``(20) Subscriber.--The term `subscriber' means any person 
        who purchases current generation broadband services or next 
        generation broadband services.
            ``(21) Telecommunications carrier.--The term 
        `telecommunications carrier' has the meaning given such term by 
        section 3(44) of the Communications Act of 1934 (47 U.S.C. 
        153(44)), but--
                    ``(A) includes all members of an affiliated group 
                of which a telecommunications carrier is a member, and
                    ``(B) does not include a commercial mobile service 
                carrier.
            ``(22) Total potential subscriber population.--The term 
        `total potential subscriber population' means, with respect to 
        any area and based on the most recent census data, the total 
        number of potential residential subscribers residing in 
        dwellings located in such area and potential nonresidential 
        subscribers maintaining permanent places of business located in 
        such area.
            ``(23) Underserved area.--The term `underserved area' 
        means--
                    ``(A) any census tract which is located in--
                            ``(i) an empowerment zone or enterprise 
                        community designated under section 1391, or
                            ``(ii) the District of Columbia Enterprise 
                        Zone established under section 1400, or
                    ``(B) any census tract--
                            ``(i) the poverty level of which is at 
                        least 30 percent (based on the most recent 
                        census data), and
                            ``(ii) the median family income of which 
                        does not exceed--
                                    ``(I) in the case of a census tract 
                                located in a metropolitan statistical 
                                area, 70 percent of the greater of the 
                                metropolitan area median family income 
                                or the statewide median family income, 
                                and
                                    ``(II) in the case of a census 
                                tract located in a nonmetropolitan 
                                statistical area, 70 percent of the 
                                nonmetropolitan statewide median family 
                                income.
            ``(24) Underserved subscriber.--The term `underserved 
        subscriber' means any residential subscriber residing in a 
        dwelling located in an underserved area or nonresidential 
        subscriber maintaining a permanent place of business located in 
        an underserved area.
    ``(f) Special Rules.--
            ``(1) Property used outside the united states, etc., not 
        qualified.--No expenditures shall be taken into account under 
        subsection (a)(1) with respect to the portion of the cost of 
        any property referred to in section 50(b) or with respect to 
        the portion of the cost of any property specified in an 
        election under section 179.
            ``(2) Basis reduction.--
                    ``(A) In general.--For purposes of this title, the 
                basis of any property shall be reduced by the portion 
                of the cost of such property taken into account under 
                subsection (a)(1).
                    ``(B) Ordinary income recapture.--For purposes of 
                section 1245, the amount of the deduction allowable 
                under subsection (a)(1) with respect to any property 
                which is of a character subject to the allowance for 
                depreciation shall be treated as a deduction allowed 
                for depreciation under section 167.
            ``(3) Coordination with section 38.--No credit shall be 
        allowed under section 38 with respect to any amount for which a 
        deduction is allowed under subsection (a)(1).''.
    (b) Special Rule for Mutual or Cooperative Telephone Companies.--
Section 501(c)(12)(B) (relating to list of exempt organizations) is 
amended by striking ``or'' at the end of clause (iii), by striking the 
period at the end of clause (iv) and inserting ``, or'', and by adding 
at the end the following:
                            ``(v) from the sale of property subject to 
                        a lease described in section 191(c)(2)(B), but 
                        only to the extent such income does not in any 
                        year exceed an amount equal to the qualified 
                        broadband expenditures which would be taken 
                        into account under section 191 for such year if 
                        the mutual or cooperative telephone company was 
                        not exempt from taxation and was treated as the 
                        owner of the property subject to such lease.''.
    (c) Conforming Amendments.--
            (1) Section 263(a)(1) (relating to capital expenditures) is 
        amended by striking ``or'' at the end of subparagraph (G), by 
        striking the period at the end of subparagraph (H) and 
        inserting ``, or'', and by adding at the end the following new 
        subparagraph:
                    ``(I) expenditures for which a deduction is allowed 
                under section 191.''.
            (2) Section 1016(a) of such Code is amended by striking 
        ``and'' at the end of paragraph (27), by striking the period at 
        the end of paragraph (28) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
            ``(29) to the extent provided in section 191(f)(2).''.
            (3) The table of sections for part VI of subchapter A of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 190 the following new item:

``Sec. 191. Broadband expenditures.''.
    (d) Designation of Census Tracts.--
            (1) In general.--The Secretary of the Treasury shall, not 
        later than 90 days after the date of the enactment of this Act, 
        designate and publish those census tracts meeting the criteria 
        described in paragraphs (16), (22), and (23) of section 191(e) 
        of the Internal Revenue Code of 1986 (as added by this 
        section). In making such designations, the Secretary of the 
        Treasury shall consult with such other departments and agencies 
        as the Secretary determines appropriate.
            (2) Saturated market.--
                    (A) In general.--For purposes of designating and 
                publishing those census tracts meeting the criteria 
                described in subsection (e)(19) of such section 191--
                            (i) the Secretary of the Treasury shall 
                        prescribe not later than 30 days after the date 
                        of the enactment of this Act the form upon 
                        which any provider which takes the position 
                        that it meets such criteria with respect to any 
                        census tract shall submit a list of such census 
                        tracts (and any other information required by 
                        the Secretary) not later than 60 days after the 
                        date of the publication of such form, and
                            (ii) the Secretary of the Treasury shall 
                        publish an aggregate list of such census tracts 
                        and the applicable providers not later than 30 
                        days after the last date such submissions are 
                        allowed under clause (i).
                    (B) No subsequent lists required.--The Secretary of 
                the Treasury shall not be required to publish any list 
                of census tracts meeting such criteria subsequent to 
                the list described in subparagraph (A)(ii).
    (e) Other Regulatory Matters.--
            (1) Prohibition.--No Federal or State agency or 
        instrumentality shall adopt regulations or ratemaking 
        procedures that would have the effect of eliminating or 
        reducing any deduction or portion thereof allowed under section 
        191 of the Internal Revenue Code of 1986 (as added by this 
        section) or otherwise subverting the purpose of this section.
            (2) Treasury regulatory authority.--It is the intent of 
        Congress in providing the election to deduct qualified 
        broadband expenditures under section 191 of the Internal 
        Revenue Code of 1986 (as added by this section) to provide 
        incentives for the purchase, installation, and connection of 
        equipment and facilities offering expanded broadband access to 
        the Internet for users in certain low income and rural areas of 
        the United States, as well as to residential users nationwide, 
        in a manner that maintains competitive neutrality among the 
        various classes of providers of broadband services. 
        Accordingly, the Secretary of the Treasury shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of section 191 of such Code, including--
                    (A) regulations to determine how and when a 
                taxpayer that incurs qualified broadband expenditures 
                satisfies the requirements of section 191 of such Code 
                to provide broadband services, and
                    (B) regulations describing the information, 
                records, and data taxpayers are required to provide the 
                Secretary to substantiate compliance with the 
                requirements of section 191 of such Code.
    (f) Effective Date.--The amendments made by this section shall 
apply to expenditures incurred after December 31, 2003.

SEC. 303. EXEMPTION OF NATURAL AGING PROCESS IN DETERMINATION OF 
              PRODUCTION PERIOD FOR DISTILLED SPIRITS UNDER SECTION 
              263A.

    (a) In General.--Section 263A(f) of the Internal Revenue Code of 
1986 (relating to general exceptions) is amended by adding at the end 
the following new paragraph:
            ``(5) Exemption of natural aging process in determination 
        of production period for distilled spirits.--For purposes of 
        this subsection, the production period for distilled spirits 
        shall be determined without regard to any period allocated to 
        the natural aging process.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to production periods beginning after the date of the enactment of this 
Act.

SEC. 304. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER SECTION 355.

    (a) In General.--Section 355(b) (defining active conduct of a trade 
or business) is amended by adding at the end the following new 
paragraph:
            ``(3) Special rules relating to active business 
        requirement.--
                    ``(A) In general.--For purposes of determining 
                whether a corporation meets the requirement of 
                paragraph (2)(A), all members of such corporation's 
                separate affiliated group shall be treated as one 
                corporation. For purposes of the preceding sentence, a 
                corporation's separate affiliated group is the 
                affiliated group which would be determined under 
                section 1504(a) if such corporation were the common 
                parent and section 1504(b) did not apply.
                    ``(B) Control.--For purposes of paragraph (2)(D), 
                all distributee corporations which are members of the 
same affiliated group (as defined in section 1504(a) without regard to 
section 1504(b)) shall be treated as one distributee corporation.''.
    (b) Conforming Amendments.--
            (1) Subparagraph (A) of section 355(b)(2) is amended to 
        read as follows:
                    ``(A) it is engaged in the active conduct of a 
                trade or business,''.
            (2) Section 355(b)(2) is amended by striking the last 
        sentence.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply--
                    (A) to distributions after the date of the 
                enactment of this Act, and
                    (B) for purposes of determining the continued 
                qualification under section 355(b)(2)(A) of the 
                Internal Revenue Code of 1986 (as amended by subsection 
                (b)(1)) of distributions made before such date, as a 
                result of an acquisition, disposition, or other 
                restructuring after such date.
            (2) Transition rule.--The amendments made by this section 
        shall not apply to any distribution pursuant to a transaction 
        which is--
                    (A) made pursuant to an agreement which was binding 
                on such date of enactment and at all times thereafter,
                    (B) described in a ruling request submitted to the 
                Internal Revenue Service on or before such date, or
                    (C) described on or before such date in a public 
                announcement or in a filing with the Securities and 
                Exchange Commission.
            (3) Election to have amendments apply.--Paragraph (2) shall 
        not apply if the distributing corporation elects not to have 
        such paragraph apply to distributions of such corporation. Any 
        such election, once made, shall be irrevocable.

SEC. 305. EXCLUSION OF CERTAIN INDEBTEDNESS OF SMALL BUSINESS 
              INVESTMENT COMPANIES FROM ACQUISITION INDEBTEDNESS.

    (a) In General.--Section 514(c) (relating to acquisition 
indebtedness) is amended by adding at the end the following new 
paragraph:
            ``(10) Certain indebtedness of small business investment 
        companies.--For purposes of this section, the term `acquisition 
        indebtedness' does not include any indebtedness incurred by a 
        small business investment company licensed under the Small 
        Business Investment Act of 1958 which is evidenced by a 
        debenture--
                    ``(A) issued by such company under section 303(a) 
                of such Act, and
                    ``(B) held or guaranteed by the Small Business 
                Administration.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to any indebtedness incurred after December 31, 2003, by a small 
business investment company described in section 514(c)(10) of the 
Internal Revenue Code of 1986 (as added by this section) with respect 
to property acquired by such company after such date.

SEC. 306. MODIFIED TAXATION OF IMPORTED ARCHERY PRODUCTS.

    (a) Bows.--Paragraph (1) of section 4161(b) (relating to bows) is 
amended to read as follows:
            ``(1) Bows.--
                    ``(A) In general.--There is hereby imposed on the 
                sale by the manufacturer, producer, or importer of any 
                bow which has a peak draw weight of 30 pounds or more, 
                a tax equal to 11 percent of the price for which so 
                sold.
                    ``(B) Archery equipment.--There is hereby imposed 
                on the sale by the manufacturer, producer, or 
                importer--
                            ``(i) of any part or accessory suitable for 
                        inclusion in or attachment to a bow described 
                        in subparagraph (A), and
                            ``(ii) of any quiver or broadhead suitable 
                        for use with an arrow described in paragraph 
                        (2),
                a tax equal to 11 percent of the price for which so 
                sold.''.
    (b) Arrows.--Subsection (b) of section 4161 (relating to bows and 
arrows, etc.) is amended by redesignating paragraph (3) as paragraph 
(4) and inserting after paragraph (2) the following:
            ``(3) Arrows.--
                    ``(A) In general.--There is hereby imposed on the 
                sale by the manufacturer, producer, or importer of any 
                arrow, a tax equal to 12 percent of the price for which 
                so sold.
                    ``(B) Exception.--In the case of any arrow of which 
                the shaft or any other component has been previously 
                taxed under paragraph (1) or (2)--
                            ``(i) section 6416(b)(3) shall not apply, 
                        and
                            ``(ii) the tax imposed by subparagraph (A) 
                        shall be an amount equal to the excess (if any) 
                        of--
                                    ``(I) the amount of tax imposed by 
                                this paragraph (determined without 
                                regard to this subparagraph), over
                                    ``(II) the amount of tax paid with 
                                respect to the tax imposed under 
                                paragraph (1) or (2) on such shaft or 
                                component.
                    ``(C) Arrow.--For purposes of this paragraph, the 
                term `arrow' means any shaft described in paragraph (2) 
                to which additional components are attached.''.
    (c) Conforming Amendments.--Section 4161(b)(2) is amended--
            (1) by inserting ``(other than broadheads)'' after 
        ``point'', and
            (2) by striking ``Arrows.--'' in the heading and inserting 
        ``Arrow components.--''.
    (d) Effective Date.--The amendments made by this section shall 
apply to articles sold by the manufacturer, producer, or importer after 
December 31, 2003.

SEC. 307. MODIFICATION TO COOPERATIVE MARKETING RULES TO INCLUDE VALUE 
              ADDED PROCESSING INVOLVING ANIMALS.

    (a) In General.--Section 1388 (relating to definitions and special 
rules) is amended by adding at the end the following new subsection:
    ``(k) Cooperative Marketing Includes Value-Added Processing 
Involving Animals.--For purposes of section 521 and this subchapter, 
the marketing of the products of members or other producers shall 
include the feeding of such products to cattle, hogs, fish, chickens, 
or other animals and the sale of the resulting animals or animal 
products.''.
    (b) Conforming Amendment.--Section 521(b) is amended by adding at 
the end the following new paragraph:
    ``(7) Cross Reference.--

                                ``For treatment of value-added 
processing involving animals, see section 1388(k).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 308. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO FARMERS' 
              COOPERATIVE ORGANIZATIONS.

    (a) In General.--Section 7428(a)(1) (relating to declaratory 
judgments of tax exempt organizations) is amended by striking ``or'' at 
the end of subparagraph (B) and by adding at the end the following new 
subparagraph:
                    ``(D) with respect to the initial classification or 
                continuing classification of a cooperative as an 
                organization described in section 521(b) which is 
                exempt from tax under section 521(a), or''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to pleadings filed after the date of the enactment 
of this Act.

SEC. 309. TEMPORARY SUSPENSION OF PERSONAL HOLDING COMPANY TAX.

    (a) In General.--Section 541 (relating to imposition of personal 
holding company tax) is amended by adding at the end the following new 
sentence: ``The preceding sentence shall not apply with respect to any 
taxable year to which section 1(h)(11) (as in effect on the date of the 
enactment of this sentence) applies.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 310. INCREASE IN SECTION 179 EXPENSING.

    (a) In General.--Section 179(b)(2) (relating to reduction in 
limitation) is amended by inserting ``50 percent of'' before ``the 
amount''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 311. THREE-YEAR CARRYBACK OF NET OPERATING LOSSES.

    (a) In General.--Paragraph (1) of section 172(b) (relating to years 
to which loss may be carried) is amended by adding at the end the 
following new subparagraph:
                    ``(I) Special rule for 2003.--In the case of a net 
                operating loss for any taxable year ending during 2003, 
                subparagraph (A)(i) shall be applied by substituting 
                `3' for `2'.''.
    (b) Election To Disregard 3-Year Carryback.--Section 172 (relating 
to net operating loss deduction) is amended by redesignating subsection 
(k) as subsection (l) and by inserting after subsection (j) the 
following new subsection:
    ``(k) Election To Disregard 3-Year Carryback for Certain Net 
Operating Losses.--Any taxpayer entitled to a 3-year carryback under 
subsection (b)(1)(I) from any loss year may elect to have the carryback 
period with respect to such loss year determined without regard to 
subsection (b)(1)(I). Such election shall be made in such manner as may 
be prescribed by the Secretary and shall be made by the due date 
(including extensions of time) for filing the taxpayer's return for the 
taxable year of the net operating loss. Such election, once made for 
any taxable year, shall be irrevocable for such taxable year.''.
    (c) Temporary Suspension of 90 Percent Limit on Certain NOL 
Carryovers.--
            (1) In general.--Section 56(d)(1)(A)(ii)(I) (relating to 
        general rule defining alternative tax net operating loss 
        deduction) is amended--
                    (A) by striking ``or 2002'' and inserting ``, 2002, 
                or 2003'', and
                    (B) by striking ``and 2002'' and inserting ``, 
                2002, and 2003''.
    (d) Technical Corrections.--
            (1) Subparagraph (H) of section 172(b)(1) is amended by 
        striking ``a taxpayer which has''.
            (2) Section 102(c)(2) of the Job Creation and Worker 
        Assistance Act of 2002 (Public Law 107-147) is amended by 
        striking ``before January 1, 2003'' and inserting ``after 
        December 31, 1990''.
            (3)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended 
        by striking ``attributable to carryovers''.
            (B) Subclause (I) of section 56(d)(1)(A)(ii) is amended--
                    (i) by striking ``for taxable years'' and inserting 
                ``from taxable years'', and
                    (ii) by striking ``carryforwards'' and inserting 
                ``carryovers''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to net operating 
        losses for taxable years ending after December 31, 2002.
            (2) Technical corrections.--The amendments made by 
        subsection (d) shall take effect as if included in the 
        amendments made by section 102 of the Job Creation and Worker 
        Assistance Act of 2002.
            (3) Election.--In the case of a net operating loss for a 
        taxable year ending during 2003--
                    (A) any election made under section 172(b)(3) of 
                such Code may (notwithstanding such section) be revoked 
                before April 15, 2004, and
                    (B) any election made under section 172(k) (as 
                added by this section) of such Code shall 
                (notwithstanding such section) be treated as timely 
                made if made before April 15, 2004.

              Subtitle B--Manufacturing Relating to Films

SEC. 321. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION PRODUCTIONS.

    (a) In General.--Part VI of subchapter B of chapter 1 is amended by 
inserting after section 180 the following new section:

``SEC. 181. TREATMENT OF QUALIFIED FILM AND TELEVISION PRODUCTIONS.

    ``(a) Election To Treat Certain Costs of Qualified Film and 
Television Productions as Expenses.--
            ``(1) In general.--A taxpayer may elect to treat the cost 
        of any qualified film or television production as an expense 
        which is not chargeable to capital account. Any cost so treated 
        shall be allowed as a deduction.
            ``(2) Dollar limitation.--
                    ``(A) In general.--The aggregate cost which may be 
                taken into account under paragraph (1) with respect to 
                each qualified film or television production shall not 
                exceed $15,000,000.
                    ``(B) Higher dollar limitation for productions in 
                certain areas.--In the case of any qualified film or 
                television production the aggregate cost of which is 
                significantly incurred in an area eligible for 
                designation as--
                            ``(i) a low-income community under section 
                        45D, or
                            ``(ii) a distressed county or isolated area 
                        of distress by the Delta Regional Authority 
                        established under section 2009aa-1 of title 7, 
                        United States Code,
                subparagraph (A) shall be applied by substituting 
                `$20,000,000' for `$15,000,000'.
    ``(b) Amortization of Remaining Costs.--
            ``(1) In general.--If an election is made under subsection 
        (a) with respect to any qualified film or television 
        production, that portion of the basis of such production in 
        excess of the amount taken into account under subsection (a) 
        shall be allowed as a deduction ratably over the 36-month 
        period beginning with the month in which such production is 
        placed in service.
            ``(2) No other deduction or amortization deduction 
        allowable.--With respect to the basis of any qualified film or 
        television production described in paragraph (1), no other 
        depreciation or amortization deduction shall be allowable.
    ``(c) Election.--
            ``(1) In general.--An election under subsection (a) with 
        respect to any qualified film or television production shall be 
        made in such manner as prescribed by the Secretary and by the 
        due date (including extensions) for filing the taxpayer's 
        return of tax under this chapter for the taxable year in which 
        costs of the production are first incurred.
            ``(2) Revocation of election.--Any election made under 
        subsection (a) may not be revoked without the consent of the 
        Secretary.
    ``(d) Qualified Film or Television Production.--For purposes of 
this section--
            ``(1) In general.--The term `qualified film or television 
        production' means any production described in paragraph (2) if 
        75 percent of the total compensation of the production is 
        qualified compensation.
            ``(2) Production.--
                    ``(A) In general.--A production is described in 
                this paragraph if such production is property described 
                in section 168(f)(3). For purposes of a television 
                series, only the first 44 episodes of such series may 
                be taken into account.
                    ``(B) Exception.--A production is not described in 
                this paragraph if records are required under section 
                2257 of title 18, United States Code, to be maintained 
                with respect to any performer in such production.
            ``(3) Qualified compensation.--For purposes of paragraph 
        (1)--
                    ``(A) In general.--The term `qualified 
                compensation' means compensation for services performed 
                in the United States by actors, directors, producers, 
                and other relevant production personnel.
                    ``(B) Participations and residuals excluded.--The 
                term `compensation' does not include participations and 
                residuals (as defined in section 167(g)(7)(B)).
    ``(e) Application of Certain Other Rules.--For purposes of this 
section, rules similar to the rules of subsections (b)(2) and (c)(4) of 
section 194 shall apply.
    ``(f) Termination.--This section shall not apply to qualified film 
and television productions commencing after December 31, 2008.''.
    (b) Conforming Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 is amended by inserting after the item 
relating to section 180 the following new item:

                              ``Sec. 181. Treatment of qualified film 
                                        and television productions.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to qualified film and television productions (as defined in 
section 181(d)(1) of the Internal Revenue Code of 1986, as added by 
this section) commencing after the date of the enactment of this Act.

SEC. 322. MODIFICATION OF APPLICATION OF INCOME FORECAST METHOD OF 
              DEPRECIATION.

    (a) In General.--Section 167(g) (relating to depreciation under 
income forecast method) is amended by adding at the end the following 
new paragraph:
            ``(7) Treatment of participations and residuals.--
                    ``(A) In general.--For purposes of determining the 
                depreciation deduction allowable with respect to a 
                property under this subsection, the taxpayer may 
                include participations and residuals with respect to 
                such property in the adjusted basis of such property 
                for the taxable year in which the property is placed in 
                service, but only to the extent that such 
                participations and residuals relate to income estimated 
                (for purposes of this subsection) to be earned in 
                connection with the property before the close of the 
                10th taxable year referred to in paragraph (1)(A).
                    ``(B) Participations and residuals.--For purposes 
                of this paragraph, the term `participations and 
                residuals' means, with respect to any property, costs 
the amount of which by contract varies with the amount of income earned 
in connection with such property.
                    ``(C) Special rules relating to recomputation 
                years.--If the adjusted basis of any property is 
                determined under this paragraph, paragraph (4) shall be 
                applied by substituting `for each taxable year in such 
                period' for `for such period'.
                    ``(D) Other special rules.--
                            ``(i) Participations and residuals.--
                        Notwithstanding subparagraph (A), the taxpayer 
                        may exclude participations and residuals from 
                        the adjusted basis of such property and deduct 
                        such participations and residuals in the 
                        taxable year that such participations and 
                        residuals are paid.
                            ``(ii) Coordination with other rules.--
                        Deductions computed in accordance with this 
                        paragraph shall be allowable notwithstanding 
                        paragraph (1)(B) or sections 263, 263A, 404, 
                        419, or 461(h).
                    ``(E) Authority to make adjustments.--The Secretary 
                shall prescribe appropriate adjustments to the basis of 
                property and to the look-back method for the additional 
                amounts allowable as a deduction solely by reason of 
                this paragraph.''.
    (b) Determination of Income.--Section 167(g)(5) (relating to 
special rules) is amended by redesignating subparagraphs (E) and (F) as 
subparagraphs (F) and (G), respectively, and inserting after 
subparagraph (D) the following new subparagraph:
                    ``(E) Treatment of distribution costs.--For 
                purposes of this subsection, the income with respect to 
                any property shall be the taxpayer's gross income from 
                such property.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

              Subtitle C--Manufacturing Relating to Timber

SEC. 331. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.

    (a) In General.--So much of subsection (b) of section 194 (relating 
to amortization of reforestation expenditures) as precedes paragraph 
(2) is amended to read as follows:
    ``(b) Treatment as Expenses.--
            ``(1) Election to treat certain reforestation expenditures 
        as expenses.--
                    ``(A) In general.--In the case of any qualified 
                timber property with respect to which the taxpayer has 
                made (in accordance with regulations prescribed by the 
                Secretary) an election under this subsection, the 
                taxpayer shall treat reforestation expenditures which 
                are paid or incurred during the taxable year with 
                respect to such property as an expense which is not 
                chargeable to capital account. The reforestation 
                expenditures so treated shall be allowed as a 
                deduction.
                    ``(B) Dollar limitation.--The aggregate amount of 
                reforestation expenditures which may be taken into 
                account under subparagraph (A) with respect to each 
                qualified timber property for any taxable year shall 
                not exceed $10,000 ($5,000 in the case of a separate 
                return by a married individual (as defined in section 
                7703)).''.
    (b) Net Amortizable Basis.--Section 194(c)(2) (defining amortizable 
basis) is amended by inserting ``which have not been taken into account 
under subsection (b)'' after ``expenditures''.
    (c) Conforming Amendments.--
            (1) Section 194(b) is amended by striking paragraphs (3) 
        and (4).
            (2) Section 194(b)(2) is amended by striking ``paragraph 
        (1)'' both places it appears and inserting ``paragraph 
        (1)(B)''.
            (3) Section 194(c) is amended by striking paragraph (4) and 
        inserting the following new paragraphs:
            ``(4) Treatment of trusts and estates.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), this section shall not apply to 
                trusts and estates.
                    ``(B) Amortization deduction allowed to estates.--
                The benefit of the deduction for amortization provided 
                by subsection (a) shall be allowed to estates in the 
                same manner as in the case of an individual. The 
                allowable deduction shall be apportioned between the 
                income beneficiary and the fiduciary under regulations 
                prescribed by the Secretary. Any amount so apportioned 
                to a beneficiary shall be taken into account for 
                purposes of determining the amount allowable as a 
                deduction under subsection (a) to such beneficiary.
            ``(5) Application with other deductions.--No deduction 
        shall be allowed under any other provision of this chapter with 
        respect to any expenditure with respect to which a deduction is 
        allowed or allowable under this section to the taxpayer .''.
            (4) The heading for section 194 is amended by striking 
        ``amortization'' and inserting ``treatment''.
            (5) The item relating to section 194 in the table of 
        sections for part VI of subchapter B of chapter 1 is amended by 
        striking ``Amortization'' and inserting ``Treatment''.
    (d) Repeal of Reforestation Credit.--
            (1) In general.--Section 46 (relating to amount of credit) 
        is amended--
                    (A) by adding ``and'' at the end of paragraph (1),
                    (B) by striking ``, and '' at the end of paragraph 
                (2) and inserting a period, and
                    (C) by striking paragraph (3).
            (2) Conforming amendments.--
                    (A) Section 48 is amended--
                            (i) by striking subsection (b),
                            (ii) by striking ``this subsection'' in 
                        paragraph (5) of subsection (a) and inserting 
                        ``subsection (a)'', and
                            (iii) by redesignating such paragraph (5) 
                        as subsection (b).
                    (B) The heading for section 48 is amended by 
                striking ``; reforestation credit''.
                    (C) The item relating to section 48 in the table of 
                sections for subpart E of part IV of subchapter A of 
                chapter 1 is amended by striking ``, reforestation 
                credit''.
                    (D) Section 50(c)(3) is amended by striking ``or 
                reforestation credit''.
    (e) Effective Date.--The amendments made by this section shall 
apply with respect to expenditures paid or incurred after the date of 
the enactment of this Act.

SEC. 332. ELECTION TO TREAT CUTTING OF TIMBER AS A SALE OR EXCHANGE.

    Any election under section 631(a) of the Internal Revenue Code of 
1986 made for a taxable year ending on or before the date of the 
enactment of this Act may be revoked by the taxpayer for any taxable 
year ending after such date. For purposes of determining whether the 
taxpayer may make a further election under such section, such election 
(and any revocation under this section) shall not be taken into 
account.

SEC. 333. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO APPLY TO 
              OUTRIGHT SALES BY LANDOWNERS.

    (a) In General.--The first sentence of section 631(b) (relating to 
disposal of timber with a retained economic interest) is amended by 
striking ``retains an economic interest in such timber'' and inserting 
``either retains an economic interest in such timber or makes an 
outright sale of such timber''.
    (b) Conforming Amendments.--
            (1) The third sentence of section 631(b) is amended by 
        striking ``The date of disposal'' and inserting ``In the case 
        of disposal of timber with a retained economic interest, the 
        date of disposal''.
            (2) The heading for section 631(b) is amended by striking 
        ``With a Retained Economic Interest''.
    (c) Effective Date.--The amendments made by this section shall 
apply to sales after the date of the enactment of this Act.

SEC. 334. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITS.

    (a) Expansion of Prohibited Transaction Safe Harbor.--Section 
857(b)(6) (relating to income from prohibited transactions) is amended 
by redesignating subparagraphs (D) and (E) as subparagraphs (E) and 
(F), respectively, and by inserting after subparagraph (C) the 
following new subparagraph:
                    ``(D) Certain sales not to constitute prohibited 
                transactions.--For purposes of this part, the term 
                `prohibited transaction' does not include a sale of 
                property which is a real estate asset (as defined in 
                section 856(c)(5)(B)) if--
                            ``(i) the trust held the property for not 
                        less than 4 years in connection with the trade 
                        or business of producing timber,
                            ``(ii) the aggregate expenditures made by 
                        the trust, or a partner of the trust, during 
                        the 4-year period preceding the date of sale 
                        which--
                                    ``(I) are includible in the basis 
                                of the property (other than timberland 
                                acquisition expenditures), and
                                    ``(II) are directly related to 
                                operation of the property for the 
                                production of timber or for the 
                                preservation of the property for use as 
                                timberland,
                        do not exceed 30 percent of the net selling 
                        price of the property,
                            ``(iii) the aggregate expenditures made by 
                        the trust, or a partner of the trust, during 
                        the 4-year period preceding the date of sale 
                        which--
                                    ``(I) are includible in the basis 
                                of the property (other than timberland 
                                acquisition expenditures), and
                                    ``(II) are not directly related to 
                                operation of the property for the 
                                production of timber, or for the 
                                preservation of the property for use as 
                                timberland,
                        do not exceed 5 percent of the net selling 
                        price of the property,
                            ``(iv)(I) during the taxable year the trust 
                        does not make more than 7 sales of property 
                        (other than sales of foreclosure property or 
                        sales to which section 1033 applies), or
                            ``(II) the aggregate adjusted bases (as 
                        determined for purposes of computing earnings 
                        and profits) of property (other than sales of 
                        foreclosure property or sales to which section 
                        1033 applies) sold during the taxable year does 
                        not exceed 10 percent of the aggregate bases 
                        (as so determined) of all of the assets of the 
                        trust as of the beginning of the taxable year,
                            ``(v) in the case that the requirement of 
                        clause (iv)(I) is not satisfied, substantially 
                        all of the marketing expenditures with respect 
                        to the property were made through an 
                        independent contractor (as defined in section 
                        856(d)(3)) from whom the trust itself does not 
                        derive or receive any income, and
                            ``(vi) the sales price of the property sold 
                        by the trust is not based in whole or in part 
                        on income or profits, including income or 
                        profits derived from the sale or operation of 
                        such property.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

                    TITLE IV--ADDITIONAL PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

SEC. 401. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

SEC. 402. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.

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

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

    ``(a) Imposition of Penalty.--Any person who fails to include on 
any return or statement any information with respect to a reportable 
transaction which is required under section 6011 to be included with 
such return or statement shall pay a penalty in the amount determined 
under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), the amount of the penalty under subsection (a) shall be 
        $50,000.
            ``(2) Listed transaction.--The amount of the penalty under 
        subsection (a) with respect to a listed transaction shall be 
        $100,000.
            ``(3) Increase in penalty for large entities and high net 
        worth individuals.--
                    ``(A) In general.--In the case of a failure under 
                subsection (a) by--
                            ``(i) a large entity, or
                            ``(ii) a high net worth individual,
                the penalty under paragraph (1) or (2) shall be twice 
                the amount determined without regard to this paragraph.
                    ``(B) Large entity.--For purposes of subparagraph 
                (A), the term `large entity' means, with respect to any 
                taxable year, a person (other than a natural person) 
                with gross receipts in excess of $10,000,000 for the 
                taxable year in which the reportable transaction occurs 
                or the preceding taxable year. Rules similar to the 
                rules of paragraph (2) and subparagraphs (B), (C), and 
                (D) of paragraph (3) of section 448(c) shall apply for 
                purposes of this subparagraph.
                    ``(C) High net worth individual.--For purposes of 
                subparagraph (A), the term `high net worth individual' 
                means, with respect to a reportable transaction, a 
                natural person whose net worth exceeds $2,000,000 
                immediately before the transaction.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Reportable transaction.--The term `reportable 
        transaction' means any transaction with respect to which 
        information is required to be included with a return or 
        statement because, as determined under regulations prescribed 
        under section 6011, such transaction is of a type which the 
        Secretary determines as having a potential for tax avoidance or 
        evasion.
            ``(2) Listed transaction.--Except as provided in 
        regulations, the term `listed transaction' means a reportable 
        transaction which is the same as, or substantially similar to, 
        a transaction specifically identified by the Secretary as a tax 
        avoidance transaction for purposes of section 6011.
    ``(d) Authority To Rescind Penalty.--
            ``(1) In general.--The Commissioner of Internal Revenue may 
        rescind all or any portion of any penalty imposed by this 
        section with respect to any violation if--
                    ``(A) the violation is with respect to a reportable 
                transaction other than a listed transaction,
                    ``(B) the person on whom the penalty is imposed has 
                a history of complying with the requirements of this 
                title,
                    ``(C) it is shown that the violation is due to an 
                unintentional mistake of fact;
                    ``(D) imposing the penalty would be against equity 
                and good conscience, and
                    ``(E) rescinding the penalty would promote 
                compliance with the requirements of this title and 
                effective tax administration.
            ``(2) Discretion.--The exercise of authority under 
        paragraph (1) shall be at the sole discretion of the 
        Commissioner and may be delegated only to the head of the 
        Office of Tax Shelter Analysis. The Commissioner, in the 
        Commissioner's sole discretion, may establish a procedure to 
        determine if a penalty should be referred to the Commissioner 
        or the head of such Office for a determination under paragraph 
        (1).
            ``(3) No appeal.--Notwithstanding any other provision of 
        law, any determination under this subsection may not be 
        reviewed in any administrative or judicial proceeding.
            ``(4) Records.--If a penalty is rescinded under paragraph 
        (1), the Commissioner shall place in the file in the Office of 
        the Commissioner the opinion of the Commissioner or the head of 
        the Office of Tax Shelter Analysis with respect to the 
        determination, including--
                    ``(A) the facts and circumstances of the 
                transaction,
                    ``(B) the reasons for the rescission, and
                    ``(C) the amount of the penalty rescinded.
            ``(5) Report.--The Commissioner shall each year report to 
        the Committee on Ways and Means of the House of Representatives 
        and the Committee on Finance of the Senate--
                    ``(A) a summary of the total number and aggregate 
                amount of penalties imposed, and rescinded, under this 
                section, and
                    ``(B) a description of each penalty rescinded under 
                this subsection and the reasons therefor.
    ``(e) Penalty Reported to SEC.--In the case of a person--
            ``(1) which is required to file periodic reports under 
        section 13 or 15(d) of the Securities Exchange Act of 1934 or 
        is required to be consolidated with another person for purposes 
        of such reports, and
            ``(2) which--
                    ``(A) is required to pay a penalty under this 
                section with respect to a listed transaction,
                    ``(B) is required to pay a penalty under section 
                6662A with respect to any reportable transaction at a 
                rate prescribed under section 6662A(c), or
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction,
the requirement to pay such penalty shall be disclosed in such reports 
filed by such person for such periods as the Secretary shall specify. 
Failure to make a disclosure in accordance with the preceding sentence 
shall be treated as a failure to which the penalty under subsection 
(b)(2) applies.
    ``(f) Coordination With Other Penalties.--The penalty imposed by 
this section is in addition to any penalty imposed under this title.''.
    (b) 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. 403. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER 
              REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX 
              AVOIDANCE PURPOSE.

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

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

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

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

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

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

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

SEC. 404. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

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

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

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

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

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

SEC. 405. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR 
              NONREPORTABLE TRANSACTIONS.

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

SEC. 406. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING 
              TO TAXPAYER COMMUNICATIONS.

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

SEC. 407. DISCLOSURE OF REPORTABLE TRANSACTIONS.

    (a) In General.--Section 6111 (relating to registration of tax 
shelters) is amended to read as follows:

``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

    ``(a) In General.--Each material advisor with respect to any 
reportable transaction shall make a return (in such form as the 
Secretary may prescribe) setting forth--
            ``(1) information identifying and describing the 
        transaction,
            ``(2) information describing any potential tax benefits 
        expected to result from the transaction, and
            ``(3) such other information as the Secretary may 
        prescribe.
Such return shall be filed not later than the date specified by the 
Secretary.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Material advisor.--
                    ``(A) In general.--The term `material advisor' 
                means any person--
                            ``(i) who provides any material aid, 
                        assistance, or advice with respect to 
                        organizing, managing, promoting, selling, 
                        implementing, or carrying out any reportable 
                        transaction, and
                            ``(ii) who directly or indirectly derives 
                        gross income in excess of the threshold amount 
                        for such aid, assistance, or advice.
                    ``(B) Threshold amount.--For purposes of 
                subparagraph (A), the threshold amount is--
                            ``(i) $50,000 in the case of a reportable 
                        transaction substantially all of the tax 
                        benefits from which are provided to natural 
                        persons, and
                            ``(ii) $250,000 in any other case.
            ``(2) Reportable transaction.--The term `reportable 
        transaction' has the meaning given to such term by section 
        6707A(c).
    ``(c) Regulations.--The Secretary may prescribe regulations which 
provide--
            ``(1) that only 1 person shall be required to meet the 
        requirements of subsection (a) in cases in which 2 or more 
        persons would otherwise be required to meet such requirements,
            ``(2) exemptions from the requirements of this section, and
            ``(3) such rules as may be necessary or appropriate to 
        carry out the purposes of this section.''.
    (b) Conforming Amendments.--
            (1) The item relating to section 6111 in the table of 
        sections for subchapter B of chapter 61 is amended to read as 
        follows:

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

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

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

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

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

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

                              ``Sec. 6708. Failure to maintain lists of 
                                        advisees with respect to 
                                        reportable transactions.''.
    (c) Required Disclosure Not Subject to Claim of Confidentiality.--
Subparagraph (A) of section 6112(b)(1), as redesignated by subsection 
(b)(2)(B), is amended by adding at the end the following new flush 
sentence:
        ``For purposes of this section, the identity of any person on 
        such list shall not be privileged.''.
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to transactions 
        with respect to which material aid, assistance, or advice 
        referred to in section 6111(b)(1)(A)(i) of the Internal Revenue 
        Code of 1986 (as added by this section) is provided after the 
        date of the enactment of this Act.
            (2) No claim of confidentiality against disclosure.--The 
        amendment made by subsection (c) shall take effect as if 
        included in the amendments made by section 142 of the Deficit 
        Reduction Act of 1984.

SEC. 408. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX 
              SHELTERS.

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

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

    ``(a) In General.--If a person who is required to file a return 
under section 6111(a) with respect to any reportable transaction--
            ``(1) fails to file such return on or before the date 
        prescribed therefor, or
            ``(2) files false or incomplete information with the 
        Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the 
amount determined under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        penalty imposed under subsection (a) with respect to any 
        failure shall be $50,000.
            ``(2) Listed transactions.--The penalty imposed under 
        subsection (a) with respect to any listed transaction shall be 
        an amount equal to the greater of--
                    ``(A) $200,000, or
                    ``(B) 50 percent of the gross income derived by 
                such person with respect to aid, assistance, or advice 
                which is provided with respect to the listed 
                transaction before the date the return including the 
                transaction is filed under section 6111.
        Subparagraph (B) shall be applied by substituting `75 percent' 
        for `50 percent' in the case of an intentional failure or act 
        described in subsection (a).
    ``(c) Certain Rules To Apply.--The provisions of section 6707A(d) 
shall apply to any penalty imposed under this section.
    ``(d) Reportable and Listed Transactions.--The terms `reportable 
transaction' and `listed transaction' have the respective meanings 
given to such terms by section 6707A(c).''.
    (b) Clerical Amendment.--The item relating to section 6707 in the 
table of sections for part I of subchapter B of chapter 68 is amended 
by striking ``tax shelters'' and inserting ``reportable transactions''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns the due date for which is after the date of the 
enactment of this Act.

SEC. 409. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF 
              INVESTORS.

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

SEC. 410. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO 
              TAX SHELTERS AND REPORTABLE TRANSACTIONS.

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

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

SEC. 412. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL 
              ACCOUNTS.

    (a) In General.--Section 5321(a)(5) of title 31, United States 
Code, is amended to read as follows:
            ``(5) Foreign financial agency transaction violation.--
                    ``(A) Penalty authorized.--The Secretary of the 
                Treasury may impose a civil money penalty on any person 
                who violates, or causes any violation of, any provision 
                of section 5314.
                    ``(B) Amount of penalty.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), the amount of any civil 
                        penalty imposed under subparagraph (A) shall 
                        not exceed $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. 413. FRIVOLOUS TAX SUBMISSIONS.

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

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

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

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

SEC. 414. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF 
              TREASURY.

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

SEC. 415. PENALTY 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. 416. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH REQUIRED 
              LISTED TRANSACTIONS NOT REPORTED.

    (a) In General.--Section 6501(c) (relating to exceptions) is 
amended by adding at the end the following new paragraph:
            ``(10) Listed transactions.--If a taxpayer fails to include 
        on any return or statement for any taxable year any information 
        with respect to a listed transaction (as defined in section 
        6707A(c)(2)) which is required under section 6011 to be 
        included with such return or statement, the time for assessment 
        of any tax imposed by this title with respect to such 
        transaction shall not expire before the date which is 1 year 
        after the earlier of--
                    ``(A) the date on which the Secretary is furnished 
                the information so required; or
                    ``(B) the date that a material advisor (as defined 
                in section 6111) meets the requirements of section 6112 
                with respect to a request by the Secretary under 
                section 6112(b) relating to such transaction with 
                respect to such taxpayer.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years with respect to which the period for assessing a 
deficiency did not expire before the date of the enactment of this Act.

SEC. 417. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND NONECONOMIC 
              SUBSTANCE TRANSACTIONS.

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

SEC. 418. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW ENFORCEMENT.

    There is authorized to be appropriated $300,000,000 for each fiscal 
year beginning after September 30, 2003, for the purpose of carrying 
out tax law enforcement to combat tax avoidance transactions and other 
tax shelters, including the use of offshore financial accounts to 
conceal taxable income.

           Subtitle B--Other Corporate Governance Provisions

SEC. 421. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.

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

SEC. 422. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE OFFICER.

    (a) In General.--Section 6062 (relating to signing of corporation 
returns) is amended by inserting after the first sentence the following 
new sentences: ``The return of a corporation with respect to income 
shall also include a declaration signed by the chief executive officer 
of such corporation (or other such officer of the corporation as the 
Secretary may designate if the corporation does not have a chief 
executive officer), under penalties of perjury, that the chief 
executive officer ensures that such return complies with this title and 
that the chief executive officer was provided reasonable assurance of 
the accuracy of all material aspects of such return. The preceding 
sentence shall not apply to any return of a regulated investment 
company (within the meaning of section 851).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to returns filed after the date of the enactment of this Act.

SEC. 423. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER 
              AMOUNTS.

    (a) In General.--Subsection (f) of section 162 (relating to trade 
or business expenses) is amended to read as follows:
    ``(f) Fines, Penalties, and Other Amounts.--
            ``(1) In general.--Except as provided in paragraph (2), no 
        deduction otherwise allowable shall be allowed under this 
        chapter for any amount paid or incurred (whether by suit, 
        agreement, or otherwise) to, or at the direction of, a 
        government or entity described in paragraph (4) in relation to 
        the violation of any law or the investigation or inquiry by 
        such government or entity into the potential violation of any 
        law.
            ``(2) Exception for amounts constituting restitution.--
        Paragraph (1) shall not apply to any amount which the taxpayer 
        establishes constitutes restitution for damage or harm caused 
        by the violation of any law or the potential violation of any 
        law. This paragraph shall not apply to any amount paid or 
        incurred as reimbursement to the government or entity for the 
        costs of any investigation or litigation.
            ``(3) Exception for amounts paid or incurred as the result 
        of certain court orders.--Paragraph (1) shall not apply to any 
        amount paid or incurred by order of a court in a suit in which 
        no government or entity described in paragraph (4) is a party.
            ``(4) Certain nongovernmental regulatory entities.--An 
        entity is described in this paragraph if it is--
                    ``(A) a nongovernmental entity which exercises 
                self-regulatory powers (including imposing sanctions) 
                in connection with a qualified board or exchange (as 
                defined in section 1256(g)(7)), or
                    ``(B) to the extent provided in regulations, a 
                nongovernmental entity which exercises self-regulatory 
                powers (including imposing sanctions) as part of 
                performing an essential governmental function.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred after April 27, 2003, except that such 
amendment shall not apply to amounts paid or incurred under any binding 
order or agreement entered into on or before April 27, 2003. Such 
exception shall not apply to an order or agreement requiring court 
approval unless the approval was obtained on or before April 27, 2003.

SEC. 424. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

    (a) Disallowance of Deduction.--
            (1) In general.--Section 162(g) (relating to treble damage 
        payments under the antitrust laws) is amended by adding at the 
        end the following new paragraph:
            ``(2) Punitive damages.--No deduction shall be allowed 
        under this chapter for any amount paid or incurred for punitive 
        damages in connection with any judgment in, or settlement of, 
        any action. This paragraph shall not apply to punitive damages 
        described in section 104(c).''.
            (2) Conforming amendments.--
                    (A) Section 162(g) is amended--
                            (i) by striking ``If'' and inserting:
            ``(1) Treble damages.--If'', and
                            (ii) by redesignating paragraphs (1) and 
                        (2) as subparagraphs (A) and (B), respectively.
                    (B) The heading for section 162(g) is amended by 
                inserting ``or Punitive Damages'' after ``Laws''.
    (b) Inclusion in Income of Punitive Damages Paid by Insurer or 
Otherwise.--
            (1) In general.--Part II of subchapter B of chapter 1 
        (relating to items specifically included in gross income) is 
        amended by adding at the end the following new section:

``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.

    ``Gross income shall include any amount paid to or on behalf of a 
taxpayer as insurance or otherwise by reason of the taxpayer's 
liability (or agreement) to pay punitive damages.''.
            (2) Reporting requirements.--Section 6041 (relating to 
        information at source) is amended by adding at the end the 
        following new subsection:
    ``(f) Section To Apply to Punitive Damages Compensation.--This 
section shall apply to payments by a person to or on behalf of another 
person as insurance or otherwise by reason of the other person's 
liability (or agreement) to pay punitive damages.''.
            (3) Conforming amendment.--The table of sections for part 
        II of subchapter B of chapter 1 is amended by adding at the end 
        the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to damages paid or incurred on or after the date of the enactment 
of this Act.

SEC. 425. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION FOR THE 
              UNDERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.

    (a) In General.--Section 7206 (relating to fraud and false 
statements) is amended--
            (1) by striking ``Any person who--'' and inserting ``(a) In 
        General.--Any person who--'', and
            (2) by adding at the end the following new subsection:
    ``(b) Increase in Monetary Limitation for Underpayment or 
Overpayment of Tax Due to Fraud.--If any portion of any underpayment 
(as defined in section 6664(a)) or overpayment (as defined in section 
6401(a)) of tax required to be shown on a return is attributable to 
fraudulent action described in subsection (a), the applicable dollar 
amount under subsection (a) shall in no event be less than an amount 
equal to such portion. A rule similar to the rule under section 6663(b) 
shall apply for purposes of determining the portion so attributable.''.
    (b) Increase in Penalties.--
            (1) Attempt to evade or defeat tax.--Section 7201 is 
        amended--
                    (A) by striking ``$100,000'' and inserting 
                ``$250,000'',
                    (B) by striking ``$500,000'' and inserting 
                ``$1,000,000'', and
                    (C) by striking ``5 years'' and inserting ``10 
                years''.
            (2) Willful failure to file return, supply information, or 
        pay tax.--Section 7203 is amended--
                    (A) in the first sentence--
                            (i) by striking ``misdemeanor'' and 
                        inserting ``felony'', and
                            (ii) by striking ``1 year'' and inserting 
                        ``10 years'', and
                    (B) by striking the third sentence.
            (3) Fraud and false statements.--Section 7206(a) (as 
        redesignated by subsection (a)) is amended--
                    (A) by striking ``$100,000'' and inserting 
                ``$250,000'',
                    (B) by striking ``$500,000'' and inserting 
                ``$1,000,000'', and
                    (C) by striking ``3 years'' and inserting ``5 
                years''.
    (c) Effective Date.--The amendments made by this section shall 
apply to underpayments and overpayments attributable to actions 
occurring after the date of the enactment of this Act.

            Subtitle C--Enron-Related Tax Shelter Provisions

SEC. 431. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN LOSSES.

    (a) In General.--Section 362 (relating to basis to corporations) is 
amended by adding at the end the following new subsection:
    ``(e) Limitations on Built-In Losses.--
            ``(1) Limitation on importation of built-in losses.--
                    ``(A) In general.--If in any transaction described 
                in subsection (a) or (b) there would (but for this 
                subsection) be an importation of a net built-in loss, 
                the basis of each property described in subparagraph 
                (B) which is acquired in such transaction shall 
                (notwithstanding subsections (a) and (b)) be its fair 
                market value immediately after such transaction.
                    ``(B) Property described.--For purposes of 
                subparagraph (A), property is described in this 
                subparagraph if--
                            ``(i) gain or loss with respect to such 
                        property is not subject to tax under this 
                        subtitle in the hands of the transferor 
                        immediately before the transfer, and
                            ``(ii) gain or loss with respect to such 
                        property is subject to such tax in the hands of 
                        the transferee immediately after such transfer.
                In any case in which the transferor is a partnership, 
                the preceding sentence shall be applied by treating 
                each partner in such partnership as holding such 
                partner's proportionate share of the property of such 
                partnership.
                    ``(C) Importation of net built-in loss.--For 
                purposes of subparagraph (A), there is an importation 
                of a net built-in loss in a transaction if the 
                transferee's aggregate adjusted bases of property 
                described in subparagraph (B) which is transferred in 
                such transaction would (but for this paragraph) exceed 
                the fair market value of such property immediately 
                after such transaction.''.
            ``(2) Limitation on transfer of built-in losses in section 
        351 transactions.--
                    ``(A) In general.--If--
                            ``(i) property is transferred by a 
                        transferor in any transaction which is 
                        described in subsection (a) and which is not 
                        described in paragraph (1) of this subsection, 
                        and
                            ``(ii) the transferee's aggregate adjusted 
                        bases of such property so transferred would 
                        (but for this paragraph) exceed the fair market 
                        value of such property immediately after such 
                        transaction,
                then, notwithstanding subsection (a), the transferee's 
                aggregate adjusted bases of the property so transferred 
                shall not exceed the fair market value of such property 
                immediately after such transaction.
                    ``(B) Allocation of basis reduction.--The aggregate 
                reduction in basis by reason of subparagraph (A) shall 
                be allocated among the property so transferred in 
                proportion to their respective built-in losses 
                immediately before the transaction.
                    ``(C) Exception for transfers within affiliated 
                group.--Subparagraph (A) shall not apply to any 
                transaction if the transferor owns stock in the 
                transferee meeting the requirements of section 
                1504(a)(2). In the case of property to which 
                subparagraph (A) does not apply by reason of the 
                preceding sentence, the transferor's basis in the stock 
                received for such property shall not exceed its fair 
                market value immediately after the transfer.''.
    (b) Comparable Treatment Where Liquidation.--Paragraph (1) of 
section 334(b) (relating to liquidation of subsidiary) is amended to 
read as follows:
            ``(1) In general.--If property is received by a corporate 
        distributee in a distribution in a complete liquidation to 
        which section 332 applies (or in a transfer described in 
        section 337(b)(1)), the basis of such property in the hands of 
        such distributee shall be the same as it would be in the hands 
        of the transferor; except that the basis of such property in 
        the hands of such distributee shall be the fair market value of 
        the property at the time of the distribution--
                    ``(A) in any case in which gain or loss is 
                recognized by the liquidating corporation with respect 
                to such property, or
                    ``(B) in any case in which the liquidating 
                corporation is a foreign corporation, the corporate 
                distributee is a domestic corporation, and the 
                corporate distributee's aggregate adjusted bases of 
                property described in section 362(e)(1)(B) which is 
                distributed in such liquidation would (but for this 
                subparagraph) exceed the fair market value of such 
                property immediately after such liquidation.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions after February 13, 2003.

SEC. 432. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK HELD BY 
              PARTNERSHIP IN CORPORATE PARTNER.

    (a) In General.--Section 755 is amended by adding at the end the 
following new subsection:
    ``(c) No Allocation of Basis Decrease to Stock of Corporate 
Partner.--In making an allocation under subsection (a) of any decrease 
in the adjusted basis of partnership property under section 734(b)--
            ``(1) no allocation may be made to stock in a corporation 
        (or any person which is related (within the meaning of section 
        267(b) or 707(b)(1)) to such corporation) which is a partner in 
        the partnership, and
            ``(2) any amount not allocable to stock by reason of 
        paragraph (1) shall be allocated under subsection (a) to other 
        partnership property in such manner as the Secretary may 
        prescribe.
Gain shall be recognized to the partnership to the extent that the 
amount required to be allocated under paragraph (2) to other 
partnership property exceeds the aggregate adjusted basis of such other 
property immediately before the allocation required by paragraph 
(2).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions after February 13, 2003.

SEC. 433. REPEAL OF SPECIAL RULES FOR FASITS.

    (a) In General.--Part V of subchapter M of chapter 1 (relating to 
financial asset securitization investment trusts) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Paragraph (6) of section 56(g) is amended by striking 
        ``REMIC, or FASIT'' and inserting ``or REMIC''.
            (2) Clause (ii) of section 382(l)(4)(B) is amended by 
        striking ``a REMIC to which part IV of subchapter M applies, or 
        a FASIT to which part V of subchapter M applies,'' and 
        inserting ``or a REMIC to which part IV of subchapter M 
        applies,''.
            (3) Paragraph (1) of section 582(c) is amended by striking 
        ``, and any regular interest in a FASIT,''.
            (4) Subparagraph (E) of section 856(c)(5) is amended by 
        striking the last sentence.
            (5)(A) Section 860G(a)(1) is amended by adding at the end 
        the following new sentence: ``An interest shall not fail to 
        qualify as a regular interest solely because the specified 
        principal amount of the regular interest (or the amount of 
        interest accrued on the regular interest) can be reduced as a 
        result of the nonoccurrence of 1 or more contingent payments 
        with respect to any reverse mortgage loan held by the REMIC if, 
        on the startup day for the REMIC, the sponsor reasonably 
        believes that all principal and interest due under the regular 
        interest will be paid at or prior to the liquidation of the 
        REMIC.''.
            (B) The last sentence of section 860G(a)(3) is amended by 
        inserting ``, and any reverse mortgage loan (and each balance 
        increase on such loan meeting the requirements of subparagraph 
        (A)(iii)) shall be treated as an obligation secured by an 
        interest in real property'' before the period at the end.
            (6) Paragraph (3) of section 860G(a) is amended by adding 
        ``and'' at the end of subparagraph (B), by striking ``, and'' 
        at the end of subparagraph (C) and inserting a period, and by 
        striking subparagraph (D).
            (7) Section 860G(a)(3), as amended by paragraph (6), is 
        amended by adding at the end the following new sentence: ``For 
        purposes of subparagraph (A), if more than 50 percent of the 
        obligations transferred to, or purchased by, the REMIC are 
        originated by the United States or any State (or any political 
        subdivision, agency, or instrumentality of the United States or 
        any State) and are principally secured by an interest in real 
        property, then each obligation transferred to, or purchased by, 
        the REMIC shall be treated as secured by an interest in real 
        property.''.
            (8)(A) Section 860G(a)(3)(A) is amended by striking ``or'' 
        at the end of clause (i), by inserting ``or'' at the end of 
        clause (ii), and by inserting after clause (ii) the following 
        new clause:
                            ``(iii) represents an increase in the 
                        principal amount under the original terms of an 
                        obligation described in clause (i) or (ii) if 
                        such increase--
                                    ``(I) is attributable to an advance 
                                made to the obligor pursuant to the 
                                original terms of the obligation,
                                    ``(II) occurs after the startup 
                                day, and
                                    ``(III) is purchased by the REMIC 
                                pursuant to a fixed price contract in 
                                effect on the startup day.''.
            (B) Section 860G(a)(7)(B) is amended to read as follows:
                    ``(B) Qualified reserve fund.--For purposes of 
                subparagraph (A), the term `qualified reserve fund' 
                means any reasonably required reserve to--
                            ``(i) provide for full payment of expenses 
                        of the REMIC or amounts due on regular 
                        interests in the event of defaults on qualified 
                        mortgages or lower than expected returns on 
                        cash flow investments, or
                            ``(ii) provide a source of funds for the 
                        purchase of obligations described in clause 
                        (ii) or (iii) of paragraph (3)(A).
                The aggregate fair market value of the assets held in 
                any such reserve shall not exceed 50 percent of the 
                aggregate fair market value of all of the assets of the 
                REMIC on the startup day, and the amount of any such 
                reserve shall be promptly and appropriately reduced to 
                the extent the amount held in such reserve is no longer 
reasonably required for purposes specified in clause (i) or (ii) of 
paragraph (3)(A).''.
            (9) Subparagraph (C) of section 1202(e)(4) is amended by 
        striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
            (10) Section 1272(a)(6)(B) is amended by adding at the end 
        the following new flush sentence:
                ``For purposes of clause (iii), the Secretary shall 
                prescribe regulations permitting the use of a current 
                prepayment assumption, determined as of the close of 
                the accrual period (or such other time as the Secretary 
                may prescribe during the taxable year in which the 
                accrual period ends).''.
            (11) 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).
            (12) The table of parts for subchapter M of chapter 1 is 
        amended by striking the item relating to part V.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on February 
        14, 2003.
            (2) Exception for existing fasits.--
                    (A) In general.--Paragraph (1) shall not apply to 
                any FASIT in existence on the date of the enactment of 
                this Act to the extent that regular interests issued by 
                the FASIT before such date continue to remain 
                outstanding in accordance with the original terms of 
                issuance.
                    (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. 434. 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) Capitalization Allowed With Respect to Equity of Persons Other 
Than Issuer and Related Parties.--Section 163(l) is amended by 
redesignating paragraphs (4) and (5) as paragraphs (5) and (6) and by 
inserting after paragraph (3) the following new paragraph:
            ``(4) Capitalization allowed with respect to equity of 
        persons other than issuer and related parties.--If the 
        disqualified debt instrument of a corporation is payable in 
        equity held by the issuer (or any related party) in any other 
        person (other than a related party), the basis of such equity 
        shall be increased by the amount not allowed as a deduction by 
        reason of paragraph (1) with respect to the instrument.''.
    (c) Exception for Certain Instruments Issued by Dealers in 
Securities.--Section 163(l), as amended by subsection (b), is amended 
by redesignating paragraphs (5) and (6) as paragraphs (6) and (7) and 
by inserting after paragraph (4) the following new paragraph:
            ``(5) Exception for certain instruments issued by dealers 
        in securities.--For purposes of this subsection, the term 
        `disqualified debt instrument' does not include indebtedness 
        issued by a dealer in securities (or a related party) which is 
        payable in, or by reference to, equity (other than equity of 
        the issuer or a related party) held by such dealer in its 
        capacity as a dealer in securities. For purposes of this 
        paragraph, the term `dealer in securities' has the meaning 
        given such term by section 475.''.
    (c) Conforming Amendments.--Paragraph (3) of section 163(l) is 
amended--
            (1) by striking ``or a related party'' in the material 
        preceding subparagraph (A) and inserting ``or any other 
        person'', and
            (2) by striking ``or interest'' each place it appears.
    (d) Effective Date.--The amendments made by this section shall 
apply to debt instruments issued after February 13, 2003.

SEC. 435. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER SECTION 
              269.

    (a) In General.--Subsection (a) of section 269 (relating to 
acquisitions made to evade or avoid income tax) is amended to read as 
follows:
    ``(a) In General.--If--
            ``(1)(A) any person or persons acquire, directly or 
        indirectly, control of a corporation, or
            ``(B) any corporation acquires, directly or indirectly, 
        property of another corporation and the basis of such property, 
        in the hands of the acquiring corporation, is determined by 
        reference to the basis in the hands of the transferor 
        corporation, and
            ``(2) the principal purpose for which such acquisition was 
        made is evasion or avoidance of Federal income tax,
then the Secretary may disallow such deduction, credit, or other 
allowance. For purposes of paragraph (1)(A), control means the 
ownership of stock possessing at least 50 percent of the total combined 
voting power of all classes of stock entitled to vote or at least 50 
percent of the total value of all shares of all classes of stock of the 
corporation.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to stock and property acquired after February 13, 2003.

SEC. 436. MODIFICATION OF INTERACTION BETWEEN SUBPART F AND PASSIVE 
              FOREIGN INVESTMENT COMPANY RULES.

    (a) Limitation on Exception From PFIC Rules for United States 
Shareholders of Controlled Foreign Corporations.--Paragraph (2) of 
section 1297(e) (relating to passive foreign investment company) is 
amended by adding at the end the following flush sentence:
                ``Such term shall not include any period if the earning 
                of subpart F income by such corporation during such 
                period would result in only a remote likelihood of an 
inclusion in gross income under section 951(a)(1)(A)(i).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years of controlled foreign corporations beginning after 
February 13, 2003, and to taxable years of United States shareholders 
with or within which such taxable years of controlled foreign 
corporations end.

           Subtitle D--Provisions to Discourage Expatriation

SEC. 441. TAX TREATMENT OF INVERTED CORPORATE ENTITIES

    (a) In General.--Subchapter C of chapter 80 (relating to provisions 
affecting more than one subtitle) is amended by adding at the end the 
following new section:

``SEC. 7874. RULES RELATING TO INVERTED CORPORATE ENTITIES

    ``(a) Inverted Corporations Treated as Domestic Corporations.--
            ``(1) In general.--If a foreign incorporated entity is 
        treated as an inverted domestic corporation, then, 
        notwithstanding section 7701(a)(4), such entity shall be 
        treated for purposes of this title as a domestic corporation.
            ``(2) Inverted domestic corporation.--For purposes of this 
        section, a foreign incorporated entity shall be treated as an 
        inverted domestic corporation if, pursuant to a plan (or a 
        series of related transactions)--
                    ``(A) the entity completes after March 20, 2002, 
                the direct or indirect acquisition of substantially all 
                of the properties held directly or indirectly by a 
                domestic corporation or substantially all of the 
                properties constituting a trade or business of a 
                domestic partnership,
                    ``(B) after the acquisition at least 80 percent of 
                the stock (by vote or value) of the entity is held--
                            ``(i) in the case of an acquisition with 
                        respect to a domestic corporation, by former 
                        shareholders of the domestic corporation by 
                        reason of holding stock in the domestic 
                        corporation, or
                            ``(ii) in the case of an acquisition with 
                        respect to a domestic partnership, by former 
                        partners of the domestic partnership by reason 
                        of holding a capital or profits interest in the 
                        domestic partnership, and
                    ``(C) the expanded affiliated group which after the 
                acquisition includes the entity does not have 
                substantial business activities in the foreign country 
                in which or under the law of which the entity is 
                created or organized when compared to the total 
                business activities of such expanded affiliated group.
        Except as provided in regulations, an acquisition of properties 
        of a domestic corporation shall not be treated as described in 
        subparagraph (A) if none of the corporation's stock was readily 
        tradeable on an established securities market at any time 
        during the 4-year period ending on the date of the acquisition.
    ``(b) Preservation of Domestic Tax Base in Certain Inversion 
Transactions to Which Subsection (a) Does Not Apply.--
            ``(1) In general.--If a foreign incorporated entity would 
        be treated as an inverted domestic corporation with respect to 
        an acquired entity if either--
                    ``(A) subsection (a)(2)(A) were applied by 
                substituting `after December 31, 1996, and on or before 
                March 20, 2002' for `after March 20, 2002' and 
                subsection (a)(2)(B) were applied by substituting `more 
                than 50 percent' for `at least 80 percent', or
                    ``(B) subsection (a)(2)(B) were applied by 
                substituting `more than 50 percent' for `at least 80 
                percent',
        then the rules of subsection (c) shall apply to any inversion 
        gain of the acquired entity during the applicable period and 
        the rules of subsection (d) shall apply to any related party 
        transaction of the acquired entity during the applicable 
        period. This subsection shall not apply for any taxable year if 
        subsection (a) applies to such foreign incorporated entity for 
        such taxable year.
            ``(2) Acquired entity.--For purposes of this section--
                    ``(A) In general.--The term `acquired entity' means 
                the domestic corporation or partnership substantially 
                all of the properties of which are directly or 
                indirectly acquired in an acquisition described in 
                subsection (a)(2)(A) to which this subsection applies.
                    ``(B) Aggregation rules.--Any domestic person 
                bearing a relationship described in section 267(b) or 
                707(b) to an acquired entity shall be treated as an 
                acquired entity with respect to the acquisition 
                described in subparagraph (A).
            ``(3) Applicable period.--For purposes of this section--
                    ``(A) In general.--The term `applicable period' 
                means the period--
                            ``(i) beginning on the first date 
                        properties are acquired as part of the 
                        acquisition described in subsection (a)(2)(A) 
                        to which this subsection applies, and
                            ``(ii) ending on the date which is 10 years 
                        after the last date properties are acquired as 
                        part of such acquisition.
                    ``(B) Special rule for inversions occurring before 
                march 21, 2002.--In the case of any acquired entity to 
                which paragraph (1)(A) applies, the applicable period 
                shall be the 10-year period beginning on January 1, 
                2003.
    ``(c) Tax on Inversion Gains May Not Be Offset.--If subsection (b) 
applies--
            ``(1) In general.--The taxable income of an acquired entity 
        (or any expanded affiliated group which includes such entity) 
        for any taxable year which includes any portion of the 
        applicable period shall in no event be less than the inversion 
        gain of the entity for the taxable year.
            ``(2) Credits not allowed against tax on inversion gain.--
        Credits shall be allowed against the tax imposed by this 
        chapter on an acquired entity for any taxable year described in 
        paragraph (1) only to the extent such tax exceeds the product 
        of--
                    ``(A) the amount of the inversion gain for the 
                taxable year, and
                    ``(B) the highest rate of tax specified in section 
                11(b)(1).
        For purposes of determining the credit allowed by section 901 
        inversion gain shall be treated as from sources within the 
        United States.
            ``(3) Special rules for partnerships.--In the case of an 
        acquired entity which is a partnership--
                    ``(A) the limitations of this subsection shall 
                apply at the partner rather than the partnership level,
                    ``(B) the inversion gain of any partner for any 
                taxable year shall be equal to the sum of--
                            ``(i) the partner's distributive share of 
                        inversion gain of the partnership for such 
                        taxable year, plus
                            ``(ii) income or gain required to be 
                        recognized for the taxable year by the partner 
                        under section 367(a), 741, or 1001, or under 
                        any other provision of chapter 1, by reason of 
                        the transfer during the applicable period of 
                        any partnership interest of the partner in such 
                        partnership to the foreign incorporated entity, 
                        and
                    ``(C) the highest rate of tax specified in the rate 
                schedule applicable to the partner under chapter 1 
                shall be substituted for the rate of tax under 
                paragraph (2)(B).
            ``(4) Inversion gain.--For purposes of this section, the 
        term `inversion gain' means any income or gain required to be 
        recognized under section 304, 311(b), 367, 1001, or 1248, or 
        under any other provision of chapter 1, by reason of the 
        transfer during the applicable period of stock or other 
        properties by an acquired entity--
                    ``(A) as part of the acquisition described in 
                subsection (a)(2)(A) to which subsection (b) applies, 
                or
                    ``(B) after such acquisition to a foreign related 
                person.
        The Secretary may provide that income or gain from the sale of 
        inventories or other transactions in the ordinary course of a 
        trade or business shall not be treated as inversion gain under 
        subparagraph (B) to the extent the Secretary determines such 
        treatment would not be inconsistent with the purposes of this 
        section.
            ``(5) Coordination with section 172 and minimum tax.--Rules 
        similar to the rules of paragraphs (3) and (4) of section 
        860E(a) shall apply for purposes of this section.
            ``(6) Statute of limitations.--
                    ``(A) In general.--The statutory period for the 
                assessment of any deficiency attributable to the 
                inversion gain of any taxpayer for any pre-inversion 
                year shall not expire before the expiration of 3 years 
                from the date the Secretary is notified by the taxpayer 
                (in such manner as the Secretary may prescribe) of the 
                acquisition described in subsection (a)(2)(A) to which 
                such gain relates and such deficiency may be assessed 
                before the expiration of such 3-year period 
                notwithstanding the provisions of any other law or rule 
                of law which would otherwise prevent such assessment.
                    ``(B) Pre-inversion year.--For purposes of 
                subparagraph (A), the term `pre-inversion year' means 
                any taxable year if--
                            ``(i) any portion of the applicable period 
                        is included in such taxable year, and
                            ``(ii) such year ends before the taxable 
                        year in which the acquisition described in 
                        subsection (a)(2)(A) is completed.
    ``(d) Special Rules Applicable to Acquired Entities to Which 
Subsection (b) Applies.--
            ``(1) Increases in accuracy-related penalties.--In the case 
        of any underpayment of tax of an acquired entity to which 
        subsection (b) applies--
                    ``(A) section 6662(a) shall be applied with respect 
                to such underpayment by substituting `30 percent' for 
                `20 percent', and
                    ``(B) if such underpayment is attributable to one 
                or more gross valuation understatements, the increase 
                in the rate of penalty under section 6662(h) shall be 
                to 50 percent rather than 40 percent.
            ``(2) Modifications of limitation on interest deduction.--
        In the case of an acquired entity to which subsection (b) 
        applies, section 163(j) shall be applied--
                    ``(A) without regard to paragraph (2)(A)(ii) 
                thereof, and
                    ``(B) by substituting `25 percent' for `50 percent' 
                each place it appears in paragraph (2)(B) thereof.
    ``(e) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Rules for application of subsection (a)(2).--In 
        applying subsection (a)(2) for purposes of subsections (a) and 
        (b), the following rules shall apply:
                    ``(A) Certain stock disregarded.--There shall not 
                be taken into account in determining ownership for 
                purposes of subsection (a)(2)(B)--
                            ``(i) stock held by members of the expanded 
                        affiliated group which includes the foreign 
                        incorporated entity, or
                            ``(ii) stock of such entity which is sold 
                        in a public offering or private placement 
                        related to the acquisition described in 
                        subsection (a)(2)(A).
                    ``(B) Plan deemed in certain cases.--If a foreign 
                incorporated entity acquires directly or indirectly 
                substantially all of the properties of a domestic 
                corporation or partnership during the 4-year period 
                beginning on the date which is 2 years before the 
ownership requirements of subsection (a)(2)(B) are met with respect to 
such domestic corporation or partnership, such actions shall be treated 
as pursuant to a plan.
                    ``(C) Certain transfers disregarded.--The transfer 
                of properties or liabilities (including by contribution 
                or distribution) shall be disregarded if such transfers 
                are part of a plan a principal purpose of which is to 
                avoid the purposes of this section.
                    ``(D) Special rule for related partnerships.--For 
                purposes of applying subsection (a)(2) to the 
                acquisition of a domestic partnership, except as 
                provided in regulations, all partnerships which are 
                under common control (within the meaning of section 
                482) shall be treated as 1 partnership.
                    ``(E) Treatment of certain rights.--The Secretary 
                shall prescribe such regulations as may be necessary--
                            ``(i) to treat warrants, options, contracts 
                        to acquire stock, convertible debt instruments, 
                        and other similar interests as stock, and
                            ``(ii) to treat stock as not stock.
            ``(2) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group as defined in 
        section 1504(a) but without regard to section 1504(b)(3), 
        except that section 1504(a) shall be applied by substituting 
        `more than 50 percent' for `at least 80 percent' each place it 
        appears.
            ``(3) Foreign incorporated entity.--The term `foreign 
        incorporated entity' means any entity which is, or but for 
        subsection (a)(1) would be, treated as a foreign corporation 
        for purposes of this title.
            ``(4) Foreign related person.--The term `foreign related 
        person' means, with respect to any acquired entity, a foreign 
        person which--
                    ``(A) bears a relationship to such entity described 
                in section 267(b) or 707(b), or
                    ``(B) is under the same common control (within the 
                meaning of section 482) as such entity.
            ``(5) Subsequent acquisitions by unrelated domestic 
        corporations.--
                    ``(A) In general.--Subject to such conditions, 
                limitations, and exceptions as the Secretary may 
                prescribe, if, after an acquisition described in 
                subsection (a)(2)(A) to which subsection (b) applies, a 
                domestic corporation stock of which is traded on an 
                established securities market acquires directly or 
                indirectly any properties of one or more acquired 
                entities in a transaction with respect to which the 
                requirements of subparagraph (B) are met, this section 
                shall cease to apply to any such acquired entity with 
                respect to which such requirements are met.
                    ``(B) Requirements.--The requirements of the 
                subparagraph are met with respect to a transaction 
                involving any acquisition described in subparagraph (A) 
                if--
                            ``(i) before such transaction the domestic 
                        corporation did not have a relationship 
                        described in section 267(b) or 707(b), and was 
                        not under common control (within the meaning of 
                        section 482), with the acquired entity, or any 
                        member of an expanded affiliated group 
                        including such entity, and
                            ``(ii) after such transaction, such 
                        acquired entity--
                                    ``(I) is a member of the same 
                                expanded affiliated group which 
                                includes the domestic corporation or 
                                has such a relationship or is under 
                                such common control with any member of 
                                such group, and
                                    ``(II) is not a member of, and does 
                                not have such a relationship and is not 
                                under such common control with any 
                                member of, the expanded affiliated 
                                group which before such acquisition 
                                included such entity.
    ``(f) Regulations.--The Secretary shall provide such regulations as 
are necessary to carry out this section, including regulations 
providing for such adjustments to the application of this section as 
are necessary to prevent the avoidance of the purposes of this section, 
including the avoidance of such purposes through--
            ``(1) the use of related persons, pass-thru or other 
        noncorporate entities, or other intermediaries, or
            ``(2) transactions designed to have persons cease to be (or 
        not become) members of expanded affiliated groups or related 
        persons.''.
    (b) Information Reporting.--The Secretary of the Treasury shall 
exercise the Secretary's authority under the Internal Revenue Code of 
1986 to require entities involved in transactions to which section 7874 
of such Code (as added by subsection (a)) applies to report to the 
Secretary, shareholders, partners, and such other persons as the 
Secretary may prescribe such information as is necessary to ensure the 
proper tax treatment of such transactions.
    (c) Conforming Amendment.--The table of sections for subchapter C 
of chapter 80 is amended by adding at the end the following new item:

                              ``Sec. 7874. Rules relating to inverted 
                                        corporate entities.''.
    (d) Transition Rule for Certain Regulated Investment Companies and 
Unit Investment Trusts.--Notwithstanding section 7874 of the Internal 
Revenue Code of 1986 (as added by subsection (a)), a regulated 
investment company, or other pooled fund or trust specified by the 
Secretary of the Treasury, may elect to recognize gain by reason of 
section 367(a) of such Code with respect to a transaction under which a 
foreign incorporated entity is treated as an inverted domestic 
corporation under section 7874(a) of such Code by reason of an 
acquisition completed after March 20, 2002, and before January 1, 2004.

SEC. 442. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS WHO 
              EXPATRIATE.

    (a) In General.--Subpart A of part II of subchapter N of chapter 1 
is amended by inserting after section 877 the following new section:

``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

    ``(a) General Rules.--For purposes of this subtitle--
            ``(1) Mark to market.--Except as provided in subsections 
        (d) and (f), all property of a covered expatriate to whom this 
        section applies shall be treated as sold on the day before the 
        expatriation date for its fair market value.
            ``(2) Recognition of gain or loss.--In the case of any sale 
        under paragraph (1)--
                    ``(A) notwithstanding any other provision of this 
                title, any gain arising from such sale shall be taken 
                into account for the taxable year of the sale, and
                    ``(B) any loss arising from such sale shall be 
                taken into account for the taxable year of the sale to 
                the extent otherwise provided by this title, except 
                that section 1091 shall not apply to any such loss.
        Proper adjustment shall be made in the amount of any gain or 
        loss subsequently realized for gain or loss taken into account 
        under the preceding sentence.
            ``(3) Exclusion for certain gain.--
                    ``(A) In general.--The amount which, but for this 
                paragraph, would be includible in the gross income of 
                any individual by reason of this section shall be 
                reduced (but not below zero) by $600,000. For purposes 
                of this paragraph, allocable expatriation gain taken 
                into account under subsection (f)(2) shall be treated 
                in the same manner as an amount required to be 
                includible in gross income.
                    ``(B) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of an 
                        expatriation date occurring in any calendar 
                        year after 2003, the $600,000 amount under 
                        subparagraph (A) shall be increased by an 
                        amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for such calendar year, 
                                determined by substituting `calendar 
                                year 2002' for `calendar year 1992' in 
                                subparagraph (B) thereof.
                            ``(ii) Rounding rules.--If any amount after 
                        adjustment under clause (i) is not a multiple 
                        of $1,000, such amount shall be rounded to the 
                        next lower multiple of $1,000.
            ``(4) Election to continue to be taxed as united states 
        citizen.--
                    ``(A) In general.--If a covered expatriate elects 
                the application of this paragraph--
                            ``(i) this section (other than this 
                        paragraph and subsection (i)) shall not apply 
                        to the expatriate, but
                            ``(ii) in the case of property to which 
                        this section would apply but for such election, 
                        the expatriate shall be subject to tax under 
                        this title in the same manner as if the 
                        individual were a United States citizen.
                    ``(B) Requirements.--Subparagraph (A) shall not 
                apply to an individual unless the individual--
                            ``(i) provides security for payment of tax 
                        in such form and manner, and in such amount, as 
                        the Secretary may require,
                            ``(ii) consents to the waiver of any right 
                        of the individual under any treaty of the 
                        United States which would preclude assessment 
                        or collection of any tax which may be imposed 
                        by reason of this paragraph, and
                            ``(iii) complies with such other 
                        requirements as the Secretary may prescribe.
                    ``(C) Election.--An election under subparagraph (A) 
                shall apply to all property to which this section would 
                apply but for the election and, once made, shall be 
                irrevocable. Such election shall also apply to property 
                the basis of which is determined in whole or in part by 
                reference to the property with respect to which the 
                election was made.
    ``(b) Election To Defer Tax.--
            ``(1) In general.--If the taxpayer elects the application 
        of this subsection with respect to any property treated as sold 
        by reason of subsection (a), the payment of the additional tax 
        attributable to such property shall be postponed until the due 
        date of the return for the taxable year in which such property 
        is disposed of (or, in the case of property disposed of in a 
        transaction in which gain is not recognized in whole or in 
        part, until such other date as the Secretary may prescribe).
            ``(2) Determination of tax with respect to property.--For 
        purposes of paragraph (1), the additional tax attributable to 
        any property is an amount which bears the same ratio to the 
        additional tax imposed by this chapter for the taxable year 
        solely by reason of subsection (a) as the gain taken into 
        account under subsection (a) with respect to such property 
        bears to the total gain taken into account under subsection (a) 
        with respect to all property to which subsection (a) applies.
            ``(3) Termination of postponement.--No tax may be postponed 
        under this subsection later than the due date for the return of 
        tax imposed by this chapter for the taxable year which includes 
        the date of death of the expatriate (or, if earlier, the time 
        that the security provided with respect to the property fails 
        to meet the requirements of paragraph (4), unless the taxpayer 
        corrects such failure within the time specified by the 
        Secretary).
            ``(4) Security.--
                    ``(A) In general.--No election may be made under 
                paragraph (1) with respect to any property unless 
                adequate security is provided to the Secretary with 
                respect to such property.
                    ``(B) Adequate security.--For purposes of 
                subparagraph (A), security with respect to any property 
                shall be treated as adequate security if--
                            ``(i) it is a bond in an amount equal to 
                        the deferred tax amount under paragraph (2) for 
                        the property, or
                            ``(ii) the taxpayer otherwise establishes 
                        to the satisfaction of the Secretary that the 
                        security is adequate.
            ``(5) Waiver of certain rights.--No election may be made 
        under paragraph (1) unless the taxpayer consents to the waiver 
        of any right under any treaty of the United States which would 
        preclude assessment or collection of any tax imposed by reason 
        of this section.
            ``(6) Elections.--An election under paragraph (1) shall 
        only apply to property described in the election and, once 
        made, is irrevocable. An election may be made under paragraph 
        (1) with respect to an interest in a trust with respect to 
        which gain is required to be recognized under subsection 
        (f)(1).
            ``(7) Interest.--For purposes of section 6601--
                    ``(A) the last date for the payment of tax shall be 
                determined without regard to the election under this 
                subsection, and
                    ``(B) section 6621(a)(2) shall be applied by 
                substituting `5 percentage points' for `3 percentage 
                points' in subparagraph (B) thereof.
    ``(c) Covered Expatriate.--For purposes of this section--
            ``(1) In general.--Except as provided in paragraph (2), the 
        term `covered expatriate' means an expatriate.
            ``(2) Exceptions.--An individual shall not be treated as a 
        covered expatriate if--
                    ``(A) the individual--
                            ``(i) became at birth a citizen of the 
                        United States and a citizen of another country 
                        and, as of the expatriation date, continues to 
                        be a citizen of, and is taxed as a resident of, 
                        such other country, and
                            ``(ii) has not been a resident of the 
                        United States (as defined in section 
                        7701(b)(1)(A)(ii)) during the 5 taxable years 
                        ending with the taxable year during which the 
                        expatriation date occurs, or
                    ``(B)(i) the individual's relinquishment of United 
                States citizenship occurs before such individual 
                attains age 18\1/2\, and
                    ``(ii) the individual has been a resident of the 
                United States (as so defined) for not more than 5 
                taxable years before the date of relinquishment.
    ``(d) Exempt Property; Special Rules for Pension Plans.--
            ``(1) Exempt property.--This section shall not apply to the 
        following:
                    ``(A) United states real property interests.--Any 
                United States real property interest (as defined in 
                section 897(c)(1)), other than stock of a United States 
                real property holding corporation which does not, on 
                the day before the expatriation date, meet the 
                requirements of section 897(c)(2).
                    ``(B) Specified property.--Any property or interest 
                in property not described in subparagraph (A) which the 
                Secretary specifies in regulations.
            ``(2) Special rules for certain retirement plans.--
                    ``(A) In general.--If a covered expatriate holds on 
                the day before the expatriation date any interest in a 
                retirement plan to which this paragraph applies--
                            ``(i) such interest shall not be treated as 
                        sold for purposes of subsection (a)(1), but
                            ``(ii) an amount equal to the present value 
                        of the expatriate's nonforfeitable accrued 
                        benefit shall be treated as having been 
                        received by such individual on such date as a 
                        distribution under the plan.
                    ``(B) Treatment of subsequent distributions.--In 
                the case of any distribution on or after the 
                expatriation date to or on behalf of the covered 
                expatriate from a plan from which the expatriate was 
                treated as receiving a distribution under subparagraph 
                (A), the amount otherwise includible in gross income by 
                reason of the subsequent distribution shall be reduced 
                by the excess of the amount includible in gross income 
                under subparagraph (A) over any portion of such amount 
                to which this subparagraph previously applied.
                    ``(C) Treatment of subsequent distributions by 
                plan.--For purposes of this title, a retirement plan to 
                which this paragraph applies, and any person acting on 
                the plan's behalf, shall treat any subsequent 
                distribution described in subparagraph (B) in the same 
                manner as such distribution would be treated without 
                regard to this paragraph.
                    ``(D) Applicable plans.--This paragraph shall apply 
                to--
                            ``(i) any qualified retirement plan (as 
                        defined in section 4974(c)),
                            ``(ii) an eligible deferred compensation 
                        plan (as defined in section 457(b)) of an 
                        eligible employer described in section 
                        457(e)(1)(A), and
                            ``(iii) to the extent provided in 
                        regulations, any foreign pension plan or 
                        similar retirement arrangements or programs.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Expatriate.--The term `expatriate' means--
                    ``(A) any United States citizen who relinquishes 
                citizenship, and
                    ``(B) any long-term resident of the United States 
                who--
                            ``(i) ceases to be a lawful permanent 
                        resident of the United States (within the 
                        meaning of section 7701(b)(6)), or
                            ``(ii) commences to be treated as a 
                        resident of a foreign country under the 
                        provisions of a tax treaty between the United 
                        States and the foreign country and who does not 
                        waive the benefits of such treaty applicable to 
residents of the foreign country.
            ``(2) Expatriation date.--The term `expatriation date' 
        means--
                    ``(A) the date an individual relinquishes United 
                States citizenship, or
                    ``(B) in the case of a long-term resident of the 
                United States, the date of the event described in 
                clause (i) or (ii) of paragraph (1)(B).
            ``(3) Relinquishment of citizenship.--A citizen shall be 
        treated as relinquishing United States citizenship on the 
        earliest of--
                    ``(A) the date the individual renounces such 
                individual's United States nationality before a 
                diplomatic or consular officer of the United States 
                pursuant to paragraph (5) of section 349(a) of the 
                Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
                    ``(B) the date the individual furnishes to the 
                United States Department of State a signed statement of 
                voluntary relinquishment of United States nationality 
                confirming the performance of an act of expatriation 
                specified in paragraph (1), (2), (3), or (4) of section 
                349(a) of the Immigration and Nationality Act (8 U.S.C. 
                1481(a)(1)-(4)),
                    ``(C) the date the United States Department of 
                State issues to the individual a certificate of loss of 
                nationality, or
                    ``(D) the date a court of the United States cancels 
                a naturalized citizen's certificate of naturalization.
        Subparagraph (A) or (B) shall not apply to any individual 
        unless the renunciation or voluntary relinquishment is 
        subsequently approved by the issuance to the individual of a 
        certificate of loss of nationality by the United States 
        Department of State.
            ``(4) Long-term resident.--The term `long-term resident' 
        has the meaning given to such term by section 877(e)(2).
    ``(f) Special Rules Applicable to Beneficiaries' Interests in 
Trust.--
            ``(1) In general.--Except as provided in paragraph (2), if 
        an individual is determined under paragraph (3) to hold an 
        interest in a trust on the day before the expatriation date--
                    ``(A) the individual shall not be treated as having 
                sold such interest,
                    ``(B) such interest shall be treated as a separate 
                share in the trust, and
                    ``(C)(i) such separate share shall be treated as a 
                separate trust consisting of the assets allocable to 
                such share,
                    ``(ii) the separate trust shall be treated as 
                having sold its assets on the day before the 
                expatriation date for their fair market value and as 
                having distributed all of its assets to the individual 
                as of such time, and
                    ``(iii) the individual shall be treated as having 
                recontributed the assets to the separate trust.
        Subsection (a)(2) shall apply to any income, gain, or loss of 
        the individual arising from a distribution described in 
        subparagraph (C)(ii). In determining the amount of such 
        distribution, proper adjustments shall be made for liabilities 
        of the trust allocable to an individual's share in the trust.
            ``(2) Special rules for interests in qualified trusts.--
                    ``(A) In general.--If the trust interest described 
                in paragraph (1) is an interest in a qualified trust--
                            ``(i) paragraph (1) and subsection (a) 
                        shall not apply, and
                            ``(ii) in addition to any other tax imposed 
                        by this title, there is hereby imposed on each 
                        distribution with respect to such interest a 
                        tax in the amount determined under subparagraph 
                        (B).
                    ``(B) Amount of tax.--The amount of tax under 
                subparagraph (A)(ii) shall be equal to the lesser of--
                            ``(i) the highest rate of tax imposed by 
                        section 1(e) for the taxable year which 
                        includes the day before the expatriation date, 
                        multiplied by the amount of the distribution, 
                        or
                            ``(ii) the balance in the deferred tax 
                        account immediately before the distribution 
                        determined without regard to any increases 
                        under subparagraph (C)(ii) after the 30th day 
                        preceding the distribution.
                    ``(C) Deferred tax account.--For purposes of 
                subparagraph (B)(ii)--
                            ``(i) Opening balance.--The opening balance 
                        in a deferred tax account with respect to any 
                        trust interest is an amount equal to the tax 
                        which would have been imposed on the allocable 
                        expatriation gain with respect to the trust 
                        interest if such gain had been included in 
                        gross income under subsection (a).
                            ``(ii) Increase for interest.--The balance 
                        in the deferred tax account shall be increased 
                        by the amount of interest determined (on the 
                        balance in the account at the time the interest 
                        accrues), for periods after the 90th day after 
                        the expatriation date, by using the rates and 
                        method applicable under section 6621 for 
                        underpayments of tax for such periods, except 
                        that section 6621(a)(2) shall be applied by 
                        substituting `5 percentage points' for `3 
                        percentage points' in subparagraph (B) thereof.
                            ``(iii) Decrease for taxes previously 
                        paid.--The balance in the tax deferred account 
                        shall be reduced--
                                    ``(I) by the amount of taxes 
                                imposed by subparagraph (A) on any 
                                distribution to the person holding the 
                                trust interest, and
                                    ``(II) in the case of a person 
                                holding a nonvested interest, to the 
                                extent provided in regulations, by the 
                                amount of taxes imposed by subparagraph 
(A) on distributions from the trust with respect to nonvested interests 
not held by such person.
                    ``(D) Allocable expatriation gain.--For purposes of 
                this paragraph, the allocable expatriation gain with 
                respect to any beneficiary's interest in a trust is the 
                amount of gain which would be allocable to such 
                beneficiary's vested and nonvested interests in the 
                trust if the beneficiary held directly all assets 
                allocable to such interests.
                    ``(E) Tax deducted and withheld.--
                            ``(i) In general.--The tax imposed by 
                        subparagraph (A)(ii) shall be deducted and 
                        withheld by the trustees from the distribution 
                        to which it relates.
                            ``(ii) Exception where failure to waive 
                        treaty rights.--If an amount may not be 
                        deducted and withheld under clause (i) by 
                        reason of the distributee failing to waive any 
                        treaty right with respect to such 
                        distribution--
                                    ``(I) the tax imposed by 
                                subparagraph (A)(ii) shall be imposed 
                                on the trust and each trustee shall be 
                                personally liable for the amount of 
                                such tax, and
                                    ``(II) any other beneficiary of the 
                                trust shall be entitled to recover from 
                                the distributee the amount of such tax 
                                imposed on the other beneficiary.
                    ``(F) Disposition.--If a trust ceases to be a 
                qualified trust at any time, a covered expatriate 
                disposes of an interest in a qualified trust, or a 
                covered expatriate holding an interest in a qualified 
                trust dies, then, in lieu of the tax imposed by 
                subparagraph (A)(ii), there is hereby imposed a tax 
                equal to the lesser of--
                            ``(i) the tax determined under paragraph 
                        (1) as if the day before the expatriation date 
                        were the date of such cessation, disposition, 
                        or death, whichever is applicable, or
                            ``(ii) the balance in the tax deferred 
                        account immediately before such date.
                Such tax shall be imposed on the trust and each trustee 
                shall be personally liable for the amount of such tax 
                and any other beneficiary of the trust shall be 
                entitled to recover from the covered expatriate or the 
                estate the amount of such tax imposed on the other 
                beneficiary.
                    ``(G) Definitions and special rules.--For purposes 
                of this paragraph--
                            ``(i) Qualified trust.--The term `qualified 
                        trust' means a trust which is described in 
                        section 7701(a)(30)(E).
                            ``(ii) Vested interest.--The term `vested 
                        interest' means any interest which, as of the 
                        day before the expatriation date, is vested in 
                        the beneficiary.
                            ``(iii) Nonvested interest.--The term 
                        `nonvested interest' means, with respect to any 
                        beneficiary, any interest in a trust which is 
                        not a vested interest. Such interest shall be 
                        determined by assuming the maximum exercise of 
                        discretion in favor of the beneficiary and the 
                        occurrence of all contingencies in favor of the 
                        beneficiary.
                            ``(iv) Adjustments.--The Secretary may 
                        provide for such adjustments to the bases of 
                        assets in a trust or a deferred tax account, 
                        and the timing of such adjustments, in order to 
                        ensure that gain is taxed only once.
                            ``(v) Coordination with retirement plan 
                        rules.--This subsection shall not apply to an 
                        interest in a trust which is part of a 
                        retirement plan to which subsection (d)(2) 
                        applies.
            ``(3) Determination of beneficiaries' interest in trust.--
                    ``(A) Determinations under paragraph (1).--For 
                purposes of paragraph (1), a beneficiary's interest in 
                a trust shall be based upon all relevant facts and 
                circumstances, including the terms of the trust 
                instrument and any letter of wishes or similar 
                document, historical patterns of trust distributions, 
                and the existence of and functions performed by a trust 
                protector or any similar adviser.
                    ``(B) Other determinations.--For purposes of this 
                section--
                            ``(i) Constructive ownership.--If a 
                        beneficiary of a trust is a corporation, 
                        partnership, trust, or estate, the 
                        shareholders, partners, or beneficiaries shall 
                        be deemed to be the trust beneficiaries for 
                        purposes of this section.
                            ``(ii) Taxpayer return position.--A 
                        taxpayer shall clearly indicate on its income 
                        tax return--
                                    ``(I) the methodology used to 
                                determine that taxpayer's trust 
                                interest under this section, and
                                    ``(II) if the taxpayer knows (or 
                                has reason to know) that any other 
                                beneficiary of such trust is using a 
                                different methodology to determine such 
                                beneficiary's trust interest under this 
                                section.
    ``(g) Termination of Deferrals, etc.--In the case of any covered 
expatriate, notwithstanding any other provision of this title--
            ``(1) any period during which recognition of income or gain 
        is deferred shall terminate on the day before the expatriation 
        date, and
            ``(2) any extension of time for payment of tax shall cease 
        to apply on the day before the expatriation date and the unpaid 
        portion of such tax shall be due and payable at the time and in 
        the manner prescribed by the Secretary.
    ``(h) Imposition of Tentative Tax.--
            ``(1) In general.--If an individual is required to include 
        any amount in gross income under subsection (a) for any taxable 
        year, there is hereby imposed, immediately before the 
        expatriation date, a tax in an amount equal to the amount of 
        tax which would be imposed if the taxable year were a short 
        taxable year ending on the expatriation date.
            ``(2) Due date.--The due date for any tax imposed by 
        paragraph (1) shall be the 90th day after the expatriation 
        date.
            ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
        shall be treated as a payment of the tax imposed by this 
        chapter for the taxable year to which subsection (a) applies.
            ``(4) Deferral of tax.--The provisions of subsection (b) 
        shall apply to the tax imposed by this subsection to the extent 
        attributable to gain includible in gross income by reason of 
        this section.
    ``(i) Special Liens for Deferred Tax Amounts.--
            ``(1) Imposition of lien.--
                    ``(A) In general.--If a covered expatriate makes an 
                election under subsection (a)(4) or (b) which results 
                in the deferral of any tax imposed by reason of 
                subsection (a), the deferred amount (including any 
                interest, additional amount, addition to tax, 
                assessable penalty, and costs attributable to the 
                deferred amount) shall be a lien in favor of the United 
                States on all property of the expatriate located in the 
                United States (without regard to whether this section 
                applies to the property).
                    ``(B) Deferred amount.--For purposes of this 
                subsection, the deferred amount is the amount of the 
                increase in the covered expatriate's income tax which, 
                but for the election under subsection (a)(4) or (b), 
                would have occurred by reason of this section for the 
                taxable year including the expatriation date.
            ``(2) Period of lien.--The lien imposed by this subsection 
        shall arise on the expatriation date and continue until--
                    ``(A) the liability for tax by reason of this 
                section is satisfied or has become unenforceable by 
                reason of lapse of time, or
                    ``(B) it is established to the satisfaction of the 
                Secretary that no further tax liability may arise by 
                reason of this section.
            ``(3) Certain rules apply.--The rules set forth in 
        paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
        with respect to the lien imposed by this subsection as if it 
        were a lien imposed by section 6324A.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Inclusion in Income of Gifts and Bequests Received by United 
States Citizens and Residents From Expatriates.--Section 102 (relating 
to gifts, etc. not included in gross income) is amended by adding at 
the end the following new subsection:
    ``(d) Gifts and Inheritances From Covered Expatriates.--
            ``(1) In general.--Subsection (a) shall not exclude from 
        gross income the value of any property acquired by gift, 
        bequest, devise, or inheritance from a covered expatriate after 
        the expatriation date. For purposes of this subsection, any 
        term used in this subsection which is also used in section 877A 
        shall have the same meaning as when used in section 877A.
            ``(2) Exceptions for transfers otherwise subject to estate 
        or gift tax.--Paragraph (1) shall not apply to any property if 
        either--
                    ``(A) the gift, bequest, devise, or inheritance 
                is--
                            ``(i) shown on a timely filed return of tax 
                        imposed by chapter 12 as a taxable gift by the 
                        covered expatriate, or
                            ``(ii) included in the gross estate of the 
                        covered expatriate for purposes of chapter 11 
                        and shown on a timely filed return of tax 
                        imposed by chapter 11 of the estate of the 
                        covered expatriate, or
                    ``(B) no such return was timely filed but no such 
                return would have been required to be filed even if the 
                covered expatriate were a citizen or long-term resident 
                of the United States.''.
    (c) Definition of Termination of United States Citizenship.--
Section 7701(a) is amended by adding at the end the following new 
paragraph:
            ``(48) Termination of united states citizenship.--
                    ``(A) In general.--An individual shall not cease to 
                be treated as a United States citizen before the date 
                on which the individual's citizenship is treated as 
                relinquished under section 877A(e)(3).
                    ``(B) Dual citizens.--Under regulations prescribed 
                by the Secretary, subparagraph (A) shall not apply to 
                an individual who became at birth a citizen of the 
                United States and a citizen of another country.''.
    (d) Ineligibility for Visa or Admission to United States.--
            (1) In general.--Section 212(a)(10)(E) of the Immigration 
        and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
        read as follows:
                    ``(E) Former citizens not in compliance with 
                expatriation revenue provisions.--Any alien who is a 
                former citizen of the United States who relinquishes 
                United States citizenship (within the meaning of 
                section 877A(e)(3) of the Internal Revenue Code of 
                1986) and who is not in compliance with section 877A of 
                such Code (relating to expatriation).''.
            (2) Availability of information.--
                    (A) In general.--Section 6103(l) (relating to 
                disclosure of returns and return information for 
                purposes other than tax administration) is amended by 
                adding at the end the following new paragraph:
            ``(19) Disclosure to deny visa or admission to certain 
        expatriates.--Upon written request of the Attorney General or 
        the Attorney General's delegate, the Secretary shall disclose 
        whether an individual is in compliance with section 877A (and 
        if not in compliance, any items of noncompliance) to officers 
        and employees of the Federal agency responsible for 
        administering section 212(a)(10)(E) of the Immigration and 
        Nationality Act solely for the purpose of, and to the extent 
        necessary in, administering such section 212(a)(10)(E).''.
                    (B) Safeguards.--
                            (i) Technical amendments.--Paragraph (4) of 
                        section 6103(p) of the Internal Revenue Code of 
                        1986, as amended by section 202(b)(2)(B) of the 
                        Trade Act of 2002 (Public Law 107-210; 116 
                        Stat. 961), is amended by striking ``or (17)'' 
                        after ``any other person described in 
                        subsection (l)(16)'' each place it appears and 
                        inserting ``or (18)''.
                            (ii) Conforming amendments.--Section 
                        6103(p)(4) (relating to safeguards), as amended 
                        by clause (i), is amended by striking ``or 
                        (18)'' after ``any other person described in 
                        subsection (l)(16)'' each place it appears and 
                        inserting ``(18), or (19)''.
            (3) Effective dates.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the amendments made by this subsection shall apply 
                to individuals who relinquish United States citizenship 
                on or after the date of the enactment of this Act.
                    (B) Technical amendments.--The amendments made by 
                paragraph (2)(B)(i) shall take effect as if included in 
                the amendments made by section 202(b)(2)(B) of the 
                Trade Act of 2002 (Public Law 107-210; 116 Stat. 961).
    (e) Conforming Amendments.--
            (1) Section 877 is amended by adding at the end the 
        following new subsection:
    ``(g) Application.--This section shall not apply to an expatriate 
(as defined in section 877A(e)) whose expatriation date (as so defined) 
occurs on or after February 5, 2003.''.
            (2) Section 2107 is amended by adding at the end the 
        following new subsection:
    ``(f) Application.--This section shall not apply to any expatriate 
subject to section 877A.''.
            (3) Section 2501(a)(3) is amended by adding at the end the 
        following new subparagraph:
                    ``(F) Application.--This paragraph shall not apply 
                to any expatriate subject to section 877A.''.
            (4)(A) Paragraph (1) of section 6039G(d) is amended by 
        inserting ``or 877A'' after ``section 877''.
            (B) The second sentence of section 6039G(e) is amended by 
        inserting ``or who relinquishes United States citizenship 
        (within the meaning of section 877A(e)(3))'' after ``877(a))''.
            (C) Section 6039G(f) is amended by inserting ``or 
        877A(e)(2)(B)'' after ``877(e)(1)''.
    (f) Clerical Amendment.--The table of sections for subpart A of 
part II of subchapter N of chapter 1 is amended by inserting after the 
item relating to section 877 the following new item:

                              ``Sec. 877A. Tax responsibilities of 
                                        expatriation.''.
    (g) Effective Date.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall apply to expatriates 
        (within the meaning of section 877A(e) of the Internal Revenue 
        Code of 1986, as added by this section) whose expatriation date 
        (as so defined) occurs on or after February 5, 2003.
            (2) Gifts and bequests.--Section 102(d) of the Internal 
        Revenue Code of 1986 (as added by subsection (b)) shall apply 
        to gifts and bequests received on or after February 5, 2003, 
        from an individual or the estate of an individual whose 
        expatriation date (as so defined) occurs after such date.
            (3) Due date for tentative tax.--The due date under section 
        877A(h)(2) of the Internal Revenue Code of 1986, as added by 
        this section, shall in no event occur before the 90th day after 
        the date of the enactment of this Act.

SEC. 443. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN INVERTED 
              CORPORATIONS.

    (a) In General.--Subtitle D is amended by adding at the end the 
following new chapter:

 ``CHAPTER 48--STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS

                              ``Sec. 5000A. Stock compensation of 
                                        insiders in inverted 
                                        corporations entities.

``SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS.

    ``(a) Imposition of Tax.--In the case of an individual who is a 
disqualified individual with respect to any inverted corporation, there 
is hereby imposed on such person a tax equal to 20 percent of the value 
(determined under subsection (b)) of the specified stock compensation 
held (directly or indirectly) by or for the benefit of such individual 
or a member of such individual's family (as defined in section 267) at 
any time during the 12-month period beginning on the date which is 6 
months before the inversion date.
    ``(b) Value.--For purposes of subsection (a)--
            ``(1) In general.--The value of specified stock 
        compensation shall be--
                    ``(A) in the case of a stock option (or other 
                similar right) or any stock appreciation right, the 
                fair value of such option or right, and
                    ``(B) in any other case, the fair market value of 
                such compensation.
            ``(2) Date for determining value.--The determination of 
        value shall be made--
                    ``(A) in the case of specified stock compensation 
                held on the inversion date, on such date,
                    ``(B) in the case of such compensation which is 
                canceled during the 6 months before the inversion date, 
                on the day before such cancellation, and
                    ``(C) in the case of such compensation which is 
                granted after the inversion date, on the date such 
                compensation is granted.
    ``(c) Tax To Apply Only if Shareholder Gain Recognized.--Subsection 
(a) shall apply to any disqualified individual with respect to an 
inverted corporation only if gain (if any) on any stock in such 
corporation is recognized in whole or part by any shareholder by reason 
of the acquisition referred to in section 7874(a)(2)(A) (determined by 
substituting `July 10, 2002' for `March 20, 2002') with respect to such 
corporation.
    ``(d) Exception Where Gain Recognized on Compensation.--Subsection 
(a) shall not apply to--
            ``(1) any stock option which is exercised on the inversion 
        date or during the 6-month period before such date and to the 
        stock acquired in such exercise, if income is recognized under 
        section 83 on or before the inversion date with respect to the 
        stock acquired pursuant to such exercise, and
            ``(2) any specified stock compensation which is exercised, 
        sold, exchanged, distributed, cashed out, or otherwise paid 
        during such period in a transaction in which gain or loss is 
        recognized in full.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Disqualified individual.--The term `disqualified 
        individual' means, with respect to a corporation, any 
        individual who, at any time during the 12-month period 
        beginning on the date which is 6 months before the inversion 
        date--
                    ``(A) is subject to the requirements of section 
                16(a) of the Securities Exchange Act of 1934 with 
                respect to such corporation, or
                    ``(B) would be subject to such requirements if such 
                corporation were an issuer of equity securities 
                referred to in such section.
            ``(2) Inverted corporation; inversion date.--
                    ``(A) Inverted corporation.--The term `inverted 
                corporation' means any corporation to which subsection 
                (a) or (b) of section 7874 applies determined--
                            ``(i) by substituting `July 10, 2002' for 
                        `March 20, 2002' in section 7874(a)(2)(A), and
                            ``(ii) without regard to subsection 
                        (b)(1)(A).
                Such term includes any predecessor or successor of such 
                a corporation.
                    ``(B) Inversion date.--The term `inversion date' 
                means, with respect to a corporation, the date on which 
                the corporation first becomes an inverted corporation.
            ``(3) Specified stock compensation.--
                    ``(A) In general.--The term `specified stock 
                compensation' means payment (or right to payment) 
                granted by the inverted corporation (or by any member 
                of the expanded affiliated group which includes such 
                corporation) to any person in connection with the 
                performance of services by a disqualified individual 
                for such corporation or member if the value of such 
                payment or right is based on (or determined by 
                reference to) the value (or change in value) of stock 
                in such corporation (or any such member).
                    ``(B) Exceptions.--Such term shall not include--
                            ``(i) any option to which part II of 
                        subchapter D of chapter 1 applies, or
                            ``(ii) any payment or right to payment from 
                        a plan referred to in section 280G(b)(6).
            ``(4) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group (as defined in 
        section 1504(a) without regard to section 1504(b)(3)); except 
        that section 1504(a) shall be applied by substituting `more 
        than 50 percent' for `at least 80 percent' each place it 
        appears.
    ``(f) Special Rules.--For purposes of this section--
            ``(1) Cancellation of restriction.--The cancellation of a 
        restriction which by its terms will never lapse shall be 
        treated as a grant.
            ``(2) Payment or reimbursement of tax by corporation 
        treated as specified stock compensation.--Any payment of the 
        tax imposed by this section directly or indirectly by the 
        inverted corporation or by any member of the expanded 
        affiliated group which includes such corporation--
                    ``(A) shall be treated as specified stock 
                compensation, and
                    ``(B) shall not be allowed as a deduction under any 
                provision of chapter 1.
            ``(3) Certain restrictions ignored.--Whether there is 
        specified stock compensation, and the value thereof, shall be 
        determined without regard to any restriction other than a 
        restriction which by its terms will never lapse.
            ``(4) Property transfers.--Any transfer of property shall 
        be treated as a payment and any right to a transfer of property 
        shall be treated as a right to a payment.
            ``(5) Other administrative provisions.--For purposes of 
        subtitle F, any tax imposed by this section shall be treated as 
        a tax imposed by subtitle A.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Denial of Deduction.--
            (1) In general.--Paragraph (6) of section 275(a) is amended 
        by inserting ``48,'' after ``46,''.
            (2) $1,000,000 limit on deductible compensation reduced by 
        payment of excise tax on specified stock compensation.--
        Paragraph (4) of section 162(m) is amended by adding at the end 
        the following new subparagraph:
                    ``(G) Coordination with excise tax on specified 
                stock compensation.--The dollar limitation contained in 
                paragraph (1) with respect to any covered employee 
                shall be reduced (but not below zero) by the amount of 
                any payment (with respect to such employee) of the tax 
                imposed by section 5000A directly or indirectly by the 
                inverted corporation (as defined in such section) or by 
                any member of the expanded affiliated group (as defined 
                in such section) which includes such corporation.''.
    (c) Conforming Amendments.--
            (1) The last sentence of section 3121(v)(2)(A) is amended 
        by inserting before the period ``or to any specified stock 
        compensation (as defined in section 5000A) on which tax is 
        imposed by section 5000A''.
            (2) The table of chapters for subtitle D is amended by 
        adding at the end the following new item:

                              ``Chapter 48. Stock compensation of 
                                        insiders in inverted 
                                        corporations.''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on July 11, 2002; except that periods before such date shall not 
be taken into account in applying the periods in subsections (a) and 
(e)(1) of section 5000A of the Internal Revenue Code of 1986, as added 
by this section.

SEC. 444. REINSURANCE OF UNITED STATES RISKS IN FOREIGN JURISDICTIONS.

    (a) In General.--Section 845(a) (relating to allocation in case of 
reinsurance agreement involving tax avoidance or evasion) is amended by 
striking ``source and character'' and inserting ``amount, source, or 
character''.
    (b) Effective Date.--The amendments made by this section shall 
apply to any risk reinsured after April 11, 2002.

SEC. 445. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
61 is amended by inserting after section 6043 the following new 
section:

``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.

    ``(a) In General.--The acquiring corporation in any taxable 
acquisition shall make a return (according to the forms or regulations 
prescribed by the Secretary) setting forth--
            ``(1) a description of the acquisition,
            ``(2) the name and address of each shareholder of the 
        acquired corporation who is required to recognize gain (if any) 
        as a result of the acquisition,
            ``(3) the amount of money and the fair market value of 
        other property transferred to each such shareholder as part of 
        such acquisition, and
            ``(4) such other information as the Secretary may 
        prescribe.
To the extent provided by the Secretary, the requirements of this 
section applicable to the acquiring corporation shall be applicable to 
the acquired corporation and not to the acquiring corporation.
    ``(b) Nominee Reporting.--Any person who holds stock as a nominee 
for another person shall furnish in the manner prescribed by the 
Secretary to such other person the information provided by the 
corporation under subsection (d).
    ``(c) Taxable Acquisition.--For purposes of this section, the term 
`taxable acquisition' means any acquisition by a corporation of stock 
in or property of another corporation if any shareholder of the 
acquired corporation is required to recognize gain (if any) as a result 
of such acquisition.
    ``(d) Statements To Be Furnished to Shareholders.--Every person 
required to make a return under subsection (a) shall furnish to each 
shareholder whose name is required to be set forth in such return a 
written statement showing--
            ``(1) the name, address, and phone number of the 
        information contact of the person required to make such return,
            ``(2) the information required to be shown on such return 
        with respect to such shareholder, and
            ``(3) such other information as the Secretary may 
        prescribe.
The written statement required under the preceding sentence shall be 
furnished to the shareholder on or before January 31 of the year 
following the calendar year during which the taxable acquisition 
occurred.''.
    (b) Assessable Penalties.--
            (1) Subparagraph (B) of section 6724(d)(1) (relating to 
        definitions) is amended by redesignating clauses (ii) through 
        (xvii) as clauses (iii) through (xviii), respectively, and by 
        inserting after clause (i) the following new clause:
                            ``(ii) section 6043A(a) (relating to 
                        returns relating to taxable mergers and 
                        acquisitions),''.
            (2) Paragraph (2) of section 6724(d) is amended by 
        redesignating subparagraphs (F) through (AA) as subparagraphs 
        (G) through (BB), respectively, and by inserting after 
        subparagraph (E) the following new subparagraph:
                    ``(F) subsections (b) and (d) of section 6043A 
                (relating to returns relating to taxable mergers and 
                acquisitions).''.
    (c) Clerical Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 61 is amended by inserting after 
the item relating to section 6043 the following new item:

                              ``Sec. 6043A. Returns relating to taxable 
                                        mergers and acquisitions.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to acquisitions after the date of the enactment of this Act.

                     Subtitle E--International Tax

SEC. 451. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF DETERMINING 
              INVESTMENT OF EARNINGS IN UNITED STATES PROPERTY.

    (a) In General.--Subparagraph (A) of section 956(c)(2) is amended 
to read as follows:
                    ``(A) obligations of the United States, money, or 
                deposits with--
                            ``(i) any bank (as defined by section 2(c) 
                        of the Bank Holding Company Act of 1956 (12 
                        U.S.C. 1841(c)), without regard to 
                        subparagraphs (C) and (G) of paragraph (2) of 
                        such section), or
                            ``(ii) any corporation not described in 
                        clause (i) with respect to which a bank holding 
                        company (as defined by section 2(a) of such 
                        Act) or financial holding company (as defined 
                        by section 2(p) of such Act) owns directly or 
                        indirectly more than 80 percent by vote or 
                        value of the stock of such corporation;''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 452. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH COMPLETE 
              LIQUIDATION OF HOLDING COMPANY.

    (a) In General.--Section 332 is amended by adding at the end the 
following new subsection:
    ``(d) Recognition of Gain on Liquidation of Certain Holding 
Companies.--
            ``(1) In general.--In the case of any distribution to a 
        foreign corporation in complete liquidation of an applicable 
        holding company--
                    ``(A) subsection (a) and section 331 shall not 
                apply to such distribution, and
                    ``(B) such distribution shall be treated as a 
                distribution to which section 301 applies.
            ``(2) Applicable holding company.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `applicable holding 
                company' means any domestic corporation--
                            ``(i) which is a common parent of an 
                        affiliated group,
                            ``(ii) stock of which is directly owned by 
                        the distributee foreign corporation,
                            ``(iii) substantially all of the assets of 
                        which consist of stock in other members of such 
                        affiliated group, and
                            ``(iv) which has not been in existence at 
                        all times during the 5 years immediately 
                        preceding the date of the liquidation.
                    ``(B) Affiliated group.--For purposes of this 
                subsection, the term `affiliated group' has the meaning 
                given such term by section 1504(a) (without regard to 
paragraphs (2) and (4) of section 1504(b)).
            ``(3) Coordination with subpart f.--If the distributee of a 
        distribution described in paragraph (1) is a controlled foreign 
        corporation (as defined in section 957), then notwithstanding 
        paragraph (1) or subsection (a), such distribution shall be 
        treated as a distribution to which section 331 applies.
            ``(4) Regulations.--The Secretary shall provide such 
        regulations as appropriate to prevent the abuse of this 
        subsection, including regulations which provide, for the 
        purposes of clause (iv) of paragraph (2)(A), that a corporation 
        is not in existence for any period unless it is engaged in the 
        active conduct of a trade or business or owns a significant 
        ownership interest in another corporation so engaged.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions in complete liquidation occurring on or after the date 
of the enactment of this Act.

SEC. 453. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL ISSUE 
              DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS IN TRANSACTIONS 
              WITH RELATED FOREIGN PERSONS.

    (a) Original Issue Discount.--Section 163(e)(3) (relating to 
special rule for original issue discount on obligation held by related 
foreign person) is amended by redesignating subparagraph (B) as 
subparagraph (C) and by inserting after subparagraph (A) the following 
new subparagraph:
                    ``(B) Special rule for certain foreign entities.--
                            ``(i) In general.--In the case of any debt 
                        instrument having original issue discount which 
                        is held by a related foreign person which is a 
                        foreign personal holding company (as defined in 
                        section 552), a controlled foreign corporation 
                        (as defined in section 957), or a passive 
                        foreign investment company (as defined in 
                        section 1297), a deduction shall be allowable 
                        to the issuer with respect to such original 
                        issue discount for any taxable year before the 
                        taxable year in which paid only to the extent 
                        such original issue discount is included during 
                        such prior taxable year in the gross income of 
                        a United States person who owns (within the 
                        meaning of section 958(a)) stock in such 
                        corporation.
                            ``(ii) Secretarial authority.--The 
                        Secretary may by regulation exempt transactions 
                        from the application of clause (i), including 
                        any transaction which is entered into by a 
                        payor in the ordinary course of a trade or 
                        business in which the payor is predominantly 
                        engaged.''.
    (b) Interest and Other Deductible Amounts.--Section 267(a)(3) is 
amended--
            (1) by striking ``The Secretary'' and inserting:
                    ``(A) In general.--The Secretary'', and
            (2) by adding at the end the following new subparagraph:
                    ``(B) Special rule for certain foreign entities.--
                            ``(i) In general.--Notwithstanding 
                        subparagraph (A), in the case of any amount 
                        payable to a foreign personal holding company 
                        (as defined in section 552), a controlled 
                        foreign corporation (as defined in section 
                        957), or a passive foreign investment company 
                        (as defined in section 1297), a deduction shall 
                        be allowable to the payor with respect to such 
                        amount for any taxable year before the taxable 
                        year in which paid only to the extent such 
                        amount is included during such prior taxable 
                        year in the gross income of a United States 
                        person who owns (within the meaning of section 
                        958(a)) stock in such corporation.
                            ``(ii) Secretarial authority.--The 
                        Secretary may by regulation exempt transactions 
                        from the application of clause (i), including 
                        any transaction which is entered into by a 
                        payor in the ordinary course of a trade or 
                        business in which the payor is predominantly 
                        engaged and in which the payment of the accrued 
                        amounts occurs within 8\1/2\ months after 
                        accrual or within such other period as the 
                        Secretary may prescribe.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments accrued on or after the date of the enactment of this 
Act.

SEC. 454. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN FOREIGN 
              SOURCE INCOME.

    (a) In General.--Section 864(c)(4)(B) (relating to treatment of 
income from sources without the United States as effectively connected 
income) is amended by adding at the end the following new flush 
sentence:
                ``Any income or gain which is equivalent to any item of 
                income or gain described in clause (i), (ii), or (iii) 
                shall be treated in the same manner as such item for 
                purposes of this subparagraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 455. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF CONTROLLED 
              FOREIGN CORPORATION.

    (a) In General.--Section 904(f)(3) (relating to dispositions) is 
amending by adding at the end the following new subparagraph:
                    ``(D) Application to dispositions of stock in 
                controlled foreign corporations.--In the case of any 
                disposition by a taxpayer of any share of stock in a 
                controlled foreign corporation (as defined in section 
                957), this paragraph shall apply to such disposition in 
                the same manner as if it were a disposition of property 
                described in subparagraph (A), except that the 
                exception contained in subparagraph (C)(i) shall not 
                apply.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to dispositions after the date of the enactment of this Act.

SEC. 456. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON WITHHOLDING 
              TAXES ON INCOME OTHER THAN DIVIDENDS.

    (a) In General.--Section 901 is amended by redesignating subsection 
(l) as subsection (m) and by inserting after subsection (k) the 
following new subsection:
    ``(l) Minimum Holding Period for Withholding Taxes on Gain and 
Income Other Than Dividends etc.--
            ``(1) In general.--In no event shall a credit be allowed 
        under subsection (a) for any withholding tax (as defined in 
        subsection (k)) on any item of income or gain with respect to 
        any property if--
                    ``(A) such property is held by the recipient of the 
                item for 15 days or less during the 30-day period 
                beginning on the date which is 15 days before the date 
                on which the right to receive payment of such item 
                arises, or
                    ``(B) to the extent that the recipient of the item 
                is under an obligation (whether pursuant to a short 
                sale or otherwise) to make related payments with 
                respect to positions in substantially similar or 
                related property.
        This paragraph shall not apply to any dividend to which 
        subsection (k) applies.
            ``(2) Exception for taxes paid by dealers.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any qualified tax with respect to any property held in 
                the active conduct in a foreign country of a business 
                as a dealer in such property.
                    ``(B) Qualified tax.--For purposes of subparagraph 
                (A), the term `qualified tax' means a tax paid to a 
                foreign country (other than the foreign country 
                referred to in subparagraph (A)) if--
                            ``(i) the item to which such tax is 
                        attributable is subject to taxation on a net 
                        basis by the country referred to in 
                        subparagraph (A), and
                            ``(ii) such country allows a credit against 
                        its net basis tax for the full amount of the 
                        tax paid to such other foreign country.
                    ``(C) Dealer.--For purposes of subparagraph (A), 
                the term `dealer' means--
                            ``(i) with respect to a security, any 
                        person to whom paragraphs (1) and (2) of 
                        subsection (k) would not apply by reason of 
                        paragraph (4) thereof if such security were 
                        stock, and
                            ``(ii) with respect to any other property, 
                        any person with respect to whom such property 
                        is described in section 1221(a)(1).
                    ``(D) Regulations.--The Secretary may prescribe 
                such regulations as may be appropriate to carry out 
                this paragraph, including regulations to prevent the 
                abuse of the exception provided by this paragraph and 
                to treat other taxes as qualified taxes.
            ``(3) Exceptions.--The Secretary may by regulation provide 
        that paragraph (1) shall not apply to property where the 
        Secretary determines that the application of paragraph (1) to 
        such property is not necessary to carry out the purposes of 
        this subsection.
            ``(4) Certain rules to apply.--Rules similar to the rules 
        of paragraphs (5), (6), and (7) of subsection (k) shall apply 
        for purposes of this subsection.
            ``(5) Determination of holding period.--Holding periods 
        shall be determined for purposes of this subsection without 
        regard to section 1235 or any similar rule.''.
    (b) Conforming Amendment.--The heading of subsection (k) of section 
901 is amended by inserting ``on Dividends'' after ``Taxes''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or accrued more than 30 days after the date of 
the enactment of this Act.

                  Subtitle F--Other Revenue Provisions

                     PART I--FINANCIAL INSTRUMENTS

SEC. 461. TREATMENT OF STRIPPED INTERESTS IN BOND AND PREFERRED STOCK 
              FUNDS, ETC.

    (a) In General.--Section 1286 (relating to tax treatment of 
stripped bonds) is amended by redesignating subsection (f) as 
subsection (g) and by inserting after subsection (e) the following new 
subsection:
    ``(f) Treatment of Stripped Interests in Bond and Preferred Stock 
Funds, etc.--In the case of an account or entity substantially all of 
the assets of which consist of bonds, preferred stock, or a combination 
thereof, the Secretary may by regulations provide that rules similar to 
the rules of this section and 305(e), as appropriate, shall apply to 
interests in such account or entity to which (but for this subsection) 
this section or section 305(e), as the case may be, would not apply.''.
    (b) Cross Reference.--Subsection (e) of section 305 is amended by 
adding at the end the following new paragraph:
            ``(7) Cross reference.--

                                ``For treatment of stripped interests 
in certain accounts or entities holding preferred stock, see section 
1286(f).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to purchases and dispositions after the date of the enactment of 
this Act.

SEC. 462. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERSHIPS AND S 
              CORPORATIONS.

    (a) In General.--Section 168(j) (relating to limitation on 
deduction for interest on certain indebtedness) is amended by 
redesignating paragraph (8) as paragraph (9) and by inserting after 
paragraph (7) the following new paragraph:
            ``(8) Application to partnerships and s corporations.--
                    ``(A) In general.--This subsection shall apply to 
                partnerships and S corporations in the same manner as 
                it applies to C corporations.
                    ``(B) Allocations to certain corporate partners.--
                If a C corporation is a partner in a partnership--
                            ``(i) the corporation's allocable share of 
                        indebtedness and interest income of the 
                        partnership shall be taken into account in 
                        applying this subsection to the corporation, 
                        and
                            ``(ii) if a deduction is not disallowed 
                        under this subsection with respect to any 
                        interest expense of the partnership, this 
                        subsection shall be applied separately in 
                        determining whether a deduction is allowable to 
                        the corporation with respect to the 
                        corporation's allocable share of such interest 
                        expense.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 463. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME REALIZED 
              ON SATISFACTION OF DEBT WITH PARTNERSHIP INTEREST.

    (a) In General.--Paragraph (8) of section 108(e) (relating to 
general rules for discharge of indebtedness (including discharges not 
in title 11 cases or insolvency)) is amended to read as follows:
            ``(8) Indebtedness satisfied by corporate stock or 
        partnership interest.--For purposes of determining income of a 
        debtor from discharge of indebtedness, if--
                    ``(A) a debtor corporation transfers stock, or
                    ``(B) a debtor partnership transfers a capital or 
                profits interest in such partnership,
        to a creditor in satisfaction of its recourse or nonrecourse 
        indebtedness, such corporation or partnership shall be treated 
        as having satisfied the indebtedness with an amount of money 
        equal to the fair market value of the stock or interest. In the 
        case of any partnership, any discharge of indebtedness income 
        recognized under this paragraph shall be included in the 
        distributive shares of taxpayers which were the partners in the 
        partnership immediately before such discharge.''.
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to cancellations of indebtedness occurring on or after the 
date of the enactment of this Act.

SEC. 464. MODIFICATION OF STRADDLE RULES.

    (a) Rules Relating to Identified Straddles.--
            (1) In general.--Subparagraph (A) of section 1092(a)(2) 
        (relating to special rule for identified straddles) is amended 
        to read as follows:
                    ``(A) In general.--In the case of any straddle 
                which is an identified straddle--
                            ``(i) paragraph (1) shall not apply with 
                        respect to identified positions comprising the 
                        identified straddle,
                            ``(ii) if there is any loss with respect to 
                        any identified position of the identified 
                        straddle, the basis of each of the identified 
                        offsetting positions in the identified straddle 
                        shall be increased by an amount which bears the 
                        same ratio to the loss as the unrecognized gain 
                        with respect to such offsetting position bears 
                        to the aggregate unrecognized gain with respect 
                        to all such offsetting positions, and
                            ``(iii) any loss described in clause (ii) 
                        shall not otherwise be taken into account for 
                        purposes of this title.''.
            (2) Identified straddle.--Section 1092(a)(2)(B) (defining 
        identified straddle) is amended--
                    (A) by striking clause (ii) and inserting the 
                following:
                            ``(ii) to the extent provided by 
                        regulations, the value of each position of 
                        which (in the hands of the taxpayer immediately 
                        before the creation of the straddle) is not 
                        less than the basis of such position in the 
                        hands of the taxpayer at the time the straddle 
                        is created, and'', and
                    (B) by adding at the end the following new flush 
                sentence:
                ``The Secretary shall prescribe regulations which 
                specify the proper methods for clearly identifying a 
                straddle as an identified straddle (and the positions 
                comprising such straddle), which specify the rules for 
                the application of this section for a taxpayer which 
                fails to properly identify the positions of an 
                identified straddle, and which specify the ordering 
                rules in cases where a taxpayer disposes of less than 
                an entire position which is part of an identified 
                straddle.''.
            (3) Unrecognized gain.--Section 1092(a)(3) (defining 
        unrecognized gain) is amended by redesignating subparagraph (B) 
        as subparagraph (C) and by inserting after subparagraph (A) the 
        following new subparagraph:
                    ``(B) Special rule for identified straddles.--For 
                purposes of paragraph (2)(A)(ii), the unrecognized gain 
                with respect to any identified offsetting position 
                shall be the excess of the fair market value of the 
                position at the time of the determination over the fair 
                market value of the position at the time the taxpayer 
                identified the position as a position in an identified 
                straddle.''
            (4) Conforming amendment.--Section 1092(c)(2) is amended by 
        striking subparagraph (B) and by redesignating subparagraph (C) 
        as subparagraph (B).
    (b) Physically Settled Positions.--Section 1092(d) (relating to 
definitions and special rules) is amended by adding at the end the 
following new paragraph:
            ``(8) Special rules for physically settled positions.--For 
        purposes of subsection (a), if a taxpayer settles a position 
        which is part of a straddle by delivering property to which the 
        position relates (and such position, if terminated, would 
        result in a realization of a loss), then such taxpayer shall be 
        treated as if such taxpayer--
                    ``(A) terminated the position for its fair market 
                value immediately before the settlement, and
                    ``(B) sold the property so delivered by the 
                taxpayer at its fair market value.''.
    (c) Repeal of Stock Exception.--
            (1) In general.--Section 1092(d)(3) is repealed.
            (2) Conforming amendment.--Section 1258(d)(1) is amended by 
        striking ``; except that the term `personal property' shall 
        include stock''.
    (d) Repeal of Qualified Covered Call Exception.--Section 1092(c)(4) 
is amended by adding at the end the following new subparagraph:
                    ``(I) Termination.--This paragraph shall not apply 
                to any position established on or after the date of the 
                enactment of this subparagraph.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to positions established on or after the date of the enactment of 
this Act.

SEC. 465. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL READILY 
              TRADEABLE DEBT.

    (a) In General.--Section 453(f)(4)(B) (relating to purchaser 
evidences of indebtedness payable on demand or readily tradeable) is 
amended by striking ``is issued by a corporation or a government or 
political subdivision thereof and''.
    (b) Effective Date.--The amendment made by this section shall apply 
to sales occurring on or after the date of the enactment of this Act.

                 PART II--CORPORATIONS AND PARTNERSHIPS

SEC. 466. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS IN 
              DIVISIVE REORGANIZATIONS.

    (a) In General.--Section 361(b)(3) (relating to treatment of 
transfers to creditors) is amended by adding at the end the following 
new sentence: ``In the case of a reorganization described in section 
368(a)(1)(D) with respect to which stock or securities of the 
corporation to which the assets are transferred are distributed in a 
transaction which qualifies under section 355, this paragraph shall 
apply only to the extent that the sum of the money and the fair market 
value of other property transferred to such creditors does not exceed 
the adjusted bases of such assets transferred.''.
    (b) Liabilities in Excess of Basis.--Section 357(c)(1)(B) is 
amended by inserting ``with respect to which stock or securities of the 
corporation to which the assets are transferred are distributed in a 
transaction which qualifies under section 355'' after ``section 
368(a)(1)(D)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers of money or other property, or liabilities assumed, 
in connection with a reorganization occurring on or after the date of 
the enactment of this Act.

SEC. 467. CLARIFICATION OF DEFINITION OF NONQUALIFIED PREFERRED STOCK.

    (a) In General.--Section 351(g)(3)(A) is amended by adding at the 
end the following: ``Stock shall not be treated as participating in 
corporate growth to any significant extent unless there is a real and 
meaningful likelihood of the shareholder actually participating in the 
earnings and growth of the corporation.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to transactions after May 14, 2003.

SEC. 468. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF 
              CORPORATIONS.

    (a) In General.--Section 1563(a)(2) (relating to brother-sister 
controlled group) is amended by striking ``possessing--'' and all that 
follows through ``(B)'' and inserting ``possessing''.
    (b) Application of Existing Rules to Other Code Provisions.--
Section 1563(f) (relating to other definitions and rules) is amended by 
adding at the end the following new paragraph:
            ``(5) Brother-sister controlled group definition for 
        provisions other than this part.--
                    ``(A) In general.--Except as specifically provided 
                in an applicable provision, subsection (a)(2) shall be 
                applied to an applicable provision as if it read as 
                follows:
            `(2) Brother-sister controlled group.--Two or more 
        corporations if 5 or fewer persons who are individuals, 
        estates, or trusts own (within the meaning of subsection (d)(2) 
        stock possessing--
                    `(A) at least 80 percent of the total combined 
                voting power of all classes of stock entitled to vote, 
                or at least 80 percent of the total value of shares of 
                all classes of stock, of each corporation, and
                    `(B) more than 50 percent of the total combined 
                voting power of all classes of stock entitled to vote 
                or more than 50 percent of the total value of shares of 
                all classes of stock of each corporation, taking into 
                account the stock ownership of each such person only to 
                the extent such stock ownership is identical with 
                respect to each such corporation.'
                    ``(B) Applicable provision.--For purposes of this 
                paragraph, an applicable provision is any provision of 
                law (other than this part) which incorporates the 
                definition of controlled group of corporations under 
                subsection (a).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 469. MANDATORY BASIS ADJUSTMENTS IN CONNECTION WITH PARTNERSHIP 
              DISTRIBUTIONS AND TRANSFERS OF PARTNERSHIP INTERESTS.

    (a) In General.--Section 754 is repealed.
    (b) Adjustment to Basis of Undistributed Partnership Property.--
Section 734 is amended--
            (1) by striking ``, with respect to which the election 
        provided in section 754 is in effect,'' in the matter preceding 
        paragraph (1) of subsection (b),
            (2) by striking ``(as adjusted by section 732(d))'' both 
        places it appears in subsection (b),
            (3) by striking the last sentence of subsection (b),
            (4) by striking subsection (a) and by redesignating 
        subsections (b) and (c) as subsections (a) and (b), 
        respectively, and
            (5) by striking ``optional'' in the heading.
    (c) Adjustment to Basis of Partnership Property.--Section 743 is 
amended--
            (1) by striking ``with respect to which the election 
        provided in section 754 is in effect'' in the matter preceding 
        paragraph (1) of subsection (b),
            (2) by striking subsection (a) and by redesignating 
        subsections (b) and (c) as subsections (a) and (b), 
        respectively,
            (3) by adding at the end the following new subsection:
    ``(c) Election To Adjust Basis for Transfers Upon Death of 
Partner.--Subsection (a) shall not apply and no adjustments shall be 
made in the case of any transfer of an interest in a partnership upon 
the death of a partner unless an election to do so is made by the 
partnership. Such an election shall apply with respect to all such 
transfers of interests in the partnership. Any election under section 
754 in effect on the date of the enactment of this subsection shall 
constitute an election made under this subsection. Such election may be 
revoked by the partnership, subject to such limitations as may be 
provided by regulations prescribed by the Secretary.'', and
            (4) by striking ``optional'' in the heading.
    (d) Conforming Amendments.--
            (1) Subsection (d) of section 732 is repealed.
            (2) Section 755(a) is amended--
                    (A) by striking ``section 734(b) (relating to the 
                optional adjustment'' and inserting ``section 734(a) 
                (relating to the adjustment'', and
                    (B) by striking ``section 743(b) (relating to the 
                optional adjustment'' and inserting ``section 743(a) 
                (relating to the adjustment''.
            (3) Section 761(e)(2) is amended by striking ``optional''.
            (4) Section 774(a) is amended by striking ``743(b)'' both 
        places it appears and inserting ``743(a)''.
            (5) The item relating to section 734 in the table of 
        sections for subpart B of part II of subchapter K of chapter 1 
        is amended by striking ``Optional''.
            (6) The item relating to section 743 in the table of 
        sections for subpart C of part II of subchapter K of chapter 1 
        is amended by striking ``Optional''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to transfers and 
        distributions made after the date of the enactment of this Act.
            (2) Repeal of section 732(d).--The amendments made by 
        subsections (b)(2) and (d)(1) shall apply to--
                    (A) except as provided in subparagraph (B), 
                transfers made after the date of the enactment of this 
                Act, and
                    (B) in the case of any transfer made on or before 
                such date to which section 732(d) applies, 
                distributions made after the date which is 2 years 
                after such date of enactment.

                PART III--DEPRECIATION AND AMORTIZATION

SEC. 471. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS 
              FRANCHISES.

    (a) In General.--Section 197(e) (relating to exceptions to 
definition of section 197 intangible) is amended by striking paragraph 
(6) and by redesignating paragraphs (7) and (8) as paragraphs (6) and 
(7), respectively.
    (b) Conforming Amendments.--
            (1)(A) Section 1056 (relating to basis limitation for 
        player contracts transferred in connection with the sale of a 
        franchise) is repealed.
            (B) The table of sections for part IV of subchapter O of 
        chapter 1 is amended by striking the item relating to section 
        1056.
            (2) Section 1245(a) (relating to gain from disposition of 
        certain depreciable property) is amended by striking paragraph 
        (4).
            (3) Section 1253 (relating to transfers of franchises, 
        trademarks, and trade names) is amended by striking subsection 
        (e).
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to property 
        acquired after the date of the enactment of this Act.
            (2) Section 1245.--The amendment made by subsection (b)(2) 
        shall apply to franchises acquired after the date of the 
        enactment of this Act.

SEC. 472. SERVICE CONTRACTS TREATED IN SAME MANNER AS LEASES FOR RULES 
              RELATING TO TAX-EXEMPT USE PROPERTY.

    (a) In General.--Section 168(h)(7) (defining lease) is amended by 
adding at the end the following: ``Such term shall also include any 
service contract or other similar arrangement.''.
    (b) Lease Term.--Section 168(i)(3) (relating to lease term) is 
amended by adding at the end the following new subparagraph:
                    ``(C) Special rule for service contracts.--In the 
                case of any service contract or other similar 
                arrangement treated as a lease under subsection (h)(7), 
                the lease term shall be determined in the same manner 
                as a lease.''.
    (c) Conforming Amendments.--Section 168(g)(3)(A) is amended--
            (1) by inserting ``(as defined in subsection (h)(7)'' after 
        ``lease'' the first place it appears, and
            (2) by inserting ``(as determined under subsection 
        (i)(3))'' after ``term''.
    (d) Effective Date.--The amendments made by this section shall 
apply to leases and service contracts or other similar arrangements 
entered into after the date of the enactment of this Act.

SEC. 473. CLASS LIVES FOR UTILITY GRADING COSTS.

    (a) Gas Utility Property.--Section 168(e)(3)(E) (defining 15-year 
property) is amended by striking ``and'' at the end of clause (ii), by 
striking the period at the end of clause (iii) and inserting ``, and'', 
and by adding at the end the following new clause:
                            ``(iv) initial clearing and grading land 
                        improvements with respect to gas utility 
                        property.''.
    (b) Electric Utility Property.--Section 168(e)(3) is amended by 
adding at the end the following new subparagraph:
                    ``(F) 20-year property.--The term `20-year 
                property' means initial clearing and grading land 
                improvements with respect to any electric utility 
                transmission and distribution plant.''.
    (c) Conforming Amendments.--The table contained in section 
168(g)(3)(B) is amended--
            (1) by inserting ``or (E)(iv)'' after ``(E)(iii)'', and
            (2) by adding at the end the following new item:

    ``(F).........................................                25''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

SEC. 474. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN PASSENGER 
              AUTOMOBILES.

    (a) In General.--Section 179(b) (relating to limitations) is 
amended by adding at the end the following new paragraph:
            ``(6) Limitation on cost taken into account for certain 
        passenger vehicles.--
                    ``(A) In general.--The cost of any sport utility 
                vehicle for any taxable year which may be taken into 
                account under this section shall not exceed $25,000.
                    ``(B) Sport utility vehicle.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The term `sport utility 
                        vehicle' means any 4-wheeled vehicle which--
                                    ``(I) is manufactured primarily for 
                                use on public streets, roads, and 
                                highways,
                                    ``(II) is not subject to section 
                                280F, and
                                    ``(III) is rated at not more than 
                                14,000 pounds gross vehicle weight.
                            ``(ii) Certain vehicles excluded.--Such 
                        term does not include any vehicle which--
                                    ``(I) does not have the primary 
                                load carrying device or container 
                                attached,
                                    ``(II) has a seating capacity of 
                                more than 12 individuals,
                                    ``(III) is designed for more than 9 
                                individuals in seating rearward of the 
                                driver's seat,
                                    ``(IV) is equipped with an open 
                                cargo area, or a covered box not 
                                readily accessible from the passenger 
                                compartment, of at least 72.0 inches in 
                                interior length, or
                                    ``(V) has an integral enclosure, 
                                fully enclosing the driver compartment 
                                and load carrying device, does not have 
                                seating rearward of the driver's seat, 
                                and has no body section protruding more 
                                than 30 inches ahead of the leading 
                                edge of the windshield.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

SEC. 475. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.

    (a) Start-Up Expenditures.--
            (1) Allowance of deduction.--Paragraph (1) of section 
        195(b) (relating to start-up expenditures) is amended to read 
        as follows:
            ``(1) Allowance of deduction.--If a taxpayer elects the 
        application of this subsection with respect to any start-up 
        expenditures--
                    ``(A) the taxpayer shall be allowed a deduction for 
                the taxable year in which the active trade or business 
                begins in an amount equal to the lesser of--
                            ``(i) the amount of start-up expenditures 
                        with respect to the active trade or business, 
                        or
                            ``(ii) $5,000, reduced (but not below zero) 
                        by the amount by which such start-up 
                        expenditures exceed $50,000, and
                    ``(B) the remainder of such start-up expenditures 
                shall be allowed as a deduction ratably over the 180-
                month period beginning with the month in which the 
                active trade or business begins.''.
            (2) Conforming amendment.--Subsection (b) of section 195 is 
        amended by striking ``Amortize'' and inserting ``Deduct'' in 
        the heading.
    (b) Organizational Expenditures.--Subsection (a) of section 248 
(relating to organizational expenditures) is amended to read as 
follows:
    ``(a) Election to Deduct.--If a corporation elects the application 
of this subsection (in accordance with regulations prescribed by the 
Secretary) with respect to any organizational expenditures--
            ``(1) the corporation shall be allowed a deduction for the 
        taxable year in which the corporation begins business in an 
        amount equal to the lesser of--
                    ``(A) the amount of organizational expenditures 
                with respect to the taxpayer, or
                    ``(B) $5,000, reduced (but not below zero) by the 
                amount by which such organizational expenditures exceed 
                $50,000, and
            ``(2) the remainder of such organizational expenditures 
        shall be allowed as a deduction ratably over the 180-month 
        period beginning with the month in which the corporation begins 
        business.''.
    (c) Treatment of Organizational and Syndication Fees or 
Partnerships.--
            (1) In general.--Section 709(b) (relating to amortization 
        of organization fees) is amended by redesignating paragraph (2) 
        as paragraph (3) and by amending paragraph (1) to read as 
        follows:
            ``(1) Allowance of deduction.--If a taxpayer elects the 
        application of this subsection (in accordance with regulations 
        prescribed by the Secretary) with respect to any organizational 
        expenses--
                    ``(A) the taxpayer shall be allowed a deduction for 
                the taxable year in which the partnership begins 
                business in an amount equal to the lesser of--
                            ``(i) the amount of organizational expenses 
                        with respect to the partnership, or
                            ``(ii) $5,000, reduced (but not below zero) 
                        by the amount by which such organizational 
                        expenses exceed $50,000, and
                    ``(B) the remainder of such organizational expenses 
                shall be allowed as a deduction ratably over the 180-
                month period beginning with the month in which the 
                partnership begins business.
            ``(2) Dispositions before close of amortization period.--In 
        any case in which a partnership is liquidated before the end of 
        the period to which paragraph (1)(B) applies, any deferred 
        expenses attributable to the partnership which were not allowed 
        as a deduction by reason of this section may be deducted to the 
        extent allowable under section 165.''.
            (2) Conforming amendment.--Subsection (b) of section 709 is 
        amended by striking ``Amortization'' and inserting 
        ``Deduction'' in the heading.
    (d) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after the date of the enactment of 
this Act.

SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED BY 
              GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

    (a) In General.--Subpart C of part II of subchapter E of chapter 1 
(relating to taxable year for which deductions taken) is amended by 
adding at the end the following new section:

``SEC. 470. DEDUCTIONS ALLOCABLE TO PROPERTY USED BY GOVERNMENTS OR 
              OTHER TAX-EXEMPT ENTITIES.

    ``(a) General Rule.--The aggregate amount of deductions otherwise 
allowable to the taxpayer with respect to tax-exempt use property for 
any taxable year shall not exceed the aggregate amount of income 
includible in gross income of the taxpayer for the taxable year with 
respect to such property.
    ``(b) Disallowed Deduction Carried to Next Year.--Except as 
otherwise provided in this section, any deduction with respect to any 
tax-exempt use property which is disallowed under subsection (a) shall, 
subject to the limitation under subsection (a), be treated as a 
deduction with respect to such property in the next taxable year.
    ``(c) Tax-Exempt Use Property.--For purposes of this section--
            ``(1) In general.--The term `tax-exempt use property' has 
        the meaning given such term by section 168(h), except that such 
        section shall be applied without regard to paragraphs 
        (2)(C)(ii) and (3).
            ``(2) Special rules for service contracts and similar 
        arrangements.--If tangible property is subject to a service 
        contract or other similar arrangement between a taxpayer (or 
        any related person) and any tax-exempt entity, such contract or 
        arrangement shall be treated in the same manner as if it were a 
        lease for purposes of determining whether such property is tax-
        exempt use property under paragraph (1).
    ``(d) Special Rules.--
            ``(1) Allocable deductions.--Subsection (a) shall apply 
        to--
                    ``(A) any deduction directly allocable to any tax-
                exempt use property, and
                    ``(B) a proper share of other deductions that are 
                not directly allocable to such property.
            ``(2) Property ceasing to be tax-exempt use property.--If 
        property of a taxpayer ceases to be tax-exempt use property in 
        the hands of the taxpayer--
                    ``(A) any unused deduction allocable to such 
                property under subsection (b) shall only be allowable 
                as a deduction for any taxable year to the extent of 
                any net income of the taxpayer allocable to such 
                property, and
                    ``(B) any portion of such unused deduction 
                remaining after application of subparagraph (A) shall, 
                subject to the limitation of subparagraph (A), be 
                treated as a deduction allocable to such property in 
                the next taxable year.
            ``(3) Disposition of entire interest in property.--If 
        during the taxable year a taxpayer disposes of the taxpayer's 
        entire interest in tax-exempt use property, rules similar to 
        the rules of section 469(g) shall apply for purposes of this 
        section.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the provisions of this 
section.''.
    (b) Conforming Amendment.--The table of sections for subpart C of 
part II of subchapter E of chapter 1 is amended by adding at the end 
the following new item:

``Sec. 470. Deductions allocable to property used by governments or 
                            other tax-exempt entities.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to leases and service contracts or similar arrangements entered 
into after the date of the enactment of this Act.

                   PART IV--ADMINISTRATIVE PROVISIONS

SEC. 481. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX FOR 
              CERTAIN DEEMED ASSET SALES.

    (a) In General.--Paragraph (13) of section 338(h) (relating to tax 
on deemed sale not taken into account for estimated tax purposes) is 
amended by adding at the end the following: ``The preceding sentence 
shall not apply with respect to a qualified stock purchase for which an 
election is made under paragraph (10).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to transactions occurring after the date of the enactment of this 
Act.

SEC. 482. EXTENSION OF IRS USER FEES.

    (a) In General.--Section 7528(c) (relating to termination) is 
amended by striking ``December 31, 2004'' and inserting ``September 30, 
2013''.
    (b) Effective Date.--The amendment made by this section shall apply 
to requests after the date of the enactment of this Act.

SEC. 483. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST ON 
              UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE FINANCIAL 
              ARRANGEMENT.

    (a) General Rule.--If--
            (1) a taxpayer eligible to participate in--
                    (A) the Department of the Treasury's Offshore 
                Voluntary Compliance Initiative, or
                    (B) the Department of the Treasury's voluntary 
                disclosure initiative which applies to the taxpayer by 
                reason of the taxpayer's underreporting of United 
                States income tax liability through financial 
                arrangements which rely on the use of offshore 
                arrangements which were the subject of the initiative 
                described in subparagraph (A), and
            (2) any interest or applicable penalty is imposed with 
        respect to any arrangement to which any initiative described in 
        paragraph (1) applied or to any underpayment of Federal income 
        tax attributable to items arising in connection with any 
        arrangement described in paragraph (1),
then, notwithstanding any other provision of law, the amount of such 
interest or penalty shall be equal to twice that determined without 
regard to this section.
    (b) Definitions and Rules.--For purposes of this section--
            (1) Applicable penalty.--The term ``applicable penalty'' 
        means any penalty, addition to tax, or fine imposed under 
        chapter 68 of the Internal Revenue Code of 1986.
            (2) Voluntary offshore compliance initiative.--The term 
        ``Voluntary Offshore Compliance Initiative'' means the program 
        established by the Department of the Treasury in January of 
        2003 under which any taxpayer was eligible to voluntarily 
        disclose previously undisclosed income on assets placed in 
        offshore accounts and accessed through credit card and other 
        financial arrangements.
            (3) Participation.--A taxpayer shall be treated as having 
        participated in the Voluntary Offshore Compliance Initiative if 
        the taxpayer submitted the request in a timely manner and all 
        information requested by the Secretary of the Treasury or his 
        delegate within a reasonable period of time following the 
        request.
    (c) Effective Date.--The provisions of this section shall apply to 
interest, penalties, additions to tax, and fines with respect to any 
taxable year if as of the date of the enactment of this Act, the 
assessment of any tax, penalty, or interest with respect to such 
taxable year is not prevented by the operation of any law or rule of 
law.

SEC. 484. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT AGREEMENTS.

    (a) In General.--
            (1) Section 6159(a) (relating to authorization of 
        agreements) is amended--
                    (A) by striking ``satisfy liability for payment 
                of'' and inserting ``make payment on'', and
                    (B) by inserting ``full or partial'' after 
                ``facilitate''.
            (2) Section 6159(c) (relating to Secretary required to 
        enter into installment agreements in certain cases) is amended 
        in the matter preceding paragraph (1) by inserting ``full'' 
        before ``payment''.
    (b) Requirement To Review Partial Payment Agreements Every Two 
Years.--Section 6159, as amended by this Act, is amended by 
redesignating subsections (d), (e), and (f) as subsections (e), (f), 
and (g), respectively, and inserting after subsection (c) the following 
new subsection:
    ``(d) Secretary Required To Review Installment Agreements for 
Partial Collection Every Two Years.--In the case of an agreement 
entered into by the Secretary under subsection (a) for partial 
collection of a tax liability, the Secretary shall review the agreement 
at least once every 2 years.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to agreements entered into on or after the date of the enactment 
of this Act.

SEC. 485. EXTENSION OF CUSTOMS USER FEES.

    Section 13031(j)(3) of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended by striking 
``March 31, 2004'' and inserting ``September 30, 2013''.

SEC. 486. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL 
              UNDERPAYMENTS.

    (a) In General.--Subchapter A of chapter 67 (relating to interest 
on underpayments) is amended by adding at the end the following new 
section:

``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL 
              UNDERPAYMENTS, ETC.

    ``(a) Authority To Make Deposits Other Than As Payment of Tax.--A 
taxpayer may make a cash deposit with the Secretary which may be used 
by the Secretary to pay any tax imposed under subtitle A or B or 
chapter 41, 42, 43, or 44 which has not been assessed at the time of 
the deposit. Such a deposit shall be made in such manner as the 
Secretary shall prescribe.
    ``(b) No Interest Imposed.--To the extent that such deposit is used 
by the Secretary to pay tax, for purposes of section 6601 (relating to 
interest on underpayments), the tax shall be treated as paid when the 
deposit is made.
    ``(c) Return of Deposit.--Except in a case where the Secretary 
determines that collection of tax is in jeopardy, the Secretary shall 
return to the taxpayer any amount of the deposit (to the extent not 
used for a payment of tax) which the taxpayer requests in writing.
    ``(d) Payment of Interest.--
            ``(1) In general.--For purposes of section 6611 (relating 
        to interest on overpayments), a deposit which is returned to a 
        taxpayer shall be treated as a payment of tax for any period to 
        the extent (and only to the extent) attributable to a 
        disputable tax for such period. Under regulations prescribed by 
        the Secretary, rules similar to the rules of section 6611(b)(2) 
        shall apply.
            ``(2) Disputable tax.--
                    ``(A) In general.--For purposes of this section, 
                the term `disputable tax' means the amount of tax 
                specified at the time of the deposit as the taxpayer's 
                reasonable estimate of the maximum amount of any tax 
                attributable to disputable items.
                    ``(B) Safe harbor based on 30-day letter.--In the 
                case of a taxpayer who has been issued a 30-day letter, 
                the maximum amount of tax under subparagraph (A) shall 
                not be less than the amount of the proposed deficiency 
                specified in such letter.
            ``(3) Other definitions.--For purposes of paragraph (2)--
                    ``(A) Disputable item.--The term `disputable item' 
                means any item of income, gain, loss, deduction, or 
                credit if the taxpayer--
                            ``(i) has a reasonable basis for its 
                        treatment of such item, and
                            ``(ii) reasonably believes that the 
                        Secretary also has a reasonable basis for 
                        disallowing the taxpayer's treatment of such 
                        item.
                    ``(B) 30-day letter.--The term `30-day letter' 
                means the first letter of proposed deficiency which 
                allows the taxpayer an opportunity for administrative 
                review in the Internal Revenue Service Office of 
                Appeals.
            ``(4) Rate of interest.--The rate of interest allowable 
        under this subsection shall be the Federal short-term rate 
        determined under section 6621(b), compounded daily.
    ``(e) Use of Deposits.--
            ``(1) Payment of tax.--Except as otherwise provided by the 
        taxpayer, deposits shall be treated as used for the payment of 
        tax in the order deposited.
            ``(2) Returns of deposits.--Deposits shall be treated as 
        returned to the taxpayer on a last-in, first-out basis.''.
    (b) Clerical Amendment.--The table of sections for subchapter A of 
chapter 67 is amended by adding at the end the following new item:

                              ``Sec. 6603. Deposits made to suspend 
                                        running of interest on 
                                        potential underpayments, 
                                        etc.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to deposits made after the date of the enactment of this 
        Act.
            (2) Coordination with deposits made under revenue procedure 
        84-58.--In the case of an amount held by the Secretary of the 
        Treasury or his delegate on the date of the enactment of this 
        Act as a deposit in the nature of a cash bond deposit pursuant 
        to Revenue Procedure 84-58, the date that the taxpayer 
        identifies such amount as a deposit made pursuant to section 
        6603 of the Internal Revenue Code (as added by this Act) shall 
        be treated as the date such amount is deposited for purposes of 
        such section 6603.

SEC. 487. QUALIFIED TAX COLLECTION CONTRACTS.

    (a) Contract Requirements.--
            (1) In general.--Subchapter A of chapter 64 (relating to 
        collection) is amended by adding at the end the following new 
        section:

``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.

    ``(a) In General.--Nothing in any provision of law shall be 
construed to prevent the Secretary from entering into a qualified tax 
collection contract.
    ``(b) Qualified Tax Collection Contract.--For purposes of this 
section, the term `qualified tax collection contract' means any 
contract which--
            ``(1) is for the services of any person (other than an 
        officer or employee of the Treasury Department)--
                    ``(A) to locate and contact any taxpayer specified 
                by the Secretary,
                    ``(B) to request full payment from such taxpayer of 
                an amount of Federal tax specified by the Secretary 
                and, if such request cannot be met by the taxpayer, to 
                offer the taxpayer an installment agreement providing 
                for full payment of such amount during a period not to 
                exceed 3 years, and
                    ``(C) to obtain financial information specified by 
                the Secretary with respect to such taxpayer,
            ``(2) prohibits each person providing such services under 
        such contract from committing any act or omission which 
        employees of the Internal Revenue Service are prohibited from 
        committing in the performance of similar services,
            ``(3) prohibits subcontractors from--
                    ``(A) having contacts with taxpayers,
                    ``(B) providing quality assurance services, and
                    ``(C) composing debt collection notices, and
            ``(4) permits subcontractors to perform other services only 
        with the approval of the Secretary.
    ``(c) Fees.--The Secretary may retain and use an amount not in 
excess of 25 percent of the amount collected under any qualified tax 
collection contract for the costs of services performed under such 
contract. The Secretary shall keep adequate records regarding amounts 
so retained and used. The amount credited as paid by any taxpayer shall 
be determined without regard to this subsection.
    ``(d) No Federal Liability.--The United States shall not be liable 
for any act or omission of any person performing services under a 
qualified tax collection contract.
    ``(e) Application of Fair Debt Collection Practices Act.--The 
provisions of the Fair Debt Collection Practices Act (15 U.S.C. 1692 et 
seq.) shall apply to any qualified tax collection contract, except to 
the extent superseded by section 6304, section 7602(c), or by any other 
provision of this title.
    ``(f) Cross References.--
            ``(1) For damages for certain unauthorized collection 
        actions by persons performing services under a qualified tax 
        collection contract, see section 7433A.
            ``(2) For application of Taxpayer Assistance Orders to 
        persons performing services under a qualified tax collection 
        contract, see section 7811(a)(4).''.
            (2) Conforming amendments.--
                    (A) Section 7809(a) is amended by inserting 
                ``6306,'' before ``7651''.
                    (B) The table of sections for subchapter A of 
                chapter 64 is amended by adding at the end the 
                following new item:

                              ``Sec. 6306. Qualified Tax Collection 
                                        Contracts.''.
    (b) Civil Damages for Certain Unauthorized Collection Actions by 
Persons Performing Services Under Qualified Tax Collection Contracts.--
            (1) In general.--Subchapter B of chapter 76 (relating to 
        proceedings by taxpayers and third parties) is amended by 
        inserting after section 7433 the following new section:

``SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS 
              BY PERSONS PERFORMING SERVICES UNDER QUALIFIED TAX 
              COLLECTION CONTRACTS.

    ``(a) In General.--Subject to the modifications provided by 
subsection (b), section 7433 shall apply to the acts and omissions of 
any person performing services under a qualified tax collection 
contract (as defined in section 6306(b)) to the same extent and in the 
same manner as if such person were an employee of the Internal Revenue 
Service.
    ``(b) Modifications.--For purposes of subsection (a)--
            ``(1) Any civil action brought under section 7433 by reason 
        of this section shall be brought against the person who entered 
        into the qualified tax collection contract with the Secretary 
        and shall not be brought against the United States.
            ``(2) Such person and not the United States shall be liable 
        for any damages and costs determined in such civil action.
            ``(3) Such civil action shall not be an exclusive remedy 
        with respect to such person.
            ``(4) Subsections (c), (d)(1), and (e) of section 7433 
        shall not apply.''.
            (2) Clerical amendment.--The table of sections for 
        subchapter B of chapter 76 is amended by inserting after the 
        item relating to section 7433 the following new item:

                              ``Sec. 7433A. Civil damages for certain 
                                        unauthorized collection actions 
                                        by persons performing services 
                                        under a qualified tax 
                                        collection contract.''.
    (c) Application of Taxpayer Assistance Orders to Persons Performing 
Services Under a Qualified Tax Collection Contract.--Section 7811 
(relating to taxpayer assistance orders) is amended by adding at the 
end the following new subsection:
    ``(g) Application to Persons Performing Services Under a Qualified 
Tax Collection Contract.--Any order issued or action taken by the 
National Taxpayer Advocate pursuant to this section shall apply to 
persons performing services under a qualified tax collection contract 
(as defined in section 6306(b)) to the same extent and in the same 
manner as such order or action applies to the Secretary.''.
    (d) Ineligibility of Individuals Who Commit Misconduct To Perform 
Under Contract.--Section 1203 of the Internal Revenue Service 
Restructuring Act of 1998 (relating to termination of employment for 
misconduct) is amended by adding at the end the following new 
subsection:
    ``(e) Individuals Performing Services Under a Qualified Tax 
Collection Contract.-- An individual shall cease to be permitted to 
perform any services under any qualified tax collection contract (as 
defined in section 6306(b) of the Internal Revenue Code of 1986) if 
there is a final determination by the Secretary of the Treasury under 
such contract that such individual committed any act or omission 
described under subsection (b) in connection with the performance of 
such services.''.
    (e) Effective Date.--The amendments made to this section shall take 
effect on the date of the enactment of this Act.

                    PART V--MISCELLANEOUS PROVISIONS

SEC. 491. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF TAXABLE 
              VACCINES.

    (a) In General.--Section 4132(a)(1) (defining taxable vaccine) is 
amended by redesignating subparagraphs (I), (J), (K), and (L) as 
subparagraphs (J), (K), (L), and (M), respectively, and by inserting 
after subparagraph (H) the following new subparagraph:
                    ``(I) Any vaccine against hepatitis A.''.
    (b) Conforming Amendment.--Section 9510(c)(1)(A) is amended by 
striking ``October 18, 2000'' and inserting ``May 8, 2003''.
    (c) Effective Date.--
            (1) Sales, etc.--The amendments made by this section shall 
        apply to sales and uses on or after the first day of the first 
        month which begins more than 4 weeks after the date of the 
        enactment of this Act.
            (2) Deliveries.--For purposes of paragraph (1) and section 
        4131 of the Internal Revenue Code of 1986, in the case of sales 
        on or before the effective date described in such paragraph for 
        which delivery is made after such date, the delivery date shall 
        be considered the sale date.

SEC. 492. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL RESIDENCE 
              ACQUIRED IN A LIKE-KIND EXCHANGE WITHIN 5 YEARS OF SALE.

    (a) In General.--Section 121(d) (relating to special rules for 
exclusion of gain from sale of principal residence) is amended by 
adding at the end the following new paragraph:
            ``(10) Property acquired in like-kind exchange.--If a 
        taxpayer acquired property in an exchange to which section 1031 
        applied, subsection (a) shall not apply to the sale or exchange 
        of such property if it occurs during the 5-year period 
        beginning with the date of the acquisition of such property.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to sales or exchanges after the date of the enactment of this Act.

SEC. 493. CLARIFICATION OF EXEMPTION FROM TAX FOR SMALL PROPERTY AND 
              CASUALTY INSURANCE COMPANIES.

    (a) In General.--Section 501(c)(15)(A) is amended to read as 
follows:
                    ``(A) Insurance companies (as defined in section 
                816(a)) other than life (including interinsurers and 
                reciprocal underwriters) if--
                            ``(i) the gross receipts for the taxable 
                        year do not exceed $600,000, and
                            ``(ii) more than 50 percent of such gross 
                        receipts consist of premiums.''.
    (b) Controlled Group Rule.--Section 501(c)(15)(C) is amended by 
inserting ``, except that in applying section 1563 for purposes of 
section 831(b)(2)(B)(ii), subparagraphs (B) and (C) of section 
1563(b)(2) shall be disregarded'' before the period at the end.
    (c) Conforming Amendment.--Clause (i) of section 831(b)(2)(A) is 
amended by striking ``exceed $350,000 but''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 494. DEFINITION OF INSURANCE COMPANY FOR SECTION 831.

    (a) In General.--Section 831 is amended by redesignating subsection 
(c) as subsection (d) and by inserting after subsection (b) the 
following new subsection:
    ``(c) Insurance Company Defined.--For purposes of this section, the 
term `insurance company' has the meaning given to such term by section 
816(a)).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 495. LIMITATIONS ON DEDUCTION FOR CHARITABLE CONTRIBUTIONS OF 
              PATENTS AND SIMILAR PROPERTY.

    (a) Deduction Allowed Only to the Extent of Basis.--Section 
170(e)(1)(B) (relating to certain contributions of ordinary income and 
capital gain property) is amended by striking ``or'' at the end of 
clause (i), by adding ``or'' at the end of clause (ii), and by 
inserting after clause (ii) the following new clause:
                            ``(iii) of any patent, copyright, 
                        trademark, trade name, trade secret, know-how, 
                        software, or similar property, or applications 
                        or registrations of such property,''.
    (b) Treatment of Contributions Where Donor Receives Interest.--
Section 170(e) is amended by adding at the end the following new 
paragraph:
            ``(7) Special rules for contributions of patents and 
        similar property where donor receives interest.--
                    ``(A) Disallowance of deduction.--No deduction 
                shall be allowed under this section with respect to a 
                contribution of property described in paragraph 
                (1)(B)(iii) if the taxpayer after the contribution has 
                any interest in the property other than a qualified 
                interest.
                    ``(B) Contributions with qualified interest.--If a 
                taxpayer after a contribution of property described in 
                paragraph (1)(B)(iii) has a qualified interest in the 
                property--
                            ``(i) any payment pursuant to the qualified 
                        interest shall be treated as ordinary income 
                        and shall be includible in gross income of the 
                        taxpayer for the taxable year in which the 
                        payment is received by the taxpayer, and
                            ``(ii) subsection (f)(3) and section 
                        1011(b) shall not apply to the transfer of the 
                        property from the taxpayer to the donee.
                    ``(C) Qualified interest.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `qualified 
                        interest' means, with respect to any taxpayer, 
                        a right to receive from the donee a percentage 
                        (not greater than 50 percent) of any royalty 
                        payment received by the donee with respect to 
                        property described in paragraph (1)(B)(iii) 
                        (other than copyrights which are described in 
section 1221(a)(3) or 1231(b)(1)(C)) contributed by the taxpayer to the 
donee.
                            ``(ii) Secretarial authority.--
                                    ``(I) In general.--Except as 
                                provided in subclause (II), the 
                                Secretary may by regulation or other 
                                administrative guidance treat as a 
                                qualified interest the right to receive 
                                other payments from the donee, but only 
                                if the donee does not possess a right 
                                to receive any payment (whether 
                                royalties or otherwise) from a third 
                                party with respect to the contributed 
                                property.
                                    ``(II) Exceptions.--The Secretary 
                                may not treat as a qualified interest 
                                the right to receive any payment which 
                                provides a benefit to the donor which 
                                is greater than the benefit retained by 
                                the donee or the right to receive any 
                                portion of the proceeds from the sale 
                                of the property contributed.
                            ``(iii) Limitation.--An interest shall be 
                        treated as a qualified interest under this 
                        subparagraph only if the taxpayer has no right 
                        to receive any payment described in clause (i) 
                        or (ii)(I) after the earlier of the date on 
                        which the legal life of the contributed 
                        property expires or the date which is 20 years 
                        after the date of the contribution.''.
    (c) Reporting Requirements.--
            (1) In general.--Section 6050L(a) (relating to returns 
        regarding certain dispositions of donated property) is 
        amended--
                    (A) by striking ``If'' and inserting:
            ``(1) Dispositions of donated property.--If'',
                    (B) by redesignating paragraphs (1) through (5) as 
                subparagraphs (A) through (E), respectively, and
                    (C) by adding at the end the following new 
                paragraph:
            ``(2) Payments of qualified interests.--Each donee of 
        property described in section 170(e)(1)(B)(iii) which makes a 
        payment to a donor pursuant to a qualified interest (as defined 
        in section 170(e)(7)) during any calendar year shall make a 
        return (in accordance with forms and regulations prescribed by 
        the Secretary) showing--
                    ``(A) the name, address, and TIN of the payor and 
                the payee with respect to such a payment,
                    ``(B) a description, and date of contribution, of 
                the property to which the qualified interest relates,
                    ``(C) the dates and amounts of any royalty payments 
                received by the donee with respect to such property,
                    ``(D) the date and the amount of the payment 
                pursuant to the qualified interest, and
                    ``(E) a description of the terms of the qualified 
                interest.''.
            (2) Conforming amendments.--
                    (A) The heading for section 6050L is amended by 
                striking ``certain dispositions of''.
                    (B) The item relating to section 6050L in the table 
                of sections for subpart B of part III of subchapter A 
                of chapter 61 is amended by striking ``certain 
                dispositions of''.
    (d) Anti-Abuse Rules.--The Secretary of the Treasury may prescribe 
such regulations or other administrative guidance as may be necessary 
or appropriate to prevent the avoidance of the purposes of section 
170(e)(1)(B)(iii) of the Internal Revenue Code of 1986 (as added by 
subsection (a)), including preventing--
            (1) the circumvention of the reduction of the charitable 
        deduction by embedding or bundling the patent or similar 
        property as part of a charitable contribution of property that 
        includes the patent or similar property,
            (2) the manipulation of the basis of the property to 
        increase the amount of the charitable deduction through the use 
        of related persons, pass-thru entities, or other 
        intermediaries, or through the use of any provision of law or 
        regulation (including the consolidated return regulations), and
            (3) a donor from changing the form of the patent or similar 
        property to property of a form for which different deduction 
        rules would apply.
    (e) Effective Date.--The amendments made by this section shall 
apply to contributions made after October 1, 2003.

SEC. 496. REPEAL OF 10-PERCENT REHABILITATION TAX CREDIT.

    Section 47 is amended by adding at the end the following new 
subsection:
    ``(e) Termination.--This section shall not apply to expenditures 
described in subsection (a)(1) incurred in taxable years beginning 
after December 31, 2003.''.

SEC. 497. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED INCOME IS 
              TAXED AS IF PARENT'S INCOME.

    (a) In General.--Section 1(g)(2)(A) (relating to child to whom 
subsection applies) is amended by striking ``age 14'' and inserting 
``age 18''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.




                                                       Calendar No. 381

108th CONGRESS

  1st Session

                                S. 1637

                          [Report No. 108-192]

_______________________________________________________________________

                                 A BILL

  To amend the Internal Revenue Code of 1986 to comply with the World 
  Trade Organization rulings on the FSC/ETI benefit in a manner that 
   preserves jobs and production activities in the United States, to 
  reform and simplify the international taxation rules of the United 
                    States, and for other purposes.

_______________________________________________________________________

                            November 7, 2003

                       Reported with an amendment