[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4297 Enrolled Bill (ENR)]


        H.R.4297

                       One Hundred Ninth Congress

                                 of the

                        United States of America


                          AT THE SECOND SESSION

          Begun and held at the City of Washington on Tuesday,
             the third day of January, two thousand and six


                                 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 Increase 
Prevention and 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--EXTENSION AND MODIFICATION OF CERTAIN PROVISIONS

Sec. 101. Increased expensing for small business.
Sec. 102. Capital gains and dividends rates.
Sec. 103. Controlled foreign corporations.

                       TITLE II--OTHER PROVISIONS

Sec. 201. Clarification of taxation of certain settlement funds.
Sec. 202. Modification of active business definition under section 355.
Sec. 203. Veterans' mortgage bonds.
Sec. 204. Capital gains treatment for certain self-created musical 
          works.
Sec. 205. Vessel tonnage limit.
Sec. 206. Modification of special arbitrage rule for certain funds.
Sec. 207. Amortization of expenses incurred in creating or acquiring 
          music or music copyrights.
Sec. 208. Modification of effective date of disregard of certain capital 
          expenditures for purposes of qualified small issue bonds.
Sec. 209. Modification of treatment of loans to qualified continuing 
          care facilities.

                TITLE III--ALTERNATIVE MINIMUM TAX RELIEF

Sec. 301. Increase in alternative minimum tax exemption amount for 2006.
Sec. 302. Allowance of nonrefundable personal credits against regular 
          and alternative minimum tax liability.

              TITLE IV--CORPORATE ESTIMATED TAX PROVISIONS

Sec. 401. Time for payment of corporate estimated taxes.

                   TITLE V--REVENUE OFFSET PROVISIONS

Sec. 501. Application of earnings stripping rules to partners which are 
          corporations.
Sec. 502. Reporting of interest on tax-exempt bonds.
Sec. 503. 5-year amortization of geological and geophysical expenditures 
          for certain major integrated oil companies.
Sec. 504. Application of FIRPTA to regulated investment companies.
Sec. 505. Treatment of distributions attributable to FIRPTA gains.
Sec. 506. Prevention of avoidance of tax on investments of foreign 
          persons in United States real property through wash sale 
          transactions.
Sec. 507. Section 355 not to apply to distributions involving 
          disqualified investment companies.
Sec. 508. Loan and redemption requirements on pooled financing 
          requirements.
Sec. 509. Partial payments required with submission of offers-in-
          compromise.
Sec. 510. Increase in age of minor children whose unearned income is 
          taxed as if parent's income.
Sec. 511. Imposition of withholding on certain payments made by 
          government entities.
Sec. 512. Conversions to Roth IRAs.
Sec. 513. Repeal of FSC/ETI binding contract relief.
Sec. 514. Only wages attributable to domestic production taken into 
          account in determining deduction for domestic production.
Sec. 515. Modification of exclusion for citizens living abroad.
Sec. 516. Tax involvement of accommodation parties in tax shelter 
          transactions.

       TITLE I--EXTENSION AND MODIFICATION OF CERTAIN PROVISIONS

SEC. 101. INCREASED EXPENSING FOR SMALL BUSINESS.

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

SEC. 102. 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. 103. 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.--
        (1) In general.--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.''.
        (2) Effective date.--The amendment made by this subsection 
    shall apply to taxable years of foreign corporations beginning 
    after December 31, 2005, and to taxable years of United States 
    shareholders with or within which such taxable years of foreign 
    corporations end.

                       TITLE II--OTHER PROVISIONS

SEC. 201. 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. 202. 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 on or 
        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 on 
        or before the date of the enactment of this paragraph as a 
        result of an acquisition, disposition, or other restructuring 
        after such date and on or before December 31, 2010, such 
        distribution shall be treated as made on the date of such 
        acquisition, disposition, or restructuring for purposes of 
        applying subparagraphs (A) through (C) of this paragraph.''.

SEC. 203. VETERANS' MORTGAGE BONDS.

    (a) Expansion of Definition of 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 to read as follows:
        ``(4) Qualified veteran.--For purposes of this subsection, the 
    term `qualified veteran' means--
            ``(A) in the case of the States of Alaska, Oregon, and 
        Wisconsin, any veteran--
                ``(i) who served on active duty, and
                ``(ii) who applied for the financing before the date 25 
            years after the last date on which such veteran left active 
            service, and
            ``(B) in the case of any other State, any veteran--
                ``(i) who served on active duty at some time before 
            January 1, 1977, and
                ``(ii) who applied for the financing before the later 
            of--

                    ``(I) the date 30 years after the last date on 
                which such veteran left active service, or
                    ``(II) January 31, 1985.''.

        (2) Effective date.--The amendments made by this subsection 
    shall apply to bonds issued on or 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--
            (A) by redesignating clauses (i) and (ii) as subclauses (I) 
        and (II), respectively, and moving such clauses 2 ems to the 
        right,
            (B) by amending the matter preceding subclause (I), as 
        designated by subparagraph (A), to read as follows:
            ``(B) State veterans limit.--
                ``(i) In general.--In the case of any State to which 
            clause (ii) does not apply, the State veterans limit for 
            any calendar year is the amount equal to--'', and
            (C) by adding at the end the following new clauses:
                ``(ii) Alaska, oregon, and wisconsin.--In the case of 
            the following States, the State veterans limit for any 
            calendar year is the amount equal to--

                    ``(I) $25,000,000 for the State of Alaska,
                    ``(II) $25,000,000 for the State of Oregon, and
                    ``(III) $25,000,000 for the State of Wisconsin.

                ``(iii) Phasein.--In the case of calendar years 
            beginning before 2010, clause (ii) shall be applied by 
            substituting for each of the dollar amounts therein an 
            amount equal to the applicable percentage of such dollar 
            amount. For purposes of the preceding sentence, the 
            applicable percentage shall be determined in accordance 
            with the following table:

 
 
                                                  Applicable percentage
              ``For Calendar Year:                         is:
 
2006...........................................               20 percent
2007...........................................               40 percent
2008...........................................               60 percent
2009...........................................              80 percent.
 

                ``(iv) Termination.--The State veterans limit for the 
            States specified in clause (ii) for any calendar year after 
            2010 is zero.''.
        (2) Effective date.--The amendments made by this subsection 
    shall apply to allocations of State volume limit after April 5, 
    2006.

SEC. 204. 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 to musical compositions or copyrights in musical 
    works sold or exchanged before January 1, 2011, 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. 205. 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. 206. 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.

SEC. 207. AMORTIZATION OF EXPENSES INCURRED IN CREATING OR ACQUIRING 
              MUSIC OR MUSIC COPYRIGHTS.

    (a) In General.--Section 167(g) (relating to depreciation under 
income forecast method) is amended by adding at the end the following 
new paragraph:
        ``(8) Special rules for certain musical works and copyrights.--
            ``(A) In general.--If an election is in effect under this 
        paragraph for any taxable year, then, notwithstanding paragraph 
        (1), any expense which--
                ``(i) is paid or incurred by the taxpayer in creating 
            or acquiring any applicable musical property placed in 
            service during the taxable year, and
                ``(ii) is otherwise properly chargeable to capital 
            account,
        shall be amortized ratably over the 5-year period beginning 
        with the month in which the property was placed in service. The 
        preceding sentence shall not apply to any expense which, 
        without regard to this paragraph, would not be allowable as a 
        deduction.
            ``(B) Exclusive method.--Except as provided in this 
        paragraph, no depreciation or amortization deduction shall be 
        allowed with respect to any expense to which subparagraph (A) 
        applies.
            ``(C) Applicable musical property.--For purposes of this 
        paragraph--
                ``(i) In general.--The term `applicable musical 
            property' means any musical composition (including any 
            accompanying words), or any copyright with respect to a 
            musical composition, which is property to which this 
            subsection applies without regard to this paragraph.
                ``(ii) Exceptions.--Such term shall not include any 
            property--

                    ``(I) with respect to which expenses are treated as 
                qualified creative expenses to which section 263A(h) 
                applies,
                    ``(II) to which a simplified procedure established 
                under section 263A(j)(2) applies, or
                    ``(III) which is an amortizable section 197 
                intangible (as defined in section 197(c)).

            ``(D) Election.--An election under this paragraph shall be 
        made at such time and in such form as the Secretary may 
        prescribe and shall apply to all applicable musical property 
        placed in service during the taxable year for which the 
        election applies.
            ``(E) Termination.--An election may not be made under this 
        paragraph for any taxable year beginning after December 31, 
        2010.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to expenses paid or incurred with respect to property placed in 
service in taxable years beginning after December 31, 2005.

SEC. 208. MODIFICATION OF EFFECTIVE DATE OF DISREGARD OF CERTAIN 
              CAPITAL EXPENDITURES FOR PURPOSES OF QUALIFIED SMALL 
              ISSUE BONDS.

    (a) In General.--Section 144(a)(4)(G) is amended by striking 
``September 30, 2009'' and inserting ``December 31, 2006''.
    (b) Conforming Amendment.--Section 144(a)(4)(F) is amended by 
striking ``September 30, 2009'' and inserting ``December 31, 2006''.

SEC. 209. MODIFICATION OF TREATMENT OF LOANS TO QUALIFIED CONTINUING 
              CARE FACILITIES.

    (a) In General.--Section 7872 is amended by redesignating 
subsection (h) as subsection (i) and inserting after subsection (g) the 
following new subsection:
    ``(h) Exception for Loans to Qualified Continuing Care 
Facilities.--
        ``(1) In general.--This section shall not apply for any 
    calendar year to any below-market loan owed by a facility which on 
    the last day of such year is a qualified continuing care facility, 
    if such loan was made pursuant to a continuing care contract and if 
    the lender (or the lender's spouse) attains age 62 before the close 
    of such year.
        ``(2) Continuing care contract.--For purposes of this section, 
    the term `continuing care contract' means a written contract 
    between an individual and a qualified continuing care facility 
    under which--
            ``(A) the individual or individual's spouse may use a 
        qualified continuing care facility for their life or lives,
            ``(B) the individual or individual's spouse will be 
        provided with housing, as appropriate for the health of such 
        individual or individual's spouse--
                ``(i) in an independent living unit (which has 
            additional available facilities outside such unit for the 
            provision of meals and other personal care), and
                ``(ii) in an assisted living facility or a nursing 
            facility, as is available in the continuing care facility, 
            and
            ``(C) the individual or individual's spouse will be 
        provided assisted living or nursing care as the health of such 
        individual or individual's spouse requires, and as is available 
        in the continuing care facility.
    The Secretary shall issue guidance which limits such term to 
    contracts which provide only facilities, care, and services 
    described in this paragraph.
        ``(3) Qualified continuing care facility.--
            ``(A) In general.--For purposes of this section, the term 
        `qualified continuing care facility' means 1 or more 
        facilities--
                ``(i) which are designed to provide services under 
            continuing care contracts,
                ``(ii) which include an independent living unit, plus 
            an assisted living or nursing facility, or both, and
                ``(iii) substantially all of the independent living 
            unit residents of which are covered by continuing care 
            contracts.
            ``(B) Nursing homes excluded.--The term `qualified 
        continuing care facility' shall not include any facility which 
        is of a type which is traditionally considered a nursing home.
        ``(4) Termination.--This subsection shall not apply to any 
    calendar year after 2010.''.
    (b) Conforming Amendments.--
        (1) Section 7872(g) is amended by adding at the end the 
    following new paragraph:
        ``(6) Suspension of application.--Paragraph (1) shall not apply 
    for any calendar year to which subsection (h) applies.''.
        (2) Section 142(d)(2)(B) is amended by striking ``Section 
    7872(g)'' and inserting ``Subsections (g) and (h) of section 
    7872''.
    (c) Effective Date.--The amendment made by this section shall apply 
to calendar years beginning after December 31, 2005, with respect to 
loans made before, on, or after such date.

               TITLE III--ALTERNATIVE MINIMUM TAX RELIEF

SEC. 301. INCREASE IN ALTERNATIVE MINIMUM TAX EXEMPTION AMOUNT FOR 
              2006.

    (a) In General.--Section 55(d)(1) (relating to exemption amount for 
taxpayers other than corporations) is amended--
        (1) by striking ``$58,000'' and all that follows through 
    ``2005'' in subparagraph (A) and inserting ``$62,550 in the case of 
    taxable years beginning in 2006'', and
        (2) by striking ``$40,250'' and all that follows through 
    ``2005'' in subparagraph (B) and inserting ``$42,500 in the case of 
    taxable years beginning in 2006''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 302. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR 
              AND ALTERNATIVE MINIMUM TAX LIABILITY.

    (a) In General.--Paragraph (2) of section 26(a) is amended--
        (1) by striking ``2005'' in the heading thereof and inserting 
    ``2006'', and
        (2) by striking ``or 2005'' and inserting ``2005, or 2006''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

              TITLE IV--CORPORATE ESTIMATED TAX PROVISIONS

SEC. 401. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

    Notwithstanding section 6655 of the Internal Revenue Code of 1986--
        (1) in the case of a corporation with assets of not less than 
    $1,000,000,000 (determined as of the end of the preceding taxable 
    year)--
            (A) the amount of any required installment of corporate 
        estimated tax which is otherwise due in July, August, or 
        September of 2006 shall be 105 percent of such amount,
            (B) the amount of any required installment of corporate 
        estimated tax which is otherwise due in July, August, or 
        September of 2012 shall be 106.25 percent of such amount,
            (C) the amount of any required installment of corporate 
        estimated tax which is otherwise due in July, August, or 
        September of 2013 shall be 100.75 percent of such amount, and
            (D) the amount of the next required installment after an 
        installment referred to in subparagraph (A), (B), or (C) shall 
        be appropriately reduced to reflect the amount of the increase 
        by reason of such subparagraph,
        (2) 20.5 percent of the amount of any required installment of 
    corporate estimated tax which is otherwise due in September 2010 
    shall not be due until October 1, 2010, and
        (3) 27.5 percent of the amount of any required installment of 
    corporate estimated tax which is otherwise due in September 2011 
    shall not be due until October 1, 2011.

                   TITLE V--REVENUE OFFSET PROVISIONS

SEC. 501. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS WHICH ARE 
              CORPORATIONS.

    (a) In General.--Section 163(j) (relating to limitation on 
deduction for interest on certain indebtedness) is amended by 
redesignating paragraph (8) as paragraph (9) and by inserting after 
paragraph (7) the following new paragraph:
        ``(8) Treatment of corporate partners.--Except to the extent 
    provided by regulations, in applying this subsection to a 
    corporation which owns (directly or indirectly) an interest in a 
    partnership--
            ``(A) such corporation's distributive share of interest 
        income paid or accrued to such partnership shall be treated as 
        interest income paid or accrued to such corporation,
            ``(B) such corporation's distributive share of interest 
        paid or accrued by such partnership shall be treated as 
        interest paid or accrued by such corporation, and
            ``(C) such corporation's share of the liabilities of such 
        partnership shall be treated as liabilities of such 
        corporation.''.
    (b) Additional Regulatory Authority.--Section 163(j)(9) (relating 
to regulations), as redesignated by subsection (a), is amended by 
striking ``and'' at the end of subparagraph (B), by striking the period 
at the end of subparagraph (C) and inserting ``, and'', and by adding 
at the end the following new subparagraph:
            ``(D) regulations providing for the reallocation of shares 
        of partnership indebtedness, or distributive shares of the 
        partnership's interest income or interest expense.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning on or after the date of the enactment 
of this Act.

SEC. 502. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.

    (a) In General.--Section 6049(b)(2) (relating to exceptions) is 
amended by striking subparagraph (B) and by redesignating subparagraphs 
(C) and (D) as subparagraphs (B) and (C), respectively.
    (b) Conforming Amendment.--Section 6049(b)(2)(C), as redesignated 
by subsection (a), is amended by striking ``subparagraph (C)'' and 
inserting ``subparagraph (B)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to interest paid after December 31, 2005.

SEC. 503. 5-YEAR AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL 
              EXPENDITURES FOR CERTAIN MAJOR INTEGRATED OIL COMPANIES.

    (a) In General.--Section 167(h) (relating to amortization of 
geological and geophysical expenditures) is amended by adding at the 
end the following new paragraph:
        ``(5) Special rule for major integrated oil companies.--
            ``(A) In general.--In the case of a major integrated oil 
        company, paragraphs (1) and (4) shall be applied by 
        substituting `5-year' for `24 month'.
            ``(B) Major integrated oil company.--For purposes of this 
        paragraph, the term `major integrated oil company' means, with 
        respect to any taxable year, a producer of crude oil--
                ``(i) which has an average daily worldwide production 
            of crude oil of at least 500,000 barrels for the taxable 
            year,
                ``(ii) which had gross receipts in excess of 
            $1,000,000,000 for its last taxable year ending during 
            calendar year 2005, and
                ``(iii) to which subsection (c) of section 613A does 
            not apply by reason of paragraph (4) of section 613A(d), 
            determined--

                    ``(I) by substituting `15 percent' for `5 percent' 
                each place it occurs in paragraph (3) of section 
                613A(d), and
                    ``(II) without regard to whether subsection (c) of 
                section 613A does not apply by reason of paragraph (2) 
                of section 613A(d).

        For purposes of clauses (i) and (ii), all persons treated as a 
        single employer under subsections (a) and (b) of section 52 
        shall be treated as 1 person and, in case of a short taxable 
        year, the rule under section 448(c)(3)(B) shall apply.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred after the date of the enactment of this 
Act.

SEC. 504. APPLICATION OF FIRPTA TO REGULATED INVESTMENT COMPANIES.

    (a) In General.--Subclause (II) of section 897(h)(4)(A)(i) 
(defining qualified investment entity) is amended by inserting ``which 
is a United States real property holding corporation or which would be 
a United States real property holding corporation if the exceptions 
provided in subsections (c)(3) and (h)(2) did not apply to interests in 
any real estate investment trust or regulated investment company'' 
after ``regulated investment company''.
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the provisions of section 411 of the American 
Jobs Creation Act of 2004 to which it relates.

SEC. 505. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA GAINS.

    (a) Qualified Investment Entity.--
        (1) In general.--Section 897(h)(1) is amended--
            (A) by striking ``a nonresident alien individual or a 
        foreign corporation'' in the first sentence and inserting ``a 
        nonresident alien individual, a foreign corporation, or other 
        qualified investment entity'',
            (B) by striking ``such nonresident alien individual or 
        foreign corporation'' in the first sentence and inserting 
        ``such nonresident alien individual, foreign corporation, or 
        other qualified investment entity'', and
            (C) by striking the second sentence and inserting the 
        following new sentence: ``Notwithstanding the preceding 
        sentence, any distribution by a qualified investment entity to 
        a nonresident alien individual or a foreign corporation with 
        respect to any class of stock which is regularly traded on an 
        established securities market located in the United States 
        shall not be treated as gain recognized from the sale or 
        exchange of a United States real property interest if such 
        individual or corporation did not own more than 5 percent of 
        such class of stock at any time during the 1-year period ending 
        on the date of such distribution.''.
        (2) Exception to termination of application of section 897 
    rules to regulated investment companies.--Clause (ii) of section 
    897(h)(4)(A) is amended by adding at the end the following new 
    sentence: ``Notwithstanding the preceding sentence, an entity 
    described in clause (i)(II) shall be treated as a qualified 
    investment entity for purposes of applying paragraphs (1) and (5) 
    and section 1445 with respect to any distribution by the entity to 
    a nonresident alien individual or a foreign corporation which is 
    attributable directly or indirectly to a distribution to the entity 
    from a real estate investment trust.''.
    (b) Withholding on Distributions Treated as Gain From United States 
Real Property Interests.--Section 1445(e) (relating to special rules 
for distributions, etc. by corporations, partnerships, trusts, or 
estates) is amended by redesignating paragraph (6) as paragraph (7) and 
by inserting after paragraph (5) the following new paragraph:
        ``(6) Distributions by regulated investment companies and real 
    estate investment trusts.--If any portion of a distribution from a 
    qualified investment entity (as defined in section 897(h)(4)) to a 
    nonresident alien individual or a foreign corporation is treated 
    under section 897(h)(1) as gain realized by such individual or 
    corporation from the sale or exchange of a United States real 
    property interest, the qualified investment entity shall deduct and 
    withhold under subsection (a) a tax equal to 35 percent (or, to the 
    extent provided in regulations, 15 percent (20 percent in the case 
    of taxable years beginning after December 31, 2010)) of the amount 
    so treated.''.
    (c) Treatment of Certain Distributions as Dividends.--
        (1) In general.--Section 852(b)(3) (relating to capital gains) 
    is amended by adding at the end the following new subparagraph:
            ``(E) Certain distributions.--In the case of a distribution 
        to which section 897 does not apply by reason of the second 
        sentence of section 897(h)(1), the amount of such distribution 
        which would be included in computing long-term capital gains 
        for the shareholder under subparagraph (B) or (D) (without 
        regard to this subparagraph)--
                ``(i) shall not be included in computing such 
            shareholder's long-term capital gains, and
                ``(ii) shall be included in such shareholder's gross 
            income as a dividend from the regulated investment 
            company.''.
        (2) Conforming amendment.--Section 871(k)(2) (relating to 
    short-term capital gain dividends) is amended by adding at the end 
    the following new subparagraph:
            ``(E) Certain distributions.--In the case of a distribution 
        to which section 897 does not apply by reason of the second 
        sentence of section 897(h)(1), the amount which would be 
        treated as a short-term capital gain dividend to the 
        shareholder (without regard to this subparagraph)--
                ``(i) shall not be treated as a short-term capital gain 
            dividend, and
                ``(ii) shall be included in such shareholder's gross 
            income as a dividend from the regulated investment 
            company.''.
    (d) Effective Dates.--The amendments made by this section shall 
apply to taxable years of qualified investment entities beginning after 
December 31, 2005, except that no amount shall be required to be 
withheld under section 1441, 1442, or 1445 of the Internal Revenue Code 
of 1986 with respect to any distribution before the date of the 
enactment of this Act if such amount was not otherwise required to be 
withheld under any such section as in effect before such amendments.

SEC. 506. PREVENTION OF AVOIDANCE OF TAX ON INVESTMENTS OF FOREIGN 
              PERSONS IN UNITED STATES REAL PROPERTY THROUGH WASH SALE 
              TRANSACTIONS.

    (a) In General.--Section 897(h) (relating to special rules for 
certain investment entities) is amended by adding at the end the 
following new paragraph:
        ``(5) Treatment of certain wash sale transactions.--
            ``(A) In general.--If an interest in a domestically 
        controlled qualified investment entity is disposed of in an 
        applicable wash sale transaction, the taxpayer shall, for 
        purposes of this section, be treated as having gain from the 
        sale or exchange of a United States real property interest in 
        an amount equal to the portion of the distribution described in 
        subparagraph (B) with respect to such interest which, but for 
        the disposition, would have been treated by the taxpayer as 
        gain from the sale or exchange of a United States real property 
        interest under paragraph (1).
            ``(B) Applicable wash sales transaction.--For purposes of 
        this paragraph--
                ``(i) In general.--The term `applicable wash sales 
            transaction' means any transaction (or series of 
            transactions) under which a nonresident alien individual, 
            foreign corporation, or qualified investment entity--

                    ``(I) disposes of an interest in a domestically 
                controlled qualified investment entity during the 30-
                day period preceding the ex-dividend date of a 
                distribution which is to be made with respect to the 
                interest and any portion of which, but for the 
                disposition, would have been treated by the taxpayer as 
                gain from the sale or exchange of a United States real 
                property interest under paragraph (1), and
                    ``(II) acquires, or enters into a contract or 
                option to acquire, a substantially identical interest 
                in such entity during the 61-day period beginning with 
                the 1st day of the 30-day period described in subclause 
                (I).

            For purposes of subclause (II), a nonresident alien 
            individual, foreign corporation, or qualified investment 
            entity shall be treated as having acquired any interest 
            acquired by a person related (within the meaning of section 
            267(b) or 707(b)(1)) to the individual, corporation, or 
            entity, and any interest which such person has entered into 
            any contract or option to acquire.
                ``(ii) Application to substitute dividend and similar 
            payments.--Subparagraph (A) shall apply to--

                    ``(I) any substitute dividend payment (within the 
                meaning of section 861), or
                    ``(II) any other similar payment specified in 
                regulations which the Secretary determines necessary to 
                prevent avoidance of the purposes of this paragraph.

            The portion of any such payment treated by the taxpayer as 
            gain from the sale or exchange of a United States real 
            property interest under subparagraph (A) by reason of this 
            clause shall be equal to the portion of the distribution 
            such payment is in lieu of which would have been so treated 
            but for the transaction giving rise to such payment.
                ``(iii) Exception where distribution actually 
            received.--A transaction shall not be treated as an 
            applicable wash sales transaction if the nonresident alien 
            individual, foreign corporation, or qualified investment 
            entity receives the distribution described in clause (i)(I) 
            with respect to either the interest which was disposed of, 
            or acquired, in the transaction.
                ``(iv) Exception for certain publicly traded stock.--A 
            transaction shall not be treated as an applicable wash 
            sales transaction if it involves the disposition of any 
            class of stock in a qualified investment entity which is 
            regularly traded on an established securities market within 
            the United States but only if the nonresident alien 
            individual, foreign corporation, or qualified investment 
            entity did not own more than 5 percent of such class of 
            stock at any time during the 1-year period ending on the 
            date of the distribution described in clause (i)(I).''.
    (b) No Withholding Required.--Section 1445(b) (relating to 
exemptions) is amended by adding at the end the following new 
paragraph:
        ``(8) Applicable wash sales transactions.--No person shall be 
    required to deduct and withhold any amount under subsection (a) 
    with respect to a disposition which is treated as a disposition of 
    a United States real property interest solely by reason of section 
    897(h)(5).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005, except that 
such amendments shall not apply to any distribution, or substitute 
dividend payment, occurring before the date that is 30 days after the 
date of the enactment of this Act.

SEC. 507. SECTION 355 NOT TO APPLY TO DISTRIBUTIONS INVOLVING 
              DISQUALIFIED INVESTMENT COMPANIES.

    (a) In General.--
        Section 355 (relating to distributions of stock and securities 
    of a controlled corporation) is amended by adding at the end the 
    following new subsection:
    ``(g) Section Not to Apply to Distributions Involving Disqualified 
Investment Corporations.--
        ``(1) In general.--This section (and so much of section 356 as 
    relates to this section) shall not apply to any distribution which 
    is part of a transaction if--
            ``(A) either the distributing corporation or controlled 
        corporation is, immediately after the transaction, a 
        disqualified investment corporation, and
            ``(B) any person holds, immediately after the transaction, 
        a 50-percent or greater interest in any disqualified investment 
        corporation, but only if such person did not hold such an 
        interest in such corporation immediately before the 
        transaction.
        ``(2) Disqualified investment corporation.--For purposes of 
    this subsection--
            ``(A) In general.--The term `disqualified investment 
        corporation' means any distributing or controlled corporation 
        if the fair market value of the investment assets of the 
        corporation is--
                ``(i) in the case of distributions after the end of the 
            1-year period beginning on the date of the enactment of 
            this subsection, \2/3\ or more of the fair market value of 
            all assets of the corporation, and
                ``(ii) in the case of distributions during such 1-year 
            period, \3/4\ or more of the fair market value of all 
            assets of the corporation.
            ``(B) Investment assets.--
                ``(i) In general.--Except as otherwise provided in this 
            subparagraph, the term `investment assets' means--

                    ``(I) cash,
                    ``(II) any stock or securities in a corporation,
                    ``(III) any interest in a partnership,
                    ``(IV) any debt instrument or other evidence of 
                indebtedness,
                    ``(V) any option, forward or futures contract, 
                notional principal contract, or derivative,
                    ``(VI) foreign currency, or
                    ``(VII) any similar asset.

                ``(ii) Exception for assets used in active conduct of 
            certain financial trades or businesses.--Such term shall 
            not include any asset which is held for use in the active 
            and regular conduct of--

                    ``(I) a lending or finance business (within the 
                meaning of section 954(h)(4)),
                    ``(II) a banking business through a bank (as 
                defined in section 581), a domestic building and loan 
                association (within the meaning of section 
                7701(a)(19)), or any similar institution specified by 
                the Secretary, or
                    ``(III) an insurance business if the conduct of the 
                business is licensed, authorized, or regulated by an 
                applicable insurance regulatory body.

            This clause shall only apply with respect to any business 
            if substantially all of the income of the business is 
            derived from persons who are not related (within the 
            meaning of section 267(b) or 707(b)(1)) to the person 
            conducting the business.
                ``(iii) Exception for securities marked to market.--
            Such term shall not include any security (as defined in 
            section 475(c)(2)) which is held by a dealer in securities 
            and to which section 475(a) applies.
                ``(iv) Stock or securities in a 20-percent controlled 
            entity.--

                    ``(I) In general.--Such term shall not include any 
                stock and securities in, or any asset described in 
                subclause (IV) or (V) of clause (i) issued by, a 
                corporation which is a 20-percent controlled entity 
                with respect to the distributing or controlled 
                corporation.
                    ``(II) Look-thru rule.--The distributing or 
                controlled corporation shall, for purposes of applying 
                this subsection, be treated as owning its ratable share 
                of the assets of any 20-percent controlled entity.
                    ``(III) 20-percent controlled entity.--For purposes 
                of this clause, the term `20-percent controlled entity' 
                means, with respect to any distributing or controlled 
                corporation, any corporation with respect to which the 
                distributing or controlled corporation owns directly or 
                indirectly stock meeting the requirements of section 
                1504(a)(2), except that such section shall be applied 
                by substituting `20 percent' for `80 percent' and 
                without regard to stock described in section 
                1504(a)(4).

                ``(v) Interests in certain partnerships.--

                    ``(I) In general.--Such term shall not include any 
                interest in a partnership, or any debt instrument or 
                other evidence of indebtedness, issued by the 
                partnership, if 1 or more of the trades or businesses 
                of the partnership are (or, without regard to the 5-
                year requirement under subsection (b)(2)(B), would be) 
                taken into account by the distributing or controlled 
                corporation, as the case may be, in determining whether 
                the requirements of subsection (b) are met with respect 
                to the distribution.
                    ``(II) Look-thru rule.--The distributing or 
                controlled corporation shall, for purposes of applying 
                this subsection, be treated as owning its ratable share 
                of the assets of any partnership described in subclause 
                (I).

        ``(3) 50-percent or greater interest.--For purposes of this 
    subsection--
            ``(A) In general.--The term `50-percent or greater 
        interest' has the meaning given such term by subsection (d)(4).
            ``(B) Attribution rules.--The rules of section 318 shall 
        apply for purposes of determining ownership of stock for 
        purposes of this paragraph.
        ``(4) Transaction.--For purposes of this subsection, the term 
    `transaction' includes a series of transactions.
        ``(5) Regulations.--The Secretary shall prescribe such 
    regulations as may be necessary to carry out, or prevent the 
    avoidance of, the purposes of this subsection, including 
    regulations--
            ``(A) to carry out, or prevent the avoidance of, the 
        purposes of this subsection in cases involving--
                ``(i) the use of related persons, intermediaries, pass-
            thru entities, options, or other arrangements, and
                ``(ii) the treatment of assets unrelated to the trade 
            or business of a corporation as investment assets if, prior 
            to the distribution, investment assets were used to acquire 
            such unrelated assets,
            ``(B) which in appropriate cases exclude from the 
        application of this subsection a distribution which does not 
        have the character of a redemption which would be treated as a 
        sale or exchange under section 302, and
            ``(C) which modify the application of the attribution rules 
        applied for purposes of this subsection.''.
    (b) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to distributions after the date of the enactment of this Act.
        (2) Transition rule.--The amendments made by this section shall 
    not apply to any distribution pursuant to a transaction which is--
            (A) made pursuant to an agreement which was binding on such 
        date of enactment and at all times thereafter,
            (B) described in a ruling request submitted to the Internal 
        Revenue Service on or before such date, or
            (C) described on or before such date in a public 
        announcement or in a filing with the Securities and Exchange 
        Commission.

SEC. 508. LOAN AND REDEMPTION REQUIREMENTS ON POOLED FINANCING 
              REQUIREMENTS.

    (a) Strengthened Reasonable Expectation Requirement.--Subparagraph 
(A) of section 149(f)(2) (relating to reasonable expectation 
requirement) is amended to read as follows:
            ``(A) In general.--The requirements of this paragraph are 
        met with respect to an issue if the issuer reasonably expects 
        that--
                ``(i) as of the close of the 1-year period beginning on 
            the date of issuance of the issue, at least 30 percent of 
            the net proceeds of the issue (as of the close of such 
            period) will have been used directly or indirectly to make 
            or finance loans to ultimate borrowers, and
                ``(ii) as of the close of the 3-year period beginning 
            on such date of issuance, at least 95 percent of the net 
            proceeds of the issue (as of the close of such period) will 
            have been so used.''.
    (b) Written Loan Commitment and Redemption Requirements.--Section 
149(f) (relating to treatment of certain pooled financing bonds) is 
amended by redesignating paragraphs (4) and (5) as paragraphs (6) and 
(7), respectively, and by inserting after paragraph (3) the following 
new paragraphs:
        ``(4) Written loan commitment requirement.--
            ``(A) In general.--The requirement of this paragraph is met 
        with respect to an issue if the issuer receives prior to 
        issuance written loan commitments identifying the ultimate 
        potential borrowers of at least 30 percent of the net proceeds 
        of such issue.
            ``(B) Exception.--Subparagraph (A) shall not apply with 
        respect to any issuer which--
                ``(i) is a State (or an integral part of a State) 
            issuing pooled financing bonds to make or finance loans to 
            subordinate governmental units of such State, or
                ``(ii) is a State-created entity providing financing 
            for water-infrastructure projects through the federally-
            sponsored State revolving fund program.
        ``(5) Redemption requirement.--The requirement of this 
    paragraph is met if to the extent that less than the percentage of 
    the proceeds of an issue required to be used under clause (i) or 
    (ii) of paragraph (2)(A) is used by the close of the period 
    identified in such clause, the issuer uses an amount of proceeds 
    equal to the excess of--
            ``(A) the amount required to be used under such clause, 
        over
            ``(B) the amount actually used by the close of such period,
    to redeem outstanding bonds within 90 days after the end of such 
    period.''.
    (c) Elimination of Disregard of Pooled Bonds in Determining 
Eligibility for Small Issuer Exception to Arbitrage Rebate.--Section 
148(f)(4)(D)(ii) (relating to aggregation of issuers) is amended by 
striking subclause (II) and by redesignating subclauses (III) and (IV) 
as subclauses (II) and (III), respectively.
    (d) Conforming Amendments.--
        (1) Section 149(f)(1) is amended by striking ``paragraphs (2) 
    and (3)'' and inserting ``paragraphs (2), (3), (4), and (5)''.
        (2) Section 149(f)(7)(B), as redesignated by subsection (b), is 
    amended by striking ``paragraph (4)(A)'' and inserting ``paragraph 
    (6)(A)''.
        (3) Section 54(l)(2) is amended by striking ``section 
    149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to bonds issued after the date of the enactment of this Act.

SEC. 509. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF OFFERS-IN-
              COMPROMISE.

    (a) In General.--Section 7122 (relating to compromises) is amended 
by redesignating subsections (c) and (d) as subsections (d) and (e), 
respectively, and by inserting after subsection (b) the following new 
subsection:
    ``(c) Rules for Submission of Offers-in-Compromise.--
        ``(1) Partial payment required with submission.--
            ``(A) Lump-sum offers.--
                ``(i) In general.--The submission of any lump-sum 
            offer-in-compromise shall be accompanied by the payment of 
            20 percent of the amount of such offer.
                ``(ii) Lump-sum offer-in-compromise.--For purposes of 
            this section, the term `lump-sum offer-in-compromise' means 
            any offer of payments made in 5 or fewer installments.
            ``(B) Periodic payment offers.--
                ``(i) In general.--The submission of any periodic 
            payment offer-in-compromise shall be accompanied by the 
            payment of the amount of the first proposed installment.
                ``(ii) Failure to make installment during pendency of 
            offer.--Any failure to make an installment (other than the 
            first installment) due under such offer-in-compromise 
            during the period such offer is being evaluated by the 
            Secretary may be treated by the Secretary as a withdrawal 
            of such offer-in-compromise.
        ``(2) Rules of application.--
            ``(A) Use of payment.--The application of any payment made 
        under this subsection to the assessed tax or other amounts 
        imposed under this title with respect to such tax may be 
        specified by the taxpayer.
            ``(B) Application of user fee.--In the case of any assessed 
        tax or other amounts imposed under this title with respect to 
        such tax which is the subject of an offer-in-compromise to 
        which this subsection applies, such tax or other amounts shall 
        be reduced by any user fee imposed under this title with 
        respect to such offer-in-compromise.
            ``(C) Waiver authority.--The Secretary may issue 
        regulations waiving any payment required under paragraph (1) in 
        a manner consistent with the practices established in 
        accordance with the requirements under subsection (d)(3).''.
    (b) Additional Rules Relating to Treatment of Offers.--
        (1) Unprocessable offer if payment requirements are not met.--
    Paragraph (3) of section 7122(d) (relating to standards for 
    evaluation of offers), as redesignated by subsection (a), is 
    amended by striking ``; and'' at the end of subparagraph (A) and 
    inserting a comma, 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 offer-in-compromise which does not meet the 
        requirements of subparagraph (A)(i) or (B)(i), as the case may 
        be, of subsection (c)(1) may be returned to the taxpayer as 
        unprocessable.''.
        (2) Deemed acceptance of offer not rejected within certain 
    period.--Section 7122, as amended by subsection (a), is amended by 
    adding at the end the following new subsection:
    ``(f) Deemed Acceptance of Offer Not Rejected Within Certain 
Period.--Any offer-in-compromise submitted under this section shall be 
deemed to be accepted by the Secretary if such offer is not rejected by 
the Secretary before the date which is 24 months after the date of the 
submission of such offer. For purposes of the preceding sentence, any 
period during which any tax liability which is the subject of such 
offer-in-compromise is in dispute in any judicial proceeding shall not 
be taken into account in determining the expiration of the 24-month 
period.''.
    (c) Conforming Amendment.--Section 6159(f) is amended by striking 
``section 7122(d)'' and inserting ``section 7122(e)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to offers-in-compromise submitted on and after the date which is 
60 days after the date of the enactment of this Act.

SEC. 510. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED INCOME IS 
              TAXED AS IF PARENT'S INCOME.

    (a) In General.--Section 1(g)(2)(A) (relating to child to whom 
subsection applies) is amended by striking ``age 14'' and inserting 
``age 18''.
    (b) Treatment of Distributions From Qualified Disability Trusts.--
Section 1(g)(4) (relating to net unearned income) is amended by adding 
at the end the following new subparagraph:
            ``(C) Treatment of distributions from qualified disability 
        trusts.--For purposes of this subsection, in the case of any 
        child who is a beneficiary of a qualified disability trust (as 
        defined in section 642(b)(2)(C)(ii)), any amount included in 
        the income of such child under sections 652 and 662 during a 
        taxable year shall be considered earned income of such child 
        for such taxable year.''.
    (c) Conforming Amendment.--Section 1(g)(2) 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 inserting after 
subparagraph (B) the following new subparagraph:
            ``(C) such child does not file a joint return for the 
        taxable year.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 511. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE BY 
              GOVERNMENT ENTITIES.

    (a) In General.--Section 3402 is amended by adding at the end the 
following new subsection:
    ``(t) Extension of Withholding to Certain Payments Made by 
Government Entities.--
        ``(1) General rule.--The Government of the United States, every 
    State, every political subdivision thereof, and every 
    instrumentality of the foregoing (including multi-State agencies) 
    making any payment to any person providing any property or services 
    (including any payment made in connection with a government voucher 
    or certificate program which functions as a payment for property or 
    services) shall deduct and withhold from such payment a tax in an 
    amount equal to 3 percent of such payment.
        ``(2) Property and services subject to withholding.--Paragraph 
    (1) shall not apply to any payment--
            ``(A) except as provided in subparagraph (B), which is 
        subject to withholding under any other provision of this 
        chapter or chapter 3,
            ``(B) which is subject to withholding under section 3406 
        and from which amounts are being withheld under such section,
            ``(C) of interest,
            ``(D) for real property,
            ``(E) to any governmental entity subject to the 
        requirements of paragraph (1), any tax-exempt entity, or any 
        foreign government,
            ``(F) made pursuant to a classified or confidential 
        contract described in section 6050M(e)(3),
            ``(G) made by a political subdivision of a State (or any 
        instrumentality thereof) which makes less than $100,000,000 of 
        such payments annually,
            ``(H) which is in connection with a public assistance or 
        public welfare program for which eligibility is determined by a 
        needs or income test, and
            ``(I) to any government employee not otherwise excludable 
        with respect to their services as an employee.
        ``(3) Coordination with other sections.--For purposes of 
    sections 3403 and 3404 and for purposes of so much of subtitle F 
    (except section 7205) as relates to this chapter, payments to any 
    person for property or services which are subject to withholding 
    shall be treated as if such payments were wages paid by an employer 
    to an employee.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to payments made after December 31, 2010.

SEC. 512. CONVERSIONS TO ROTH IRAS.

    (a) Repeal of Income Limitations.--
        (1) In general.--Paragraph (3) of section 408A(c) (relating to 
    limits based on modified adjusted gross income) is amended by 
    striking subparagraph (B) and redesignating subparagraphs (C) and 
    (D) as subparagraphs (B) and (C), respectively.
        (2) Conforming amendment.--Clause (i) of section 408A(c)(3)(B) 
    (as redesignated by paragraph (1)) is amended by striking ``except 
    that--'' and all that follows and inserting ``except that any 
    amount included in gross income under subsection (d)(3) shall not 
    be taken into account, and''.
    (b) Rollovers to a Roth IRA From an IRA Other Than a Roth IRA.--
        (1) In general.--Clause (iii) of section 408A(d)(3)(A) 
    (relating to rollovers from an IRA other than a Roth IRA) is 
    amended to read as follows:
                ``(iii) unless the taxpayer elects not to have this 
            clause apply, any amount required to be included in gross 
            income for any taxable year beginning in 2010 by reason of 
            this paragraph shall be so included ratably over the 2-
            taxable-year period beginning with the first taxable year 
            beginning in 2011.''.
        (2) Conforming amendments.--
            (A) Clause (i) of section 408A(d)(3)(E) is amended to read 
        as follows:
                ``(i) Acceleration of inclusion.--

                    ``(I) In general.--The amount otherwise required to 
                be included in gross income for any taxable year 
                beginning in 2010 or the first taxable year in the 2-
                year period under subparagraph (A)(iii) shall be 
                increased by the aggregate distributions from Roth IRAs 
                for such taxable year which are allocable under 
                paragraph (4) to the portion of such qualified rollover 
                contribution required to be included in gross income 
                under subparagraph (A)(i).
                    ``(II) Limitation on aggregate amount included.--
                The amount required to be included in gross income for 
                any taxable year under subparagraph (A)(iii) shall not 
                exceed the aggregate amount required to be included in 
                gross income under subparagraph (A)(iii) for all 
                taxable years in the 2-year period (without regard to 
                subclause (I)) reduced by amounts included for all 
                preceding taxable years.''.

            (B) The heading for section 408A(d)(3)(E) is amended by 
        striking ``4-year'' and inserting ``2-year''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2009.

SEC. 513. REPEAL OF FSC/ETI BINDING CONTRACT RELIEF.

    (a) FSC Provisions.--Paragraph (1) of section 5(c) of the FSC 
Repeal and Extraterritorial Income Exclusion Act of 2000 is amended by 
striking ``which occurs--'' and all that follows and inserting ``which 
occurs before January 1, 2002.''.
    (b) ETI Provisions.--Section 101 of the American Jobs Creation Act 
of 2004 is amended by striking subsection (f).
    (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. 514. ONLY WAGES ATTRIBUTABLE TO DOMESTIC PRODUCTION TAKEN INTO 
              ACCOUNT IN DETERMINING DEDUCTION FOR DOMESTIC PRODUCTION.

    (a) In General.--Paragraph (2) of section 199(b) (relating to W-2 
wages) is amended to read as follows:
        ``(2) W-2 wages.--For purposes of this section--
            ``(A) In general.--The term `W-2 wages' means, with respect 
        to any person for any taxable year of such person, the sum of 
        the amounts described in paragraphs (3) and (8) of section 
        6051(a) paid by such person with respect to employment of 
        employees by such person during the calendar year ending during 
        such taxable year.
            ``(B) Limitation to wages attributable to domestic 
        production.--Such term shall not include any amount which is 
        not properly allocable to domestic production gross receipts 
        for purposes of subsection (c)(1).
            ``(C) Return requirement.--Such term shall not include any 
        amount which is not properly included in a return filed with 
        the Social Security Administration on or before the 60th day 
        after the due date (including extensions) for such return.''.
    (b) Simplification of Rules for Determining W-2 Wages of Partners 
and S Corporation Shareholders.--
        (1) In general.--Clause (iii) of section 199(d)(1)(A) is 
    amended to read as follows:
                ``(iii) each partner or shareholder shall be treated 
            for purposes of subsection (b) as having W-2 wages for the 
            taxable year in an amount equal to such person's allocable 
            share of the W-2 wages of the partnership or S corporation 
            for the taxable year (as determined under regulations 
            prescribed by the Secretary).''.
        (2) Conforming amendment.--Paragraph (2) of section 199(a) is 
    amended by striking ``and subsection (d)(1)''.
    (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. 515. MODIFICATION OF EXCLUSION FOR CITIZENS LIVING ABROAD.

    (a) Inflation Adjustment of Foreign Earned Income Limitation.--
Clause (ii) of section 911(b)(2)(D) (relating to inflation adjustment) 
is amended--
        (1) by striking ``2007'' and inserting ``2005'', and
        (2) by striking ``2006'' in subclause (II) and inserting 
    ``2004''.
    (b) Modification of Housing Cost Amount.--
        (1) Modification of housing cost floor.--Clause (i) of section 
    911(c)(1)(B) is amended to read as follows:
                ``(i) 16 percent of the amount (computed on a daily 
            basis) in effect under subsection (b)(2)(D) for the 
            calendar year in which such taxable year begins, multiplied 
            by''.
        (2) Maximum amount of exclusion.--
            (A) In general.--Subparagraph (A) of section 911(c)(1) is 
        amended by inserting ``to the extent such expenses do not 
        exceed the amount determined under paragraph (2)'' after ``the 
        taxable year''.
            (B) Limitation.--Subsection (c) of section 911 is amended 
        by redesignating paragraphs (2) and (3) as paragraphs (3) and 
        (4), respectively, and by inserting after paragraph (1) the 
        following new paragraph:
        ``(2) Limitation.--
            ``(A) In general.--The amount determined under this 
        paragraph is an amount equal to the product of--
                ``(i) 30 percent (adjusted as may be provided under 
            subparagraph (B)) of the amount (computed on a daily basis) 
            in effect under subsection (b)(2)(D) for the calendar year 
            in which the taxable year of the individual begins, 
            multiplied by
                ``(ii) the number of days of such taxable year within 
            the applicable period described in subparagraph (A) or (B) 
            of subsection (d)(1).
            ``(B) Regulations.--The Secretary may issue regulations or 
        other guidance providing for the adjustment of the percentage 
        under subparagraph (A)(i) on the basis of geographic 
        differences in housing costs relative to housing costs in the 
        United States.''.
            (C) Conforming amendments.--
                (i) Section 911(d)(4) is amended by striking ``and 
            (c)(1)(B)(ii)'' and inserting ``, (c)(1)(B)(ii), and 
            (c)(2)(A)(ii)''.
                (ii) Section 911(d)(7) is amended by striking 
            ``subsection (c)(3)'' and inserting ``subsection (c)(4)''.
    (c) Rates of Tax Applicable to Nonexcluded Income.--Section 911 
(relating to exclusion of certain income of citizens and residents of 
the United States living abroad) is amended by redesignating subsection 
(f) as subsection (g) and by inserting after subsection (e) the 
following new subsection:
    ``(f) Determination of Tax Liability on Nonexcluded Amounts.--For 
purposes of this chapter, if any amount is excluded from the gross 
income of a taxpayer under subsection (a) for any taxable year, then, 
notwithstanding section 1 or 55--
        ``(1) the tax imposed by section 1 on the taxpayer for such 
    taxable year shall be equal to the excess (if any) of--
            ``(A) the tax which would be imposed by section 1 for the 
        taxable year if the taxpayer's taxable income were increased by 
        the amount excluded under subsection (a) for the taxable year, 
        over
            ``(B) the tax which would be imposed by section 1 for the 
        taxable year if the taxpayer's taxable income were equal to the 
        amount excluded under subsection (a) for the taxable year, and
        ``(2) the tentative minimum tax under section 55 for such 
    taxable year shall be equal to the excess (if any) of--
            ``(A) the amount which would be such tentative minimum tax 
        for the taxable year if the taxpayer's taxable excess were 
        increased by the amount excluded under subsection (a) for the 
        taxable year, over
            ``(B) the amount which would be such tentative minimum tax 
        for the taxable year if the taxpayer's taxable excess were 
        equal to the amount excluded under subsection (a) for the 
        taxable year.
For purposes of this subsection, the amount excluded under subsection 
(a) shall be reduced by the aggregate amount of any deductions or 
exclusions disallowed under subsection (d)(6) with respect to such 
excluded amount.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 516. TAX INVOLVEMENT OF ACCOMMODATION PARTIES IN TAX SHELTER 
              TRANSACTIONS.

    (a) Imposition of Excise Tax.--
        (1) In general.--Chapter 42 (relating to private foundations 
    and certain other tax-exempt organizations) is amended by adding at 
    the end the following new subchapter:

                ``Subchapter F--Tax Shelter Transactions

``Sec. 4965. Excise tax on certain tax-exempt entities entering into 
          prohibited tax shelter transactions.

``SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES ENTERING INTO 
              PROHIBITED TAX SHELTER TRANSACTIONS.

    ``(a) Being a Party to and Approval of Prohibited Transactions.--
        ``(1) Tax-exempt entity.--
            ``(A) In general.--If a transaction is a prohibited tax 
        shelter transaction at the time any tax-exempt entity described 
        in paragraph (1), (2), or (3) of subsection (c) becomes a party 
        to the transaction, such entity shall pay a tax for the taxable 
        year in which the entity becomes such a party and any 
        subsequent taxable year in the amount determined under 
        subsection (b)(1).
            ``(B) Post-transaction determination.--If any tax-exempt 
        entity described in paragraph (1), (2), or (3) of subsection 
        (c) is a party to a subsequently listed transaction at any time 
        during a taxable year, such entity shall pay a tax for such 
        taxable year in the amount determined under subsection (b)(1).
        ``(2) Entity manager.--If any entity manager of a tax-exempt 
    entity approves such entity as (or otherwise causes such entity to 
    be) a party to a prohibited tax shelter transaction at any time 
    during the taxable year and knows or has reason to know that the 
    transaction is a prohibited tax shelter transaction, such manager 
    shall pay a tax for such taxable year in the amount determined 
    under subsection (b)(2).
    ``(b) Amount of Tax.--
        ``(1) Entity.--In the case of a tax-exempt entity--
            ``(A) In general.--Except as provided in subparagraph (B), 
        the amount of the tax imposed under subsection (a)(1) with 
        respect to any transaction for a taxable year shall be an 
        amount equal to the product of the highest rate of tax under 
        section 11, and the greater of--
                ``(i) the entity's net income (after taking into 
            account any tax imposed by this subtitle (other than by 
            this section) with respect to such transaction) for such 
            taxable year which--

                    ``(I) in the case of a prohibited tax shelter 
                transaction (other than a subsequently listed 
                transaction), is attributable to such transaction, or
                    ``(II) in the case of a subsequently listed 
                transaction, is attributable to such transaction and 
                which is properly allocable to the period beginning on 
                the later of the date such transaction is identified by 
                guidance as a listed transaction by the Secretary or 
                the first day of the taxable year, or

                ``(ii) 75 percent of the proceeds received by the 
            entity for the taxable year which--

                    ``(I) in the case of a prohibited tax shelter 
                transaction (other than a subsequently listed 
                transaction), are attributable to such transaction, or
                    ``(II) in the case of a subsequently listed 
                transaction, are attributable to such transaction and 
                which are properly allocable to the period beginning on 
                the later of the date such transaction is identified by 
                guidance as a listed transaction by the Secretary or 
                the first day of the taxable year.

            ``(B) Increase in tax for certain knowing transactions.--In 
        the case of a tax-exempt entity which knew, or had reason to 
        know, a transaction was a prohibited tax shelter transaction at 
        the time the entity became a party to the transaction, the 
        amount of the tax imposed under subsection (a)(1)(A) with 
        respect to any transaction for a taxable year shall be the 
        greater of--
                ``(i) 100 percent of the entity's net income (after 
            taking into account any tax imposed by this subtitle (other 
            than by this section) with respect to the prohibited tax 
            shelter transaction) for such taxable year which is 
            attributable to the prohibited tax shelter transaction, or
                ``(ii) 75 percent of the proceeds received by the 
            entity for the taxable year which are attributable to the 
            prohibited tax shelter transaction.
        This subparagraph shall not apply to any prohibited tax shelter 
        transaction to which a tax-exempt entity became a party on or 
        before the date of the enactment of this section.
        ``(2) Entity manager.--In the case of each entity manager, the 
    amount of the tax imposed under subsection (a)(2) shall be $20,000 
    for each approval (or other act causing participation) described in 
    subsection (a)(2).
    ``(c) Tax-Exempt Entity.--For purposes of this section, the term 
`tax-exempt entity' means an entity which is--
        ``(1) described in section 501(c) or 501(d),
        ``(2) described in section 170(c) (other than the United 
    States),
        ``(3) an Indian tribal government (within the meaning of 
    section 7701(a)(40)),
        ``(4) described in paragraph (1), (2), or (3) of section 
    4979(e),
        ``(5) a program described in section 529,
        ``(6) an eligible deferred compensation plan described in 
    section 457(b) which is maintained by an employer described in 
    section 4457(e)(1)(A), or
        ``(7) an arrangement described in section 4973(a).
    ``(d) Entity Manager.--For purposes of this section, the term 
`entity manager' means--
        ``(1) in the case of an entity described in paragraph (1), (2), 
    or (3) of subsection (c)--
            ``(A) the person with authority or responsibility similar 
        to that exercised by an officer, director, or trustee of an 
        organization, and
            ``(B) with respect to any act, the person having authority 
        or responsibility with respect to such act, and
        ``(2) in the case of an entity described in paragraph (4), (5), 
    (6), or (7) of subsection (c), the person who approves or otherwise 
    causes the entity to be a party to the prohibited tax shelter 
    transaction.
    ``(e) Prohibited Tax Shelter Transaction; Subsequently Listed 
Transaction.--For purposes of this section--
        ``(1) Prohibited tax shelter transaction.--
            ``(A) In general.--The term `prohibited tax shelter 
        transaction' means--
                ``(i) any listed transaction, and
                ``(ii) any prohibited reportable transaction.
            ``(B) Listed transaction.--The term `listed transaction' 
        has the meaning given such term by section 6707A(c)(2).
            ``(C) Prohibited reportable transaction.--The term 
        `prohibited reportable transaction' means any confidential 
        transaction or any transaction with contractual protection (as 
        defined under regulations prescribed by the Secretary) which is 
        a reportable transaction (as defined in section 6707A(c)(1)).
        ``(2) Subsequently listed transaction.--The term `subsequently 
    listed transaction' means any transaction to which a tax-exempt 
    entity is a party and which is determined by the Secretary to be a 
    listed transaction at any time after the entity has become a party 
    to the transaction. Such term shall not include a transaction which 
    is a prohibited reportable transaction at the time the entity 
    became a party to the transaction.
    ``(f) Regulatory Authority.--The Secretary is authorized to 
promulgate regulations which provide guidance regarding the 
determination of the allocation of net income or proceeds of a tax-
exempt entity attributable to a transaction to various periods, 
including before and after the listing of the transaction or the date 
which is 90 days after the date of the enactment of this section.
    ``(g) Coordination With Other Taxes and Penalties.--The tax imposed 
by this section is in addition to any other tax, addition to tax, or 
penalty imposed under this title.''.
        (2) Conforming amendment.--The table of subchapters for chapter 
    42 is amended by adding at the end the following new item:


               ``Subchapter F. Tax Shelter Transactions.''.

    (b) Disclosure Requirements.--
        (1) Disclosure by entity to the internal revenue service.--
            (A) In general.--Section 6033(a) (relating to organizations 
        required to file) is amended by redesignating paragraph (2) as 
        paragraph (3) and by inserting after paragraph (1) the 
        following new paragraph:
        ``(2) Being a party to certain reportable transactions.--Every 
    tax-exempt entity described in section 4965(c) shall file (in such 
    form and manner and at such time as determined by the Secretary) a 
    disclosure of--
            ``(A) such entity's being a party to any prohibited tax 
        shelter transaction (as defined in section 4965(e)), and
            ``(B) the identity of any other party to such transaction 
        which is known by such tax-exempt entity.''.
            (B) Conforming amendment.--Section 6033(a)(1) is amended by 
        striking ``paragraph (2)'' and inserting ``paragraph (3)''.
        (2) Disclosure by other taxpayers to the tax-exempt entity.--
    Section 6011 (relating to general requirement of return, statement, 
    or list) is amended by redesignating subsection (g) as subsection 
    (h) and by inserting after subsection (f) the following new 
    subsection:
    ``(g) Disclosure of Reportable Transaction to Tax-Exempt Entity.--
Any taxable party to a prohibited tax shelter transaction (as defined 
in section 4965(e)(1)) shall by statement disclose to any tax-exempt 
entity (as defined in section 4965(c)) which is a party to such 
transaction that such transaction is such a prohibited tax shelter 
transaction.''.
    (c) Penalty for Nondisclosure.--
        (1) In general.--Section 6652(c) (relating to returns by exempt 
    organizations and by certain trusts) is amended by redesignating 
    paragraphs (3) and (4) as paragraphs (4) and (5), respectively, and 
    by inserting after paragraph (2) the following new paragraph:
        ``(3) Disclosure under section 6033(a)(2).--
            ``(A) Penalty on entities.--In the case of a failure to 
        file a disclosure required under section 6033(a)(2), there 
        shall be paid by the tax-exempt entity (the entity manager in 
        the case of a tax-exempt entity described in paragraph (4), 
        (5), (6), or (7) of section 4965(c)) $100 for each day during 
        which such failure continues. The maximum penalty under this 
        subparagraph on failures with respect to any 1 disclosure shall 
        not exceed $50,000.
            ``(B) Written demand.--
                ``(i) In general.--The Secretary may make a written 
            demand on any entity or manager subject to penalty under 
            subparagraph (A) specifying therein a reasonable future 
            date by which the disclosure shall be filed for purposes of 
            this subparagraph.
                ``(ii) Failure to comply with demand.--If any entity or 
            manager fails to comply with any demand under clause (i) on 
            or before the date specified in such demand, there shall be 
            paid by such entity or manager failing to so comply $100 
            for each day after the expiration of the time specified in 
            such demand during which such failure continues. The 
            maximum penalty imposed under this subparagraph on all 
            entities and managers for failures with respect to any 1 
            disclosure shall not exceed $10,000.
            ``(C) Definitions.--Any term used in this section which is 
        also used in section 4965 shall have the meaning given such 
        term under section 4965.''.
        (2) Conforming amendment.--Paragraph (1) of section 6652(c) is 
    amended by striking ``6033'' each place it appears in the text and 
    heading thereof and inserting ``6033(a)(1)''.
    (d) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to taxable years ending 
    after the date of the enactment of this Act, with respect to 
    transactions before, on, or after such date, except that no tax 
    under section 4965(a) of the Internal Revenue Code of 1986 (as 
    added by this section) shall apply with respect to income or 
    proceeds that are properly allocable to any period ending on or 
    before the date which is 90 days after such date of enactment.
        (2) Disclosure.--The amendments made by subsections (b) and (c) 
    shall apply to disclosures the due date for which are after the 
    date of the enactment of this Act.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.