[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 2 Reported in Senate (RS)]
[[Page 1]]
Calendar No. 90
108th CONGRESS
1st Session
S. 2
To amend the Internal Revenue Code of 1986 to provide additional tax
incentives to encourage economic growth.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
February 27, 2003
Mr. Nickles (for himself, Mr. Miller, Mr. Kyl, Mr. Smith, Mr. Cochran,
Mrs. Hutchison, Mr. Santorum, and Mr. Chambliss) (by request)
introduced the following bill; which was read twice and referred to the
Committee on Finance
May 9, 2003
Reported by Mr. Grassley, with an amendment and an amendment to the
title
[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 provide additional tax
incentives to encourage economic growth.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
[[Page 2]]
<DELETED>SECTION 1. SHORT TITLE; REFERENCES; TABLE OF
CONTENTS.</DELETED>
<DELETED> (a) Short Title.--This Act may be cited as the ``Jobs and
Growth Tax Act of 2003''.</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.--The table of contents of this Act
is as follows:</DELETED>
<DELETED>Sec. 1. Short title; references; table of contents.
<DELETED>TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX
REDUCTIONS; INCREASED EXPENSING FOR SMALL BUSINESSES
<DELETED>Sec. 101. Acceleration of 10-percent individual income tax
rate bracket expansion.
<DELETED>Sec. 102. Acceleration of reduction in individual income tax
rates.
<DELETED>Sec. 103. Acceleration of 15-percent individual income tax
rate bracket expansion for married
taxpayers filing joint returns.
<DELETED>Sec. 104. Acceleration of increase in standard deduction for
married taxpayers filing joint returns.
<DELETED>Sec. 105. Acceleration of increase in child tax credit.
<DELETED>Sec. 106. Increased expensing for small business.
<DELETED>Sec. 107. Minimum tax relief to individuals.
<DELETED>Sec. 108. Application of EGTRRA sunset to this title.
<DELETED>TITLE II--DIVIDEND EXCLUSION TO ELIMINATE DOUBLE TAXATION OF
CORPORATE EARNINGS
<DELETED>Sec. 201. Dividend exclusion to eliminate double taxation of
corporate earnings.
<DELETED>Sec. 202. Rules for application of dividend exclusion and
retained earnings basis adjustments.
<DELETED>Sec. 203. Treatment of regulated investment companies and real
estate investment trusts.
<DELETED>Sec. 204. Treatment of insurance companies.
<DELETED>Sec. 205. Treatment of S corporations.
[[Page 3]]
<DELETED>Sec. 206. Repeal of accumulated earnings tax and personal
holding company tax.
<DELETED>Sec. 207. Effective dates.
<DELETED>TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX
REDUCTIONS; INCREASED EXPENSING FOR SMALL BUSINESSES</DELETED>
<DELETED>SEC. 101. ACCELERATION OF 10-PERCENT INDIVIDUAL INCOME TAX
RATE BRACKET EXPANSION.</DELETED>
<DELETED> (a) In General.--Clause (i) of section 1(i)(1)(B)
(relating to the initial bracket amount) is amended by striking
``($12,000 in the case of taxable years beginning before January 1,
2008)''.</DELETED>
<DELETED> (b) Inflation Adjustment Beginning in 2003.--Section
1(i)(1)(C) (relating to inflation adjustment) is amended to read as
follows:</DELETED>
<DELETED> ``(C) Inflation adjustment.--In
prescribing the tables under subsection (f) which apply
with respect to taxable years beginning in calendar
years after 2002--</DELETED>
<DELETED> ``(i) the cost-of-living
adjustment used in making adjustments to the
initial bracket amount shall be determined
under subsection (f)(3) by substituting `2001'
for `1992' in subparagraph (B) thereof,
and</DELETED>
[[Page 4]]
<DELETED> ``(ii) such adjustment shall not
apply to the amount referred to in subparagraph
(B)(iii).</DELETED>
<DELETED>If any amount after adjustment under the
preceding sentence is not a multiple of $50, such
amount shall be rounded to the next lowest multiple of
$50.''.</DELETED>
<DELETED> (c) Effective Date.--</DELETED>
<DELETED> (1) In general.--The amendments made by this
section shall apply to taxable years beginning after December
31, 2002.</DELETED>
<DELETED> (2) Tables for 2003.--The Secretary of the
Treasury shall modify each table which has been prescribed for
taxable years beginning in 2003 and which relates to any
amendment made by this section, section 102, or section 103 to
reflect each such amendment.</DELETED>
<DELETED>SEC. 102. ACCELERATION OF REDUCTION IN INDIVIDUAL INCOME TAX
RATES.</DELETED>
<DELETED> (a) In General.--The table in paragraph (2) of section
1(i) (relating to reductions in rates after June 30, 2001) is amended
to read as follows:</DELETED>
------------------------------------------------------------------------
The corresponding percentages shall
``In the case of be substituted for the following
taxable years percentages:
beginning during ------------------------------------
calendar year: 28% 31% 36% 39.6%
------------------------------------------------------------------------
2001................. 27.5% 30.5% 35.5% 39.1%
2002................. 27.0% 30.0% 35.0% 38.6%
2003 and thereafter.. 25.0% 28.0% 33.0% 35.0%''.
------------------------------------------------------------------------
[[Page 5]]
<DELETED> (b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2002.</DELETED>
<DELETED>SEC. 103. ACCELERATION OF 15-PERCENT INDIVIDUAL INCOME TAX
RATE BRACKET EXPANSION FOR MARRIED TAXPAYERS FILING JOINT
RETURNS.</DELETED>
<DELETED> (a) In General.--Paragraph (8) of section 1(f) (relating
to phaseout of marriage penalty in 15-percent bracket) is amended to
read as follows:</DELETED>
<DELETED> ``(8) Elimination of marriage penalty in 15-
percent bracket.--With respect to taxable years beginning after
December 31, 2002, in prescribing the tables under paragraph
(1)--</DELETED>
<DELETED> ``(A) the maximum taxable income in the 15
percent rate bracket in the table contained in
subsection (a) (and the minimum taxable income in the
next higher taxable income bracket in such table) shall
be 200 percent of the maximum taxable income in the 15-
percent rate bracket in the table contained in
subsection (c) (after any other adjustment under this
subsection), and</DELETED>
<DELETED> ``(B) the comparable taxable income
amounts in the table contained in subsection
[[Page 6]]
(d) shall be </DELETED>\<DELETED>1/2</DELETED>\
<DELETED>of the amounts determined under subparagraph
(A).''.</DELETED>
<DELETED> (b) Conforming Amendments.--</DELETED>
<DELETED> (1) The heading for subsection (f) of section 1 is
amended by striking ``Phaseout'' and inserting
``Elimination''.</DELETED>
<DELETED> (2) Section 302(c) of the Economic Growth and Tax
Relief Reconciliation Act of 2001 is amended by striking
``2004'' and inserting ``2002''.</DELETED>
<DELETED> (c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2002.</DELETED>
<DELETED>SEC. 104. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR
MARRIED TAXPAYERS FILING JOINT RETURNS.</DELETED>
<DELETED> (a) In General.--Paragraph (2) of section 63(c) (relating
to basic standard deduction) is amended to read as follows:</DELETED>
<DELETED> ``(2) Basic standard deduction.--For purposes of
paragraph (1), the basic standard deduction is--</DELETED>
<DELETED> ``(A) 200 percent of the dollar amount in
effect under subparagraph (C) for the taxable year in
the case of--</DELETED>
<DELETED> ``(i) a joint return, or</DELETED>
[[Page 7]]
<DELETED> ``(ii) a surviving spouse (as
defined in section 2(a)),</DELETED>
<DELETED> ``(B) $4,400 in the case of a head of
household (as defined in section 2(b)), or</DELETED>
<DELETED> ``(C) $3,000 in any other
case.''.</DELETED>
<DELETED> (b) Conforming Amendments.--</DELETED>
<DELETED> (1) Section 63(c)(4) is amended by striking
``(2)(D)'' each place it occurs and inserting
``(2)(C)''.</DELETED>
<DELETED> (2) Section 63(c) is amended by striking paragraph
(7).</DELETED>
<DELETED> (3) Section 301(d) of the Economic Growth and Tax
Relief Reconciliation Act of 2001 is amended by striking
``2004'' and inserting ``2002''.</DELETED>
<DELETED> (c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2002.</DELETED>
<DELETED>SEC. 105. ACCELERATION OF INCREASE IN CHILD TAX
CREDIT.</DELETED>
<DELETED> (a) In General.--Subsection (a) of section 24 (relating to
child tax credit) is amended to read as follows:</DELETED>
<DELETED> ``(a) Allowance of Credit.--There shall be allowed as a
credit against the tax imposed by this chapter for the taxable year
with respect to each qualifying child of the taxpayer an amount equal
to $1,000.''.</DELETED>
[[Page 8]]
<DELETED> (b) Advance Payment of Portion of Increased Credit in
2003.--</DELETED>
<DELETED> (1) In general.--Subchapter B of chapter 65
(relating to abatements, credits, and refunds) is amended by
adding at the end the following new section:</DELETED>
<DELETED>``SEC. 6429. ADVANCE PAYMENT OF PORTION OF INCREASED CHILD
CREDIT.</DELETED>
<DELETED> ``(a) In General.--Each eligible taxpayer shall be treated
as having made a payment against the tax imposed by chapter 1 for such
taxpayer's first taxable year beginning in 2002 in an amount equal to
the child tax credit refund amount.</DELETED>
<DELETED> ``(b) Eligible Taxpayer.--For purposes of this section,
the term `eligible taxpayer' means any taxpayer if--</DELETED>
<DELETED> ``(1) such taxpayer was allowed a credit under
section 24 for such taxpayer's first taxable year beginning in
2002, and</DELETED>
<DELETED> ``(2) at least one qualifying child (as defined in
section 24(c)) of the taxpayer for such year meets the age
requirement for 2003.</DELETED>
<DELETED> ``(c) Child Tax Credit Refund Amount.--</DELETED>
[[Page 9]]
<DELETED> ``(1) In general.--For purposes of this section,
the child tax credit refund amount is equal to the excess (if
any) of--</DELETED>
<DELETED> ``(A) the amount which would have been
allowed as a credit under section 24 for the taxpayer's
first taxable year beginning in 2002 if--</DELETED>
<DELETED> ``(i) the per child amount for
such year were $1,000, and</DELETED>
<DELETED> ``(ii) only qualifying children
(as defined in section 24(c)) of the taxpayer
for such year who meet the age requirement for
2003 were taken into account, over</DELETED>
<DELETED> ``(B) the amount which would have been
allowed as a credit under section 24 for the taxpayer's
first taxable year beginning in 2002 if only qualifying
children (as defined in section 24(c)) of the taxpayer
for such year who meet the age requirement for 2003
were taken into account.</DELETED>
<DELETED> ``(2) Adjustments.--The amounts described in
subparagraphs (A) and (B) of paragraph (1) shall be
determined--</DELETED>
<DELETED> ``(A) without regard to section
24(d)(1)(B)(ii), and</DELETED>
[[Page 10]]
<DELETED> ``(B) as if the credit allowed under
section 24(d) were allowed under section 24.</DELETED>
<DELETED> ``(d) Age Requirement.--A child of a taxpayer meets the
age requirement for 2003 if such child meets the requirement of section
24(c)(1)(B) for the taxpayer's first taxable year beginning in
2003.</DELETED>
<DELETED> ``(e) Timing of Payments.--In the case of any overpayment
attributable to this section, the Secretary shall, subject to the
provisions of this title, refund or credit such overpayment as rapidly
as possible and, to the extent practicable, before December 31,
2003.</DELETED>
<DELETED> ``(f) Coordination with Child Tax Credit.--</DELETED>
<DELETED> ``(1) In general.--The amount of credit which
would (but for this paragraph) be allowable under section 24
for the taxpayer's first taxable year beginning in 2003 shall
be reduced (but not below zero) by the aggregate refunds and
credits made or allowed to the taxpayer under this section. Any
failure to so reduce the credit shall be treated as arising out
of a mathematical or clerical error and assessed according to
section 6213(b)(1).</DELETED>
<DELETED> ``(2) Joint returns.--In the case of a refund or
credit made or allowed under this section with respect to a
joint return, half of such refund or credit
[[Page 11]]
shall be treated as having been made or allowed to each
individual filing such return.</DELETED>
<DELETED> ``(g) No Interest.--No interest shall be allowed on any
overpayment attributable to this section.''.</DELETED>
<DELETED> (2) Clerical amendment.--The table of sections for
subchapter B of chapter 65 is amended by adding at the end the
following new item:</DELETED>
<DELETED>``Sec. 6429. Advance payment of portion of increased
child credit.''.
<DELETED> (c) Effective Dates.--</DELETED>
<DELETED> (1) Subsection (a).--The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2002.</DELETED>
<DELETED> (2) Subsection (b).--The amendments made by
subsection (b) shall take effect on the date of the enactment
of this Act.</DELETED>
<DELETED>SEC. 106. INCREASED EXPENSING FOR SMALL BUSINESS.</DELETED>
<DELETED> (a) In General.--Paragraph (1) of section 179(b) (relating
to dollar limitation) is amended to read as follows:</DELETED>
<DELETED> ``(1) Dollar limitation.--The aggregate cost which
may be taken into account under subsection (a) for any taxable
year shall not exceed $75,000.''.</DELETED>
<DELETED> (b) Increase in Qualifying Investment at Which Phaseout
Begins.--Paragraph (2) of section 179(b) (relating to reduction in
limitation) is amended by striking ``$200,000'' and inserting
``$325,000''.</DELETED>
[[Page 12]]
<DELETED> (c) Off-the-Shelf Computer Software.--Paragraph (1) of
section 179(d) (defining section 179 property) is amended to read as
follows:</DELETED>
<DELETED> ``(1) Section 179 property.--For purposes of this
section, the term `section 179 property' means property--
</DELETED>
<DELETED> ``(A) which is--</DELETED>
<DELETED> ``(i) tangible property (to which
section 168 applies), or</DELETED>
<DELETED> ``(ii) computer software (as
defined in section 197(e)(3)(B)) which is
described in section 197(e)(3)(A)(i) and to
which section 167 applies,</DELETED>
<DELETED> ``(B) which is section 1245 property (as
defined in section 1245(a)(3)), and</DELETED>
<DELETED> ``(C) which is acquired by purchase for
use in the active conduct of a trade or
business.</DELETED>
<DELETED>Such term shall not include any property described in
section 50(b) and shall not include air conditioning or heating
units.''.</DELETED>
<DELETED> (d) Adjustment of Dollar Limit and Phaseout Threshold for
Inflation.--Subsection (b) of section 179 (relating to limitations) is
amended by adding at the end the following new paragraph:</DELETED>
<DELETED> ``(5) Inflation adjustments.--</DELETED>
[[Page 13]]
<DELETED> ``(A) In general.--In the case of any
taxable year beginning in a calendar year after 2003,
the dollar amounts in paragraphs (1) and (2) shall each
be increased by an amount equal to--</DELETED>
<DELETED> ``(i) such dollar amount,
multiplied by</DELETED>
<DELETED> ``(ii) the cost-of-living
adjustment determined under section 1(f)(3) for
the calendar year in which the taxable year
begins, by substituting `calendar year 2002'
for `calendar year 1992' in subparagraph (B)
thereof.</DELETED>
<DELETED> ``(B) Rounding.--</DELETED>
<DELETED> ``(i) Dollar limitation.--If the
amount in paragraph (1) as increased under
subparagraph (A) is not a multiple of $1,000,
such amount shall be rounded to the nearest
multiple of $1,000.</DELETED>
<DELETED> ``(ii) Phaseout amount.--If the
amount in paragraph (2) as increased under
subparagraph (A) is not a multiple of $10,000,
such amount shall be rounded to the nearest
multiple of $10,000.''.</DELETED>
[[Page 14]]
<DELETED> (e) Revocation of Election.--Paragraph (2) of section
179(c) (relating to election irrevocable) is amended to read as
follows:</DELETED>
<DELETED> ``(2) Revocation of election.--The taxpayer may
revoke an election under paragraph (1), and any specification
contained in any such election, with respect to any property.
Such revocation, once made, shall be irrevocable.''.</DELETED>
<DELETED> (f) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2002.</DELETED>
<DELETED>SEC. 107. MINIMUM TAX RELIEF TO INDIVIDUALS.</DELETED>
<DELETED> (a) In General.--So much of paragraph (1) of section 55(d)
(relating to exemption amount for taxpayers other than corporations) as
precedes subparagraph (C) thereof is amended to read as
follows:</DELETED>
<DELETED> ``(1) Exemption amount for taxpayers other than
corporations.--In the case of a taxpayer other than a
corporation, the term `exemption amount' means as
follows:</DELETED>
<DELETED> ``(A) Joint return and surviving spouse.--
In the case of a joint return or a surviving spouse,
the amount under the following table:</DELETED>
<DELETED>``In the case of taxable The exemption
years beginning: amount is:
<DELETED>Before 2001............................... $45,000
[[Page 15]]
<DELETED>In 2001 and 2002.......................... $49,000
<DELETED>In 2003, 2004, and 2005................... $57,000
<DELETED>After 2005................................ $45,000.
<DELETED> ``(B) Individual not married and not a
surviving spouse.--In the case of an individual who is
not a married individual and is not a surviving spouse,
the amount under the following table:</DELETED>
<DELETED>``In the case of taxable The exemption
years beginning: amount is:
<DELETED>Before 2001............................... $33,750
<DELETED>In 2001 and 2002.......................... $35,750
<DELETED>In 2003, 2004, and 2005................... $39,750
<DELETED>After 2005................................ $33,750.''.
<DELETED> (b) Conforming Amendments.--</DELETED>
<DELETED> (1) Section 55(d)(1)(C) is amended--</DELETED>
<DELETED> (A) by striking ``, and'' and inserting a
period, and</DELETED>
<DELETED> (B) by striking ``50 percent'' and
inserting ``Married individual filing a separate
return.--50 percent''.</DELETED>
<DELETED> (2) Section 55(d)(1)(D) is amended by striking
``$22,500'' and inserting ``Estate and trust.--
$22,500''.</DELETED>
<DELETED> (c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2002.</DELETED>
[[Page 16]]
<DELETED>SEC. 108. APPLICATION OF EGTRRA SUNSET TO THIS
TITLE.</DELETED>
<DELETED> Each amendment made by this title (other than section 106)
shall be subject to title IX of the Economic Growth and Tax Relief
Reconciliation Act of 2001 to the same extent and in the same manner as
the provision of such Act to which such amendment relates.</DELETED>
<DELETED>TITLE II--DIVIDEND EXCLUSION TO ELIMINATE DOUBLE TAXATION OF
CORPORATE EARNINGS</DELETED>
<DELETED>SEC. 201. DIVIDEND EXCLUSION TO ELIMINATE DOUBLE TAXATION OF
CORPORATE EARNINGS.</DELETED>
<DELETED> (a) In General.--Part III of subchapter B of chapter 1 is
amended by inserting after section 115 the following new
section:</DELETED>
<DELETED>``SEC. 116. DIVIDEND EXCLUSION TO ELIMINATE DOUBLE TAXATION OF
CORPORATE EARNINGS.</DELETED>
<DELETED> ``(a) Exclusion.--Gross income does not include the
excludable portion (as defined in section 281) of any amount received
as a dividend.</DELETED>
<DELETED> ``(b) Comparable Treatment for Retained Earnings.--If the
excludable dividend amount (as defined in section 281) of any
corporation for any calendar year exceeds the dividends paid by the
corporation in such calendar year, the basis of stock in the
corporation shall
[[Page 17]]
be increased in the manner and to the extent provided in section
282.</DELETED>
<DELETED> ``(c) Reporting to Shareholders.--For reporting to
shareholders, see section 6042.''</DELETED>
<DELETED> (b) Clerical Amendment.--The table of sections for such
part III is amended by inserting after the item relating to section 115
the following new item:</DELETED>
<DELETED>``Sec. 116. Dividend exclusion
to eliminate double taxation of
corporate earnings.''
<DELETED>SEC. 202. RULES FOR APPLICATION OF DIVIDEND EXCLUSION AND
RETAINED EARNINGS BASIS ADJUSTMENTS.</DELETED>
<DELETED> (a) In General.--Subchapter B of chapter 1 (as amended by
subsection (d)) is amended by inserting after part IX the following new
part:</DELETED>
<DELETED>``PART X--RULES FOR APPLICATION OF DIVIDEND EXCLUSION AND
RETAINED EARNINGS BASIS ADJUSTMENTS.</DELETED>
<DELETED>``Sec. 281. Excludable portion
of dividends.
<DELETED>``Sec. 282. Retained earnings
basis adjustments.
<DELETED>``Sec. 283. Treatment of
distributions after previous
retained earnings basis
adjustments.
<DELETED>``Sec. 284. Special rules for
credits and refunds.
<DELETED>``Sec. 285. Special rules for
foreign corporations and
shareholders.
<DELETED>``Sec. 286. Other special rules.
<DELETED>``Sec. 287. Regulations.
<DELETED>``SEC. 281. EXCLUDABLE PORTION OF DIVIDENDS.</DELETED>
<DELETED> ``(a) Excludable Portion.--For purposes of section 116,
the term `excludable portion' means, with respect to any dividend paid
by a corporation in a calendar year,
[[Page 18]]
an amount which bears the same ratio to such dividend as the excludable
dividend amount of such corporation for the calendar year bears to the
total amount of dividends paid by such corporation in such calendar
year.</DELETED>
<DELETED> ``(b) Excludable Dividend Amount.--For purposes of this
part and section 116--</DELETED>
<DELETED> ``(1) In general.--The term `excludable dividend
amount' means, with respect to any corporation for any calendar
year, the excess of--</DELETED>
<DELETED> ``(A) the sum of--</DELETED>
<DELETED> ``(i) the fully taxed earnings
amount for the preceding calendar
year,</DELETED>
<DELETED> ``(ii) the aggregate amount of
dividends received by the corporation during
such preceding year which are excluded from
gross income under section 116(a),
and</DELETED>
<DELETED> ``(iii) the aggregate amount of
increases during such preceding year under
section 116(b) in the basis of stock held by
the corporation, over</DELETED>
<DELETED> ``(B) the amount of applicable income tax
taken into account under subparagraph (A)(i).</DELETED>
<DELETED> ``(2) Carryover of excess of excludable dividend
amount over earnings and profits.--
[[Page 19]]
The excludable dividend amount of a corporation for any
calendar year shall be increased by the excess of--</DELETED>
<DELETED> ``(A) the excludable dividend amount of
such corporation for the preceding calendar year,
over</DELETED>
<DELETED> ``(B) the maximum amount which could have
been paid by the corporation as dividends during such
preceding calendar year.</DELETED>
<DELETED> ``(c) Fully Taxed Earnings Amount.--</DELETED>
<DELETED> ``(1) In general.--The fully taxed earnings amount
for any calendar year is the amount of the applicable income
tax shown on applicable returns for such year divided by the
highest rate of tax specified in section 11.</DELETED>
<DELETED> ``(2) Increase for prior year assessments.--The
fully taxed earnings amount for any calendar year shall be
increased by the amount of any applicable income tax (not
previously taken into account under paragraph (1)) which is
assessed during such year divided by the highest rate of tax
specified in section 11.</DELETED>
<DELETED> ``(3) Limitation to amount paid.--If an amount
described in paragraph (1) or (2) is paid after the close of
the calendar year in which such
[[Page 20]]
amount would (but for this paragraph) be taken into account,
such amount shall be taken into account for the calendar year
in which paid.</DELETED>
<DELETED> ``(4) Highest rate of tax.--For purposes of this
subsection, the highest rate of tax specified in section 11
with respect to any applicable income tax shall be such highest
rate for the taxable year for which (or by reference to which)
such tax is determined.</DELETED>
<DELETED> ``(d) Definitions.--For purposes of this part--</DELETED>
<DELETED> ``(1) Applicable income tax.--</DELETED>
<DELETED> ``(A) In general.--The term `applicable
income tax' means the excess (if any) of--</DELETED>
<DELETED> ``(i) the sum of the taxes imposed
by sections 11, 55, 511, 801, 831, 882, 1201,
1291 (without regard to section 1291(c)(1)(B)),
and 1374, over</DELETED>
<DELETED> ``(ii) the sum of the credits
under part IV of subchapter A (other than
subpart C and section 27(a)).</DELETED>
<DELETED> ``(B) Transitional rules.--</DELETED>
<DELETED> ``(i) In general.--Such term shall
not include any tax imposed for any taxable
year ending before April 1, 2001.</DELETED>
[[Page 21]]
<DELETED> ``(ii) Treatment of minimum tax
credit.--The applicable income tax shall not be
reduced by the credit under section 53
attributable (determined as if such credit were
used on a first-in first-out basis) to taxable
years ending before April 1, 2001.</DELETED>
<DELETED> ``(iii) Section 1374.--The
reference to section 1374 in subparagraph
(A)(i) shall not apply to taxable years
beginning before January 1, 2003.</DELETED>
<DELETED> ``(iv) Other taxes included.--The
taxes imposed by sections 531 and 541 (as in
effect before their repeal) shall be taken into
account under subparagraph (A)(i) for taxable
years ending after March 30, 2001, and
beginning before January 1, 2003.</DELETED>
<DELETED> ``(2) Applicable return.--</DELETED>
<DELETED> ``(A) In general.--The term `applicable
return' means, with respect to a calendar year, any
return of applicable income tax for a taxable year if
the 15th day of the 8th month following the close of
such taxable year occurs during such calendar
year.</DELETED>
[[Page 22]]
<DELETED> ``(B) Filing requirement.--If a return is
filed after the close of the calendar year with respect
to which such return would (but for this subparagraph)
be treated as an applicable return under subparagraph
(A), such return shall be treated as an applicable
return for the calendar year in which filed.</DELETED>
<DELETED>``SEC. 282. RETAINED EARNINGS BASIS ADJUSTMENTS.</DELETED>
<DELETED> ``(a) In General.--If any portion of the excess described
in section 116(b) is allocated to a share of stock in a corporation
under subsection (b), the basis of such share shall be increased by the
amount so allocated.</DELETED>
<DELETED> ``(b) Allocation of Excess.--</DELETED>
<DELETED> ``(1) In general.--A corporation may allocate the
excess described in section 116(b) for any calendar year to
shares of stock in the corporation at 1 or more times during
the calendar year to the extent that cash in the amount of such
excess, if distributed at the time of such allocation, would be
a dividend.</DELETED>
<DELETED> ``(2) Manner.--Except as provided in regulations
prescribed by the Secretary, any amount allocated under
paragraph (1) shall be allocated in the same manner as if cash
in such amount were actually distributed as dividends. No
allocation shall be
[[Page 23]]
effective before the date on which it is made by the
corporation.</DELETED>
<DELETED> ``(3) Exception for certain preferred stock.--No
amount may be allocated under this subsection to stock
described in section 1504(a)(4) (determined without regard to
subparagraph (A) thereof).</DELETED>
<DELETED> ``(c) Effect on Earnings and Profits.--Earnings and
profits of a corporation making an allocation under subsection (b), and
of a corporation receiving such an allocation, shall be adjusted in the
same manner as if the allocation were treated as a dividend.</DELETED>
<DELETED> ``(d) Authority To Allow Carryover of Unallocated Excess
Excludable Dividend Amount.--Notwithstanding section 281, the Secretary
may by regulation allow a corporation to increase the excludable
dividend amount for any calendar year by the amount of the excess
described in section 116(b) for the preceding calendar year which is
not allocated under subsection (b).</DELETED>
<DELETED>``SEC. 283. TREATMENT OF DISTRIBUTIONS AFTER PREVIOUS RETAINED
EARNINGS BASIS ADJUSTMENTS.</DELETED>
<DELETED> ``(a) Treatment of Distributions.--</DELETED>
[[Page 24]]
<DELETED> ``(1) In general.--If a corporation makes
distributions described in section 301(a) with respect to any
class of stock in any calendar year which are not excludable
under section 116(a), such distributions shall not be treated
as dividends (and paragraphs (2) and (3) of section 301(c)
shall apply to such distributions) to the extent such
distributions do not exceed the corporation's cumulative
retained earnings basis adjustment amount for such class as of
the beginning of such year. If such distributions exceed such
amount, this paragraph shall be applied to a proportionate
share of each such distribution.</DELETED>
<DELETED> ``(2) Special rules for recharacterized
dividends.--If any dividend (determined without regard to this
subsection) during any calendar year with respect to any class
of stock in a corporation is treated as a distribution other
than a dividend under paragraph (1), such treatment shall be
disregarded for purposes of--</DELETED>
<DELETED> ``(A) determining the excludable portion
under section 281 of dividends paid by the corporation
during the calendar year, and</DELETED>
<DELETED> ``(B) determining whether any distribution
during the calendar year with respect to stock in the
corporation is treated as a dividend.</DELETED>
[[Page 25]]
<DELETED> ``(b) Cumulative Retained Earnings Basis Adjustment
Amount.--For purposes of this section, the term `cumulative retained
earnings basis adjustment amount' means, with respect to any class of
stock for any calendar year, the excess (if any) of--</DELETED>
<DELETED> ``(1) the aggregate of the excess described in
section 116(b) allocated to shares of such class of stock under
section 282 for all preceding calendar years, over</DELETED>
<DELETED> ``(2) the aggregate amount of distributions to
which subsection (a)(1) applies with respect to such class of
stock for all preceding calendar years.</DELETED>
<DELETED>``SEC. 284. SPECIAL RULES FOR CREDITS AND REFUNDS.</DELETED>
<DELETED> ``(a) In General.--No overpayment of an applicable income
tax may be allowed as a credit or refund to the extent that the
overpayment exceeds the sum of--</DELETED>
<DELETED> ``(1) the aggregate applicable income taxes for
the calendar year in which the credit or refund would otherwise
be allowed or made, and</DELETED>
<DELETED> ``(2) an amount equal to the lesser of--</DELETED>
<DELETED> ``(A) the product of the corporation's
excludable dividend amount for such calendar year and
the fraction the numerator of which is the highest rate
of tax specified in section 11 (within the meaning of
section 281(c)(4)) and
[[Page 26]]
the denominator of which is 1 minus such highest rate,
or</DELETED>
<DELETED> ``(B) the amount specified by the
corporation for purposes of this paragraph.</DELETED>
<DELETED> ``(b) Adjustments to Excludable Dividend Amounts Resulting
From Credits and Refunds.--If subsection (a) applies to any credit or
refund which is allowed or made in a calendar year--</DELETED>
<DELETED> ``(1) the applicable income taxes described in
subsection (a)(1) otherwise taken into account under section
281 for determining the excludable dividend amount for the
succeeding calendar year shall be reduced (but not below zero)
by the amount of the credit or refund, and</DELETED>
<DELETED> ``(2) the excludable dividend amount for the
calendar year shall be reduced by the excess of--</DELETED>
<DELETED> ``(A) the amount determined under
subsection (a)(2) divided by the highest rate of tax
specified in section 11, over</DELETED>
<DELETED> ``(B) the amount determined under
subsection (a)(2).</DELETED>
<DELETED> ``(c) Disallowed Overpayment Not Lost.--Nothing in
subsection (a) shall be construed to reduce the amount of any
overpayment for which credit or refund is not allowed by reason of
subsection (a), and such overpay
[[Page 27]]
ment shall continue to be taken into account in applying subsection (a)
for succeeding calendar years until a credit or refund is allowed or
made.</DELETED>
<DELETED> ``(d) Exception for Foreign Tax Credit.--This section
shall not apply to any overpayment to the extent that such overpayment
is attributable to the credit allowed under section 27(a).</DELETED>
<DELETED> ``(e) Denial of Interest.--No interest shall be allowed on
any overpayment during the period that credit or refund of such
overpayment is not allowed by reason of this section.</DELETED>
<DELETED>``SEC. 285. SPECIAL RULES FOR FOREIGN CORPORATIONS AND
SHAREHOLDERS.</DELETED>
<DELETED> ``(a) Computation of Excludable Dividend Amounts of
Foreign Corporations.--</DELETED>
<DELETED> ``(1) Reduction in excludable dividend amount for
certain taxes.--The reduction under section 281(b)(1)(B)
(without regard to this subparagraph) shall be increased by the
sum of--</DELETED>
<DELETED> ``(A) the taxes imposed by section 884
(relating to branch profits tax), and</DELETED>
<DELETED> ``(B) so much of the taxes imposed by
section 881 as are attributable to dividends which
would (but for subsection (b)) be excludable under
section 116 or are attributable to dis
[[Page 28]]
tributions which are described in section
283(a).</DELETED>
<DELETED> ``(2) Treatment of disallowed exclusions and
adjustments.--Notwithstanding subsection (b)--</DELETED>
<DELETED> ``(A) the excludable dividend amount of a
foreign corporation for a calendar year shall be
increased by--</DELETED>
<DELETED> ``(i) the dividends received by
the corporation which (but for subsection (b))
would be excludable under section 116(a),
and</DELETED>
<DELETED> ``(ii) the distributions received
by such corporation during such year which are
described in section 283(a), and</DELETED>
<DELETED> ``(B) the earnings and profits of a
foreign corporation--</DELETED>
<DELETED> ``(i) shall be increased by the
amount described in subparagraph (A)(ii),
and</DELETED>
<DELETED> ``(ii) shall not be increased by
any excess described in section 116(b)
allocated to such corporation for which an
increase in basis is not allowed by reason of
subsection (b)(2).</DELETED>
[[Page 29]]
<DELETED> ``(b) Taxation of Foreign Shareholders.--In the case of a
shareholder who is a nonresident alien individual or a foreign
corporation--</DELETED>
<DELETED> ``(1) no dividends shall be excludable under
section 116(a),</DELETED>
<DELETED> ``(2) there shall be no increase in basis for any
excess described in section 116(b) allocated to such individual
or corporation under section 282, and</DELETED>
<DELETED> ``(3) any distribution described in section 283
shall be treated as a dividend for purposes of sections 871 and
881 and chapter 3.</DELETED>
<DELETED> ``(c) Rules Relating to Foreign Tax Credit.--</DELETED>
<DELETED> ``(1) In general.--No credit shall be allowed
under section 901 for any taxes paid or accrued (or deemed paid
under section 902 or 960) with respect to any dividend
excludable under section 116 and any distribution described in
section 283(a).</DELETED>
<DELETED> ``(2) Excludable dividend amount.--The excludable
dividend amount of a corporation for any calendar year shall be
determined without regard to a reduction in the credit allowed
by section 27(a) on an applicable return for a prior calendar
year.</DELETED>
<DELETED>``SEC. 286. OTHER SPECIAL RULES.</DELETED>
<DELETED> ``(a) Redemptions.--If a corporation makes a distribution
to a shareholder during any calendar year with
[[Page 30]]
respect to its stock and section 301 does not apply to such
distribution, the excludable dividend amount for the calendar year, and
the cumulative retained earnings basis adjustment amount as of the
beginning of the calendar year in which the distribution is made, shall
be reduced by the ratable share of such amounts attributable to the
stock so redeemed.</DELETED>
<DELETED> ``(b) Coordination With Section 246(c).--</DELETED>
<DELETED> ``(1) Holding period requirements.--If a
shareholder disposes of any share of stock before the holding
period requirements of section 246(c) are met--</DELETED>
<DELETED> ``(A) the basis of such share shall be
reduced by the amount of dividends received with
respect to such share which are excludable under
section 116(a), and</DELETED>
<DELETED> ``(B) there shall be no increase in basis
for any excess described in section 116(b) allocated to
the shareholder of such stock under section
282.</DELETED>
<DELETED> ``(2) Related payments.--No deduction shall be
allowed under this chapter for any related payments described
in section 246(c)(1)(B) with respect to any dividend excludable
under section 116(a) or basis increase under section 116(b)
with respect to
[[Page 31]]
any share of stock to the extent that such payments do not
exceed the amount of such dividend or basis increase.</DELETED>
<DELETED> ``(3) Treatment of disallowed exclusions and
adjustments.--The excludable dividend amount of any corporation
for a calendar year, and its earnings and profits, shall not be
increased by--</DELETED>
<DELETED> ``(A) the dividends received by the
corporation which are excludable under section 116(a)
and which resulted in a basis reduction under paragraph
(1)(A), and</DELETED>
<DELETED> ``(B) the aggregate increases in basis
which (but for paragraph (1)(B)) would be made in stock
held by the corporation.</DELETED>
<DELETED> ``(c) Treatment of Regulated Investment Companies and Real
Estate Investment Trusts.--</DELETED>
<DELETED> ``(1) In general.--Except as provided in
regulations, the excludable dividend amount of a regulated
investment company or real estate investment trust shall be
zero.</DELETED>
<DELETED> ``(2) Cross reference.--</DELETED>
<DELETED> ``For special rules relating
to application of this part to regulated investment companies and real
estate investment trusts, see section 852(g).
<DELETED> ``(d) Exclusion and Basis Allocation Reduced Where
Portfolio Stock Held by Corporation Is Debt-Financed.--</DELETED>
[[Page 32]]
<DELETED> ``(1) Treatment of excludable dividend.--In the
case of any debt-financed portfolio stock (within the meaning
of section 246A), the amount excluded under section 116(a) with
respect to any dividend received with respect to such stock
shall be an amount equal to the product of--</DELETED>
<DELETED> ``(A) the amount which would be excluded
under section 116(a) without regard to this paragraph,
and</DELETED>
<DELETED> ``(B) 100 percent minus the average
indebtedness percentage (within the meaning of section
246A(d)).</DELETED>
<DELETED> ``(2) Treatment of basis increase.--In the case of
any debt-financed portfolio stock (within the meaning of
section 246A) with respect to which there is an increase in
basis under section 116(b) during any taxable year, the gross
income of the taxpayer shall be increased by an amount equal to
the product of--</DELETED>
<DELETED> ``(A) the amount of the increase under
section 116(b), and</DELETED>
<DELETED> ``(B) the average indebtedness percentage
(within the meaning of section 246A(d)).</DELETED>
<DELETED> ``(3) Limitation.--The aggregate amount of
reductions under paragraph (1) and increases in
[[Page 33]]
gross income under paragraph (2) with respect to any debt-
financed portfolio stock shall not exceed the amount of
interest deduction (including any deductible short sale
expense) allocable to such stock.</DELETED>
<DELETED> ``(4) Treatment of increase in gross income.--The
excludable dividend amount of a corporation for a calendar year
shall not be increased by reason of any increase in gross
income under paragraph (2).</DELETED>
<DELETED> ``(5) Exception.--This subsection shall not apply
to any dividend described in paragraph (1) or (2) of section
246A(b).</DELETED>
<DELETED> ``(e) Cooperatives.--In the case of a cooperative to which
subchapter T applies--</DELETED>
<DELETED> ``(1) the excludable dividend amount of such
cooperative shall be allocated for purposes of section 116 and
this part between shares of such cooperative held by patrons
and shares held by other persons in such manner as the
Secretary shall prescribe by regulations, and</DELETED>
<DELETED> ``(2) no deduction shall be allowed to the
cooperative under this chapter for any dividend paid to a
patron which is excludable under section 116(a) or for any
distribution described in section 283(a)
[[Page 34]]
which reduced the basis of stock held by the cooperative under
section 301(c)(2).</DELETED>
<DELETED> ``(f) ESOP Stock.--Any dividend allowed as a deduction
under section 404(k) shall not be treated as a dividend for purposes of
section 116 and this part, and any stock with respect to which such a
dividend may be paid shall not be taken into account in making any
allocation under 282 or any distribution described in section
283(a).</DELETED>
<DELETED>``SEC. 287. REGULATIONS.</DELETED>
<DELETED> ``The Secretary shall prescribe such regulations as may be
appropriate to carry out section 116 and this part, including
regulations--</DELETED>
<DELETED> ``(1) providing for the treatment of options and
convertible debt as stock, including modification of the
attribution rules under section 318(a)(4),</DELETED>
<DELETED> ``(2) providing for the allocation of the
excludable dividend amount and the cumulative retained earnings
basis adjustment amount in the case of transactions described
in section 312(h),</DELETED>
<DELETED> ``(3) waiving the application of section 246(c)(4)
for purposes of sections 286(b) and 1059(g),</DELETED>
<DELETED> ``(4) modifying the consolidated return
regulations to the extent necessary or appropriate to apply the
provisions of this part, including regulations that
[[Page 35]]
accelerate the inclusion in the excludable dividend amount of a
higher-tier member with respect to--</DELETED>
<DELETED> ``(A) activities of lower-tier members of
the group,</DELETED>
<DELETED> ``(B) dividends excludable under section
116(a) received from such lower-tier members,
and</DELETED>
<DELETED> ``(C) increases in basis allocated under
section 282 to stock in such lower-tier
members,</DELETED>
<DELETED> ``(5) providing for the application of section 116
and this part in the case of pass-thru entities, including
appropriate adjustments to basis, and</DELETED>
<DELETED> ``(6) as are necessary to further the purposes of
section 116 and this part and to prevent the circumvention of
such purposes.</DELETED>
<DELETED>Any regulations under paragraph (4) may be effective as of the
effective date of this part.''</DELETED>
<DELETED> (b) Reporting of Excludable Dividends and Retained
Earnings Basis Adjustments.--</DELETED>
<DELETED> (1) In general.--Section 6042(a) (relating to
returns regarding payments of dividends and corporate earnings
and profits) is amended to read as follows:</DELETED>
<DELETED> ``(a) Requirement of Reporting.--</DELETED>
[[Page 36]]
<DELETED> ``(1) In general.--Every person--and this part and
to prevent the circumvention of such purposes.</DELETED>
<DELETED>Any regulations under paragraph (4) may be effective as of the
effective date of this part.''</DELETED>
<DELETED> (b) Reporting of Excludable Dividends and Retained
Earnings Basis Adjustments.--</DELETED>
<DELETED> (1) In general.--Section 6042(a) (relating to
returns regarding payments of dividends and corporate earnings
and profits) is amended to read as follows:</DELETED>
<DELETED> ``(a) Requirement of Reporting.--</DELETED>
<DELETED> ``(1) In general.--Every person--</DELETED>
<DELETED> ``(A) who makes payments of dividends
aggregating $10 or more to any other person during any
calendar year,</DELETED>
<DELETED> ``(B) who allocates under section 282
increases in basis of stock in a corporation
aggregating $10 or more to any other person during any
calendar year,</DELETED>
<DELETED> ``(C) who makes distributions described in
section 283(a) aggregating $10 or more to any other
person during any calendar year, or</DELETED>
<DELETED> ``(D) who receives such payments of
dividends, allocations of increases in basis, or dis
[[Page 37]]
tributions as a nominee and who makes payments or
allocates increases aggregating $10 or more during any
calendar year to any other person with respect to the
dividends, allocations, or distributions
received,</DELETED>
<DELETED>shall make a return at the time and in the manner
prescribed by the Secretary, setting forth the information
described in paragraph (3).</DELETED>
<DELETED> ``(2) Returns required by secretary.--Every person
who makes payments of dividends, allocations under section 282,
or distributions described in section 283(a) to which paragraph
(1) does not apply shall, when required by the Secretary, make
a return setting forth the information described in paragraph
(3).</DELETED>
<DELETED> ``(3) Information reported.--Information described
in this paragraph includes--</DELETED>
<DELETED> ``(A) the aggregate amount of dividends,
including the portion of such amount excludable from
gross income under section 116(a),</DELETED>
<DELETED> ``(B) the amount of each allocation of
basis under section 282 with respect to each share of
stock and the date of such increase,</DELETED>
<DELETED> ``(C) the amount of each distribution
described in section 283(a), including the portion
[[Page 38]]
of such amount to which paragraph (2) or (3) of section
301(c) applies and the date of such distribution,
and</DELETED>
<DELETED> ``(D) such other information as the
Secretary may require.</DELETED>
<DELETED>In the case of a nominee described in paragraph
(1)(D), this paragraph shall apply with respect to the payments
and allocations made by the nominee.''</DELETED>
<DELETED> (2) Application to foreign persons.--Section 6042
is amended by adding at the end the following new
subsection:</DELETED>
<DELETED> ``(e) Application to Foreign Persons.--The Secretary may
provide for the application of this section to payments, allocations,
and distributions made by or to a foreign person to the extent
necessary to carry out the provisions of section 116 and part X of
subchapter B of chapter 1.''</DELETED>
<DELETED> (3) Conforming amendments.--</DELETED>
<DELETED> (A) Section 6042(b)(3) is amended by
striking ``or (B)'' and inserting ``or (D)''.</DELETED>
<DELETED> (B) Section 6042(c)(2) is amended to read
as follows:</DELETED>
<DELETED> ``(2) the information described in subsection
(a)(3) required to be shown on the return.''</DELETED>
<DELETED> (c) Amendments to Other Sections.--</DELETED>
[[Page 39]]
<DELETED> (1) Minimum tax.--Clause (i) of section
56(g)(4)(B) is amended by striking ``or under section 114'' and
inserting ``, section 114, or section 116''.</DELETED>
<DELETED> (2) Coordination with dividend received
deductions.--</DELETED>
<DELETED> (A) Section 246 is amended by adding at
the end the following new subsection:</DELETED>
<DELETED> ``(f) Coordination With Dividend Exclusion.--No deduction
shall be allowed under section 243, 244, or 245 with respect to the
amount of any dividend excluded from gross income under section 116 or
would be so excluded but for sections 285(b)(1) and 286(d).''</DELETED>
<DELETED> (B) Section 243 is amended by adding at
the end the following new subsection:</DELETED>
<DELETED> ``(f) Termination.--Paragraph (1) of subsection (a) shall
not apply to any dividend--</DELETED>
<DELETED> ``(1) paid from earnings and profits accumulated
in taxable years ending after April 1, 2001,</DELETED>
<DELETED> ``(2) made with respect to stock issued after
February 2, 2003, or</DELETED>
<DELETED> ``(3) received by a corporation after December 31,
2005.''</DELETED>
[[Page 40]]
<DELETED> (3) Carryovers in certain corporation
acquisitions.--Section 381(c) is amended by adding at the end
the following new paragraph:</DELETED>
<DELETED> ``(27) EDA and CREBAA.--The acquiring corporation
shall take into account (to the extent proper to carry out the
purposes of this section, section 116, and part X of subchapter
B, and under such regulation as may be prescribed by the
Secretary) the excludable dividend amount and the cumulative
retained earnings basis adjustment amount in respect of the
distributor or transferor.''</DELETED>
<DELETED> (4) Trusts and estates.--Subsection (a) of section
643 is amended--</DELETED>
<DELETED> (A) by redesignating paragraph (7) as
paragraph (8) and by inserting after paragraph (6) the
following new paragraph:</DELETED>
<DELETED> ``(7) Dividends, etc.--There shall be included the
amount of any dividends excluded from gross income under
section 116 and the amount of any distribution described in
section 283.'', and</DELETED>
<DELETED> (B) by striking ``and (6)'' in the last
sentence and inserting ``, (6), and (7)''.</DELETED>
<DELETED> (5) Partnerships.--</DELETED>
<DELETED> (A) Paragraph (5) of section 702(a) is
amended to read as follows:</DELETED>
[[Page 41]]
<DELETED> ``(5) dividends with respect to which there is an
exclusion under section 116 or a deduction under part VIII of
subchapter B,''.</DELETED>
<DELETED> (B) Section 705(a)(1) is amended by
striking ``and'' at the end of subparagraph (B), by
striking the semicolon at the end of subparagraph (C)
and inserting ``, and'', and by adding at the end the
following new subparagraph:</DELETED>
<DELETED> ``(D) increases in basis under section
116(b) allocated to the partnership;''.</DELETED>
<DELETED> (6) Extraordinary dividends.--</DELETED>
<DELETED> (A) In general.--Section 1059 is amended
by redesignating subsection (g) as subsection (h) and
by inserting after subsection (f) the following new
subsection:</DELETED>
<DELETED> ``(g) Treatment of Excludable Dividends and Retained
Earnings Basis Adjustments as Extraordinary Dividends.--</DELETED>
<DELETED> ``(1) In general.--For purposes of this section,
any dividend excludable under section 116(a) or increase in
basis under section 116(b) shall be treated as an extraordinary
dividend, except that this section shall be applied by
substituting `1 year (or such other period as the Secretary may
prescribe)' for `2 years' each place it appears.</DELETED>
[[Page 42]]
<DELETED> ``(2) Treatment of deemed extraordinary
dividends.--The excludable dividend amount of any corporation
for a calendar year, and its earnings and profits, shall not be
increased by--</DELETED>
<DELETED> ``(A) the dividends received by the
corporation which are treated as extraordinary
dividends by reason of paragraph (1), and</DELETED>
<DELETED> ``(B) the aggregate increases in basis
under section 116(b) which are so treated.</DELETED>
<DELETED> ``(3) Regulations.--The Secretary may by
regulation provide for exceptions to the application of
paragraph (1).''</DELETED>
<DELETED> (B) Paragraph (3) of section 1059(d) is
amended by inserting ``section 1223(11) shall not apply
and'' after ``subsection (a),''.</DELETED>
<DELETED> (C)(i) Section 1059 is amended by striking
``corporation'' each place it appears in subsection (a)
and inserting ``taxpayer''.</DELETED>
<DELETED> (ii) The section heading for section 1059
is amended by striking ``corporate'' and by inserting
``and excludable'' before ``dividends''.</DELETED>
<DELETED> (iii) The item relating to section 1059 in
the table of sections for part IV of subchapter O of
chapter 1 is amended by striking ``cor
[[Page 43]]
porate'' and by inserting ``and excludable'' before
``dividends''.</DELETED>
<DELETED> (7) Private foundations.--Section 4940(c) is
amended by adding at the end the following new
paragraph:</DELETED>
<DELETED> ``(6) Coordination with dividend exclusion.--For
purposes of this section, gross investment income shall not
include--</DELETED>
<DELETED> ``(A) a dividend to the extent excluded
from gross income under section 116(a), and</DELETED>
<DELETED> ``(B) a distribution described in section
283.''</DELETED>
<DELETED> (d) Conforming Amendments.--</DELETED>
<DELETED> (1)(A) Part X of subchapter B of chapter 1, as in
effect on the day before the date of the enactment of this Act,
is hereby moved after part XI of such subchapter B and
redesignated as part XII.</DELETED>
<DELETED> (B) Section 281, as so in effect, is redesignated
as section 296.</DELETED>
<DELETED> (C) The table of sections for such part XII, as so
designated, is amended by striking ``Sec. 281'' and inserting
``Sec. 296.</DELETED>
<DELETED> (D) The table of parts for subchapter B of chapter
1 is amended by striking the items relating
[[Page 44]]
to parts X and XI and inserting the following new
items:</DELETED>
<DELETED>``Part X. Rules for application
of dividend exclusion and
retained earnings basis
adjustments.
<DELETED>``Part XI. Special rules
relating to corporate
preference items.
<DELETED>``Part XII. Terminal railroad
corporations and their
shareholders.''
<DELETED> (2) Subsection (f) of section 301 is amended by
adding at the end the following new paragraph:</DELETED>
<DELETED> ``(4) For exclusion from gross income of certain
dividends, see section 116.''</DELETED>
<DELETED>SEC. 203. TREATMENT OF REGULATED INVESTMENT COMPANIES AND REAL
ESTATE INVESTMENT TRUSTS.</DELETED>
<DELETED> (a) In General.--Section 852 is amended by adding at the
end the following new subsection:</DELETED>
<DELETED> ``(g) Special Rules Relating to Section 116 and Part X of
Subchapter B.--</DELETED>
<DELETED> ``(1) Excludable portion.--</DELETED>
<DELETED> ``(A) In general.--For purposes of section
116(a), the excludable portion of any dividend paid by
any qualified investment entity shall be the amount so
designated by such entity in a written notice mailed to
its shareholders not later than 60 days after the close
of its taxable year in which such dividend is
paid.</DELETED>
<DELETED> ``(B) Limitation.--If the aggregate amount
so designated with respect to a taxable
[[Page 45]]
year (including dividends paid after the close of the
taxable year as described in section 855) exceeds the
aggregate amount of dividends received by such entity
during such year which are excludable from gross income
under section 116(a), then the amount of a dividend
otherwise excludable by reason of a designation under
subparagraph (A) shall be reduced by an amount which
bears the same ratio to the amount otherwise excludable
as such excess bears to the total amount designated
under subparagraph (A).</DELETED>
<DELETED> ``(C) Treatment of capital gain and
exempt-interest dividends.--Any amount designated under
subparagraph (A) as excludable under section 116 may
not be treated as a capital gain dividend or an exempt-
interest dividend.</DELETED>
<DELETED> ``(D) Coordination with section 853.--The
election under section 853 shall not apply to dividends
excludable under section 116 and distributions
described in section 283(a) received by a qualified
investment entity.</DELETED>
<DELETED> ``(2) Retained earnings basis adjustments.--
</DELETED>
[[Page 46]]
<DELETED> ``(A) In general.--A qualified investment
entity may allocate any increase in basis allocated to
the entity under section 282 to shares of stock in the
entity at 1 or more times during the taxable year in
the manner and the time prescribed in paragraphs (2)
and (3) of section 282(b).</DELETED>
<DELETED> ``(B) Designation.--For purposes of
section 116(b), the increase in basis allocated to any
share of stock in the entity shall be the amount so
designated by such entity in a written notice mailed to
its shareholders not later than 60 days after the close
of its taxable year in which such allocation is
made.</DELETED>
<DELETED> ``(C) Limitation.--Rules similar to the
rules of paragraph (1)(B) shall apply to amounts
allocated under this paragraph.</DELETED>
<DELETED> ``(D) Shareholder treatment of amounts
designated.--Shareholders of such entity who receive an
allocation under this paragraph from such entity shall
take into account such allocation as if it were an
allocation under section 282.</DELETED>
<DELETED> ``(E) Earnings and profits.--Earnings and
profits of the entity making such an alloca
[[Page 47]]
tion shall be adjusted in the same manner as provided
in section 282(c).</DELETED>
<DELETED> ``(3) Certain distributions after previous
retained earnings basis adjustments.--</DELETED>
<DELETED> ``(A) In general.--If any qualified
investment entity receives during any taxable year
distributions described in section 283(a) which reduced
the basis of stock held by such entity under section
301(c)(2), the entity may designate any distributions
described in section 301(a) made by such entity in such
taxable year which are not excludable under section
116(a) (after the application of paragraph (1)) as
distributions described in section 283(a). Such
designations shall be made in a written notice mailed
to its shareholders not later than 60 days after the
close of its taxable year in which such distribution is
made.</DELETED>
<DELETED> ``(B) Limitation.--If the aggregate amount
so designated with respect to a taxable year (including
distributions paid after the close of the taxable year
as provided in section 855(e)) exceeds the aggregate
distributions described in section 283(a) which reduced
the basis of stock held by such entity under section
[[Page 48]]
301(c)(2) for such taxable year, then the amount of a
distribution otherwise treated as a distribution
described in section 283(a) by reason of a designation
under subparagraph (A) shall be reduced by an amount
which bears the same ratio to the amount otherwise so
treated as such excess bears to the total amount
designated under subparagraph (A).</DELETED>
<DELETED> ``(C) Shareholder treatment of amounts
designated.--Shareholders of such entity who receive a
distribution from such entity which is designated under
this paragraph shall treat such distribution as a
distribution described in section 283(a).</DELETED>
<DELETED> ``(D) Treatment of capital gain and
exempt-interest dividends.--Any distribution designated
under subparagraph (A) may not be treated as a capital
gain dividend or an exempt-interest dividend.</DELETED>
<DELETED> ``(E) Adjustments.--No adjustment shall be
made in the earnings and profits of a qualified
investment entity with respect to a distribution by
such entity which is designated under subparagraph
(A).</DELETED>
[[Page 49]]
<DELETED> ``(4) Coordination with dividends paid
deduction.--No allocation or distribution designated under
paragraph (2) or (3) shall be treated as a dividend for
purposes of section 561.</DELETED>
<DELETED> ``(5) Definitions.--For purposes of this
subsection--</DELETED>
<DELETED> ``(A) Qualified investment entity.--The
term `qualified investment entity' means--</DELETED>
<DELETED> ``(i) a regulated investment
company, and</DELETED>
<DELETED> ``(ii) a real estate investment
trust.</DELETED>
<DELETED> ``(B) Exempt-interest dividend.--The term
`exempt-interest dividend' has the meaning given to
such term by subsection (b)(5).''</DELETED>
<DELETED> (b) Other Rules Relating to Regulated Investment
Companies.--</DELETED>
<DELETED> (1) Distribution requirements.--</DELETED>
<DELETED> (A) Clause (i) of section 852(a)(1)(B) is
amended by inserting ``and its dividend income
excludable under section 116(a),'' before
``over''.</DELETED>
<DELETED> (B) Section 852(a) is amended by striking
``and'' at the end of paragraph (1), by redesignating
paragraph (2) as paragraph (3), and by
[[Page 50]]
inserting after paragraph (1) the following new
paragraph:</DELETED>
<DELETED> ``(2) 90 percent of the distributions described in
section 283(a)--</DELETED>
<DELETED> ``(A) which are received by such company
during the taxable year, and</DELETED>
<DELETED> ``(B) which reduce under section 301(c)(2)
the basis of stock held by such company,</DELETED>
<DELETED>are distributed during such year under subsection
(g)(3)(A), and''.</DELETED>
<DELETED> (C) Section 855 is amended by adding at
the end the following new subsection:</DELETED>
<DELETED> ``(e) Distribution of Previously Retained Earnings Basis
Adjustments.--Rules similar to the rules of the preceding provisions of
this section shall apply to distributions described in section
852(g)(3)(A).''</DELETED>
<DELETED> (2) Taxation of entity and shareholders.--
</DELETED>
<DELETED> (A) The material following paragraph (3)
of section 851(b) is amended--</DELETED>
<DELETED> (i) by inserting ``, dividends
excludable from gross income under section
116(a), and distributions described in section
283(a) which reduce the basis of stock
[[Page 51]]
under section 301(c)(2)'' after ``103(a)'' in
the third sentence, and</DELETED>
<DELETED> (ii) by adding at the end the
following new sentence: ``For purposes of
paragraph (2), distributions described in
section 283(a) which reduce the basis of stock
under section 301(c)(2) shall be treated as
dividends.''</DELETED>
<DELETED> (B) Section 852(b)(2)(D) is amended by
striking ``and exempt-interest dividends'' and
inserting ``, exempt-interest dividends, and any
dividends excludable under section 116(a)''.</DELETED>
<DELETED> (C) Subparagraph (B) of section 852(b)(4)
is amended to read as follows:</DELETED>
<DELETED> ``(B) Loss attributable to exempt
dividends.--If--</DELETED>
<DELETED> ``(i) a shareholder of a regulated
investment company receives an exempt-interest
dividend, a dividend excludable under section
116(a), or an allocation under subsection
(g)(2), with respect to any share,
and</DELETED>
<DELETED> ``(ii) such share is held by the
taxpayer for 6 months or less,</DELETED>
[[Page 52]]
<DELETED>then any loss on the sale or exchange of such
share shall, to the extent of the sum of the amounts of
such dividends and allocations, be
disallowed.''</DELETED>
<DELETED> (D) Paragraph (3) of section 4982(c) is
amended by striking ``and'' at the end of subparagraph
(A), by striking the period at the end of subparagraph
(B) and inserting ``, and'', and by adding at the end
the following new subparagraph:</DELETED>
<DELETED> ``(C) any dividend excludable from gross
income under section 116(a).''</DELETED>
<DELETED> (c) Other Rules Relating to Real Estate Investment
Trusts.--</DELETED>
<DELETED> (1) Distribution requirements.--</DELETED>
<DELETED> (A) Subparagraph (A) of section 857(a)(1)
is amended by striking ``and'' at the end of clause
(i), by striking ``minus'' at the end of clause (ii),
and by inserting at the end the following new
clause:</DELETED>
<DELETED> ``(iii) 90 percent of its dividend
income excludable under section 116(a);
minus''</DELETED>
<DELETED> (B) Subsection (a) of section 857 is
amended by redesignating paragraph (2) as
[[Page 53]]
paragraph (3) and by inserting after paragraph (1) the
following new paragraph:</DELETED>
<DELETED> ``(2) 90 percent of the distributions described in
section 283(a)--</DELETED>
<DELETED> ``(A) which are received by such trust
during the taxable year, and</DELETED>
<DELETED> ``(B) which reduce under section 301(c)(2)
the basis of stock held by such trust,</DELETED>
<DELETED>are distributed during such year under subsection
(g)(3)(A); and''.</DELETED>
<DELETED> (C) Section 858 is amended by adding at
the end the following new subsection:</DELETED>
<DELETED> ``(d) Distribution of Previously Retained Earnings Basis
Adjustments.--Rules similar to the rules of the preceding provisions of
this section shall apply to distributions described in section
852(g)(3).''</DELETED>
<DELETED> (2) Taxation of entity and shareholders.--
</DELETED>
<DELETED> (A)(i) Section 856(c)(2) is amended--
</DELETED>
<DELETED> (I) by inserting ``(including
dividends excludable from gross income under
section 116(a)) and distributions described in
section 283(a) which reduce the basis of stock
under section 301(c)(2)'' after ``dividends''
in subparagraph (A), and</DELETED>
[[Page 54]]
<DELETED> (II) by inserting ``(including
tax-exempt interest)'' after ``interest'' in
subparagraph (B).</DELETED>
<DELETED> (ii) Section 856(c) is amended by adding
at the end the following new paragraph:</DELETED>
<DELETED> ``(8) Gross income tests.--For purposes of
paragraphs (2) and (3), gross income shall be treated as
including tax-exempt interest, dividends excludable from gross
income under section 116(a), and distributions described in
section 283(a) which reduce the basis of stock under section
301(c)(2).''</DELETED>
<DELETED> (B) Section 857(b)(2)(B) is amended by
inserting ``or any dividends paid which are excludable
under section 116(a)'' after ``subparagraph
(D)''.</DELETED>
<DELETED> (C) Section 857(b) is amended by adding at
the end the following new paragraph:</DELETED>
<DELETED> ``(10) Loss attributable to exempt dividends.--
If--</DELETED>
<DELETED> ``(A) a shareholder of a real estate
investment trust receives a dividend excludable under
section 116(a) or an allocation under section 852(g)(2)
with respect to any share, and</DELETED>
<DELETED> ``(B) such share is held by the taxpayer
for 6 months or less,</DELETED>
[[Page 55]]
<DELETED>then any loss on the sale or exchange of such share
shall, to the extent of the sum of the amounts of such
dividends and allocations, be disallowed.''</DELETED>
<DELETED> (D) Subsection (g) of section 857 is
amended to read as follows:</DELETED>
<DELETED> ``(g) Cross References.--</DELETED>
<DELETED> ``(1) For provisions relating to excise tax based
on certain real estate investment trust taxable income not
distributed during the taxable year, see section
4981.</DELETED>
<DELETED> ``(2) For special rules relating to application of
dividend exclusion and retained earnings basis adjustments, see
section 852(g).''</DELETED>
<DELETED> (E) Paragraph (1) of section 4981(c) is
amended by striking ``and'' at the end of subparagraph
(A), by striking the period at the end of subparagraph
(B) and inserting ``, and'', and by adding at the end
the following new subparagraph:</DELETED>
<DELETED> ``(C) any dividend excludable from gross
income under section 116(a).''</DELETED>
<DELETED>SEC. 204. TREATMENT OF INSURANCE COMPANIES.</DELETED>
<DELETED> (a) Life Insurance Companies.--</DELETED>
<DELETED> (1) Section 803 is amended by adding at the end
the following new subsection:</DELETED>
[[Page 56]]
<DELETED> ``(c) Special Rules for Excludable Dividends and Retained
Earnings Basis Adjustments.--</DELETED>
<DELETED> ``(1) In general.--The exclusion under section
116(a) with respect to any dividend received by a life
insurance company shall only apply to such company's share (as
determined under section 812) of such dividend.</DELETED>
<DELETED> ``(2) Retained earnings basis adjustments.--In the
case of any increase in basis under section 116(b) allocated
under section 282 to stock held by a life insurance company--
</DELETED>
<DELETED> ``(A) the life insurance company's and
policyholders' shares of such allocation shall be
determined in accordance with section 812 in the same
manner as if it were a dividend, and</DELETED>
<DELETED> ``(B) life insurance company gross income
of such company shall be increased by the
policyholders' share of such allocation.</DELETED>
<DELETED> ``(3) Rules for segregated asset accounts.--In the
case of stock held in a segregated asset account (within the
meaning of section 817), this subsection shall be applied as if
the policyholders' share of the excludable portion of any
dividend, or any increase in basis under section 116(b), with
respect to such stock were 100 percent.</DELETED>
[[Page 57]]
<DELETED> ``(4) Computation of excludable dividend amount.--
In the case of a life insurance company, the increase under
clause (ii) or (iii) of section 281(b)(1)(A) in the company's
excludable dividend amount shall be limited to the company's
share (as determined under section 812) of the dividends or
increases in basis described in either such clause.''</DELETED>
<DELETED> (2) Section 812(d)(1)(A) is amended by inserting
``(including dividends excludable under section 116(a))'' after
``dividends''.</DELETED>
<DELETED> (3) Section 815(c)(2)(A)(iii) is amended by adding
``, the amount of dividends excludable under section 116(a) (as
modified by section 803(c)(1)), and the amount of basis
increase under section 116(b) (as modified by section
803(c)(2))'' after ``section 103''.</DELETED>
<DELETED> (b) Other Insurance Companies.--</DELETED>
<DELETED> (1) Section 832(b)(5)(B) 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
after clause (iii) the following new clause:</DELETED>
<DELETED> ``(iv) any dividend excludable
under section 116(a) which is received during
such taxable year and any increase in basis
[[Page 58]]
under section 116(b) which is allocated under
section 282 to such company during such taxable
year.''</DELETED>
<DELETED> (2) Section 832(c) is amended by striking ``and''
at the end of paragraph (12), by striking the period at the end
of paragraph (13) and inserting ``; and'', and by adding at the
end the following new paragraph:</DELETED>
<DELETED> ``(14) the amount of dividends received during the
taxable year which are excluded from gross income under section
116(a).''</DELETED>
<DELETED> (3) Section 833(b)(3)(E) is amended--</DELETED>
<DELETED> (A) by striking ``and'' at the end of
clause (i), by striking the period at the end of clause
(ii) and inserting ``, and'', and by inserting after
clause (ii) the following new clause:</DELETED>
<DELETED> ``(iii) the aggregate amount
excluded for the taxable year under section
116(a).'', and</DELETED>
<DELETED> (B) by adding at the end the following:
``The amount determined under clause (iii) shall be
reduced by the amount of any decrease in such
deductions for the taxable year by reason of section
832(b)(5)(B) to the extent such
[[Page 59]]
decrease is attributable to the exclusion under section
116(a).''</DELETED>
<DELETED> (4) Section 834(c) is amended by adding at the end
the following new paragraph:</DELETED>
<DELETED> ``(10) Excludable dividends.--The amount of
dividends received during the taxable year which are excluded
from gross income under section 116(a).''</DELETED>
<DELETED>SEC. 205. TREATMENT OF S CORPORATIONS.</DELETED>
<DELETED> (a) Basis Adjustments Relating to Dividends.--Section
1367(a)(1) 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) increases in basis under section
116(b) allocated to the S corporation.''.</DELETED>
<DELETED> (b) Application of Section 116 and Part X of Subchapter B
to S Corporations.--</DELETED>
<DELETED> (1) In general.--Section 1368 is amended by adding
at the end the following new subsection:</DELETED>
<DELETED> ``(f) Coordination with Dividend Exclusion and Retained
Earnings Basis Adjustments.--</DELETED>
<DELETED> ``(1) Determination of excluded dividends
amount.--</DELETED>
[[Page 60]]
<DELETED> ``(A) In general.--Clauses (ii) and (iii)
of section 281(b)(1)(A) shall not apply to amounts
received or allocated in a taxable year for which the
corporation is an S corporation.</DELETED>
<DELETED> ``(B) Cross reference.--</DELETED>
<DELETED> ``For treatment of taxes
imposed by section 1374, see section 281(d)(1).''
<DELETED> ``(2) Distributions.--Subject to regulations
prescribed by the Secretary, the preceding provisions of this
section shall not apply to any dividend excludable from gross
income under section 116(a) and any distribution described in
section 283(a).''</DELETED>
<DELETED> (c) Modification to Treatment of Section 1374 Tax.--
</DELETED>
<DELETED> (1) Paragraph (2) of section 1366(f) is amended to
read as follows:</DELETED>
<DELETED> ``(2) Treatment of tax imposed on built-in
gains.--The amount of the items of the net recognized built-in-
gain taken into account under section 1374(b)(1) (reduced by
any deduction allowed under section 1374(b)(2)) shall not be
taken into account under this section.''</DELETED>
<DELETED> (2)(A) Subsection (c) of section 1371 is amended
by adding at the end the following new paragraph:</DELETED>
[[Page 61]]
<DELETED> ``(B) Earnings and profits.--The
accumulated earnings and profits of the corporation
shall be increased at the beginning of the taxable year
by the amount not taken into account under section 1366
by reason of section 1366(f)(2) (determined without
regard any reduction of such amount under section
1374(b)(2)) reduced by the tax imposed by section 1374
(net of credits allowed).''</DELETED>
<DELETED> (B) Paragraph (1) of section 1371(c) is amended by
striking ``and (3)'' and inserting ``, (3), and
(4)''.</DELETED>
<DELETED> (d) Repeal of Tax and Termination Where Excess Passive
Investment Income.--</DELETED>
<DELETED> (1) Repeal of tax.--</DELETED>
<DELETED> (A) In general.--Section 1375 is
repealed.</DELETED>
<DELETED> (B) Conforming amendments.--Sections
26(b)(2)(J) and 1366(f)(3) are repealed.</DELETED>
<DELETED> (2) Repeal of termination.--Section 1362(d) is
amended by striking paragraph (3).</DELETED>
<DELETED>SEC. 206. REPEAL OF ACCUMULATED EARNINGS TAX AND PERSONAL
HOLDING COMPANY TAX.</DELETED>
<DELETED> (a) In General.--Parts I and II of subchapter G of chapter
1 (relating to corporations improperly accumu
[[Page 62]]
lating surplus and to personal holding companies) are hereby
repealed.</DELETED>
<DELETED> (b) Conforming Amendments.--</DELETED>
<DELETED> (1) Section 12 is amended by striking paragraph
(2) and by redesignating paragraphs (3), (4), (5), (6), and (7)
as paragraphs (2), (3), (4), (5), and (6),
respectively.</DELETED>
<DELETED> (2) Section 26(b)(2) is amended by striking
subparagraphs (F) and (G).</DELETED>
<DELETED> (3) Section 30A(c) is amended by inserting ``or''
at the end of paragraph (1), by striking paragraphs (2) and
(3), and by redesignating paragraph (4) as paragraph
(2).</DELETED>
<DELETED> (4) Section 41(e)(7)(E) is amended by adding
``and'' at the end of clause (i), by striking clause (ii), and
by redesignating clause (iii) as clause (ii).</DELETED>
<DELETED> (5) Section 56(b)(2) is amended by striking
subparagraph (C) and by redesignating subparagraph (D) as
subparagraph (C).</DELETED>
<DELETED> (6) Section 111 is amended by striking subsection
(d).</DELETED>
<DELETED> (7) Section 170(e)(4)(D) is amended by adding
``and'' at the end of clause (i), by striking clause (ii), and
by redesignating clause (iii) as clause (ii).</DELETED>
[[Page 63]]
<DELETED> (8) Sections 170(f)(10)(A), 508(d), 4947, and
4948(c)(4) are each amended by striking ``545(b)(2),'' each
place it appears.</DELETED>
<DELETED> (9)(A) Section 316(b) is amended by striking
paragraph (2) and by redesignating paragraph (3) as paragraph
(2).</DELETED>
<DELETED> (B) Section 331(b) is amended by striking ``(other
than a distribution referred to in paragraph (2)(B) of section
316(b))''.</DELETED>
<DELETED> (10) Section 341(d) is amended--</DELETED>
<DELETED> (A) by striking ``section 544(a) (relating
to personal holding companies)'' and inserting
``section 465(f) (relating to constructive ownership
rules)'', and</DELETED>
<DELETED> (B) by inserting before the period at the
end of the next to the last sentence ``and such
paragraph (2) shall be applied by inserting `or by or
for his partner' after `his family'''.</DELETED>
<DELETED> (11) Section 381(c) is amended by striking
paragraphs (14) and (17).</DELETED>
<DELETED> (12) Section 443(e) is amended by striking
paragraphs (1) and (2) and by redesignating paragraphs (3),
(4), and (5) as paragraphs (1), (2), and (3),
respectively.</DELETED>
[[Page 64]]
<DELETED> (13) Section 447(g)(4)(A) is amended by striking
``other than--'' and all that follows and inserting ``other
than an S corporation.''</DELETED>
<DELETED> (14)(A) Section 465(a)(1)(B) is amended to read as
follows:</DELETED>
<DELETED> ``(B) a C corporation which is closely
held,''.</DELETED>
<DELETED> (B) Section 465(a)(3) is amended to read as
follows:</DELETED>
<DELETED> ``(3) Closely held determination.--For purposes of
paragraph (1), a corporation is closely held if, at any time
during the last half of the taxable year, more than 50 percent
in value of its outstanding stock is owned, directly or
indirectly, by or for not more than 5 individuals. For purposes
of this paragraph, an organization described in section 401(a),
501(c)(17), or 509(a) or a portion of a trust permanently set
aside or to be used exclusively for the purposes described in
section 642(c) shall be considered an individual.''</DELETED>
<DELETED> (C) Section 465(c)(7)(B) is amended by striking
clause (i) and by redesignating clauses (ii) and (iii) as
clauses (i) and (ii), respectively.</DELETED>
<DELETED> (D) Section 465(c)(7)(G) is amended to read as
follows:</DELETED>
[[Page 65]]
<DELETED> ``(G) Loss of 1 member of affiliated group
may not offset income of personal service
corporation.--Nothing in this paragraph shall permit
any loss of a member of an affiliated group to be used
as an offset against the income of any other member of
such group which is a personal service corporation (as
defined in section 269A(b) but determined by
substituting `5 percent' for `10 percent' in section
269A(b)(2)).''</DELETED>
<DELETED> (E) Section 465 is amended by adding at the end
the following new subsection:</DELETED>
<DELETED> ``(f) Constructive Ownership Rules.--For purposes of
subsection (a)(3)--</DELETED>
<DELETED> ``(1) Stock not owned by individual.--Stock owned,
directly or indirectly, by or for a corporation, partnership,
estate, or trust shall be considered as being owned
proportionately by its shareholders, partners, or
beneficiaries.</DELETED>
<DELETED> ``(2) Family ownership.--An individual shall be
considered as owning the stock owned, directly or indirectly,
by or for his family. For purposes of this paragraph, the
family of an individual includes only his brothers and sisters
(whether by the whole or
[[Page 66]]
half blood), spouse, ancestors, and lineal
descendants.</DELETED>
<DELETED> ``(3) Options.--If any person has an option to
acquire stock, such stock shall be considered as owned by such
person. For purposes of this paragraph, an option to acquire
such an option, and each one of a series of such options, shall
be considered as an option to acquire such stock.</DELETED>
<DELETED> ``(4) Application of family and option rules.--
Paragraphs (2) and (3) shall be applied if, but only if, the
effect is to make the corporation closely held under subsection
(a)(3).</DELETED>
<DELETED> ``(5) Constructive ownership as actual
ownership.--Stock constructively owned by a person by reason of
the application of paragraph (1) or (3), shall, for purposes of
applying paragraph (1) or (2), be treated as actually owned by
such person; but stock constructively owned by an individual by
reason of the application of paragraph (2) shall not be treated
as owned by him for purposes of again applying such paragraph
in order to make another the constructive owner of such
stock.</DELETED>
<DELETED> ``(6) Option rule in lieu of family rule.--If
stock may be considered as owned by an
[[Page 67]]
individual under either paragraph (2) or (3) it shall be
considered as owned by him under paragraph (3).</DELETED>
<DELETED> ``(7) Convertible securities.--Outstanding
securities convertible into stock (whether or not convertible
during the taxable year) shall be considered as outstanding
stock if the effect of the inclusion of all such securities is
to make the corporation closely held under subsection (a)(3).
The requirement under the preceding sentence that all
convertible securities must be included if any are to be
included shall be subject to the exception that, where some of
the outstanding securities are convertible only after a later
date than in the case of others, the class having the earlier
conversion date may be included although the others are not
included, but no convertible securities shall be included
unless all outstanding securities having a prior conversion
date are also included.''</DELETED>
<DELETED> (15)(A) Section 553(a)(1) is amended by striking
``section 543(d)'' and inserting ``subsection (c)''.</DELETED>
<DELETED> (B) Section 553 is amended by adding at the end
the following new subsection:</DELETED>
<DELETED> ``(c) Active Business Computer Software Royalties.--
</DELETED>
[[Page 68]]
<DELETED> ``(1) In general.--For purposes of subsection (a),
the term `active business computer software royalties' means
any royalties--</DELETED>
<DELETED> ``(A) received by any corporation during
the taxable year in connection with the licensing of
computer software, and</DELETED>
<DELETED> ``(B) with respect to which the
requirements of paragraphs (2), (3), and (4) are
met.</DELETED>
<DELETED> ``(2) Royalties must be received by corporation
actively engaged in computer software business.--The
requirements of this paragraph are met if the royalties
described in paragraph (1)--</DELETED>
<DELETED> ``(A) are received by a corporation
engaged in the active conduct of the trade or business
of developing, manufacturing, or producing computer
software, and</DELETED>
<DELETED> ``(B) are attributable to computer
software which--</DELETED>
<DELETED> ``(i) is developed, manufactured,
or produced by such corporation (or its
predecessor) in connection with the trade or
business described in subparagraph (A),
or</DELETED>
<DELETED> ``(ii) is directly related to such
trade or business.</DELETED>
[[Page 69]]
<DELETED> ``(3) Royalties must constitute at least 50
percent of income.--The requirements of this paragraph are met
if the royalties described in paragraph (1) constitute at least
50 percent of the ordinary gross income of the corporation for
the taxable year.</DELETED>
<DELETED> ``(4) Deductions under sections 162 and 174
relating to royalties must equal or exceed 25 percent of
ordinary gross income.--</DELETED>
<DELETED> ``(A) In general.--The requirements of
this paragraph are met if--</DELETED>
<DELETED> ``(i) the sum of the deductions
allowable to the corporation under sections
162, 174, and 195 for the taxable year which
are properly allocable to the trade or business
described in paragraph (2) equals or exceeds 25
percent of the ordinary gross income of such
corporation for such taxable year, or</DELETED>
<DELETED> ``(ii) the average of such
deductions for the 5-taxable year period ending
with such taxable year equals or exceeds 25
percent of the average ordinary gross income of
such corporation for such period.</DELETED>
[[Page 70]]
<DELETED>If a corporation has not been in existence
during the 5-taxable year period described in clause
(ii), then the period of existence of such corporation
shall be substituted for such 5-taxable year
period.</DELETED>
<DELETED> ``(B) Deductions allowable under section
162.--For purposes of subparagraph (A), a deduction
shall not be treated as allowable under section 162 if
it is specifically allowable under another
section.</DELETED>
<DELETED> ``(C) Limitation on allowable
deductions.--For purposes of subparagraph (A), no
deduction shall be taken into account with respect to
compensation for personal services rendered by the 5
individual shareholders holding the largest percentage
(by value) of the outstanding stock of the corporation.
For purposes of the preceding sentence individuals
holding less than 5 percent (by value) of the stock of
such corporation shall not be taken into
account.''</DELETED>
<DELETED> (16) Section 556(b)(1) is amended by striking ``,
but not including'' and all that follows and inserting a
period.</DELETED>
[[Page 71]]
<DELETED> (17) Section 561(a) is amended by striking
paragraph (3), by inserting ``and'' at the end of paragraph
(1), and by striking ``, and'' at the end of paragraph (2) and
inserting a period.</DELETED>
<DELETED> (18) Section 562(b) is amended to read as
follows:</DELETED>
<DELETED> ``(b) Distributions in Liquidation.--Except in the case of
a foreign personal holding company described in section 552--</DELETED>
<DELETED> ``(1) in the case of amounts distributed in
liquidation, the part of such distribution which is properly
chargeable to earnings and profits accumulated after February
28, 1913, shall be treated as a dividend for purposes of
computing the dividends paid deduction, and</DELETED>
<DELETED> ``(2) in the case of a complete liquidation
occurring within 24 months after the adoption of a plan of
liquidation, any distribution within such period pursuant to
such plan shall, to the extent of the earnings and profits
(computed without regard to capital losses) of the corporation
for the taxable year in which such distribution is made, be
treated as a dividend for purposes of computing the dividends
paid deduction.</DELETED>
[[Page 72]]
<DELETED>For purposes of paragraph (1), a liquidation includes a
redemption of stock to which section 302 applies. Except to the extent
provided in regulations, the preceding sentence shall not apply in the
case of any mere holding or investment company which is not a regulated
investment company.''</DELETED>
<DELETED> (19) Section 563 is amended by striking
subsections (a) and (b), by redesignating subsections (c) and
(d) as subsections (a) and (b), and by striking ``, (b), or
(c)'' in subsection (b) (as so redesignated).</DELETED>
<DELETED> (20) Section 564 is hereby repealed.</DELETED>
<DELETED> (21) Section 631(c) is amended by striking the
next to the last sentence and inserting the following: ``This
subsection shall have no application for purposes of applying
subchapter G (relating to corporations used to avoid income tax
on shareholders).''.</DELETED>
<DELETED> (22) Section 852(b)(1) is amended by striking
``which is a personal holding company (as defined in section
542) or''.</DELETED>
<DELETED> (23)(A) Section 856(h)(1) is amended to read as
follows:</DELETED>
<DELETED> ``(1) In general.--For purposes of subsection
(a)(6), a corporation, trust, or association is closely held if
the stock ownership requirement of section 465(a)(3) is
met.''.</DELETED>
[[Page 73]]
<DELETED> (B) Section 856(h)(3)(A)(i) is amended by striking
``section 542(a)(2)'' and inserting ``section
465(a)(3)''.</DELETED>
<DELETED> (C) Paragraph (3) of section 856(h) is amended by
striking subparagraph (B) and by redesignating subparagraphs
(C) and (D) as subparagraphs (B) and (C),
respectively.</DELETED>
<DELETED> (D) Subparagraph (C) of section 856(h)(3), as
redesignated by the preceding subparagraph, is amended by
striking ``subparagraph (C)'' and inserting ``subparagraph
(B)''.</DELETED>
<DELETED> (24) The last sentence of section 882(c)(2) is
amended to read as follows:</DELETED>
<DELETED>``The preceding sentence shall not be construed to
deny the credit provided by section 33 for tax withheld at
source or the credit provided by section 34 for certain uses of
gasoline.''.</DELETED>
<DELETED> (25) Section 936(a)(3) is amended by striking
subparagraphs (B) and (C), by inserting ``or'' at the end of
subparagraph (A), and by redesignating subparagraph (D) as
subparagraph (B).</DELETED>
<DELETED> (26) Section 936 is amended by striking subsection
(g).</DELETED>
<DELETED> (27) Section 992(d) is amended by striking
paragraph (2) and by redesignating paragraphs (3),
[[Page 74]]
(4), (5), (6), and (7) as paragraphs (2), (3), (4), (5), and
(6), respectively.</DELETED>
<DELETED> (28) Section 992 is amended by striking subsection
(e).</DELETED>
<DELETED> (29) Section 1202(e)(8) is amended by striking
``section 543(d)(1)'' and inserting ``section
553(c)(1)''.</DELETED>
<DELETED> (30) Section 1298(b) is amended by striking
paragraph (8) and redesignating paragraph (9) as paragraph
(8).</DELETED>
<DELETED> (31) Section 1504(c)(2)(B) is amended by adding
``and'' at the end of clause (i), by striking clause (ii), and
by redesignating clause (iii) as clause (ii).</DELETED>
<DELETED> (32)(A) Section 1551(a) is amended by striking
``or the accumulated earnings credit'' and all that follows and
inserting ``unless such transferee corporation shall establish
by the clear preponderance of the evidence that the securing of
such benefits was not a major purpose of such
transfer.''.</DELETED>
<DELETED> (B) The section heading for section 1551 is
amended by striking ``and accumulated earnings
credit''.</DELETED>
<DELETED> (C) The item relating to section 1551 in the table
of sections for part I of subchapter B of chap
[[Page 75]]
ter 6 is amended by striking ``and accumulated earnings
credit''.</DELETED>
<DELETED> (33)(A) Section 1561(a) is amended--</DELETED>
<DELETED> (i) by striking paragraph (2),</DELETED>
<DELETED> (ii) by redesignating paragraphs (3) and
(4) as paragraphs (2) and (3),</DELETED>
<DELETED> (iii) by striking ``paragraph (3)'' each
place it appears and inserting ``paragraph
(2)'',</DELETED>
<DELETED> (iv) by striking ``paragraph (4)'' and
inserting ``paragraph (3)'', and</DELETED>
<DELETED> (v) by striking the third
sentence.</DELETED>
<DELETED> (B) Section 1561(b) is amended to read as
follows:</DELETED>
<DELETED> ``(b) Certain Short Taxable Years.--If a corporation has a
short taxable year which does not include a December 31 and is a
component member of a controlled group of corporations with respect to
such taxable year, then for purposes of this subtitle, the amount in
each taxable income bracket in the tax table in section 11(b) for such
corporation for such taxable year shall be the amount specified in
subsection (a)(1), divided by the number of corporations which are
component members of such group on the last day of such taxable year.
For purposes of the preceding sentence, section 1563(b) shall be
applied as if such last day were substituted for December
31.''.</DELETED>
[[Page 76]]
<DELETED> (34) Section 2057(e)(2)(C) is amended by adding at
the end the following new sentence: ``References to sections
542 and 543 in the preceding sentence shall be treated as
references to such sections as in effect on the day before
their repeal.''</DELETED>
<DELETED> (35) Sections 6422 is amended by striking
paragraph (3) and by redesignating paragraphs (4) through (12)
and paragraphs (3) through (11), respectively.</DELETED>
<DELETED> (36) Section 6501 is amended by striking
subsection (f).</DELETED>
<DELETED> (37) Section 6503(k) of such Code is amended by
striking paragraph (1) and by redesignating paragraphs (2)
through (5) as paragraphs (1) through (4),
respectively.</DELETED>
<DELETED> (38) Section 6515 is amended by striking paragraph
(1) and by redesignating paragraphs (2) through (6) as
paragraphs (1) through (5), respectively.</DELETED>
<DELETED> (39) Section 6601(b) is amended by striking
paragraph (4) and redesignating paragraph (5) as paragraph
(4).</DELETED>
<DELETED> (40) Subsections (d)(1)(B) and (e)(2) of section
6662 of such Code are each amended by striking ``or
[[Page 77]]
a personal holding company (as defined in section
542)''.</DELETED>
<DELETED> (41) Section 6683 is hereby repealed.</DELETED>
<DELETED> (42) Section 7518(c)(1) is amended by inserting
``and'' at the end of subparagraph (C), by striking ``, and''
at the end of subparagraph (D) and inserting a period, and by
striking subparagraph (E).</DELETED>
<DELETED> (c) Clerical Amendments.--</DELETED>
<DELETED> (1) The table of parts for subchapter G of chapter
1 of such Code is amended by striking the items relating to
parts I and II.</DELETED>
<DELETED> (2) The table of sections for part IV of such
subchapter G is amended by striking the item relating to
section 564.</DELETED>
<DELETED> (3) The table of sections for part I of subchapter
B of chapter 68 of such Code is amended by striking the item
relating to section 6683.</DELETED>
<DELETED>SEC. 207. EFFECTIVE DATES.</DELETED>
<DELETED> (a) In General.--Except as otherwise provided in this
section, the amendments made by this title shall apply to distributions
received, and basis allocations made under section 282 of the Internal
Revenue Code of 1986 (as added by this title), after December 31,
2002.</DELETED>
<DELETED> (b) Special Rules.--</DELETED>
[[Page 78]]
<DELETED> (1) Section 1374 tax.--In applying the amendments
made by this title, any tax imposed by section 1374 of the
Internal Revenue Code of 1986 for any taxable year beginning
before January 1, 2003, shall not be taken into
account.</DELETED>
<DELETED> (2) Sections 205(d) and 206.--The amendments made
by sections 205(d) and 206 shall apply to taxable years
beginning after December 31, 2002; except that--</DELETED>
<DELETED> (A) section 547 of such Code (as in effect
before its repeal) shall continue to apply to
deficiency dividends (as defined in section 547(d) of
such Code) relating to taxable years beginning before
January 1, 2003, and</DELETED>
<DELETED> (B) subsections (a) and (b) of section 563
of such Code (as so in effect) shall continue to apply
to dividends relating to taxable years beginning before
January 1, 2003.</DELETED>
<DELETED>Notwithstanding subparagraphs (A) and (B), such
dividends shall not be taken into account in applying section
116 of such Code or part X of subchapter B of chapter 1 of such
Code.</DELETED>
[[Page 79]]
</DELETED>SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Jobs and Growth
Reconciliation Tax Act of 2003''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; references; table of contents.
TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS;
INCREASED EXPENSING FOR SMALL BUSINESSES
Sec. 101. Acceleration of 10-percent individual income tax rate bracket
expansion.
Sec. 102. Acceleration of reduction in individual income tax rates.
Sec. 103. Minimum tax relief to individuals.
Sec. 104. Acceleration of increase in standard deduction for married
taxpayers filing joint returns.
Sec. 105. Acceleration of 15-percent individual income tax rate bracket
expansion for married taxpayers filing
joint returns.
Sec. 106. Acceleration of increase in, and refundability of, child tax
credit.
Sec. 107. Increased expensing for small business.
Sec. 108. Application of EGTRRA sunset to this title.
TITLE II--PARTIAL EXCLUSION OF DIVIDENDS
Sec. 201. Partial exclusion of dividends received by individuals.
TITLE III--REVENUE PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
Sec. 301. Clarification of economic substance doctrine.
Sec. 302. Penalty for failing to disclose reportable transaction.
Sec. 303. Accuracy-related penalty for listed transactions and other
reportable transactions having a
significant tax avoidance purpose.
Sec. 304. Penalty for understatements attributable to transactions
lacking economic substance, etc.
[[Page 80]]
Sec. 305. Modifications of substantial understatement penalty for
nonreportable transactions.
Sec. 306. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 307. Disclosure of reportable transactions.
Sec. 308. Modifications to penalty for failure to register tax
shelters.
Sec. 309. Modification of penalty for failure to maintain lists of
investors.
Sec. 310. Modification of actions to enjoin certain conduct related to
tax shelters and reportable transactions.
Sec. 311. Understatement of taxpayer's liability by income tax return
preparer.
Sec. 312. Penalty on failure to report interests in foreign financial
accounts.
Sec. 313. Frivolous tax submissions.
Sec. 314. Penalty on promoters of tax shelters.
Sec. 315. Statute of limitations for taxable years for which listed
transactions not reported.
Sec. 316. Denial of deduction for interest on underpayments
attributable to nondisclosed reportable and
noneconomic substance transactions.
Subtitle B--Enron-Related Tax Shelter Provisions
Sec. 321. Limitation on transfer or importation of built-in losses.
Sec. 322. No reduction of basis under section 734 in stock held by
partnership in corporate partner.
Sec. 323. Repeal of special rules for FASITs.
Sec. 324. Expanded disallowance of deduction for interest on
convertible debt.
Sec. 325. Expanded authority to disallow tax benefits under section
269.
Sec. 326. Modifications of certain rules relating to controlled foreign
corporations.
Sec. 327. Controlled entities ineligible for REIT status.
Subtitle C--Other Corporate Governance Provisions
Part I--General Provisions
Sec. 331. Affirmation of consolidated return regulation authority.
Sec. 332. Signing of corporate tax returns by chief executive officer.
Sec. 333. Denial of deduction for certain fines, penalties, and other
amounts.
Sec. 334. Disallowance of deduction for punitive damages.
Part II--Executive Compensation Reform
Sec. 335. Treatment of nonqualified deferred compensation funded with
assets located outside the United States.
Sec. 336. Inclusion in gross income of funded deferred compensation of
corporate insiders.
Sec. 337. Prohibition on deferral of gain from the exercise of stock
options and restricted stock gains through
deferred compensation arrangements.
Sec. 338. Increase in withholding from supplemental wage payments in
excess of $1,000,000.
Subtitle D--International Provisions
Part I--Provisions to Discourage Expatriation
Sec. 340. Revision of tax rules on expatriation.
Sec. 341. Tax treatment of inverted corporate entities.
Sec. 342. Excise tax on stock compensation of insiders in inverted
corporations.
[[Page 81]]
Sec. 343. Reinsurance of United States risks in foreign jurisdictions.
Part II--Other Provisions
Sec. 344. Doubling of certain penalties, fines, and interest on
underpayments related to certain offshore
financial arrangement.
Sec. 345. Effectively connected income to include certain foreign
source income.
Sec. 346. Determination of basis of amounts paid from foreign pension
plans.
Sec. 347. Recapture of overall foreign losses on sale of controlled
foreign corporation.
Sec. 348. Prevention of mismatching of interest and original issue
discount deductions and income inclusions
in transactions with related foreign
persons.
Sec. 349. Sale of gasoline and diesel fuel at duty-free sales
enterprises.
Sec. 350. Repeal of earned income exclusion of citizens or residents
living abroad.
Subtitle E--Other Revenue Provisions
Sec. 351. Extension of Internal Revenue Service user fees.
Sec. 352. Addition of vaccines against hepatitis A to list of taxable
vaccines.
Sec. 353. Disallowance of certain partnership loss transfers.
Sec. 354. Treatment of stripped interests in bond and preferred stock
funds, etc.
Sec. 355. Reporting of taxable mergers and acquisitions.
Sec. 356. Minimum holding period for foreign tax credit on withholding
taxes on income other than dividends.
Sec. 357. Qualified tax collection contracts.
Sec. 358. Extension of customs user fees.
Sec. 359. Clarification of exemption from tax for small property and
casualty insurance companies.
Sec. 360. Partial payment of tax liability in installment agreements.
Sec. 361. Extension of amortization of intangibles to sports
franchises.
Sec. 362. Deposits made to suspend running of interest on potential
underpayments.
Sec. 363. Clarification of rules for payment of estimated tax for
certain deemed asset sales.
Sec. 364. Limitation on deduction for charitable contributions of
patents and similar property.
Sec. 365. Extension of provision permitting qualified transfers of
excess pension assets to retiree health
accounts.
Sec. 366. Proration rules for life insurance business of property and
casualty insurance companies.
Sec. 367. Modification of treatment of transfers to creditors in
divisive reorganizations.
Subtitle F--Other Provisions
Sec. 371. Temporary State Fiscal Relief Fund.
Sec. 372. Review of State agency blindness and disability
determinations.
Sec. 373. Prohibition on use of SCHIP funds to provide coverage for
childless adults.
TITLE IV--SMALL BUSINESS AND AGRICULTURAL PROVISIONS
Subtitle A--Small Business Provisions
Sec. 401. Exclusion of certain indebtedness of small business
investment companies from acquisition
indebtedness.
[[Page 82]]
Sec. 402. Repeal of occupational taxes relating to distilled spirits,
wine, and beer.
Sec. 403. Custom gunsmiths.
Sec. 404. Simplification of excise tax imposed on bows and arrows.
Subtitle B--Agricultural Provisions
Sec. 411. Capital gain treatment under section 631(b) to apply to
outright sales by landowners.
Sec. 412. Special rules for livestock sold on account of weather-
related conditions.
Sec. 413. Exclusion for loan payments under national health service
corps loan repayment program.
Sec. 414. Payment of dividends on stock of cooperatives without
reducing patronage dividends.
TITLE V--SIMPLIFICATION AND OTHER PROVISIONS
Subtitle A--Uniform Definition of Child
Sec. 501. Uniform definition of child, etc.
Sec. 502. Modifications of definition of head of household.
Sec. 503. Modifications of dependent care credit.
Sec. 504. Modifications of child tax credit.
Sec. 505. Modifications of earned income credit.
Sec. 506. Modifications of deduction for personal exemption for
dependents.
Sec. 507. Technical and conforming amendments.
Sec. 508. Effective date.
Subtitle B--Simplification
Sec. 511. Consolidation of life and non-life insurance company returns.
Sec. 512. Special rules for taxation of life insurance companies.
Sec. 513. Modification of active business definition under section 355.
Subtitle C--Other Provisions
Sec. 521. Civil rights tax relief.
Sec. 522. Increase in section 382 limitation for companies emerging
from bankruptcy.
Sec. 523. Increase in historic rehabilitation credit for certain low-
income housing for the elderly.
Sec. 524. Modification of application of income forecast method of
depreciation.
Sec. 525. Additional advance refundings of certain governmental bonds.
Sec. 526. Exclusion of income derived from certain wagers on horse
races from gross income of nonresident
alien individuals.
Sec. 527. Federal reimbursement of emergency health services furnished
to undocumented aliens.
Sec. 528. Premiums for mortgage insurance.
TITLE VI--SUNSET
Sec. 601. Sunset.
[[Page 83]]
TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS;
INCREASED EXPENSING FOR SMALL BUSINESSES
SEC. 101. ACCELERATION OF 10-PERCENT INDIVIDUAL INCOME TAX RATE BRACKET
EXPANSION.
(a) In General.--Clause (i) of section 1(i)(1)(B) (relating to the
initial bracket amount) is amended by striking ``($12,000 in the case
of taxable years beginning before January 1, 2008)''.
(b) Inflation Adjustment Beginning in 2004.--Subparagraph (C) of
section 1(i)(1) (relating to inflation adjustment) is amended to read
as follows:
``(C) Inflation adjustment.--In prescribing the
tables under subsection (f) which apply with respect to
taxable years beginning in calendar years after 2003--
``(i) the cost-of-living adjustment used in
making adjustments to the initial bracket
amount shall be determined under subsection
(f)(3) by substituting `2002' for `1992' in
subparagraph (B) thereof, and
[[Page 84]]
``(ii) such adjustment shall not apply to
the amount referred to in subparagraph
(B)(iii).
If any amount after adjustment under the preceding
sentence is not a multiple of $50, such amount shall be
rounded to the next lowest multiple of $50.''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 2002.
(2) Subsection (b).--The amendment made by subsection (b)
shall apply to taxable years beginning after December 31, 2003.
(3) Tables for 2003.--The Secretary of the Treasury shall
modify each table which has been prescribed for taxable years
beginning in 2003 and which relates to the amendment made by
subsection (a), section 102, or section 103 to reflect each
such amendment.
SEC. 102. ACCELERATION OF REDUCTION IN INDIVIDUAL INCOME TAX RATES.
(a) In General.--The table in paragraph (2) of section 1(i)
(relating to reductions in rates after June 30, 2001) is amended to
read as follows:
[[Page 85]]
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
``In the case of taxable The corresponding percentages shall be substituted for the following percentages:
years beginning during --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
calendar year: 28% 31% 36% 39.6%
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2001....................... 27.5% 30.5% 35.5% 39.1%
2002....................... 27.0% 30.0% 35.0% 38.6%
2003 and thereafter........ 25.0% 28.0% 33.0% 35.0%''.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2002.
SEC. 103. MINIMUM TAX RELIEF TO INDIVIDUALS.
(a) In General.--So much of paragraph (1) of section 55(d)
(relating to exemption amount for taxpayers other than corporations) as
precedes subparagraph (C) thereof is amended to read as follows:
``(1) Exemption amount for taxpayers other than
corporations.--In the case of a taxpayer other than a
corporation, the term `exemption amount' means as follows:
``(A) Joint return and surviving spouse.--In the
case of a joint return or a surviving spouse, the
amount under the following table:
``In the case of taxable years The exemption
beginning: amount is:
Before 2001........................................ $45,000
In 2001 and 2002................................... $49,000
In 2003, 2004, and 2005............................ $61,000
After 2005......................................... $45,000.
``(B) Individual not married and not a surviving
spouse.--In the case of an individual who is not a
married individual and is
[[Page 86]]
not a surviving spouse, the amount under the following
table:
``In the case of taxable years The exemption
beginning: amount is:
Before 2001........................................ $33,750
In 2001 and 2002................................... $35,750
In 2003, 2004, and 2005............................ $41,750
After 2005......................................... $33,750.''.
(b) Conforming Amendments.--
(1) Section 55(d)(1)(C) is amended--
(A) by striking ``, and'' and inserting a period,
and
(B) by striking ``50 percent'' and inserting
``Married individual filing a separate return.--50
percent''.
(2) Section 55(d)(1)(D) is amended by striking ``$22,500''
and inserting ``Estate and trust.--$22,500''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 104. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR MARRIED
TAXPAYERS FILING JOINT RETURNS.
(a) In General.--Paragraph (2) of section 63(c) (relating to basic
standard deduction) is amended to read as follows:
[[Page 87]]
``(2) Basic standard deduction.--For purposes of paragraph
(1), the basic standard deduction is--
``(A) 200 percent of the dollar amount in effect
under subparagraph (C) for the taxable year in the case
of--
``(i) a joint return, or
``(ii) a surviving spouse (as defined in
section 2(a)),
``(B) $4,400 in the case of a head of household (as
defined in section 2(b)), or
``(C) $3,000 in any other case.''.
(b) Conforming Amendments.--
(1) Section 63(c)(4) is amended by striking ``(2)(D)'' each
place it occurs and inserting ``(2)(C)''.
(2) Section 63(c) is amended by striking paragraph (7).
(3) Section 301(d) of the Economic Growth and Tax Relief
Reconciliation Act of 2001 is amended by striking ``2004'' and
inserting ``2002''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
[[Page 88]]
SEC. 105. ACCELERATION OF 15-PERCENT INDIVIDUAL INCOME TAX RATE BRACKET
EXPANSION FOR MARRIED TAXPAYERS FILING JOINT RETURNS.
(a) In General.--Paragraph (8) of section 1(f) (relating to
phaseout of marriage penalty in 15-percent bracket) is amended to read
as follows:
``(8) Elimination of marriage penalty in 15-percent
bracket.--With respect to taxable years beginning after
December 31, 2002, in prescribing the tables under paragraph
(1)--
``(A) the maximum taxable income in the 15 percent
rate bracket in the table contained in subsection (a)
(and the minimum taxable income in the next higher
taxable income bracket in such table) shall be 200
percent of the maximum taxable income in the 15-percent
rate bracket in the table contained in subsection (c)
(after any other adjustment under this subsection), and
``(B) the comparable taxable income amounts in the
table contained in subsection (d) shall be \1/2\ of the
amounts determined under subparagraph (A).''.
(b) Conforming Amendments.--
[[Page 89]]
(1) The heading for subsection (f) of section 1 is amended
by striking ``Phaseout'' and inserting ``Elimination''.
(2) Section 302(c) of the Economic Growth and Tax Relief
Reconciliation Act of 2001 is amended by striking ``2004'' and
inserting ``2002''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 106. ACCELERATION OF INCREASE IN, AND REFUNDABILITY OF, CHILD TAX
CREDIT.
(a) Acceleration of Increase in Credit.--Subsection (a) of section
24 (relating to child tax credit) is amended to read as follows:
``(a) Allowance of Credit.--There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year with
respect to each qualifying child of the taxpayer an amount equal to
$1,000.''.
(b) Expansion of Credit Refundability.--
(1) In general.--Clause (i) of section 24(d)(1)(B)
(relating to portion of credit refundable) is amended to read
as follows:
``(i) 15 percent of so much of the
taxpayer's earned income (within the meaning of
section 32) which is taken into account
[[Page 90]]
in computing taxable income for the taxable
year as exceeds $7,500, or''.
(2) Conforming amendment.--Section 24(d) is amended by
striking paragraph (3).
(c) Advance Payment of Portion of Increased Credit in 2003.--
(1) In general.--Subchapter B of chapter 65 (relating to
abatements, credits, and refunds) is amended by adding at the
end the following new section:
``SEC. 6429. ADVANCE PAYMENT OF PORTION OF INCREASED CHILD CREDIT FOR
2003.
``(a) In General.--Each taxpayer who claimed a credit under section
24 on the return for the taxpayer's first taxable year beginning in
2002 shall be treated as having made a payment against the tax imposed
by chapter 1 for such taxable year in an amount equal to the child tax
credit refund amount (if any) for such taxable year.
``(b) Child Tax Credit Refund Amount.--For purposes of this
section, the child tax credit refund amount is the amount by which the
aggregate credits allowed under part IV of subchapter A of chapter 1
for such first taxable year would have been increased if--
``(1) the per child amount under section 24(a)(2) for such
year were $1,000,
[[Page 91]]
``(2) only qualifying children (as defined in section
24(c)) of the taxpayer for such year who had not attained age
17 as of December 31, 2003, were taken into account, and
``(3) section 24(d)(1)(B)(ii) did not apply.
``(c) Timing of Payments.--In the case of any overpayment
attributable to this section, the Secretary shall, subject to the
provisions of this title, refund or credit such overpayment as rapidly
as possible and, to the extent practicable, before October 1, 2003. No
refund or credit shall be made or allowed under this section after
December 31, 2003.
``(d) Coordination with Child Tax Credit.--
``(1) In general.--The amount of credit which would (but
for this subsection and section 26) be allowed under section 24
for the taxpayer's first taxable year beginning in 2003 shall
be reduced (but not below zero) by the payments made to the
taxpayer under this section. Any failure to so reduce the
credit shall be treated as arising out of a mathematical or
clerical error and assessed according to section 6213(b)(1).
``(2) Joint returns.--In the case of a payment under this
section with respect to a joint return, half
[[Page 92]]
of such payment shall be treated as having been made to each
individual filing such return.
``(e) No Interest.--No interest shall be allowed on any overpayment
attributable to this section.''.
(2) Clerical amendment.--The table of sections for
subchapter B of chapter 65 is amended by adding at the end the
following new item:
``Sec. 6429. Advance payment of portion of increased child
credit for 2003.''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2002.
(2) Subsection (c).--The amendments made by subsection (c)
shall take effect on the date of the enactment of this Act.
SEC. 107. INCREASED EXPENSING FOR SMALL BUSINESS.
(a) In General.--Paragraph (1) of section 179(b) (relating to
dollar limitation) is amended to read as follows:
``(1) Dollar limitation.--The aggregate cost which may be
taken into account under subsection (a) for any taxable year
shall not exceed $75,000.''.
(b) Increase in Qualifying Investment at Which Phaseout Begins.--
Paragraph (2) of section 179(b) (relating to reduction in limitation)
is amended by striking ``$200,000'' and inserting ``$325,000''.
[[Page 93]]
(c) Off-the-Shelf Computer Software.--Paragraph (1) of section
179(d) (defining section 179 property) is amended to read as follows:
``(1) Section 179 property.--For purposes of this section,
the term `section 179 property' means property--
``(A) which is--
``(i) tangible property (to which section
168 applies), or
``(ii) computer software (as defined in
section 197(e)(3)(B)) which is described in
section 197(e)(3)(A)(i) and to which section
167 applies,
``(B) which is section 1245 property (as defined in
section 1245(a)(3)), and
``(C) which is acquired by purchase for use in the
active conduct of a trade or business.
Such term shall not include any property described in section
50(b) and shall not include air conditioning or heating
units.''.
(d) Adjustment of Dollar Limit and Phaseout Threshold for
Inflation.--Subsection (b) of section 179 (relating to limitations) is
amended by adding at the end the following new paragraph:
``(5) Inflation adjustments.--
[[Page 94]]
``(A) In general.--In the case of any taxable year
beginning in a calendar year after 2003, the dollar
amounts in paragraphs (1) and (2) shall each 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 the
calendar year in which the taxable year begins,
by substituting `calendar year 2002' for
`calendar year 1992' in subparagraph (B)
thereof.
``(B) Rounding.--
``(i) Dollar limitation.--If the amount in
paragraph (1) as increased under subparagraph
(A) is not a multiple of $1,000, such amount
shall be rounded to the nearest multiple of
$1,000.
``(ii) Phaseout amount.--If the amount in
paragraph (2) as increased under subparagraph
(A) is not a multiple of $10,000, such amount
shall be rounded to the nearest multiple of
$10,000.''.
[[Page 95]]
(e) Revocation of Election.--Paragraph (2) of section 179(c)
(relating to election irrevocable) is amended to read as follows:
``(2) Revocation of election.--The taxpayer may revoke an
election under paragraph (1), and any specification contained
in any such election, with respect to any property. Such
revocation, once made, shall be irrevocable.''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2002.
SEC. 108. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.
Each amendment made by this title (other than section 107) shall be
subject to title IX of the Economic Growth and Tax Relief
Reconciliation Act of 2001 to the same extent and in the same manner as
the provision of such Act to which such amendment relates.
TITLE II--PARTIAL EXCLUSION OF DIVIDENDS
SEC. 201. PARTIAL EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.
(a) General Rule.--Part III of subchapter B of chapter 1 is amended
by inserting after section 115 the following new section:
[[Page 96]]
``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS RECEIVED BY INDIVIDUALS.
``(a) Exclusion From Gross Income.--
``(1) In general.--Gross income does not include qualified
dividend income received during the taxable year by an
individual.
``(2) Limitation.--Paragraph (1) shall apply to qualified
dividend income of a taxpayer only to the extent such income
does not exceed the sum of--
``(A) $500 ($250 in the case of a married
individual filing a separate return), plus
``(B) 10 percent (20 percent in the case of taxable
years beginning after 2007) of such income in excess of
the amount applicable under subparagraph (A).
``(b) Qualified Dividend Income.--For purposes of this subsection--
``(1) In general.--The term `qualified dividend income'
means dividends received with respect to any share of stock
of--
``(A) any domestic corporation, or
``(B) any foreign corporation but only if such
share of stock is readily tradable on an established
securities market.
``(2) Certain dividends excluded.--Such term shall not
include--
[[Page 97]]
``(A) any dividend from a corporation which for the
taxable year of the corporation in which the
distribution is made, or the preceding taxable year, is
a corporation exempt from tax under section 501 or 521,
``(B) any amount allowed as a deduction under
section 591 (relating to deduction for dividends paid
by mutual savings banks, etc.), and
``(C) any dividend described in section 404(k).
``(3) Exclusion of dividends of certain foreign
corporations.--Such term shall not include any dividend from a
foreign corporation which for the taxable year of the
corporation in which the distribution was made, or the
preceding taxable year, is a foreign personal holding company
(as defined in section 552), a foreign investment company (as
defined in section 1246(b)), or a passive foreign investment
company (as defined in section 1297).
``(4) Coordination with section 246(c).--Such term shall
not include any dividend on any share of stock--
``(A) with respect to which the holding period
requirements of section 246(c) are not met, or
[[Page 98]]
``(B) to the extent that the taxpayer 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.
``(c) Special Rules.--
``(1) Amounts taken into account as investment income.--
Qualified dividend income shall not include any amount which
the taxpayer takes into account as investment income under
section 163(d)(4)(B).
``(2) Coordination with foreign tax credit and deduction.--
No credit shall be allowed under section 901, and no deduction
shall be allowed under this chapter, for any taxes paid or
accrued with respect to any income excludable under this
section.
``(3) Extraordinary dividends.--If an individual receives,
with respect to any share of stock, qualified dividend income
from 1 or more dividends which are extraordinary dividends
(within the meaning of section 1059(c)), any loss on the sale
or exchange of such share shall, to the extent of such
dividends, be treated as long-term capital loss.
``(4) Certain nonresident aliens ineligible for
exclusion.--In the case of a nonresident alien
[[Page 99]]
individual, subsection (a) shall apply only in determining the
tax imposed for the taxable year by sections 871(b)(1) and
877(b).
``(5) Exclusion disregarded in determining income for
certain purposes.--Subsection (a) shall not apply for purposes
of determining amounts of income under sections 32(i), 86(b),
135(b), 137(b), 219(g), 221(b), 222(b), 408A(c)(3), 469(i), and
530(c), or subpart A of part IV of subchapter A.
``(6) Treatment of dividends from regulated investment
companies and real estate investment trusts.--A dividend from a
regulated investment company or real estate investment trust
shall be subject to the limitations prescribed in sections 854
and 857.''.
(b) Exclusion of Dividends From Investment Income.--Subparagraph
(B) of section 163(d)(4) (defining net investment income) is amended by
adding at the end the following flush sentence:
``Such term shall include qualified dividend income (as
defined in section 116(b)) only to the extent the
taxpayer elects to treat such income as investment
income for purposes of this subsection.''.
[[Page 100]]
(c) Treatment of Dividends From Regulated Investment Companies.--
(1) Subsection (a) of section 854 (relating to dividends
received from regulated investment companies) is amended by
inserting ``section 116 (relating to partial exclusion of
dividends received by individuals) and'' after ``For purposes
of''.
(2) Paragraph (1) of section 854(b) (relating to other
dividends) is amended by redesignating subparagraph (B) as
subparagraph (C) and by inserting after subparagraph (A) the
following new subparagraph:
``(B) Exclusion under section 116.--
``(i) In general.--If the aggregate
dividends received by a regulated investment
company during any taxable year are less than
95 percent of its gross income, then, in
computing the exclusion under section 116,
rules similar to the rules of subparagraph (A)
shall apply.
``(ii) Gross income.--For purposes of
clause (i), in the case of 1 or more sales or
other dispositions of stock or securities, the
term `gross income' includes only the excess
of--
[[Page 101]]
``(I) the net short-term capital
gain from such sales or dispositions,
over
``(II) the net long-term capital
loss from such sales or
dispositions.''.
(3) Subparagraph (C) of section 854(b)(1), as redesignated
by paragraph (2), is amended by striking ``subparagraph (A)''
and inserting ``subparagraph (A) or (B)''.
(4) Paragraph (2) of section 854(b) is amended by inserting
``the exclusion under section 116 and'' after ``for purposes
of''.
(5) Subsection (b) of section 854 is amended by adding at
the end the following new paragraph:
``(5) Coordination with section 116.--For purposes of
paragraph (1)(B), an amount shall be treated as a dividend only
if the amount is qualified dividend income (within the meaning
of section 116(b)).''.
(d) Treatment of Dividends Received From Real Estate Investment
Trusts.--Section 857(c) (relating to restrictions applicable to
dividends received from real estate investment trusts) is amended to
read as follows:
``(c) Restrictions Applicable To Dividends Received From Real
Estate Investment Trusts.--
[[Page 102]]
``(1) Section 243.--For purposes of section 243 (relating
to deductions for dividends received by corporations), a
dividend received from a real estate investment trust which
meets the requirements of this part shall not be considered a
dividend.
``(2) Section 116.--For purposes of section 116 (relating
to exclusion of dividends), rules similar to the rules of
section 854(b)(1)(B) shall apply to dividends received from a
real estate trust which meets the requirements of this part.''.
(e) Conforming Amendments.--
(1) Subsection (f) of section 301 is amended adding at the
end the following new paragraph:
``(4) For partial exclusion from gross income of dividends
received by individuals, see section 116.''.
(2) Paragraph (1) of section 306(a) is amended by adding at
the end the following new subparagraph:
``(D) Treatment as dividend.--For purposes of
section 116, any amount treated as ordinary income
under this paragraph shall be treated as a dividend
received from the corporation.''.
(3)(A) Subpart C of part II of subchapter C of chapter 1
(relating to collapsible corporations) is repealed.
[[Page 103]]
(B)(i) Section 338(h) is amended by striking paragraph
(14).
(ii) Sections 467(c)(5)(C), 1255(b)(2), and 1257(d) are
each amended by striking ``, 341(e)(12),''.
(iii) The table of subparts for part II of subchapter C of
chapter 1 is amended by striking the item related to subpart C.
(4) Section 531(a) is amended by inserting ``90 percent (80
percent in the case of taxable years beginning after 2007) of''
after ``equal to''.
(5) Section 541(a) is amended by inserting ``90 percent (80
percent in the case of taxable years beginning after 2007) of''
after ``equal to''.
(6) Section 584(c) is amended by adding at the end the
following new flush sentence:
``The proportionate share of each participant in the amount of
dividends received by the common trust fund and to which section 116
applies shall be considered for purposes of such paragraph as having
been received by such participant.''.
(7) Section 643(a) is amended by redesignating paragraph
(7) as paragraph (8) and by inserting after paragraph (6) the
following new paragraph:
``(7) Excluded dividends.--There shall be included the
amount of any dividends excluded from
[[Page 104]]
gross income under section 116 (relating to partial exclusion
of dividends).''.
(8) Paragraph (5) of section 702(a) is amended to read as
follows:
``(5) dividends with respect to which section 116 or part
VII of subchapter B applies,''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
TITLE III--REVENUE PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
SEC. 301. 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 applying the economic
substance doctrine, the determination of whether a
transaction has economic substance shall be made as
provided in this paragraph.
[[Page 105]]
``(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--
[[Page 106]]
``(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
lend
[[Page 107]]
ing 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
[[Page 108]]
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.--A lessor of tangible
property subject to a lease shall be treated as
satisfying the requirements of paragraph (1)(B)(ii)
with respect to the leased property if such lease
satisfies such requirements as provided by the
Secretary.
``(4) Other common law doctrines not affected.--Except as
specifically provided in this subsection, the provisions of
this subsection shall not be
[[Page 109]]
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 on or after May 8, 2003.
SEC. 302. 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
[[Page 110]]
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
[[Page 111]]
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.--
[[Page 112]]
``(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).
[[Page 113]]
``(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--
[[Page 114]]
``(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
[[Page 115]]
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. 303. 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--
[[Page 116]]
``(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--
[[Page 117]]
``(A) any listed transaction, and
``(B) any reportable transaction (other than a
listed transaction) if a significant purpose of such
transaction is the avoidance or evasion of Federal
income tax.
``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance
Transactions.--
``(1) In general.--Subsection (a) shall be applied by
substituting `30 percent' for `20 percent' with respect to the
portion of any reportable transaction understatement with
respect to which the requirement of section 6664(d)(2)(A) is
not met.
``(2) Rules applicable to compromise of penalty.--
``(A) In general.--If the 1st letter of proposed
deficiency which allows the taxpayer an opportunity for
administrative review in the Internal Revenue Service
Office of Appeals has been sent with respect to a
penalty to which paragraph (1) applies, only the
Commissioner of Internal Revenue may compromise all or
any portion of such penalty.
``(B) Applicable rules.--The rules of paragraphs
(2), (3), (4), and (5) of section
[[Page 118]]
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.
[[Page 119]]
``(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
[[Page 120]]
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.
[[Page 121]]
``(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
[[Page 122]]
``(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
[[Page 123]]
707(b)(1)) to any person who so
participates,
``(II) is compensated directly or
indirectly by a material advisor with
respect to the transaction,
``(III) has a fee arrangement with
respect to the transaction which is
contingent on all or part of the
intended tax benefits from the
transaction being sustained, or
``(IV) as determined under
regulations prescribed by the
Secretary, has a continuing financial
interest with respect to the
transaction.
``(iii) Disqualified opinions.--For
purposes of clause (i), an opinion is
disqualified if the opinion--
``(I) is based on unreasonable
factual or legal assumptions (including
assumptions as to future events),
``(II) unreasonably relies on
representations, statements, findings,
or agreements of the taxpayer or any
other person,
[[Page 124]]
``(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,
[[Page 125]]
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.
[[Page 126]]
SEC. 304. 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
[[Page 127]]
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.
[[Page 128]]
``(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 on or after May 8, 2003.
SEC. 305. 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:
[[Page 129]]
``(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),
[[Page 130]]
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. 306. 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
[[Page 131]]
``(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. 307. 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.--
[[Page 132]]
``(A) In general.--The term `material advisor'
means any person--
``(i) who provides any material aid,
assistance, or advice with respect to
organizing, promoting, selling, implementing,
or carrying out any reportable transaction, and
``(ii) who directly or indirectly derives
gross income in excess of the threshold amount
for such aid, assistance, or advice.
``(B) Threshold amount.--For purposes of
subparagraph (A), the threshold amount is--
``(i) $50,000 in the case of a reportable
transaction substantially all of the tax
benefits from which are provided to natural
persons, and
``(ii) $250,000 in any other case.
``(2) Reportable transaction.--The term `reportable
transaction' has the meaning given to such term by section
6707A(c).
``(c) Regulations.--The Secretary may prescribe regulations which
provide--
``(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which
[[Page 133]]
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.
[[Page 134]]
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.''.
[[Page 135]]
(c) Effective Date.--The amendments made by this section shall
apply to transactions with respect to which material aid, assistance,
or advice referred to in section 6111(b)(1)(A)(i) of the Internal
Revenue Code of 1986 (as added by this section) is provided after the
date of the enactment of this Act.
SEC. 308. 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.--
[[Page 136]]
``(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) Rescission Authority.--The provisions of section 6707A(d)
(relating to authority of Commissioner to rescind penalty) shall apply
to any penalty imposed under this section.
``(d) Reportable and Listed Transactions.--The terms `reportable
transaction' and `listed transaction' have the respective meanings
given to such terms by section 6707A(c).''.
[[Page 137]]
(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. 309. 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.''.
[[Page 138]]
(b) Effective Date.--The amendment made by this section shall apply
to requests made after the date of the enactment of this Act.
SEC. 310. 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--
[[Page 139]]
``(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.
[[Page 140]]
SEC. 311. 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.
[[Page 141]]
SEC. 312. 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.
[[Page 142]]
``(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.''.
[[Page 143]]
(b) Effective Date.--The amendment made by this section shall apply
to violations occurring after the date of the enactment of this Act.
SEC. 313. 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.--
[[Page 144]]
``(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
[[Page 145]]
``(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
[[Page 146]]
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)'';
[[Page 147]]
(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:
[[Page 148]]
``(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. 314. 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
[[Page 149]]
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. 315. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH LISTED
TRANSACTIONS NOT REPORTED.
(a) In General.--Section 6501(e)(1) (relating to substantial
omission of items for income taxes) is amended by adding at the end the
following new subparagraph:
``(C) Listed transactions.--If a taxpayer fails to
include on any return or statement for any taxable year
any information with respect to a listed transaction
(as defined in section 6707A(c)(2)) which is required
under section 6011 to be included with such return or
statement, the tax for such taxable year may be
assessed, or a proceeding in court for collection of
such tax may be begun without assessment, at any time
within 6 years after the time the return is filed. This
subparagraph shall not apply to any taxable year if the
time for assessment or beginning the proceeding in
court has expired be
[[Page 150]]
fore the time a transaction is treated as a listed
transaction under section 6011.''.
(b) Effective Date.--The amendment made by this section shall apply
to transactions in taxable years beginning after the date of the
enactment of this Act.
SEC. 316. 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)).''.
[[Page 151]]
(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.
Subtitle B--Enron-Related Tax Shelter Provisions
SEC. 321. 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--
[[Page 152]]
``(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--
[[Page 153]]
``(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 prop
[[Page 154]]
erty 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
[[Page 155]]
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. 322. 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.
Gain shall be recognized to the partnership to the extent that the
amount required to be allocated under paragraph
[[Page 156]]
(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. 323. REPEAL OF SPECIAL RULES FOR FASITS.
(a) In General.--Part V of subchapter M of chapter 1 (relating to
financial asset securitization investment trusts) is hereby repealed.
(b) Conforming Amendments.--
(1) Paragraph (6) of section 56(g) is amended by striking
``REMIC, or FASIT'' and inserting ``or REMIC''.
(2) Clause (ii) of section 382(l)(4)(B) is amended by
striking ``a REMIC to which part IV of subchapter M applies, or
a FASIT to which part V of subchapter M applies,'' and
inserting ``or a REMIC to which part IV of subchapter M
applies,''.
(3) Paragraph (1) of section 582(c) is amended by striking
``, and any regular interest in a FASIT,''.
(4) Subparagraph (E) of section 856(c)(5) is amended by
striking the last sentence.
(5) Paragraph (5) of section 860G(a) is amended by adding
``and'' at the end of subparagraph (B), by
[[Page 157]]
striking ``, and'' at the end of subparagraph (C) and inserting
a period, and by striking subparagraph (D).
(6) Subparagraph (C) of section 1202(e)(4) is amended by
striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
(7) Subparagraph (C) of section 7701(a)(19) is amended by
adding ``and'' at the end of clause (ix), by striking ``, and''
at the end of clause (x) and inserting a period, and by
striking clause (xi).
(8) The table of parts for subchapter M of chapter 1 is
amended by striking the item relating to part V.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall 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
[[Page 158]]
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. 324. 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) Exception for Certain Instruments Issued By Dealers In
Securities.--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) 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
[[Page 159]]
this paragraph, the term `dealer in securities' has the meaning
given such term by section 475.''.
(c) Conforming Amendment.--Paragraph (3) of section 163(l) is
amended by striking ``or a related party'' in the material preceding
subparagraph (A) and inserting ``or any other person''.
(d) Effective Date.--The amendments made by this section shall
apply to debt instruments issued after February 13, 2003.
SEC. 325. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER SECTION
269.
(a) In General.--Subsection (a) of section 269 (relating to
acquisitions made to evade or avoid income tax) is amended to read as
follows:
``(a) In General.--If--
``(1)(A) any person acquires stock in a corporation, or
``(B) any corporation acquires, directly or indirectly,
property of another corporation and the basis of such property,
in the hands of the acquiring corporation, is determined by
reference to the basis in the hands of the transferor
corporation, and
``(2) the principal purpose for which such acquisition was
made is evasion or avoidance of Federal
[[Page 160]]
income tax by securing the benefit of a deduction, credit, or
other allowance,
then the Secretary may disallow such deduction, credit, or other
allowance.''.
(b) Effective Date.--The amendment made by this section shall apply
to stock and property acquired after February 13, 2003.
SEC. 326. MODIFICATIONS OF CERTAIN RULES RELATING TO CONTROLLED FOREIGN
CORPORATIONS.
(a) Limitation on Exception From PFIC Rules for United States
Shareholders of Controlled Foreign Corporations.--Paragraph (2) of
section 1297(e) (relating to passive investment company) is amended by
adding at the end the following flush sentence:
``Such term shall not include any period if there is only a
remote likelihood of an inclusion in gross income under section
951(a)(1)(A)(i) of subpart F income of such corporation for
such period.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years on controlled foreign corporation beginning after
February 13, 2003, and to taxable years of United States shareholder in
which or with which such taxable years of controlled foreign
corporations end.
[[Page 161]]
SEC. 327. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS.
(a) In General.--Subsection (a) of section 856 (relating to
definition of real estate investment trust) is amended by striking
``and'' at the end of paragraph (6), by redesignating paragraph (7) as
paragraph (8), and by inserting after paragraph (6) the following new
paragraph:
``(7) which is not a controlled entity (as defined in
subsection (l)); and''.
(b) Controlled Entity.--Section 856 is amended by adding at the end
the following new subsection:
``(l) Controlled Entity.--
``(1) In general.--For purposes of subsection (a)(7), an
entity is a controlled entity if, at any time during the
taxable year, one person (other than a qualified entity)--
``(A) in the case of a corporation, owns stock--
``(i) possessing at least 50 percent of the
total voting power of the stock of such
corporation, or
``(ii) having a value equal to at least 50
percent of the total value of the stock of such
corporation, or
``(B) in the case of a trust, owns beneficial
interests in the trust which would meet the re
[[Page 162]]
quirements of subparagraph (A) if such interests were
stock.
``(2) Qualified entity.--For purposes of paragraph (1), the
term `qualified entity' means--
``(A) any real estate investment trust, and
``(B) any partnership in which one real estate
investment trust owns at least 50 percent of the
capital and profits interests in the partnership.
``(3) Attribution rules.--For purposes of this paragraphs
(1) and (2)--
``(A) In general.--Rules similar to the rules of
subsections (d)(5) and (h)(3) shall apply; except that
section 318(a)(3)(C) shall not be applied under such
rules to treat stock owned by a qualified entity as
being owned by a person which is not a qualified
entity.
``(B) Stapled entities.--A group of entities which
are stapled entities (as defined in section 269B(c)(2))
shall be treated as one person.
``(4) Exception for certain new reits.--
``(A) In general.--The term `controlled entity'
shall not include an incubator REIT.
``(B) Incubator reit.--A corporation shall be
treated as an incubator REIT for any
[[Page 163]]
taxable year during the eligibility period if it meets
all the following requirements for such year:
``(i) The corporation elects to be treated
as an incubator REIT.
``(ii) The corporation has only voting
common stock outstanding.
``(iii) Not more than 50 percent of the
corporation's real estate assets consist of
mortgages.
``(iv) From not later than the beginning of
the last half of the second taxable year, at
least 10 percent of the corporation's capital
is provided by lenders or equity investors who
are unrelated to the corporation's largest
shareholder.
``(v) The corporation annually increases
the value of its real estate assets by at least
10 percent.
``(vi) The directors of the corporation
adopt a resolution setting forth an intent to
engage in a going public transaction.
No election may be made with respect to any REIT if an
election under this subsection was in effect for any
predecessor of such REIT.
[[Page 164]]
``(C) Eligibility period.--
``(i) In general.--The eligibility period
(for which an incubator REIT election can be
made) begins with the REIT's second taxable
year and ends at the close of the REIT's third
taxable year, except that the REIT may, subject
to clauses (ii), (iii), and (iv), elect to
extend such period for an additional 2 taxable
years.
``(ii) Going public transaction.--A REIT
may not elect to extend the eligibility period
under clause (i) unless it enters into an
agreement with the Secretary that if it does
not engage in a going public transaction by the
end of the extended eligibility period, it
shall pay Federal income taxes for the 2 years
of the extended eligibility period as if it had
not made an incubator REIT election and had
ceased to qualify as a REIT for those 2 taxable
years.
``(iii) Returns, interest, and notice.--
``(I) Returns.--In the event the
corporation ceases to be treated as a
REIT by operation of clause (ii), the
[[Page 165]]
corporation shall file any appropriate
amended returns reflecting the change
in status within 3 months of the close
of the extended eligibility period.
``(II) Interest.--Interest shall be
payable on any tax imposed by reason of
clause (ii) for any taxable year but,
unless there was a finding under
subparagraph (D), no substantial
underpayment penalties shall be
imposed.
``(III) Notice.--The corporation
shall, at the same time it files its
returns under subclause (I), notify its
shareholders and any other persons
whose tax position is, or may
reasonably be expected to be, affected
by the change in status so they also
may file any appropriate amended
returns to conform their tax treatment
consistent with the corporation's loss
of REIT status.
``(IV) Regulations.--The Secretary
shall provide appropriate regulations
setting forth transferee liability and
other provisions to ensure collec
[[Page 166]]
tion of tax and the proper
administration of this provision.
``(iv) Clauses (ii) and (iii) shall not
apply if the corporation allows its incubator
REIT status to lapse at the end of the initial
2-year eligibility period without engaging in a
going public transaction if the corporation is
not a controlled entity as of the beginning of
its fourth taxable year. In such a case, the
corporation's directors may still be liable for
the penalties described in subparagraph (D)
during the eligibility period.
``(D) Special penalties.--If the Secretary
determines that an incubator REIT election was filed
for a principal purpose other than as part of a
reasonable plan to undertake a going public
transaction, an excise tax of $20,000 shall be imposed
on each of the corporation's directors for each taxable
year for which an election was in effect.
``(E) Going public transaction.--For purposes of
this paragraph, a going public transaction means--
[[Page 167]]
``(i) a public offering of shares of the
stock of the incubator REIT;
``(ii) a transaction, or series of
transactions, that results in the stock of the
incubator REIT being regularly traded on an
established securities market and that results
in at least 50 percent of such stock being held
by shareholders who are unrelated to persons
who held such stock before it began to be so
regularly traded; or
``(iii) any transaction resulting in
ownership of the REIT by 200 or more persons
(excluding the largest single shareholder) who
in the aggregate own at least 50 percent of the
stock of the REIT.
For the purposes of this subparagraph, the rules of
paragraph (3) shall apply in determining the ownership
of stock.
``(F) Definitions.--The term `established
securities market' shall have the meaning set forth in
the regulations under section 897.''.
(c) Conforming Amendment.--Paragraph (2) of section 856(h) is
amended by striking ``and (6)'' each place it appears and inserting ``,
(6), and (7)''.
(d) Effective Date.--
[[Page 168]]
(1) In general.--The amendments made by this section shall
apply to taxable years ending after May 8, 2003.
(2) Exception for existing controlled entities.--The
amendments made by this section shall not apply to any entity
which is a controlled entity (as defined in section 856(l) of
the Internal Revenue Code of 1986, as added by this section) as
of May 8, 2003, which is a real estate investment trust for the
taxable year which includes such date, and which has
significant business assets or activities as of such date. For
purposes of the preceding sentence, an entity shall be treated
as such a controlled entity on May 8, 2003, if it becomes such
an entity after such date in a transaction--
(A) made pursuant to a written agreement which was
binding on such date and at all times thereafter, or
(B) described on or before such date in a filing
with the Securities and Exchange Commission required
solely by reason of the transaction.
[[Page 169]]
Subtitle C--Other Corporate Governance Provisions
PART I--GENERAL PROVISIONS
SEC. 331. 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. 332. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE OFFICER.
(a) In General.--Section 6062 (relating to signing of corporation
returns) is amended by striking the first sen
[[Page 170]]
tence and inserting the following new sentence: ``The return of a
corporation with respect to income shall be 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). 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. 333. 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 (3) in relation to
the violation of any law or the investigation or inquiry into
the potential violation of any law.
[[Page 171]]
``(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) 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
[[Page 172]]
exception shall not apply to an order or agreement requiring court
approval unless the approval was obtained on or before April 27, 2003.
SEC. 334. 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.
[[Page 173]]
(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.''.
[[Page 174]]
(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.
PART II--EXECUTIVE COMPENSATION REFORM
SEC. 335. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION FUNDED WITH
ASSETS LOCATED OUTSIDE THE UNITED STATES.
(a) In General.--Section 83(c) (relating to special rules for
property transferred in connection with performance of services) is
amended by adding at the end the following new paragraph:
``(4) Foreign assets funding nonqualified deferred
compensation arrangements.--
``(A) In general.--In determining whether there is
a transfer of property for purposes of subsection (a),
if assets are--
``(i) designated or otherwise available for
the payment of nonqualified deferred
compensation, and
``(ii) located outside the United States,
such assets shall not be treated as subject to the
claims of creditors.
[[Page 175]]
``(B) Compensation for services performed in
foreign jurisdiction.--Subparagraph (A) shall not apply
to assets located in a foreign jurisdiction if
substantially all of the services to which the
nonqualified deferred compensation relates are
performed in such jurisdiction.
``(C) Regulations.--The Secretary shall prescribe
such regulations as are necessary to carry out the
provisions of this paragraph, including regulations to
exempt arrangements from the application of this
paragraph if--
``(i) the arrangement will not result in an
improper deferral of United States tax, and
``(ii) the assets involved in the
arrangement will be readily accessible in any
insolvency or bankruptcy proceeding.''.
(b) Effective Date.--The amendments made by this section shall
apply to amounts deferred in taxable years beginning after December 31,
2003.
[[Page 176]]
SEC. 336. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED COMPENSATION OF
CORPORATE INSIDERS.
(a) In General.--Subpart A of part I of subchapter D of chapter 1
is amended by adding at the end the following new section:
``SEC. 409A. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED COMPENSATION
OF CORPORATE INSIDERS.
``(a) In General.--If an employer maintains a funded deferred
compensation plan--
``(1) compensation of any disqualified individual which is
deferred under such funded deferred compensation plan shall be
included in the gross income of the disqualified individual or
beneficiary for the 1st taxable year in which there is no
substantial risk of forfeiture of the rights to such
compensation, and
``(2) the tax treatment of any amount made available under
the plan to a disqualified individual or beneficiary shall be
determined under section 72 (relating to annuities, etc.).
``(b) Funded Deferred Compensation Plan.--For purposes of this
section--
``(1) In general.--The term `funded deferred compensation
plan' means any plan providing for the deferral of compensation
unless--
[[Page 177]]
``(A) the employee's rights to the compensation
deferred under the plan are no greater than the rights
of a general creditor of the employer, and
``(B) all amounts set aside (directly or
indirectly) for purposes of paying the deferred
compensation, and all income attributable to such
amounts, remain (until made available to the
participant or other beneficiary) solely the property
of the employer (without being restricted to the
provision of benefits under the plan),
``(C) the amounts referred to in subparagraph (B)
are available to satisfy the claims of the employer's
general creditors at all times (not merely after
bankruptcy or insolvency), and
``(D) the investment options which a participant
may elect under the plan are the same as the investment
options which a participant may elect under the
qualified employer plan of the employer which has the
fewest investment options.
Such term shall not include a qualified employer plan.
``(2) Special rules.--
[[Page 178]]
``(A) Employee's rights.--A plan shall be treated
as failing to meet the requirements of paragraph (1)(A)
unless--
``(i) the compensation deferred under the
plan is payable only upon separation from
service, death, disability (within the meaning
of section 1614(a)(3) of the Social Security
Act (42 U.S.C. 1382c(a)(3))), or at a specified
time (or pursuant to a fixed schedule), and
``(ii) the plan does not permit the
acceleration of the time such deferred
compensation is payable by reason of any event.
If the employer and employee agree to a modification of
the plan that accelerates the time for payment of any
deferred compensation, then all compensation previously
deferred under the plan shall be includible in gross
income for the taxable year during which such
modification takes effect and the taxpayer shall pay
interest at the underpayment rate on the underpayments
that would have occurred had the deferred compensation
been includible in gross income on the earliest date
that there is no substantial risk of forfeiture of the
rights to such compensation.
[[Page 179]]
``(B) Creditor's rights.--A plan shall be treated
as failing to meet the requirements of paragraph (1)(B)
with respect to amounts set aside in a trust unless--
``(i) the employee has no beneficial
interest in the trust,
``(ii) assets in the trust are available to
satisfy claims of general creditors at all
times (not merely after bankruptcy or
insolvency), and
``(iii) there is no factor that would make
it more difficult for general creditors to
reach the assets in the trust than it would be
if the trust assets were held directly by the
employer in the United States.
Except as provided in regulations prescribed by the
Secretary, such a factor shall include the location of
the trust outside the United States unless
substantially all of the services to which the
nonqualified deferred compensation relates are
performed outside the United States. Such regulations
may exempt any such trust if the trust will not result
in an improper deferral of United States tax, and the
assets involved in the trust
[[Page 180]]
will be readily accessible in any insolvency or
bankruptcy proceeding.
``(c) Disqualified Individual.--For purposes of this section, the
term `disqualified individual' means, with respect to a corporation,
any individual--
``(1) who is subject to the requirements of section 16(a)
of the Securities Exchange Act of 1934 with respect to such
corporation, or
``(2) who would be subject to such requirements if such
corporation were an issuer of equity securities referred to in
such section.
``(d) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Qualified employer plan.--The term `qualified
employer plan' means--
``(A) any plan, contract, pension, account, or
trust described in subparagraph (A) or (B) of section
219(g)(5), and
``(B) any other plan of an organization exempt from
tax under subtitle A.
``(2) Plan includes arrangements, etc.--The term `plan'
includes any agreement or arrangement.
``(3) Substantial risk of forfeiture.--The rights of a
person to compensation are subject to a substantial risk of
forfeiture if such person's rights to
[[Page 181]]
such compensation are conditioned upon the future performance
of substantial services by any individual.
``(4) Treatment of earnings.--References to deferred
compensation shall be treated as including references to income
attributable to such compensation or such income.''.
(b) Clerical Amendment.--The table of sections for such subpart A
is amended by adding at the end the following new item:
``Sec. 409A. Inclusion in gross income of
funded deferred compensation of
corporate insiders.''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts deferred in taxable years beginning after December 31,
2003.
SEC. 337. PROHIBITION ON DEFERRAL OF GAIN FROM THE EXERCISE OF STOCK
OPTIONS AND RESTRICTED STOCK GAINS THROUGH DEFERRED
COMPENSATION ARRANGEMENTS.
(a) In General.--Section 83 (relating to property transferred in
connection with performance of services) is amending by adding at the
end the following new subsection:
``(i) Prohibition on Additional Deferral Through Deferred
Compensation Arrangements.--If a taxpayer elects to exchange an option
to purchase employer securities--
[[Page 182]]
``(1) to which subsection (a) applies, or
``(2) which is described in subsection (e)(3),
or any other compensation based on employer securities, for a right to
receive future payments, then, notwithstanding any other provision of
this title, there shall be included in gross income for the taxable
year of the exchange an amount equal to the present value of such right
(or such other amount as the Secretary may by regulations specify). For
purposes of this subsection, the term `employer securities' has the
meaning given such term by section 409(l).''.
(b) Effective Date.--The amendment made by this section shall apply
to any exchange after December 31, 2003.
SEC. 338. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE PAYMENTS IN
EXCESS OF $1,000,000.
(a) In General.--If an employer elects under Treasury Regulation
31.3402(g)-1 to determine the amount to be deducted and withheld from
any supplemental wage payment by using a flat percentage rate, the rate
to be used in determining the amount to be so deducted and withheld
shall not be less than 28 percent (or the corresponding rate in effect
under section 1(i)(2) of the Internal Revenue Code of 1986 for taxable
years beginning in the calendar year in which the payment is made).
[[Page 183]]
(b) Special Rule for Large Payments.--
(1) In general.--Notwithstanding subsection (a), if the
supplemental wage payment, when added to all such payments
previously made by the employer to the employee during the
calendar year, exceeds $1,000,000, the rate used with respect
to such excess shall be equal to the maximum rate of tax in
effect under section 1 of such Code for taxable years beginning
in such calendar year.
(2) Aggregation.--All persons treated as a single employer
under subsection (a) or (b) of section 52 of the Internal
Revenue Code of 1986 shall be treated as a single employer for
purposes of this subsection.
(c) Conforming Amendment.--Section 13273 of the Revenue
Reconciliation Act of 1993 (Public Law 103-66) is repealed.
(d) Effective Date.--The provisions of, and the amendment made by,
this section shall apply to payments made after December 31, 2003.
[[Page 184]]
Subtitle D--International Provisions
PART I--PROVISIONS TO DISCOURAGE EXPATRIATION
SEC. 340. REVISION OF TAX RULES ON EXPATRIATION.
(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,
[[Page 185]]
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
[[Page 186]]
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--
[[Page 187]]
``(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
[[Page 188]]
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.--
[[Page 189]]
``(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 in
[[Page 190]]
terest 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
[[Page 191]]
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.
[[Page 192]]
``(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.
[[Page 193]]
``(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
[[Page 194]]
``(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
[[Page 195]]
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).
[[Page 196]]
``(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
[[Page 197]]
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
[[Page 198]]
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.
[[Page 199]]
``(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
[[Page 200]]
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--
[[Page 201]]
``(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
[[Page 202]]
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
[[Page 203]]
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--
[[Page 204]]
``(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 sub
[[Page 205]]
section 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--
[[Page 206]]
``(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
[[Page 207]]
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.--
[[Page 208]]
``(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.--
[[Page 209]]
(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)''
[[Page 210]]
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 expatria
[[Page 211]]
tion 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.--
[[Page 212]]
(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. 341. 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:
[[Page 213]]
``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
[[Page 214]]
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.--
[[Page 215]]
``(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
[[Page 216]]
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.
[[Page 217]]
``(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--
[[Page 218]]
``(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
[[Page 219]]
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
[[Page 220]]
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 Related Party Transactions.--
``(1) Annual application for agreements on return
positions.--
``(A) In general.--Each acquired entity to which
subsection (b) applies shall file with the Secretary an
application for an approval agreement under
subparagraph (D) for each taxable year which includes a
portion of the applicable period. Such application
shall be filed at such
[[Page 221]]
time and manner, and shall contain such information, as
the Secretary may prescribe.
``(B) Secretarial action.--Within 90 days of
receipt of an application under subparagraph (A) (or
such longer period as the Secretary and entity may
agree upon), the Secretary shall--
``(i) enter into an agreement described in
subparagraph (D) for the taxable year covered
by the application,
``(ii) notify the entity that the Secretary
has determined that the application was filed
in good faith and substantially complies with
the requirements for the application under
subparagraph (A), or
``(iii) notify the entity that the
Secretary has determined that the application
was not filed in good faith or does not
substantially comply with such requirements.
If the Secretary fails to act within the time
prescribed under the preceding sentence, the entity
shall be treated for purposes of this paragraph as
having received notice under clause (ii).
``(C) Failures to comply.--If an acquired entity
fails to file an application under
[[Page 222]]
subparagraph (A), or the acquired entity receives a
notice under subparagraph (B)(iii), for any taxable
year, then for such taxable year--
``(i) there shall not be allowed any
deduction, or addition to basis or cost of
goods sold, for amounts paid or incurred, or
losses incurred, by reason of a transaction
between the acquired entity and a foreign
related person,
``(ii) any transfer or license of
intangible property (as defined in section
936(h)(3)(B)) between the acquired entity and a
foreign related person shall be disregarded,
and
``(iii) any cost-sharing arrangement
between the acquired entity and a foreign
related person shall be disregarded.
``(D) Approval agreement.--For purposes of
subparagraph (A), the term `approval agreement' means a
prefiling, advance pricing, or other agreement
specified by the Secretary which contains such
provisions as the Secretary determines necessary to
ensure that the requirements of sections 163(j),
267(a)(3), 482, and 845, and any other provision of
this title applicable
[[Page 223]]
to transactions between related persons and specified
by the Secretary, are met.
``(E) Tax court review.--
``(i) In general.--The Tax Court shall have
jurisdiction over any action brought by an
acquired entity receiving a notice under
subparagraph (B)(iii) to determine whether the
issuance of the notice was an abuse of
discretion, but only if the action is brought
within 30 days after the date of the mailing
(determined under rules similar to section
6213) of the notice.
``(ii) Court action.--The Tax Court shall
issue its decision within 30 days after the
filing of the action under clause (i) and may
order the Secretary to issue a notice described
in subparagraph (B)(ii).
``(iii) Review.--An order of the Tax Court
under this subparagraph shall be reviewable in
the same manner as any other decision of the
Tax Court.
``(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--
[[Page 224]]
``(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
[[Page 225]]
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 in
[[Page 226]]
struments, 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 Sec
[[Page 227]]
retary 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
[[Page 228]]
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-through or other
noncorporate entities, or other intermediaries, or
``(2) transactions designed to have persons cease to be (or
not become) members of expanded affiliated groups or related
persons.''.
(b) Treatment of Agreements.--
(1) Confidentiality.--
[[Page 229]]
(A) Treatment as return information.--Section
6103(b)(2) (relating to return information) is amended
by striking ``and'' at the end of subparagraph (C), by
inserting ``and'' at the end of subparagraph (D), and
by inserting after subparagraph (D) the following new
subparagraph:
``(E) any approval agreement under section
7874(d)(1) to which any preceding subparagraph does not
apply and any background information related to the
agreement or any application for the agreement,''.
(B) Exception from public inspection as written
determination.--Section 6110(b)(1)(B) is amended by
striking ``or (D)'' and inserting ``, (D), or (E)''.
(2) Reporting.--The Secretary of the Treasury shall include
with any report on advance pricing agreements required to be
submitted after the date of the enactment of this Act under
section 521(b) of the Ticket to Work and Work Incentives
Improvement Act of 1999 (Public Law 106-170) a report regarding
approval agreements under section 7874(d)(1) of the Internal
Revenue Code of 1986. Such report shall include information
similar to the information required
[[Page 230]]
with respect to advance pricing agreements and shall be treated
for confidentiality purposes in the same manner as the reports
on advance pricing agreements are treated under section
521(b)(3) of such Act.
(c) 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.
(d) 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.''.
(e) 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)
[[Page 231]]
of such Code by reason of an acquisition completed after March 20,
2002, and before January 1, 2004.
SEC. 342. 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--
[[Page 232]]
``(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.
[[Page 233]]
``(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, and
``(2) any specified stock compensation which is sold,
exchanged, or distributed 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 any member of the
expanded affiliated group which includes such
corporation, or
``(B) would be subject to such requirements if such
corporation or member were an issuer of equity
securities referred to in such section.
[[Page 234]]
``(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 cor
[[Page 235]]
poration 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 corpora
[[Page 236]]
tion 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,''.
[[Page 237]]
(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.''.
[[Page 238]]
(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. 343. 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.
PART II--OTHER PROVISIONS
SEC. 344. 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 the Department of
the Treasury's Offshore Voluntary Compliance Initiative did not
participate in such initiative, and
[[Page 239]]
(2) any interest or applicable penalty is imposed with
respect to any arrangement to which such initiative applied or
to any underpayment of Federal income tax attributable to items
arising in connection with such arrangement,
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
[[Page 240]]
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 May 8, 2003, 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. 345. 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.
[[Page 241]]
SEC. 346. DETERMINATION OF BASIS OF AMOUNTS PAID FROM FOREIGN PENSION
PLANS.
(a) In General.--Section 72 (relating to annuities and certain
proceeds of endowment and life insurance contracts) is amended by
redesignating subsection (w) as subsection (x) by inserting subsection
(v) the following new subsection:
``(w) Determination of Basis of Foreign Pension Plans.--
Notwithstanding any other provision of this section, for purposes of
determining the portion of any distribution from a foreign pension plan
which is includible in gross income of the distributee, the investment
in the contract with respect to the plan shall not include employer or
employee contributions to the plan (or any earnings on such
contributions) unless such contributions or earnings were subject to
taxation by the United States or any foreign government.''.
(b) Effective Date.--The amendments made by this section shall
apply to distributions on or after the date of the enactment of this
Act.
SEC. 347. 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:
[[Page 242]]
``(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. 348. 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.--
Notwithstanding subparagraph (A)
[[Page 243]]
(and any regulations thereunder), 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 only to the extent
such original issue discount is included during such
taxable year in the gross income of a United States
person who owns (within the meaning of section 958(a))
stock in such corporation. For purposes of this
subparagraph, the determination as to the proper
allocation of the original issue discount to
shareholders shall be made in such manner as the
Secretary may prescribe.''.
(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:
[[Page 244]]
``(B) Special rule for certain foreign entities.--
Notwithstanding any regulations issued under
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 only to the extent
such amount is included during such taxable year in the
gross income of a United States person who owns (within
the meaning of section 958(a)) stock in such
corporation. For purposes of this subparagraph, the
determination as to the proper allocation of such
amount to shareholders shall be made in such manner as
the Secretary may prescribe.''.
(c) Effective Date.--The amendments made by this section shall
apply to payments accrued on or after May 8, 2003.
SEC. 349. SALE OF GASOLINE AND DIESEL FUEL AT DUTY-FREE SALES
ENTERPRISES.
(a) Prohibition.--Section 555(b) of the Tariff Act of 1930 (19
U.S.C. 1555(b)) is amended--
[[Page 245]]
(1) by redesignating paragraphs (6) through (8) as
paragraphs (7) through (9), respectively; and
(2) by inserting after paragraph (5) the following:
``(6) Any gasoline or diesel fuel sold at a duty-free sales
enterprise shall be considered to be entered for consumption
into the customs territory of the United States.''.
(b) Construction.--The amendments made by this section shall not be
construed to create any inference with respect to the interpretation of
any provision of law as such provision was in effect on the day before
the date of enactment of this Act.
(c) Effective date.--The amendments made by this section shall take
effect on the date of enactment of this Act.
SEC. 350. REPEAL OF EARNED INCOME EXCLUSION OF CITIZENS OR RESIDENTS
LIVING ABROAD.
(a) Repeal.--Section 911 (relating to citizens or residents living
abroad) is amended by adding at the end the following new subsection:
``(g) Termination.--This section shall not apply to any taxable
year beginning after December 31, 2003.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
[[Page 246]]
Subtitle E--Other Revenue Provisions
SEC. 351. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.
(a) In General.--Chapter 77 (relating to miscellaneous provisions)
is amended by adding at the end the following new section:
``SEC. 7528. INTERNAL REVENUE SERVICE USER FEES.
``(a) General Rule.--The Secretary shall establish a program
requiring the payment of user fees for--
``(1) requests to the Internal Revenue Service for ruling
letters, opinion letters, and determination letters, and
``(2) other similar requests.
``(b) Program Criteria.--
``(1) In general.--The fees charged under the program
required by subsection (a)--
``(A) shall vary according to categories (or
subcategories) established by the Secretary,
``(B) shall be determined after taking into account
the average time for (and difficulty of) complying with
requests in each category (and subcategory), and
``(C) shall be payable in advance.
``(2) Exemptions, etc.--
[[Page 247]]
``(A) In general.--The Secretary shall provide for
such exemptions (and reduced fees) under such program
as the Secretary determines to be appropriate.
``(B) Exemption for certain requests regarding
pension plans.--The Secretary shall not require payment
of user fees under such program for requests for
determination letters with respect to the qualified
status of a pension benefit plan maintained solely by 1
or more eligible employers or any trust which is part
of the plan. The preceding sentence shall not apply to
any request--
``(i) made after the later of--
``(I) the fifth plan year the
pension benefit plan is in existence,
or
``(II) the end of any remedial
amendment period with respect to the
plan beginning within the first 5 plan
years, or
``(ii) made by the sponsor of any prototype
or similar plan which the sponsor intends to
market to participating employers.
``(C) Definitions and special rules.--For purposes
of subparagraph (B)--
[[Page 248]]
``(i) Pension benefit plan.--The term
`pension benefit plan' means a pension, profit-
sharing, stock bonus, annuity, or employee
stock ownership plan.
``(ii) Eligible employer.--The term
`eligible employer' means an eligible employer
(as defined in section 408(p)(2)(C)(i)(I))
which has at least 1 employee who is not a
highly compensated employee (as defined in
section 414(q)) and is participating in the
plan. The determination of whether an employer
is an eligible employer under subparagraph (B)
shall be made as of the date of the request
described in such subparagraph.
``(iii) Determination of average fees
charged.--For purposes of any determination of
average fees charged, any request to which
subparagraph (B) applies shall not be taken
into account.
``(3) Average fee requirement.--The average fee charged
under the program required by subsection (a) shall not be less
than the amount determined under the following table:
Average
``Category Fee
Employee plan ruling and opinion.............. $250
[[Page 249]]
Exempt organization ruling.................... $350
Employee plan determination................... $300
Exempt organization determination............. $275
Chief counsel ruling.......................... $200.
``(c) Termination.--No fee shall be imposed under this section with
respect to requests made after September 30, 2013.''.
(b) Conforming Amendments.--
(1) The table of sections for chapter 77 is amended by
adding at the end the following new item:
``Sec. 7528. Internal Revenue Service
user fees.''.
(2) Section 10511 of the Revenue Act of 1987 is repealed.
(3) Section 620 of the Economic Growth and Tax Relief
Reconciliation Act of 2001 is repealed.
(c) Limitations.--Notwithstanding any other provision of law, any
fees collected pursuant to section 7528 of the Internal Revenue Code of
1986, as added by subsection (a), shall not be expended by the Internal
Revenue Service unless provided by an appropriations Act.
(d) Effective Date.--The amendments made by this section shall
apply to requests made after the date of the enactment of this Act.
[[Page 250]]
SEC. 352. 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. 353. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANSFERS.
(a) Treatment of Contributed Property With Built-In Loss.--
Paragraph (1) of section 704(c) is
[[Page 251]]
amended by striking ``and'' at the end of subparagraph (A), by striking
the period at the end of subparagraph (B) and inserting ``, and'', and
by adding at the end the following:
``(C) if any property so contributed has a built-in
loss--
``(i) such built-in loss shall be taken
into account only in determining the amount of
items allocated to the contributing partner,
and
``(ii) except as provided in regulations,
in determining the amount of items allocated to
other partners, the basis of the contributed
property in the hands of the partnership shall
be treated as being equal to its fair market
value immediately after the contribution.
For purposes of subparagraph (C), the term `built-in loss'
means the excess of the adjusted basis of the property
(determined without regard to subparagraph (C)(ii)) over its
fair market value immediately after the contribution.''.
(b) Adjustment to Basis of Partnership Property on Transfer of
Partnership Interest if There Is Substantial Built-In Loss.--
[[Page 252]]
(1) Adjustment required.--Subsection (a) of section 743
(relating to optional adjustment to basis of partnership
property) is amended by inserting before the period ``or unless
the partnership has a substantial built-in loss immediately
after such transfer''.
(2) Adjustment.--Subsection (b) of section 743 is amended
by inserting ``or with respect to which there is a substantial
built-in loss immediately after such transfer'' after ``section
754 is in effect''.
(3) Substantial built-in loss.--Section 743 is amended by
adding at the end the following new subsection:
``(d) Substantial Built-In Loss.--
``(1) In general.--For purposes of this section, a
partnership has a substantial built-in loss with respect to a
transfer of an interest in a partnership if the transferee
partner's proportionate share of the adjusted basis of the
partnership property exceeds by more than $250,000 the basis of
such partner's interest in the partnership.
``(2) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes of
paragraph (1) and section 734(d), including regulations
aggregating related partnerships and disregarding property
acquired by
[[Page 253]]
the partnership in an attempt to avoid such purposes.''.
(4) Clerical amendments.--
(A) The section heading for section 743 is amended
to read as follows:
``SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY WHERE SECTION
754 ELECTION OR SUBSTANTIAL BUILT-IN LOSS.''.
(B) The table of sections for subpart C of part II
of subchapter K of chapter 1 is amended by striking the
item relating to section 743 and inserting the
following new item:
``Sec. 743. Adjustment to basis of
partnership property where
section 754 election or
substantial built-in loss.''.
(c) Adjustment to Basis of Undistributed Partnership Property if
There Is Substantial Basis Reduction.--
(1) Adjustment required.--Subsection (a) of section 734
(relating to optional adjustment to basis of undistributed
partnership property) is amended by inserting before the period
``or unless there is a substantial basis reduction''.
(2) Adjustment.--Subsection (b) of section 734 is amended
by inserting ``or unless there is a substantial basis
reduction'' after ``section 754 is in effect''.
[[Page 254]]
(3) Substantial basis reduction.--Section 734 is amended by
adding at the end the following new subsection:
``(d) Substantial Basis Reduction.--
``(1) In general.--For purposes of this section, there is a
substantial basis reduction with respect to a distribution if
the sum of the amounts described in subparagraphs (A) and (B)
of subsection (b)(2) exceeds $250,000.
``(2) Regulations.--
``For regulations to carry out this
subsection, see section 743(d)(2).''.
(4) Clerical amendments.--
(A) The section heading for section 734 is amended
to read as follows:
``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY
WHERE SECTION 754 ELECTION OR SUBSTANTIAL BASIS
REDUCTION.''.
(B) The table of sections for subpart B of part II
of subchapter K of chapter 1 is amended by striking the
item relating to section 734 and inserting the
following new item:
``Sec. 734. Adjustment to basis of
undistributed partnership
property where section 754
election or substantial basis
reduction.''.
(d) Effective Dates.--
[[Page 255]]
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to contributions made after the date of the
enactment of this Act.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to transfers after the date of the enactment of
this Act.
(3) Subsection (c).--The amendments made by subsection (c)
shall apply to distributions after the date of the enactment of
this Act.
SEC. 354. 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.''.
[[Page 256]]
(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. 355. 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
[[Page 257]]
``(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,
[[Page 258]]
``(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).''.
[[Page 259]]
(c) Clerical Amendment.--The table of sections for subpart B of
part III of subchapter A of chapter 61 is amended by inserting after
the item relating to section 6043 the following new item:
``Sec. 6043A. Returns relating to taxable
mergers and acquisitions.''.
(d) Effective Date.--The amendments made by this section shall
apply to acquisitions after the date of the enactment of this Act.
SEC. 356. 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
[[Page 260]]
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
[[Page 261]]
``(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.
[[Page 262]]
``(4) Certain rules to apply.--Rules similar to the rules
of paragraphs (5), (6), and (7) of subsection (k) shall apply
for purposes of this subsection.
``(5) Determination of holding period.--Holding periods
shall be determined for purposes of this subsection without
regard to section 1235 or any similar rule.''.
(b) Conforming Amendment.--The heading of subsection (k) of section
901 is amended by inserting ``on Dividends'' after ``Taxes''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or accrued more than 30 days after the date of
the enactment of this Act.
SEC. 357. 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--
[[Page 263]]
``(1) is for the services of any person (other than an
officer or employee of the Treasury Department) to locate and
contact any taxpayer specified by the Secretary, to request
payment from such taxpayer of an amount of Federal tax
specified by the Secretary, and to obtain financial information
specified by the Secretary with respect to such taxpayer, and
``(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.
``(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
[[Page 264]]
Practices Act (15 U.S.C. 1692 et seq.) shall apply to any qualified tax
collection contract, except to the extent superseded by any 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:
[[Page 265]]
``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) and (d)(1) of section 7433 shall not
apply.''.
[[Page 266]]
(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
[[Page 267]]
shall cease to be permitted to perform any services under any qualified
tax collection contract (as defined in section 6306(b) of the Internal
Revenue Code of 1986) if there is a final determination by the
Secretary of the Treasury under such contract that such individual
committed any act or omission described under subsection (b) in
connection with the performance of such services.''.
(e) Effective Date.--The amendments made to this section shall take
effect on the date of the enactment of this Act.
SEC. 358. EXTENSION OF CUSTOMS USER FEES.
Section 13031(j)(3) of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended by striking
``September 30, 2003'' and inserting ``December 31, 2013''.
SEC. 359. 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:
[[Page 268]]
``(A) Insurance companies or associations 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. 360. 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
[[Page 269]]
(B) by inserting ``full or partial'' after
``facilitate''.
(2) Section 6159(c) (relating to Secretary required to
enter into installment agreements in certain cases) is amended
in the matter preceding paragraph (1) by inserting ``full''
before ``payment''.
(b) Requirement To Review Partial Payment Agreements Every Two
Years.--Section 6159 is amended by redesignating subsections (d) and
(e) as subsections (e) and (f), respectively, and inserting after
subsection (c) the following new subsection:
``(d) Secretary Required To Review Installment Agreements for
Partial Collection Every Two Years.--In the case of an agreement
entered into by the Secretary under subsection (a) for partial
collection of a tax liability, the Secretary shall review the agreement
at least once every 2 years.''.
(c) Effective Date.--The amendments made by this section shall
apply to agreements entered into on or after the date of the enactment
of this Act.
SEC. 361. 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
[[Page 270]]
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 1253 (relating to transfers of franchises,
trademarks, and trade names) is amended by striking subsection
(e).
(c) Effective Date.--The amendments made by this section shall
apply to property acquired after the date of the enactment of this Act.
SEC. 362. 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 de
[[Page 271]]
posit 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.--
[[Page 272]]
``(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 defi
[[Page 273]]
ciency 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
[[Page 274]]
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. 363. 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. 364. LIMITATION OF DEDUCTION FOR CHARITABLE CONTRIBUTIONS OF
PATENTS AND SIMILAR PROPERTY.
(a) In General.--Section 170(e)(1)(B) (relating to certain
contributions of ordinary income and capital gain
[[Page 275]]
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) 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
[[Page 276]]
(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.
(c) Effective Date.--The amendments made by this section shall
apply to contributions made after May 7, 2003.
SEC. 365. EXTENSION OF TRANSFERS OF EXCESS PENSION ASSETS TO RETIREE
HEALTH ACCOUNTS.
(a) Amendment of Internal Revenue Code of 1986.--Paragraph (5) of
section 420(b) (relating to expiration) is amended by striking
``December 31, 2005'' and inserting ``December 31, 2013''.
(b) Amendments of ERISA.--
(1) Section 101(e)(3) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by
striking ``Tax Relief Extension Act of 1999'' and inserting
``Jobs and Growth Reconciliation Tax Act of 2003''.
(2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is
amended by striking ``Tax Relief Extension Act of 1999'' and
inserting ``Jobs and Growth Reconciliation Tax Act of 2003''.
(3) Paragraph (13) of section 408(b) of such Act (29 U.S.C.
1108(b)(3)) is amended--
[[Page 277]]
(A) by striking ``January 1, 2006'' and inserting
``January 1, 2014'', and
(B) by striking ``Tax Relief Extension Act of
1999'' and inserting ``Jobs and Growth Reconciliation
Tax Act of 2003''.
SEC. 366. PRORATION RULES FOR LIFE INSURANCE BUSINESS OF PROPERTY AND
CASUALTY INSURANCE COMPANIES.
(a) In General.--Section 832(b)(4) (defining premiums earned) is
amended--
(1) by inserting ``, except that any deduction attributable
to such reserves shall be reduced in the same manner as the
deductions provided by sections 243, 244, and 245 for a life
insurance company are reduced under section 805(a)(4)'' before
the period at the end of the first sentence following
subparagraph (C), and
(2) by adding at the end the following new sentence: ``In
applying section 812(d) for purposes of the reduction under the
third preceding sentence, only gross investment income
attributable to the reserves described in such sentence shall
be taken into account.''.
[[Page 278]]
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2003.
SEC. 367. 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 money or 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.
[[Page 279]]
Subtitle F--Other Provisions
SEC. 371. TEMPORARY STATE FISCAL RELIEF FUND.
(a) Authority To Make Payments To States.--
(1) In general.--Not later than 45 days after the date of
enactment of this Act, the Secretary of the Treasury (in this
section referred to as the ``Secretary'') shall establish a
program under which the Secretary shall make a payment to each
State in which the chief executive officer of the State, or the
chief executive officer's designee, in consultation and
coordination with other State and local officials, notifies the
Secretary not later than 6 months after the date of enactment
of this Act that the State intends to use the payment in
accordance with this section.
(2) Requirement.--In making payments to States under this
section, the Secretary shall ensure that not more than 50
percent of the aggregate amount made available for payments
under this section (after the application of section 1903(x)(3)
of the Social Security Act) is paid to States in fiscal year
2003.
(b) Use of Payment.--
(1) In general.--Subject to paragraph (2), a State shall
use the funds provided under a payment
[[Page 280]]
made under this section to carry out 1 or more of the following
activities:
(A) Improving education or job training.
(B) Improving health care services.
(C) Improving transportation or other
infrastructure.
(D) Improving law enforcement or public safety.
(E) Maintaining essential government services.
(2) Limitation.--A State may only use funds provided under
a payment made under this section for types of expenditures
permitted under the most recently approved budget for the
State.
(c) Certifications.--In order to receive a payment under this
section, the State shall provide the Secretary with certifications
that--
(1) the State's proposed uses of the funds are consistent
with subsection (b); and
(2) the State will allocate 50 percent of the funds
directly to units of general local government based on the
relative local population proportion for the State (as defined
in subsection (d)(5)).
(d) Amount of Payment.--
[[Page 281]]
(1) In general.--The amount of payment made to a State
under this section shall be the minimum payment amount
described in paragraph (2) plus the relative population
proportion amount described in paragraph (3).
(2) Minimum payment amount.--The minimum payment amount
described in this paragraph is--
(A) in the case of any of the several States or the
District of Columbia, one-half of 1 percent of the
aggregate amount made available for payments under this
section (after the application of section 1903(x)(3) of
the Social Security Act); and
(B) in the case of the Commonwealth of Puerto Rico,
the United States Virgin Islands, Guam, the
Commonwealth of the Northern Mariana Islands, or
American Samoa, one-tenth of 1 percent of such
aggregate amount (after the application of section
1903(x)(3) of the Social Security Act).
(3) Relative population proportion amount.--The relative
population proportion amount described in this paragraph is the
product of--
[[Page 282]]
(A) the aggregate amount made available for
payments under this section (after the application of
section 1903(x)(3) of the Social Security Act) minus
the total of all of the minimum payment amounts
determined under paragraph (2); and
(B) the relative State population proportion (as
defined in paragraph (4)).
(4) Relative state population proportion defined.--In this
section, the term ``relative State population proportion''
means, with respect to a State, the amount equal to the
quotient of--
(A) the population of the State (as reported in the
most recent decennial census); and
(B) the total population of all States (as reported
in the most recent decennial census).
(5) Relative local population proportion defined.--In this
section, the term ``relative local population proportion''
means, with respect to a unit of general local government
within a State, the amount equal to the quotient of--
(A) the population of such unit of general local
government (as reported in the most recent decennial
census); and
[[Page 283]]
(B) the total population of the State (as reported
in the most recent decennial census).
(e) Appropriation.--There is authorized to be appropriated and is
appropriated for making payments under this section, $20,000,000,000
for fiscal year 2003. Amounts appropriated under this subsection shall
remain available for expenditure through December 31, 2004.
(f) Increased Payments To States Under the Medicaid Program.--
Section 1903 of the Social Security Act (42 U.S.C. 1396b) is amended by
adding at the end the following:
``(x) Temporary Increased Payments To States.--
``(1) In general.--From the amounts made available under
paragraph (3), the Secretary shall increase payments to States
under this section for the third and fourth calendar quarters
of fiscal year 2003, each calendar quarter of fiscal year 2004,
and the first calendar quarter of fiscal year 2005.
``(2) Method of increase.--The Secretary shall determine
the appropriate method for increasing payments to States in
accordance with this subsection.
``(3) Funding.--Notwithstanding section 371(e) of the Jobs
and Growth Reconciliation Tax Act of
[[Page 284]]
2003, from the amounts appropriated in such section for fiscal
year 2003, $499,999 of such amount is hereby transferred and
made available for the purpose of increasing payments to States
under this section in accordance with this subsection. Amounts
transferred under this paragraph shall remain available for
expenditure through December 31, 2004.''.
(g) Repeal.--Effective as of January 1, 2005, this section and the
amendments made by this section are repealed.
SEC. 372. REVIEW OF STATE AGENCY BLINDNESS AND DISABILITY
DETERMINATIONS.
Section 1633 of the Social Security Act (42 U.S.C. 1383b) is
amended by adding at the end the following:
``(e)(1) The Commissioner of Social Security shall review
determinations, made by State agencies pursuant to subsection (a) in
connection with applications for benefits under this title on the basis
of blindness or disability, that individuals who have attained 18 years
of age are blind or disabled as of a specified onset date. The
Commissioner of Social Security shall review such a determination
before any action is taken to implement the determination.
``(2)(A) In carrying out paragraph (1), the Commissioner of Social
Security shall review--
[[Page 285]]
``(i) at least 25 percent of all determinations referred to
in paragraph (1) that are made in fiscal year 2004; and
``(ii) at least 50 percent of all such determinations that
are made in fiscal year 2005 or thereafter.
``(B) In carrying out subparagraph (A), the Commissioner of Social
Security shall, to the extent feasible, select for review the
determinations which the Commissioner of Social Security identifies as
being the most likely to be incorrect.''.
SEC. 373. PROHIBITION ON USE OF SCHIP FUNDS TO PROVIDE COVERAGE FOR
CHILDLESS ADULTS.
(a) General Limitations on Payments.--Section 2105(c)(1) of the
Social Security Act (42 U.S.C. 1397ee(c)(1)) is amended by inserting
before the period the following: ``and may not include coverage of a
childless adult unless the childless adult is a pregnant woman. For
purposes of the preceding sentence, a caretaker relative (as such term
is defined for purposes of carrying out section 1931) shall not be
considered a childless adult.''.
(b) Limitation on Waiver Authority.--Section 2107 of the Social
Security Act (42 U.S.C. 1397gg) is amended by adding at the end the
following:
``(f) Limitation of Waiver Authority.--Notwithstanding subsection
(e)(2)(A) and section 1115(a), the Sec
[[Page 286]]
retary may not approve a waiver, experimental, pilot, or demonstration
project, or an amendment to such a project that has been approved as of
the date of enactment of this subsection, that would allow funds made
available under this title to be used to provide child health
assistance or other health benefits coverage to a childless adult,
other than a childless adult who is a pregnant woman. For purposes of
the preceding sentence, a caretaker relative (as such term is defined
for purposes of carrying out section 1931) shall not be considered a
childless adult.''.
(c) Effective Date.--The amendments made by this section take
effect on the date of enactment of this Act and apply to proposals to
conduct a waiver, experimental, pilot, or demonstration project
affecting the State children's health insurance program under title XXI
of such Act, and to any proposals to amend such a project, that are
approved or extended on or after such date of enactment.
(d) Rule of Construction.--Nothing in this section or the
amendments made by this section shall be construed to--
(1) authorize the waiver of any provision of title XXI of
the Social Security Act (42 U.S.C. 1397aa et seq.) that is not
otherwise authorized to be waived under such title or under
title XI of such Act (42
[[Page 287]]
U.S.C. 1301 et seq.) as of the date of enactment of this Act;
or
(2) imply congressional approval of any waiver,
experimental, pilot, or demonstration project affecting the
State children's health insurance program under title XXI of
such Act that has been approved as of such date of enactment.
TITLE IV--SMALL BUSINESS AND AGRICULTURAL PROVISIONS
Subtitle A--Small Business Provisions
SEC. 401. 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--
[[Page 288]]
``(A) issued by such company under section 303(a)
of such Act, or
``(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, 2002, 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. 402. REPEAL OF OCCUPATIONAL TAXES RELATING TO DISTILLED SPIRITS,
WINE, AND BEER.
(a) Repeal of Occupational Taxes.--
(1) In general.--The following provisions of part II of
subchapter A of chapter 51 (relating to occupational taxes) are
hereby repealed:
(A) Subpart A (relating to proprietors of distilled
spirits plants, bonded wine cellars, etc.).
(B) Subpart B (relating to brewer).
(C) Subpart D (relating to wholesale dealers)
(other than sections 5114 and 5116).
(D) Subpart E (relating to retail dealers) (other
than section 5124).
[[Page 289]]
(E) Subpart G (relating to general provisions)
(other than sections 5142, 5143, 5145, and 5146).
(2) Nonbeverage domestic drawback.--Section 5131 is amended
by striking ``, on payment of a special tax per annum,''.
(3) Industrial use of distilled spirits.--Section 5276 is
hereby repealed.
(b) Conforming Amendments.--
(1)(A) The heading for part II of subchapter A of chapter
51 and the table of subparts for such part are amended to read
as follows:
``PART II--MISCELLANEOUS PROVISIONS
``Subpart A. Manufacturers of stills.
``Subpart B. Nonbeverage domestic
drawback claimants.
``Subpart C. Recordkeeping by dealers.
``Subpart D. Other provisions.''.
(B) The table of parts for such subchapter A is amended by
striking the item relating to part II and inserting the
following new item:
``Part II. Miscellaneous provisions.''.
(2) Subpart C of part II of such subchapter (relating to
manufacturers of stills) is redesignated as subpart A.
(3)(A) Subpart F of such part II (relating to nonbeverage
domestic drawback claimants) is redesignated as subpart B and
sections 5131 through 5134
[[Page 290]]
are redesignated as sections 5111 through 5114, respectively.
(B) The table of sections for such subpart B, as so
redesignated, is amended--
(i) by redesignating the items relating to sections
5131 through 5134 as relating to sections 5111 through
5114, respectively, and
(ii) by striking ``and rate of tax'' in the item
relating to section 5111, as so redesignated.
(C) Section 5111, as redesignated by subparagraph (A), is
amended--
(i) by striking ``and rate of tax'' in the section
heading,
(ii) by striking the subsection heading for
subsection (a), and
(iii) by striking subsection (b).
(4) Part II of subchapter A of chapter 51 is amended by
adding after subpart B, as redesignated by paragraph (3), the
following new subpart:
``Subpart C--Recordkeeping by Dealers
``Sec. 5121. Recordkeeping by wholesale
dealers.
``Sec. 5122. Recordkeeping by retail
dealers.
``Sec. 5123. Preservation and inspection
of records, and entry of
premises for inspection.''.
(5)(A) Section 5114 (relating to records) is moved to
subpart C of such part II and inserted after the table of
sections for such subpart.
[[Page 291]]
(B) Section 5114 is amended--
(i) by striking the section heading and inserting
the following new heading:
``SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.'',
and
(ii) by redesignating subsection (c) as subsection
(d) and by inserting after subsection (b) the following
new subsection:
``(c) Wholesale Dealers.--For purposes of this part--
``(1) Wholesale dealer in liquors.--The term `wholesale
dealer in liquors' means any dealer (other than a wholesale
dealer in beer) who sells, or offers for sale, distilled
spirits, wines, or beer, to another dealer.
``(2) Wholesale dealer in beer.--The term `wholesale dealer
in beer' means any dealer who sells, or offers for sale, beer,
but not distilled spirits or wines, to another dealer.
``(3) Dealer.--The term `dealer' means any person who
sells, or offers for sale, any distilled spirits, wines, or
beer.
``(4) Presumption in case of sale of 20 wine gallons or
more.--The sale, or offer for sale, of distilled spirits,
wines, or beer, in quantities of 20 wine
[[Page 292]]
gallons or more to the same person at the same time, shall be
presumptive evidence that the person making such sale, or offer
for sale, is engaged in or carrying on the business of a
wholesale dealer in liquors or a wholesale dealer in beer, as
the case may be. Such presumption may be overcome by evidence
satisfactorily showing that such sale, or offer for sale, was
made to a person other than a dealer.''.
(C) Paragraph (3) of section 5121(d), as so redesignated,
is amended by striking ``section 5146'' and inserting ``section
5123''.
(6)(A) Section 5124 (relating to records) is moved to
subpart C of part II of subchapter A of chapter 51 and inserted
after section 5121.
(B) Section 5124 is amended--
(i) by striking the section heading and inserting
the following new heading:
``SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.'',
(ii) by striking ``section 5146'' in subsection (c)
and inserting ``section 5123'', and
(iii) by redesignating subsection (c) as subsection
(d) and inserting after subsection (b) the following
new subsection:
``(c) Retail Dealers.--For purposes of this section--
[[Page 293]]
``(1) Retail dealer in liquors.--The term `retail dealer in
liquors' means any dealer (other than a retail dealer in beer)
who sells, or offers for sale, distilled spirits, wines, or
beer, to any person other than a dealer.
``(2) Retail dealer in beer.--The term `retail dealer in
beer' means any dealer who sells, or offers for sale, beer, but
not distilled spirits or wines, to any person other than a
dealer.
``(3) Dealer.--The term `dealer' has the meaning given such
term by section 5121(c)(3).''.
(7) Section 5146 is moved to subpart C of part II of
subchapter A of chapter 51, inserted after section 5122, and
redesignated as section 5123.
(8) Part II of subchapter A of chapter 51 is amended by
inserting after subpart C the following new subpart:
``Subpart D--Other Provisions
``Sec. 5131. Packaging distilled spirits
for industrial uses.
``Sec. 5132. Prohibited purchases by
dealers.''.
(9) Section 5116 is moved to subpart D of part II of
subchapter A of chapter 51, inserted after the table of
sections, redesignated as section 5131, and amended by
inserting ``(as defined in section 5121(c))'' after ``dealer''
in subsection (a).
[[Page 294]]
(10) Subpart D of part II of subchapter A of chapter 51 is
amended by adding at the end thereof the following new section:
``SEC. 5132. PROHIBITED PURCHASES BY DEALERS.
``(a) In General.--Except as provided in regulations prescribed by
the Secretary, it shall be unlawful for a dealer to purchase distilled
spirits for resale from any person other than a wholesale dealer in
liquors who is required to keep the records prescribed by section 5121.
``(b) Penalty and Forfeiture.--
``For penalty and forfeiture provisions
applicable to violations of subsection (a), see sections 5687 and
7302.''.
(11) Subsection (b) of section 5002 is amended--
(A) by striking ``section 5112(a)'' and inserting
``section 5121(c)(3)'',
(B) by striking ``section 5112'' and inserting
``section 5121(c)'',
(C) by striking ``section 5122'' and inserting
``section 5122(c)''.
(12) Subparagraph (A) of section 5010(c)(2) is amended by
striking ``section 5134'' and inserting ``section 5114''.
(13) Subsection (d) of section 5052 is amended to read as
follows:
[[Page 295]]
``(d) Brewer.--For purposes of this chapter, the term `brewer'
means any person who brews beer or produces beer for sale. Such term
shall not include any person who produces only beer exempt from tax
under section 5053(e).''.
(14) The text of section 5182 is amended to read as
follows:
``For provisions requiring recordkeeping by wholesale
liquor dealers, see section 5121, and by retail liquor dealers,
see section 5122.''.
(15) Subsection (b) of section 5402 is amended by striking
``section 5092'' and inserting ``section 5052(d)''.
(16) Section 5671 is amended by striking ``or 5091''.
(17)(A) Part V of subchapter J of chapter 51 is hereby
repealed.
(B) The table of parts for such subchapter J is amended by
striking the item relating to part V.
(18)(A) Sections 5142, 5143, and 5145 are moved to
subchapter D of chapter 52, inserted after section 5731,
redesignated as sections 5732, 5733, and 5734, respectively,
and amended by striking ``this part'' each place it appears and
inserting ``this subchapter''.
[[Page 296]]
(B) Section 5732, as redesignated by subparagraph (A), is
amended by striking ``(except the tax imposed by section
5131)'' each place it appears.
(C) Paragraph (2) of section 5733(c), as redesignated by
subparagraph (A), is amended by striking ``liquors'' both
places it appears and inserting ``tobacco products and
cigarette papers and tubes''.
(D) The table of sections for subchapter D of chapter 52 is
amended by adding at the end thereof the following:
``Sec. 5732. Payment of tax.
``Sec. 5733. Provisions relating to
liability for occupational
taxes.
``Sec. 5734. Application of State
laws.''.
(E) Section 5731 is amended by striking subsection (c) and
by redesignating subsection (d) as subsection (c).
(19) Subsection (c) of section 6071 is amended by striking
``section 5142'' and inserting ``section 5732''.
(20) Paragraph (1) of section 7652(g) is amended--
(A) by striking ``subpart F'' and inserting
``subpart B'', and
(B) by striking ``section 5131(a)'' and inserting
``section 5111''.
[[Page 297]]
(c) Effective Date.--The amendments made by this section shall take
effect on July 1, 2003, but shall not apply to taxes imposed for
periods before such date.
SEC. 403. CUSTOM GUNSMITHS.
(a) Small Manufacturers Exempt From Firearms Excise Tax.--Section
4182 (relating to exemptions) is amended by redesignating subsection
(c) as subsection (d) and by inserting after subsection (b) the
following new subsection:
``(c) Small Manufacturers, Etc.--
``(1) In general.--The tax imposed by section 4181 shall
not apply to any article described in such section if
manufactured, produced, or imported by a person who
manufactures, produces, and imports less than 50 of such
articles during the calendar year.
``(2) Controlled groups.--All persons treated as a single
employer for purposes of subsection (a) or (b) of section 52
shall be treated as one person for purposes of paragraph
(1).''.
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to articles sold by the manufacturer, producer, or
importer on or after the date which is the first day of the
month beginning at least 2 weeks after the date of the
enactment of this Act.
[[Page 298]]
(2) No inference.--Nothing in the amendments made by this
section shall be construed to create any inference with respect
to the proper tax treatment of any sales before the effective
date of such amendments.
SEC. 404. SIMPLIFICATION OF EXCISE TAX IMPOSED ON BOWS AND ARROWS.
(a) Bows.--Section 4161(b)(1) (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 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
(3),
[[Page 299]]
a tax equal to 11 percent of the price for which so
sold.''.
(b) Arrows.--Section 4161(b) (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.--The tax imposed by subparagraph
(A) on an arrow shall not apply if the arrow contains
an arrow shaft subject to the tax imposed by paragraph
(2).
``(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 Amendment.--The heading of section 4161(b)(2)
(relating to arrows) is amended by striking ``Arrows.--'' and inserting
``Arrow Components.--''.
(d) Effective Date.--The amendments made by this section shall
apply to articles sold by the manufacturer,
[[Page 300]]
producer, or importer after the date of the enactment of this Act.
Subtitle B--Agricultural Provisions
SEC. 411. 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 Amendment.--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''.
(c) Effective Date.--The amendments made by this section shall
apply to sales after the date of the enactment of this Act.
SEC. 412. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF WEATHER-
RELATED CONDITIONS.
(a) Rules for Replacement of Involuntarily Converted Livestock.--
Subsection (e) of section 1033 (relating to involuntary conversions) is
amended--
[[Page 301]]
(1) by striking ``Conditions.--For purposes'' and inserting
``Conditions.--
``(1) In general.--For purposes'', and
(2) by adding at the end the following new paragraph:
``(2) Extension of replacement period.--
``(A) In general.--In the case of drought, flood,
or other weather-related conditions described in
paragraph (1) which result in the area being designated
as eligible for assistance by the Federal Government,
subsection (a)(2)(B) shall be applied with respect to
any converted property by substituting `4 years' for `2
years'.
``(B) Further extension by secretary.--The
Secretary may extend on a regional basis the period for
replacement under this section (after the application
of subparagraph (A)) for such additional time as the
Secretary determines appropriate if the weather-related
conditions which resulted in such application continue
for more than 3 years.''.
(b) Income Inclusion Rules.--Section 451(e) (relating to special
rule for proceeds from livestock sold on account of drought, flood, or
other weather-related conditions)
[[Page 302]]
is amended by adding at the end the following new paragraph:
``(3) Special election rules.--If section 1033(e)(2)
applies to a sale or exchange of livestock described in
paragraph (1), the election under paragraph (1) shall be deemed
valid if made during the replacement period described in such
section.''.
(c) Effective Date.--The amendments made by this section shall
apply to any taxable year with respect to which the due date of the
return is after December 31, 2002.
SEC. 413. EXCLUSION FOR LOAN PAYMENTS UNDER NATIONAL HEALTH SERVICE
CORPS LOAN REPAYMENT PROGRAM.
(a) In General.--Section 108(f) (relating to student loans) is
amended by adding at the end the following new paragraph:
``(4) Loan payments under national health service corps
loan repayment program.--In the case of an individual, gross
income shall not include any amount received under section
338B(g) of the Public Health Service Act.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to amounts received by an individual in taxable years beginning
after December 31, 2002.
[[Page 303]]
SEC. 414. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES WITHOUT
REDUCING PATRONAGE DIVIDENDS.
(a) In General.--Subsection (a) of section 1388 (relating to
patronage dividend defined) is amended by adding at the end the
following: ``For purposes of paragraph (3), net earnings shall not be
reduced by amounts paid during the year as dividends on capital stock
or other proprietary capital interests of the organization to the
extent that the articles of incorporation or bylaws of such
organization or other contract with patrons provide that such dividends
are in addition to amounts otherwise payable to patrons which are
derived from business done with or for patrons during the taxable
year.''.
(b) Effective Date.--The amendment made by this section shall apply
to distributions in taxable years ending after the date of the
enactment of this Act.
TITLE V--SIMPLIFICATION AND OTHER PROVISIONS
Subtitle A--Uniform Definition of Child
SEC. 501. UNIFORM DEFINITION OF CHILD, ETC.
Section 152 is amended to read as follows:
``SEC. 152. DEPENDENT DEFINED.
``(a) In General.--For purposes of this subtitle, the term
`dependent' means--
[[Page 304]]
``(1) a qualifying child, or
``(2) a qualifying relative.
``(b) Exceptions.--For purposes of this section--
``(1) Dependents ineligible.--If an individual is a
dependent of a taxpayer for any taxable year of such taxpayer
beginning in a calendar year, such individual shall be treated
as having no dependents for any taxable year of such individual
beginning in such calendar year.
``(2) Married dependents.--An individual shall not be
treated as a dependent of a taxpayer under subsection (a) if
such individual has made a joint return with the individual's
spouse under section 6013 for the taxable year beginning in the
calendar year in which the taxable year of the taxpayer begins.
``(3) Citizens or nationals of other countries.--
``(A) In general.--The term `dependent' does not
include an individual who is not a citizen or national
of the United States unless such individual is a
resident of the United States or a country contiguous
to the United States.
``(B) Exception for adopted child.--Subparagraph
(A) shall not exclude any child of
[[Page 305]]
a taxpayer (within the meaning of subsection (f)(1)(B))
from the definition of `dependent' if--
``(i) for the taxable year of the taxpayer,
the child's principal place of abode is the
home of the taxpayer, and
``(ii) the taxpayer is a citizen or
national of the United States.
``(c) Qualifying Child.--For purposes of this section--
``(1) In general.--The term `qualifying child' means, with
respect to any taxpayer for any taxable year, an individual--
``(A) who bears a relationship to the taxpayer
described in paragraph (2),
``(B) who has the same principal place of abode as
the taxpayer for more than one-half of such taxable
year,
``(C) who meets the age requirements of paragraph
(3), and
``(D) who has not provided over one-half of such
individual's own support for the calendar year in which
the taxable year of the taxpayer begins.
``(2) Relationship test.--For purposes of paragraph (1)(A),
an individual bears a relationship
[[Page 306]]
to the taxpayer described in this paragraph if such individual
is--
``(A) a child of the taxpayer or a descendant of
such a child, or
``(B) a brother, sister, stepbrother, or stepsister
of the taxpayer or a descendant of any such relative.
``(3) Age requirements.--
``(A) In general.--For purposes of paragraph
(1)(C), an individual meets the requirements of this
paragraph if such individual--
``(i) has not attained the age of 19 as of
the close of the calendar year in which the
taxable year of the taxpayer begins, or
``(ii) is a student who has not attained
the age of 24 as of the close of such calendar
year.
``(B) Special rule for disabled.--In the case of an
individual who is permanently and totally disabled (as
defined in section 22(e)(3)) at any time during such
calendar year, the requirements of subparagraph (A)
shall be treated as met with respect to such
individual.
``(4) Special rule relating to 2 or more claiming
qualifying child.--
[[Page 307]]
``(A) In general.--Except as provided in
subparagraph (B) and subsection (e), if (but for this
paragraph) an individual may be and is claimed as a
qualifying child by 2 or more taxpayers for a taxable
year beginning in the same calendar year, such
individual shall be treated as the qualifying child of
the taxpayer who is--
``(i) a parent of the individual, or
``(ii) if clause (i) does not apply, the
taxpayer with the highest adjusted gross income
for such taxable year.
``(B) More than 1 parent claiming qualifying
child.--If the parents claiming any qualifying child do
not file a joint return together, such child shall be
treated as the qualifying child of--
``(i) the parent with whom the child
resided for the longest period of time during
the taxable year, or
``(ii) if the child resides with both
parents for the same amount of time during such
taxable year, the parent with the highest
adjusted gross income.
``(d) Qualifying Relative.--For purposes of this section--
[[Page 308]]
``(1) In general.--The term `qualifying relative' means,
with respect to any taxpayer for any taxable year, an
individual--
``(A) who bears a relationship to the taxpayer
described in paragraph (2),
``(B) whose gross income for the calendar year in
which such taxable year begins is less than the
exemption amount (as defined in section 151(d)),
``(C) with respect to whom the taxpayer provides
over one-half of the individual's support for the
calendar year in which such taxable year begins, and
``(D) who is not a qualifying child of such
taxpayer or of any other taxpayer for any taxable year
beginning in the calendar year in which such taxable
year begins.
``(2) Relationship.--For purposes of paragraph (1)(A), an
individual bears a relationship to the taxpayer described in
this paragraph if the individual is any of the following with
respect to the taxpayer:
``(A) A child or a descendant of a child.
``(B) A brother, sister, stepbrother, or
stepsister.
[[Page 309]]
``(C) The father or mother, or an ancestor of
either.
``(D) A stepfather or stepmother.
``(E) A son or daughter of a brother or sister of
the taxpayer.
``(F) A brother or sister of the father or mother
of the taxpayer.
``(G) A son-in-law, daughter-in-law, father-in-law,
mother-in-law, brother-in-law, or sister-in-law.
``(H) An individual (other than an individual who
at any time during the taxable year was the spouse,
determined without regard to section 7703, of the
taxpayer) who, for the taxable year of the taxpayer,
has as such individual's principal place of abode the
home of the taxpayer and is a member of the taxpayer's
household.
``(3) Special rule relating to multiple support
agreements.--For purposes of paragraph (1)(C), over one-half of
the support of an individual for a calendar year shall be
treated as received from the taxpayer if--
``(A) no one person contributed over one-half of
such support,
[[Page 310]]
``(B) over one-half of such support was received
from 2 or more persons each of whom, but for the fact
that any such person alone did not contribute over one-
half of such support, would have been entitled to claim
such individual as a dependent for a taxable year
beginning in such calendar year,
``(C) the taxpayer contributed over 10 percent of
such support, and
``(D) each person described in subparagraph (B)
(other than the taxpayer) who contributed over 10
percent of such support files a written declaration (in
such manner and form as the Secretary may by
regulations prescribe) that such person will not claim
such individual as a dependent for any taxable year
beginning in such calendar year.
``(4) Special rule relating to income of handicapped
dependents.--
``(A) In general.--For purposes of paragraph
(1)(B), the gross income of an individual who is
permanently and totally disabled (as defined in section
22(e)(3)) at any time during the taxable year shall not
include income attrib
[[Page 311]]
utable to services performed by the individual at a
sheltered workshop if--
``(i) the availability of medical care at
such workshop is the principal reason for the
individual's presence there, and
``(ii) the income arises solely from
activities at such workshop which are incident
to such medical care.
``(B) Sheltered workshop defined.--For purposes of
subparagraph (A), the term `sheltered workshop' means a
school--
``(i) which provides special instruction or
training designed to alleviate the disability
of the individual, and
``(ii) which is operated by an organization
described in section 501(c)(3) and exempt from
tax under section 501(a), or by a State, a
possession of the United States, any political
subdivision of any of the foregoing, the United
States, or the District of Columbia.
``(5) Special support test in case of students.--For
purposes of paragraph (1)(C), in the case of an individual who
is--
``(A) a child of the taxpayer, and
[[Page 312]]
``(B) a student,
amounts received as scholarships for study at an educational
organization described in section 170(b)(1)(A)(ii) shall not be
taken into account in determining whether such individual
received more than one-half of such individual's support from
the taxpayer.
``(6) Special rules for support.--For purposes of this
subsection--
``(A) payments to a spouse which are includible in
the gross income of such spouse under section 71 or 682
shall not be treated as a payment by the payor spouse
for the support of any dependent,
``(B) amounts expended for the support of a child
or children shall be treated as received from the
noncustodial parent (as defined in subsection
(e)(3)(B)) to the extent that such parent provided
amounts for such support, and
``(C) in the case of the remarriage of a parent,
support of a child received from the parent's spouse
shall be treated as received from the parent.
``(e) Special Rule for Divorced Parents.--
[[Page 313]]
``(1) In general.--Notwithstanding subsection (c)(4) or
(d)(1)(C), if--
``(A) a child receives over one-half of the child's
support during the calendar year from the child's
parents--
``(i) who are divorced or legally separated
under a decree of divorce or separate
maintenance,
``(ii) who are separated under a written
separation agreement, or
``(iii) who live apart at all times during
the last 6 months of the calendar year, and
``(B) such child is in the custody of 1 or both of
the child's parents for more than \1/2\ of the calendar
year,
such child shall be treated as being the qualifying child or
qualifying relative of the noncustodial parent for a calendar
year if the requirements described in paragraph (2) are met.
``(2) Requirements.--For purposes of paragraph (1), the
requirements described in this paragraph are met if--
``(A) a decree of divorce or separate maintenance
or written agreement between the parents
[[Page 314]]
applicable to the taxable year beginning in such
calendar year provides that--
``(i) the noncustodial parent shall be
entitled to any deduction allowable under
section 151 for such child, or
``(ii) the custodial parent will sign a
written declaration that such parent will not
claim such child as a dependent for such
taxable year, and
``(B) in the case of such an agreement executed
before January 1, 1985, the noncustodial parent
provides at least $600 for the support of such child
during such calendar year.
``(3) Custodial parent and noncustodial parent.--For
purposes of this subsection--
``(A) Custodial parent.--The term `custodial
parent' means the parent with whom a child shared the
same principal place of abode for the greater portion
of the calendar year.
``(B) Noncustodial parent.--The term `noncustodial
parent' means the parent who is not the custodial
parent.
``(4) Exception for multiple-support agreements.--This
subsection shall not apply in any case where over one-half of
the support of the
[[Page 315]]
child is treated as having been received from a taxpayer under
the provision of subsection (d)(3).
``(f) Other Definitions and Rules.--For purposes of this section--
``(1) Child defined.--
``(A) In general.--The term `child' means an
individual who is--
``(i) a son, daughter, stepson, or
stepdaughter of the taxpayer, or
``(ii) an eligible foster child of the
taxpayer.
``(B) Adopted child.--In determining whether any of
the relationships specified in subparagraph (A)(i) or
paragraph (4) exists, a legally adopted individual of
the taxpayer, or an individual who is placed with the
taxpayer by an authorized placement agency for adoption
by the taxpayer, shall be treated as a child of such
individual by blood.
``(C) Eligible foster child.--For purposes of
subparagraph (A)(ii), the term `eligible foster child'
means an individual who is placed with the taxpayer by
an authorized placement agency or by judgment, decree,
or other order of any court of competent jurisdiction.
[[Page 316]]
``(2) Student defined.--The term `student' means an
individual who during each of 5 calendar months during the
calendar year in which the taxable year of the taxpayer
begins--
``(A) is a full-time student at an educational
organization described in section 170(b)(1)(A)(ii), or
``(B) is pursuing a full-time course of
institutional on-farm training under the supervision of
an accredited agent of an educational organization
described in section 170(b)(1)(A)(ii) or of a State or
political subdivision of a State.
``(3) Place of abode.--An individual shall not be treated
as having the same principal place of abode of the taxpayer if
at any time during the taxable year of the taxpayer the
relationship between the individual and the taxpayer is in
violation of local law.
``(4) Brother and sister.--The terms `brother' and `sister'
include a brother or sister by the half blood.
``(5) Treatment of missing children.--
``(A) In general.--Solely for the purposes referred
to in subparagraph (B), a child of the taxpayer--
[[Page 317]]
``(i) who is presumed by law enforcement
authorities to have been kidnapped by someone
who is not a member of the family of such child
or the taxpayer, and
``(ii) who had, for the taxable year in
which the kidnapping occurred, the same
principal place of abode as the taxpayer for
more than one-half of the portion of such year
before the date of the kidnapping,
shall be treated as meeting the requirement of
subsection (c)(1)(B) with respect to a taxpayer for all
taxable years ending during the period that the
individual is kidnapped.
``(B) Purposes.--Subparagraph (A) shall apply
solely for purposes of determining--
``(i) the deduction under section 151(c),
``(ii) the credit under section 24
(relating to child tax credit),
``(iii) whether an individual is a
surviving spouse or a head of a household (as
such terms are defined in section 2), and
``(iv) the earned income credit under
section 32.
[[Page 318]]
``(C) Comparable treatment of certain qualifying
relatives.--For purposes of this section, a child of
the taxpayer--
``(i) who is presumed by law enforcement
authorities to have been kidnapped by someone
who is not a member of the family of such child
or the taxpayer, and
``(ii) who was (without regard to this
paragraph) a qualifying relative of the
taxpayer for the portion of the taxable year
before the date of the kidnapping,
shall be treated as a qualifying relative of the
taxpayer for all taxable years ending during the period
that the child is kidnapped.
``(D) Termination of treatment.--Subparagraphs (A)
and (C) shall cease to apply as of the first taxable
year of the taxpayer beginning after the calendar year
in which there is a determination that the child is
dead (or, if earlier, in which the child would have
attained age 18).
[[Page 319]]
``(6) Cross references.--
``For provision treating child as
dependent of both parents for purposes of certain provisions, see
sections 105(b), 132(h)(2)(B), and 213(d)(5).''.
SEC. 502. MODIFICATIONS OF DEFINITION OF HEAD OF HOUSEHOLD.
(a) Head of Household.--Clause (i) of section 2(b)(1)(A) is amended
to read as follows:
``(i) a qualifying child of the individual
(as defined in section 152(c), determined
without regard to section 152(e)), but not if
such child--
``(I) is married at the close of
the taxpayer's taxable year, and
``(II) is not a dependent of such
individual by reason of section
152(b)(2) or 152(b)3), or both, or''.
(b) Conforming Amendments.--
(1) Section 2(b)(2) is amended by striking subparagraph (A)
and by redesignating subparagraphs (B), (C), and (D) as
subparagraphs (A), (B), and (C), respectively.
(2) Clauses (i) and (ii) of section 2(b)(3)(B) are amended
to read as follows:
``(i) subparagraph (H) of section
152(d)(2), or
``(ii) paragraph (3) of section 152(d).''.
[[Page 320]]
SEC. 503. MODIFICATIONS OF DEPENDENT CARE CREDIT.
(a) In General.--Section 21(a)(1) is amended by striking ``In the
case of an individual who maintains a household which includes as a
member one or more qualifying individuals (as defined in subsection
(b)(1))'' and inserting ``In the case of an individual for which there
are 1 or more qualifying individuals (as defined in subsection (b)(1))
with respect to such individual''.
(b) Qualifying Individual.--Paragraph (1) of section 21(b) is
amended to read as follows:
``(1) Qualifying individual.--The term `qualifying
individual' means--
``(A) a dependent of the taxpayer (as defined in
section 152(a)(1)) who has not attained age 13,
``(B) a dependent of the taxpayer who is physically
or mentally incapable of caring for himself or herself
and who has the same principal place of abode as the
taxpayer for more than one-half of such taxable year,
or
``(C) the spouse of the taxpayer, if the spouse is
physically or mentally incapable of caring for himself
or herself and who has the same principal place of
abode as the taxpayer for more than one-half of such
taxable year.''.
[[Page 321]]
(c) Conforming Amendment.--Paragraph (1) of section 21(e) is
amended to read as follows:
``(1) Place of abode.--An individual shall not be treated
as having the same principal place of abode of the taxpayer if
at any time during the taxable year of the taxpayer the
relationship between the individual and the taxpayer is in
violation of local law.''.
SEC. 504. MODIFICATIONS OF CHILD TAX CREDIT.
(a) In General.--Paragraph (1) of section 24(c) is amended to read
as follows:
``(1) In general.--The term `qualifying child' means a
qualifying child of the taxpayer (as defined in section 152(c))
who has not attained age 17.''.
(b) Conforming Amendment.--Section 24(c)(2) is amended by striking
``the first sentence of section 152(b)(3)'' and inserting
``subparagraph (A) of section 152(b)(3)''.
SEC. 505. MODIFICATIONS OF EARNED INCOME CREDIT.
(a) Qualifying Child.--Paragraph (3) of section 32(c) is amended to
read as follows:
``(3) Qualifying child.--
``(A) In general.--The term `qualifying child'
means a qualifying child of the taxpayer (as defined in
section 152(c), determined without regard to paragraph
(1)(D) thereof and section 152(e)).
[[Page 322]]
``(B) Married individual.--The term `qualifying
child' shall not include an individual who is married
as of the close of the taxpayer's taxable year unless
the taxpayer is entitled to a deduction under section
151 for such taxable year with respect to such
individual (or would be so entitled but for section
152(e)).
``(C) Place of abode.--For purposes of subparagraph
(A), the requirements of section 152(c)(1)(B) shall be
met only if the principal place of abode is in the
United States.
``(D) Identification requirements.--
``(i) In general.--A qualifying child shall
not be taken into account under subsection (b)
unless the taxpayer includes the name, age, and
TIN of the qualifying child on the return of
tax for the taxable year.
``(ii) Other methods.--The Secretary may
prescribe other methods for providing the
information described in clause (i).''.
(b) Conforming Amendments.--
(1) Section 32(c)(1) is amended by striking subparagraph
(C) and by redesignating subparagraphs
[[Page 323]]
(D), (E), (F), and (G) as subparagraphs (C), (D), (E), and (F),
respectively.
(2) Section 32(c)(4) is amended by striking ``(3)(E)'' and
inserting ``(3)(C)''.
(3) Section 32(m) is amended by striking ``subsections
(c)(1)(F)'' and inserting ``subsections (c)(1)(E)''.
SEC. 506. MODIFICATIONS OF DEDUCTION FOR PERSONAL EXEMPTION FOR
DEPENDENTS.
Subsection (c) of section 151 is amended to read as follows:
``(c) Additional Exemption for Dependents.--An exemption of the
exemption amount for each individual who is a dependent (as defined in
section 152) of the taxpayer for the taxable year.''.
SEC. 507. TECHNICAL AND CONFORMING AMENDMENTS.
(1) Section 21(e)(5) is amended--
(A) by striking ``paragraph (2) or (4) of'' in
subparagraph (A), and
(B) by striking ``within the meaning of section
152(e)(1)'' and inserting ``as defined in section
152(e)(3)(A)''.
(2) Section 21(e)(6)(B) is amended by striking ``section
151(c)(3)'' and inserting ``section 152(f)(1)''.
[[Page 324]]
(3) Section 25B(c)(2)(B) is amended by striking
``151(c)(4)'' and inserting ``152(f)(2)''.
(4)(A) Subparagraphs (A) and (B) of section 51(i)(1) are
each amended by striking ``paragraphs (1) through (8) of
section 152(a)'' both places it appears and inserting
``subparagraphs (A) through (G) of section 152(d)(2)''.
(B) Section 51(i)(1)(C) is amended by striking
``152(a)(9)'' and inserting ``152(d)(2)(H)''.
(5) Section 72(t)(7)(A)(iii) is amended by striking
``151(c)(3)'' and inserting ``152(f)(1)''.
(6) Section 129(c)(2) is amended by striking ``151(c)(3)''
and inserting ``152(f)(1)''.
(7) The first sentence of section 132(h)(2)(B) is amended
by striking ``151(c)(3)'' and inserting ``152(f)(1)''.
(8) Section 153 is amended by striking paragraph (1) and by
redesignating paragraphs (2), (3), and (4) as paragraphs (1),
(2), and (3), respectively.
(9) Section 170(g)(3) is amended by striking ``paragraphs
(1) through (8) of section 152(a)'' and inserting
``subparagraphs (A) through (G) of section 152(d)(2)''.
(10) The second sentence of section 213(d)(11) is amended
by striking ``paragraphs (1) through (8) of
[[Page 325]]
section 152(a)'' and inserting ``subparagraphs (A) through (G)
of section 152(d)(2)''.
(11) Section 529(e)(2)(B) is amended by striking
``paragraphs (1) through (8) of section 152(a)'' and inserting
``subparagraphs (A) through (G) of section 152(d)(2)''.
(12) Section 2032A(c)(7)(D) is amended by striking
``section 151(c)(4)'' and inserting ``section 152(f)(2)''.
(13) Section 7701(a)(17) is amended by striking
``152(b)(4), 682,'' and inserting ``682''.
(14) Section 7702B(f)(2)(C)(iii) is amended by striking
``paragraphs (1) through (8) of section 152(a)'' and inserting
``subparagraphs (A) through (G) of section 152(d)(2)''.
(15) Section 7703(b)(1) is amended--
(A) by striking ``151(c)(3)'' and inserting
``152(f)(1)'', and
(B) by striking ``paragraph (2) or (4) of''.
SEC. 508. EFFECTIVE DATE.
The amendments made by this subtitle shall apply to taxable years
beginning after December 31, 2003.
[[Page 326]]
Subtitle B--Simplification
SEC. 511. CONSOLIDATION OF LIFE AND NON-LIFE COMPANY RETURNS.
(a) In General.--Section 1504 (relating to definition of affiliated
group) is amended by striking subsection (c) and by redesignating
subsections (d), (e), and (f) as subsections (c), (d), and (e),
respectively.
(b) Conforming Amendments.--
(1) Section 243(b)(2)(A) is amended by striking ``,
1504(b)(4), and 1504(c)'' and inserting ``and 1504(b)(4)''.
(2) Section 818(e)(1) is amended by striking ``If an
election under section 1504(c)(2) is effect with respect to an
affiliated group for the taxable year'' and inserting ``If an
affiliated group includes members which are, and which are not,
life insurance companies for any taxable year''.
(3) Section 1503(c)(1) is amended by striking ``an election
under section 1504(c)(2) is in effect for the taxable year''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2009.
(d) Waiver of 5-Year Waiting Period.--Under regulations prescribed
by the Secretary of the Treasury or his
[[Page 327]]
delegate, an automatic waiver from the 5-year waiting period for
reconsolidation provided in section 1504(a)(3) of the Internal Revenue
Code of 1986 shall be granted to any corporation which was previously
an includible corporation but was subsequently deemed a nonincludible
corporation as a result of becoming a subsidiary of a corporation which
was not an includible corporation solely by operation of section
1504(c)(2) of such Code (as in effect on the day before the date of the
enactment of this Act).
(e) Nontermination of Group.--No affiliated group shall terminate
solely as a result of the amendments made by this section.
SEC. 512. SPECIAL RULES FOR TAXATION OF LIFE INSURANCE COMPANIES.
(a) Reduction in Mutual Life Insurance Company Deductions Not To
Apply.--
(1) In general.--Section 809 (relating to reduction in
certain deductions of material life insurance companies) is
amended by adding at the end the following:
``(j) Differential Earnings Rate Treated as Zero.--Notwithstanding
subsection (c) or (f), the differential earnings rate shall be treated
as zero for purposes of computing both the differential earnings amount
and the recomputed differential earnings amount for any taxable
[[Page 328]]
year of a mutual life insurance company beginning after December 31,
2003, and before January 1, 2009.''.
(2) Effective date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 2003.
(b) Distributions To Shareholders From Pre-1984 Policyholders
Surplus Account.--
(1) In general.--Section 815 (relating to distributions to
shareholders from pre-1984 policyholders surplus account) is
amended by adding at the end the following:
``(g) Special Rules Applicable During 2004 Through 2008.--In the
case of any taxable year of a stock life insurance company beginning
after December 31, 2003, and before January 1, 2009--
``(1) the amount under subsection (a)(2) for such taxable
year shall be treated as zero, and
``(2) notwithstanding subsection (b), in determining any
subtractions from an account under subsections (c)(3) and
(d)(3), any distribution to shareholders during such taxable
year shall be treated as made first out of the policyholders
surplus account, then out of the shareholders surplus account,
and finally out of other accounts.''.
[[Page 329]]
(2) Effective date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 2003.
SEC. 513. 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 sec
[[Page 330]]
tion 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--
[[Page 331]]
(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.
Subtitle C--Other Provisions
SEC. 521. CIVIL RIGHTS TAX RELIEF.
(a) In General.--Part VII of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 (relating to additional itemized
deductions for individuals) is amended by redesignating section 223 as
section 224 and by inserting after section 222 the following new
section:
[[Page 332]]
``SEC. 223. ATTORNEY FEES AND COSTS IN CONNECTION WITH AMOUNTS RECEIVED
ON ACCOUNT OF CERTAIN UNLAWFUL DISCRIMINATION OR CIVIL
FRAUD AGAINST THE UNITED STATES.
``(a) In General.--There shall be allowed as a deduction for any
taxable year an amount equal to the lesser of--
``(1) the attorney fees and court costs paid by, or on
behalf of, the taxpayer for such taxable year in connection
with any action involving a claim of unlawful discrimination or
a claim of a violation of subchapter III of chapter 37 of title
31, United States Code, or
``(2) the amount includible in the taxpayer's gross income
for such taxable year on account of a judgment or settlement
(whether by suit or agreement and whether as lump sums or
periodic payments) resulting from such claim.
``(b) Unlawful Discrimination Defined.--For purposes of this
section, the term `unlawful discrimination' means an act that is
unlawful under any of the following:
``(1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C.
1202).
``(2) Section 201, 202, 203, 204, 205, 206, or 207 of the
Congressional Accountability Act of 1995 (2 U.S.C. 1311, 1312,
1313, 1314, 1315, 1316, or 1317).
[[Page 333]]
``(3) The Fair Labor Standards Act of 1938 (29 U.S.C. 201
et seq.).
``(4) Section 4 or 15 of the Age Discrimination in
Employment Act of 1967 (29 U.S.C. 623 or 633a).
``(5) Section 501 or 504 of the Rehabilitation Act of 1973
(29 U.S.C. 791 or 794).
``(6) Section 510 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1140).
``(7) Title IX of the Education Amendments of 1972 (29
U.S.C. 1681 et seq.).
``(8) The Employee Polygraph Protection Act of 1988 (29
U.S.C. 201 et seq.).
``(9) The Worker Adjustment and Retraining Notification Act
(29 U.S.C. 2102 et seq.).
``(10) Section 105 of the Family and Medical Leave Act of
1993 (29 U.S.C. 2615).
``(11) Chapter 43 of title 38, United States Code (relating
to employment and reemployment rights of members of the
uniformed services).
``(12) Section 1977, 1979, or 1980 of the Revised Statutes
(42 U.S.C. 1981, 1983, or 1985).
``(13) Section 703, 704, or 717 of the Civil Rights Act of
1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
[[Page 334]]
``(14) Section 804, 805, 806, 808, or 818 of the Fair
Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
``(15) Section 102, 202, 302, or 503 of the Americans with
Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or
12203).
``(16) Section 40302 of the Violence Against Women Act of
1994 (42 U.S.C. 13981).
``(17) Any provision of Federal law (popularly known as
whistleblower protection provisions) prohibiting the discharge
of an employee, the discrimination against an employee, or any
other form of retaliation or reprisal against an employee for
asserting rights or taking other actions permitted under
Federal law.
``(18) Any provision of State or local law, or common law
claims permitted under Federal, State, or local law--
``(A) providing for the enforcement of civil
rights, or
``(B) regulating any aspect of the employment
relationship, including prohibiting the discharge of an
employee, the discrimination against an employee, or
any other form of retaliation or reprisal against an
employee for assert
[[Page 335]]
ing rights or taking other actions permitted by law.''.
(b) Deduction Allowed Whether or Not Taxpayer Itemizes Other
Deductions.--Subsection (a) of section 62 (defining adjusted gross
income) is amended by inserting after paragraph (18) the following new
item:
``(19) Costs involving discrimination suits.--The deduction
allowed by section 223.''.
(c) Clerical Amendment.--The table of sections for part VII of
subchapter B of chapter 1 is amended by striking the last item and
inserting the following new items:
``Sec. 223. Attorney fees and costs in
connection with amounts
received on account of certain
unlawful discrimination or
civil fraud against the United
States.
``Sec. 224. Cross reference.''.
(d) Effective Date.--The amendments made by this section shall
apply to fees and costs paid after the date of the enactment of this
Act with respect to any judgment or settlement occurring after such
date.
SEC. 522. INCREASE IN SECTION 382 LIMITATION FOR COMPANIES EMERGING
FROM BANKRUPTCY.
(a) In General.--Section 382(b) (relating to section 382
limitation) is amended by adding at the end the following new
paragraph:
``(4) Increase in section 382 limitation for companies
emerging from bankruptcy.--In the case of any new loss
corporation which immediately
[[Page 336]]
before any ownership change was an old loss corporation under
the jurisdiction of the court in a title 11 or similar case (as
defined in subsection (l)(5)(G)), the section 382 limitation
for any post-change year beginning in 2004 or 2005 shall be an
amount equal to 200 percent of the amount otherwise determined
under paragraph (1) for such year.''.
(b) Effective Date.--The amendment made by this section shall apply
to ownership changes after December 31, 2002.
SEC. 523. INCREASE IN HISTORIC REHABILITATION CREDIT FOR CERTAIN LOW-
INCOME HOUSING FOR THE ELDERLY.
(a) In General.--Section 47 (relating to rehabilitation credit) is
amended by adding at the end the following new subsection:
``(e) Special Rule Regarding Certain Historic Structures.--In the
case of any qualified rehabilitation expenditure with respect to any
certified historic structure--
``(1) which is placed in service after the date of the
enactment of this subsection,
``(2) which is part of a qualified low-income building with
respect to which a credit under section 42 is allowed, and
[[Page 337]]
``(3) substantially all of the residential rental units of
which are used for tenants who have attained the age of 65,
subsection (a)(2) shall be applied by substituting `25 percent' for `20
percent'.''.
(b) Application of MACRS.--The Internal Revenue Code of 1986 shall
be applied and administered as if paragraph (4)(X) of section 251(d) of
the Tax Reform Act of 1986 as applied to the amendments made by section
201 of such Act had not been enacted with respect to any property
described in such paragraph and placed in service after the date of the
enactment of this Act.
(c) Effective Date.--The amendment made by subsection (a) shall
apply to property placed in service after the date of the enactment of
this Act.
SEC. 524. 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,
[[Page 338]]
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) Coordination with other rules.--
``(i) Notwithstanding subparagraph (A), the
taxpayer may exclude participations and
residuals from the adjusted basis
[[Page 339]]
of such property and deduct such participations
and residuals in the taxable year that such
participations and residuals are paid.
``(ii) 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.
[[Page 340]]
SEC. 525. ADDITIONAL ADVANCE REFUNDINGS OF CERTAIN GOVERNMENTAL BONDS.
(a) In General.--Section 149(d)(3)(A)(i) (relating to advance
refundings of other bonds) is amended--
(1) by striking ``or'' at the end of subclause (I),
(2) by adding ``or'' at the end of subclause (II), and
(3) by inserting after subclause (II) the following:
``(III) the 2nd advance refunding
of the original bond if the original
bond was issued after 1985 or the 3rd
advance refunding of the original bond
if the original bond was issued before
1986, if, in either case, the refunding
bond is issued before the date which is
2 years after the date of the enactment
of this subclause and the original bond
was issued as part of an issue 90
percent or more of the net proceeds of
which were used to finance a public
elementary or secondary school in any
State in which the State's highest
court ruled by opinion issued on
November 21, 2002, that the State
school funding
[[Page 341]]
system violated the State constitution
and was constitutionally inadequate,''.
(b) Effective Date.--The amendments made by this section shall
apply to refunding bonds issued on or after the date of the enactment
of this Act.
SEC. 526. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON HORSE
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 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 proceeds from wagering transactions after September 30, 2003.
[[Page 342]]
SEC. 527. FEDERAL REIMBURSEMENT OF EMERGENCY HEALTH SERVICES FURNISHED
TO UNDOCUMENTED ALIENS.
(a) Total Amount Available for Allotment.--There is appropriated,
out of any funds in the Treasury not otherwise appropriated,
$48,000,000 for fiscal year 2004, for the purpose of making allotments
under this section to States described in paragraph (1) or (2) of
subsection (b). Funds appropriated under the preceding sentence shall
remain available until expended.
(b) State Allotments.--
(1) Based on percentage of undocumented aliens.--
(A) In general.--Out of the amount appropriated
under subsection (a) for fiscal year 2004, the
Secretary shall use $32,000,000 of such amount to make
allotments for such fiscal year in accordance with
subparagraph (B).
(B) Formula.--The amount of the allotment for each
State for fiscal year 2004 shall be equal to the
product of--
(i) the total amount available for
allotments under this paragraph for the fiscal
year; and
(ii) the percentage of undocumented aliens
residing in the State with respect to
[[Page 343]]
the total number of such aliens residing in all
States, as determined by the Statistics
Division of the Immigration and Naturalization
Service, as of January 2003, based on the 2000
decennial census.
(2) Based on number of undocumented alien apprehension
states.--
(A) In general.--Out of the amount appropriated
under subsection (a) for fiscal year 2004, the
Secretary shall use $16,000,000 of such amount to make
allotments for such fiscal year for each of the 6
States with the highest number of undocumented alien
apprehensions for such fiscal year.
(B) Determination of allotments.--The amount of the
allotment for each State described in subparagraph (A)
for fiscal year 2004 shall bear the same ratio to the
total amount available for allotments under this
paragraph for the fiscal year as the ratio of the
number of undocumented alien apprehensions in the State
in that fiscal year bears to the total of such numbers
for all such States for such fiscal year.
(C) Data.--For purposes of this paragraph, the
highest number of undocumented alien ap
[[Page 344]]
prehensions for fiscal year 2004 shall be based on the
4 most recent quarterly apprehension rates for
undocumented aliens in such States, as reported by the
Immigration and Naturalization Service.
(3) Rule of construction.--Nothing in this section shall be
construed as prohibiting a State that is described in both of
paragraphs (1) and (2) from receiving an allotment under both
paragraphs for fiscal year 2004.
(c) Use of Funds.--
(1) Authority to make payments.--From the allotments made
for a State under subsection (b) for fiscal year 2004, the
Secretary shall pay directly to local governments, hospitals,
or other providers located in the State (including providers of
services received through an Indian Health Service facility
whether operated by the Indian Health Service or by an Indian
tribe or tribal organization) that provide uncompensated
emergency health services furnished to undocumented aliens
during that fiscal year, and to the State, such amounts
(subject to the total amount available from such allotments) as
the local governments, hospitals, providers, or State
demonstrate were
[[Page 345]]
incurred for the provision of such services during that fiscal
year.
(2) Limitation on state use of funds.--Funds paid to a
State from allotments made under subsection (b) for fiscal year
2004 may only be used for making payments to local governments,
hospitals, or other providers for costs incurred in providing
emergency health services to undocumented aliens or for State
costs incurred with respect to the provision of emergency
health services to such aliens.
(3) Inclusion of costs incurred with respect to certain
aliens.--Uncompensated emergency health services furnished to
aliens who have been allowed to enter the United States for the
sole purpose of receiving emergency health services may be
included in the determination of costs incurred by a State,
local government, hospital, or other provider with respect to
the provision of such services.
(d) Applications; Advance Payments.--
(1) Deadline for establishment of application process.--
(A) In general.--Not later than September 1, 2003,
the Secretary shall establish a process under which
States, local governments, hospitals, or other
providers located in the State
[[Page 346]]
may apply for payments from allotments made under
subsection (b) for fiscal year 2004 for uncompensated
emergency health services furnished to undocumented
aliens during that fiscal year.
(B) Inclusion of measures to combat fraud.--The
Secretary shall include in the process established
under subparagraph (A) measures to ensure that
fraudulent payments are not made from the allotments
determined under subsection (b).
(2) Advance payment; Retrospective adjustment.--The process
established under paragraph (1) shall allow for making payments
under this section for each quarter of fiscal year 2004 on the
basis of advance estimates of expenditures submitted by
applicants for such payments and such other investigation as
the Secretary may find necessary, and for making reductions or
increases in the payments as necessary to adjust for any
overpayment or underpayment for prior quarters of such fiscal
year.
(e) Definitions.--In this section:
(1) Hospital.--The term ``hospital'' has the meaning given
such term in section 1861(e) of the Social Security Act (42
U.S.C. 1395x(e)).
[[Page 347]]
(2) Indian tribe; tribal organization.--The terms ``Indian
tribe'' and ``tribal organization'' have the meanings given
such terms in section 4 of the Indian Health Care Improvement
Act (25 U.S.C. 1603).
(3) Provider.--The term ``provider'' includes a physician,
any other health care professional licensed under State law,
and any other entity that furnishes emergency health services,
including ambulance services.
(4) Secretary.--The term ``Secretary'' means the Secretary
of Health and Human Services.
(5) State.--The term ``State'' means the 50 States and the
District of Columbia.
(f) Entitlement.--This section constitutes budget authority in
advance of appropriations Acts and represents the obligation of the
Federal Government to provide for the payment of amounts provided under
this section.
SEC. 528. PREMIUMS FOR MORTGAGE INSURANCE.
(a) Mortgage Insurance Premiums Treated as Interest.--
(1) In general.--Paragraph (3) of section 163(h) (relating
to qualified residence interest) is amended by adding after
subparagraph (D) the following new subparagraph:
[[Page 348]]
``(E) Mortgage insurance premiums treated as
interest.--
``(i) In general.--Premiums paid or accrued
for qualified mortgage insurance by a taxpayer
during the taxable year in connection with
acquisition indebtedness with respect to a
qualified residence of the taxpayer shall be
treated for purposes of this subsection as
qualified residence interest.
``(ii) Phaseout.--The amount otherwise
allowable as a deduction under clause (i) shall
be reduced (but not below zero) by 10 percent
of such amount for each $1,000 ($500 in the
case of a married individual filing a separate
return) (or fraction thereof) that the
taxpayer's adjusted gross income for the
taxable year exceeds $100,000 ($50,000 in the
case of a married individual filing a separate
return).''.
(2) Definition and special rules.--Paragraph (4) of section
163(h) (relating to other definitions and special rules) is
amended by adding at the end the following new subparagraphs:
[[Page 349]]
``(E) Qualified mortgage insurance.--The term
`qualified mortgage insurance' means--
``(i) mortgage insurance provided by the
Veterans Administration, the Federal Housing
Administration, or the Rural Housing
Administration, and
``(ii) private mortgage insurance (as
defined by section 2 of the Homeowners
Protection Act of 1998 (12 U.S.C. 4901), as in
effect on the date of the enactment of this
subparagraph).
``(F) Special rules for prepaid qualified mortgage
insurance.--Any amount paid by the taxpayer for
qualified mortgage insurance that is properly allocable
to any mortgage the payment of which extends to periods
that are after the close of the taxable year in which
such amount is paid shall be chargeable to capital
account and shall be treated as paid in such periods to
which so allocated. No deduction shall be allowed for
the unamortized balance of such account if such
mortgage is satisfied before the end of its term. The
preceding sentences shall not apply to amounts paid for
qualified mortgage
[[Page 350]]
insurance provided by the Veterans Administration or
the Rural Housing Administration.''.
(b) Information Returns Relating to Mortgage Insurance.--Section
6050H (relating to returns relating to mortgage interest received in
trade or business from individuals) is amended by adding at the end the
following new subsection:
``(h) Returns Relating to Mortgage Insurance Premiums.--
``(1) In general.--The Secretary may prescribe, by
regulations, that any person who, in the course of a trade or
business, receives from any individual premiums for mortgage
insurance aggregating $600 or more for any calendar year, shall
make a return with respect to each such individual. Such return
shall be in such form, shall be made at such time, and shall
contain such information as the Secretary may prescribe.
``(2) Statement to be furnished to individuals with respect
to whom information is required.--Every person required to make
a return under paragraph (1) shall furnish to each individual
with respect to whom a return is made a written statement
showing such information as the Secretary may prescribe. Such
written statement shall be fur
[[Page 351]]
nished on or before January 31 of the year following the
calendar year for which the return under paragraph (1) was
required to be made.
``(3) Special rules.--For purposes of this subsection--
``(A) rules similar to the rules of subsection (c)
shall apply, and
``(B) the term `mortgage insurance' means--
``(i) mortgage insurance provided by the
Veterans Administration, the Federal Housing
Administration, or the Rural Housing
Administration, and
``(ii) private mortgage insurance (as
defined by section 2 of the Homeowners
Protection Act of 1998 (12 U.S.C. 4901), as in
effect on the date of the enactment of this
subparagraph).''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or accrued after the date of enactment of this
section in taxable years ending after such date.
[[Page 352]]
TITLE VI--SUNSET
SEC. 601. SUNSET.
(a) In General.--Except as otherwise provided, the provisions of,
and amendments made, by this Act shall not apply to taxable years
beginning after December 31, 2012, and the Internal Revenue Code of
1986 shall be applied and administered to such years as if such
amendments had never been enacted.
(b) Exceptions.--Subsection (a) shall not apply to the following
provisions of, and amendments made, by this Act:
(1) Title I (other than section 107).
(2) Title III (other than section 362).
Amend the title so as to read: ``A bill to provide for
reconciliation pursuant to section 201 of the concurrent
resolution on the budget for fiscal year 2004.''.
[[Page 354]]
Calendar No. 90
108th CONGRESS
1st Session
S. 2
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide additional tax
incentives to encourage economic growth.
_______________________________________________________________________
May 9, 2003
Reported with an amendment and an amendment to the title