[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 414 Introduced in Senate (IS)]







108th CONGRESS
  1st Session
                                 S. 414

    To provide an economic stimulus package, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           February 14, 2003

  Mr. Daschle introduced the following bill; which was read the first 
                                  time

_______________________________________________________________________

                                 A BILL


 
    To provide an economic stimulus package, and for other purposes.

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

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

    (a) Short Title.--This Act may be cited as the ``Economic Recovery 
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.--

Sec. 1. Short title; amendment of 1986 Code; table of contents.
                      TITLE I--BROAD-BASED TAX CUT

Sec. 101. Broad-based tax cut.
                       TITLE II--BUSINESS TAX CUT

Sec. 201. Increased bonus depreciation.
Sec. 202. Modifications to expensing under section 179.
Sec. 203. Credit for employee health insurance expenses.
Sec. 204. Broadband Internet access tax credit.
                     TITLE III--STATE FISCAL RELIEF

Sec. 301. General revenue sharing with States and their local 
                            governments.
Sec. 302. Homeland security.
Sec. 303. Funding for education.
Sec. 304. Temporary State FMAP relief.
Sec. 305. Funding for transportation infrastructure.
                   TITLE IV--UNEMPLOYMENT ASSISTANCE

    Subtitle A--Additional Weeks of Temporary Extended Unemployment 
                              Compensation

Sec. 401. Entitlement to additional weeks of temporary extended 
                            unemployment compensation.
    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

Sec. 411. Federal-State agreements.
Sec. 412. Payments to States having agreements under this title.
Sec. 413. Financing provisions.
Sec. 414. Definitions.
Sec. 415. Applicability.
Sec. 416. Coordination with the Temporary Extended Unemployment 
                            Compensation Act of 2002.
                  TITLE V--LONG-TERM FISCAL DISCIPLINE

        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 501. Clarification of economic substance doctrine.
Sec. 502. Penalty for failing to disclose reportable transaction.
Sec. 503. Accuracy-related penalty for listed transactions and other 
                            reportable transactions having a 
                            significant tax avoidance purpose.
Sec. 504. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.
Sec. 505. Modifications of substantial understatement penalty for 
                            nonreportable transactions.
Sec. 506. Tax shelter exception to confidentiality privileges relating 
                            to taxpayer communications.
Sec. 507. Disclosure of reportable transactions.
Sec. 508. Modifications to penalty for failure to register tax 
                            shelters.
Sec. 509. Modification of penalty for failure to maintain lists of 
                            investors.
Sec. 510. Modification of actions to enjoin certain conduct related to 
                            tax shelters and reportable transactions.
Sec. 511. Understatement of taxpayer's liability by income tax return 
                            preparer.
Sec. 512. Penalty on failure to report interests in foreign financial 
                            accounts.
Sec. 513. Frivolous tax submissions.
Sec. 514. Regulation of individuals practicing before the Department of 
                            Treasury.
Sec. 515. Penalty on promoters of tax shelters.
Sec. 516. Statute of limitations for taxable years for which listed 
                            transactions not reported.
Sec. 517. Denial of deduction for interest on underpayments 
                            attributable to nondisclosed reportable and 
                            noneconomic substance transactions.
Sec. 518. Authorization of appropriations for tax law enforcement.
                      Subtitle B--Other Provisions

Sec. 521. Affirmation of consolidated return regulation authority.
Sec. 522. Signing of corporate tax returns by chief executive officer.
Sec. 523. Disclosure of tax shelters to corporate audit committee.
                   Subtitle C--Budget Points of Order

Sec. 531. Extension of pay-as-you-go enforcement in the Senate.

                      TITLE I--BROAD-BASED TAX CUT

SEC. 101. BROAD-BASED TAX CUT.

    (a) In General.--The Secretary of the Treasury shall pay, out of 
any money in the Treasury not otherwise appropriated, to each eligible 
taxpayer an amount equal to 10 percent of the eligible portion of the 
taxpayer's adjusted gross income (as defined in section 62 of the 
Internal Revenue Code of 1986) for a taxable year beginning in 2002.
    (b) Eligible Taxpayer.--For purposes of this section, the term 
``eligible taxpayer'' means any individual other than--
            (1) any estate or trust,
            (2) any nonresident alien, or
            (3) any individual with respect to whom a deduction under 
        section 151 of such Code is allowable to another taxpayer for a 
        taxable year beginning in 2003.
    (c) Eligible Portion.--For purposes of this section--
            (1) In general.--With respect to each eligible taxpayer, 
        the eligible portion shall be equal to the sum of--
                    (A) $3,000 ($6,000 in the case of a taxpayer filing 
                a joint return under section 6013 of such Code), plus
                    (B) $3,000 for each qualifying child of the 
                taxpayer, not to exceed $6,000.
            (2) Qualifying child.--The term ``qualifying child'' has 
        the meaning given such term by section 24(c) of such Code.
    (d) Remittance of Payment.--The Secretary of the Treasury shall 
remit the payment described in subsection (a) to the taxpayer as soon 
as practicable after the date of the enactment of this section.

                       TITLE II--BUSINESS TAX CUT

SEC. 201. INCREASED BONUS DEPRECIATION.

    (a) In General.--Subsection (k) of section 168 (relating to 
accelerated cost recovery system) is amended--
            (1) by adding at the end of paragraph (1) the following new 
        flush sentence:
        ``In the case of any qualified property acquired by the 
        taxpayer pursuant to a written binding contract which was 
        entered into after December 31, 2002, subparagraph (A) shall be 
        applied by substituting `50 percent' for `30 percent'.'',
            (2) by striking ``September 11, 2004'' each place it 
        appears and inserting ``January 1, 2004'',
            (3) by striking ``September 11, 2004'' and inserting 
        ``January 1, 2004'', and
            (4) by striking ``pre-september 11, 2004'' and inserting 
        ``pre-january 1, 2004''.
    (b) Conforming Amendments.--
            (1) The heading for clause (i) of section 1400L(b)(2)(C) of 
        the Internal Revenue Code of 1986 is amended by striking ``30 
        percent additional'' and inserting ``Additional''.
            (2) Section 1400L(b)(2)(D) of such Code is amended by 
        inserting ``(as in effect on the day after the date of the 
        enactment of this section)'' after ``section 168(k)(2)(D)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property acquired after December 31, 2002.

SEC. 202. MODIFICATIONS TO EXPENSING UNDER SECTION 179.

    (a) Increase of Amount Which May Be Expensed.--
            (1) 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 $25,000 ($75,000 in the case of any taxable 
        year beginning in 2003).''
            (2) Increase in phaseout threshold.--Paragraph (2) of 
        section 179(b) is amended by striking ``$200,000'' and 
        inserting ``$200,000 ($325,000 in the case of any taxable year 
        beginning in 2003)''.
    (b) Effective Date.--The amendments made by this section shall 
apply to property placed in service in taxable years beginning after 
December 31, 2002.

SEC. 203. CREDIT FOR EMPLOYEE HEALTH INSURANCE EXPENSES.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business-related credits) is amended by adding at the end 
the following:

``SEC. 45G. EMPLOYEE HEALTH INSURANCE EXPENSES.

    ``(a) General Rule.--For purposes of section 38, in the case of a 
qualified small employer, the employee health insurance expenses credit 
determined under this section is an amount equal to the applicable 
percentage of the amount paid by the taxpayer during the taxable year 
for qualified employee health insurance expenses.
    ``(b) Applicable Percentage.--For purposes of subsection (a), the 
applicable percentage is equal to--
            ``(1) 50 percent in the case of an employer with less than 
        26 qualified employees,
            ``(2) 40 percent in the case of an employer with more than 
        25 but less than 36 qualified employees, and
            ``(3) 30 percent in the case of an employer with more than 
        35 but less than 51 qualified employees.
    ``(c) Per Employee Dollar Limitation.--The amount of qualified 
employee health insurance expenses taken into account under subsection 
(a) with respect to any qualified employee for any taxable year shall 
not exceed the maximum employer contribution for self-only coverage or 
family coverage (as applicable) determined under section 8906(a) of 
title 5, United States Code, for the calendar year in which such 
taxable year begins.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified small employer.--
                    ``(A) In general.--The term `qualified small 
                employer' means any small employer which provides 
                eligibility for health insurance coverage (after any 
                waiting period (as defined in section 9801(b)(4)) to 
                all qualified employees of the employer.
                    ``(B) Small employer.--
                            ``(i) In general.--For purposes of this 
                        paragraph, the term `small employer' means, 
                        with respect to any calendar year, any employer 
                        if such employer employed an average of not 
                        less than 2 and not more than 50 qualified 
                        employees on business days during either of the 
                        2 preceding calendar years. For purposes of the 
                        preceding sentence, a preceding calendar year 
                        may be taken into account only if the employer 
                        was in existence throughout such year.
                            ``(ii) Employers not in existence in 
                        preceding year.--In the case of an employer 
                        which was not in existence throughout the 1st 
                        preceding calendar year, the determination 
                        under clause (i) shall be based on the average 
                        number of qualified employees that it is 
                        reasonably expected such employer will employ 
                        on business days in the current calendar year.
            ``(2) Qualified employee health insurance expenses.--
                    ``(A) In general.--The term `qualified employee 
                health insurance expenses' means any amount paid by an 
                employer for health insurance coverage to the extent 
                such amount is attributable to coverage provided to any 
                employee while such employee is a qualified employee.
                    ``(B) Exception for amounts paid under salary 
                reduction arrangements.--No amount paid or incurred for 
                health insurance coverage pursuant to a salary 
                reduction arrangement shall be taken into account under 
                subparagraph (A).
                    ``(C) Health insurance coverage.--The term `health 
                insurance coverage' has the meaning given such term by 
                paragraph (1) of section 9832(b) (determined by 
                disregarding the last sentence of paragraph (2) of such 
                section).
            ``(3) Qualified employee.--The term `qualified employee' 
        means an employee of an employer who, with respect to any 
        period, is not provided health insurance coverage under--
                    ``(A) a health plan of the employee's spouse,
                    ``(B) title XVIII, XIX, or XXI of the Social 
                Security Act,
                    ``(C) chapter 17 of title 38, United States Code,
                    ``(D) chapter 55 of title 10, United States Code,
                    ``(E) chapter 89 of title 5, United States Code, or
                    ``(F) any other provision of law.
            ``(4) Employee--The term `employee'--
                    ``(A) means any individual, with respect to any 
                calendar year, who is reasonably expected to receive at 
                least $5,000 of compensation from the employer during 
                such year,
                    ``(B) does not include an employee within the 
                meaning of section 401(c)(1), and
                    ``(C) includes a leased employee within the meaning 
                of section 414(n).
            ``(5) Compensation.--The term `compensation' means amounts 
        described in section 6051(a)(3).
    ``(e) Certain Rules Made Applicable.--For purposes of this section, 
rules similar to the rules of section 52 shall apply.
    ``(f) Denial of Double Benefit.--No deduction or credit under any 
other provision of this chapter shall be allowed with respect to 
qualified employee health insurance expenses taken into account under 
subsection (a).
    ``(g) Termination.--This section shall not apply to taxable years 
beginning after December 31, 2003.''.
    (b) Credit To Be Part of General Business Credit.--Section 38(b) 
(relating to current year business credit) is amended by striking 
``plus'' at the end of paragraph (14), by striking the period at the 
end of paragraph (15) and inserting ``, plus'', and by adding at the 
end the following:
            ``(16) the employee health insurance expenses credit 
        determined under section 45G.''.
    (c) Credit Allowed Against Minimum Tax.--
            (1) In general.--Subsection (c) of section 38 (relating to 
        limitation based on amount of tax) is amended by redesignating 
        paragraph (3) as paragraph (4) and by inserting after paragraph 
        (2) the following new paragraph:
            ``(3) Special rules for employee health insurance credit.--
                    ``(A) In general.--In the case of the employee 
                health insurance credit--
                            ``(i) this section and section 39 shall be 
                        applied separately with respect to the credit, 
                        and
                            ``(ii) in applying paragraph (1) to the 
                        credit--
                                    ``(I) the amounts in subparagraphs 
                                (A) and (B) thereof shall be treated as 
                                being zero, and
                                    ``(II) the limitation under 
                                paragraph (1) (as modified by subclause 
                                (I)) shall be reduced by the credit 
                                allowed under subsection (a) for the 
                                taxable year (other than the employee 
                                health insurance credit).
                    ``(B) Employee health insurance credit.--For 
                purposes of this subsection, the term `employee health 
                insurance credit' means the credit allowable under 
                subsection (a) by reason of section 45G(a).''.
            (2) Conforming amendment.--Subclause (II) of section 
        38(c)(2)(A)(ii) is amended by striking ``(other'' and all that 
        follows through ``credit)'' and inserting ``(other than the 
        empowerment zone employment credit or the employee health 
        insurance credit)''.
    (d) No Carrybacks.--Subsection (d) of section 39 (relating to 
carryback and carryforward of unused credits) is amended by adding at 
the end the following:
            ``(11) No carryback of section 45g credit before effective 
        date.--No portion of the unused business credit for any taxable 
        year which is attributable to the employee health insurance 
        expenses credit determined under section 45G may be carried 
        back to a taxable year ending before the date of the enactment 
        of section 45G.''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following:

                              ``Sec. 45G. Employee health insurance 
                                        expenses.''.
    (f) Employer Outreach.--The Internal Revenue Service shall, in 
conjunction with the Small Business Administration, develop materials 
and implement an educational program to ensure that business personnel 
are aware of--
            (1) the eligibility criteria for the tax credit provided 
        under section 45G of the Internal Revenue Code of 1986 (as 
        added by this section),
            (2) the methods to be used in calculating such credit,
            (3) the documentation needed in order to claim such credit, 
        and
            (4) any available health plan purchasing alliances 
        established under title II,
so that the maximum number of eligible businesses may claim the tax 
credit.
    (g) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 2002.

SEC. 204. BROADBAND INTERNET ACCESS TAX CREDIT.

    (a) In General.--Subpart E of part IV of chapter 1 (relating to 
rules for computing investment credit) is amended by inserting after 
section 48 the following new section:

``SEC. 48A. BROADBAND INTERNET ACCESS CREDIT.

    ``(a) General Rule.--For purposes of section 46, the broadband 
credit for any taxable year is the sum of--
            ``(1) the current generation broadband credit, plus
            ``(2) the next generation broadband credit.
    ``(b) Current Generation Broadband Credit; Next Generation 
Broadband Credit.--For purposes of this section--
            ``(1) Current generation broadband credit.--The current 
        generation broadband credit for any taxable year is equal to 10 
        percent of the qualified expenditures incurred with respect to 
        qualified equipment providing current generation broadband 
        services to qualified subscribers and taken into account with 
        respect to such taxable year.
            ``(2) Next generation broadband credit.--The next 
        generation broadband credit for any taxable year is equal to 20 
        percent of the qualified expenditures incurred with respect to 
        qualified equipment providing next generation broadband 
        services to qualified subscribers and taken into account with 
        respect to such taxable year.
    ``(c) When Expenditures Taken Into Account.--For purposes of this 
section--
            ``(1) In general.--Qualified expenditures with respect to 
        qualified equipment shall be taken into account with respect to 
        the first taxable year in which--
                    ``(A) current generation broadband services are 
                provided through such equipment to qualified 
                subscribers, or
                    ``(B) next generation broadband services are 
                provided through such equipment to qualified 
                subscribers.
            ``(2) Limitation.--
                    ``(A) In general.--Qualified expenditures shall be 
                taken into account under paragraph (1) only with 
                respect to qualified equipment--
                            ``(i) the original use of which commences 
                        with the taxpayer, and
                            ``(ii) which is placed in service,
                after December 31, 2002.
                    ``(B) Sale-leasebacks.--For purposes of 
                subparagraph (A), if property--
                            ``(i) is originally placed in service after 
                        December 31, 2002, by a person, and
                            ``(ii) sold and leased back by such person 
                        within 3 months after the date such property 
                        was originally placed in service,
                such property shall be treated as originally placed in 
                service not earlier than the date on which such 
                property is used under the leaseback referred to in 
                clause (ii).
    ``(d) Special Allocation Rules.--
            ``(1) Current generation broadband services.--For purposes 
        of determining the current generation broadband credit under 
        subsection (a)(1) with respect to qualified equipment through 
        which current generation broadband services are provided, if 
        the qualified equipment is capable of serving both qualified 
        subscribers and other subscribers, the qualified expenditures 
        shall be multiplied by a fraction--
                    ``(A) the numerator of which is the sum of the 
                number of potential qualified subscribers within the 
                rural areas and the underserved areas which the 
                equipment is capable of serving with current generation 
                broadband services, and
                    ``(B) the denominator of which is the total 
                potential subscriber population of the area which the 
                equipment is capable of serving with current generation 
                broadband services.
            ``(2) Next generation broadband services.--For purposes of 
        determining the next generation broadband credit under 
        subsection (a)(2) with respect to qualified equipment through 
        which next generation broadband services are provided, if the 
        qualified equipment is capable of serving both qualified 
        subscribers and other subscribers, the qualified expenditures 
        shall be multiplied by a fraction--
                    ``(A) the numerator of which is the sum of--
                            ``(i) the number of potential qualified 
                        subscribers within the rural areas and 
                        underserved areas, plus
                            ``(ii) the number of potential qualified 
                        subscribers within the area consisting only of 
                        residential subscribers not described in clause 
                        (i),
                which the equipment is capable of serving with next 
                generation broadband services, and
                    ``(B) the denominator of which is the total 
                potential subscriber population of the area which the 
                equipment is capable of serving with next generation 
                broadband services.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Antenna.--The term `antenna' means any device used to 
        transmit or receive signals through the electromagnetic 
        spectrum, including satellite equipment.
            ``(2) Cable operator.--The term `cable operator' has the 
        meaning given such term by section 602(5) of the Communications 
        Act of 1934 (47 U.S.C. 522(5)).
            ``(3) Commercial mobile service carrier.--The term 
        `commercial mobile service carrier' means any person authorized 
        to provide commercial mobile radio service as defined in 
        section 20.3 of title 47, Code of Federal Regulations.
            ``(4) Current generation broadband service.--The term 
        `current generation broadband service' means the transmission 
        of signals at a rate of at least 1,000,000 bits per second to 
        the subscriber and at least 128,000 bits per second from the 
        subscriber.
            ``(5) Multiplexing or demultiplexing.--The term 
        `multiplexing' means the transmission of 2 or more signals over 
        a single channel, and the term `demultiplexing' means the 
        separation of 2 or more signals previously combined by 
        compatible multiplexing equipment.
            ``(6) Next generation broadband service.--The term `next 
        generation broadband service' means the transmission of signals 
        at a rate of at least 22,000,000 bits per second to the 
        subscriber and at least 5,000,000 bits per second from the 
        subscriber.
            ``(7) Nonresidential subscriber.--The term `nonresidential 
        subscriber' means a person who purchases broadband services 
        which are delivered to the permanent place of business of such 
        person.
            ``(8) Open video system operator.--The term `open video 
        system operator' means any person authorized to provide service 
        under section 653 of the Communications Act of 1934 (47 U.S.C. 
        573).
            ``(9) Other wireless carrier.--The term `other wireless 
        carrier' means any person (other than a telecommunications 
        carrier, commercial mobile service carrier, cable operator, 
        open video system operator, or satellite carrier) providing 
        current generation broadband services or next generation 
        broadband service to subscribers through the wireless 
        transmission of energy through radio or light waves.
            ``(10) Packet switching.--The term `packet switching' means 
        controlling or routing the path of a digitized transmission 
        signal which is assembled into packets or cells.
            ``(11) Provider.--The term `provider' means, with respect 
        to any qualified equipment--
                    ``(A) a cable operator,
                    ``(B) a commercial mobile service carrier,
                    ``(C) an open video system operator,
                    ``(D) a satellite carrier,
                    ``(E) a telecommunications carrier, or
                    ``(F) any other wireless carrier,
        providing current generation broadband services or next 
        generation broadband services to subscribers through such 
        qualified equipment.
            ``(12) Provision of services.--A provider shall be treated 
        as providing services to a subscriber if--
                    ``(A) a subscriber has been passed by the 
                provider's equipment and can be connected to such 
                equipment for a standard connection fee,
                    ``(B) the provider is physically able to deliver 
                current generation broadband services or next 
                generation broadband services, as applicable, to such 
                subscribers without making more than an insignificant 
                investment with respect to any such subscriber,
                    ``(C) the provider has made reasonable efforts to 
                make such subscribers aware of the availability of such 
                services,
                    ``(D) such services have been purchased by one or 
                more such subscribers, and
                    ``(E) such services are made available to such 
                subscribers at average prices comparable to those at 
                which the provider makes available similar services in 
                any areas in which the provider makes available such 
                services.
            ``(13) Qualified equipment.--
                    ``(A) In general.--The term `qualified equipment' 
                means equipment which provides current generation 
                broadband services or next generation broadband 
                services--
                            ``(i) at least a majority of the time 
                        during periods of maximum demand to each 
                        subscriber who is utilizing such services, and
                            ``(ii) in a manner substantially the same 
                        as such services are provided by the provider 
                        to subscribers through equipment with respect 
                        to which no credit is allowed under subsection 
                        (a)(1).
                    ``(B) Only certain investment taken into account.--
                Except as provided in subparagraph (C) or (D), 
                equipment shall be taken into account under 
                subparagraph (A) only to the extent it--
                            ``(i) extends from the last point of 
                        switching to the outside of the unit, building, 
                        dwelling, or office owned or leased by a 
                        subscriber in the case of a telecommunications 
                        carrier,
                            ``(ii) extends from the customer side of 
                        the mobile telephone switching office to a 
                        transmission/receive antenna (including such 
                        antenna) owned or leased by a subscriber in the 
                        case of a commercial mobile service carrier,
                            ``(iii) extends from the customer side of 
                        the headend to the outside of the unit, 
                        building, dwelling, or office owned or leased 
                        by a subscriber in the case of a cable operator 
                        or open video system operator, or
                            ``(iv) extends from a transmission/receive 
                        antenna (including such antenna) which 
                        transmits and receives signals to or from 
                        multiple subscribers, to a transmission/receive 
                        antenna (including such antenna) on the outside 
                        of the unit, building, dwelling, or office 
                        owned or leased by a subscriber in the case of 
                        a satellite carrier or other wireless carrier, 
                        unless such other wireless carrier is also a 
                        telecommunications carrier.
                    ``(C) Packet switching equipment.--Packet switching 
                equipment, regardless of location, shall be taken into 
                account under subparagraph (A) only if it is deployed 
                in connection with equipment described in subparagraph 
                (B) and is uniquely designed to perform the function of 
                packet switching for current generation broadband 
                services or next generation broadband services, but 
                only if such packet switching is the last in a series 
                of such functions performed in the transmission of a 
                signal to a subscriber or the first in a series of such 
                functions performed in the transmission of a signal 
                from a subscriber.
                    ``(D) Multiplexing and demultiplexing equipment.--
                Multiplexing and demultiplexing equipment shall be 
                taken into account under subparagraph (A) only to the 
                extent it is deployed in connection with equipment 
                described in subparagraph (B) and  is uniquely designed 
to perform the function of multiplexing and demultiplexing packets or 
cells of data and making associated application adaptions, but only if 
such multiplexing or demultiplexing equipment is located between packet 
switching equipment described in subparagraph (C) and the subscriber's 
premises.
            ``(14) Qualified expenditure.--
                    ``(A) In general.--The term `qualified expenditure' 
                means any amount--
                            ``(i) chargeable to capital account with 
                        respect to the purchase and installation of 
                        qualified equipment (including any upgrades 
                        thereto) for which depreciation is allowable 
                        under section 168, and
                            ``(ii) incurred after December 31, 2002, 
                        and before January 1, 2004.
                    ``(B) Certain satellite expenditures excluded.--
                Such term shall not include any expenditure with 
                respect to the launching of any satellite equipment.
            ``(15) Qualified subscriber.--The term `qualified 
        subscriber' means--
                    ``(A) with respect to the provision of current 
                generation broadband services--
                            ``(i) a nonresidential subscriber 
                        maintaining a permanent place of business in a 
                        rural area or underserved area, or
                            ``(ii) a residential subscriber residing in 
                        a dwelling located in a rural area or 
                        underserved area which is not a saturated 
                        market, and
                    ``(B) with respect to the provision of next 
                generation broadband services--
                            ``(i) a nonresidential subscriber 
                        maintaining a permanent place of business in a 
                        rural area or underserved area, or
                            ``(ii) a residential subscriber.
            ``(16) Residential subscriber.--The term `residential 
        subscriber' means an individual who purchases broadband 
        services which are delivered to such individual's dwelling.
            ``(17) Rural area.--The term `rural area' means any census 
        tract which--
                    ``(A) is not within 10 miles of any incorporated or 
                census designated place containing more than 25,000 
                people, and
                    ``(B) is not within a county or county equivalent 
                which has an overall population density of more than 
                500 people per square mile of land.
            ``(18) Rural subscriber.--The term `rural subscriber' means 
        a residential subscriber residing in a dwelling located in a 
        rural area or nonresidential subscriber maintaining a permanent 
        place of business located in a rural area.
            ``(19) Satellite carrier.--The term `satellite carrier' 
        means any person using the facilities of a satellite or 
        satellite service licensed by the Federal Communications 
        Commission and operating in the Fixed-Satellite Service under 
        part 25 of title 47 of the Code of Federal Regulations or the 
        Direct Broadcast Satellite Service under part 100 of title 47 
        of such Code to establish and operate a channel of 
        communications for distribution of signals, and owning or 
        leasing a capacity or service on a satellite in order to 
        provide such distribution.
            ``(20) Saturated market.--The term `saturated market' means 
        any census tract in which, as of the date of the enactment of 
        this section--
                    ``(A) current generation broadband services have 
                been provided by one or more providers to 85 percent or 
                more of the total number of potential residential 
                subscribers residing in dwellings located within such 
                census tract, and
                    ``(B) such services can be utilized--
                            ``(i) at least a majority of the time 
                        during periods of maximum demand by each such 
                        subscriber who is utilizing such services, and
                            ``(ii) in a manner substantially the same 
                        as such services are provided by the provider 
                        to subscribers through equipment with respect 
                        to which no credit is allowed under subsection 
                        (a)(1).
            ``(21) Subscriber.--The term `subscriber' means a person 
        who purchases current generation broadband services or next 
        generation broadband services.
            ``(22) Telecommunications carrier.--The term 
        `telecommunications carrier' has the meaning given such term by 
        section 3(44) of the Communications Act of 1934 (47 U.S.C. 
        153(44)), but--
                    ``(A) includes all members of an affiliated group 
                of which a telecommunications carrier is a member, and
                    ``(B) does not include a commercial mobile service 
                carrier.
            ``(23) Total potential subscriber population.--The term 
        `total potential subscriber population' means, with respect to 
        any area and based on the most recent census data, the total 
        number of potential residential subscribers residing in 
        dwellings located in such area and potential nonresidential 
        subscribers maintaining permanent places of business located in 
        such area.
            ``(24) Underserved area.--The term `underserved area' means 
        any census tract which is located in--
                    ``(A) an empowerment zone or enterprise community 
                designated under section 1391,
                    ``(B) the District of Columbia Enterprise Zone 
                established under section 1400,
                    ``(C) a renewal community designated under section 
                1400E, or
                    ``(D) a low-income community designated under 
                section 45D.
            ``(25) Underserved subscriber.--The term `underserved 
        subscriber' means a residential subscriber residing in a 
        dwelling located in an underserved area or nonresidential 
        subscriber maintaining a permanent place of business located in 
        an underserved area.''.
    (b) Credit To Be Part of Investment Credit.--Section 46 (relating 
to the amount of investment credit) is amended by striking ``and'' at 
the end of paragraph (2), by striking the period at the end of 
paragraph (3) and inserting ``, and'', and by adding at the end the 
following:
            ``(4) the broadband Internet access credit.''
    (c) Special Rule for Mutual or Cooperative Telephone Companies.--
Section 501(c)(12)(B) (relating to list of exempt organizations) is 
amended by striking ``or'' at the end of clause (iii), by striking the 
period at the end of clause (iv) and inserting ``, or'', and by adding 
at the end the following new clause:
                            ``(v) from the sale of property subject to 
                        a lease described in section 48A(c)(2)(B), but 
                        only to the extent such income does not in any 
                        year exceed an amount equal to the credit for 
                        qualified expenditures which would be 
                        determined under section 48A for such year if 
                        the mutual or cooperative telephone company was 
                        not exempt from taxation and was treated as the 
                        owner of the property subject to such lease.''.
    (d) Conforming Amendment.--The table of sections for subpart E of 
part IV of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 48 the following:

``Sec. 48A. Broadband internet access credit.''.
    (e) Designation of Census Tracts.--
            (1) In general.--The Secretary of the Treasury shall, not 
        later than 90 days after the date of the enactment of this Act, 
        designate and publish those census tracts meeting the criteria 
        described in paragraphs (17) and (24) of section 48A(e) of the 
        Internal Revenue Code of 1986 (as added by this section). In 
        making such designations, the Secretary of the Treasury shall 
        consult with such other departments and agencies as the 
        Secretary determines appropriate.
            (2) Saturated market.--
                    (A) In general.--For purposes of designating and 
                publishing those census tracts meeting the criteria 
                described in subsection (e)(20) of such section 48A--
                            (i) the Secretary of the Treasury shall 
                        prescribe not later than 30 days after the date 
                        of the enactment of this Act the form upon 
                        which any provider which takes the position 
                        that it meets such criteria with respect to any 
                        census tract shall submit a list of such census 
                        tracts (and any other information required by 
                        the Secretary) not later than 60 days after the 
                        date of the publication of such form, and
                            (ii) the Secretary of the Treasury shall 
                        publish an aggregate list of such census tracts 
                        submitted and the applicable providers not 
                        later than 30 days after the last date such 
                        submissions are allowed under clause (i).
                    (B) No subsequent lists required.--The Secretary of 
                the Treasury shall not be required to publish any list 
                of census tracts meeting such criteria subsequent to 
                the list described in subparagraph (A)(ii).
                    (C) Penalties for submission of false 
                information.--The Secretary of the Treasury shall 
                designate appropriate penalties for knowingly 
                submitting false information on the form described in 
                subparagraph (A)(i).
    (f) Other Regulatory Matters.--
            (1) Prohibition.--No Federal or State agency or 
        instrumentality shall adopt regulations or ratemaking 
        procedures that would have the effect of confiscating any 
        credit or portion thereof allowed under section 48A of the 
        Internal Revenue Code of 1986 (as added by this section) or 
        otherwise subverting the purpose of this section.
            (2) Treasury regulatory authority.--It is the intent of 
        Congress in providing the broadband Internet access credit 
        under section 48A of the Internal Revenue Code of 1986 (as 
        added by this section) to provide incentives for the purchase, 
        installation, and connection of equipment and facilities 
        offering expanded broadband access to the Internet for users in 
        certain low income and rural areas of the United States, as 
        well as to residential users nationwide, in a manner that 
        maintains competitive neutrality among the various classes of 
        providers of broadband services. Accordingly, the Secretary of 
        the Treasury shall prescribe such regulations as may be 
        necessary or appropriate to carry out the purposes of section 
        48A of such Code, including--
                    (A) regulations to determine how and when a 
                taxpayer that incurs qualified expenditures satisfies 
                the requirements of section 48A of such Code to provide 
                broadband services, and
                    (B) regulations describing the information, 
                records, and data taxpayers are required to provide the 
                Secretary to substantiate compliance with the 
                requirements of section 48A of such Code.
    (g) Effective Date.--The amendments made by this section shall 
apply to expenditures incurred after December 31, 2002, and before 
January 1, 2004.

                     TITLE III--STATE FISCAL RELIEF

SEC. 301. GENERAL REVENUE SHARING WITH STATES AND THEIR LOCAL 
              GOVERNMENTS.

    (a) Appropriation.--There is authorized to be appropriated and is 
appropriated to carry out this section $15,000,000,000 for fiscal year 
2003.
    (b) Allotments.--From the amount appropriated under subsection (a) 
for fiscal year 2003, the Secretary of the Treasury shall, as soon as 
practicable after the date of the enactment of this Act, allot to each 
of the States as follows, except that no State shall receive less than 
\1/2\ of 1 percent of such amount:
            (1) State level.--$12,000,000,000 shall be allotted among 
        such States on the basis of the relative population of each 
        such State, as determined by the Secretary on the basis of the 
        most recent satisfactory data.
            (2) Local government level.--$3,000,000,000 shall be 
        allotted among such States as determined under paragraph (1) 
        for distribution to the various units of general local 
        government within such States on the basis of the relative 
        population of each such unit within each such State, as 
        determined by the Secretary on the basis of the most recent 
        satisfactory data.
    (c) Definitions.--For purposes of this section--
            (1) State.--The term ``State'' means any of the several 
        States, the District of Columbia, and the Commonwealth of 
        Puerto Rico.
            (2) Unit of general local government.--
                    (A) In general.--The term ``unit of general local 
                government'' means--
                            (i) a county, parish, township, city, or 
                        political subdivision of a county, parish, 
                        township, or city, that is a unit of general 
                        local government as determined by the Secretary 
                        of Commerce for general statistical purposes; 
                        and
                            (ii) the District of Columbia, the 
                        Commonwealth of Puerto Rico, and the recognized 
                        governing body of an Indian tribe or Alaskan 
                        native village that carries out substantial 
                        governmental duties and powers.
                    (B) Treatment of subsumed areas.--For purposes of 
                determining a unit of general local government under 
                this section, the rules under section 6720(c) of title 
                31, United States Code, shall apply.

SEC. 302. HOMELAND SECURITY.

    (a) Short Title; Purpose.--
            (1) Short title.--This section may be cited as the ``First 
        Responders Partnership Grant Act of 2003''.
            (2) Purpose.--The purpose of this section is to support 
        first responders to protect homeland security and prevent and 
        respond to acts of terrorism.
    (b) Definitions.--In this section:
            (1) Indian tribe.--The term ``Indian tribe'' has the same 
        meaning as in section 4(e) of the Indian Self-Determination and 
        Education Assistance Act (25 U.S.C. 450b(e)).
            (2) Law enforcement officer.--The term ``law enforcement 
        officer'' means any officer, agent, or employee of a State, 
        unit of local government, public or private college or 
        university, or Indian tribe authorized by law or by a 
        government agency to engage in or supervise the prevention, 
        detection, or investigation of any violation of criminal law, 
        or authorized by law to supervise sentenced criminal offenders.
            (3) Public safety officer.--The term ``public safety 
        officer'' means any person serving a public or private agency 
        with or without compensation as a law enforcement officer, as a 
        firefighter, or as a member of a rescue squad or ambulance 
        crew.
            (4) State.--The term ``State'' means each of the 50 States, 
        the District of Columbia, and the Commonwealth of Puerto Rico.
            (5) Unit of local government.--The term ``unit of local 
        government'' means a county, municipality, town, township, 
        village, parish, borough, or other unit of general government 
        below the State level.
    (c) First Responders Partnership Grant Program for Public Safety 
Officers.--
            (1) In general.--The Secretary of Homeland Security 
        (referred to in this section as the ``Secretary'') is 
        authorized to make grants to States, units of local government, 
        and Indian tribes to support public safety officers in their 
        efforts to protect homeland security and prevent and respond to 
        acts of terrorism.
            (2) Use of funds.--Grants awarded under this subsection 
        shall be--
                    (A) distributed directly to the State, unit of 
                local government, or Indian tribe; and
                    (B) used to fund personnel expenses, equipment, 
                training, and facilities to support public safety 
                officers in their efforts to protect homeland security 
                and prevent and respond to acts of terrorism.
            (3) Allocation and distribution of funds.--
                    (A) Set-aside for indian tribes.--
                            (i) In general.--The Secretary shall 
                        reserve 1 percent of the amount appropriated 
                        for grants pursuant to this Act to be used for 
                        grants to Indian tribes.
                            (ii) Selection of indian tribes.--
                                    (I) In general.--The Secretary 
                                shall award grants under this 
                                subparagraph to Indian tribes on the 
                                basis of a competition conducted 
                                pursuant to specific criteria.
                                    (II) Rulemaking.--The criteria 
                                under subclause (I) shall be contained 
                                in a regulation promulgated by the 
                                Attorney General after notice and 
                                public comment.
                    (B) Set-aside for rural states.--
                            (i) In general.--The Secretary shall 
                        reserve 5 percent of the amount appropriated 
                        for grants pursuant to this Act to be used for 
                        grants to rural States.
                            (ii) Selection of rural states.--The 
                        Secretary shall award grants under this 
                        subparagraph to rural States (as defined in 
                        section 1501(b) of the Omnibus Crime Control 
                        and Safe Streets Act of 1968 (42 U.S.C. 
                        3796bb(b))).
                    (C) Minimum amount.--The Secretary shall allocate, 
                from the total amount appropriated for grants to States 
                under this subsection--
                            (i) not less than 0.75 percent for each 
                        State; and
                            (ii) not less than 0.25 percent for 
                        American Samoa, Guam, the Northern Mariana 
                        Islands, and the United States Virgin Islands, 
                        respectively.
                    (D) Allocation to metropolitan cities and urban 
                counties.--
                            (i) Allocation percentage.--The balance of 
                        the total amount appropriated for grants to 
                        States under this subsection after allocations 
                        have been made to Indian tribes, rural States, 
                        and the minimum amount to each State pursuant 
                        to subparagraphs (A) through (C), shall be 
                        allocated by the Secretary to metropolitan 
                        cities and urban counties.
                    (E) Computation of amount allocated to metropolitan 
                cities.--
                            (i) Computation ratios.--The Secretary 
                        shall determine the amount to be allocated to 
                        each metropolitan city, which shall bear the 
                        same ratio to the allocation for all 
                        metropolitan cities as the weighted average 
                        of--
                                    (I) the population of the 
                                metropolitan city divided by the 
                                population of all metropolitan cities;
                                    (II) the potential chemical 
                                security risk of the metropolitan city 
                                divided by the potential chemical 
                                security risk of all metropolitan 
                                cities;
                                    (III) the proximity of the 
                                metropolitan city to the nearest 
                                operating nuclear power plant compared 
                                to the proximity of all metropolitan 
                                cities to the nearest operating nuclear 
                                power plant to each such city;
                                    (IV) the proximity of the 
                                metropolitan cities to the nearest 
                                United States land or water port 
                                compared with the proximity of all 
                                metropolitan cities to the nearest 
                                United States land or water port to 
                                each such city;
                                    (V) the proximity of the 
                                metropolitan city to the nearest 
                                international border compared with the 
                                proximity of all metropolitan cities to 
                                the nearest international border to 
                                each such city; and
                                    (VI) the proximity of the 
                                metropolitan city to the nearest 
                                Disaster Medical Assistance Team 
                                (referred to in this subsection as 
                                ``DMAT'') compared with the proximity 
                                of all metropolitan cities to the 
                                nearest DMAT to each such city.
                            (ii) Clarification of computation ratios.--
                                    (I) Relative weight of factor.--In 
                                determining the average of the ratios 
                                under clause (i)--
                                            (aa) the ratio involving 
                                        population shall constitute 50 
                                        percent of the formula in 
                                        calculating the allocation; and
                                            (bb) the remaining factors 
                                        shall be equally weighted.
                                    (II) Potential chemical security 
                                risk.--If a metropolitan city is within 
                                the vulnerable zone of a worst-case 
                                chemical release (as specified in the 
                                most recent risk management plans filed 
                                with the Environmental Protection 
                                Agency, or another instrument developed 
                                by the Environmental Protection Agency 
                                or the Homeland Security Department 
                                that captures the same information for 
                                the same facilities), the ratio under 
                                clause (i)(II) shall be 1 divided by 
                                the total number of metropolitan cities 
                                that are within such a zone.
                                    (III) Proximity as it pertains to 
                                nuclear security.--If a metropolitan 
                                city is located within 50 miles of an 
                                operating nuclear power plant (as 
                                identified by the Nuclear Regulatory 
                                Commission), the ratio under clause 
                                (i)(III) shall be 1 divided by the 
                                total number of metropolitan cities, 
                                not to exceed 100, which are located 
                                within 50 miles of an operating nuclear 
                                power plant.
                                    (IV) Proximity as it pertains to 
                                port security.--If a metropolitan city 
                                is located within 50 miles of 1 of the 
                                100 largest United States ports (as 
                                stated by the Department of 
                                Transportation, Bureau of 
                                Transportation Statistics, United 
                                States Port Report by All Land Modes), 
                                or within 50 miles of 1 of the 30 
                                largest United States water ports by 
                                metric tons and value (as stated by the 
                                Department of Transportation, Maritime 
                                Administration, United States Foreign 
                                Waterborne Transportation Statistics), 
                                the ratio under clause (i)(IV) shall be 
                                1 divided by the total number of 
                                metropolitan cities that are located 
                                within 50 miles of a United States land 
                                or water port.
                                    (V) Proximity to international 
                                border.--If a metropolitan city is 
                                located within 50 miles of an 
                                international border, the ratio under 
                                clause (i)(V) shall be 1 divided by the 
                                total number of metropolitan cities 
                                that are located within 50 miles of an 
                                international border.
                                    (VI) Proximity to disaster medical 
                                assistance team.--If a metropolitan 
                                city is located within 50 miles of a 
                                DMAT, as organized by the National 
                                Disaster Medical System, the ratio 
                                under clause (i)(VI) shall be 1 divided 
                                by the total number of metropolitan 
                                cities that are located within 50 miles 
                                of a DMAT.
                    (F) Computation of amount allocated to urban 
                counties.--
                            (i) Computation ratios.--The Secretary 
                        shall determine the amount to be allocated to 
                        each urban county, which shall bear the same 
                        ratio to the allocation for all urban counties 
                        as the weighted average of--
                                    (I) the population of the urban 
                                county divided by the population of all 
                                urban counties;
                                    (II) the potential chemical 
                                security risk of the urban county 
                                divided by the potential chemical 
                                security risk of all urban counties;
                                    (III) the proximity of the urban 
                                county to the nearest operating nuclear 
                                power plant compared to the proximity 
                                of all urban counties to the nearest 
                                operating nuclear power plant to each 
                                such city;
                                    (IV) the proximity of the urban 
                                counties to the nearest United States 
                                land or water port compared with the 
                                proximity of all urban counties to the 
                                nearest United States land or water 
                                port to each such city;
                                    (V) the proximity of the urban 
                                county to the nearest international 
                                border compared with the proximity of 
                                all urban counties to the nearest 
                                international border to each such city; 
                                and
                                    (VI) the proximity of the urban 
                                county to the nearest Disaster Medical 
                                Assistance Team (referred to in this 
                                subsection as ``DMAT'') compared with 
                                the proximity of all urban counties to 
                                the nearest DMAT to each such city.
                            (ii) Clarification of computation ratios.--
                                    (I) Relative weight of factor.--In 
                                determining the average of the ratios 
                                under clause (i)--
                                            (aa) the ratio involving 
                                        population shall constitute 50 
                                        percent of the formula in 
                                        calculating the allocation; and
                                            (bb) the remaining factors 
                                        shall be equally weighted.
                                    (II) Potential chemical security 
                                risk.--If an urban county is within the 
                                vulnerable zone of a worst-case 
                                chemical release (as specified in the 
                                most recent risk management plans filed 
                                with the Environmental Protection 
                                Agency, or another instrument developed 
                                by the Environmental Protection Agency 
                                or the Homeland Security Department 
                                that captures the same information for 
                                the same facilities), the ratio under 
                                clause (i)(II) shall be 1 divided by 
                                the total number of urban counties that 
                                are within such a zone.
                                    (III) Proximity as it pertains to 
                                nuclear security.--If an urban county 
                                is located within 50 miles of an 
                                operating nuclear power plant (as 
                                identified by the Nuclear Regulatory 
                                Commission), the ratio under clause 
                                (i)(III) shall be 1 divided by the 
                                total number of urban counties, not to 
                                exceed 100, which are located within 50 
                                miles of an operating nuclear power 
                                plant.
                                    (IV) Proximity as it pertains to 
                                port security.--If an urban county is 
                                located within 50 miles of 1 of the 100 
                                largest United States ports (as stated 
                                by the Department of Transportation, 
                                Bureau of Transportation Statistics, 
                                United States Port Report by All Land 
                                Modes), or within 50 miles of 1 of the 
                                30 largest United States water ports by 
                                metric tons and value (as stated by the 
                                Department of Transportation, Maritime 
                                Administration, United States Foreign 
                                Waterborne Transportation Statistics), 
                                the ratio under clause (i)(IV) shall be 
                                1 divided by the total number of urban 
                                counties that are located within 50 
                                miles of a United States land or water 
                                port.
                                    (V) Proximity to international 
                                border.--If an urban county is located 
                                within 50 miles of an international 
                                border, the ratio under clause (i)(V) 
                                shall be 1 divided by the total number 
                                of urban counties that are located 
                                within 50 miles of an international 
                                border.
                                    (VI) Proximity to disaster medical 
                                assistance team.--If an urban county is 
                                located within 50 miles of a DMAT, as 
                                organized by the National Disaster 
                                Medical System, the ratio under clause 
                                (i)(VI) shall be 1 divided by the total 
                                number of urban counties that are 
                                located within 50 miles of a DMAT.
                    (G) Exclusions.--
                            (i) In general.--In computing amounts or 
                        exclusions under subparagraph (F) with respect 
                        to any urban county, units of general local 
                        government located in the county shall be 
                        excluded if the populations of such units are 
                        not counted to determine the eligibility of the 
                        urban county to receive a grant under this 
                        subsection.
                            (ii) Independent cities.--
                                    (I) In general.--In computing 
                                amounts under clause (i), there shall 
                                be included any independent city (as 
                                defined by the Bureau of the Census) 
                                which--
                                            (aa) is not part of any 
                                        county;
                                            (bb) is not eligible for a 
                                        grant;
                                            (cc) is contiguous to the 
                                        urban county;
                                            (dd) has entered into 
                                        cooperation agreements with the 
                                        urban county which provide that 
                                        the urban county is to 
                                        undertake or to assist in the 
                                        undertaking of essential 
                                        community development and 
                                        housing assistance activities 
                                        with respect to such 
                                        independent city; and
                                            (ee) is not included as a 
                                        part of any other unit of 
                                        general local government for 
                                        purposes of this subsection.
                                    (II) Limitation.--Any independent 
                                city that is included in the 
                                computation under this clause (i) shall 
                                not be eligible to receive assistance 
                                under this subsection for the fiscal 
                                year for which such computation is used 
                                to allocate such assistance.
                    (H) Inclusion.--
                            (i) Local government straddling county 
                        line.--In computing amounts or exclusions under 
                        subparagraph (F) with respect to any urban 
                        county, all of the area of any unit of local 
                        government shall be included, which is part of, 
                        but is not located entirely within the 
                        boundaries of, such urban county if--
                                    (I) the part of such unit of local 
                                government that is within the 
                                boundaries of such urban county would 
                                otherwise be included in computing the 
                                amount for such urban county under this 
                                paragraph; and
                                    (II) the part of such unit of local 
                                government that is not within the 
                                boundaries of such urban county is not 
                                included as a part of any other unit of 
                                local government for the purpose of 
                                this paragraph.
                            (ii) Use of grant funds outside urban 
                        county.--Any amount received under this 
                        subsection by an urban county described under 
                        clause (i) may be used with respect to the part 
                        of such unit of local government that is 
                        outside the boundaries of such urban county.
                    (I) Population.--
                            (i) Effect of consolidation.--Where data 
                        are available, the amount to be allocated to a 
                        metropolitan city that has been formed by the 
                        consolidation of 1 or more metropolitan cities 
                        within an urban county shall be equal to the 
                        sum of the amounts that would have been 
                        allocated to the urban county or cities and the 
                        balance of the consolidated government if such 
                        consolidation had not occurred.
                            (ii) Limitation.--Clause (i) shall apply 
                        only to a consolidation that--
                                    (I) included all metropolitan 
                                cities that received grants under this 
                                subsection for the fiscal year 
                                preceding such consolidation and that 
                                were located within the urban county;
                                    (II) included the entire urban 
                                county that received a grant under this 
                                subsection for the fiscal year 
                                preceding such consolidation; and
                                    (III) took place on or after 
                                January 1, 2003
                            (iii) Growth rate.--The population growth 
                        rate of all metropolitan cities defined in this 
                        subsection shall be based on the population 
                        of--
                                    (I) metropolitan cities other than 
                                consolidated governments the grant for 
                                which is determined under this 
                                paragraph; and
                                    (II) cities that were metropolitan 
                                cities before their incorporation into 
                                consolidated governments.
            (4) Maximum amount per grantee.--
                    (A) In general.--A qualifying State, unit of local 
                government, or Indian tribe may not receive more than 5 
                percent of the total amount appropriated for grants 
                under this section.
                    (B) Aggregate amount per state.--A State, together 
                with the grantees within the State may not receive more 
                than 20 percent of the total amount appropriated for 
                grants under this section.
            (5) Matching funds.--
                    (A) In general.--The portion of the costs of a 
                program provided by a grant under paragraph (1) may not 
                exceed 90 percent.
                    (B) Waiver.--If the Secretary determines that a 
                grantee is experiencing fiscal hardship, the Secretary 
                may waive, in whole or in part, the matching 
                requirement under subparagraph (A).
                    (C) Exception.--Any funds appropriated by Congress 
                for the activities of any agency of an Indian tribal 
                government or the Bureau of Indian Affairs performing 
                law enforcement functions on any Indian lands may be 
                used to provide the non-Federal share of a matching 
                requirement under subparagraph (A).
    (d) Applications.--
            (1) In general.--To request a grant under this section, the 
        chief executive of a State, unit of local government, or Indian 
        tribe shall submit an application to the Secretary of the 
        Bureau of Justice Assistance in such form and containing such 
        information as the Secretary may reasonably require.
            (2) Regulations.--Not later than 90 days after the date of 
        enactment of this Act, the Attorney General shall promulgate 
        regulations to implement this section (including the 
        information that must be included and the requirements that the 
        States, units of local government, and Indian tribes must meet) 
        in submitting the applications required under this section.
    (e) Authorization and Appropriations.--There are authorized to be 
appropriated and are appropriated $5,000,000,000 for fiscal year 2003 
to carry out this section.

SEC. 303. FUNDING FOR EDUCATION.

    (a) Basic Programs Operated by Local Educational Agencies.--In 
addition to amounts appropriated under the Departments of Labor, Health 
and Human Services, and Education, and Related Agencies Appropriations 
Act, 2003, the following sums are appropriated, out of any money in the 
Treasury not otherwise appropriated, for the fiscal year ending 
September 30, 2003, for carrying out part A of title I of the 
Elementary and Secondary Education Act of 1965, $4,250,000,000.  The 
Secretary of Education shall reserve 1 percent of such amount for the 
Secretary of the Interior for programs under part B of title I of such 
Act in schools operated or funded by the Bureau of Indian Affairs.
    (b) High Quality Teachers and Principals.--In addition to amounts 
appropriated under the Departments of Labor, Health and Human Services, 
and Education, and Related Agencies Appropriations Act, 2003, the 
following sums are appropriated, out of any money in the Treasury not 
otherwise appropriated, for the fiscal year ending September 30, 2003, 
for carrying out part A of title II (other than subpart 5) of the 
Elementary and Secondary Education Act of 1965, $550,000,000. The 
Secretary of Education shall reserve 1 percent of such amount for the 
Secretary of the Interior for programs under such part A in schools 
operated or funded by the Bureau of Indian Affairs.
    (c) Language Instruction for Limited English Proficient and 
Immigrant Students.--In addition to amounts appropriated under the 
Departments of Labor, Health and Human Services, and Education, and 
Related Agencies Appropriations Act, 2003, the following sums are 
appropriated, out of any money in the Treasury not otherwise 
appropriated, for the fiscal year ending September 30, 2003, for 
carrying out title III (other than subpart 4 of part B) of the 
Elementary and Secondary Education Act of 1965, $410,000,000. The 
Secretary of Education shall reserve 1 percent of such amount for 
payment of entities under section 3112(a) of such Act.
    (d) 21st Century Community Learning Centers.--In addition to 
amounts appropriated under the Departments of Labor, Health and Human 
Services, and Education, and Related Agencies Appropriations Act, 2003, 
the following sums are appropriated, out of any money in the Treasury 
not otherwise appropriated, for the fiscal year ending September 30, 
2003, for carrying out part B of title IV of the Elementary and 
Secondary Education Act of 1965, $500,000,000. The Secretary of 
Education shall reserve 1 percent of such amount for payments to the 
Bureau of Indian Affairs to enable the Bureau to carry out the purposes 
of such part B.
    (e) Rural Education Initiative.--In addition to amounts 
appropriated under the Departments of Labor, Health and Human Services, 
and Education, and Related Agencies Appropriations Act, 2003, the 
following sums are appropriated, out of any money in the Treasury not 
otherwise appropriated, for the fiscal year ending September 30, 2003, 
for carrying out part B of title VI of the Elementary and Secondary 
Education Act of 1965, $131,000,000.
    (f) Student Financial Assistance.--
            (1) In general.--In addition to amounts appropriated under 
        the Departments of Labor, Health and Human Services, and 
        Education, and Related Agencies Appropriations Act, 2003, the 
        following sums are appropriated, out of any money in the 
        Treasury not otherwise appropriated, for the fiscal year ending 
        September 30, 2003, for carrying out subpart 1 of part A of 
        title IV of the Higher Education Act of 1965, $200,000,000.
            (2) Maximum pell grant.--The maximum Pell Grant for which a 
        student shall be eligible during award year 2003-2004 shall be 
        $4,100.

SEC. 304. TEMPORARY STATE FMAP RELIEF.

    (a) Permitting Maintenance of Fiscal Year 2002 FMAP for Last 3 
Calendar Quarters of Fiscal Year 2003.--Notwithstanding any other 
provision of law, but subject to subsection (e), if the FMAP determined 
without regard to this subsection for a State for fiscal year 2003 is 
less than the FMAP as so determined for fiscal year 2002, the FMAP for 
the State for fiscal year 2002 shall be substituted for the State's 
FMAP for the second, third, and fourth calendar quarters of fiscal year 
2003, before the application of this section.
    (b) Permitting Maintenance of Fiscal Year 2003 FMAP for First 
Calendar Quarter of Fiscal Year 2004.--Notwithstanding any other 
provision of law, but subject to subsection (e), if the FMAP determined 
without regard to this subsection for a State for fiscal year 2004 is 
less than the FMAP as so determined for fiscal year 2003, the FMAP for 
the State for fiscal year 2003 shall be substituted for the State's 
FMAP for the first calendar quarter of fiscal year 2004, before the 
application of this section.
    (c) General 3.76 Percentage Points Increase for Last 3 Calendar 
Quarters of Fiscal Year 2003 and First Calendar Quarter of Fiscal Year 
2004.--Notwithstanding any other provision of law, but subject to 
subsections (e) and (f), for each State for the second, third, and 
fourth calendar quarters of fiscal year 2003 and the first calendar 
quarter of fiscal year 2004, the FMAP (taking into account the 
application of subsections (a) and (b)) shall be increased by 3.76 
percentage points.
    (d) Increase in Cap on Medicaid Payments To Territories.--
Notwithstanding any other provision of law, but subject to subsection 
(f), with respect to the second, third, and fourth calendar quarters of 
fiscal year 2003 and the first calendar quarter of fiscal year 2004, 
the amounts otherwise determined for Puerto Rico, the Virgin Islands, 
Guam, the Northern Mariana Islands, and American Samoa under 
subsections (f) and (g) of section 1108 of the Social Security Act (42 
U.S.C. 1308) shall each be increased by an amount equal to 7.52 percent 
of such amounts.
    (e) Scope of Application.--The increases in the FMAP for a State 
under this section shall apply only for purposes of title XIX of the 
Social Security Act and shall not apply with respect to--
            (1) disproportionate share hospital payments described in 
        section 1923 of such Act (42 U.S.C. 1396r-4);
            (2) payments under title IV or XXI of such Act (42 U.S.C. 
        601 et seq. and 1397aa et seq.); or
            (3) the percentage described in the third sentence of 
        section 1905(b) of the Social Security Act (42 U.S.C. 1396d(b)) 
        (relating to amounts expended as medical assistance for 
        services received through an Indian Health Service facility 
        whether operated by the Indian Health Service or by an Indian 
        tribe or tribal organization (as defined in section 4 of the 
        Indian Health Care Improvement Act)).
    (f) State Eligibility.--
            (1) In general.--Subject to paragraph (2), a State is 
        eligible for an increase in its FMAP under subsection (c) or an 
        increase in a cap amount under subsection (d) only if the 
        eligibility under its State plan under title XIX of the Social 
        Security Act (including any waiver under such title or under 
        section 1115 of such Act (42 U.S.C. 1315)) is no more 
        restrictive than the eligibility under such plan (or waiver) as 
        in effect on July 1, 2003.
            (2) State reinstatement of eligibility permitted.--A State 
        that has restricted eligibility under its State plan under 
        title XIX of the Social Security Act (including any waiver 
        under such title or under section 1115 of such Act (42 U.S.C. 
        1315)) after July 1, 2003, but prior to the date of enactment 
        of this Act is eligible for an increase in its FMAP under 
        subsection (c) or an increase in a cap amount under subsection 
        (d) in the first calendar quarter (and any subsequent calendar 
        quarters) in which the State has reinstated eligibility that is 
        no more restrictive than the eligibility under such plan (or 
        waiver) as in effect on July 1, 2003.
            (3) Rule of construction.--Nothing in paragraph (1) or (2) 
        shall be construed as affecting a State's flexibility with 
        respect to benefits offered under the State medicaid program 
        under title XIX of the Social Security Act (42 U.S.C. 1396 et 
        seq.) (including any waiver under such title or under section 
        1115 of such Act (42 U.S.C. 1315)).
    (g) Definitions.--In this section:
            (1) FMAP.--The term ``FMAP'' means the Federal medical 
        assistance percentage, as defined in section 1905(b) of the 
        Social Security Act (42 U.S.C. 1396d(b)).
            (2) State.--The term ``State'' has the meaning given such 
        term for purposes of title XIX of the Social Security Act (42 
        U.S.C. 1396 et seq.).
    (h) Repeal.--Effective as of January 1, 2004, this section is 
repealed.

SEC. 305. FUNDING FOR TRANSPORTATION INFRASTRUCTURE.

    (a) Highway Programs.--
            (1) Appropriations.--Subject to subsection (d), in addition 
        to amounts appropriated under the Department of Transportation 
        and Related Agencies Appropriations Act, 2003, there are 
        appropriated to the Secretary of Transportation, out of any 
        money in the Treasury not otherwise appropriated, for the 
        fiscal year ending September 30, 2003--
                    (A) $2,480,000,000--
                            (i) to be apportioned among the States in 
                        accordance with the formula specified in 
                        section 104(b)(3) of title 23, United States 
                        Code; and
                            (ii) to be used for projects eligible under 
                        section 133 of that title, without regard to 
                        section 133(d) of that title;
                    (B) $80,000,000, to be used by the Secretary in the 
                same manner as funds are used under section 118(c) of 
                that title, except that section 118(c)(2)(A) of that 
                title shall not apply to funds appropriated under this 
                subparagraph;
                    (C) $80,000,000, to be used by the Secretary in the 
                same manner as funds are used under section 144(g)(2) 
                of that title;
                    (D) $80,000,000, to be used by the Secretary in the 
                same manner as funds are used under subsections (a) 
                through (c) and (e) of section 202 of that title;
                    (E) $80,000,000, to be used by the Secretary in the 
                same manner as funds are used under section 202(d) of 
                that title; and
                    (F) $80,000,000, to be used by the Secretary in the 
                same manner as funds are used under sections 1118 and 
                1119 of the Transportation Equity Act for the 21st 
                Century (23 U.S.C. 101 note; 112 Stat. 161).
            (2) Redistribution of unused obligation authority.--Funds 
        made available under paragraph (1)(A) that are not obligated 
        within 180 days after the date of enactment of this Act shall 
        be redistributed in the manner described in section 1102(d) of 
        the Transportation Equity Act for the 21st Century (23 U.S.C. 
        104 note; 112 Stat. 117).
    (b) Transit Program.--
            (1) Appropriations.--Subject to subsection (d)(1), in 
        addition to amounts appropriated under the Department of 
        Transportation and Related Agencies Appropriations Act, 2003, 
        there are appropriated to the Secretary of Transportation, out 
        of any money in the Treasury not otherwise appropriated, for 
        the fiscal year ending September 30, 2003, $720,000,000--
                    (A) to be distributed between and used for projects 
                eligible under sections 5307 and 5311 of title 49, 
                United States Code, in the same ratio as funds were 
                distributed under section 5338 of that title for fiscal 
                years 1998 through 2003; and
                    (B) to be apportioned among the States in 
                accordance with the formulas specified in sections 5307 
                and 5311 of title 49, United States Code.
            (2) Redistribution of unused obligation authority.--Funds 
        made available under paragraph (1) that are not obligated 
        within 180 days after the date of enactment of this Act shall 
        be redistributed among the States giving priority to those 
        States having large unobligated balances of funds apportioned 
        under sections 5307 and 5311 of title 49, United States Code.
    (c) Airport Programs.--Subject to subsection (d), in addition to 
any amounts appropriated for fiscal year 2003, there is appropriated 
$400,000,000 out of any money in the Treasury not otherwise 
appropriated for the fiscal year ending September 30, 2003, to the 
Secretary of Transportation as discretionary funds to be used by the 
Secretary for grants to make safety and security improvements at 
airports in the same manner as funds are used under subtitle VII of 
title 49, United States Code, except that none of the funds may be used 
to expedite a letter of intent in effect on the date of enactment of 
this Act.
    (d) General Provisions.--Notwithstanding any other provision of 
law--
            (1) the Federal share of the cost of a project carried out 
        with funds made available under this section shall be 100 
        percent; and
            (2) funds made available under subparagraphs (B) through 
        (F) of subsection (a)(1) and under subsection (c) shall be--
                    (A) obligated not later than 180 days after the 
                date of enactment of this Act; and
                    (B) expended as expeditiously as practicable.

                   TITLE IV--UNEMPLOYMENT ASSISTANCE

    Subtitle A--Additional Weeks of Temporary Extended Unemployment 
                              Compensation

SEC. 401. ENTITLEMENT TO ADDITIONAL WEEKS OF TEMPORARY EXTENDED 
              UNEMPLOYMENT COMPENSATION.

    (a) Entitlement to Additional Weeks.--
            (1) In general.--Paragraph (1) of section 203(b) of the 
        Temporary Extended Unemployment Compensation Act of 2002 
        (Public Law 107-147; 116 Stat. 28) is amended--
                    (A) in subparagraph (A), by striking ``50 percent'' 
                and inserting ``100 percent''; and
                    (B) in subparagraph (B), by striking ``13 times'' 
                and inserting ``26 times''.
            (2) Repeal of restriction on augmentation during 
        transitional period.--Section 208(b) of the Temporary Extended 
        Unemployment Compensation Act of 2002 (Public Law 107-147), as 
        amended by Public Law 108-1 (117 Stat. 3), is amended--
                    (A) in paragraph (1)--
                            (i) by striking ``paragraphs (2) and (3)'' 
                        and inserting ``paragraph (2)''; and
                            (ii) by inserting before the period at the 
                        end the following: ``, including such 
                        compensation by reason of amounts deposited in 
                        such account after such date pursuant to the 
                        application of subsection (c) of such 
                        section'';
                    (B) by striking paragraph (2); and
                    (C) by redesignating paragraph (3) as paragraph 
                (2).
            (3) Extension of transition limitation.--Section 208(b)(2) 
        of the Temporary Extended Unemployment Compensation Act of 2002 
        (Public Law 107-147), as amended by Public Law 108-1 (117 Stat. 
        3) and as redesignated by paragraph (2), is amended by striking 
        ``August 30, 2003'' and inserting ``December 31, 2003''.
            (4) Conforming amendment for augmented benefits.--Section 
        203(c)(1) of the Temporary Extended Unemployment Compensation 
        Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended by 
        striking ``the amount originally established in such account 
        (as determined under subsection (b)(1))'' and inserting ``7 
        times the individual's average weekly benefit amount for the 
        benefit year''.
    (b) Effective Date and Application.--
            (1) In general.--The amendments made by subsection (a) 
        shall apply with respect to weeks of unemployment beginning on 
        or after the date of enactment this Act.
            (2) TEUC-X amounts deposited in account prior to date of 
        enactment deemed to be the additional teuc amounts provided by 
        this section.--In applying the amendments made by subsection 
        (a) under the Temporary Extended Unemployment Compensation Act 
        of 2002 (Public Law 107-147; 116 Stat. 26), the Secretary of 
        Labor shall deem any amounts deposited into an individual's 
        temporary extended unemployment compensation account by reason 
        of section 203(c) of such Act (commonly known as ``TEUC-X 
        amounts'') prior to the date of enactment of this Act to be 
        amounts deposited in such account by reason of section 203(b) 
        of such Act, as amended by subsection (a) (commonly known as 
        ``TEUC amounts'').
            (3) Application to exhaustees and current beneficiaries.--
                    (A) Exhaustees.--In the case of any individual--
                            (i) to whom any temporary extended 
                        unemployment compensation was payable for any 
                        week beginning before the date of enactment of 
                        this Act; and
                            (ii) who exhausted such individual's rights 
                        to such compensation (by reason of the payment 
                        of all amounts in such individual's temporary 
                        extended unemployment compensation account) 
                        before such date,
                such individual's eligibility for any additional weeks 
                of temporary extended unemployment compensation by 
                reason of the amendments made by subsection (a) shall 
                apply with respect to weeks of unemployment beginning 
                on or after the date of enactment of this Act.
                    (B) Current beneficiaries.--In the case of any 
                individual--
                            (i) to whom any temporary extended 
                        unemployment compensation was payable for any 
                        week beginning before the date of enactment of 
                        this Act; and
                            (ii) as to whom the condition described in 
                        subparagraph (A)(ii) does not apply,
                such individual shall be eligible for temporary 
                extended unemployment compensation (in accordance with 
                the provisions of the Temporary Extended Unemployment 
                Compensation Act of 2002, as amended by subsection (a)) 
                with respect to weeks of unemployment beginning on or 
                after the date of enactment of this Act.
            (4) Redetermination of eligibility for augmented amounts 
        for individuals for whom such a determination was made prior to 
        the date of enactment.--Any determination of whether the 
        individual's State is in an extended benefit period under 
        section 203(c) of the Temporary Extended Unemployment 
        Compensation Act of 2002 (Public Law 107-147; 116 Stat. 28) 
        made prior to the date of enactment of this Act shall be 
        disregarded and the determination under such section shall be 
        made as follows:
                    (A) Individuals who exhausted 13 teuc and 13 teux-x 
                weeks prior to the date of enactment.--In the case of 
                an individual who, prior to the date of enactment of 
                this Act, received 26 times the individual's average 
                weekly benefit amount through an account established 
                under section 203 of the Temporary Extended 
                Unemployment Compensation Act of 2002 (Public Law 107-
                147; 116 Stat. 28) (by reason of augmentation under 
                subsection (c) of such section), the determination 
                shall be made as of the date of enactment of this Act.
                    (B) All other individuals.--In the case of an 
                individual who is not described in subparagraph (A), 
                the determination shall be made at the time that the 
                individual's account established under such section 
                203, as amended by subsection (a), is exhausted.

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

SEC. 411. FEDERAL-STATE AGREEMENTS.

    (a) In General.--Any State which desires to do so may enter into 
and participate in an agreement under this title with the Secretary of 
Labor (in this title referred to as the ``Secretary''). Any State which 
is a party to an agreement under this title may, upon providing 30 
days' written notice to the Secretary, terminate such agreement.
    (b) Provisions of Agreement.--
            (1) In general.--Subject to paragraph (3), any agreement 
        under subsection (a) shall provide that the State agency of the 
        State, in addition to any amounts of regular compensation to 
        which an individual may be entitled under the State law, shall 
        make payments of temporary enhanced regular unemployment 
        compensation to an individual in an amount and to the extent 
        that the individual would be entitled to regular compensation 
        if the State law were applied with the modifications described 
        in paragraph (2).
            (2) Modifications described.--The modifications described 
        in this paragraph are as follows:
                    (A) In the case of an individual who is not 
                eligible for regular compensation under the State law 
                because of the use of a definition of base period that 
                does not count wages earned in the most recently 
                completed calendar quarter, then eligibility for 
                compensation shall be determined by applying a base 
                period ending at the close of the most recently 
                completed calendar quarter.
                    (B) In the case of an individual who is not 
                eligible for regular compensation under the State law 
                because such individual does not meet requirements 
                relating to availability for work, active search for 
                work, or refusal to accept work, because such 
                individual is seeking, or is available for, less than 
                full-time work, then compensation shall not be denied 
                by such State to an otherwise eligible individual who 
                seeks less than full-time work or fails to accept full-
                time work.
            (3) Reduction of amounts of regular compensation available 
        for individuals who sought part-time work or failed to accept 
        full-time work.--Any agreement under subsection (a) shall 
        provide that the State agency of the State shall reduce the 
        amount of regular compensation available to an individual who 
        has received temporary enhanced regular unemployment 
        compensation as a result of the application of the modification 
        described in paragraph (2)(B) by the amount of such temporary 
        enhanced regular unemployment compensation.
    (c) Coordination Rule.--The modifications described in subsection 
(b)(2) shall also apply in determining the amount of benefits payable 
under any Federal law to the extent that those benefits are determined 
by reference to regular compensation payable under the State law of the 
State involved.

SEC. 412. PAYMENTS TO STATES HAVING AGREEMENTS UNDER THIS TITLE.

    (a) General Rule.--There shall be paid to each State which has 
entered into an agreement under this title an amount equal to--
            (1) 100 percent of any temporary enhanced regular 
        unemployment compensation; and
            (2) 100 percent of any regular compensation which is paid 
        to individuals by such State by reason of the fact that its 
        State law contains provisions comparable to the modifications 
        described in subparagraphs (A) and (B) of section 411(b)(2), 
        but  only to the extent that those amounts would, if such 
amounts were instead payable by virtue of the State law's being deemed 
to be so modified pursuant to section 411(b)(1), have been reimbursable 
under paragraph (1).
    (b) Determination of Amount.--Sums under subsection (a) payable to 
any State by reason of such State having an agreement under this title 
shall be payable, either in advance or by way of reimbursement (as may 
be determined by the Secretary), in such amounts as the Secretary 
estimates the State will be entitled to receive under this title for 
each calendar month, reduced or increased, as the case may be, by any 
amount by which the Secretary finds that the Secretary's estimates for 
any prior calendar month were greater or less than the amounts which 
should have been paid to the State. Such estimates may be made on the 
basis of such statistical, sampling, or other method as may be agreed 
upon by the Secretary and the State agency of the State involved.

SEC. 413. FINANCING PROVISIONS.

    (a) In General.--Funds in the extended unemployment compensation 
account (as established by section 905(a) of the Social Security Act 
(42 U.S.C. 1105(a))), and the Federal unemployment account (as 
established by section 904(g) of such Act (42 U.S.C. 1104(g))), of the 
Unemployment Trust Fund (as established by section 904(a) of such Act 
(42 U.S.C. 1104(a))) shall be used for the making of payments to States 
having agreements entered into under this title.
    (b) Certification.--The Secretary shall from time to time certify 
to the Secretary of the Treasury for payment to each State the sums 
which are payable to such State under this title. The Secretary of the 
Treasury, prior to audit or settlement by the General Accounting 
Office, shall make payments to the State in accordance with such 
certification by transfers from the extended unemployment compensation 
account (as so established), or, to the extent that there are 
insufficient funds in that account, from the Federal unemployment 
account, to the account of such State in the Unemployment Trust Fund 
(as so established).
    (c) Assistance to States.--There are appropriated out of the 
employment security administration account of the Unemployment Trust 
Fund (as established by section 901(a) of the Social Security Act (42 
U.S.C. 1101(a))) $500,000,000 to reimburse States for the costs of the 
administration of agreements under this title (including any 
improvements in technology in connection therewith) and to provide 
reemployment services to unemployment compensation claimants in States 
having agreements under this title. Each State's share of the amount 
appropriated by the preceding sentence shall be determined by the 
Secretary according to the factors described in section 302(a) of the 
Social Security Act (42 U.S.C. 502(a)) and certified by the Secretary 
to the Secretary of the Treasury.
    (d) Appropriations for Certain Payments.--There are appropriated 
from the general fund of the Treasury, without fiscal year limitation, 
to the extended unemployment compensation account (as so established) 
of the Unemployment Trust Fund (as so established) such sums as the 
Secretary estimates to be necessary to make the payments under this 
section in respect of--
            (1) compensation payable under chapter 85 of title 5, 
        United States Code; and
            (2) compensation payable on the basis of services to which 
        section 3309(a)(1) of the Internal Revenue Code of 1986 
        applies.
Amounts appropriated pursuant to the preceding sentence shall not be 
required to be repaid.

SEC. 414. DEFINITIONS.

    For purposes of this title, the terms ``compensation'', ``base 
period'', ``regular compensation'', ``State'', ``State agency'', 
``State law'', and ``week'' have the respective meanings given such 
terms under section 205 of the Federal-State Extended Unemployment 
Compensation Act of 1970.

SEC. 415. APPLICABILITY.

    (a) In General.--Except as provided in subsection (b), an agreement 
entered into under this title shall apply to weeks of unemployment--
            (1) beginning after the date on which such agreement is 
        entered into; and
            (2) ending before July 1, 2004.
    (b) Phase-Out of TERUC.--
            (1) In general.--Subject to paragraph (2), in the case of 
        an individual who has established eligibility for temporary 
        enhanced regular unemployment compensation, but who has not 
        exhausted all rights to such compensation, as of the last day 
        of the week ending before July 1, 2004, such compensation shall 
        continue to be payable to such individual for any week 
        beginning after such date for which the individual meets the 
        eligibility requirements of this title.
            (2) Limitation.--No compensation shall be payable by reason 
        of paragraph (1) for any week beginning after December 31, 
        2004.

SEC. 416. COORDINATION WITH THE TEMPORARY EXTENDED UNEMPLOYMENT 
              COMPENSATION ACT OF 2002.

    (a) In General.--The Temporary Extended Unemployment Compensation 
Act of 2002 (Public Law 107-147; 116 Stat. 30) is amended--
            (1) in section 202(b)(1), by inserting ``, and who have 
        exhausted all rights to temporary enhanced regular unemployment 
        compensation'' before the semicolon at the end;
            (2) in section 202(b)(2), by inserting ``, temporary 
        enhanced regular unemployment compensation,'' after ``regular 
        compensation'';
            (3) in section 202(c), by inserting ``(or, as the case may 
        be, such individual's rights to temporary enhanced regular 
        unemployment compensation)'' after ``State law'' in the matter 
        preceding paragraph (1);
            (4) in section 202(c)(1), by inserting ``and no payments of 
        temporary enhanced regular unemployment compensation can be 
        made'' after ``under such law'';
            (5) in section 202(d)(1), by inserting ``or the amount of 
        any temporary enhanced regular unemployment compensation 
        (including dependents' allowances) payable to such individual 
        for such a week,'' after ``total unemployment'';
            (6) in section 202(d)(2)(A), by inserting ``, or, as the 
        case may be, to temporary enhanced regular unemployment 
        compensation,'' after ``State law'';
            (7) in section 203(b)(1)(A), by inserting ``plus the amount 
        of any temporary enhanced regular unemployment compensation 
        payable to such individual for such week,'' after ``under such 
        law''; and
            (8) in section 203(b)(2), by inserting ``or the amount of 
        any temporary enhanced regular unemployment compensation 
        payable to such individual for such week,'' after ``total 
        unemployment''.
    (b) Amount of TEUC Offset by Amount of TERUC.--Section 203(b)(1) of 
the Temporary Extended Unemployment Compensation Act of 2002 (Public 
Law 107-147; 116 Stat. 28) is amended--
            (1) in subparagraph (B), by striking the period at the end 
        and inserting a comma; and
            (2) by adding at the end the following:
        ``minus the number of weeks in which the individual was 
        entitled to temporary enhanced regular unemployment 
        compensation as a result of the application of the modification 
        described in section 411(b)(2)(A) of the Economic Recovery Act 
        of 2003 (relating to the alternative base period) multiplied by 
        the individual's average weekly benefit amount for the benefit 
        year.''.
    (c) Temporary Enhanced Regular Unemployment Compensation Defined.--
Section 207 of the Temporary Extended Unemployment Compensation Act of 
2002 (Public Law 107-147; 116 Stat. 30) is amended to read as follows:

``SEC. 207. DEFINITIONS.

    ``In this title:
            ``(1) General definitions.--The terms `compensation', 
        `regular compensation', `extended compensation', `additional 
        compensation', `benefit year', `base period', `State', `State 
        agency', `State law', and `week' have the respective meanings 
        given such terms under section 205 of the Federal-State 
        Extended Unemployment Compensation Act of 1970 (26 U.S.C. 3304 
        note).
            ``(2) Temporary enhanced regular unemployment 
        compensation.--The term `temporary enhanced regular 
        unemployment compensation' means temporary enhanced regular 
        unemployment benefits payable under title IV of the Economic 
        Recovery Act of 2003.''.

                  TITLE V--LONG-TERM FISCAL DISCIPLINE

        Subtitle A--Provisions Designed To Curtail Tax Shelters

SEC. 501. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701 is amended by redesignating 
subsection (m) as subsection (n) and by inserting after subsection (l) 
the following new subsection:
    ``(m) Clarification of Economic Substance Doctrine; Etc.--
            ``(1) General rules.--
                    ``(A) In general.--In applying the economic 
                substance doctrine, the determination of whether a 
                transaction has economic substance shall be made as 
                provided in this paragraph.
                    ``(B) Definition of economic substance.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--A transaction has 
                        economic substance only if--
                                    ``(I) the transaction changes in a 
                                meaningful way (apart from Federal tax 
                                effects and, if there is any Federal 
                                tax effects, also apart from any 
                                foreign, State, or local tax effects) 
                                the taxpayer's economic position, and
                                    ``(II) the taxpayer has a 
                                substantial nontax purpose for entering 
                                into such transaction and the 
                                transaction is a reasonable means of 
                                accomplishing such purpose.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance by 
                        reason of having a potential for profit 
                        unless--
                                    ``(I) the present value of the 
                                reasonably expected pre-tax profit from 
                                the transaction is substantial in 
                                relation to the present value of the 
                                expected net tax benefits that would be 
                                allowed if the transaction were 
                                respected, and
                                    ``(II) the reasonably expected pre-
                                tax profit from the transaction exceeds 
                                a risk-free rate of return.
                    ``(C) Treatment of fees and foreign taxes.--Fees 
                and other transaction expenses and foreign taxes shall 
                be taken into account as expenses in determining pre-
                tax profit under subparagraph (B)(ii).
            ``(2) Special rules for transactions with tax-indifferent 
        parties.--
                    ``(A) Special rules for financing transactions.--
                The form of a transaction which is in substance the 
                borrowing of money or the acquisition of financial 
                capital directly or indirectly from a tax-indifferent 
                party shall not be respected if the present value of 
                the deductions to be claimed with respect to the 
                transaction is substantially in excess of the present 
                value of the anticipated economic returns of the person 
                lending the money or providing the financial capital. A 
                public offering shall be treated as a borrowing, or an 
                acquisition of financial capital, from a tax-
                indifferent party if it is reasonably expected that at 
                least 50 percent of the offering will be placed with 
                tax-indifferent parties.
                    ``(B) Artificial income shifting and basis 
                adjustments.--The form of a transaction with a tax-
                indifferent party shall not be respected if--
                            ``(i) it results in an allocation of income 
                        or gain to the tax-indifferent party in excess 
                        of such party's economic income or gain, or
                            ``(ii) it results in a basis adjustment or 
                        shifting of basis on account of overstating the 
                        income or gain of the tax-indifferent party.
            ``(3) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Economic substance doctrine.--The term 
                `economic substance doctrine' means the common law 
                doctrine under which tax benefits under subtitle A with 
                respect to a transaction are not allowable if the 
                transaction does not have economic substance or lacks a 
                business purpose.
                    ``(B) Tax-indifferent party.--The term `tax-
                indifferent party' means any person or entity not 
                subject to tax imposed by subtitle A. A person shall be 
                treated as a tax-indifferent party with respect to a 
                transaction if the items taken into account with 
                respect to the transaction have no substantial impact 
                on such person's liability under subtitle A.
                    ``(C) Exception for personal transactions of 
                individuals.--In the case of an individual, this 
                subsection shall apply only to transactions entered 
                into in connection with a trade or business or an 
                activity engaged in for the production of income.
                    ``(D) Treatment of lessors.--In applying subclause 
                (I) of paragraph (1)(B)(ii) to the lessor of tangible 
                property subject to a lease, the expected net tax 
                benefits shall not include the benefits of 
                depreciation, or any tax credit, with respect to the 
                leased property and subclause (II) of paragraph 
                (1)(B)(ii) shall be disregarded in determining whether 
                any of such benefits are allowable.
            ``(4) Other common law doctrines not affected.--Except as 
        specifically provided in this subsection, the provisions of 
        this subsection shall not be construed as altering or 
        supplanting any other rule of law, and the requirements of this 
        subsection shall be construed as being in addition to any such 
        other rule of law.
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection. Such regulations may include 
        exemptions from the application of this subsection.''
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after February 15, 2004.

SEC. 502. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.

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

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

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

                              ``Sec. 6707A. Penalty for failure to 
                                        include reportable transaction 
                                        information with return or 
                                        statement.''
    (c) Effective Date.--The amendments made by this section shall 
apply to returns and statements the due date for which is after the 
date of the enactment of this Act.

SEC. 503. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER 
              REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX 
              AVOIDANCE PURPOSE.

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

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

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

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

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

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

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

SEC. 504. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

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

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

    ``(a) Imposition of Penalty.--If a taxpayer has an noneconomic 
substance transaction understatement for any taxable year, there shall 
be added to the tax an amount equal to 40 percent of the amount of such 
understatement.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `40 percent' with 
respect to the portion of any noneconomic substance transaction 
understatement with respect to which the relevant facts affecting the 
tax treatment of the item are adequately disclosed in the return or a 
statement attached to the return.
    ``(c) Noneconomic Substance Transaction Understatement.--For 
purposes of this section--
            ``(1) In general.--The term `noneconomic substance 
        transaction understatement' means any amount which would be an 
        understatement under section 6662A(b)(1) if section 6662A were 
        applied by taking into account items attributable to 
        noneconomic substance transactions rather than items to which 
        section 6662A applies.
            ``(2) Noneconomic substance transaction.--The term 
        `noneconomic substance transaction' means any transaction if--
                    ``(A) there is a lack of economic substance (within 
                the meaning of section 7701(m)(1)) for the transaction 
                giving rise to the claimed benefit or the transaction 
                was not respected under section 7701(m)(2), or
                    ``(B) the transaction fails to meet the 
                requirements of any similar rule of law.
    ``(d) Rules Applicable To Compromise of Penalty.--
            ``(1) In general.--If the 1st letter of proposed deficiency 
        which allows the taxpayer an opportunity for administrative 
        review in the Internal Revenue Service Office of Appeals has 
        been sent with respect to a penalty to which this section 
        applies, only the Commissioner of Internal Revenue may 
        compromise all or any portion of such penalty.
            ``(2) Applicable rules.--The rules of paragraphs (2), (3), 
        (4), and (5) of section 6707A(d) shall apply for purposes of 
        paragraph (1).
    ``(e) Coordination With Other Penalties.--Except as otherwise 
provided in this part, the penalty imposed by this section shall be in 
addition to any other penalty imposed by this title.
    ``(f) Cross References.--

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

                              ``Sec. 6662B. Penalty for understatements 
                                        attributable to transactions 
                                        lacking economic substance, 
                                        etc.''
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after February 15, 2004.

SEC. 505. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR 
              NONREPORTABLE TRANSACTIONS.

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

SEC. 506. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING 
              TO TAXPAYER COMMUNICATIONS.

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

SEC. 507. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

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

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

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

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

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

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

                              ``Sec. 6708. Failure to maintain lists of 
                                        advisees with respect to 
                                        reportable transactions.''
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions with respect to which material aid, assistance, 
or advice referred to in section 6111(b)(1)(A)(i) of the Internal 
Revenue Code of 1986 (as added by this section) is provided after the 
date of the enactment of this Act.

SEC. 508. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX 
              SHELTERS.

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

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

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

SEC. 509. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF 
              INVESTORS.

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

SEC. 510. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO 
              TAX SHELTERS AND REPORTABLE TRANSACTIONS.

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

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

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

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

SEC. 511. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN 
              PREPARER.

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

SEC. 512. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL 
              ACCOUNTS.

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

SEC. 513. FRIVOLOUS TAX SUBMISSIONS.

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

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

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

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

SEC. 514. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF 
              TREASURY.

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

SEC. 515. PENALTY ON PROMOTERS OF TAX SHELTERS.

    (a) Penalty on Promoting Abusive Tax Shelters.--Section 6700(a) is 
amended by adding at the end the following new sentence: 
``Notwithstanding the first sentence, if an activity with respect to 
which a penalty imposed under this subsection involves a statement 
described in paragraph (2)(A), the amount of the penalty shall be equal 
to 50 percent of the gross income derived (or to be derived) from such 
activity by the person on which the penalty is imposed.''
    (b) Effective Date.--The amendment made by this section shall apply 
to activities after the date of the enactment of this Act.

SEC. 516. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH LISTED 
              TRANSACTIONS NOT REPORTED.

    (a) In General.--Section 6501(e)(1) (relating to substantial 
omission of items for income taxes) is amended by adding at the end the 
following new subparagraph:
                    ``(C) Listed transactions.--If a taxpayer fails to 
                include on any return or statement for any taxable year 
                any information with respect to a listed transaction 
                (as defined in section 6707A(c)(2)) which is required 
                under section 6011 to be included with such return or 
                statement, the tax for such taxable year may be 
                assessed, or a proceeding in court for collection of 
                such tax may be begun without assessment, at any time 
                within 6 years after the time the return is filed. This 
                subparagraph shall not apply to any taxable year if the 
                time for assessment or beginning the proceeding in 
                court has expired before the time a transaction is 
                treated as a listed transaction under section 6011.''
    (b) Effective Date.--The amendment made by this section shall apply 
to transactions in taxable years beginning after the date of the 
enactment of this Act.

SEC. 517. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND NONECONOMIC 
              SUBSTANCE TRANSACTIONS.

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

SEC. 518. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW ENFORCEMENT.

    There is authorized to be appropriated $300,000,000 for each fiscal 
year beginning after September 30, 2002, for the purpose of carrying 
out tax law enforcement to combat tax avoidance transactions and other 
tax shelters, including the use of offshore financial accounts to 
conceal taxable income.

                      Subtitle B--Other Provisions

SEC. 521. 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. 522. 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 sentence 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. 523. DISCLOSURE OF TAX SHELTERS TO CORPORATE AUDIT COMMITTEE.

    (a) In General.--Subchapter B of chapter 61 (relating to 
information and returns) is amended by inserting after section 6111 the 
following new section:

``SEC. 6111A. DISCLOSURE OF REPORTABLE TRANSACTIONS TO CORPORATE AUDIT 
              COMMITTEE.

    ``If a corporation is required under section 6011 to include on any 
return or statement any information with respect to a reportable 
transaction (as defined in section 6707A(c)), 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) shall disclose such information in a statement to 
the audit committee of the board of directors of such corporation or 
any similar committee or entity performing auditing functions on behalf 
of such corporation.''.
    (b) Penalty for Failure to Disclose.--Section 6707A(a) (relating to 
penalty for failure to include reportable transaction information with 
return or statement) is amended by inserting ``, or fails to file a 
statement required under section 6111A,'' before ``shall pay''.
    (c) Clerical Amendment.--The table of sections for subchapter B of 
chapter 61 is amended by inserting after the item relating to section 
6111 the following new item:

                              ``Sec. 6111A. Disclosure of reportable 
                                        transactions to corporate audit 
                                        committee.''
    (d) 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 C--Budget Points of Order

SEC. 531. EXTENSION OF PAY-AS-YOU-GO ENFORCEMENT IN THE SENATE.

    Section 2 of Senate Resolution 304 (107th Congress) is amended--
            (1) in subsection (a)(1), by striking ``April 15, 2003'' 
        and inserting ``the end of the 108th Congress''; and
            (2) in subsection (b)(1)(B), by striking ``April 15, 2003'' 
        and inserting ``at the end of the 108th Congress''.
                                 <all>