[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4297 Engrossed in House (EH)]


109th CONGRESS

  1st Session

                               H. R. 4297

_______________________________________________________________________

                                 AN ACT

    To provide for reconciliation pursuant to section 201(b) of the 
       concurrent resolution on the budget for fiscal year 2006.
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
109th CONGRESS
  1st Session
                                H. R. 4297

_______________________________________________________________________

                                 AN ACT


 
    To provide for reconciliation pursuant to section 201(b) of the 
       concurrent resolution on the budget for fiscal year 2006.

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

SECTION 1. SHORT TITLE, ETC.

    (a) Short Title.--This Act may be cited as the ``Tax Relief 
Extension Reconciliation Act of 2005''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title, etc.
         TITLE I--EXTENSIONS OF CERTAIN PROVISIONS THROUGH 2006

Sec. 101. Allowance of nonrefundable personal credits against regular 
                            and minimum tax liability.
Sec. 102. Tax incentives for business activities on Indian 
                            reservations.
Sec. 103. Work opportunity credit.
Sec. 104. Welfare-to-work credit.
Sec. 105. Deduction for corporate donations of computer technology and 
                            equipment.
Sec. 106. Availability of medical savings accounts.
Sec. 107. 15-year cost recovery for leasehold improvements.
Sec. 108. 15-year cost recovery for restaurant improvements.
Sec. 109. Taxable income limit on percentage depletion for oil and 
                            natural gas produced from marginal 
                            properties.
Sec. 110. District of Columbia Enterprise Zone.
Sec. 111. Possession tax credit with respect to American Samoa.
Sec. 112. Parity in the application of certain limits to mental health 
                            benefits.
Sec. 113. Research credit.
Sec. 114. Qualified Zone Academy Bonds.
Sec. 115. Certain expenses of elementary and secondary school teachers.
Sec. 116. Qualified tuition and related expenses.
Sec. 117. State and local general sales taxes.
 TITLE II--EXTENSIONS OF CERTAIN PROVISIONS FOR 2 ADDITIONAL YEARS AND 
                          OTHER MODIFICATIONS

Sec. 201. Expensing of environmental remediation costs.
Sec. 202. Controlled foreign corporations.
Sec. 203. Capital gains and dividends rates.
Sec. 204. Saver's credit.
Sec. 205. Increased expensing for small business.
                      TITLE III--OTHER PROVISIONS

Sec. 301. Clarification of taxation of certain settlement funds.
Sec. 302. Modification of active business definition under section 355.
Sec. 303. Veterans' mortgage bonds.
Sec. 304. Capital gains treatment for certain self-created musical 
                            works.
Sec. 305. Vessel tonnage limit.
Sec. 306. Modification of special arbitrage rule for certain funds.

         TITLE I--EXTENSIONS OF CERTAIN PROVISIONS THROUGH 2006

SEC. 101. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR 
              AND MINIMUM TAX LIABILITY.

    (a) In General.--Paragraph (2) of section 26(a) (relating to 
special rule for taxable years 2000 through 2005) is amended--
            (1) in the text by striking ``or 2005'' and inserting 
        ``2005, or 2006'', and
            (2) in the heading by striking ``2005'' and inserting 
        ``2006''.
    (b) Conforming Provisions.--
            (1) Subsection (i) of section 904 (relating to coordination 
        with nonrefundable personal credits) is amended by striking 
        ``or 2005'' and inserting ``2005, or 2006''.
            (2) The amendments made by sections 201(b), 202(f), and 
        618(b) of the Economic Growth and Tax Relief Reconciliation Act 
        of 2001 shall not apply to taxable years beginning during 2006.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 102. TAX INCENTIVES FOR BUSINESS ACTIVITIES ON INDIAN 
              RESERVATIONS.

    (a) Indian Employment Tax Credit.--
            (1) In general.--Subsection (f) of section 45A (relating to 
        termination) is amended by striking ``December 31, 2005'' and 
        inserting ``December 31, 2006''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after December 31, 2005.
    (b) Accelerated Depreciation for Business Property on Indian 
Reservations.--
            (1) In general.--Paragraph (8) of section 168(j) (relating 
        to termination) is amended by striking ``December 31, 2005'' 
        and inserting ``December 31, 2006''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply with respect to property placed in service after 
        December 31, 2005.

SEC. 103. WORK OPPORTUNITY CREDIT.

    (a) In General.--Subparagraph (B) of section 51(c)(4) (relating to 
termination) is amended by striking ``December 31, 2005'' and inserting 
``December 31, 2006''.
    (b) Increase in Age Limit for Food Stamp Recipients.--Clause (i) of 
section 51(d)(8)(A) (relating to qualified food stamp recipient) is 
amended by striking ``25'' and inserting ``35''.
    (c) Effective Date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after December 31, 
2005.

SEC. 104. WELFARE-TO-WORK CREDIT.

    (a) In General.--Subsection (f) of section 51A (relating to 
termination) is amended by striking ``December 31, 2005'' and inserting 
``December 31, 2006''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to individuals who begin work for the employer after December 31, 
2005.

SEC. 105. DEDUCTION FOR CORPORATE DONATIONS OF COMPUTER TECHNOLOGY AND 
              EQUIPMENT.

    (a) In General.--Subparagraph (G) of section 170(e)(6) (relating to 
termination) is amended by striking ``December 31, 2005'' and inserting 
``December 31, 2006''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to contributions made in taxable years beginning after December 
31, 2005.

SEC. 106. AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Paragraphs (2) and (3)(B) of section 220(i) 
(defining cut-off year) are each amended by striking ``2005'' each 
place it appears in the text and headings and inserting ``2006''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 220(j) is amended--
                    (A) in the text by striking ``or 2004'' each place 
                it appears and inserting ``2004, or 2005'', and
                    (B) in the heading by striking ``or 2004'' and 
                inserting ``2004, or 2005''.
            (2) Subparagraph (A) of section 220(j)(4) is amended by 
        striking ``and 2004'' and inserting ``2004, and 2005''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.
    (d) Time for Filing Reports, Etc.--
            (1) The report required by section 220(j)(4) of the 
        Internal Revenue Code of 1986 to be made on August 1, 2005, 
        shall be treated as timely if made before the close of the 90-
        day period beginning on the date of the enactment of this Act.
            (2) The determination and publication required by section 
        220(j)(5) of such Code with respect to calendar year 2005 shall 
        be treated as timely if made before the close of the 120-day 
        period beginning on the date of the enactment of this Act. If 
        the determination under the preceding sentence is that 2005 is 
        a cut-off year under section 220(i) of such Code, the cut-off 
        date under such section 220(i) shall be the last day of such 
        120-day period.

SEC. 107. 15-YEAR COST RECOVERY FOR LEASEHOLD IMPROVEMENTS.

    (a) In General.--Clause (iv) of section 168(e)(3)(E) (relating to 
15-year property) is amended by striking ``January 1, 2006'' and 
inserting ``January 1, 2007''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to property placed in service after December 31, 2005.

SEC. 108. 15-YEAR COST RECOVERY FOR RESTAURANT IMPROVEMENTS.

    (a) In General.--Clause (v) of section 168(e)(3)(E) (relating to 
15-year property) is amended by striking ``January 1, 2006'' and 
inserting ``January 1, 2007''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to property placed in service after December 31, 2005.

SEC. 109. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR OIL AND 
              NATURAL GAS PRODUCED FROM MARGINAL PROPERTIES.

    (a) In General.--Subparagraph (H) of section 613A(c)(6) (relating 
to oil and natural gas produced from marginal properties) is amended by 
striking ``January 1, 2006'' and inserting ``January 1, 2007''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2005.

SEC. 110. DISTRICT OF COLUMBIA ENTERPRISE ZONE.

    (a) Period for Which Designation Applicable.--Subsection (f) of 
section 1400 (relating to time for which designation applicable) is 
amended by striking ``December 31, 2005'' both places it appears and 
inserting ``December 31, 2006''.
    (b) Tax-Exempt Economic Development Bonds.--Subsection (b) of 
section 1400A (relating to period of applicability) is amended by 
striking ``December 31, 2005'' and inserting ``December 31, 2006''.
    (c) Zero Percent Capital Gains Rate.--
            (1) In general.--Subsection (b) of section 1400B (relating 
        to DC Zone Asset) is amended by striking ``January 1, 2006'' 
        each place it appears and inserting ``January 1, 2007''.
            (2) Conforming amendments.--
                    (A) Paragraph (2) of section 1400B(e) (relating to 
                gain before 1998 and after 2010 not qualified) is 
                amended--
                            (i) by striking ``December 31, 2010'' and 
                        inserting ``December 31, 2011'', and
                            (ii) by striking ``2010'' in the heading 
                        and inserting ``2011''.
                    (B) Paragraph (2) of section 1400B(g) (relating to 
                sales and exchanges of interests in partnerships and S 
                corporations which are DC Zone businesses) is amended 
                by striking ``December 31, 2010'' and inserting 
                ``December 31, 2011''.
                    (C) Subsection (d) of section 1400F (relating to 
                certain rules to apply) is amended by striking 
                ``December 31, 2010'' and inserting ``December 31, 
                2011''.
    (d) First-Time Homebuyer Credit for District of Columbia.--
Subsection (i) of section 1400C (relating to application of section) is 
amended by striking ``January 1, 2006'' and inserting ``January 1, 
2007''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on January 1, 
        2006.
            (2) Tax-exempt economic development bonds.--The amendment 
        made by subsection (b) shall apply to obligations issued after 
        the date of the enactment of this Act.

SEC. 111. POSSESSION TAX CREDIT WITH RESPECT TO AMERICAN SAMOA.

    (a) In General.--Subparagraph (A) of section 936(j)(8) (relating to 
special rules for certain possessions) is amended by inserting before 
the period at the end the following: ``(before January 1, 2007, in the 
case of American Samoa)''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2005.

SEC. 112. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH 
              BENEFITS.

    (a) In General.--Paragraph (3) of section 9812(f) (relating to 
application of section) is amended by striking ``December 31, 2005'' 
and inserting ``December 31, 2006''.
    (b) Effective Dates.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

SEC. 113. RESEARCH CREDIT.

    (a) Extension.--
            (1) In general.--Subparagraph (B) of section 41(h)(1) 
        (relating to termination) is amended by striking ``December 31, 
        2005'' and inserting ``December 31, 2006''.
            (2) Conforming amendment.--Subparagraph (D) of section 
        45C(b)(1) (relating to special rule) is amended by striking 
        ``December 31, 2005'' and inserting ``December 31, 2006''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid or incurred after December 31, 
        2005.
    (b) Increase in Rates of Alternative Incremental Credit.--
            (1) In general.--Subparagraph (A) of section 41(c)(4) 
        (relating to election of alternative incremental credit) is 
        amended--
                    (A) by striking ``2.65 percent'' and inserting ``3 
                percent'',
                    (B) by striking ``3.2 percent'' and inserting ``4 
                percent'', and
                    (C) by striking ``3.75 percent'' and inserting ``5 
                percent''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to taxable years ending after the date of the 
        enactment of this Act.
    (c) Alternative Simplified Credit for Qualified Research 
Expenses.--
            (1) In general.--Subsection (c) of section 41 (relating to 
        base amount) is amended by redesignating paragraphs (5) and (6) 
        as paragraphs (6) and (7), respectively, and by inserting after 
        paragraph (4) the following new paragraph:
            ``(5) Election of alternative simplified credit.--
                    ``(A) In general.--At the election of the taxpayer, 
                the credit determined under subsection (a)(1) shall be 
                equal to 12 percent of so much of the qualified 
                research expenses for the taxable year as exceeds 50 
                percent of the average qualified research expenses for 
                the 3 taxable years preceding the taxable year for 
                which the credit is being determined.
                    ``(B) Special rule in case of no qualified research 
                expenses in any of 3 preceding taxable years.--
                            ``(i) Taxpayers to which subparagraph 
                        applies.--The credit under this paragraph shall 
                        be determined under this subparagraph if the 
                        taxpayer has no qualified research expenses in 
                        any one of the 3 taxable years preceding the 
                        taxable year for which the credit is being 
                        determined.
                            ``(ii) Credit rate.--The credit determined 
                        under this subparagraph shall be equal to 6 
                        percent of the qualified research expenses for 
                        the taxable year.
                    ``(C) Election.--An election under this paragraph 
                shall apply to the taxable year for which made and all 
                succeeding taxable years unless revoked with the 
                consent of the Secretary. An election under this 
                paragraph may not be made for any taxable year to which 
                an election under paragraph (4) applies.''.
            (2) Coordination with election of alternative incremental 
        credit.--
                    (A) In general.--Section 41(c)(4)(B) (relating to 
                election) is amended by adding at the end the 
                following: ``An election under this paragraph may not 
                be made for any taxable year to which an election under 
                paragraph (5) applies.''.
                    (B) Transition rule.--In the case of an election 
                under section 41(c)(4) of the Internal Revenue Code of 
                1986 which applies to the taxable year which includes 
                the date of the enactment of this Act, such election 
                shall be treated as revoked with the consent of the 
                Secretary of the Treasury if the taxpayer makes an 
                election under section 41(c)(5) of such Code (as added 
                by subsection (a)) for such year.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years ending after the date of the 
        enactment of this Act.

SEC. 114. QUALIFIED ZONE ACADEMY BONDS.

    (a) In General.--Paragraph (1) of section 1397E(e) (relating to 
national limit) is amended by striking ``and 2005'' and inserting 
``2005, and 2006''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to obligations issued after December 31, 2005.

SEC. 115. CERTAIN EXPENSES OF ELEMENTARY AND SECONDARY SCHOOL TEACHERS.

    (a) In General.--Subparagraph (D) of section 62(a)(2) (relating to 
certain expenses of elementary and secondary school teachers) is 
amended by striking ``or 2005'' and inserting ``2005, or 2006''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to expenses paid or incurred in taxable years beginning after 
December 31, 2005.

SEC. 116. QUALIFIED TUITION AND RELATED EXPENSES.

    (a) In General.--Subsection (e) of section 222 (relating to 
termination) is amended by striking ``December 31, 2005'' and inserting 
``December 31, 2006''.
    (b) Limitations.--Paragraph (2) of section 222(b) (relating to 
applicable dollar limit) is amended by striking subparagraphs (A) and 
(B), by redesignating subparagraph (C) as subparagraph (B), and by 
inserting before subparagraph (B) (as so redesignated) the following:
                    ``(A) 2006.--In the case of a taxable year 
                beginning in 2006, the applicable dollar amount shall 
                be equal to--
                            ``(i) in the case of a taxpayer whose 
                        adjusted gross income for the taxable year does 
                        not exceed $65,000 ($130,000 in the case of a 
                        joint return), $4,000,
                            ``(ii) in the case of a taxpayer not 
                        described in clause (i) whose adjusted gross 
                        income for the taxable year does not exceed 
                        $80,000 ($160,000 in the case of a joint 
                        return), $2,000, and
                            ``(iii) in the case of any other taxpayer, 
                        zero.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments made in taxable years beginning after December 31, 
2005.

SEC. 117. STATE AND LOCAL GENERAL SALES TAXES.

    (a) In General.--Subparagraph (I) of section 164(b)(5) (relating to 
application of paragraph) is amended by striking ``January 1, 2006'' 
and inserting ``January 1, 2007''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2005.

 TITLE II--EXTENSIONS OF CERTAIN PROVISIONS FOR 2 ADDITIONAL YEARS AND 
                          OTHER MODIFICATIONS

SEC. 201. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

    (a) Extension of Termination Date.--Subsection (h) of section 198 
(relating to termination) is amended by striking ``December 31, 2005'' 
and inserting ``December 31, 2007''.
    (b) Petroleum Products Treated as Hazardous Substance.--Paragraph 
(1) of section 198(d) (relating to hazardous substance) is amended by 
striking ``and'' at the end of subparagraph (A), by striking the period 
at the end of subparagraph (B) and inserting ``, and'', and by adding 
at the end the following new subparagraph:
                    ``(C) any petroleum product (as defined in section 
                4612(a)(3)).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to expenditures paid or incurred after December 31, 2005.

SEC. 202. CONTROLLED FOREIGN CORPORATIONS.

    (a) Subpart F Exception for Active Financing.--
            (1) Exempt insurance income.--Paragraph (10) of section 
        953(e) (relating to application) is amended--
                    (A) by striking ``January 1, 2007'' and inserting 
                ``January 1, 2009'', and
                    (B) by striking ``December 31, 2006'' and inserting 
                ``December 31, 2008''.
            (2) Exception to treatment as foreign personal holding 
        company income.--Paragraph (9) of section 954(h) (relating to 
        application) is amended by striking ``January 1, 2007'' and 
        inserting ``January 1, 2009''.
    (b) Look-Through Treatment of Payments Between Related Controlled 
Foreign Corporations Under the Foreign Personal Holding Company 
Rules.--Subsection (c) of section 954 (relating to foreign personal 
holding company income) is amended by adding at the end the following 
new paragraph:
            ``(6) Look-thru rule for related controlled foreign 
        corporations.--
                    ``(A) In general.--For purposes of this subsection, 
                dividends, interest, rents, and royalties received or 
                accrued from a controlled foreign corporation which is 
                a related person shall not be treated as foreign 
                personal holding company income to the extent 
                attributable or properly allocable (determined under 
                rules similar to the rules of subparagraphs (C) and (D) 
                of section 904(d)(3)) to income of the related person 
                which is not subpart F income. For purposes of this 
                subparagraph, interest shall include factoring income 
                which is treated as income equivalent to interest for 
                purposes of paragraph (1)(E). The Secretary shall 
                prescribe such regulations as may be appropriate to 
                prevent the abuse of the purposes of this paragraph.
                    ``(B) Application.--Subparagraph (A) shall apply to 
                taxable years of foreign corporations beginning after 
                December 31, 2005, and before January 1, 2009, and to 
                taxable years of United States shareholders with or 
                within which such taxable years of foreign corporations 
                end.''.

SEC. 203. CAPITAL GAINS AND DIVIDENDS RATES.

    Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of 
2003 is amended by striking ``December 31, 2008'' and inserting 
``December 31, 2010''.

SEC. 204. SAVER'S CREDIT.

    Subsection (h) of section 25B (relating to elective deferrals and 
IRA contributions by certain individuals) is amended by striking 
``December 31, 2006'' and inserting ``December 31, 2008''.

SEC. 205. INCREASED EXPENSING FOR SMALL BUSINESS.

    Subsections (b)(1), (b)(2), (b)(5), (c)(2), and (d)(1)(A)(ii) of 
section 179(b) (relating to election to expense certain depreciable 
business assets) are each amended by striking ``2008'' and inserting 
``2010''.

                      TITLE III--OTHER PROVISIONS

SEC. 301. CLARIFICATION OF TAXATION OF CERTAIN SETTLEMENT FUNDS.

    (a) In General.--Subsection (g) of section 468B (relating to 
clarification of taxation of certain funds) is amended to read as 
follows:
    ``(g) Clarification of Taxation of Certain Funds.--
            ``(1) In general.--Except as provided in paragraph (2), 
        nothing in any provision of law shall be construed as providing 
        that an escrow account, settlement fund, or similar fund is not 
        subject to current income tax. The Secretary shall prescribe 
        regulations providing for the taxation of any such account or 
        fund whether as a grantor trust or otherwise.
            ``(2) Exemption from tax for certain settlement funds.--An 
        escrow account, settlement fund, or similar fund shall be 
        treated as beneficially owned by the United States and shall be 
        exempt from taxation under this subtitle if--
                    ``(A) it is established pursuant to a consent 
                decree entered by a judge of a United States District 
                Court,
                    ``(B) it is created for the receipt of settlement 
                payments as directed by a government entity for the 
                sole purpose of resolving or satisfying one or more 
                claims asserting liability under the Comprehensive 
                Environmental Response, Compensation, and Liability Act 
                of 1980,
                    ``(C) the authority and control over the 
                expenditure of funds therein (including the expenditure 
                of contributions thereto and any net earnings thereon) 
                is with such government entity, and
                    ``(D) upon termination, any remaining funds will be 
                disbursed to such government entity for use in 
                accordance with applicable law.
        For purposes of this paragraph, the term `government entity' 
        means the United States, any State or political subdivision 
        thereof, the District of Columbia, any possession of the United 
        States, and any agency or instrumentality of any of the 
        foregoing.
            ``(3) Termination.--Paragraph (2) shall not apply to 
        accounts and funds established after December 31, 2010.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to accounts and funds established after the date of the enactment 
of this Act.

SEC. 302. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER SECTION 355.

    Subsection (b) of section 355 (defining active conduct of a trade 
or business) is amended by adding at the end the following new 
paragraph:
            ``(3) Special rule relating to active business 
        requirement.--
                    ``(A) In general.--In the case of any distribution 
                made after the date of the enactment of this paragraph 
                and before December 31, 2010, a corporation shall be 
                treated as meeting the requirement of paragraph (2)(A) 
                if and only if such corporation is engaged in the 
                active conduct of a trade or business.
                    ``(B) Affiliated group rule.--For purposes of 
                subparagraph (A), all members of such corporation's 
                separate affiliated group shall be treated as one 
                corporation. For purposes of the preceding sentence, a 
                corporation's separate affiliated group is the 
                affiliated group which would be determined under 
                section 1504(a) if such corporation were the common 
                parent and section 1504(b) did not apply.
                    ``(C) Transition rule.--Subparagraph (A) shall not 
                apply to any distribution pursuant to a transaction 
                which is--
                            ``(i) made pursuant to an agreement which 
                        was binding on the date of the enactment of 
                        this paragraph and at all times thereafter,
                            ``(ii) described in a ruling request 
                        submitted to the Internal Revenue Service on or 
                        before such date, or
                            ``(iii) described on or before such date in 
                        a public announcement or in a filing with the 
                        Securities and Exchange Commission.
                The preceding sentence shall not apply if the 
                distributing corporation elects not to have such 
                sentence apply to distributions of such corporation. 
                Any such election, once made, shall be irrevocable.
                    ``(D) Special rule for certain pre-enactment 
                distributions.--For purposes of determining the 
                continued qualification under paragraph (2)(A) of 
                distributions made before the date of the enactment of 
                this paragraph as a result of an acquisition, 
                disposition, or other restructuring after such date and 
                before December 31, 2010, such distribution shall be 
                treated as made after the date of the enactment of this 
                paragraph for purposes of applying subparagraphs (A) 
                through (C) of this paragraph.''.

SEC. 303. VETERANS' MORTGAGE BONDS.

    (a) All Veterans Eligible for State Home Loan Programs Funded by 
Qualified Veterans' Mortgage Bonds.--
            (1) In general.--Paragraph (4) of section 143(l) (defining 
        qualified veteran) is amended--
                    (A) by striking ``at some time before January 1, 
                1977'' in subparagraph (A), and
                    (B) by striking subparagraph (B) and inserting the 
                following:
                    ``(B) who applied for the financing before the date 
                25 years after the last date on which such veteran left 
                active service.''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to financing provided after the date of the 
        enactment of this Act.
    (b) Revision of State Veterans Limit.--
            (1) In general.--Subparagraph (B) of section 143(l)(3) 
        (relating to volume limitation) is amended to read as follows:
                    ``(B) State veterans limit.--
                            ``(i) In general.--A State veterans limit 
                        for any calendar year is the amount equal to--
                                    ``(I) $53,750,000 for the State of 
                                Texas,
                                    ``(II) $66,250,000 for the State of 
                                California,
                                    ``(III) $25,000,000 for the State 
                                of Oregon,
                                    ``(IV) $25,000,000 for the State of 
                                Wisconsin, and
                                    ``(V) $25,000,000 for the State of 
                                Alaska.
                            ``(ii) Phasein.--In the case of calendar 
                        years beginning before 2010, clause (i) shall 
                        be applied by substituting for each of the 
                        dollar amounts therein by the applicable 
                        percentage. For purposes of the preceding 
                        sentence, the applicable percentage shall be 
                        determined in accordance with the following 
                        table:

                                                             Applicable
``Calendar Year:                                         percentage is:
    2006..........................................          20 percent 
    2007..........................................          40 percent 
    2008..........................................          60 percent 
    2009..........................................          80 percent.
                            ``(iii) Termination.--The State veterans 
                        limit for any calendar year after 2010 is 
                        zero.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to bonds issued after December 31, 2005.

SEC. 304. CAPITAL GAINS TREATMENT FOR CERTAIN SELF-CREATED MUSICAL 
              WORKS.

    (a) In General.--Subsection (b) of section 1221 (relating to 
capital asset defined) is amended by redesignating paragraph (3) as 
paragraph (4) and by inserting after paragraph (2) the following new 
paragraph:
            ``(3) Sale or exchange of self-created musical works.--At 
        the election of the taxpayer, paragraphs (1) and (3) of 
        subsection (a) shall not apply with respect to any sale or 
        exchange before January 1, 2011, of musical compositions or 
        copyrights in musical works by a taxpayer described in 
        subsection (a)(3).''.
    (b) Limitation on Charitable Contributions.--Subparagraph (A) of 
section 170(e)(1) is amended by inserting ``(determined without regard 
to section 1221(b)(3))'' after ``long-term capital gain''.
    (c) Effective Date.--The amendments made by this section shall 
apply to sales and exchanges in taxable years beginning after the date 
of the enactment of this Act.

SEC. 305. VESSEL TONNAGE LIMIT.

    (a) In General.--Paragraph (4) of section 1355(a) (relating to 
qualifying vessel) is amended by inserting ``(6,000, in the case of 
taxable years beginning after December 31, 2005, and ending before 
January 1, 2011)'' after ``10,000''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2005.

SEC. 306. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN FUNDS.

    In the case of bonds issued after the date of the enactment of this 
Act and before August 31, 2009--
            (1) the requirement of paragraph (1) of section 648 of the 
        Deficit Reduction Act of 1984 (98 Stat. 941) shall be treated 
        as met with respect to the securities or obligations referred 
        to in such section if such securities or obligations are held 
        in a fund the annual distributions from which cannot exceed 7 
        percent of the average fair market value of the assets held in 
        such fund except to the extent distributions are necessary to 
        pay debt service on the bond issue, and
            (2) paragraph (3) of such section shall be applied by 
        substituting ``distributions from'' for ``the investment 
        earnings of'' both places it appears.

            Passed the House of Representatives December 8, 2005.

            Attest:

                                                                 Clerk.